Top 200 : Against the odds Top 200 companies rise to new world challenges

Despite the challenges of domestic economy struggling to recover, there are signs that the organisational shakeout induced by the global financial crisis has at least some of our largest companies refocusing their strategies to become more innovative and efficient.
Revenue performance overall was flat for our top 200 corporates, with total turnover down tad under two percent this year to $147.5 billion. The top 30 financial institutions fared much worse – with their revenue dropping shade over 18 percent to $29.4 billion.
Profits before tax for the Top 200, however, were up 37 percent, clawing back part of the big hit our largest companies took on their collective bottom lines in 2009 when pre-tax profits plummeted 51 percent. This shows that our biggest enterprises still have way to go to recover the ground lost after the GFC plunged the world into recessionary spiral. EBITDA, included in our analysis of company performance for the first time this year, was up 8.1 percent for the year.
The Top 200 companies also contributed more to the government coffers – with tax paid to the consolidated fund up 150 percent from $1.3 billion to $3.28 billion. This meant total after-tax profit was down marginally by 0.6 percent. Tax changes were significant factor in this and included substantial deferred taxation provisions by companies with balance dates after May 2010, resulting from the Budget’s abolition of building depreciation allowances.
The profitability of the Top 30 financial institutions slipped an eye-watering 86.6 percent after tax while tax paid climbed 118 percent – in large measure reflection of the impost on the major banks of the Inland Revenue Department’s successful court action on their tax practices. The top six banks might own 89 percent of the assets in this sector but generated negative profits, with two of the “big five” suffering substantial losses resulting from provisioning for bad loans. However, the banks results are mainly for the 2009 year. They are only now reporting much improved preliminary 2010 results, past the Top 200 compilation deadline.
In general, the companies that performed well in 2010 adopted “classic tough times” management strategies says Neil Paviour-Smith, managing director of Forsyth Barr and one of this year’s Top 200 awards judges. “They focused on costs, introducing efficiencies and addressing balance sheet issues.”

The bigger the better
Bigger companies have generally weathered the storm better than the small business sector which generates its revenue predominantly from domestic markets such as retail and building. These businesses are often financed off household balance sheets and don’t have the same capital or resources to battle through tough times when cash flow is tight.
Evidence of this reality is also reflected in the performance of the larger companies within the top 200. This year the top 50 of our 200 companies generated 70 percent of the revenue and 86 percent of the profits. They also own 67 percent of the assets. Last year they generated the same revenue percent but earned only 66 percent of the profits on 64 percent of the assets. The bottom 150 companies were, therefore, hit more heavily.
With some notable exceptions, New Zealand’s largest companies have not carried the high debt levels that were feature of the late 1980s and early ’90s recession when consequently it took them longer to recover, says Roger Kerr, director of Asia-Pacific Risk Management and another Top 200 judge. “Because most of our big companies weren’t so highly geared this time round, they have been able to make decisions and cut their cloth to the environment more quickly and effectively.”
Balance sheet issues and non-performing assets were, by-and-large, addressed in 2009 as investors and financiers put debt levels under the spotlight. Another Top 200 judge Janine Smith, professional director and principal of governance advisors The Boardroom Practice, thinks companies that were over geared for the new low-risk business and investment environment that emerged following the GFC managed the debt reduction process competently. “Most have worked well with their banks and there hasn’t been the slash and burn approach that we’ve perhaps seen before. Banks recognised that they have to work with their customers and this helped maintain stable business environment,” says Smith.
As Kerr also points out, New Zealand hasn’t experienced the big corporate failures that had destabilising effect in many other countries. “The obvious exception was the finance companies but that was fraught business model that would eventually have tipped over regardless of the GFC,” he says.
Smith thinks stronger board leadership has also helped pull corporate performance round more quickly. “Boards have become more involved in the new business environment without interfering with management. They are acting more like resource board and adding value,” she says.
There has, in her opinion, also been more carefully managed and measured cost cutting rather than knee jerk reactions to the difficult economic environment. She believes boards learned something from past mistakes and so companies didn’t lay off skilled labour unless absolutely necessary. Management looked to other solutions such as putting staff on shorter hours or four-day weeks. “There’s been more collegial approach with workforces prepared to be more flexible,” says Smith.
Overall, it was steadying year for many of our major companies. The aged care and healthcare companies continued to make the most of opportunities presented by our aging populations. Abano Healthcare, Ryman Healthcare and Ebos Group grew strongly and managed their companies so well they were able to turn additional revenue into equally strong profit results.
Kerr believes many Top 200 companies exposed to the domestic economy adapted well to market conditions which continued to be challenging. “The retail sector is good example. Despite very tough environment where margins were squeezed and retail spending was flat, most of our bigger retailers have done okay.”

A new way of exporting
It was also challenging year abroad, with exporters confronted with both price and exchange rate volatility. “But, with agriculture commodity prices at record levels and terms of trade at 30-year highs, it’s great environment to be exporting out of New Zealand,” says Kerr.
The country’s largest exporter and most profitable business, dairy giant Fonterra, lifted its revenue healthy 4.5 percent to pass the $17 billion mark. It also milked the marketplace of an additional $75 million in profits to nudge within $15 million of the $700 million mark. That’s an excellent result, given the state of many of the world economies.
A number of our other top 200 companies are also now performing better on the global stage, according to Paviour-Smith. “There are some good examples of companies that aren’t just trading internationally in small way. They are generating the bulk of their income offshore and growing strongly in markets that, in some cases, have been under the same sort of economic pressure as New Zealand.”
There has also been noticeable shift in the whole concept of “exporting”. Major commodity exporters such as Fonterra, kiwifruit marketer Zespri and the meat companies will obviously continue to process most of their products in New Zealand, but the model is changing for growing number of New Zealand companies that are moving to manufacture more offshore. They retain head offices, undertake research, product development, marketing and design in New Zealand but manufacture in countries where they can source the most competitive price to the best quality. Sadly, this is often no longer in New Zealand.
A new breed of “intellectual” exporters is also earning valuable foreign exchange by selling their talent and expertise internationally. There are few better examples of this than home grown engin

Visited 7 times, 1 visit(s) today
Close Search Window