UNIVERSAL

ROBINA
CORPORATION
Financial Statement Analysis

Acc5000 Group 1
Frtyz Agosila
Karlo Prado

COMPANY HISTORY AND BACKGROUND

As taken from the company website and accompanying documents to Financial
Statements:
Company History
Universal Robina Corporation (URC) traces its beginnings all the way back to
1954. John Gokongwei 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 linchpin of the company that would become the
URC we know today.
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 country like Nestle and Procter & Gamble. 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 Caf Puro and Nescafe.
After coffee came chocolates. Nips, a panned chocolate, was 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 salty snacks industry through 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 Pretzels,
Piattos, and Maxx.
The coming decades saw more acquisitions and expansion. In the early 1970s,
the family entered the commodities business through the 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.
While the businesses became more diversified, the companies were slowly
integrated in order to streamline and minimize costs. In 2005, the present
structure of the group was completed. All the different companies are now
organized under the Universal Robina Corporation umbrella, divided into 3
focused groups:

the Branded Consumer Food Group,

comprised of BCFG Domestic (including packaging) and International

the Agro-Industrial group, comprised of

Universal Corn Products, Robina Farms, and Robichem

and the Commodities group, with the

Sugar and Flour divisions

Company Background
Universal Robina Corporation (URC) is one of the largest branded food product
companies in the Philippines and has a growing presence in other Asian markets. It
as 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. The Company is a dominant player with leading market
shares in Savory Snacks, Candies and Chocolates, and is a significant player in
Biscuits, with leading positions in Cookies and Pretzels. URC is also the largest
player in the RTD Tea market, and is a respectable 2 nd player in the Coffee
business.
No material reclassifications, merger, consolidation, or purchase or sale of
significant amount of assets (not ordinary) were made in the past three years
except those mentioned in the succeeding paragraph. The Companys financial
condition has remained solid in the said period.
The Company 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.
Branded consumer foods (BCF), including our packaging division, is the Companys
largest segment contributing about 76.5% of revenues for the fiscal year ended
September 30, 2008. Established in the 1960s, the Companys branded consumer
foods division manufactures and distributes a diverse mix of snack, chocolate,
candy, biscuit, bakery, beverage, noodles and tomato-based products. The
manufacture, distribution, sales and marketing activities for the Companys
consumer food products are carried out mainly through the Companys branded
consumer foods group consisting of snack foods, beverage and grocery divisions,
although the Company conducts some of its branded consumer foods operations

through its wholly-owned or majority-owned subsidiaries and joint venture

companies (i.e. Hunt-URC and Nissin-URC). The Company established URCPackaging Division to engage in the manufacture of polypropylene films for
packaging companies. The bi-axially oriented polypropylene plant (BOPP), located
in Batangas, and began commercial operation in June 1998. URC also formed Food
Service and Industrial Division that supply BCF products in bulk to certain
institutions like hotels, restaurants, and schools.
In 2004, the company introduced and manufactured ready to drink tea in PET
bottles, C2. The company expanded the beverage product line to include functional
beverages such as fitness water. In 2006, the Company supplied certain flexible
packaging materials to BCF through its wholly owned subsidiary, CFC Clubhouse
Property, Inc. In 2007, the company acquired the water manufacturing facilities
and trademark from Nestle Water Philippines Inc. which added water to the
beverage product line. In 2008, the company acquired GMCs Granny Goose brand
and snacks line which further expanded our snacks product lines.
The majority of the Companys branded consumer foods business is conducted in
the Philippines. In 2000, the Company began to expand its BCF business more
aggressively into other Asian markets, primarily through its subsidiary, URC
International and its subsidiaries in China: Shanghai Peggy Foods Co. Ltd., Panyu
Peggy Foods Co. Ltd. and URC Hongkong Co. Ltd. (formerly Hongkong Peggy Snack
Foods Co. Ltd.); in Malaysia: URC Snack Foods (Malaysia) Sdn. Bhd. (formerly Pacific
World Sdn. Bhd.) and Ricellent Sdn. Bhd.; in Thailand: URC (Thailand) Co. Ltd.
(formerly Thai Peggy Foods Co. Ltd.); in Singapore: URC Foods (Singapore) Pte. Ltd.
(formerly Pan Pacific Snacks Pte. Ltd.); in 2007 Acesfood Network Pte, Ltd. and in
2008 Advanson International Pte, Ltd.; in Indonesia: PT URC Indonesia. In 2006,
the Company started operations in Vietnam through its subsidiary URC Vietnam
Company Ltd. The Asian operations contributed about 20.4% of the Companys
revenues for the fiscal year ended September 30, 2008.
The Company has a strong brand portfolio created and supported through
continuous product innovation, extensive marketing and experienced
management. Its brands are household names in the Philippines and a growing
number of consumers across Asia are purchasing the Companys branded
consumer food products.
The Companys agro-industrial products segment operates three divisions, which
engage in hog and poultry farming (Robina Farms or RF), the manufacture and
distribution of animal feeds, glucose and soya products (Universal Corn Products or
UCP), and the production and distribution of animal health products (Robichem).
This segment contributed approximately 12.3% of sale of goods and services in
fiscal year 2008.
The Companys commodity food products segment engages in sugar milling and
refining through its Sugar divisions URSUMCO, CARSUMCO , SONEDCO , and in
fiscal 2008, the company acquired PASSI I and II
which provide additional
capacity to our existing sugar mills; and flour milling and pasta manufacturing
through URC Flour division.
In fiscal 2008, the segment contributed
approximately 11.2% of aggregate sale of goods and services.

FINANCIAL STATEMENT ANALYSIS

Because of the uniqueness of URCs product mix, direct comparison with other
competitors in the industry, or industry standards a whole, would not be the most
ideal approach for this analysis. We instead opt to perform mostly year-on-year
analysis on its financial statements. By comparing URCs 2008 financial
performance versus that of 2007, we hope to gain valuable insights on its
performance, which could help specifically identify key areas for improvement and
aid in possible investment decisions.
PROFITABILITY MEASURES
Gross Margin Percentage

Net Sales Revenue

Cost of Sales
Gross Margin
Gross Margin
Percentage

2008
45,454,500,015
34,599,920,305
10,854,579,710

2007
37,720,260,615
27,616,777,337
10,103,483,278

24%

27%

Examination of the companys Gross Margin percentage reveals both positive

and negative aspects of the companys 2008 performance. On the positive side,
the company was able to increase its net sales revenue from P37.7 Billion to
P45.5 Billion in just one year, which indicates that its products are being sought
by a larger market. Unfortunately however, its Gross Margin decreased
significantly, by 3 whole percentage points, in 2008. As a result, despite the
increased sales, Gross Margin only increased by around P750 Million. URC has
been unable to manage its inventory costs as well as it had in previous years,
which puts a lot of pressure on the company to increase its sales in order to
generate growth.
Profit Margin

Net Income

2008
341,195,739

2007
5,501,028,708

Net Sales
Revenue
Profit Margin

45,454,500,015
0.75%

37,720,260,615
14.58%

The company experienced a precipitous decline in Net income in 2008. This is

mostly attributed to the companys very extensive investment activities. In 2007,
the company sold shares of Robinsons Land Corporation which resulted in a total
gain of P2.9 Billion. Last year however, the fair value of its financial assets
diminished by a staggering P2.3 Billion. The combination of these two items was
the primary cause for the decrease in Net Income.
Both the drop in Net Income and an increase in Net Sales Revenue contributed to
a much declined Profit Margin. URCs profit margin currently stands at less than
1% of net sales revenue, which means that the sales it generated were very
inefficient in terms of increasing total Net Income.
BASIC/DILUTED EARNINGS PER SHARE

2008
Net income attributable to equity
holders
of the parent
Weighted average number of
common shares
Basic/dilutive EPS

2007

2006

381,029,569

5,556,978,624

3,018,916,609

2,180,503,348
0.17

2,221,851,481
2.50

2,127,851,482
1.42

Since URC has no potentially dilutive securities, therefore its basic and diluted
EPS figures are the same. Lower Net Income resulted in an overall decrease in
earnings per share, which shows the URC was not able to create much value for
its shareholders in the year 2008.
CASH REALIZATION

Cash Generated by
Operations
Net Income
Cash Realization

2008

2007

5,473,383,736
341,195,739
16 times

3,063,024,756
5,501,028,708
0.56 times

The Cash Realization ratio is a measure of how well net income is translated into
cash. Normally, a much increased Cash Realization ratio shows that the company
has been effective at managing its cash. However in URCs case, the higher cash
realization is also partly an effect of the drop in Net Income for 2008. The other
reason for improved Cash Realization was much higher cash generated by
operations.
MEASURES OF INVESTMENT UTILIZATION

2008

2007

Sales Revenue

45,454,500,015.00

37,720,260,615.00

Total Assets

57,930,635,067.00

58,833,901,909.00

0.78

0.64

45,454,500,015.00

37,720,260,615.00

Long-term Liabilities

806,947,618.00

1,407,852,157.00

Shareholders' Equity

32,144,429,756.00

34,998,440,344.00

1.38

1.04

45,454,500,015.00

37,720,260,615.00

24,327,344,376.00

22,156,451,732.00

1.87

1.70

Asset Turnover
Sales Revenue

Invested Capital Turnover

Sales Revenue
Property, plant and
equipment
Capital Intensity
Cash
Cash Expenses

2,215,628,259.00

5,045,041,438.00

36,706,895,232.00

34,162,091,556.00

22.03

53.90

6,175,873,872.00

5,781,478,724.00

45,454,500,015.00

37,720,260,615.00

49.59

55.94

7,774,455,180.00

5,903,328,679.00

34,599,920,305.00

27,616,777,337.00

82.01

78.02

34,599,920,305.00

27,616,777,337.00

7,774,455,180.00

5,903,328,679.00

4.45

4.68

Days' Cash
Accounts receivable
Sales
Days' Receivable
Inventory
Cost of Sales
Days' Inventory
Cost of Sales
Inventory
Inventory Turnover

Sales Revenue

45,454,500,015.00

37,720,260,615.00

Current Assets

23,181,506,279.00

33,873,919,118.00

Current Liabilities

16,112,747,149.00

14,520,123,518.00

6.43

1.95

Current Assets

23,181,506,279.00

33,873,919,118.00

Current Liabilities

16,112,747,149.00

14,520,123,518.00

1.44

2.33

Current Monetary Assets

14,370,687,010.00

27,363,388,946.00

Current Liabilities

16,112,747,149.00

14,520,123,518.00

0.89

1.88

Working Capital Turnover

Current Ratio

Quick Ratio

Asset Turnover Ratio

Because URC sells generally low-margin consumer products, maintaining a high
Asset Turnover Ratio is important. Asset Turnover effectively measures how well
the company can generate sales given its pool of assets. URC did a very good job
of creating additional sales in 2008. Despite having less assets than it did a year
before, the company was able to generate almost P8 Billion in additional sales,
increasing its asset turnover ratio significantly.
Invested Capital Turnover
Similar to the asset turnover ratio, Invested Capital Turnover measures how well
a company generates sales given a certain level of invested capital from
shareholders. And URCs shareholders will be pleased to see that its investments
in capital are being efficiently utilized to generate more sales revenue for the
company.
Capital Intensity
Another ratio which indicates the efficiency of the companys sales performance
is its Capital Intensity ratio. This ratio shows how much the increase in sales can
be attributed to increased capital. If sales of a certain company increase, while
the Capital Intensity ratio remains constant, it could indicate that the company is
dependent on increases in capital to improve its sales. URC, by increasing its
Capital Intensity ratio, showed that its sales increases were not simply a
byproduct of higher capital stock, but also due to improved efficiency.
Days Cash

URC was able to decrease its Days Cash from 53.9 days to just 22.0 days from
2007 to 2008. According to the accompanying disclosures, this was the effect of
more money market placements in 2008. This has a positive affect on the
companys cash flow and income, since almost 32 days worth of idle money can
earn profits instead of sitting idly. If the company can maintain this level of cash
without sacrificing too much financial flexibility, it can improve its operations
notably.
Days Receivables
Days Receivables is a rough approximation of the average collection period of a
firm. This ratio decreased significantly in 2008, which indicates a more focused
effort from URC to collect from their dealers and other customers. This improves
the companys cash position.
Days Inventory
The firms Days Inventory, which is a measure of how well the firm manages its
stock of goods, increased in 2008. It is likely that increased sales during the year
led management to be overly optimistic about its production targets, leading to
excess inventory levels that tied up their funds. In that case, the company would
do well to review their sales forecasting procedures in order to fully utilize their
assets.
Inventory Turnover
This ratio is just the reciprocal of Days Inventory, essentially another way of
looking at similar information. The increase in Inventory Turnover showed that
the company sold goods equal to 4.45 times its inventory on hand in 2008,
compared to 4.68 times in 2007. This fact shows that the company can reduce
its inventory levels without sacrificing sales, and by doing so achieve better
utilization of its assets.
Working Capital Turnover
Improved Working Capital Turnover is an indicator of how well company can
create sales from its level of working capital. URCs working capital turnover did
increase, but most of the increase is only artificial. Accompanying disclosures
showed that some financial assets that were previously classified as current
assets in 2007 were reclassified as non-current assets in 2008, in compliance
with PAS 39. Therefore, there is an overstated level of current assets in 2007

which distorts the computation. As a result, direct comparison of Working Capital

Turnover levels is not possible for these two years.
Current Ratio
One of the most popular liquidity measures companies use is Current Ratio,
which expresses current assets as a percentage of current liabilities, as a way of
showing show well a company can cover its short-term liabilities. Due to the PAS
39 adjustment, the comparison between 2007 and 2008 figures is once again not
valid. URCs current ratio of 1.44 however, seems rather low. As discussed in
class, manufacturing companies would generally like a current ratio of around
2.00, to ensure that it has enough cash to use as working capital after it has paid
off its debts.
Quick Ratio
Quick Ratio is similar to Current Ratio, it is just more conservative since the
numerator excludes inventories and prepaid expenses. However, since the
aforementioned adjustment was done to marketable securities, it once again
distorts the year-on-year comparison of Quick Ratio. We would like to note
however, that since the company has a Quick Ratio less than 1, it might run into
certain problems in scheduling its debt repayments. URC would be better served
to increase the level of its monetary assets in order to avoid related problems.

MEASURES OF FINANCIAL CONDITION

Equity Multiplier

Total Assets
Total Equity
Asset / Equity

2008
57,930,635,067
32,144,429,756
1.80

2007
58,833,901,909
34,998,440,344
1.68

A companys Equity Multiplier shows much of its assets are funded by

shareholders rather than liabilities. In terms of leverage, a lower Equity Multiplier
is desirable since it shows that the company is not financially restricted by

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liability obligations. URC has an increasing Equity Ratio, which indicates that it
has increased its liability financing since last year.
Debt-Equity Ratio

Total Liabilities
Total Equity
Debt to Equity

2008
25,786,205,311
32,144,429,756
0.802

2007
23,835,461,565
34,998,440,344
0.681

Another commonly used measure of financial position is the Debt to Equity Ratio,
which expresses debt as a percentage of equity. It was mentioned in class that a
Debt to Equity ratio less than one is desirable. While URC has kept its Debt to
Equity ratio less than 1, it also exceeded 2007 levels by 12%.
Therefore, the company should be careful in future lending activities, in order to
ensure that the companys operational activities are not too constrained by legal
obligations brought about by too much debt.
Debt Ratio

Total Liabilities
Total Assets
Debt Ratio

2007
25,786,205,311
57,930,635,067
0.45

2006
23,835,461,565
58,833,901,909
0.41

The Debt Ratio is essentially the same as the previously discussed Debt to Equity
Ratio, only it expresses Debt as a percentage of Total Assets rather than Total
Equity. The message behind the two ratios however is the same; while debt ratio
remains at an acceptable level (0.5 for Debt ratio, meaning the company has less
debt than equity), it is growing to a point where management has to be careful
about pursuing future loans.
Cashflow from operations Debt Ratio

2008

11

2007

Cashflow generated by
operations
Total Liabilities
Cashflow Debt

5,473,383,736
25,786,205,311
0.21

3,063,024,756
23,835,461,565
0.13

Ideally, it would be good if a company could generate enough cash flows from
operations to finance its total debt. Such a condition would ensure the
companys creditors that it would have no problem in paying of all its debt
obligations. However, URC is a company with extensive holdings in investments
and money market placements, which means that a large part of its cash flows
are derived from sources other than operations. As such, it is not necessarily an
immediate concern that the Cashflow to Debt Ratio is relatively low.
In any case, the company has currently improved this ratio in 2008, which could
help significantly in its debt financing.
Times Interest Earned (TIE)

Pre tax operating profit

Interest Expense
Times interest earned

2007
511,791,646
1,064,823,152
0.48

2006
5,953,284,688
1,688,635,192
4.52

Another measure of how capable a company is to pay its debts is Times Interest
Earned. TIE dropped sharply for URC in 2007. Although it was able to reduce its
Interest Expense, lower Net Incomes more than offset its positive effect on TIE.
An even greater concern is that the ratio dropped below 1, which means that at
the current level of income, the company cannot sustain operations, since it will
not be able to pay off its interest expenses.
OVERALL PERFORMANCE MEASURES

Overall Performance Measures

2008

12

2007

Market Price per Share*

11.99

17.33

0.17

2.5

70.53

6.93

341,195,739.00

5,501,028,708.00

1,273,599,234.00

1,620,998,830.00

Earnings per share

Price/Earnings Ratio
Net Income
Interest
Tax Rate

35%

35%

57,930,635,067.00

58,833,901,909.00

2.02%

11.14%

341,195,739.00

5,501,028,708.00

1,273,599,234.00

1,620,998,830.00

35%

35%

Long-term Liabilities

806,947,618.00

1,407,852,157.00

Shareholders' Equity

32,144,429,756.00

34,998,440,344.00

3.55%

18.00%

341,195,739.00

5,501,028,708.00

32,144,429,756.00

34,998,440,344.00

1.06%

15.72%

Total Assets
Return on Assets
Net Income
Interest
Tax Rate

Return on Invested Capital

Net Income
Shareholders' Equity
Return on Shareholders'
Equity

Price-Earnings Ratio
A companys P/E Ratio is an important measure of company value, since it
implicitly shows investor confidence in the company. Higher P/E ratio in 2008
shows that even though EPS dropped sharply that year, the share price did not
drop in the same degree. This shows that the companys shareholders could see
the drop in Net Income as a one-time event, that it will continue its previously
strong performance in future periods. This view has some basis to it, since the
investment losses incurred by URC in 2008 are unlikely to recur.
Return on Assets
ROA shows a companys income relative to the amount of assets it has. This was
very low in 2008 for URC, since it was only able to end up with P341 Million in
Net Income using assets amounting to P58.8 Billion. More than any other ratio,
this one best illustrates the companys struggles that year that mostly come as a
result of bad investments.
Return on Invested Capital

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Another variation of Return on Investment is Return on Invested Capital. Since

this is also a Net Income-based measure, it also declined sharply as an effect of
URCs investment activities. Invested capital, as opposed to Shareholders
equity, makes adjustments for interest and long-term liabilities, which basically
shows how well the firm makes use of the funds it is entrusted with. As we can
see, the firm used a large amount of funds just to product a much lower Net
Income.
Return on Shareholders Equity
This ratio is similar to the preceding one, only without the adjustments for
interest and long-term liabilities. ROSE shows how well the shareholders
investments are translated into Net Income. And in 2008, URC produced a mere
P341 Million of Net Income using Shareholders Equity of P32.1 Billion. Clearly,
shareholders would expect a greater Net Income that than based on its large
investment. ROSE of 1.06% is certainly a very low rate of return.
CONCLUSION AND RECOMMENDATION
From the information presented, we can see that URC is presently not the most
ideal Company to invest in. It currently has large holdings of potentially risky
investments can cause wild fluctuations in Net Income levels, adversely affecting
many ROI ratios as well as TIE. These measures show us how important Net
Income is; most of a companys various success indicators have to do with Net
Income in one way or another. URC should look into investment in either less
risky financial assets, or expansion into other parts of its operations in order to
stabilize its Net Income levels. As seen by the drop in average share price, many
investors were discouraged by URCs performance in the past year, and the
company should always look towards the interests of its shareholders.
URC has certain strengths which it should maintain and build upon. The first is its
sales efficiency, which allowed it to increase its sales without additional financing
of any kind, whether in terms of long-lived assets or working capital. Its products
apparently are appealing to a growing market base, which could provide the
company with a sufficient driver for growth if only it could properly manage its
investments.
Also, URC is showing somewhat improved cash management this year, which
could prove very beneficial as it seeks expansion activities into other locations or

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even product lines. It also has an acceptable debt position, meaning its
operational activities are not hampered by their debt servicing requirements.
By building on these strengths and protecting shareholders from large deviations
in Net Income, URC can potentially be a good investment source in the future.
For now however, it remains a rather risky investment that could result in
significant losses for those involved.
REFERENCES
http://www.universalrobina.com
Anthony, Hawkins, and Kenneth Merchant, Accounting Test & Cases, 12th Edition,
(Boston: McGraw-Hill, 2007).
http://www.investopedia.com

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