Universal Robina: Food & beverages

THE COMPANY: Universal Robina (URC) is a core subsidiary of JG Summit Holdings. The company is one of the largest branded food product companies in the Philippines, and it has a growing presence in other Asian markets. URC is involved in a wide range of food-related businesses, including the manufacture and distribution of branded consumer foods; production of pigs and day-old chicks; manufacture and distribution of branded and unbranded animal and fish feeds; glucose and veterinary compounds; flour milling; and sugar milling and refining.

The company is a dominant player with leading market shares in savoury snacks, candies and chocolates, and is a significant player in biscuits, with leading positions in cookies and pretzels. URC is also the largest player in the ready-to-drink (RTD) tea market, and is a moderate player in the coffee business.

1H 2013: For the nine months ending June 30, 2013, URC’s revenues grew by 13% to P60bn ($1.4bn). Sales of Philippine branded consumer foods rose by 22.4% to P30.9bn ($744.6m) on the back of the strong performance of the beverage division (coffee and RTD tea). International branded consumer foods likewise increased by 10.5% to $387m due to the 13.2% hike in sales volume. Vietnam, the biggest market, contributed 44.7% of total international sales, brought about by the continued growth in the RTD tea and energy drink offerings. At the same time, net income attributable to the equity holders of the parent surged by 47% to P8.4bn ($202.4m) due to the following factors: higher revenues; one-time gains from the sale of its investment portfolio; and lower finance costs.

GROWTH DRIVERS: For 2013, URC allotted P5bn ($120.5m) for its capital expenditures. The bulk of the budget will be used for the expansion of its local and overseas food lines, under the company’s Branded Consumer Foods Group. On the other hand, a portion will be used to fund its diversification into fuel ethanol development at its sugar-milling complex in Negros Oriental. URC is also intensifying its Southeast Asian expansion programme, as the company’s net sales for fiscal year 2013 are expected to hit P80.7bn ($1.9bn) from P71.2bn ($1.7bn) the previous year, while cash flow based on earnings before interest and taxes is projected to jump to P10bn ($241m) from P7.8bn ($187.9m). Going forward, the roadmap for the next five to six years is to double the branded food business to $3bn, which would imply an annual growth rate of 12-15%, according to URC vice-president for corporate planning and investor relations chief, Mike Liwanag.

Over the same period, URC also aims to boost its return on equity to 23-25%, up from 17-18% at present. Its biggest overseas market is Vietnam, where it sells $240m worth of products, compared to the $1bn Philippine market, where it has been operating for 53 years. URC estimates that its Vietnam business could hit $1bn in 10 years, based on a growth trajectory of 17% a year.

HIGH TARGETS: The company’s broader strategy is to choose a few segments in each market and aim to be among the top three players in each category. URC is also evaluating merger-and-acquisition opportunities outside the Philippines, although nothing has been finalised currently. Liwanag said that, based on URC’s balance sheet strength, the company could tap acquisitions worth around $500m to $1bn. URC also has about 46m treasury-held shares that could be reissued to the market if it needs to raise fresh funds.

Factors that contribute to the rise in food and nonalcoholic beverage consumption include the following: a growing population; robust economic growth; improved income levels; fast-paced and changing lifestyles of consumers; high workforce participation by women; high numbers of dual-income families; and a high number of people working for 24-hour business process outsourcing companies. These last three factors translate into less time for cooking in the home and a higher demand for fast food restaurants and convenience products. Furthermore, the wide distribution network for processed or packaged foods makes these products additionally attractive to consumers.