From abaca trading to key conglomerate

CEBU, Philippines — The story of the Aboitiz family is proof of how simple beginnings, bigger and greater things can be achieved.

The Aboitiz Group has been doing business in the Philippines for over a hundred years now, and in recent years, has been making headway in its ventures beyond its borders.

But this big conglomerate that it is known today had a humble story back when it was just starting, tracing the roots of its business in Leyte and Cebu.

Erramon Aboitiz, the president and CEO of what is now known as Aboitiz Equity Ventures (AEV), shares how the company evolved from a small family business based in Cebu to a major diversified group of companies in the country today.

How Aboitiz started

"In the late 1800s, our great grandfather Paulino Aboitiz in partnership with a fellow Basque opened an abaca trading business in Leyte. With a handful of employees, he also operated a store selling canned sardines, cooking oil and other basic necessities," said Erramon, who is among the fourth generation of the Aboitiz family.

The business soon expanded, with some of his sons moving to Cebu to be closer to the city’s major trading houses and financial institutions.

In 1920, Aboitiz & Company was incorporated but that same year, it experienced its first major financial crisis.

It had built a substantial inventory of abaca with borrowed money, expecting that prices would continue to go up after World War I. But abaca prices took a sudden dive, leaving the company with heavy losses and a huge debt. It was on the brink of bankruptcy.

Don Ramon Aboitiz, Paulino’s son who had by then retired in Spain, was asked by his brothers to return to the Philippines to help save the company.

Upon his return, he took charge of Aboitiz & Company and spearheaded its rehabilitation and survival.

Erramon is the grandchild of the Aboitiz patriarch Don Ramon.

His friends and advisers urged him to declare bankruptcy, so he could walk away from his debts and start anew. But Don Ramon said "No."

In a letter to his brother, Don Ramon wrote: “The biggest fortune I have is my word and reputation. Money can be lost and can be recovered but once your name and reputation is lost, one’s word is worthless and one is truly finished.”

He instead borrowed money from some banks and friends, promising to pay back his loans as soon as the business recovered.

"Palabra de honor or word of honor was his guiding principle," Erramon shared.

"In time, every single centavo the company owed was paid. Aboitiz & Company was successfully rehabilitated, made a turnaround, and was on its way back to growth," he said.

Had it not been for the determination of Don Ramon, his brothers and cousins, their hard work and commitment to honor their debt and their word, as well as the trust people had in the company, the Aboitiz Group would not be around today.

Don Ramon led the group for 46 years.

He was a business legend whose legacy of corporate values and principles characterize the group today and continue to guide its people every day.

Erramon said that after Aboitiz & Company was rehabilitated, it grew and diversified into other fields of business.

"At that time, our entrepreneurial spirit was at its strongest. Our businesses flourished and continued to expand along with the progress of our young nation," he said.

The group diversified into shipping, ice plants, sardine canning, sugar plantations and milling, power generation and distribution, and banking, among others.

"There was no strategic reason for getting into any particular business. If it looked good, Aboitiz would get into it. The only element of strategy was probably growth and diversification," Erramon said.

Turning point

A major turning point in the group’s corporate journey happened in 1994.

"We formed Aboitiz Equity Ventures to be our publicly listed holding company, put in our best companies, and listed AEV at the Philippine Stock Exchange," he said.

After AEV went public, the company was poised for further expansion but it needed a clear direction on how to go about it.

In 1996, the company made a strategic decision to focus on its core businesses and have more control over its destiny.

"We needed to shift from being entrepreneurs to being intrapreneurs, channeling our efforts to building and growing the businesses we labeled as our core businesses, namely, power, banking, transport, food and land," Erramon further said.

The companies under the Aboitiz Group today include Aboitiz Power, Unionbank of the Philippines, Pilmico Foods, Aboitiz Land, and Aboitiz InfraCapital, among others.

"Subsequently, we divested of our non-core businesses and channeled the proceeds to our core businesses, where we could add more value to," he added.

In 2014, the Board and senior management conducted a thorough review of the group’s current and long-term strategic plans.

This process enabled it to validate whether its four strategic pillars were still very much relevant and adequate to its future direction.

These pillars are to grow the business, increase stakeholder engagement, build human capital, and carry on execution excellence in everything we do.

"In line with our first pillar to grow the business, we aim to diversify our earnings contribution. Three years ago, we ventured into our fifth core business — infrastructure  — and have made major investments in this sector," he said.

"We however do not want to grow for growth’s sake. Our challenge is to find investments that make sense to us, that cover our cost of capital, that are within our risk parameters, and that create value for our stakeholders," he noted.

Its second pillar is to increase stakeholder engagement.

"It is fundamental to us that it is not only our shareholders who benefit from our value creation efforts, but also our other stakeholders, including our team members and host communities. We put great emphasis on earning our stakeholders’ trust and confidence in our enterprise," he said.

To build human capital is the company's third strategic pillar.

The company believes that availability of the right talent, and not financial resources, may be the stumbling block to the group’s continued success and expansion. Thus, it focuses its human resources efforts on attracting, optimizing and retaining the best and the brightest.

"To support our growth aspirations and for us to remain relevant, it is imperative that we continue to strengthen our organization and build the management team that will take us into the future," he said.

"We believe a major factor in our group’s success over the past 100 years has been the seamless passing of the baton to the next group of leaders, allowing for the continuity of policies and execution of strategic plans," Erramon said. (FREEMAN)