According to Bain & Co., a global management consulting firm, Philippine conglomerates are facing challenges in keeping up with pure-play companies due to their decreasing annual total shareholder return (TSR).
According to a report sent to journalists on Thursday, Bain suggests that adapting portfolios, redefining responsibilities, and investing in technology are crucial for success in an unpredictable environment.
According to Capital IQ and Bain’s research, conglomerates in the Philippines had an average yearly TSR of 2.6% over the past ten years, while pure play companies had a TSR of 3.2%.
According to the fifth version of Bain’s report on Southeast Asian conglomerates, the average yearly TSR (total shareholder return) for companies in the region from 2013 to 2022 was only 4%, showing a 24% decrease from 2003 to 2012.
However, companies specialized in Southeast Asia had a revenue growth of 11%, surpassing the performance of large diversified corporations in terms of margins and multiples.
According to Jean Pierre Felenbok, an advisory partner at Bain in Singapore, conglomerates were able to thrive more easily in less developed regions due to their large size and advantageous access to opportunities, funding, and skilled individuals.
“Nevertheless, we have noticed that this advantage began to decline in the mid-2000s, and the difference in performance between specialized companies and diversified companies has continued to grow,” he stated.
Bain discovered a connection between market maturity and the success of conglomerates in developed markets like Singapore, Malaysia, and Thailand. In these markets, conglomerates lost their advantage earlier and at a faster rate.
The article suggests that conglomerates should strive to increase their profit margins at a faster pace and establish dominant positions in desirable industries, similar to what newer, specialized companies have accomplished.
According to Mr. Felenbok, Southeast Asia’s conglomerates are essential for growth and value creation, as they make up 17% of the market capitalization and 30% of the total capital expenditure in the region.
According to Till Vestring, a partner at Bain advisory, a specific group of conglomerates known as “all-weather stars” have surpassed their competitors by achieving higher revenue, maintaining margins, and increasing their multiples.
The Philippines’ Enrique Razon Group, which manages the port operations of International Container Terminal Services Inc., Bloomberry Resorts Corp., Manila Water Co., and Prime Infrastructure, was also mentioned.
PHINMA Corp., a holding company, was listed as one of the seven new all-weather stars in the region in the report.
According to Bain, it is important for companies to invest in their main operations in order to maintain their competitive positions and counteract the loss of the conglomerate advantage. They also noted that 44% of the most successful companies are leaders in their primary industry.
The top-performing conglomerates have actively adjusted their portfolio to focus on industries with high potential for growth and future growth engines.”
Bain suggests that companies redefine the responsibilities of their corporate center in order to increase its contribution. It was also noted that numerous companies in the area manage group functions such as procurement, information technology, and commercial excellence.
The text emphasized the importance of investing significantly in innovation and technology, utilizing data analytics and automation to drive product development and generate new sources of income.
Bain stated that the value of a conglomerate in the public market is affected by its ownership and capital structures. He also mentioned the importance of optimizing in order to decrease the conglomerate discount.