Universal Robina Corporation (URC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I am pleased to welcome you all to the 2024 Annual Stockholders Meeting of Universal Robina Corporation. We are broadcasting live from the Sapphire room of the Crowne Plaza Manila Galleria. May I request our Corporate Secretary, Attorney Macel Fernandez-Estavillo to introduce the Board of Directors present with us here today?

Good morning, Mr. Chairman. Allow me to introduce the members of the Board of Directors of Universal Robina Corporation present with us here today. After [indiscernible] we have Chairman of the Board, Mr. Lance Y. Gokongwei; President and Chief Executive Officer, Mr. Irwin C. Lee; Executive Vice President, Mr. Patrick Henry C. Go; Director, Mr. Johnson Robert G. Go, Jr. Now independent Directors: Mr. Antonio Jose U. Periquet, Jr.; Mr. Cesar V. Purisima, and Ms. Christine Marie B. Angco, who is joining this meeting remotely. Also with us remotely is our esteemed Chairman Emeritus, Mr. James L. Go. Also present with us today are other URC officers, external auditors from SGV & Co. and stock and transfer agents from BDO.

Thank you. May I now request the Corporate Secretary to certify that the notice of meeting was sent to the stockholders of the corporation and [indiscernible] to transact business at today's meeting?

Mr. Chairman, I hereby certify that notice of this meeting has been sent to the stockholders of record as of April 30, 2024, via the following methods: First, by publication in the Manila Standard and BusinessWorld for 2 consecutive days, specifically on May 6 and 7, 2024, in both online and print formats; second, by posting on the website of the corporation; and third, by disclosure to the Philippine Stock Exchange. Thus, the stockholders of the corporation have been notified of this meeting in compliance with applicable rules and regulations. I hereby certify that there are present in this meeting by remote communication or by proxy stockholders entitled to vote representing 73.66% of the corporation's total outstanding shares and that this meeting is therefore competent to transact the business provided for in the agenda.

There being a quorum, the Annual Meeting of the Stockholders of Universal Robina Corporation is hereby called to order. May I request the Corporate Secretary to share with us the rules and procedures for this meeting?

The rules and procedures are set forth in the definitive information statement and in the explanation of agenda items integrated into the notice of this meeting. All tabulation results for this meeting are subject to validation by SyCip Gorres Velayo & Co. For the information of the stockholders, the corporation has requested stockholders to send their questions or comments via e-mail. Questions received by May 24, 2024 have been collated and selected. Questions will be answered later in this meeting. The corporation will reply to the questions and comments not taken up during this meeting via e-mail.

Let us now proceed to the first item of the agenda, which is the approval of the minutes of the 2023 Annual Meeting of Stockholders held on May 15, 2023.

Mr. Chairman, copies of the minutes have been distributed to the stockholders by providing the link to the said minutes on the corporation's website in the information statement and by showing the QR code on the screen prior to the meeting.

Good morning, Mr. Chairman. My name is Attorney [indiscernible] Mr. Chairman, having ready access to the 2023 annual stockholders meeting minutes, I move that the reading of the said minutes be waived until the same be approved as submitted.

Good morning, Mr. Chairman. I'm attorney [indiscernible] I second the motion.

Mr. Chairman, the minutes have been approved as submitted by votes, representing 73.59% of the total outstanding shares of the corporation.

Thank you. After having moved and seconded and hearing no objections, the minutes are hereby approved as presented. Moving on to the next item of the agenda. May I now call on the corporation's President and CEO, Mr. Irwin Lee to present the President's report together with the audited financial statement for the proceed.

Good morning, everyone to our distinguished members of the URC Board of Directors and all our beloved shareholders, those here present physically and those joining us on live stream, my warmest greetings for our Annual Shareholders Meeting today. I will be providing you my report in the company's final 2023 results, a brief recap of our strategies and how they have guided us throughout the past few years and finally, an update on our first quarter results for 2024. So let's start with just a final recap of 2023 results. Against the backdrop of elevated inflation, dampened consumer confidence and mixed commodity cost movements, URC still was able to deliver on its plan of expanding profits. Revenue was up 6% for 2023 driven by strong growth, particularly in our Agro-Industrial & Commodities business, although our Branded Consumer Foods businesses also grew in 2023 and our operating income grew significantly faster than top line more than double our revenue growth at 14%. Key pricing moves, changes in product mix and significant operating savings propelled our profits and expanded our earnings before income tax margins to 11%. Net income reported on paper was down 12%, but that's due to high comparables from a onetime gain on land sale last year in 2022. However, taking this impact out, our core net income grew 6%, driven by the operating income growth of 14%, partially offset by higher interest rates. Now let me share with you how each of our business units performed in 2023. Let's start first with our largest division, which is the Branded Consumer Foods or BCF Philippines. The business posted a 3% increase in revenue in 2023, and that's following a substantial 23% growth in 2022. Category showed mixed performances with Snacks and Ready-to-drink beverages driving growth, offsetting challenged segments like coffee and chocolates. Our market shares have seen continuous improvement month-on-month, quarter-on-quarter, first half to second half across most of the categories in 2023. Operating income grew faster than top line as our strategic pricing moves and operational savings initiatives countered increased costs. This also allowed us to sustainably reinvest back into the business to further strengthen our brands. Moving on to our Branded International business, which posted a 2% growth versus last year in peso terms, slightly better in constant currencies. Our core operations in Vietnam and Malaysia continued to show robust growth despite the challenging consumer landscape even in those countries. Thailand and Indonesia have fully bounced back from challenges stemming from price corrections for some stock keeping units executed earlier this year in 2023 and also in 2022. Both countries, Thailand and Indonesia, have shown sequential growth from their lows and are back to their growth trajectory. Profits in International, which is where our primary focus and priority, continue to significantly outpace top line, growing at a stellar double-digit rate of 26%, with our margins expanding to 10%. Another milestone for our International operations, as this is the first time we've reported double-digit margins since 2019. And lastly, our Agro-Industrial & Commodities Group posted double-digit top line and bottom line growth with all 3 business units performing very well. The Agro-Industrial Group saw strong volume and value growth as both our core animal feeds and pet foods grew in the double-digit range. Our Commodities businesses have also maintained their momentum with flour volumes continuing to expand and market shares in sugar and renewables increasing. As with the branded part of our business operating income for the Agro-Industrial & Commodities Group also outpaced top line growth, increasing by 20% versus last year 2022. Margins for the Agro-Industrial Group expanded as we improve through scale, product mix and lower input costs. Flour margins have also increased as the business benefited from lower costs of wheat in 2023, while sugar margins began to temper as selling prices started to normalize versus the very peak sugar prices of 2022 and early 2023. Our URC balance sheet in total remains very healthy with a net gearing ratio of only 0.23. Capital expenditure levels remain elevated as we invest in improving our efficiencies and fit out new greenfield sites such as our 31-hectare Malvar property. Working capital also increased, primarily affected by delayed importation orders for sugar in the crop year '22 to 2023. As part of our commitment of increasing shareholder value, we've increased our dividend payout by 5% per year for the last 3 years. We've also completed the first tranche of our share buyback program amounting to PHP 3 billion and are currently deploying the second tranche of share buybacks worth PHP 5 billion. Now before I move on to talk about our performance for the first quarter of 2024, I wanted to take a pause and revisit URC strategic choices and how they have served us well over the past few years. When we set out our URC strategic plan in 2018, our objective was to deliver strong and sustainable value creation, coupling high single-digit top line growth with margin expansions and double-digit bottom line growth. Our where-to-play strategies have consistently directed the actions and investment choices that we made over the last 5 to 6 years. We invested in and strengthened our core businesses in beverages and Consumer Foods and Agro-Industrial & Commodities to deliver consistent growth. This strong core enabled us to expand for more and enter into new high-growth segments for the company with decisions to compete in the growing new bakery segments and new Ready-to-drink beverages segments to build new legs in our international businesses and to accelerate and grow our presence in pet food. In Branded Consumer Foods Philippines, we saw that our strategic expansion in our core categories of snacks and coffee, for example, have been delivering outstanding growth in the last year. Our innovations in the coffee category have propelled us to be the dominant player in the flavored coffee mixes segment with our Great Taste Choco, Cream-O and Supreme variants, and we're seeing also growth in the solubles instant coffee segment. On snacks, on the other hand, while we have a very strong market leading brands, we also have secondary brands, emerging snack brands like Mr. Chips, Roller Coaster, Jack 'n Jill potato chips, Chiz Curls [indiscernible] and Calbee Honey Butter that have all been growing over 20%, driving the continued strong growth of our Snack foods business unit in the Philippines. In the beverages outside of our core tea business are placed in other ready-to-drink beverages have been performing well, growing at a rate north of 30%. This serves as our stepping stone towards our goal of expanding beyond tea and getting a larger share of growth in other beverage segments. Lastly, we've also been trying to capitalize on our strong brands and seeing how our strong brands can propel growth in other segments as well. A good example is both Cream-O and Dewberry, which are very strong biscuit brands have helped us boost our packaged cakes business, where we are growing significant market share. In International, both our core categories and some new businesses have been performing well. Starting with Vietnam, C2, our core business in Vietnam has continued with a strong momentum and portfolio expansion. And it's now the top ready-to-drink tea brand in urban Vietnam. And despite the competitive heat in Malaysia, our biscuits category remains steadfast and as we claim market leadership with a big contribution, of course, with the Munchy's acquisition that we did a few years ago. Additionally, in Malaysia, our Snacks business has grown significantly, increasing 22% versus the same period last year. New product launches in Fun-O, Magic, Tivoli brands have been driving robust double-digit growth in a fairly new country where we're playing in, which is Myanmar. And lastly, we've seen success in building new categories outside our core bakery business in Thailand, our expanded push into snacks with our Roller Coaster brand has resulted in an 18% top line increase in 2023 versus the prior year. We will continue to support both our core and new entries to broaden our portfolio and footprint in our international markets. Finally, looking at our Agro-Industrial Group, both the core animal feeds and our pet food business have delivered robust performances over the years. Pet food, in particular, has grown rapidly over the years with the business showing a 40% compounded annual growth rate since its early start as a house brand for our sister company, Robinsons Retail. We have since invested heavily in our own top-breed brand, pushing this to great success, particularly into the agricultural trade, expanding rapidly through strong distribution and excellent value proposition of our pet food products. We have further expanded our presence in the dry pet food space with the launch of TopCat last year and continue to ride the pet demographic dividend of growing ownership and urbanization in the Philippines. Enabling our where-to-play choices are 4 how-to-win strategies developing products and brands people love, being a preferred partner of choice for our customers and suppliers and transforming our product supply chain to serve consumers and customers better, all underpinned by a strong entrepreneurial people and planet-friendly culture. We track our progress across the 4 strategies through various measures, such as new product development contributions and market shares for products and brands people love, direct store coverage and customer survey scores for our preferred partner of choice, order fill rates and cost savings for our product supply chain transformation and engagement scores and sustainability metrics for our people and planet-friendly culture. Despite operating through a period of significant disruptions, we have made significant progress over the past 5 years, growing sales at an 8% compounded annual growth rate and even faster in the last 2 years. Operating income grew faster at a double-digit rate to 10% despite the supply chain difficulties brought about by COVID and the hyperinflationary cost environment as the pandemic happened and eased. Our deliberate where-to-play strategies are also seen in our revenue growth as our strong high single-digit core growth of about 7%, served as a base for continued double-digit expansion for more adjacencies, which were growing in the double-digit range. We remain focused on delivering this mid- to high single-digit growth on top line, while stretching for double-digit bottom line growth. For our core business, we are focusing on volume-driven market share recovery in the Philippines. We're adjusting our choices and focus areas in the short and midterm. Two-faced realities that we are seeing in 2024, particularly in categories like coffee and noodles. These are key priorities for us to recover volume and market share. We are also trying to make sure we improve on our customer service levels in our supply chain. We have already moved past our system transition challenges in early 2023 as we made a very big transformation of our enterprise resource planning platform and are now building on new platform -- on the new platform to strengthen end-to-end planning and expanding capacities ultimately in the service of our customers. And moving on to international. We will continue to sustain growth trajectory of our larger markets, while continuing to stabilize the pricing corrections executed last year. And for our Agro-Industrial & Commodities division, we will execute on our milling expansion for both our flour and sugar businesses. Looking where we expand for more growth in more adjacencies, we will continue to support the choice we made a few years ago on faster-growing bakery segments like packaged cakes and new beverage segments, building new legs in the Philippines. We are also accelerating the expansion of Munchy's throughout the region, while building other legs internationally. And lastly, we continue to invest in expanding our pet food business, pushing distribution, particularly to the modern trade channel, supported by new capacity in our [ feed and ] mills. Concurrently, we are looking at how to optimize and restructure our downsize farms business to deliver more sustainable and profitable growth. Lastly, before I conclude, I would like to update you on our results for the first quarter of 2024 building on those set of strategies that we are employing for the businesses. Momentum continued to the first quarter as revenues grew by 7% versus last year, driven by higher sales volume across all businesses, particularly from sugar and renewables and Branded Consumer Foods Philippines. Operating income grew at a faster rate up 16% in the first quarter and with operating margins expanding versus last year. Net income was also up 21% on that higher operating income and foreign exchange gains and a lower 2023 base from impairments. Core net income grew faster than revenue growth as our higher operating income was partly offset by a higher income tax provision versus last year's lower tax accruals. That concludes the business update for Universal Robina Corporation. Thank you for your continued support, and we look forward to a stronger 2024 and beyond.

Thank you, Irwin. Are there any questions? If there are no questions from the floor, the Chair will entertain a motion to note the report and approve the audited financial statements for the preceding fiscal year.

Mr. Chairman, I'm [indiscernible] and I move that the report of the President be noted and that the audited financial statements for the preceding fiscal year be approved as presented.

Mr. Chairman, I am [ attorney Nathalie Estacio ], and I second the motion.

Thank you. Are there any objections? If there are no objections, Ms. Corporate Secretary, may I please have the voting results for the agenda?

Mr. Chairman, we are pleased to report that stockholders representing 73.55% of the total outstanding shares of the corporation have approved the audited financial statements of the corporation for the preceding calendar year as presented.

We now go to the election of the members of the Board of Directors. May I request the Corporate Secretary to read the names of the incumbent members of the Board?

The incumbent members of the Board of Directors are: Mr. James L. Go; Mr. Lance Y. Gokongwei; Mr. Patrick Henry C. Go; Mr. Johnson Robert G. Go, Jr.; Mr. Irwin C. Lee; and the independent directors are: Mr. Cesar V. Purisima; Ms. Rizalina G. Mantaring; Ms. Christine Marie B. Angco; and Mr. Antonio Jose U. Periquet, Jr.

Thank you. May we now have the list of nominees for election to the Board?

Mr. Chairman, in accordance with the nomination process stated in the bylaws of the corporation, the following have been nominated as members of the Board of Directors: Mr. James L. Go; Mr. Lance Y. Gokongwei; Mr. Patrick Henry C. Go; Mr. Johnson Robert G. Go, Jr.; and Mr. Irwin C. Lee; and as independent directors: Mr. Cesar V. Purisima; Ms. Rizalina G. Mantaring; Ms. Christine Marie B. Angco; and Mr. Antonio Jose U. Periquet, Jr.

Mr. Chair, I move that the nominations be closed.

Mr. Chair, I second the motion.

Are there any objections? As there are no objections, the motion is carried and the nominations are closed. There being no other nominations, Ms. Secretary, may we have the voting results?

Mr. Chairman, the affirmative votes in favor of those nominated have been tabulated and the following are hereby declared as duly elected members of the Board of Directors of the corporation for the ensuing year until their successors shall have been elected and qualified. Mr. Chairman, shown on the screen are the numbers of affirmative votes for each director. Mr. James L. Go; Mr. Lance Y. Gokongwei; Mr. Patrick Henry C. Go; Mr. Johnson Robert G. Go, Jr.; Mr. Irwin Lee; and as independent directors: Mr. Cesar V. Purisima; Ms. Rizalina G. Mantaring; Ms. Christine Marie B. Angco; and Mr. Antonio Jose U. Periquet, Jr.

Thank you and congratulations to the elected members of the Board for the ensuing year. Let us now move on to the next item, the agenda, which is the appointment of the external auditor of the corporation.

Mr. Chair, I nominate the accounting firm of SyCip Gorres Velayo & Co. as the external auditor of the corporation for the fiscal year 2024.

Mr. Chair, I move to close the nomination.

Mr. Chair, I am attorney [indiscernible], and I second the motion.

Thank you. Having been moved and seconded that the nominations be closed. This is the Chair here, any objections? As there are no objections, Ms. Corporate Secretary, do we have the voting results for this agenda item?

Mr. Chairman, after tabulation of the votes, the appointment of SyCip Gorres Velayo & Co. as external auditor of the corporation has been approved by stockholders representing 71.37% of the total outstanding shares of the corporation.

Thank you. The accounting firm of SyCip Gorres Velayo & Co. is hereby appointed as external auditors of the corporation for the fiscal year 2024. Let us now proceed to the next item on the agenda, which is the ratification of the acts of the Board, its committees, officers and management of the corporation.

Mr. Chairman, the list of acts for ratification of the stockholders is being shown right now on the screen. Copies of the said list have also been distributed to the stockholders present by showing the link and QR code to the said list on the screen prior to the meeting.

Mr. Chairman, I move all the acts of the Board of Directors, its committees, officers and management of the corporation for the period beginning from the last annual stockholders' meeting up to the current stockholders meeting as duly recorded in the corporate books and records of the corporation be confirmed and ratified.

Mr. Chairman, I second the motion.

Are there any objections, Ms. Secretary? Can we please have the voting results of this item?

After tabulation of the votes, stockholders representing 72.51% of the total outstanding shares of the corporation have confirmed and ratified the acts of the Board of Directors, its committees, officers and management of the corporation for the period beginning from the last Annual Stockholders Meeting up to the current stockholders meeting as duly recorded in the corporate books and records of the corporation.

Thank you. The acts of the Board, its committees, officers and management of the corporation for the period beginning from the last annual meeting of the stockholders after the current meeting of the stockholders as duly recorded in the books and records of corporation are hereby confirmed and ratified. We will now respond to questions which are earlier submitted via e-mail. The questions will be answered by the corporation's President and CEO, Mr. Irwin Lee.

We have received two questions via e-mail. The first one, given inflation rates have remained elevated, how are you seeing consumer confidence in the markets where you are present.

Thank you for the question. The inflationary environment indeed has caused an impact on consumer confidence as we're seeing it in the markets, not only in the Philippines, but also in other countries. The impact that we are observing is really a pronounced growth in value tiers, value for money products. And because URC has such an expansive portfolio, we are present in some of them, but we also have a lot of products that are in more mainstream or premium priced segments. And so what we're seeing is really a growth that is varying by value tiers, and that makes it important for us to have presence. And for the long run, the -- having a more diverse portfolio will benefit us as the economy turns and the consumer confidence picks up again. But in the meantime, we are seeing growth, for example, in our snacks business, where we have entries in lower price formats, prices that are below, say, PHP 10 per pack. We're seeing growth in our instant soluble business as people make their own coffee rather than drink mixes. And we are seeing growth where we have offerings that are below, say, PHP 5. Equally, we are continuing to drive our brands in the higher price segments to prepare for the time that consumer confidence will be stronger. We're also seeing there's a segment of consumers at the very top that are not affected by inflationary impacts. So there is a bifurcation of growth that we're seeing at the very top of value tiers and at the bottom of value tiers. Nevertheless, we are pivoting our agenda for 2024 onwards to drive more volume growth because in the last 2 years, the whole world has been driven by a lot of pricing, driven by commodity cost increases. That has translated to inflation and the impact on the consumer. And what we're trying to do is to make sure that we drive our own operating savings, so we limit the amount of costs that we need to pass on to the consumers. And so that is the big push for 2024, and we're hoping to see renewed volume growth so that reliance on pricing growth will be minimized.

The second question, how is the Munchy's business performing a little over 2 years after its acquisition?

We're very pleased with our Munchy's acquisition. The first year after we acquired it, our focus was on integrating 2 companies in Malaysia, the Munchy's business that we acquired with the URC business that was already there in Malaysia. And we've had a successful first year of integration and we're seeing a lot of the synergies that we plan for materialize, particularly in domestic synergies. Tremendous cost synergies achieved in the first year and also a very strong growth synergies achieved as we lodged onto the strong platform of Munchy's, and that has pulled on the growth of other URC brands as well. In that sense, the acquisition assumptions that we made are panning out as we plan for. The second thing about Munchy's business is its expansion in the Southeast Asia regions. As of 2023, we have completed the takeover of Munchy's that were previously being sold by external third-party distributors. And we have now have our own URC operations take over the distribution of Munchy's in each of those cases where we have done that, we have either doubled or tripled the sales revenue that was being accomplished by the previous distributor. Having said that, we're now at the point where -- while all of those foundations are very positive and are in place, we're now at that point on how we drive further growth of Munchy's being a particularly new segment in the biscuit category for us. It's a higher-priced segment. It's more value-added segment, and we're now learning on how to drive that further expansion across all of Southeast Asia.

Thank you. Other questions sent by stockholders will be answered through e-mail. Are there any other matters to be taken up for consideration of the shareholders?

There are none, Mr. Chairman.

As we close this meeting, I would like to thank our Board of Directors, management, employees and you, our dear shareholders, for your continued support and trust over the years. We look forward on even stronger 2024 as the company continues to try to create shared value for all our stakeholders, our tireless employees, the communities where we operate, our retailer and supplier partners, our trusting consumers and, of course, our shareholders. May I now here a motion for adjournment?

Mr. Chairman, I move that the meeting be adjourned.

Mr. Chair, I second the motion.

Since it has been moved and seconded, the meeting is now adjourned. Thank you all for joining today's meeting.

This ends the 2024 Annual Stockholders Meeting of Universal Robina Corporation. A link where a replay of this meeting may be viewed, shall be made available shortly at the website of the corporation. Thank you very much for joining.