Top Performance

This year’s Deloitte/Management magazine Top 200 Awards prove once again that great businesses, and the leaders at their helm, can perform well irrespective of the state of the economy. That our collective Top 200 companies have faced tougher times has been manifest in the economic news throughout the year. It is now evidenced in this year’s top 200 company listings (see page 52).
Yet, in this continuing difficult economic environment it is easier to spot our best performing companies. Sandy Maier, professional director and one of this year’s judges, summarises his thoughts at the end of lengthy Top 200 Awards judging session. America’s investment guru Warren Buffet, he says, famously suggested that when the economic tide goes out it’s easier to see who’s swimming naked in the marketplace. “I reckon its easier now to see who’s wearing decent swimsuit,” says Maier.
This year’s panel of judges (see full details on page 46) takes heart from the fact that all the winners and finalists are New Zealand enterprises.
Companies such as Mainfreight, Datacom and Ryman Healthcare – now dipping its toe into Australian waters – are successfully competing in the world marketplace.
Auckland International Airport and the Port of Tauranga could benchmark themselves with the world’s best infrastructure companies of their kind. And Trade Me is an outstanding example of can-do innovative thinking.
As this year’s judges say, “Our best businesses are as good as the best anywhere. We just need more of them and need to see lot more new ones coming through.”
For among this year’s top business success stories, it must be concluded that too many of New Zealand’s large enterprises are not up to the job. That shows through in tough times.
It matters little how the figures for New Zealand’s top 200 companies are sliced, diced and counted: it was year of unspectacular growth. Their collective performance was lacklustre.
In at least one important respect, the Deloitte/Management magazine list of New Zealand’s Top 200 companies went backwards in 2012. For the first time in the 23 years since the Top 200 awards were created the turnover of the lowest ranked company is less than the previous year’s. This is only the second time this has happened in the 29 years since the magazine started compiling the list.
New Zealand Radio Network, company number 200 this year, scraped in with turnover of $128.8 million. AMP NZ Office Trust occupied the bottom slot last year with revenue of $137 million.
It’s not good look and says something about the static state of the nation’s largest enterprises. This lowered entry barrier means it was easier to join the Top 200 Club, and that is not as it should be.
Our top 200 enterprises made heavier weather of the post global financial crisis (GFC) recovery than they did last year. Turnover was up shade less than four percent to $161 billion on last year’s $155 billion.
Toss in the turnover from the 30 top financial institutions and the combined revenue of the 230 businesses climbed just over four percent from $182 billion last year to $190 billion this year.
Profitability was little better, though again it was the 30 financial institutions which made the most hay. The top 200 companies managed an after-tax profit lift on last year of six percent to $4 billion. The finance sector kicked their profits along by healthier 19 percent from $2.6 billion to over $3 billion.
The finance sector has left the nasty after-taste of GFC behind. For the record, the after-tax profit of the combined group was up more than 11 percent to $7 billion. Profits improved while business growth stagnated.
None of this helped the country’s cash-strapped Government. The tax paid by the combined corporate and finance group climbed 12 percent. But that simply meant they shelled out $3.6 billion to the Treasury compared with last year’s $3.2 billion. That’s nowhere near the $6 billion paid out in 2010.
To be fair, the 2010 figure was an aberration, caused by depreciation accounting changes and the finance sector provisioning against bad debts. Nevertheless, the 200 corporates hardly paid any more tax than last year – less than half percent more to just $2.2 billion.
The largest of our large companies again paid proportionately higher share of tax and similarly gained the greatest share of total revenue this year. The top 20 companies paid 38 percent of the total tax bill and the top 100 paid 85 percent. The top 20 also generated 52 percent of the revenue, compared with 50 percent last year. The top 100 companies generated 87 percent of the total revenue generated by the top 200, up one percent on last year.
Fonterra and Telecom were exceptions to the growth trend shown by the largest companies. Far and away New Zealand’s largest company, Fonterra saw its turnover slip almost one percent to less than the $20 billion it generated last year.
And slimmed down Telecom, having spun off its fixed line network to the standalone company Chorus, dropped $1 billion from its revenue line to report $5 billion annual income. On the other hand, the earnings from Telecom’s discontinued operations helped lift its profitability by spectacular 600 percent.
Fletcher Building, the country’s second largest enterprise that’s moving steadily closer to half Fonterra’s size, cranked its turnover up almost 20 percent to just short of $9 billion. It couldn’t, however, match its growth with similar profit climb. Its bottom line slumped 34 percent.
The banks returned to business-as-usual by reporting the biggest profits of the year. Behind Telecom came ANZ National, ASB Bank, BNZ and Westpac. The judges say the figures reported in the finance sector generally are sign of return to the good times for the re-regulated and reinvigorated finance sector.
Not so for retailers this year. With the exception of the newly-listed Trade Me, the next generation of retailer, it was hard slog. Having said that, the Foodstuffs supermarket chain made the most of return to profitability across its three regional operations. Wholesaler British American Tobacco continued to suck solid profits out of the market. The company might lose some of its puff as regulators’ attempts to stamp out their contentious business gain more traction.
Media companies like GR Media Holdings, Fairfax, Wilson & Horton and PMP continued to dominate the Top 200’s list of “biggest loss makers” as the social media age takes its savage, unrelenting and growing toll on old-world media enterprises.
On the other hand, Sky Network Television showed just how “near monopoly” can exploit its position and turn in another sold profit performance, though not one that is major increase on last year.
Energy and infrastructure companies performed pretty well. Meridian Energy, Mighty River Power, Genesis Energy and Contact Energy all featured on the “most improved” revenue list while Vector, Contact and TrustPower joined the “biggest profit makers”, along with Infratil and Auckland International Airport.
But, agree the judges, the performances of this year’s list of top 200 companies give scant reason for feeling bullish about New Zealand’s next few years of economic and business performance.
Suzanne Snively, an economist, Transparency International executive chair and one of this year’s judges, says, “the results highlighted that companies with strategies focused on the bottom line and which also understand the drivers of their businesses can survive and even thrive in downturn”.
“It also shows that when companies obtain advantages through luck, such as an upturn in commodity prices, and don’t have the right strategies in place they won’t necessarily convert that advantage to strong profitability,” she adds. “There is considerable evidence of that happening in this year’s results.”
In the judges’ collective opinion, the outlook for next year isn’t much brighter than has been the reality this year. Problems in Europe, Amer