Family businesses outperform equity markets
This year we find familyowned businesses are continuing to outperform their peers in every region, every sector, whatever their size.
KUCHING: Family- owned businesses outperform broader equity markets across every region and sector on a long-term basis, according to the ‘Credit Suisse Family 1000 in 2018’ report, published by the Credit Suisse Research Institute (CSRI).
In a statement, CSRI saw that that family- owned businesses deliver stronger revenue growth in all regions and higher levels of profitability, which in turn supports the relative strong share price appreciation seen since 2006.
In 2017 alone, Non-Japan-Asiabased family-owned companies generated 25.63 per cent greater cash flow return on investment (CFROI) than their non-family owned counterparts, and delivered a 4.2 per cent outperformance in annual average share price return since 2006.
Eugène Klerk, head analyst of Thematic Investments at Credit Suisse and the report’s lead author, said: “This year we find family- owned businesses are continuing to outperform their peers in every region, every sector, whatever their size. We believe this is down to the longerterm outlook of family- owned businesses relying less on external funding and investing more in research and development.
“Our research on a global scale also suggests family-owned companies with special voting right structures perform relatively in line with those with ordinary shares, contrary to the fears expressed by many investors.”
The CSRI analysed its database of
Eugène Klerk, Credit Suisse head analyst of Thematic Investments and the report’s lead author
over 1,000 family-owned, publiclylisted companies, ranging in size, sector and region, looking at their performance over 10 years compared to the financial and share price performance of a control group consisting of more than 7,000 non- family owned companies globally.
Meanwhile, among key highlights in Malaysia is that family-owned companies in the country generated a 10.2 per cent. annual average share price return since 2006.
Malaysian family- owned companies also generated an annual average revenue growth of 14 per cent since 2006, while the average market capitalisation for Malaysia family-owned businesses stood at US$4.4 billion.
“Within the region, China, India and Hong Kong dominate.
These three jurisdictions combined make up some 65 per cent of the Non- Japan Asian section of the CSRI’s database, with a combined market capitalisation of US$2.85 trillion of the market share of the Asia universe,” CSRI said.
“Korea came in fourth place, with 43 companies ( US$ 434.1 billion market capitalisation), followed by Malaysia, Indonesia, the Philippines and Thailand, each with 26 companies. “
Asia- based family- owned companies generated much higher returns than their global peers, with annual average revenue growth of 19.5 per cent over the past 10 years, compared to 6.3 per cent in North America and 7.4 per cent in Europe.
Malaysian family- owned companies generated an annual average revenue growth of 14 per cent since 2006. In terms of annual average total shareholder returns, the Asian family-owned universe achieved an impressive 31.5 per cent over the 10- year period, compared to 16.6 per cent achieved by European peers and 9.2 per cent by North American peers.
“Out of the top 50 most profitable companies globally, 24 were from Asia, with a total market capitalisation of US$748 billion,” it added.
“Family businesses in Asia outstrip their non-family-owned peers with superior financial performance and more robust share price returns, largely due to their longer-term focus.
“Companies in emerging countries such as Non- Japan Asia and Latin America also tend to be younger. Over 80 per cent of the Non-Japan Asian family or founder-owned companies in the database are of first and second generation.
“On the other hand, companies in Japan, Europe and the USA tend to be older. Half of the Japanese companies are third generation family-owner or older.
In the event that a SME has yet to meet the requirements of this loan, Chui said the bank also offers an unsecure loan of up to RM500,000 to help these SMEs continue to grow their business.
“Last month, we signed a joint agreement with Syarikat Jaminan Pembiayaan Perniagaan ( SJPP) to offer a government- guarantee funding scheme that will help all these SMEs back their security and get a loan from the bank.
“With a SJPP guarantee, SME customers can actually get a loan of up to RM1 million,” he added.
Moving into an SMEs mature stage, UOB will once again be there to provide its customers with working capital requirements through letter of credits, trust receipts and bankers’ acceptance.
“What we offer at UOB takes care of the entire cycle of the SME,” said Chui.
Beyond this comprehensive suite of products that will help support SMEs throughout their lifecycle, Chui guided that there is so much more that UOB is offering to its customers in terms of solutions.
The focus of these next few UOB products are largely based on providing SMEs with digital solutions that will help enhance the operations of their businesses.
But they unable to do so because they do not have the access or capability.
“So that is why we cannot rely on just the conventional methods to service our customers any longer, we need to move into digital and support them,” said Chui.
One the main pain points UOB has discovered through its focus groups with its customers is that many small SMEs struggle with juggling with their operations and accountancy management as they end up having too much to handle on their own plates.
To help solve this, UOB has come up with a cloud-based integrated digital business solution that will support SMEs by allowing them to streamline and digitise their back- office processes such as their accounting, their HR management, and their stock and inventory management all in one application.
Called UOB SmartBusiness, the product is a tie in with business software provider, SAP, whose enterprise software, SAP Business One, will be available to customers for free.
And to further ease the burden of account reconciliation on their customers, Chui adds that customers can also link their UOB SmartBusiness account to their UOB current account and enable an automated bank reconciliation process by providing a current account statement directly into the SAP software.
“We launched this new product just two months ago and already we have over 1,000 sign ups.
Responses from our roadshows have been overwhelming and indicates that we have definitely hit the mark on what SMEs really need right now,” said Chui.
Another pain point that UOB has identified in local SMEs is the status of financial documents as a lot of smaller SMEs may find themselves struggling to handle documentations well as they are too busy running the day to day operations of their business.
In the past, having missing or incomplete documentation would be a huge blow for SMEs as it could be very well the reason why they are unable to obtain loans for further growth of their business.
“Without the needed financial documents, it is hard to help customers obtain loans because we cannot confirm their financial standings.
So, to help these SMEs, we utilised our digital capacity to create a proxy to better understand their credit behaviour and creditworthiness so we can give them a loan with more certainty,” said Chui.
Since the implementation of the enhanced credit underwriting engine, UOB has seen a 50 per cent reduction in the default rate of its small business loans.