COVER STORY : Our Top 200 Companies – Built to grow

For year during which potential, ‘technical’ or real recession seemed an ever-looming presence, New Zealand’s top 200 companies have shown they are more than just fair-weather players. As group they pushed their overall revenue up by 8.5 percent – only smidgen behind last year’s nine percent effort in what were then more buoyant economic conditions.
That they were trading in tougher times shows up in the collective profit tally which dipped by 15.5 percent. Leading the loss-making fray was Telecom – number two on the Top 200 listing with its $5.8 billion revenue but carrying net loss of $435 million for the year ended June 2006 (cf. $967 million profit in 2005) which included $1.29 billion writedown on its Aussie operations. The company also suffered $3 billion market capitalisation knockdown when it became known the New Zealand Government was about to pass legislation opening the company to increased competition via its local copper line network.
It perhaps wasn’t great year for phone companies (incidentally description Telecom rejects in its annual report) as Telstra New Zealand also appeared amongst the past year’s top lossmakers after reporting $54.6 million loss. Nor was it great year for retailers – who bore some of the brunt of negative economic sentiment.
New Zealand’s ‘big red shed’ (The Warehouse) dipped out of the top 10 after 14 percent drop in its annual revenue and the only major supermarket to notch up decent profit increase was Foodstuffs (Wellington) helped by its divestment of Kapiti Fine Foods to Fonterra during the year.
Energy companies had better time of it. Contact Energy reported ‘solid result’ – with EBITDAF ($557 million) and profit ($280 million) both up, boosted by the $33.4 million sale of its stake in Australia-based Valley Power. These results pushed it eight places up the top 200 rankings to 10th position.
Meanwhile, Meridian Energy was happy to report “momentous” year during which it achieved net profit after tax of $856.8 million – helped by the substantial gain made on its sale of Australian subsidiary Southern Hydro to AGL for an above-valuation price of A$1.46 billion. It also moved several places up the rankings.
This year saw two companies moving up into the top 20 – group which accounts for around half the total top 200 revenue. Nuplex Industries, which began life as flooring distributor in the 1950s and now sells wide range of polymer, paint and resin technologies around the world, moved up from 29th to 19th place while contractor Fulton Hogan moved into 20th place on the back of 24.8 percent increase in revenue. They displaced Vodafone New Zealand and New Zealand Post.
The benchmark for entry to the top 200 shifted up to just over $118 million pushing few of last year’s companies out and bringing in 12 new entrants. One of these was Transfield Services which not only shot straight into the top 100 but also topped the list of most improved revenue earners. An Australasian company specialising in operations, asset and project management, its local clients include Meridian Energy and Transpower.
Finance companies have generally enjoyed good year with the top 30 pushing their collective revenue up by 17 percent and post-tax profit by 14.3 percent. Despite the mortgage wars, several banks rank amongst the list of biggest profit makers – with ANZ National heading the pack followed by Westpac, National Australia, ASB and Deutsche Bank.
But as one of this year’s judges, company director and management consultant Sandy Maier, says (see box story “Making their own luck”) the best performing companies are lot less susceptible to the vagaries of change in external economic conditions – they’re the ones who have great strategy and consistently execute on it. They are the authors of their own success.

The flight of optimism?
If this year’s results are more positive than anticipated, it also reflects economic conditions that were more buoyant than predicted at the year’s start.
The ‘hard landing’ that some economists feared amounted to little more than briefly dipped wing as growth stalled in the December 2005 quarter before picking up again in March – thus avoiding technical recession (two quarters of negative growth). This was no surprise to BERL economist Ganesh Nana who reckons the dismal outlook was only ever in the minds of commentators with “predominantly domestic, metropolitan and/or financial focus”.
A broader perspective would have rendered more balanced outlook, he says.
“For the best part of three years, New Zealand business and economic activity has revolved around remarkable investment spending surge, accompanied by wide range of regional infrastructure projects and buoyant labour market. We have seen no signs of any of these factors easing and remain confident that they will continue to underpin economic activity over the short to medium term.”
According to set of 42 indicators monitored by BERL, the worst is now past. It predicts recovery in the external sector and says strengthening investment and building activity will underpin improvement over the coming year.
Not all economists are as optimistic. Latest quarterly forecasts from the National Bank say that although the promised recession didn’t arrive, the economy is still slowing and will continue to do so over the coming year. Its predictions are for 1.5 percent per annum growth (cf. BERL’s 2.1 percent to March 2007) influenced by tight financial conditions, capacity constraints and imbalances like the country’s fattening deficit levels.
Add in few unknowns like the skittishness of the exchange rate or impact of climate change policies and it could all start looking bit gloomy. But, out in the real world, business commentator and adjunct professor at AUT, Rod Oram finds that the commentary tends to lag sadly behind more bullish reality.
“It was all bit doom-filled at the start of the year with talk of recession – yet the underlying figures look good. It drives me crazy because I think the sentiment is hugely detached from reality. And that’s real problem in New Zealand.”
When Don Brash predicted early this year that the country was headed for recession and there was not thing we could do about it, Oram was incensed.
“Talk about self-fulfilling prophecy… The reality is that we are in the longest period of sustained growth this country has experienced for 30 years. It means conditions are okay and I’m confident that will carry on next year.”
NZX chief executive Mark Weldon agrees that things were never as bad as they were painted, suggests no Kiwi politician should ever bag the business sector for political advantage – and says what business needs is stronger sense of self-belief.
“We had some macro-data around the economy early in the year which caused precipitous drop in business confidence. The biggest issue New Zealand business has to deal with is just basic, fundamental levels of confidence. They shouldn’t have been shaken around that much by the data. It didn’t move that much. Profits didn’t move that much. But the pessimism fell into full swing very quickly.
“You would hope,” he adds, “that sooner or later the level of business confidence would start to have some resilience in it” because confidence does impact on longer-term investment decisions and therefore on future growth.

In good heart
As someone who talks to lot of different business groups around the country, Rod Oram comes across plenty of anecdotal evidence that New Zealand’s business sector is actually in good heart. While he’s no Pollyanna, he’s always believed the economy has more momentum than economists tend to give it credit for.
“The reality of what is going on in the country and in the corporate sector is not being very well portrayed. Something far more interesting and positive is going on.”
And this does show up in data, he says. For instance, the Annual Enterprise Survey compiled by Statistics New Zealand and one of the most comprehensiv

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