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Staying resilient (Amended)

Companies here have demonstrated resilience since the last financial crisis
Tuesday, March 17, 2015 - 05:50
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IN DRIVING the Singapore economy between 2009 and 2014, Singapore's top 1,000 companies have contributed S$1.23 trillion in sales to the Singapore economy, achieving a compounded annual growth rate of 11.3 per cent during the last five years. Not surprisingly, the commerce-wholesale sector registered the fastest growing five-year compounded annual growth rate of 13.3 per cent, with information and communications (12.9 per cent) and commerce-retail (10.2 per cent) closing up the top three.

This is according to DP Information Group's annual ranking of the country's top 1000 corporations and small and medium-sized enterprises (SMEs) - the Singapore 1000 and SME 1000.

As of the financial year ended 2014, these companies generated a total of S$2.98 trillion in revenue, an increase of 8.3 per cent from the previous year. Even as business costs rise, Singapore's top 1,000 companies have demonstrated resilience and have managed to report a 0.01 per cent decrease in total net profit to S$149.8 billion.

One key segment that deserves greater attention is the SME sector. Accounting for 50 per cent of Singapore's economy and employing up to 70 per cent of Singapore's workforce, it is a significant group to keep track in terms of performance and market reaction.

Where SMEs have traditionally been able to rely on foreign labour to fuel growth, recent changes have limited the supply. The lack of staff has hit SMEs hard. Despite both the government and SMEs making concerted attempts to alleviate the shortage of manpower by advocating higher productivity measures and incentivising investments to ease the reliance on manpower, this has seen little impact. This, together with rising business costs, has strained the SMEs' performance further.

The top 1,000 SMEs in Singapore (Singapore SME 1000) pulled in a total of S$28.3 billion in turnover, down 8.7 per cent from the previous year's S$31.1 billion. Profit wise, a 0.8 per cent drop from the year before was observed, setting the total net profit numbers for these SMEs to be S$3.38 billion.

Traditionally, SMEs have always been more domestic based, compared with the larger corporations in the S1000 rankings. Being largely based domestically, they are more susceptible to the cost pressures in the local market as well as the tightening labour market.

Findings from the latest SME Development Survey in 2014 showed that the majority (84 per cent) of SMEs find manpower related costs to be a key component affecting their profitability.

Despite a lacklustre outlook, data from the SME Development Survey was encouraging; with SMEs finally embracing the productivity call wholeheartedly, with more looking to mimic the success of their larger cousins in the S1000 ranking by venturing abroad. Notwithstanding all the challenges at play, it is good to take stock of how the top SMEs have performed.

To illustrate the importance of grooming SMEs into larger corporations, data from DP Information Group shows that between 2011 and 2014, a total of 71 SMEs have graduated into the more than S$100 million in turnover league.

A limited domestic market has meant that achieving significant organic growth while only focusing locally is a challenge for companies.

To be competitive, companies need to look at finding new markets to expand into. The top ranking companies have a common factor between them, the presence of an overseas component in their business.

The Singapore International 100 (SI100) ranks the top 100 Singapore companies by their international revenue. The combined revenue generated overseas for these companies was S$225.8 billion, up from S$223.9 billion in the previous year.

China continues to be the top destination for international engagements at 36.7 per cent. More have also moved into South-east Asian countries to take advantage of pockets of opportunities as many of these countries are still in the process of developing their economies. Additionally, with the Asean Economic Community (AEC) scheduled to be implemented by the end of the year, Singapore companies should start readying themselves for new opportunities across Asean.

Corporations in both the S1000 and SME1000 rankings have the scale, financial performance as well as an overseas aspect to their business. Another factor that they have that differentiates them from the rest of the companies in Singapore is their credit worthiness. Companies in S1000 and SME1000 comprise 75.8 per cent and 42.7 per cent of the group respectively that are of investment grade. This compares with 37.7per cent for the overall business landscape. Companies in this bracket are stronger financially and have a lower probability of default.

Looking more specifically into the top 1,000 SMEs in Singapore, we note that these SMEs have improved across the five years starting 2011.

In recent years, it has always been the case where more SMEs are in the high yield bracket. This is the first year since 2011 that there was a higher proportion of SMEs in the investment grade (42.7 per cent) category. The lowest record of high risk SME1000 companies since 2011 was also observed.

The push by the government for greater productivity through automation and training coupled with more SMEs venturing overseas for new business opportunities have helped improve both top and bottom lines. This in turn improves their credit standing.

SMEs in the finance sector have seen an improvement in their credit rating, with 71.4 per cent (up from 41.4 per cent) achieving investment grade. Another sector that saw an improvement is manufacturing, up 7.9 per cent to 55.6 per cent in 2015.

This article was contributed by DP Information Group.

Amendment: In an earlier version, it was incorrectly stated that the top 1,000 companies reported a 13.2 per cent increase in total net profit, reaching S$2.05 trillion from S$1.81 trillion. It should be a 0.01 per cent decrease in total net profit to S$149.8 billion instead. It was also incorrectly stated in paragraph six that the top 1,000 SMEs in Singapore pulled in a total of S$28.3 million in turnover, down 8.7 per cent from the previous year's S$31.1 million. Profit wise, a 9 per cent drop from the year before was observed, setting the total net profit numbers for these SMEs to be S$19 million. It should be S$28.3 billion, S$31.1 billion, a 0.8 per cent drop, and total net proft of S$3.38 billion instead. These errors were already present in the article contributed by DP Information Group.

In the accompanying chart "DP Credit Rating Distribution (%)", the Singapore 1000 (High Yield) should be 21.4%. For the chart "SME1000 DP Credit Rating Distribution (%)", the colours for High Yield and Investment Grade were swopped. The charts have been updated to reflect the correct information.