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Friday, March 29, 2024

John Gokongwei (2)

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"He inspired a new generation of entrepreneurs, bold and unafraid."

 

When John Gokongwei Jr. died on Nov. 9 he had lodged an enviable 80 years of spectacular entrepreneurship.

At 27 in 1954, John put up a corn-starch manufacturing, going against the biggest in the business, Ludo and Luym. He tried to borrow his capital.   The first bank rejected him.   The second gave him a P500,000 loan, princely at that time. It jumpstarted Universal Corn Products. He was met by a vicious price war.  He won.

Universal Corn is what JG Summit Holdings is today.  In 2018, JG Summit had revenues of P291.9 billion, net income of P19.2 billion, and assets of P819.2 billion, up 11 percent.  JG Summit claims it is the third-largest conglomerate in terms of how much the stock market values the company, P532 billion.

JG Summit owns 61 percent of Robinsons Land, 67.2 percent of Cebu Pacific Air, 55.8 percent of Universal Robina Corp., 8 percent of PLDT, 29.6 percent of power distribution monopoly Meralco, 30 percent of power producer Global Power, 60 percent of Robinsons Bank, 100 percent of JG Summit Petrochemicals, and 37 percent of Singapore’s property and hotel developer UIC.

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In the first half of 2019, JG Summit had revenues of P158.4 billion, up 9.7 percent, and profits of P17.4 billion, up a whopping 76.8 percent.

In the mid-1970s to the early 1980s, John waged among his biggest boardroom battles—a board seat in giant San Miguel Corp. controlled by the Soriano family.   John was aghast that he had more shares of San Miguel than the Sorianos did (just 1.8 percent) and yet was not allowed to enjoy one board seat.   He lost because of the Supreme Court.

The boardroom fight revealed am ambitious streak in John.  That you could actually buy companies bigger than yours. And that you could grow big indeed through acquisitions. 

Later, the ailing Don Andres Soriano put John in the board of San Miguel’s Hong Kong subsidiary and sold to him at a bargain what was a decrepit riverside warehouse property on EDSA which John converted into a sprawling cyberpark, condo and commercial complex.

In 2011, John sold his money-losing Digitel to the PLDT Group Manny Pangilinan for P69 billion.  The deal enabled John to get two board seats in PLDT and Pangilinan to control majority of Meralco. In 2013, John acquired 27 percent of power distribution monopoly Meralco from San Miguel, joining Pangilinan for control of Meralco.

Big John could count on three things as his legacy. 

One, his disruption of three industries that were controlled by what he called Goliaths—airline, cellular telephony, and ready-to-drink tea.  

Two, he became big largely through acquisitions and not through internal growth of companies he founded.

Three, he inspired a new generation of entrepreneurs, bold and unafraid.

John’s Cebu Pacific, now 23 years old, became No. 1 in being a low-cost carrier.  

His C2 became No. 1 in RTD tea. 

His Digitel Sun Cellular became a major player in cellular phones by offering cut-throat rates but when the competition became too tough, he sold out to the biggest telco, PLDT,  at a huge profit, while retaining significant presence to cash in on future growth of PLDT.

Established March 1996, Cebu Pacific pioneered the “low fare, great value” strategy.  It taught Filipinos to fly, not sail. It has flown over 150 million passengers It flies to 26 international and 37 domestic destinations.  It operates from seven strategic hubs: Manila, Cebu, Clark, Kalibo, Iloilo, Davao, and Cagayan de Oro.

From five aircraft in 1996, Cebu Pacific now operates a fleet of 70 aircraft—44 Airbus (36 A320 and eight A330) and 17 ATR (eight ATR 72-500 and nine ATR 72-600) aircrafts.  The fleet is one of the most modern in the world. Between 2018 and 2022, Cebu Pacific takes delivery of 32 Airbus A321neos, seven Airbus A321 neos, and seven ATR 72-600 aircraft orders.

The airline prides itself with a load factor of 90 percent, an enviable 53 percent share of the domestic passenger market, annual revenues of P50 billion, profits of P9 billion, and passenger volume hitting 20 million.

CEB is the first local airline to introduce web check-in, e-ticketing, and seat selection in the Philippines. 

Cebu Pacific will become conservative and flexible in its fleet expansion following a massive refleeting.  Cebu is making 4.2x more money from ancillary revenue (like baggage fees and penalties) which contributes 75 percent of revenues, than passenger sales (18 percent).  Cargo is 7 percent.

In 2011, John bought into PLDT for P69.2 billion, once the Philippines’ telco monopoly but which later lost traction and focus. This was after selling his Digitel (Sun Cellular) to PLDT for P74.1 billion.

In 2013, he bought for P71.9 billion 27 percent of Meralco, Luzon’s electricity distribution monopoly. That Meralco equity is worth P116 billion today.

JG Summit’s diluted ownership of 8 percent of PLDT today is worth only P19 billion.  Larger in value than JG’s ownership in PLDT is its 37 percent in UIC, the Ayala of Singapore.  The 37 percent in UIC is worth P105 billion.

In stock market value, he has lost P50.2 billion on his PLDT stake (P69.2 billion minus P19 billion) but gained P44 billion on his Meralco equity (P116 billion minus P71.9 billion).  That is, of course, without reckoning the  value of cash and stock dividends for the past six years in the case of Meralco and the past eight years in the case of PLDT.

In November 2014, John bought New Zealand’s Griffin’s Food Ltd. for P26.25 billion. 

JG Summit’s largest subsidiary, Universal Robina Corp. expanded in the region on John’s idea that the ASEAN market alone (550-million people) is far larger than the Philippines market (107-million people). 

In 2016, JG Summit acquired 30 percent of Global Business Power for P11.8 billion.   GBP is a major power producer for the Visayas and Mindoro with generating capacity of 854 megawatts.

John sold prematurely his stake in PCIBank to Equitable which later became the largest bank, as BDO, under Henry Sy Sr., a long-time business rival.   

As a result, John missed the awesome double-digit growth in bank profits and returns on equity that the ten largest banks continue to enjoy  today despite tightening competition.

In the 1970s, the Philippine National Bank was the largest in Southeast Asia.  

Today, the entire Philippine banking system is not even enough to match the resources of the biggest bank of either Singapore or Thailand.

John was going back into banking with his increasingly aggressive Robinsons Bank.

John was also late into power generation, a business that San Miguel easily dominated very early with generation capacity of 4,293 MW.  It is not too late to enter the game as power demand now grows 5 percent per year with the explosive growth of the economy.

JG was also late to enter infrastructure.   JG is looking at the P108-billion rehab of NAIA.  It lost out in the bid for Clark.

Robinsons Land mulls entry into warehousing and logistics, dorm and shared office spaces, and digital space. 

In Forbes’ listing of Philippine billionaires, Gokongwei Jr. is ranked third, with estimated wealth of $4.4 billion, behind Henry Sy with $18.3 billion and up and coming Manuel Villar with $5 billion.

In the BizNewsAsia Billionaires ranking of November 12, 2019, John is No. 3, with $3.9 billion wealth, behind Sy, $16 billion and brown property taipan Manuel B Villar Jr., $6.56 billion, but ahead of beer and property investors Iñigo Zobel and sister, $4.85 billion. 

 biznewsasia@gmail.com

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