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Gokongwei increases his wealth by P10b per month

On August 11, this year, his 90th birthday, taipan John Gokongwei Jr. announced his retirement as chair emeritus of diversified airline, snack foods, energy and property conglomerate JG Summit Holdings which he founded.

The retirement is not expected to bring to a close a spectacular saga of riches-to-rags-to-riches of probably the Philippines’ most brilliant, dynamic and visionary old-guard entrepreneur.   John’s withdrawal from active day-to-day monitoring of his businesses and long-term visioning and strategy are not going to end.   The so-called August 11 retirement is only a chapter in John’s story of entrepreneurship and wealth-building and management.  

In 2007, John gave me a copy of a book, with his dedication, “John Gokongwei Jr., The Path of Entrepreneurship” by Marites A. Khanser.

“To my dear friend,” Big J wrote me.  More than a biography, the tome is a textbook on management and entrepreneurship, I said at that time.

The book also uses data, anecdotes and stories from articles in the course of my coverage of John Gokongwei since 1974 when I first met him fighting for a board seat in San Miguel Corp. He made three or four forays into SMC and failed each time. The board battles and proxy wars brought John to the limelight and he benefited immensely from the experience.

Today, John’s JG Summit is focused on five key businesses —Universal Robina, Robinsons Land, Cebu Pacific, JG Summit Petrochemicals, and Robinsons Bank.  Additionally, it has core investments: 27 percent of electricity distribution monopoly Meralco, 8 percent of leading cellular and landline telco Philippine Long Distance Telephone Co., and Singapore’s premier property developer United Industrial Corp. (UIC).

JG Summit has market cap of P566 billion, total assets of P628.6 billion, sales in 2015 of P229 billion, debts of P157.2 billion, and capital expenditures for 2016 of P41.3 billion—money that will go to capacity expansion in the Philippines and Asean of URC; construction of malls, offices, hotels, and residences as well as for land banking; purchases of aircraft for Cebu Pacific, and operation of the petrochemical and banking businesses.

At the beginning of 2016, JG Summit’s market value hovered at only P407 billion when the listed stock was doing at a 52-week low of P56.90.  Since then, the stock has risen to a 52-week high of P95.25 a share (valuing the company at P682 billion before stabilizing at P78.80 as of Sept. 2), placing JG Summit as worth P565 billion.   

In just eight months since January, Gokongwei, whose family owns 52 percent but controls 79 percent  of JG Summit,  became P82.6 billion or $1.77 billion richer.  He increases his wealth at the rate of P10.3 billion per month.

As of June 2016, JG had 43 malls, 22 office buildings, 14 hotels, and five ongoing residential projects after completing 19.   

Cebu Pacific flew 10 million passengers in the first half, up 9 percent; including 1.6 million passengers in June alone, up 8 percent. The carrier claims to be the biggest locally, with 56 routes, 34 destinations, and 1,889 weekly flights.  Overseas, Cebu Air has 42 routes and 480 weekly flights.  The airline’s fleet as of June 2016 included 57 planes—seven Airbus A319, 36 Airbus A320, six Airbus A330, and eight ATR 72-500 aircraft.

The most important chapter in John’s book is Chapter 20, “The Nine Rules for Business Success” which John himself wrote.

1. Change is inevitable and flexibility is the key.

2. Personal stakes in the company encourage everyone to work hard.

3. Mistakes and disappointments are inevitable.

4. Good brand building equals reputation.

5. Family support is crucial.

6. Never lose sleep thinking of business risks.

7. Pausing to recharge brings new vigor.

8. Reading and traveling enrich one’s mind.

9. Philanthropy is a personal satisfaction.

Relevant even today, the rules sound very good—on paper.  But that is if you are already a John Gokongwei. 

If you are a budding entrepreneur with little capital in a fiercely competitive market, I don’t think you can subscribe to Rule No. 6 (about never losing sleep) and Rule No. 9 (you cannot give what you don’t have yet).

On Rule No. 1, John says he always looks for “new developments in the business environment for information and policies, which may affect our operations. The decision to move from peddling soap on bicycles to bringing tires to Manila on batels, to opening the first flour company, to being one of the largest conglomerates in the Philippines today is a testament to that flexibility. Even during the difficult times under martial law or during the 1997 Asian financial crisis, our group was one of the Filipino companies to survive and prosper because of our flexibility and adaptability to change and adversity.”

On Rule No. 2, John gave each of his siblings’ shares in the company. “They all worked very hard for its progress,” he says. “However, it is not my siblings, but also our employees who are committed to making our business successful. We are currently studying a stock option plan to be given to employees worth promoting and keeping, giving them the same sense of ownership like those of my siblings. 

On Rule No. 3, John made a number of mistakes. They include, I believe, the purchase of Oriential Petroleum (it didn’t produce oil) and the money-losing ice cream and textile businesses.   His Digitel Philippines never made money before he sold it to PLDT in a stock swap.    A big turnaround is the petrochemical business which used to bleed JG Summit.    In the first half, petrochemicals generated P13.08 billion in revenues or 11 percent of total group revenues, and P2.4 billion in profits, or 13 percent of group profits. 

I thought his Cebu Pacific was a mistake but his son Lance Gokongwei has managed it magnificently.  In the first half of 2016, Cebu Air made P5.2 billion in profits, 28 percent of total group profits and the largest contributor to profitability despite contributing only 28 percent of total revenues.  

The biggest money-maker, in revenues, still is Universal Robina Corp. with P55.5 billion in revenues in the first half 2016, 46 percent of group revenues.  URC, however, contributed only P4.1 billion or 22 percent of group first semester profits.

 

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Topics: Tony Lopez , John Gokongwei Jr. , JG Summit Holdings
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