Universal Robina Corporation (URC) Earnings Call Transcript & Summary

The 2025 Annual Meeting of Stockholders of Universal Robina Corporation will now begin. Ladies and gentlemen, the Philippine national anthem. [Presentation]

Ladies and gentlemen, please take your seats.

Good afternoon, ladies and gentlemen. I am pleased to welcome you all to the 2025 Annual Stockholders' Meeting of Universal Robina Corporation. We are broadcasting live from the Jade room of 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 afternoon, Mr. Chairman. Allow me to introduce the members of the Board of Directors of Universal Robina Corporation present with us here today. At the venue, we have our 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; and Director, Mr. Johnson Robert G. Go, Jr. Our independent directors are Ms. Christine Marie B. Angco, Ms. Rizalina G. Mantaring and Mr. Antonio Jose U. Periquet, Jr. Our esteemed Chairman Emeritus, Mr. James L. Go; and Independent Director Mr. Cesar Purisima are joining this meeting remotely. Also present with us here today are other URC executive officers, external auditors from SyCip Gorres Velayo & Co. and stock and transfer agents from BDO.

Thank you, Attorney Macel. May I now request the Corporate Secretary to certify that notice of this meeting was sent to the stockholders of corporation and that there exists a quorum to transact business at today's meeting.

Mr. Chairman, I hereby certify that notice of this meeting had been sent to the stockholders of record as of April 8, 2025, via the following methods: first, by publication in the Manila Standard and BusinessMirror for 2 consecutive days, specifically on April 21 and 22, 2025, 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 via remote communication or by proxy stockholders entitled to vote representing 75.27% 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 URC 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 Punongbayan & Araullo or Grant Thornton Philippines. For the information of the stockholders. The corporation has requested stockholders to send their questions or comments via e-mail. Questions received by May 5, 2025, have been collated and selected and will be answered later in this meeting. For those questions not taken up during this meeting, the corporation will reply to the questions and comments via e-mail.

Let us now proceed to the first item in the agenda, which is the approval of the minutes of the 2024 Annual Meeting of the Stockholders held on June 3, 2024.

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.

Mr. Chairman, having read the access to the 2024 Annual Stockholders' Meeting minutes, I move that the reading of the said minutes be waived and that the same be approved as submitted.

I second the motion.

Mr. Chairman, the minutes have been approved as submitted, by votes representing 75.16% 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. Let's now proceed to the next item in the agenda, which is the approval of the proposed amendments to the articles of incorporation. May I call the Corporate Secretary to state the proposal.

Mr. Chairman, the corporation is proposing the amendment of the second article of the articles of incorporation to include the following changes in the corporation's primary and secondary purposes: first, to include the selling at retail of any and all goods, commodities, wares and merchandise of every nature and description, including but not limited to all kinds of food and food-related products, in the primary purpose; and second, to include the business of implementing waste diversion strategies in the secondary purpose. A summary of the proposed amendments is included in the information statement which has been distributed to the stockholders.

Thank you. May we have the results of the voting for this agenda item?

After tabulation of the votes, we are pleased to report that stockholders representing 75.10% of total outstanding shares of the corporation have approved the said amendments to the second article of the articles of incorporation.

Thank you. The amendment of the second articles of -- second article of the articles of incorporation is hereby approved. Moving to the next item on the agenda, may I now call on our corporation's President and Chief Executive, Mr. Irwin Lee, to present the President's report together with the financial statements for the preceding calendar year.

To our distinguished members of the URC Board of Directors and all of our shareholders attending online, warmest greetings. For our Annual Shareholders' Meeting today, I will be providing a report on the company's final 2024 results and an update of our first quarter results for 2025. So we'll start with the calendar year ended 2024. For the full year ended December 31, 2024, URC hit just under PHP 162 billion in revenues. That's up 3% versus last year against a tough macroeconomic backdrop. Despite muted top line in the Philippines, volume growth was seen across all our operating divisions, with URC International in particular delivering very strong growth. Total operating income ended at PHP 16.7 billion. That's down 4% versus last year, as our sugar business saw a profit correction against 2023's record highs. Excluding Sugar and Renewables, URC's operating income was up 20%, on structural margin improvements to the business such as optimized pricing, manufacturing efficiencies and operating savings. Net income for 2024 was ahead of operating income due to higher foreign exchange gains versus the prior year, while core net income was in line with EBIT growth. Now let me share with you how each of our business units performed in 2024. Starting with Branded Consumer Foods Philippines. Revenues were flat against 2023, on mixed performances between categories. Value-for-money segments grew faster than the rest of the portfolio given the challenging economic and value trade-down environment in the Philippines. And most of our categories, though, began to deliver both volume and value growth in the fourth quarter of 2024. And we will see this strength extend over to the beginning of 2025. The initial value interventions launched are performing well and have built momentum entering into 2025. Against this flat top line performance, branded consumer food Philippines, however, delivered very solid operating income growth, up double digits versus 2023. Operating profit margins have continued to support additional investments into brands and customers while still delivering improved operating income growth. Moving on to the international business. All overseas operations delivered strong and solid volume and value growth. Total URC International is up 8% on revenues on a constant currency basis, with sustained revenue delivery despite the generally tepid consumer sentiment seen across Southeast Asia. Strong execution has led to expanding market share gains, with Malaysian biscuits shares now 800 basis points ahead of the #2 player on a full year share basis and C2 overtaking zero degree or Khong Do as the #1 ready-to-drink tea brand in Vietnam. Operating income growth in international was sustained, hitting a spectacular 43% rise for the full year 2024 versus the prior year and with margins expanding over 300 basis points. Gross margin improvements allowed for increased advertising and promotion investments with simultaneous margin expansion. And finally, our third big division is Agro-Industrial and Commodities business. This division delivered a 5% top line growth for 2024, driven by higher volumes across most of its segments. Agro-Industrial Group navigated a very challenging Philippine market, with Philippine hog populations down almost 10% in 2024 and with feed price rollbacks by major players. This was offset by continued growth and steady performance in poultry feeds and our pet food business. Our Flour division delivered flat revenue for the year, as our strong volume growth was offset by competitive pricing adjustments. Sugar and Renewables top line was up 13%, as volumes accelerated on the sell-through of accumulated inventories from the past year. On operating income, both Agro-Industrial Group and Flour operating margins expanded in 2024, as their improving cost base helped offset the price adjustments in their businesses. Sugar returned to profitability in the fourth quarter of 2024 as we resumed milling last October 15 and as high-cost inventories were flushed out. Moving on to our balance sheet. We have used our significant cash generation and tighter working capital to pay down short-term debt. Our 2024 capital expenditures closed at around PHP 6 billion, as we pushed back the Malvar megasite's commercial operations to the second half of 2025 and as we finalized commissioning of the Sariaya new sugar -- new flour mill in 2025. Finally, as we continue to generate significant free cash flow, we are working to improve total shareholder returns. Our share buyback program: As of end 2024, we had spent PHP 2.7 billion out of our second tranche program of PHP 5 billion. We continue to grow our dividend payout; and have paid out PHP 2 per share regular dividend, which is 5% higher than the same dividend last year. So a continuing return to shareholders on both dividends and buybacks program. Now let me take you through an update on the key priorities for 2025 and how we are starting off in the first quarter of 2025. As we look into 2025, we've laid out our key focus areas, with the highest-priority job to do around reigniting volume-driven revenue growth together with market share recoveries in the Philippines. On our international business, we need to sustain the strong momentum we are experiencing we have on growth and share and scale our Munchy's expansion further and also build additional new legs of businesses in international. On our Animal Nutrition and Health business, our priority is expanding our pet foods business, strengthening our lead in dog food while building and growing our cat food business. And finally, on Commodities, we will focus on returning absolute profits to normal levels and drive sustainable cash generation. With these initiatives planned and executed, so far, we are seeing stronger top line performance entering into the new year. For the first quarter of 2025, URC delivered PHP 45.3 billion in revenues. That's up 7% versus the same period last year. Almost all our business units delivered strong volume growth against a high 2024 base, led by strong double-digit growth of our international business and Sugar and Renewables. Branded consumer Philippines also stepped up their growth and was able to deliver 4% increase, against the highest quarter that we had in 2024, while sustaining its month-on-month momentum which began from the second half of '24 into the beginning of 2025. We recorded high single-digit and low double-digit volume growth across many categories in the Philippines and are seeing accelerating momentum on excellent operational execution as well as improving Philippine consumer sentiment. Total operating income for total URC for the first quarter ended at PHP 5.5 billion, up 1% versus the same first quarter of last year. Profitability was in line with expectations given the high base last year from Commodities. Double-digit profit growth was seen in our Branded Consumer Foods business, both in international as well as in branded consumer food Philippines ex coffee, helping offset declines in Agro-Industrial and Commodities as well as the impact of higher coffee costs. Net income was behind EBIT due mainly to higher foreign exchange gains last year that is not annualized this year. And core net income, on the other hand, was faster in growth versus EBIT due mainly to lower finance costs from the lower debt levels we achieved coming out of 2024. Finally, I would like to walk through recent changes to our organization, changes that we have put in place as we move around -- key leadership talents around in line with our key priorities. Mian David, previously our Head of URC International and Chief Marketing Officer, now takes over the helm of Branded Consumer Foods Philippines, with a mandate to drive growth in the local market. She led the international business to new heights over the last 2 years, and we look forward to her impact coming back to the Philippines. Taking over as Chief Marketing Officer is Karen Ong, who was the Senior Marketing Director for URC Malaysia or URC Munchy's. She led the team in Malaysia to achieve market leadership in the business category and expand that and extend that leadership and delivered strong sustained growth in other categories as well in snacks and confectionery. David Lim, previously our Chief Supply Chain and Sustainability Officer, now takes on the role of Chief Technology Officer, with responsibility for all upstream development, with research and development on the product side; corporate engineering side, on major equipments and procurement, on overall supplier relationships. He retains responsibility for setting up our best-in-class facilities while developing new products to drive growth. And taking over from David is Jesselyn Panis as our new Chief Supply Chain and Sustainability Officer. She has been with URC for almost 9 years, starting as our head of quality in the Philippines and total URC; and was most recently our vice president for integrated supply chain for Branded Consumer Foods Philippines. She led the recovery of our customer service order fill rates, from the transition, difficult transition, in 2023 of SAP from ECC to S/4HANA; and delivered now -- and are now delivering over 90% levels of order fill rates while delivering consistent year-on-year operating savings. Finally, Pancho Del Mundo is expanding his role as our Chief Finance and Strategy Officer as he continues to strengthen our finance organization while simultaneously leading our strategy agenda, including investor relations and mergers and acquisitions. With these changes in place, we are sustaining the strong momentum we are seeing across the business while strengthening our foundations to drive further sustainable growth in the years to come. That concludes the business updates for URC. Thank you for your continued support. And we look forward in continuing this strong momentum in 2025.

Thank you, Irwin. Are there any questions? 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 year.

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

I second the motion.

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

Mr. Chairman, we are pleased to report that stockholders representing 75.15% of the total outstanding shares of the corporation have approved the audited financial statements of the corporation for the preceding calendar year as presented.

Thank you. The President's report is accordingly noted. And the audited financial statements for the preceding fiscal year are hereby approved 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. Irwin C. Lee, Mr. Patrick Henry C. Go, Mr. Johnson Robert G. Go, Jr. And the independent directors are Ms. Christine Marie B. Angco, Mr. Cesar V. Purisima, Ms. Rizalina G. Mantaring 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: first, Mr. James L. Go; second, Mr. Lance Y. Gokongwei; third, Mr. Irwin C. Lee; fourth, Mr. Patrick Henry C. Go; fifth, Mr. Johnson Robert G. Go, Jr. And as independent directors: Ms. Christine Marie B. Angco, Mr. Cesar V. Purisima, Ms. Rizalina G. Mantaring and Mr. Antonio Jose U. Periquet, Jr.

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

I second the motion.

Are there any objections? As there are no objections, the motion is carried and 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 the 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. James -- Mr. Chairman, shown on the screen are the numbers of affirmative votes for each director: Mr. James L. Go, Mr. Lance Y. Gokongwei, Mr. Irwin C. Lee, Mr. Patrick Henry C. Go, Mr. Johnson Robert G. Go, Jr. And as independent directors: Ms. Christine Marie B. Angco, Mr. Cesar V. Purisima, Ms. Rizalina G. Mantaring and Mr. Antonio Jose U. Periquet, Jr.

Thank you. And congratulations to the elected members of the Board for the -- Board of the corporation for the ensuing year. Let's now move on to the next item of 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 2025.

I move to close the nomination.

I second the motion.

Thank you. Having been moved and seconded that the nomination be closed, does the Chair hear 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 74.14% of the total outstanding shares of the corporation.

Thank you. The accounting firm of SyCip Gorres Velayo & Co. is hereby appointed as external auditor of the corporation for the fiscal year 2025. Let us now proceed to the next item of the agenda, which is the ratification of the acts of the Board of Directors, 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 in the information statement and by showing the QR code on the screen prior to this meeting.

Mr. Chairman, I move that 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.

I second the motion.

As there are no objections, Ms. Secretary, can we please have the voting results for this item?

After tabulation of the votes, stockholders representing 75.06% 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 stockholder meeting as duly recorded in the corporate books and records of the corporation.

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

Given the positive volume momentum that URC saw in the first quarter of 2025, what is your outlook for the balance of the year? What are you seeing, so far, on the ground?

Our expectations is for this momentum to continue and actually accelerate. The interventions that we are seeing from the business units from past year carrying forward into 2025 are bearing fruit. We are also benefiting from more positive consumer sentiment in the Philippines, with easing inflation. There is still a watch-out on some down-trading. That is easing a little bit, but we are seeing from our side internally continued volume growth. And that is expected to carry through across the business units. There are some watch-outs on, of course, the uncertainties from international events like what's happening to the tariff environment. Nevertheless, we are prepared to counteract any measures and any slowdowns. And the businesses are gearing up for a continued strong growth momentum for the balance of 2025.

The company has disclosed that the costs of coffee and cocoa are rising significantly. How will this affect the company's margins? And what is the company doing to mitigate this impact?

Yes. So the 2 most critical commodities that we are dealing with currently is coffee and cocoa. The rise of these commodity costs started in the past year and is continuing even more severely into 2025. We have put programs in place to deal with these rising costs. First of all is to make sure that we have supply resiliency and that we have all of the volumes needed to support the business. And therefore, we have volume contracts that protect us, certainly till the end of the year. And secondly, on costs, we are -- we have been able to buy better than the market and covered ourselves for the next few months and towards the end of the year. These costs continue to be quite volatile, but we have, so far up until this point, been able to buy better than the market. In addition, we are looking at how we can accelerate some of the cost savings programs within the businesses to counter some of the impact of coffee and cocoa. So far, we have been able to protect ourselves and our margins, particularly on the cocoa side where most of those products will have a variety of other ingredients. It is much more difficult in coffee because there's not much that goes into coffee apart from primarily coffee. And therefore, that is where we will need to have more interventions on the costs side. And inherently, to cover the balance of the impact, there will be some pricing actions that needs to be taken. We have already taken some of those, but as we are not the market leader in coffee, we are also dependent on market moves of the market leaders. But so far, we are seeing actions being taken in the market. We have already done at least 2 to 3 price increases related to coffee. And we expect that there will be some more interventions that will be needed for the balance of the year.

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

There are none, Mr. Chairman.

As we close this meeting, I would once again like to thank our Board of Directors, management, employees; and you, our dear shareholders, for your continuing trust and support over the years. We look forward to sharing with you our achievement for 2025 as we continue to do our part in nation building and creating shared value for all our stakeholders, our tireless employees, communities where we operate, our retailer and supplier partners, our trusting consumers and our shareholders. May I now hear a motion for the adjournment?

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

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 2025 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.