Universal Robina Corporation: Agriculture

THE COMPANY: Universal Robina Corporation (URC) traces its roots to 1954 when founder John Gokongwei diversified his trading company into corn starch production (United Corn Products) and counts its production of Blend 45, the first domestically manufactured instant coffee, as its first successful venture. URC has since then expanded exponentially and is currently involved in a plethora of food-related businesses, including the manufacture of branded consumer foods, hog and day-old chick production, manufacture of animal and fish feeds, glucose and veterinary compounds, flour milling, and sugar milling and refining.

URC has several branches that provide a variety of products. The Branded Consumer Food Group (BCF) is responsible for the distribution of a diverse mix of snacks, chocolate, candy, biscuits, baked goods, beverages, noodles and tomato-based products. The AgroIndustrial Group handles hog and poultry farming, the manufacture and distribution of animal feeds, glucose and soya products, and the production and distribution of animal health products. The Commodities Group, meanwhile, operates URC’s sugar and flour divisions.

URC is part of the JG Summit (JGS) conglomerate which includes air transport, hotels, banking, telecommunications, petrochemicals, real estate and property development, and food manufacturing businesses BUSINESS PERFORMANCE: During the first nine months of 2011, URC saw revenue growth of 18% but rising costs of commodities impacted on profitability, resulting in a 23.6% decline in net income. Revenue growth was principally driven by the strong performance of its international branded-foods business, as well as the strong growth of the commodity foods group, which largely benefitted from rising sugar demand and prices. However, growth in the domestic branded business segment was modest, with beverages registering soft sales. URC’s operating income decreased by 12.4% to P5.45bn ($123.72m) in the first nine months of 2011.

URC’s branded consumer foods segment, including the packaging division, increased sales of goods and services by P5.49bn ($124.62m) to P37.56bn ($852.61m) in the first three quarters of 2011, a 17.1% improvement over the same period in 2010. The domestic branded operations grew to P21.85bn ($495.99m), up 5% compared to P20.81bn ($472.39m) in the same period of 2010. The domestic snack food business continued to grow, as sales of biscuits, cakes and chocolates registered double-digit growth in the first nine months of 2011.

BCF has continued to grow, particularly in Vietnam and Thailand, where it witnessed growth of 47.4% and 32.7%, respectively. URC continues to build out a successful ASEAN franchise, with international sales growing rapidly in the first nine months of 2011, up 35.3% from P10.65bn ($241.76m) to P14.41bn ($327.11m).

The Commodity Foods Group racked up revenues amounting to P7.93bn ($180.01m) in the third quarter of 2011, up 43.1% over the same period in 2010. The sugar business achieved a sales growth of 74.2%, while flour grew 8.5% as a result of multiple price increases to offset the high cost of wheat in the world market.

URC’s Agro-Industrial Group achieved net sales of P5.1bn ($115.77m) in the first nine months of 2011, a 4.9% decrease from 2010. The sale of feed increased by 22.6% to P2.54bn ($57.66m), while farming declined by 22.2%, due to low volume and falling prices for hogs.

OUTLOOK: Parent holding company JGS expects its international business to be equal in size to its domestic business by 2014 and URC is expected to make a large contribution to this expansion. While rising commodity prices adversely affected the profitability of URC during the earlier part of 2011, falling commodity prices during the last quarter should help contribute to a net income recovery and improve its outlook for 2012. Strong brand recognition, the continued rise in consumption driven by a growing population in the Philippines and ASEAN region, and a highly diversified portfolio that gives URC some breathing room – when one division falters, another one is able to pick up the slack – will support the company’s continued growth.