WHAT does it take, in the era of technological disruptions, rapid innovation, ever-shifting consumer tastes, urbanization and geopolitical turmoil, to be among the country’s top businesses?
We seek to answer this question with the inaugural The Manila Times 500 ranking of the Philippines’ top conglomerates and corporations – a deep dive into the financials of the top businesses that affords numerous insights into the underpinnings of the country’s corporate landscape.
The Manila Times 500 grew by a double-digit pace in 2017 – 13.3 percent to a combined P26.8 trillion. Combined profits however grew by only 2.7 percent to nearly P3 trillion, equivalent to about a fifth of the Philippines’ gross domestic product, reflecting a challenging business environment.
The makeup of The Manila Times 500 makes for interesting study. It should be apparent that conglomerates will be on top of the ranking, which is based on reported consolidated revenues. A total of 26 holding companies, led by food, power and infrastructure behemoth San Miguel Corp., made it to the list, and accounted for 15.2 percent or P4.1 trillion in revenues.
Conglomerates also accounted for nearly 17 percent or some P500 billion in combined net profits, which grew by more than 5 percent in 2017.
San Miguel represents the consolidation or conglomeratization that has characterized Philippine business in the past two decades. Faced with a plateauing food and beverage industry in 2007, the Eduardo “Danding” Cojuangco-led beer maker launched an aggressive and highly successful diversification strategy that involved, primarily, the spinoff of San Miguel Brewery and the acquisition of government-owned power assets.
From a mere brewery (albeit with a regional footprint), San Miguel today is the country’s largest holding company and the distance between it (excluding the No. 2, top San Miguel shareholder Top Frontier Holdings, Inc. and petroleum unit Petron Corp.) and the second largest conglomerate is wide.
San Miguel Corp. and its subsidiaries reported a staggering P826.086 billion in revenues in 2017, more than twice the size of the Henry Sy-led SM Investments Corp., which had P396.149 trillion.
The ranking also shows that the main shareholders of these conglomerates track the latter’s revenues and rankings. Examples are No. 2 Top Frontier Holdings (San Miguel), No. 9 Mermac, Inc. (Ayala Corp.), No. 16 Lopez Inc. (First Philippine Holdings Corp. and Lopez Holdings Corp.).
Taking out the conglomerates, the biggest industries reflect the underlying forces that fuel the domestic economy: property development, banking, electronics and semiconductors, food and beverage, energy, and call centers and business process outsourcing.
Property and housing developers were the most numerous in The Manila Times 500 – with 31 companies reporting a combined P450 billion in revenues, up 12.5 percent year-on-year in 2017. Profits grew faster, by 14.6 percent year-on-year, to P109.638 billion.
Ayala Land, Inc., the crown jewel of the storied Ayala conglomerate, topped this category with P139.373 billion in revenues, followed by Andrew Tan-led Megaworld Corp. with P50.408 and the fast-rising Vista Land and Lifescapes, Inc. with P34.840 billion. SM Development Corp. and Robinsons Land Corp, property arms of the SM Investments and JG Summit conglomerates, respectively, complete the top five.
Twenty-four banks made it to The Manila Times 500 and reported a combined P562.920 billion in revenues in 2017, a growth of nearly 16 percent year-on-year. Combined profits rose by 9.4 percent.
SM’s BDO Unibank, Inc. (P99.795 billion), the Ty family’s Metropolitan Bank & Trust Co. (P80.322 billion), Ayala-led Bank of the Philippine Islands (P65.849 billion), state-owned Land Bank of the Philippines (P48.108 billion) and Security Bank Corp. (P28.795 billion) dominated the banking sector.
Representing the largest manufactured export sector, 23 electronics and semiconductor firms entered the ranking, with combined revenues of P371.649 billion and profits of P13.604 billion. This category was led by Toshiba Information Equipment – Philippines, Inc., Integrated Micro-Electronics, Inc., Nanox Philippines, Inc., Nidec Philippines Corp. and Continental Temic Electronics (Phils.), Inc.
Food and beverage follows, with 20 companies raking in P639.926 billion in revenues, up 9.8 percent. But the industry’s profits fell by nearly 16 percent to P47.818 billion, reflecting tight margins. The five biggest players are Nestlé Philippines, Inc., JG summit unit Universal Robina Corp., San Miguel Pure Foods Co., Inc., Coca-Cola Femsa Philippines, Inc., and Century Pacific Food, Inc.
Twenty companies in the energy sector also made it to The Manila Times 500, reporting P451.209 billion in combined revenues, up by nearly 11 percent year-on-year. Combined profits grew by a tenth.
The top energy suppliers are Aboitiz Power Corp., Lopez-led First Gen Corp., the state-run Power Sector Assets and Liabilities Management Corp., Energy Development Corp. (another Lopez company) and Global Business Power Corp., a joint venture among Beacon PowerGen Holdings, Inc. (56 percent), JG Summit (30 percent) and Meralco PowerGen (14 percent).
Call centers and BPOs
The emergence of call centers and business process outsourcing (BPOs) companies at the top of the corporate league tables testifies to the evolution of the Philippine economy into a global services powerhouse.
Twenty such companies reported a combined P207.032 billion in revenues in 2017, up 14.4 percent. The top players include the industry’s biggest employers – Accenture, Inc., Convergys Philippines, Inc., Sutherland Global Services Philippines, Inc., Telephilippines, Inc. and Concentrix Daksh Services Philippines Corp.
That growth in their combined revenues outpaced that of the entire The Manila Times 500 shows that Philippine-based call centers and BPOs continue to take in more outsourced or offshored business.
Profits, however, plunged by nearly a quarter to P24.669 billion, an indication that the country may be losing its competitiveness in the sector vis-à-vis other outsourcing sites such as India and China.
Biggest in revenue, profit growth
The industries that logged in the highest revenue growth were outside of the top categories – Automotive Assembly (7 companies, 30.5 percent), Sugar Milling (3 companies, 27.1 percent), Petroleum (8 companies, 25.6 percent), Aviation Support Services (2 companies, 25.4 percent) and Life Insurance (10 companies, 22.1 percent).
The largest profit growth rates were recorded by Tobacco (4 companies, 126.25 percent), Aviation Support Services (2 companies, 95 percent), Casinos (5 companies, 62.8 percent, Electronics and Semiconductors (23 companies, 53 percent) and Lottery and Lottery Equipment (3 companies, 51.5 percent).
Alexander Cabrera, chairman of Pricewaterhouse (PwC) Philippines, recalled that Filipino conglomerates used to concentrate on their core business, until they saw the big potential for growth that came in with the emergence of technology companies.
“The tech company is a trend by itself, it’s a mega trend; people want to deal business in a more convenient manner, in a tech-based, technology-enabled environment,” Cabrera said in an interview.
Another global trend influencing the business strategies of the top conglomerates is population growth and rapid urbanization.
“You won’t make a mistake investing in real estate…that’s a sure bet because of population and urbanization, and all of course businesses that will benefit from that kind of trend,” he said.
Innovation is key
SGV and Co. Chairman and Managing Partner J. Carlitos “Itos” G. Cruz said that given current market conditions, innovation is critical for companies to remain competitive.
“In a market filled with disruption, companies that do not evolve will rapidly lose relevance – and eventually their business. Innovation goes beyond the latest trends or technology; it is a necessary mindset that should permeate the entire organization. A focus on innovation means that a company’s people – at all levels – are committed to new ideas, approaches, processes, tools and solutions that will enhance operations,” he told The Manila Times.
P&A Grant Thornton chief Marivic Españo said top companies usually have a well-defined strategy to pursue innovation.
“If you look at our top conglomerates, you will see a pattern among them. Most of them have a well-defined strategy to pursue innovation, whether it’s in their business model, their internal process, the way they deliver services or interact with clients, or the products they provide to customers. A strategy helps crystallize their vision of the future and is critical to defining the steps they will take to get there,” she said.
What keeps the CEOs of The Manila Times 500 awake at night?
The possible saturation of their markets that could shrink future returns, Cabrera said.
“Before, they can get the fast return but if it becomes saturated…are you prepared to invest for first and second year? To make that capital investment? Why would you expand if you don’t earn money in the first year? What is the justification for expansion?” he said.
Cruz said companies need to find their purpose.
“Studies have shown that purpose-driven organizations tend to perform better than their competitors, with tangible benefits across the entire company. A purpose is more than just the company’s mission/vision, nor is it just a fancy way of stating the business model. A purpose has to be a powerful statement and direction that inspires the organization, uniting its people into a collective ambition to achieve something real and personally meaningful,” he explained.