“2021 proved to be another challenging year for the global economy, as nations continued to adapt to the erratic nature of the pandemic. From where URC stands, we witnessed the landscape shift in many ways over a relatively short span of time.”
Irwin C. Lee
President & CEO
Message from the President and CEO
“It’s this persevering, people-first spirit from which URC draws its strength and motivation, as we reinforce our capabilities towards accelerated growth. These signs of recovery, alongside our relentless optimism, have solidified our resolve as we face our own giants.”
To our valued Shareholders,
2021 proved to be another challenging year for the global economy, as nations continued to adapt to the erratic nature of the pandemic. From where URC stands, we witnessed the landscape shift in many ways over a relatively short span of time.
“From sowing solutions to harvesting results that sustain many.”
- Irwin C. Lee
In the Philippines, we had sporadic lockdowns and mobility restrictions, affecting the distribution of goods, and overall consumer sentiment. Our neighbors in Southeast Asia also implemented stringent safety protocols to counter surges as more contagious variants began spreading across the region.
These events posed logistical constraints that snarled supply chains worldwide, leading to a hyperinflationary environment for commodities. The geopolitical tension in Eastern Europe has also affected price and trade volatility further challenging the stability of supply.
Nevertheless, the past two years have taught us to play to our strengths by overcoming challenges with adaptive innovation and resilient operations.
Now, we are excited to share with you each chapter of our ongoing transformation journey: from sowing solutions to harvesting results that sustain many.
These events posed logistical constraints that snarled supply chains worldwide, leading to a hyperinflationary environment for commodities. The geopolitical tension in Eastern Europe has also affected price and trade volatility further challenging the stability of supply.
Nevertheless, the past two years have taught us to play to our strengths by overcoming challenges with adaptive innovation and resilient operations.
Now, we are excited to share with you each chapter of our ongoing transformation journey: from sowing solutions to harvesting results that sustain many.
OF GRIT AND RESILIENCE
Nurturing sustainable ambitions and reinforcing our strategic pillars became our tactical advance to rise above headwinds and serve others. Throughout 2021, we built upon our foundation and fundamentals, investing a great deal in improving the performance of our core businesses, anchored on the URC Where-To-Play (WTP) and How-To-Win (HTW) strategies.
In examining our strategies and capabilities in detail, we gained valuable insights into innovating our organizational structure. This led to the establishment of our Agile@Scale Transformation, which allowed the company to take swift action on urgent matters through cross-functional team compositions.
Since the formation of our Agile teams, we witnessed an inspiring display of connected, creative, and adaptive teamwork that supported our WTP strategies.
In examining our strategies and capabilities in detail, we gained valuable insights into innovating our organizational structure. This led to the establishment of our Agile@Scale Transformation, which allowed the company to take swift action on urgent matters through cross-functional team compositions.
Since the formation of our Agile teams, we witnessed an inspiring display of connected, creative, and adaptive teamwork that supported our WTP strategies.
We were able to Grow the Core through rapid product innovation drawn from the teams’ close engagement with our customers and consumers. Agile teams also accelerated business outcomes, giving us the quick wins we need to Expand for More and allot more time, resources, and care to elevate our capabilities.
The collaborative approach of our Agile@Scale has sharpened our sight in identifying pressing concerns and crafting immediate solutions, which we hope to replicate as we roll out the initiative in other regions.
Our transformation journey has brought rewarding returns in the form of operational savings and new product development additions to the pipeline. We attribute our progress to the grit and resilience of our people who continue to efficiently deliver results, drive growth, and build confidence in our customers.
The collaborative approach of our Agile@Scale has sharpened our sight in identifying pressing concerns and crafting immediate solutions, which we hope to replicate as we roll out the initiative in other regions.
Our transformation journey has brought rewarding returns in the form of operational savings and new product development additions to the pipeline. We attribute our progress to the grit and resilience of our people who continue to efficiently deliver results, drive growth, and build confidence in our customers.
BUSINESS REVIEW
URC Net Income up by 109%
An essential driver of our sales momentum in 2021 is URC’s sustained endurance and agility through these extraordinary times. Despite the persisting volatility of the markets in which we are present, our Net Sales from Continuing Operations grew by +3% to Php 117.0 billion, driven by our International and Commodities businesses. This momentum was even more apparent with the rise of our 4th quarter sales of +11% versus the same period last year.
In the Philippines, we capped off the fiscal year slightly below last year, but the figures reflect a gradual yet positive comeback. Our outlook is backed by URC’s sequential and year-on-year growth in the second half of 2021, streaming well into 2022 as we anticipate more significant upturns.
We retained market share gains that were captured during the pandemic, supported by our customer-focused supply chain and advanced product innovations that addressed key consumer themes. These are clear indicators of stability and advancement among our categories, and as economies open up, we expect our firm share base to grow upward and outward.
Our operating income felt the direct impact of rising commodity prices, which we responded to with partial offsetting. Swift pricing actions, mix improvements, and operating expense savings allowed us to reduce its total impact on margins by -76 bps. We are confident that this momentum will only gain upward traction next year, propelling our growth trajectory.
We retained market share gains that were captured during the pandemic, supported by our customer-focused supply chain and advanced product innovations that addressed key consumer themes. These are clear indicators of stability and advancement among our categories, and as economies open up, we expect our firm share base to grow upward and outward.
Our operating income felt the direct impact of rising commodity prices, which we responded to with partial offsetting. Swift pricing actions, mix improvements, and operating expense savings allowed us to reduce its total impact on margins by -76 bps. We are confident that this momentum will only gain upward traction next year, propelling our growth trajectory.
We ended the year on a high note with our Total Net Income up +109%, driven by the recognition of the gain on sale of Oceania, as well as forex gains and sale of idle assets. We also received tax savings from the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act in the Philippines, which lowered corporate income tax rates to drive further investment and growth in the country.
DIVISIONAL PERFORMANCE
As markets recuperate from the low point of 2020, URC saw a positive turning point in the financial performance of Branded Consumer Foods (BCF). We’ve experienced an increase in sales in Q3 and Q4 that has fueled our momentum well into 2022, and we are confident in our growth trajectory.
For BCF Philippines, full-year sales were down slightly by -2%, finishing at Php 59.7 billion, as we entered 2021 with a high base driven by pantry-loading during the first half of 2020. However, in the last quarter of 2021, sales increased as mobility restrictions eased with the division achieving +5.4% growth vs. the same period last year.
Our operating income felt the direct impact of rising commodity prices, which we responded to with partial offsetting. Swift pricing actions, mix improvements, and operating expense savings allowed us to reduce its total impact on margins by -76 bps. We are confident that this momentum will only gain upward traction next year, propelling our growth trajectory.
For BCF Philippines, full-year sales were down slightly by -2%, finishing at Php 59.7 billion, as we entered 2021 with a high base driven by pantry-loading during the first half of 2020. However, in the last quarter of 2021, sales increased as mobility restrictions eased with the division achieving +5.4% growth vs. the same period last year.
Our operating income felt the direct impact of rising commodity prices, which we responded to with partial offsetting. Swift pricing actions, mix improvements, and operating expense savings allowed us to reduce its total impact on margins by -76 bps. We are confident that this momentum will only gain upward traction next year, propelling our growth trajectory.
Topline growth for BCFG International was pegged at +4% arriving at Php 22.2 billion and +5% in constant currency. The growth can be attributed to market recovery from the Delta surge in the third quarter. Indochina was a stand-out in particular, growing +8%
in dollar terms and +9% in constant currency.
In operating income, international margins eroded as a result of higher input prices, freight costs, and plant shutdowns in Malaysia and Vietnam in the third quarter at the height of the Delta surge. Our international arm was also able to implement pricing actions similar to BCF Philippines in the fourth quarter of the year, strengthening margins to prepare
for 2022.
in dollar terms and +9% in constant currency.
In operating income, international margins eroded as a result of higher input prices, freight costs, and plant shutdowns in Malaysia and Vietnam in the third quarter at the height of the Delta surge. Our international arm was also able to implement pricing actions similar to BCF Philippines in the fourth quarter of the year, strengthening margins to prepare
for 2022.
Our Agro-Industrial and Commodities (AIC) group finished the year up +13%, reaching Php 33.4 billion in sales through the growth of Sugar and Renewables (SURE), which grew by +31% in the last year on the back of a more stable sugar cane supply from our acquisitions of La Carlota and Roxol. Excluding our acquisitions/divestitures, the core SURE business still delivered +9% year-on-year growth.
The strong performance of Sugar helped offset the challenges the Flour category faced from surging wheat prices amidst the hyperinflationary environment of wheat throughout the year. Despite these unfavorable conditions, the Flour segment finished the year at +4% growth through this strategic offset.
We also experienced double-digit growth in Pet Foods to exceed Php 2 billion in sales, which helped offset declines in core animal feeds due to the overall decline in the Philippine hog population, as well as lower revenues following the strategic downsizing of our Farm business.
AIC’s operating income was down slightly at -4%, as the strong performance of SURE tempered the declines in our other businesses, driven by higher input costs.
The strong performance of Sugar helped offset the challenges the Flour category faced from surging wheat prices amidst the hyperinflationary environment of wheat throughout the year. Despite these unfavorable conditions, the Flour segment finished the year at +4% growth through this strategic offset.
We also experienced double-digit growth in Pet Foods to exceed Php 2 billion in sales, which helped offset declines in core animal feeds due to the overall decline in the Philippine hog population, as well as lower revenues following the strategic downsizing of our Farm business.
AIC’s operating income was down slightly at -4%, as the strong performance of SURE tempered the declines in our other businesses, driven by higher input costs.
Financial Highlights
PORTFOLIO ADJUSTMENTS
Part of the notable developments this year is how we reshaped our portfolio with the divestment of our Oceania business last July, entrusting Snack Brands Australia and Griffin’s New Zealand to the stewardship of our former partner, Intersnack. URC is pleased to have been a contributor to the operational and value creation programs that have strengthened the two businesses. With Intersnack at the helm, we have full confidence that it will remain on course towards growth.
This divestment has allowed us to monetize the efficiencies and synergies from our work in the region, and pivot our resources to concentrate on growth segments across developing markets. We have since reinvested these gains back into the business with our acquisition of Munchy’s Malaysia at the end of 2021.
Munchy’s is a beloved homegrown company, recognized internationally for its line of multi-awarded biscuits. From its humble beginnings in 1991, the brand has since expanded to more than 50 countries while maintaining a top-of-mind brand presence for 30 years.
This acquisition aligns with URC’s efforts to focus on growth while allowing Munchy’s to scale up and expand with a stronger distribution network. We look forward to Munchy’s strong entrepreneurial leadership and collaborative spirit, as they work with like-minded people within the URC family.
Munchy’s is a beloved homegrown company, recognized internationally for its line of multi-awarded biscuits. From its humble beginnings in 1991, the brand has since expanded to more than 50 countries while maintaining a top-of-mind brand presence for 30 years.
This acquisition aligns with URC’s efforts to focus on growth while allowing Munchy’s to scale up and expand with a stronger distribution network. We look forward to Munchy’s strong entrepreneurial leadership and collaborative spirit, as they work with like-minded people within the URC family.
CHARTING PROGRESS
While the year may have been off to a tremulous start, we saw promising landmarks of progress during the second half of 2021 both within the business and the regions we operate.
Scientists and medical experts say we’re on the right track towards managing COVID with signs that it will turn endemic soon. People have learned to define their own better normal, taking precautions to curb the spread of the virus while finding delight in new ways. Similarly, global institutions are now practicing a more targeted response in managing the long-term effects of the pandemic as travel barriers ease, providing much-needed relief to local economies. While we might not be out of the woods, we have now caught sight of the treeline.
URC shares this hopeful sentiment and we see this as an opportunity to build upon our progress and accelerate our Agile transformation journey. In jumpstarting our growth trajectory, we will continue to further refine and fortify our approach to the URC WTP strategies.
Scientists and medical experts say we’re on the right track towards managing COVID with signs that it will turn endemic soon. People have learned to define their own better normal, taking precautions to curb the spread of the virus while finding delight in new ways. Similarly, global institutions are now practicing a more targeted response in managing the long-term effects of the pandemic as travel barriers ease, providing much-needed relief to local economies. While we might not be out of the woods, we have now caught sight of the treeline.
URC shares this hopeful sentiment and we see this as an opportunity to build upon our progress and accelerate our Agile transformation journey. In jumpstarting our growth trajectory, we will continue to further refine and fortify our approach to the URC WTP strategies.
GROW THE CORE
The company attributes its consistent market leadership to its distinct portfolio, home to a wide and diverse range of brands: from discretionary to staples and budget to premium. Our brands have transformed into timeless Filipino household essentials, providing us with a major competitive advantage.
This year we will Grow the Core by focusing on URC’s core categories while applying the Agile approach in engaging with our customers to pinpoint consumer needs that will guide product development. We are also investing in our digital presence to complement these efforts, increasing our presence to build consumer trust, brand equity, and mental availability.
This year we will Grow the Core by focusing on URC’s core categories while applying the Agile approach in engaging with our customers to pinpoint consumer needs that will guide product development. We are also investing in our digital presence to complement these efforts, increasing our presence to build consumer trust, brand equity, and mental availability.
URC utilized the past three years to reinforce our physical availability and expand our direct store coverage footprint. Simultaneously, we have been accelerating our e-commerce entry, following its launch throughout the pandemic.
Our customer-focused efforts were highlighted in the recent Advantage survey, where end-retailers evaluate FMCG suppliers across various metrics. URC finished the year among the top 5 most admired suppliers and is the highest-ranking local manufacturer in the country.
Our customer-focused efforts were highlighted in the recent Advantage survey, where end-retailers evaluate FMCG suppliers across various metrics. URC finished the year among the top 5 most admired suppliers and is the highest-ranking local manufacturer in the country.
GO FOR MORE
Following our Expand For More strategy, we’re building new legs and entering new spaces with innovation as our growth engine. New products introduced over the past two years contributed between +6-8% of our sales across various geographies.
With our growth strategies in place, the company is set to ride through recovery towards an enduring and sustainable business. In the process, we hope these new exciting concepts and products will meet the everchanging needs of consumers while finding new ways to delight.
A FUTUREPROOF COMMITMENT
With the worst of the pandemic hopefully behind us, URC enters this new chapter with gratitude, knowledge, and a newfound vigor to sprint toward our vision for a sustainable future.
In welcoming the coming year, we know that this streamlined recovery will continue even as we step up to meet higher demands, preparing for life with endemic COVID. We expect to accelerate our topline growth, anchored on our firm core business standing, robust innovation pipeline, and new category entries in tow.
The pandemic may have delayed our glide path, but it has not derailed our ambitions, nor our investments in capabilities and building blocks for growth. On the contrary, it became a period of reinvention, as we found strength in our ability to adapt and remain versatile.
In welcoming the coming year, we know that this streamlined recovery will continue even as we step up to meet higher demands, preparing for life with endemic COVID. We expect to accelerate our topline growth, anchored on our firm core business standing, robust innovation pipeline, and new category entries in tow.
The pandemic may have delayed our glide path, but it has not derailed our ambitions, nor our investments in capabilities and building blocks for growth. On the contrary, it became a period of reinvention, as we found strength in our ability to adapt and remain versatile.
We have also fortified our 2030 Sustainability Commitments in line with our mission to become a sustainable global enterprise, cascading our programs to URC International partners. Our work is discussed in greater detail in this year’s Sustainability Report, “Fortifying Futures”. We look forward to 2022 with renewed confidence in our well-crafted strategies, and relentless optimism for the years ahead as we seize promising opportunities.
From the entire URC team, we would like to thank our shareholders for their continued trust, partners for their guidance and collaborative efforts, and our loyal consumers for their support.
From the entire URC team, we would like to thank our shareholders for their continued trust, partners for their guidance and collaborative efforts, and our loyal consumers for their support.
Thank you and stay safe.
Irwin C. Lee
President & CEO.
