That’s Better

New Zealand companies and the local stock exchange were superstars in 2002 compared with offshore markets that were hammered by accounting scandals, technology slump and the threat of protracted war in Iraq.

Reporting better than market expectations, Management magazine’s Top 200 companies collectively delivered an after tax profit increase of 7.5 percent on revenue of $105.226 billion, up 22.5 percent on the revenue those companies generated last year.

The financial institutions fared best, with the Top 25 producing 11.7 percent after tax profit on revenue growth of just 3.8 percent.

Though confidence levels rose along with profits, it was far from annus mirabilis, particularly when it came to attracting foreign investment. Companies that looked to Australia for growth last year, spent much of 2002 integrating sizeable acquisitions into their total operations.

Sky City, The Warehouse, Michael Hill, even Telecom and Air New Zealand, outperformed relative to where the market saw them. But better all-round corporate performance was lost on offshore investors.

Notable selldowns included US telco Verizon’s divestment in Telecom, Fay Richwhite’s shunting of Tranz Rail, and US utility holding company Aquila Inc’s decision to part with its 70 percent stake in UnitedNetworks. Hardly surprising then that the Overseas Investment Commission approved only $1.2 billion of net foreign direct investment (FDI) last year – the lowest level since 1993.

Heavy weights

With the amalgamation of New Zealand Dairy Group, Kiwi Co-operative Dairies and the Dairy Board into what is now the country’s biggest company, Fonterra, the top 10 lineup looks somewhat different from last year.

Fonterra’s performance was far cry from prospectus expectations of an operating profit of $5.7 billion on revenue of $14.1 billion. The company’s $13.9 billion turnover in the year to May 31 was close to expectations, but the promised profit was turned into disappointing $50 million loss. The company dipped into the red after paying its farmer shareholders promised $5.30/kg of milksolids – total payout of $5.9 billion – despite declining commodity prices. Analysts are no doubt comparing Fonterra’s result with its rival Nestle, listed 73rd, which made 214.9 percent return on total equity and tiny Tatua Dairy Cooperative (147) which found itself the winner of the SAP Best Corporate Strategy Award.

The Fonterra amalgamation meant The Warehouse and Woolworths moved their last year’s rankings of 11 and 14 to 9 and 10 respectively. notable feature of The Warehouse’s after tax profit of $82.2 million and 26.2 percent profit before interest and tax increase was the revenue improvement. The Red Sheds’ revenue reached the highest level ever, up 11.4 percent.

The speed at which Verizon’s 21.5 percent share overhang was soaked up by the market was undoubtedly “thumbs up” for Telecom. While the market remains reluctant to place any real value on its struggling trans-Tasman business through third-ranked Australian carrier AAPT, the telco is performing well compared with global peers. An $850 million write-down of its investment in AAPT dragged Telecom down to loss of $188 million.

Meantime, any result for Air New Zealand had to look good after its $1.425 billion net loss last year. The airline is poised to surge into the black more strongly than expected next year on the back of higher dollar, lower fuel prices and increased demand for travel. But not even $200 million profit forecast by June 2003 could quell shareholder anxiety over possible deal with arch Australian rival Qantas.


It might have just made it into the top 100 at number 99, but Auckland International Airport again emerged as one of the country’s standout companies. AIAL flew through turbulent year in aviation history to deliver $71.5 million after tax profit for the year to the end of June, up 21 percent on last year.

CEO John Goulter believes diversified revenue streams remain the company’s core strength. In the past five years, airfield revenue as proportion of total revenue dropped from 33.5 percent to 26.8 percent. Retail, now the company’s major revenue stream, is expected to keep growing on the back of significant re-tendering process that confirms the airport as one of New Zealand’s premier retail locations.

Equally impressive was Port of Tauranga, ranked 151. This cleverly managed business boosted its profit after tax by 15.6 percent to $25.9 million. Regarded as having geographical trade monopoly on forestry exports, POT’s growth in container traffic was delivered at Ports of Auckland’s expense. Like Komatsu, whose corporate strategy was to “surround Caterpillar” its rival, Port of Tauranga is threatening the long-term future of Ports of Auckland now that Tauranga has added Whangarei to its list of bases.

Delivering third-quarter sales growth of 20 percent, Briscoe Homeware’s 28-store chain and 11 Rebel Sport stores are on track to deliver analysts’ forecasted annual revenues of $199.5 million and $78.1 million respectively for the Briscoe Group (88).

Continued growth of its New Zealand and Australian operations, revenues up 11.6 percent and 10.4 percent respectively, packaged Michael Hill International (95) full year 2002 profit of $12.7 million ($10 million in 2001) on revenue of $214.1 million. The company expects to turn its recently confirmed expansion into Canada into another little trading gem.

Fletcher Building’s (6) latest acquisition, Australian-based Laminex, is an exciting one, says CEO Ralph Waters, but now he must prove he can succeed where many have failed and manage major Australian-based business. Earnings of $105 million turned Fletcher Building into the country’s sixth biggest profit maker behind Comalco, Transpower, Contact Energy, UnitedNetworks and Shell.

The carve-up of what was Fisher & Paykel Industries, ranked at 25th last year, has seen left the company with two listings; Fisher & Paykel Appliance Holdings (FPA) at 27 and Fisher & Paykel Healthcare Corporation (FPH) at 94.

Underscoring FPA’s analyst-predicted 112 percent jump in earnings to $41.5 million was strong performance in all its markets, home and abroad. Currency moves are likely to slow growth but the outlook remains strong. Similarly with FPH where underlying growth and margins were ahead of the previous period though little muted in New Zealand dollar terms by stronger currency.

Currency kicker

Currency fluctuations also drove fortunes last year. The speed of dollar adjustments early in the year depressed agri-stock returns. Agri-stocks then also faced sliding commodity prices, uncertainties over the global economy and the likelihood that another El Nino drought might dry-up their run of good fortune. Recent forecasts suggest these blows will push down prices and increase subsidised competition globally.

Nevertheless profitability for Wrightson (35), Pyne Gould Guinness (87) and Sanford (64) remains encouraging – so long as stronger dollar doesn’t pare away from existing return levels. As an expanded organisation, Pyne Gould Guinness – which merged with Reid Farmers in September last year – in fact took out top honours in the most improved revenue stakes, up 136.7 percent.

With one cent difference in the US$/NZ$ exchange rate affecting Sky TV’s net income by $3.5 million – the alacrity with which the Kiwi jumped from low of $0.43 to $0.49 came as welcome relief for the pay TV operator’s future earnings. Having largely covered its US$ requirements at US$/NZ$0.43-$0.44 for 2003, Sky’s full currency gain is masked until full year 2004. But based on long run currency assumptions, the tailwind for Sky looks worth the wait.

Power plays

On the regulatory front, politicians and bureaucrats finally crystallised the results of their scrutiny of the telco arena. But they didn’t make much progress in the energy market. lingering question for th

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