Conglomerates brace for higher operating costs amid Middle East war

Top Philippine conglomerates are signaling a strategic shift, bracing for higher operating costs amid the war in the Middle East and ongoing supply chain instability, even as they remain optimistic about long-term growth.

“At this time, with all of this conflict in the Middle East, I guess maybe there’s still a lot of fear in all of us. But having said that, I guess the lights go on, business goes on, capex (capital expenditure) goes on. Of course, there are more risks, and maybe the thing that will be higher is the opex (operating expenses). So, we just have to make our business more efficient, lower our margins, to survive these temporary hiccups,” SM Investments Corp. Vice-Chairperson Teresita T. Sy-Coson said during a panel discussion at the Philippine Stock Exchange’s InvestPH conference on Mar. 17.

She also expressed hope that the current volatility would be short-lived, noting that the broader business community remains hopeful.

“I’d like to think that it’s temporary, and as I can see from the survey, I think most of us are optimistic that it’s not going to take very long. And I think that we need prayers for that,” she added.

Jaime Augusto Zobel de Ayala, chairman of Ayala Corp., said that the current environment serves as a reminder of how “intertwined” global economies have become, regardless of isolationist trends. 

“It’s a reminder to all of us that as a community of businessmen, a community of countries, I think we all have to take the extra step to continue building good relations with each other from both an economic and political point of view… I think it’s a credit to our President this time that he’s actually a person who enjoys building linkages with the world, and we’re lucky to have that,” he said.

He added that these linkages are just as vital within the domestic market. “A day doesn’t go by—even in our local environment—where we in our group don’t understand that all of our businesses are really linked up to each other. We all have to make that effort.”

Addressing the specific nature of the current crisis, he said that his primary concern is the physical availability of resources rather than just fluctuating costs.

“My concern is less price volatility of what’s happening to the energy sector. I think that’s just the reality of the world we’re facing. My concern is a drying up of supply… If we go back to something that happened in the 70s, which was really a drying up of supply to a larger system, that would really have a big effect on all of us.”

To navigate these risks, he called for a dual-track management style that addresses immediate supply threats while protecting future commitments. “When you have a crisis of this magnitude, you have two frames of mind. One is the crisis frame of mind which is the now and the other one is the longer term… we can’t escape from the fact that we need a short-term plan to handle it. And I think all of us are faced with a situation where we have to have our brains work on those two fronts,” he said.

Francisco C. Sebastian, chairman of GT Capital Holdings, Inc., noted that the financial system remains robust, characterized by solid income, healthy cash flows, and significant bank capital buffers. He specifically credited the role of national regulators in maintaining this stability.

“I think the banks are very healthy thanks to our BSP (Bangkok Sentral ng Pilipinas) and financial regulators to start with. Our financial system is strong and over the years we have built up income and cash flows that allow us to be strong… Our banks, I think no complaints here, we’re doing quite well. Good capital buffers and good income, good returns and good dividends too,” he said.

Mr. Sebastian added that the group’s core businesses have been well-positioned to ride the wave of the country’s improving economic fundamentals.

“We have been one beneficiary of these demographics. Toyota has been a beneficiary of the rising income and demographics… I think I will [not] forget that EV cars will also benefit from the current drivers,” he said. — A.G.C.Magno