URC eyes sugar tax, Vietnam rebound as keys to lift sagging growth

MANILA, Philippines – A proposed sugar tax which would hurt competitors and a new push for beverages in Vietnam are the key ingredients to a turnaround in the fortunes of Universal Robina Corporation (URC) heading into next year, according to president and chief executive officer Lance Gokongwei.

The food manufacturing giant, which consistently ranks as the biggest contributor to the bottom line of parent firm JG Summit Holdings Incorporated, has seen slowing growth as of late.

URC's net income dropped by 21.2% to P8.409 billion in the 1st 9 months of 2017, compared to the same period last year.

"The firm has not performed as well as we wanted over the last year and a half so it is clear that the onus is on us to reestablish our growth credentials," Gokongwei said on the sidelines of a Management Association of the Philippines (MAP) ceremony that honored his father, John Gokongwei Jr, as Man of the Year on Monday, November 27.

Gokongwei pointed out, however, that the firm's overall direction remains consistent and that he sees the dip as temporary.

"We're in the right segments. We just have to continue along the path and remain very aggressive in terms of building our brands' distribution and innovation," he added.

Gokongwei further explained that the proposed sugar tax, which is expected to be imposed next year, reinforces URC's recent investments in healthy drinks.

The proposed P10-per-liter tax on beverages such as powdered juices, energy drinks, carbonated drinks, bottled iced tea, and other sugary drinks is included in the Duterte administration's comprehensive tax reform package.

"We're in the right categories, primarily snacks and healthier products like B'lue Water or Vitasoy that will resonate with the market especially as sugar taxes are imposed, so products like heathy water and dairy products should benefit," Gokongwei said.

Last year, URC spent P21.38 billion to acquire Snack Brands Australia, the 2nd largest player in Australia's salty snacks market. URC is still paying off that acquisition, along with its 2014 acquisition of New Zealand-based snack-maker Griffin's.

Rebooting Vietnamese operations

URC's growth has also slowed in one of its key regional markets, Vietnam, falling by 48% as of the 2nd quarter of 2017 compared to the same period last year.

The drop came as URC dealt with the fallout of having its beverage brands C2 and Rong Do recalled last year due to excessive lead content. The company was fined P12 million by the Vietnamese Ministry of Health.

"In the last couple of months, we did a relaunch of C2 through a new campaign that focuses on the brand's natural qualities and focused really on more millennial users," Gokongwei said.

The effects of that relaunch could be felt in the 4th quarter of 2017.

"The recovery is beginning to come along. The last couple of months have been stronger as our marketing programs begin to take root. We're encouraged by this," Gokongwei said.

URC told its stockholders last June that it is targeting between $10 million and $13 million in Vietnam profits by the end of the year. – Rappler.com