universal robina corporation: a financial analysis

EXECUTIVE SUMMARY:

Universal Robina Corporation (URC) was founded in 1954 when Mr. John

Gokongwei, Jr. established Universal Corn Products, Inc., a cornstarch

manufacturing plant in Pasig. The Company is involved in a wide range of

food-related businesses, including the manufacture and distribution of

branded consumer foods, production of hogs and day-old chicks,

manufacture of animal and fish feeds, glucose and veterinary compounds,

flour milling, and sugar milling and refining. URC operates its food business

through operating divisions and wholly-owned or majority-owned subsidiaries

that are organized into three core business segments, namely, branded

consumer foods, agro-industrial products and commodity food products. The

Company is also engaged in consumer product-related packaging business

through its packaging division, which is included in the branded consumer

food segment, and through its subsidiary, CFC Clubhouse Property, Inc. The

Company sells its branded food products primarily to supermarkets, as well

as directly to top wholesalers, large convenience stores, large scale trading

companies and regional distributors, which in turn sell its products to other

small retailers and down line markets. Moreover, the products are distributed

to approximately 120,000 outlets in the Philippines and sold through URC's

direct sales force and regional distributors.

The attached report analyses the financial condition of the company in the

years ended September 30, 2012 and 2011. During the year ended

September of 2012, sales at Universal Robina were 71.20 billion Philippine

1

Pesos (US$1.75 billion). This is an increase of 6.0% versus 2011, when the

company's sales were 67.17 billion Philippine Pesos. This was the fifth

consecutive year of sales increases at Universal Robina (and since 2007,

sales have increased a total of 89%). Sales of Branded saw an increase of

11.3% in 2012, from 50.56 billion Philippine Pesos to 56.26 billion Philippine

Pesos. Not all segments of Universal Robina experienced an increase in sales

in 2012: sales of Commodity fell 20.5% to 7.57 billion Philippine Pesos.

The company improved its financial condition in 2012. Due to the product

innovation the company was able to sustain its financial growth. Also its

strategic expansion to the international market contributed to the healthy

cash generation of the company.

2

PURPOSE OF FINANCIAL ANALYSIS:

The objective of financial statements is to provide information about

the financial position, performance and changes in financial position of an

enterprise that is useful to a wide range of users in making economic

decisions. Financial statements should be understandable, relevant, reliable

and comparable. Reported assets, liabilities, equity, income and expenses

are directly related to an organization's financial position.

Financial statements are intended to be understandable by readers

who have "a reasonable knowledge of business and economic activities and

accounting and who are willing to study the information diligently. Financial

statements may be used by users for different purposes:

Owners and managers require financial statements to make important

business decisions that affect its continued operations. Financial

analysis is then performed on these statements to provide management

with a more detailed understanding of the figures. These statements are

also used as part of management's annual report to the stockholders.

Employees also need these reports in making collective

bargaining agreements (CBA) with the management, in the case of labor

unions or for individuals in discussing their compensation, promotion and

rankings.

Prospective investors make use of financial statements to assess the

viability of investing in a business. Financial analyses are often used by

3

investors and are prepared by professionals (financial analysts), thus

providing them with the basis for making investment decisions.

Financial institutions (banks and other lending companies) use them to

decide whether to grant a company with fresh working capital or extend

debt securities (such as a long-term bank loan or debentures) to finance

expansion and other significant expenditures.

COMPANY PROFILE:

4

COMPANY HISTORY:

Universal Robina Corporation (URC) is one of the largest branded food

product companies in the Philippines, with the distinction of being called the

country’s first “Philippine multinational”, and has a growing presence in other Asian

markets. Universal Robina Corporation (URC) traced its beginnings all the

way back to 1954. John Gokongwei, Jr. was doing very well then as a

trader/importer. He had learned the trade when his father died before the

war, and had worked hard through the war and postwar years to prosper.

However, while he thrived, he took a long hard look at his company, and

correctly predicted that trading would remain a low-margin business.

On the other hand, a successful manufacturer controlling its own

production and distribution would command more profitable margins. Mr.

John decided to construct a corn milling plant to produce glucose and

cornstarch, Universal Corn Products (UCP), the first building block of the

company that would become URC.

For a time, business was good. However, Mr. John was still looking

ahead, working with an eye towards the future. While the business was doing

very well, it was producing essentially a commodity, which a customer could

easily access elsewhere. To stay ahead in the game, Mr. John had to diversify

by producing and marketing his own branded consumer foods, similar to the

multinational companies in the Philippines like Nestle and Procter & Gamble.

5

In a sense, he wanted to put up the first ‘local’ MNC, borne out of their best

practices.

Thus, in 1961, Consolidated Food Corporation was born. Their first

‘home run’ product was Blend 45, the first locally-manufactured coffee blend,

dubbed as the “Pinoy coffee”. This became the largest-selling coffee brand in

the market, even beating market leaders Café Puro and Nescafe. After coffee

came chocolates. Nips, a panned chocolate similar to M&Ms, were a staple of

Filipino childhood.

In 1963, Robina Farms started operations, beginning with poultry

products. This was also the beginning of the vertical integration of the

Gokongwei businesses, as the farms would be able to purchase feeds from

UCP in the future. Later that decade, Robichem Laboratories would be put

up, to cater to the veterinary needs of the farms businesses. Robina Farms

expanded as it entered the hogs business in the latter part of the 70s.

1966 saw the establishment of Universal Robina Corporation, which

pioneered the savory snacks industry in the Philippines through its Chiz

Curls, Chippy, and Potato Chips, under the “Jack ‘n Jill” brand. Other snack

products would follow over the years, as the company successfully

introduced market leaders like Jack 'n Jill Pretzels (pretzels), Piattos

(fabricated potato chips), and Maxx (hard candy).

The coming decades saw more acquisitions and expansion. In the early

1970s, the Gokongwei family entered the commodities business through the

6

formation of Continental Milling Corporation, for flour milling and production.

The late 1980s brought the acquisition of three sugar mills and refineries,

under URC Sugar. These two businesses provided stable cash flows, and

allowed for further vertical integration in the supply chain, to help URC

weather any volatility in the cyclical commodities markets. In line with this

strategy, the late 1990s saw the entry of URC into the plastics business,

through URC Packaging.

As the businesses became more diversified, the companies were slowly

integrated in order to streamline operations and minimize costs. In 2005, the

present structure of the group was completed. All the different companies

are now organized under Universal Robina Corporation, divided into three

focused groups:

the Branded Consumer Foods Group, composed of BCFG Domestic

(including packaging) and URC International, for the production and sale

of snacks, beverage, and grocery products,

the Agro-Industrial Group, composed of Universal Corn Products, Robina

Farms, and Robichem, for the production and sale of animal feeds, day-

old chicks, hogs, and veterinary medicine,

and the Commodity Foods Group, with the Sugar and Flour divisions, for

the production of flour and sugar, and for sugar milling and refining

services.

7

URC is a core subsidiary of JG Summit Holdings, Inc. (JGSHI) which is

one of the largest business conglomerates listed in the Philippine Stock

Exchange.

URC owned the Philippine Basketball Association franchise Great Taste

Coffee Makers which played from the inaugural 1975 season to 1992 when

the company sold the team to Sta. Lucia Realty. The Coffee Makers won 6

PBA championships.

BOARD OF DIRECTORS:

John L. Gokongwei, Jr. founded URC in 1954 and has been the

Chairman Emeritus of URC effective January 1, 2002. He had been Chairman

of the Board until his retirement and resignation from this position effective

December 31, 2001. He continues to be a member of URC’s Board and is the

Chairman Emeritus of JG Summit and certain of its subsidiaries. He also

continues to be a member of the Executive Committee of JG Summit. He is

currently the Chairman of the Gokongwei Brothers Foundation, Inc., Deputy

Chairman and Director of United Industrial Corporation, Ltd. and Singapore

Land, Ltd., and a director of JG Summit Capital Markets Corporation, Digital

Telecommunications Phils., Inc., Oriental Petroleum and Minerals

Corporation, First Private Power Corporation and Bauang Private Power

Corporation. He is also a non-executive director of A. Soriano Corporation

and Philex Mining Corporation. Mr. Gokongwei received a Master’s degree in

Business Administration from De La Salle University and attended the

Advanced Management Program at Harvard Business School.

8

James L. Go is the Chairman and Chief Executive Officer of URC. He

had been President and Chief Executive Officer and was elected to his

current position effective January 1, 2002 upon the resignation of Mr. John

Gokongwei, Jr. as Chairman. He is also the Chairman and Chief Executive

Officer of JG Summit and as such, he heads the Executive Committee of JG

Summit. He is currently the Chairman and Chief Executive Officer of

Robinsons Land Corporation (“RLC”), JG Summit Petrochemical Corporation,

Manila Midtown Hotels and Land Corporation, Litton Mills, Inc., CFC

Corporation, Universal Robina Sugar Milling Corporation, Southern Negros

Development Corporation, Robinsons, Inc., and Oriental Petroleum and

Minerals Corporation (“OPMC”). He is also the President and a Trustee of the

Gokongwei Brothers Foundation, Inc. and a director and Vice Chairman of

Digital Telecommunications Phils., Inc. He is also a director of First Private

Power Corporation, Bauang Private Power Corporation, OPMC, Cebu Air, Inc.,

Panay Electric Co., United Industrial Corp., Ltd., Singapore Land, Ltd., Marina

Center Holdings, Inc. and JG Summit Capital Markets Corporation. He

received a Bachelor of Science degree and a Master of Science degree in

Chemical Engineering from the Massachusetts Institute of Technology. Mr.

James L. Go joined URC in 1964.

Lance Y. Gokongwei is the President and Chief Operating Officer of

URC. He had been Executive Vice President and was elected President and

Chief Operating Officer effective January 1, 2002. He is the President and

Chief Operating Officer of JG Summit Holdings, Inc. and JG Summit

Petrochemical Corporation and the Vice Chairman and Deputy Chief

9

Executive Officer of Robinsons Land Corporation and Litton Mills, Inc. He is

also the President and Chief Executive Officer of Cebu Air, Inc. and Digital

Telecommunications Phils., Inc., Chairman of Robinsons Savings Bank,

President of Digital Information Technology Services, Inc., Vice Chairman of

JG Summit Capital Markets Corporation, and a director of OPMC, United

Industrial Corporation, Ltd., and Singapore Land, Ltd. He is also trustee,

secretary and treasurer of Gokongwei Brothers Foundation, Inc. He received

a Bachelor of Science degree in Economics and a Bachelor of Science degree

in Applied Science from the University of Pennsylvania. Mr. Lance Y.

Gokongwei joined URC in 1988.

Patrick Henry C. Go is a director and Vice President of URC. He is

also a director of JG Summit Holdings, Inc., RLC, CFC Corporation, JG Cement

Corporation, Robinsons Savings Bank and JG Summit Petrochemical

Corporation where he is also Deputy Chief Operating Officer. He is a trustee

of the Gokongwei Brothers Foundation, Inc. He received a Bachelor of

Science degree in Management from the Ateneo de Manila University and

attended the General Manager Program at Harvard Business School.

Frederick D. Go has been a director of URC since June 2001. He is the

President and Chief Operating Officer of RLC. He is an alternate director of

United Industrial Corporation and Singapore Land Limited. He also serves as

a director of RLC, Big R Stores, Inc., Robinsons Convenience Stores, Inc.,

Robinsons Recreation Corporation, JG Summit Petrochemical Corporation,

Robinsons Savings Bank, CFC Corporation, Robinsons Handyman, Inc.,

10

Robinsons Venture Corporation, Robinsons-Abenson Appliances Corporation,

Cebu Light Industrial Park, Philippine Hotels Federation and Philippine

Retailers Association. He received a Bachelor of Science degree in

Management Engineering from the Ateneo de Manila University.

Johnson Robert G. Go, Jr. was elected director of the Company on

May 5, 2005. He is the President and Chief Operating Officer of Litton Mills,

Inc. effective August 28, 2006, the textile manufacturing business of JG

Summit. He is also a director of Robinsons Land Corporation, Robinsons

Savings Bank and CFC Corporation. He is also the President of Robinsons

Convenience Stores, Inc. He was elected director of JG Summit on August 18,

2005 and was elected trustee of the Gokongwei Brothers Foundation, Inc. on

September 1, 2005. He received a Bachelor of Arts degree in Interdisciplinary

Studies (Liberal Arts) from the Ateneo de Manila University.

Robert G. Coyiuto, Jr. - director of URC. He is also an independent

director of RLC. He is Chairman of Prudential Guarantee & Assurance, Inc.,

PGA Cars, Inc., and Nissan North Edsa, and Vice-Chairman of First Guarantee

Life Assurance Company, Inc. He is also President and Chief Operating

Officer of Oriental Petroleum and Minerals Corporation and President of PGA

Sompo Japan Insurance, Inc. He is Chairman of Pioneer Tours Corporation

and a director of Canon Marketing (Philippines) Inc. and Destiny Financial

Plans.

Independent Directors:

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Wilfrido E. Sanchez has been an independent director of URC since

1995. He is also an independent director of EEI Corporation, Kawasaki Motor

Corp., NYK-TDG Maritime Academy and Rizal Commercial Banking

Corporation. Mr. Sanchez is a director of Transnational Plans, Inc., Dolphin

Ship Management, Inc., Adventure International Tours, Inc., Transnational

Diversified Group, Inc., Transnational Diversified Corporation, Magellan

Capital Holdings Corporation, Center for Leadership & Change, Inc., House of

Investment, Inc., Omico Corporation, Amon Trading Corporation, Grepalife

Asset Management Corporation, Grepalife Fixed Income Corporation, and JVR

Foundation.

Pascual Guerzon was elected as an independent director of URC on

September 20, 2007. He is currently the Principal of Dean Guerzon &

Associates (Business Development). He is the Founding Dean of De La Salle

Graduate School of Business. He was also the former President of the

Management Association of the Philippines Agribusiness and Countryside

Development Foundation and the Management Association of the Philippines

Foundation, MBA Director of the Ateneo de Manila Graduate School of

Business, Director of Leverage International Consultants, Dep. Director of

Asean Chambers of Commerce and Industry and Section Chief of the Board

of Investments. Mr. Guerzon is a holder of an MBA in Finance from the

University of the Philippines and a Ph.D. (N.D.) in Management from the

University of Santo Tomas.

Senior Officers:

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Cornelio S. Mapa – Executive Vice President, URC BCFG Philippines

Patrick O. Ng – Executive Vice President, URC International

Eugenie M.L. Villena – Senior Vice President – Chief Financial Officer

BJ M. Sebastian – Senior Vice President – Chief Strategist

Constante T. Santos – Senior Vice President – Corporate Controller

Nicasio L. Lim – Senior Vice President – Corporate Human Resources

Geraldo N. Florencio – First Vice President - Controller

Ester T. Ang – Vice President - Treasurer

Rosalinda F. Rivera – Corporate Secretary

DIVISIONS UNDER URC:

13

Universal Robina Corporation has three main business lines:

The Branded Consumer Foods Group is the largest business and the key

driver of growth and profitability. It is composed of the Philippine,

international and packaging businesses. In the Philippine BCFG, our main

divisions are Snack Foods, Beverages, Grocery (which include the joint

ventures Nissin-URC and Hunts URC), Exports, and Packaging. Our

international investments are in Thailand, Indonesia, Malaysia/Singapore,

China/HK, and Vietnam.

The Agro-Industrial Group is composed of hog and poultry farms, branded

feeds, and animal health products.

The Commodity Foods Group has both flour and sugar.

14

The latter two groups provide URC with consistent cashflows and, in the case

of commodities, consistent supply of raw materials for the Branded

Consumer Foods Group.

URC VISION

To be the best Philippine food and beverage conglomerate with a powerful

presence throughout the ASEAN region and China, carrying a wide portfolio

of strong brands, equipped with efficient systems and high-quality people.

TOTAL URC VALUES

1. Passion to Win

2. Dynamism

3. Integrity

4. Courage

Passion to Win

We build organizational capability by being entrepreneurial and proactive,

driven by a sense of urgency and purpose. We continuously challenge

ourselves to deliver world-class brands and consistently rally our people to

strive for excellence.

Drive for Results:

Effectively and speedily executes plans and programs. Exhibits

perseverance and tenacity. Achieves quantifiable and measurable

15

results. Identifies areas for improvement and takes necessary steps to

implement those changes.

Entrepreneurial Mindset:

Knowledgeable on the nature of the business and displays a sense of

ownership by continuously finding ways to improve processes. Makes

certain that all resources are properly utilized to achieve desired

results.

Initiative

Able to initiate and do efficient follow-through on projects to guarantee

success. Exhausts available means to smoothly implement difficult

initiatives.

Dynamism

We cultivate a culture of innovation and productive working relationships.

We continuously find ways to improve organizational and people capabilities

to meet constantly changing consumer needs.

Innovation

Able to create and modify systems and processes to address the

constantly changing needs of both internal and external customers. Can

effectively translate creative ideas into tangible projects and workable

solutions.

16

Collaboration

Can work well in a team by complementing strengths and weaknesses

of team leader or members. Comfortable to take on different roles

depending on the nature of engagement.

Strategic Agility

Can effectively cope with structural and physical changes. Uses rigorous

logic and methods to solve difficult problems with effective solutions.

Able to handle multiple tasks. Can comfortably handle risk and

uncertainty.

Integrity

We are guided by transparency, ethics and fairness. We build the business

with honor and are committed to good governance. Our processes and

products meet the highest standards. We are credible in our dealings with

both internal and external stakeholders.

Principle-driven

Abides by social, professional & business ethics & organization values.

Able to manage sensitive information and strategies.

Personal Integration

Actively works to continuously improve himself/herself. Works to deploy

strengths and compensates for weaknesses and limits to support

organizational objectives.

17

Quality Orientation

Ensures that integrity of processes is preserved. Strictly adheres to

quality standards to delight both internal and external customers.

Courage

We seize opportunities in building long-term, sustainable businesses. We

make tough people and business decisions to ensure competitive advantage.

Visioning

Able to provide long-term direction, inspiration and momentum.

Maximizes utilization of available and possible resources. Displays a

clear sense of purpose.

Organizational Interface

Able to interface with both top line and down line to execute effectively

tasks at hand. Ensures that policies are adhered to at all levels. Able to

relay information objectively and clearly, whether oral or written.

Standing Alone

Able to operate with minimum supervision and achieve results

autonomously.

.

18

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

SEPTEMBER 30

2012 2011 2010

ASSETS:

Current Assets

Cash and cash equivalents5,345,833,3

974,546,881,52

7 4,459,254,984Financial assets at fair value through profit or loss

10,812,402,265

5,511,551,122

10,022,605,224

Available-for-sale investments4,797,876,6

2110,652,071,6

97 6,748,394,466

Receivables7,461,032,9

157,419,824,81

5 6,550,949,865

Inventories9,759,334,1

529,724,784,65

6 7,888,923,770

Biological assets1,057,007,6

58 911,265,129 846,876,801

Other current assets 454,142,702 651,357,138 908,713,064

Total Current Assets39,687,629,

71039,417,736,

08437,425,718,1

74

Noncurrent Assets

Property, plant and equipment27,918,634,

45426,423,220,7

3825,312,012,09

2

Intangible assets1,273,627,7

761,463,851,17

6 1,641,227,640

Biological assets 428,961,591 459,053,688 448,700,235

Investment in a joint venture 96,139,053 89,966,944 89,497,240

Investment properties 64,491,512 68,149,307 71,807,094

Deferred tax assets 91,907,509 98,507,804 28,258,903

Net Pension Assets 70,030,200

Other noncurrent assets 425,923,637 353,198,160 272,049,168

Total Noncurrent Assets30,299,685,

53228,955,947,

81727,933,582,5

72

TOTAL ASSETS:69,987,315,

24268,373,683,

90165,359,300,7

46

LIABILITIES AND EQUITY:

Current LiabilitiesAccounts payable and other accrued liabilities

7,586,842,126

7,270,818,277 6,513,309,554

Current portion of long-term debt -8,205,763,57

8 7,401,385

Short-term debt8,588,536,8

845,749,632,63

5 5,111,859,534Trust receipts and acceptances payable

3,464,360,214

1,448,156,283 -

19

Income tax payable 428,184,136 408,699,778 363,718,685

Total Current Liabilities20,067,923,

36023,083,070,

55111,996,289,1

58

FORWARD

SEPTEMBER 30

2012 2011 2010

Noncurrent Liabilities

Long-term debt - net of current portion2,990,455,9

263,002,447,14

611,218,947,38

5

Deferred tax liabilities 301,320,823 237,004,193 305,823,194

Net pension liability 11,063,529 24,650,517 -

Total Noncurrent Liabilities3,302,840,2

783,264,101,8

5611,524,770,5

79

Total Liabilities23,370,763,

63826,347,172,

40723,521,059,7

37

EquityEquity attributable to equity holders of the parent

Paid-up capital19,056,685,

25113,455,557,3

7013,455,557,37

0

Retained earnings32,956,735,

05229,137,859,1

47 28418631895

Other comprehensive income 793,452,103 581,744,696 1161870260

Equity reserve(5,556,531,

939) - -

Treasury shares(670,386,03

4)(2,414,026,1

53) -209191201846,579,954,

43340,761,135,0

6040,944,147,50

7Equity attributable to non-controlling interests 36,597,171

1,265,376,434 894093502

Total Equity46,616,551,

60442,026,511,

49441,838,241,0

09

TOTAL LIABILITIES AND EQUITY69,987,315,

24268,373,683,

90165,359,300,7

46

20


HORIZONTAL ANALYSIS

SEPTEMBER 30 INCREASE(DECREASE)

2012 2011 AMOUNT %

ASSETS:

Current Assets


74,546,881,52

7 798,951,870 17.57%Financial assets at fair value through profit or loss

10,812,402,265

5,511,551,122 5,300,851,143 96.18%


110,652,071,6

97(5,854,195,076

)-

54.96%


57,419,824,81

5 41,208,100 0.56%


29,724,784,65

6 34,549,496 0.36%


8 911,265,129 145,742,529 15.99%

Other current assets 454,142,702 651,357,138 (197,214,436)-

30.28%

Total Current Assets39,687,629,7

1039,417,736,

084 269,893,626 0.68%

Noncurrent Assets

Property, plant and equipment27,918,634,4

5426,423,220,7

38 1,495,413,716 5.66%


61,463,851,17

6 (190,223,400)-

12.99%

Biological assets 428,961,591 459,053,688 (30,092,097) -6.56%

Investment in a joint venture 96,139,053 89,966,944 6,172,109 6.86%

Investment properties 64,491,512 68,149,307 (3,657,795) -5.37%

Deferred tax assets 91,907,509 98,507,804 (6,600,295) -6.70%

Net Pension Assets

Other noncurrent assets 425,923,637 353,198,160 72,725,477 20.59%

Total Noncurrent Assets 30,299,685,5 28,955,947, 1,343,737,715 4.64%

21

32 817

TOTAL ASSETS:69,987,315,2

4268,373,683,

901 1,613,631,341 2.36%



7,586,842,126

7,270,818,277 316,023,849 4.35%


8


45,749,632,63

5 2,838,904,249 49.38%Trust receipts and acceptances payable

3,464,360,214

1,448,156,283 2,016,203,931

139.23%

Income tax payable 428,184,136 408,699,778 19,484,358 4.77%

Total Current Liabilities20,067,923,3

6023,083,070,

551(3,015,147,191

)-

13.06%

SEPTEMBER 30 INCREASE(DECREASE)

2012 2011 AMOUNT %

Noncurrent LiabilitiesLong-term debt - net of current portion

2,990,455,926

3,002,447,146 (11,991,220) -0.40%

Deferred tax liabilities 301,320,823 237,004,193 64,316,630 27.14%

Net pension liability 11,063,529 24,650,517 (13,586,988)-

55.12%Total Noncurrent

Liabilities3,302,840,27

83,264,101,8

56 38,738,422 1.19%

Total Liabilities23,370,763,6

3826,347,172,

407(2,976,408,7

69)

-11.30

%


Paid-up capital19,056,685,

25113,455,557,3

705,601,127,88

1 41.63%


05229,137,859,1

473,818,875,90

5 13.11%

Other comprehensive income 793,452,103 581,744,696 211,707,407 36.39%

Equity reserve(5,556,531,9

39) -


4)(2,414,026,15

3)1,743,640,11

9 -72.23%46,579,954,

43340,761,135,0

605,818,819,37

3 14.28%Equity attributable to non-controlling interests 36,597,171

1,265,376,434

(1,228,779,263) -97.11%


60442,026,511,

4944,590,040,1

10 10.92%


24268,373,683,

9011,613,631,3

41 2.36%

22


FOR THE YEARS ENDED SEPTEMBER 30VERTICAL ANALYSIS

2012 % 2011 %ASSETS:

Current Assets


97 7.64%4,546,881,52

7 6.65%

Financial assets at fair value through profit or loss

10,812,402,265

15.45%

5,511,551,122 8.06%


21 6.86%10,652,071,6

9715.58

%


1510.66

%7,419,824,81

510.85

%


5213.94

%9,724,784,65

614.22

%


58 1.51% 911,265,129 1.33%

Other current assets 454,142,702 0.65% 651,357,138 0.95%

23

Total Current Assets39,687,629,

71056.71

%39,417,736,

08457.65

%

Noncurrent Assets

Property, plant and equipment27,918,634,

45439.89

%26,423,220,7

3838.65

%


76 1.82%1,463,851,17

6 2.14%

Biological assets 428,961,591 0.61% 459,053,688 0.67%

Investment in a joint venture 96,139,053 0.14% 89,966,944 0.13%

Investment properties 64,491,512 0.09% 68,149,307 0.10%

Deferred tax assets 91,907,509 0.13% 98,507,804 0.14%

Net Pension Assets

Other noncurrent assets 425,923,637 0.61% 353,198,160 0.52%

Total Noncurrent Assets30,299,685,

53243.29

%28,955,947,

81742.35

%

TOTAL ASSETS:69,987,315,

242100.00

%68,373,683,

901100.00

%



7,586,842,126

10.84%

7,270,818,277

10.63%


8 12%


8412.27

%5,749,632,63

5 8.41%

Trust receipts and acceptances payable3,464,360,2

14 4.95%1,448,156,28

3 2.12%

Income tax payable 428,184,136 0.61% 408,699,778 0.60%

Total Current Liabilities20,067,923,

36028.67

%23,083,070,

55133.76

%

2012 % 2011 %

Noncurrent Liabilities

Long-term debt - net of current portion2,990,455,9

26 4.27%3,002,447,14

6 4.39%

Deferred tax liabilities 301,320,823 0.43% 237,004,193 0.35%

Net pension liability 11,063,529 0.02% 24,650,517 0.04%

Total Noncurrent Liabilities3,302,840,2

78 4.72%3,264,101,8

56 4.77%

Total Liabilities23,370,763,

63833.39

%26,347,172,

40738.53

%


Paid-up capital 19,056,685, 27.23 13,455,557,3 19.68

24

251 % 70 %


05247.09

%29,137,859,1

4742.62

%

Other comprehensive income 793,452,103 1.13% 581,744,696 0.85%

Equity reserve(5,556,531,9

39) -7.94% - 0.00%


4) -0.96%(2,414,026,15

3) -3.53%46,579,954,

43366.55

%40,761,135,0

6059.62

%Equity attributable to non-controlling interests 36,597,171 0.05%

1,265,376,434 1.85%


60466.61

%42,026,511,

49461.47

%


242100.00

%68,373,683,

901100.00

%

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME

25

YEARS ENDED SEPTEMBER 30

2012 2011 2010SALE OF GOODS AND SERVICES 71,201,677,779 67,167,630,481 57,719,996,079

COST OF SALES 52,730,554,394 50,645,273,658 41,113,405,237

GROSS PROFIT 18,471,123,385 16,522,356,823 16,606,590,842Selling and distribution costs

(8,696,876,368) (7,680,831,878) (7,091,008,271)

General and administrative expenses

(1,973,722,359) (1,952,777,324) (1,837,374,186)

OPERATING INCOME 7,800,524,658 6,888,747,621 7,678,208,385Market valuation gain (loss) on financialassets at fair value through profit or loss 1,548,491,547 (1,157,315,912) 2,007,094,315

Finance revenue 1,229,729,268 1,191,241,808 1,222,064,699

Finance costs (683,049,996) (1,001,247,740) (1,034,199,841)

Impairment losses (197,874,576) (167,210,935) (442,888,794)Net foreign exchange losses (634,390,049) (36,688,172) (335,280,036)Equity in net income of a joint venture 31,172,102 25,469,633 26,194,500Other income (expenses) 52,624,725 (121,547,748) (201,943,816)

INCOME BEFORE INCOME TAX 9,147,227,679 5,621,448,555 8,919,249,412PROVISION FOR INCOME TAX 989,341,422 613,894,698 780,999,818

NET INCOME 8,157,886,257 5,007,553,857 8,138,249,594


HORIZONTAL ANALYSIS

26

YEARS ENDED SEPTEMBER 30 INCREASE(DECREASE)

2012 2011 AMOUNT %SALE OF GOODS AND SERVICES

71,201,677,779 67,167,630,481

4,034,047,298 6.01%

COST OF SALES 52,730,554,394 50,645,273,658

2,085,280,736 4.12%

GROSS PROFIT 18,471,123,385 16,522,356,823

1,948,766,562 11.79%

Selling and distribution costs

(8,696,876,368)

(7,680,831,878)

(1,016,044,490) 13.23%

General and administrative expenses

(1,973,722,359)

(1,952,777,324)

(20,945,035) 1.07%

OPERATING INCOME 7,800,524,658 6,888,747,621

911,777,037 13.24%

Market valuation gain (loss) on financial

assets at fair value through profit or loss

1,548,491,547

(1,157,315,912)

2,705,807,459

-233.80

%

Finance revenue 1,229,729,268 1,191,241,808

38,487,460 3.23%

Finance costs (683,049,996)

(1,001,247,740)

318,197,744 -31.78%

Impairment losses (197,874,576)

(167,210,935)

(30,663,641) 18.34%

Net foreign exchange losses

(634,390,049)

(36,688,172)

(597,701,877)

1629.14%

Equity in net income of a joint venture

31,172,102

25,469,633

5,702,469 22.39%

Other income (expenses) 52,624,725

(121,547,748)

174,172,473

-143.30

%

INCOME BEFORE INCOME TAX

9,147,227,679 5,621,448,555

3,525,779,124 62.72%

PROVISION FOR INCOME TAX

989,341,422

613,894,698

375,446,724 61.16%

NET INCOME 8,157,886,257 5,007,553,857

3,150,332,400 62.91%

27


VERTICAL ANALYSISFOR THE YEARS ENDED SEPTEMBER 30

2012 % 2011 %SALE OF GOODS AND SERVICES 71,201,677,779

100.00% 67,167,630,481

100.00%

COST OF SALES 52,730,554,394 74.06% 50,645,273,658 75.40%

GROSS PROFIT 18,471,123,385 25.94% 16,522,356,823 24.60%Selling and distribution costs (8,696,876,368) -12.21% (7,680,831,878) -11.44%General and administrative expenses (1,973,722,359) -2.77% (1,952,777,324) -2.91%

OPERATING INCOME 7,800,524,658 10.96% 6,888,747,621 10.26%Market valuation gain (loss) on financialassets at fair value through profit or loss 1,548,491,547 2.17% (1,157,315,912) -1.72%

Finance revenue 1,229,729,268 1.73% 1,191,241,808 1.77%

Finance costs (683,049,996) -0.96% (1,001,247,740) -1.49%

Impairment losses (197,874,576) -0.28% (167,210,935) -0.25%Net foreign exchange losses (634,390,049) -0.89% (36,688,172) -0.05%Equity in net income of a joint venture 31,172,102 0.04% 25,469,633 0.04%

Other income (expenses) 52,624,725 0.07% (121,547,748) -0.18%

INCOME BEFORE INCOME TAX 9,147,227,679 12.85% 5,621,448,555 8.37%PROVISION FOR INCOME TAX 989,341,422 1.39% 613,894,698 0.91%

NET INCOME 8,157,886,257 11.46% 5,007,553,857 7.46%

28

FINANCIAL ANALYSIS:

HORIZONTAL ANALYSIS:

A closer look at the URC’ balance sheet reveals that there is 17.6% or P798.9

million increase in cash and cash equivalents from P4.55 billion P5.35 billion in 2012

was due to increase in cash in banks sourced from operating activities. While 12.9%

decrease in available-for-sale investments was primarily due to maturity of certain

bond investments, net of increase in market values and amortization of bond

discount. The 30.3% decrease in other current assets was due to decline in input

taxes.

As a result, total current assets increased by 0.68% or P269 million from P39.42

billion in 2011 to P39.69 billion in 2012.

The 5.66% increase in property, plant and equipment was due to increase in capital

expenditures as a result of company’s expansion.

The 12.99% decrease in intangible assets was due to recognition of impairment loss

on trademark of a foreign subsidiary. The 6.56% decrease in biological assets was

due to increase in population of livestock, net of decline in market value of hogs.

The 6.86% increase investment in a joint venture was due to higher net income of

Hunt-URC, net of dividends received. The 5.37% decrease investment properties

were due to depreciation recognized on the properties. The 20.6% increase in other

non-current assets was due to increase in miscellaneous deposits, net of decline in

deferred input tax.

As a result, there is a 4.64% or P1.34 billion increase in non-current asset from

P28.95billion in 2011 to P30.3billion in 2012.

29

Total assets registered 2.36 % growth or P1.61 billion from P68.27billion in 2011 to

P69.99 billion in 2012.

As per the company’s current liabilities, there is a significant 49.4% increase in

short-term debt due to additional loan availments from foreign and local banks.

Meanwhile, the 139.2% increase in trust receipts and acceptances payable due to

increased utilization of existing trust receipt facilities.

Resulting total current liabilities decreased favorably by 13.06% or P3.01 billion

from P23.08 billion in 2011 to P20.07 billion in 2012.

As per the company’s noncurrent liabilities, there is a 0.40% decrease in long-term

debt due to settlement of matured bonds payable and long-term loans. The 27.14%

increase in deferred income tax liabilities – net due to decline in deferred tax assets

on unrealized market loss on hogs valuation and recognition of deferred tax liability

on unrealized foreign exchange gain. The 55.12% decrease in net pension liability

due to contributions made to the retirement plan, net of accrual of pension

expense.

Total non-current liabilities registered a 1.19% or P38.73 million increase from P3.26

billion in 2011 to P3.30 billion in 2012.

Total liabilities decreased favorably by 11.30% or P2.98 billion from P26.35billion

from 2011 to P23.37billion in 2012.

As per the URC’s equity, the 41.63% increase in paid-up capital was due to re-

issuance of Company shares held in treasury in excess of cost. The 13.11% increase

in retained earnings was due to net income during the year, net of dividends

declared. The 36.39% increase in other comprehensive income can be attributed to

30

increase in market values of bond and equity investments classified as available-

for-sale, net of decline in cumulative translation adjustments as a result of

appreciation in value of Philippine peso vis-à-vis US dollar. 100% increase in equity

reserve was due to difference in the consideration paid against the carrying value of

the acquired non-controlling interest in URC International. The 72.23% decrease in

treasury shares can be attributed to re-issuance of Company shares. 97.1%

decrease in equity attributable to non-controlling interests was due to acquisition of

the remaining 23% minority share in URC International, net of share in the net

income of Nissin-URC.

Total equity resulted 10.92% or P4.59billion increase from P42.02 billion in 2011 to

P46.62billion in 2012.

As per URC income statement, consolidated sale of goods and services of P71.202

billion for the fiscal year ended September 30, 2012, 6.01% sales growth over last

year.

URC’s cost of sales consists primarily of raw and packaging materials costs,

manufacturing costs and direct labor costs. Cost of sales increased by P2.085

billion, or 4.12%, to P52.730 billion in fiscal 2012 from P50.645 billion recorded in

fiscal 2011 due to increase in sales volume.

URC’s gross profit for fiscal 2012 amounted to P18.471 billion, up by P1.949 billion

or 11.79% from P6.522 billion reported in fiscal 2011.

URC’s selling and distribution costs and general and administrative expenses

consist primarily of compensation benefits, advertising and promotion costs, freight

and other selling expenses, depreciation, repairs and maintenance expenses and

other administrative expenses. Selling and distribution costs, and general and

31

administrative expenses rose by P1.037 billion or 10.76% to P10.671 billion in fiscal

2012 from P9.634 billion registered in fiscal 2011.

As a result of the above factors, operating income increased by P 912million,

or 13.24% to P7.801 billion in fiscal 2012 from P6.889 billion reported in fiscal 2011.

The 233.8% increase in market valuation gain on financial instruments at fair value

through profit or loss of P1.548 billion was reported in fiscal 2012 against the

P1.157 billion market valuation loss in fiscal 2011 due to significant recoveries in

the market values of bond and equity investments according to annual report.

URC’s finance revenue consists of interest income from investments in financial

instruments, money market placements, savings and dollar deposits and dividend

income from investment in equity securities. Finance revenue increased by P38.47

million to P1.230 billion in fiscal 2012 from P1.191 billion in fiscal 2011 due to

increased level of financial assets as per annual report.

URC’s finance costs consist mainly of interest expense which decreased by P318

million or 31.78%, to P683 million in fiscal 2012 from P1.001 billion recorded in

fiscal 2011 due to decline in level of financial debt resulting from settlement of long-

term debt.

There is a 1,629.1 % increase in foreign exchange loss - net amounted to P634

million in fiscal 2012 from P37 million reported in fiscal 2011 due to higher

unrealized foreign exchange loss on translation of foreign currency denominated

accounts as a result of continuous appreciation of Philippine peso vis-a vis US dollar.

32

Impairment loss of P198 million was reported in fiscal 2012, an increase of 18.34%

from P167 million in fiscal 2011 due to higher impairment loss recognized on

trademark this year against last year.

Equity in net income of a joint venture amounted to P31 million in fiscal 2012 as

against P25 million in fiscal 2011 due to higher net income of Hunt-Universal Robina

Corporation this year against last year.

Other income (expenses) - net consists of gain (loss) on sale of fixed assets and

investments, amortization of bond issue costs, rental income, and miscellaneous

income and expenses. Other income (expenses) - net of P53 million was reported in

fiscal 2012 against the P122 million other expenses - net in fiscal 2011 due to loss

on sale of net assets of the disposal group recognized last year.

The Company recognized provision for income tax of P989 million in fiscal 2012,

61.16% increase from P614 million in fiscal 2011 due to higher taxable income and

recognition of deferred tax liabilities on unrealized foreign exchange gain.

URC’s net income for fiscal 2012 amounted to P8.158 billion, higher by P3.150

billion or 62.91% from P5.008 billion in fiscal 2011, due to higher operating income

and significant increase in market valuation gain on bond and equity holdings.

33

VERTICAL ANALYSIS:

URC’s common size balance sheet reveals that the current assets in 2012 are

56.71% of total assets, 0.94% than 57.65% % in 2011. While the total non-current

assets in 2012 are 43.29% of the total assets, 0.94% lower than to 42.35% in 2011.

On the other hand, current liabilities in 2012 are 28.67% of the total liabilities and

equity, 5.09% significantly lower than 33.76% in 2011. Total non-current liabilities in

2012 are 4.72% of total liabilities and equity, 0.05% lower than 4.77% in 2011.

Despite the 0.94% decrease in the total asset, the significant decrease in liabilities

suggests of an improving working capital.

As per the URC’s common size income statement, the cost of sales is maintained at

about 75%. This means that no change in mark up on the goods sold was made

during the two-year period. The increase in gross income was due mainly to the

increase in sales volume and not to the change in the company’s pricing policy.

Moreover, the operating expenses are kept at around 15%. As a result, operating

income increased by 0.70%.

Other income and finance charges increased 1.89% mainly due to the 2.17 %

increase market valuation gain on financial instruments at fair value through profit

or loss.

As a result the income before income tax increased 4.48% from 8.37% in 2011 to

12.85% in 2012.

Provision for income tax favorably increased by 0.48% from 0.91% in 2011 to 1.39%

in 2012.

34

As a result, net income favorably rose 4% from 7.46% in 2011 to 11.46% in 2012.

FINANCIAL RATIO ANALYSIS:

URC’s financial position remains healthy with strong cash levels. The Company has

a current ratio of 1.98:1 as of September 30, 2012 higher than the 1.71:1 as of

September 30, 2011. Acid test ratio also improved by 0.28% in 2012 from 0.90:1 in

2011 to 1.18:1 in 2011. The company’s receivable turnover was maintained at 10

turnovers. The company was able to collect its receivables in 38 days. On the other

hand, Inventory turnover slightly decreased. Likewise the average age of inventory,

was extended for 4 days from 64 days to 68 days.

35

LIQUIDITY RATIOS 2012 2011

Current Ratio 1.98:1 1.71:1

Acid Test Ratio 1.18:1 0.90:1

Receivables Turnover 10 times 10 times

Average Age of Receivables 38 days 38 days

Inventory Turnover 5 times 6 times

Average Age of Inventory 68 days 64 days

SOLVENCY RATIOS 2012 2011

Times Interest Earned 12 times 7 times

Debt to Total Asset Ratio 33% 39%

URC’s Solvency Ratios improved by 2012. Times interest earned improved

tremendously by 5 times from 7 times in 2011 to 12 times in 2012. This means that

the company may be able to pay all its expenses including interest expense and still

have enough left for net income. Furthermore, the company’s debt to total asset

ratio favorably decreased by 6% from 39% in 2011 to 33% in 2012. The decrease in

debt ratio indicates that the total assets provided by the creditors decreased. The

owner’s equity was able to fund its assets.

PROFITABILITY RATIOS 2012 2011

Profit Margin 11% 7%

Asset Turnover 1.03 1.00

Return on Assets 12% 7%

36

Return on common stockholder’s equity 18% 12%

Earnings Per Share 3.69 2.25

Price-Earnings Ratio 22.72:1 21.33:1

Pay-out Ratio 48% 78%

URC’s overall profitability improved in 2012. The company’s profit margin increased

by 4% from 7% in 2011 to 12% in 2012, Asset turnover slightly improved by 0.03%

from 1.00 in 2011 to 1.03 in 2012. Return on assets improved by 5% from 7% in

2011 to 12% in 2012. This indicates that the company was able to manage its

assets efficiently than 2011. Return on common stockholder’s equity favorably

increased by 6% from12% in 2011 to 18% on 2012. Earnings per share increased

by 64% or 1.44 from 2.25 in 2011 to 3.69 in 2012. On the other hand, price-

earnings ratio increased by 6.52% or 1.39 from 21. 33:1 in 2011 to 22.72:1 in 2012.

The company’s payout ratio decreased by 30% from 78% in 2011 to 48% in 2012.

CONCLUSION:

Universal Robina Corporation operates its food business through operating divisions

and wholly-owned or majority owned subsidiaries that are organized into three core

business segments: branded consumer foods, agro-industrial products and

commodity food products. The Company has a strong brand portfolio created and

supported through continuous product innovation, extensive marketing and

37

experienced management. Its brands are household names in the Philippines and a

growing number of consumers across Asia are purchasing the Company’s branded

consumer food products.

The company’s overall financial condition improved in 2012. The company’s

liquidity ratios reveal that the company was able to meet its short term obligations

as per the 16% or 0.27 increase in its current ratio.

The company’s solvency also improved in 2012. URC’s Times interest earned

improved tremendously by 5 times from 7 times in 2011 to 12 times in 2012.

Furthermore, the company’s debt to total asset ratio favorably decreased by 6%

from 39% in 2011 to 33% in 2012.

The company’s overall profitability improved in 2012. . It is evident in the

company’s 4% increase in profit margin from 7% in 2011 to 12% in 2012.

The strong growth in the company’s full year profit was driven by its domestic

branded consumer food group (BCFG), which more than offset the weak

performance of the commodity food group. The company is also benefiting from its

successful expansion internationally.

38

RECOMMENDATION:

Universal Robina Corporation (URC) is a consumer food, animal feed and

agricultural product manufacturing company. The company undertakes

manufacturing and distribution of branded consumer foods, hogs and day-old

chicks, animal and fish feeds, glucose and veterinary compounds as well as it

operates flour milling, sugar milling and refining and makes plastic film for

39

packaging consumer products. It also offers coffee, flour, feed, meat, bakery,

beverages, biscuits, candy, chocolate, noodles, and easy-to-drink products. The

company operates in Philippines, China, Thailand, Malaysia, Vietnam, Singapore,

Hong Kong and Indonesia internationally.

Cost of sales slightly increased due to increase in sales. It would be highly beneficial

if the company would monitor and manage this efficiently. By tapering this down,

the company may be able to increase its profits.

The stronger peso’s effect on the export industry is evident in the 1,629.1 %

increase in foreign exchange loss in 2012. It is highly recommended that the

company would consider its effect on the company’s net income. By prioritizing the

domestic market and by strategically managing the export business, the losses may

be reduced.

The sales in Thailand contracted in 2012; this was largely due to the floods

experienced near the end of 2011. Due to the floods in late 2011, spending on

consumer staples is higher than on discretionary products. It is highly

recommended that the company to launch other products such as confectionaries

and to increase its budget in adverting and marketing.

Through its market leadership and commitment to excellence the company is

expected to play in the ASEAN growth story.

40

FINANCIAL RATIO

COMPUTATIONS

41

universal robina corporation: a financial analysis

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