1. Discuss the type of diversification strategy the conglomerate is using.

List down all

the subsidiary companies to support your answer. (10 points)

The JG Summit Holdings, Inc. (JGHSHI), incorporated in November 1990, is one of the
Philippines’ largest and most diversified conglomerates. It is controlled by the
Gokongwei Family and conducts businesses throughout the country. The company uses
an unrelated diversification strategy by which it has substantial business interests in
foods, agro-industrial and commodities, petrochemicals, air transportation, real estate and
hotels, and banks. It also has core investments in telecommunications, power generation,
and electricity distribution. Hence, the company operates businesses that are not closely
related to each other and performs under different industries. It enables the company to
mitigate the risks and have key areas to sustain and develop.

The JG Summit has various subsidiaries in each segment. It is acquired through methods,
namely the acquisition and equity method. The following are the list of the company’s
subsidiaries based on its industry segments with its corresponding percentage of
ownership:

a. Food, Agro-Industrial, and Commodities

 Universal Robina Corporation and Subsidiaries (55.3%)
b. Petrochemicals
 JG Summit Olefins Corp. (100%)
 JG Summit Petrochemical Corp. (100%)
c. Air Transportation
 Cebu Air, Inc. and Subsidiaries (67.8%)
 CP Air Holdings, Inc. and Subsidiaries (100%)
d. Real Estate and Hotels
 Robinsons Land Corporation and Subsidiaries (61%)
 United Industrial Corporation Ltd. (375)
e. Banks
 Robinsons Bank Corporation (60%)
 Legazpi Savings Bank (100%)
f. Core investments
 Philippine Long Distance Telephone Co. (11.2%)
 Manila Electric Company (29.6%)
 Global Business Power Corporation (30%)
g. Supplementary Businesses
 JG Summit (Cayman), Ld. (100%)
 JG Summit Capital Services Corporation and Subsidiaries (100%)
 Digital Equity Ventures, Inc. ad Subsidiaries
 JG Summit Philippines Ltd. and Subsidiaries (100%)
 Unicorn Insurance Brokers Corporation
 Batangas Agro-Industrial Development Corp. and Subsidiaries (100%)
  JG Summit Infrastructure Holdings Corporation (100%)
 Merbau Corporation (100%)
 Data Analytics Ventures, Inc. (45.20%)
 Altus Property Ventures, Inc. (64.70%)

In the annual report of the company, they summarized the subsidiaries and affiliates as
follow:
Figure 1. Subsidiaries of JG Summit
 2. Explain how the different subsidiary companies create value to the mother
company. Give facts/evidence to support your answer. (10 points).

As mentioned above, the JG Summit operates in different industries such as foods, agro-
industrial and commodities, petrochemicals, air transportation, real estate, and hotels,
banks, telecommunications, power generation, and electricity distribution. All have
contributions to the revenue and net profits of the company, which help the continuity of
its operations. The Annual Report 2020 of the company shows the breakdown of the
contribution of different industry segments in its revenue and profits from 2018 to 2020
(Table 1). The amounts are expressed in millions, and the percentage reflects each
segment's share in the total revenues and net income.

In the report, the food, agro-industrial, and commodities have a significant share in the
company's reported revenues and net income for three consecutive years in terms of
revenues. However, the minor contributors are the banks and other supplementary
businesses.

Table 1. Revenues and Net Income of Industry Segments

REVENUES NET INCOME ATTRIBUTABLE TO

PARENT CO.

2020 2019 2018 2020 2019 2018

Peso % Peso % Peso % Peso % Peso % Peso %

Food, Agro-Industrial 133,17 60 134,03 44 127,67 44 5,938 5,399 17 5,086 27

and Commodity Food 4 2 0
Products

Air Transportation 22,302 10 84,874 28 74,250 25 (15,091 6,185 20 2,653 14

)

Petrochemicals 22,021 10 30,075 10 43,776 15 (1,979) 971 3 1,054 5

Real estate and hotels 27,897 13 36,690 12 32,758 11 5,701 11,33 36 8,249 43
4

Banks 9,190 4 8,132 3 6,144 2 561 432 2 191 1

Other supplementary 8,012 4 9,364 3 8,827 3 4,198 6,902 22 2,358 12

businesses
Adjustments/ (956) (1,344) (1,509) 204 62 (405) (2)
eliminations

Total from Continuing 221,64 10 301,82 10 291,91 10 (468) 31,28 10 19,81 10

Operations 0 0 3 0 6 0 5 0 6 0

To further examine the value created by the subsidiaries to the parent company, let us
look at the business information and milestones of different subsidiaries.

a. Foods, Agro-Industrial, and Commodities

The foods, agro-industrial, and commodities segment of JG Summit operate under
its subsidiary, the Universal Robina Corporation (URC). It is considered the
country's first "Philippine Multinational" and continues to build and expand its
legacy through strengthening its distribution activities. URC is one of the
Philippines' largest branded food product companies and has a growing presence
in ASEAN and Oceania regions. It involves businesses, namely manufacturing
and distributing branded consumer foods, manufacturing animal feeds and
veterinary products, production of hogs and poultry, milling of flour and sugar
refining, and renewables business.

The company is known for being the top snack food company in Australia and the
Philippines. With its outstanding innovation, it was able to establish a strong
market position in other countries. In Thailand and New Zealand, the company is
known to be a market leader in the biscuits category. Meanwhile, its beverage
industry is primarily the Ready-to-Drink (RTD) in Vietnam. In 2020, the
company remained the largest sugar miller out of seven mills operating due to
increasing capacity as it acquired Roxas Holdings, Inc. The annual report
published by URC reported a net income growth of 15% or P11.6 billion for the
year 2020. However, its net sales decreased by 1% due to an unexpected global
downturn that limits the distribution of products. The How-To-Win Strategies of
URC helped them stay ahead of the curve and further reinforce product supply
availability in the market. There are 2% and 7% increase in the gross profit and
core operating income, respectively, showing the company's efforts to manage
during the pandemic. Hence, the JG Summit maintained its position in the market
as its subsidiary continues to deliver essential and consumer foods. Being one of
the core subsidiaries, URC is expected to expand its share in its parent company's
revenues and net profit.

b. Real Estate and Hotels

The real estate and hotels segment of JG Summit operates under its subsidiary, the
Robinsons Land Corporation (RLC). It is considered the country's leading real
estate developer in revenues, many projects, and total project size. The company
 is operating under a diversified model by which it is engaged in investing and
developing real estate projects. It’s located in key cities and urban areas of the
country. RLC has five divisions, namely developing and operating commercial
centers, residential, office buildings, hotels and resorts, and industrial integrated
developments. The annual report of the JG summit revealed that the commercial
centers' division of RLC, whose primary revenue stream is the lease of
commercial spaces, was greatly affected by the pandemic, especially in the first
half of 2020. There are temporary mall closures due to quarantine restrictions that
limit its operations. To make a rebound for the second half of 2020, the company
expanded its mall footprint. It implemented innovative services such as the
"Pickup Station," "RDelivery," and "RPersonal Shopper" that offer a safe and
convenient means for customers to shop. But as the restrictions continued to
loosen, lease rentals started to prosper, by which the segment contributed 23% of
the RLC's revenues or P5.96 billion. It is expected to be its steady revenue driver
for the next year as it has already added two malls.
Consequently, the residential division focuses on constructing and selling real
estate properties such as condominiums and subdivision projects. It is the most
significant contributor to the RLC's revenues since, according to experts,
condominiums are expected to boom despite global challenges. A total of 48% is
the share of the segment in the total revenue. Meanwhile, the office buildings
segment of RLC continues to prosper as there is sustained growth in the IT
Business Process Management (IT-BPM) sector that increases office space
demands. The company secured several major customers as its long-term tenants
in its office buildings. It also includes tenants from multinational and logistic
companies.
Furthermore, the office building segment is one of the country's leading providers
of office spaces. With this, a total of 23% of the RLC's revenues was from the
office buildings, as the system-wide lease rate was 91% in 2020. The hotels and
resorts division of RCL was greatly affected by the pandemic. It crippled the
hospital and tourism industries, by which it only contributed 4% to the RLC's
revenues, followed by 2% from IDD.
c. Air Transportation
The air transportation segment of JG Summit operates under its subsidiary, Cebu
Air, Inc. (CEB). It is considered the country's leading low-cost carrier that offers
customers reliable services and fun travel experiences. It has a market share of
51% in the domestic airline in the countries, followed by its primary competitor,
the PAL Express. For the past years, the company has been the second largest
contributor to JG Summit's revenues. But due to pandemics, travel restrictions put
the industry at risk that reduces its customers. It laid-off workers in able to
mitigate the increasing financial loss. It only contributed 10% to the total
revenues that aim to make rebound for the following years. According to the
 annual report of CEB, its office business was steady and continued amid
pandemic, by which it was 13% higher compared to 2019. In terms of air
transportation, it aims to continue to analyze its route network to eliminate all
unprofitable routes. This strategy will help them to cut costs and maximize all
their resources. As the company started to resume its flights, it is expected to
make a comeback and increase revenue.

d. Petrochemicals
The petrochemical industry segment is 100% owned by the JG Summit. It is
operating under the JG Summit Petrochemical Corporation (JGSPC), by which its
operation mainly focuses on the manufacturing and sale of polyethylene (PE),
polypropylene (PP), and other related petrochemical products or by-products. Its
plant is considered the country’s first integrated PE and PP complex located in
Batangas City. The company sells directly to small, medium, and large
manufacturers of plastic-based products in the country, by which its PE
contributed 58% share in its revenue while 41.9% to PP. Moreover, it exports to
international markets that increasing its revenue stream. The company is not
affected by the pandemic, so it continues to operate but has a low share in the JG
Summit’s revenues.

e. Banking services
The baking services industry segment of JG Summit operates under its subsidiary,
Robinsons Bank Corporation (RBC). It has a minor share in the parent company’s
total revenues. It finds more attractive mergers and acquisitions to immediately
become a significant company in the industry for the following years. Despite
competition with established and large bank companies, RBC continues to
provide its products and services across regions to its clients (corporate,
commercial, and retail). To sustain the increasing size of its loan portfolio, the
company increased its equity by three billion pesos in 2019. According to the
annual report, RBC established a competitive strength against its peers, by which
it continues to improve in terms of its total assets and total loans for the five
years. It signifies opportunities for the company to grow and increase its potential
customers.
References:
Cebu Air, Inc., Company Website
JG Summit Holdings, Inc., Company Digital Annual Report 2020
Robinsons Bank Corporation, Company Annual Report 2020
Universal Robina Corporation and Subsidiaries, Company Annual Report 2020