COVER STORY : TOP 200 – Taking on the World

Clouds may be gathering on the economic front but New Zealand’s top companies have spent the past financial year making proverbial hay while the sun still shone on one of the best periods of growth this country has enjoyed since the late 1960s.
The results are evident in this year’s listings with the top 200 companies collectively notching up nine percent increase in revenue on their 2004 tally and delivering massive 117 percent boost in after-tax profit. This not only built on last year’s strong performance but delivered more even spread of cheer – as the domestic economy maintained its bounce at the same time as strong external growth helped push up commodity prices and improve export returns for the meat and dairy industries.
Not all sectors benefited, however, and the continuing strength of the Kiwi dollar has made it tough environment both for companies relying on export markets and those competing with low-priced imports. Forestry companies were over-represented amongst the ranks of this year’s biggest loss makers having had their profits felled for the second year in row.
But losers appear to be very much in the minority on the 2005 list. While we haven’t always been able to include company’s most recent financial records – for the simple reason that surprising number hadn’t filed these with the Companies Office before our own deadline for reporting ran out in early November – only 15 of the 200 companies showed up as registering losses.

In the pink
On the positive side of the ledger, Shell NZ topped the list of biggest profit makers primarily due to an exceptional one-off internal sale of Shell (Petroleum Mining) Company to Shell Exploration in December 2004, which contributed $829 million to the combined $1 billion profit. Carter Holt Harvey figures were also boosted by one-off sales – primarily of its tissue business though the company has also divested its 50 percent share in Chilean paper cup manufacturer and sold its Rotorua sawmill.
Telecom continued its steady occupation of the top profit-makers list by hiking its profitability by 21 percent on the back of 6.9 percent lift in revenue to $5.7 billion.
One noticeable impact of the additional revenue rolling into corporate coffers is that, once again, the entry bar to the top 200 list has been raised. Last year it went up to $70 million; this year the revenue for our 201st company was well over the $110 million mark, more than doubling the amount that was needed to make the list in 2003.
Inevitably few companies dropped below that entry point and significant number of new companies entered the list. Although more robust tracking of company records accounts for at least some of those entries, others leapt into contention with step change in revenue. Pacific Print, for example, came in at 184 with an impressive 114 percent revenue increase following last year’s acquisitions of Brebner Print and Sydney-based Graphic World.
It was amongst several companies that appeared at the top end of our “most improved revenue” list as result of merger or acquisition. Navman is an exception in that its relentlessly rising revenue (up 77 percent this year on top of 100 percent increase in 2004) is based on organic growth. After making it to the finals for “most improved performance” last year, the company has lifted its profitability by further 242 percent earning itself this year’s Colliers International Award for Best Growth Strategy. (See article on page 94 of this issue.)
At the top end of the table, the key characteristic is stability. Amongst the 40 companies which together deliver roughly two thirds of the Top 200 revenue, there isn’t whole lot of change – though Vector’s shift from 45th to 31st was perhaps one of the most notable romps up through the rankings. Highlights during its reporting year included acquisition of NGC and in August this year it listed on the New Zealand Exchange.
After reporting record $330 million net profit for the year ended June 2005, Fletcher Building nudged Foodland aside to become the third top earner behind Telecom and Fonterra. Key contributors to its 18 percent increase in earnings growth were internal performance improvements and acquisition of the Amatek group of companies.
It made the finals for Company of the Year for the third time in row, highlighting the performance consistency from some of our leading companies – as noted by one of this year’s judges, Sandy Maier.
“There is really very stable group of professionally run, very focused, strategically well-directed companies here. There are no dramatic surprises or major shifts – we’re seeing the usual suspects and that’s not bad thing.”
On the strategy front, he also notes that this year’s category winners are spread between companies that have opted for national growth, others pursuing what could be described as ‘regional’ growth in Australasia and those like Navman that have gone global.
It is perhaps sign of the times that it has become possible for companies to skip what has been the traditional growth path and merely go for testing local waters before engaging with the wider world, says Maier.

Investing to grow
What characterises top performers in the listed sector is their ability to execute core business really well and that feeds through into the overall health of New Zealand’s capital markets, notes NZX chief executive Mark Weldon.
“Over the previous couple of years we’ve seen companies adjust their corporate strategies, make some acquisitions and take some pretty adventurous steps into new markets and offshore. I think what you really saw over this past financial year was lot about executing on those strategies very effectively.
“A classic example is Fletcher Building which made number of large acquisitions which have now played their way through the balance sheet and are really contributing in very positive way to earnings per share. The same could be said of companies like Contact Energy, Trustpower, Ryman Healthcare, Steel & Tube – up and down the ladder you’re seeing companies executing really well.”
The “outstanding” profitability of some of these companies has helped push New Zealand’s market P/E (price-equity ratio) to record high, says Weldon.
“Our market P/E is now slightly above the global median and this is the first time since 1987 that we’ve been above the median. Why that’s great from company perspective is that it makes it cheaper to raise new capital. If the share price languishes it means going out and raising money is expensive.”
He believes New Zealand companies are becoming increasingly sophisticated at using capital markets effectively.
“Both this year and last we’ve seen about three to four billion dollars of new investment capital being raised by existing companies. That is fantastic because the transaction cost of raising fresh capital is very very low.”
So while the number of new companies listing on the exchange is lower this year than last, the total capital raised through the market is actually higher, says Weldon.
“That is all about existing companies making business investments and growing. So if you’re looking at the overall health of the economy, that’s damn good indicator and good news for the future.”
The size of investment spend over the past year is feature of the economy that BERL senior economist Ganesh Nana also wants to highlight.
“Contrary to what many commentators are saying, the role of consumer spending and in particular the housing market may well have been overplayed as the driver of growth. The core driver of New Zealand’s recent economic growth has been – and continues to be – infrastructure-related, non-housing investment spend.”
In real terms the latter component surged 10 percent in the year to June this year, nearly 16 percent in the previous year and 6.5 percent the year before that, notes Nana.
“That’s total of almost 33 percent expansion in the past three years. If we take government investment out of the numb

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