Outlook: Changeable – Revenue Up, Profits Down, Performance Patchy

What difference year makes. It took just one company to single-handedly almost halve the collective profit performance of our Top 200 companies this year.
No points for guessing which one.
The once iconic Air New Zealand’s spectacular fall from business grace this year after its ill-fated acquisition of Ansett Australia saw such massive blow-out of its bottom line that the Government was forced to throw it lifeline.
How deep this rescue will cut into Treasury coffers to keep taxpaying travellers flying is anyone’s guess but the losses were still mounting after balance date.
Mindful of the fact that the list of companies which makes up this year’s Top 200 is different from last year’s, direct comparison is not possible. However if this year’s Top 200 rankings had been spared Air New Zealand’s ignominious $1.425 billion net loss in the year to June, the collective profit performance of New Zealand’s major companies would have been closer to last year’s $3.2 billion. Instead it dropped almost 40 percent to $1.9 billion – and this when the collective turnover increased 23.1 percent to $103.9 billion. Mind you, Air New Zealand’s full purchase of Ansett played significant part in bulking up this revenue figure.
Anomalies aside, the year was mixed bag for New Zealand business. Growth tended to come from acquisitions, not improved performance. Our world competitiveness meanwhile dropped three places to 21st in ranking of 49 economies.
Dairy farmers were delivered bumper milk solid returns on the back of strong export prices that were marked by low New Zealand dollar against the American greenback. They turned grass into 20 percent of total exports and seven percent of GDP.
The New Zealand Dairy Board, now component of industry giant Fonterra, topped the 200 list with revenue up 30 percent to $9.9 billion and total assets up 32 percent to $5.75 billion.
The dairy marketer does not disclose profit but that will change with New Zealand Dairy Group (ranked 4th this year) and Kiwi Co-Operative Dairies (5th) morphed into the Fonterra mix.
First signs of change appeared last month when Fonterra revealed in its prospectus for its $200 million capital notes issue that it expected to produce an operating profit of $5.7 billion on revenue of $14.1 billion in the next year. Pre-merger the three entities produced combined revenues of $18.36 billion. But the industry is forecasting less rosy results next year.
Last year there was glimmer of hope for forestry companies with better log volumes and higher prices for wood products. And indeed, Carter Holt Harvey benefited briefly. Forestry exports were up 13.2 percent in the June quarter. But it is one of the country’s most volatile sectors. Carter Holt pinned hopes last year on $400 million of net earnings this year. It achieved $237 million (up from $202 million previously). By October the country’s largest forestry company was back in the doldrums, posting net loss of $19 million for the first half to September 30 and telling shareholders there would be no dividends. Blame falling log demand in Asia.
The Ministry of Agriculture and Forestry still predicts forestry exports of $3.9 billion by 2005, five percent lift on expected 2002 levels while pastoral products are expected to increase to $14.3 billion in the same period, 18 percent higher than $12.1 billion this year.

The performers
Dairy and forestry aside, company report cards for the year are satisfactory but not remarkable, albeit measured against an economy that turned into state of ennui after some exuberance last year.
Take the extreme performers out of the top 10 companies – Air New Zealand and the dented Telecom – and the situation looks little better.
Some of the smaller Top 200 businesses turned in the strongest or most improved balance sheets. Auckland International Airport, for instance, lifted its profit 15.8 percent to $59.1 million on 11.4 percent higher revenue of $189.3 million and simultaneously forged ahead with extension plans at the airport and retail and hotel development on its nearby land. It still has battle ahead with the airlines – Air New Zealand in particular – over increased landing fee charges.
Despite repeated talk of brain-drain, particularly in the science field, nine Crown Research Institutes – the country’s largest providers of science research – collectively reported record turnover of more than $482.6 million, up $26 million on last year and on the back of almost doubled export sales.
HortResearch (listed 187th) with $56.85 million revenue this year, contributed greatly to the $200 million growth in New Zealand’s horticultural exports of $1.9 billion.
Belt-tightening is undoubtedly the catchcry for the coming year, however, with economists and analysts bearish about both the domestic and world economies – even before the September 11 terrorism acts in the United States.
The attacks and global response have accelerated the US economic slowdown and impacted other Western world economies including New Zealand’s. Bank of New Zealand has revised its 2002 GDP growth outlook down from three percent to 2.2 percent.
Currency dealers don’t expect any great lift in the value of the New Zealand dollar which has muddled along for most of the year just gone in the 40c to 45c bracket against the US dollar.
The Deloitte/Management magazine Top 200 Awards star performers, Baycorp (ranked 179th), Sky City (52nd) and Fisher & Paykel (25th), featured strongly. The latter, though, duffed its foreign exchange management, wiping $64.2 million off its June net profit leaving $11 million compared to $54.56 million previously. However, the company rectified the situation in its interim result.
Its share price has enjoyed meteoric rise this year, starting from $8.10 in January to $15 last month based on performance of its healthcare division which has now been separated from appliances business to form two new business entities.
Sky City keeps providing shareholders with stellar rewards. The share price climbed from around $8 at the year’s start to an all-time high of $12.30 earlier last month on the back of solid results and pending share split.
The full year June profit of $68.3 million was up from $60.3 million previously. Sky City owns 50.2 percent of Force Corporation however, and is underwriting its $31 million rights issue to get the cinema operator off the financial hock with its Argentinean multiplex cinema investments.
Baycorp’s shares developed speed wobbles during the year but were back to where they started at around the $11.90 mark earlier last month as the company completed its $1.9 billion merger with Australian-based Data Advantage.
This development, precursor to increased expansion into Asia, means Baycorp will move headquarters to Sydney and list on the Australian Stock Exchange.
Air New Zealand’s performance was, however, the proverbial blot on the corporate landscape this year. Forced to jettison Ansett Australia the airline is still not clear of the turbulence it created.
In November it revealed total loss in the first quarter to September (including unusual items) of $439 million.
The carrier is now pinning its hopes on five-year business plan. Gone are the executives and directors who led the charge on Ansett. Whether Air New Zealand can cut the mustard as regional player in cut-throat, globalised aviation market dominated by three or four marketing alliances remains to be seen.
The war on terrorism is also troubling the tourism sector as visitor numbers fall away and people the world over stay at home. This will undoubtedly be worrying Tourism Holdings and CDL Hotels New Zealand.
Foreign multinationals continued to eye New Zealand as playground of cheap or rich pickings, depending on your viewpoint. Of the Top 200, 82 are overseas owned. French liquor and food giants Allied Domecq and Danone arrived as chief acquisitors.
Much news print was given over to the acrimonious battle b

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