Dynamic Business: A year of consolidation (NZ Herald)

Tim McCready

The high level story for the 2016 Top 200 Index is one of consolidation — and mightily effective consolidation at that.

All indicators showed an improvement on their 2015 figures aside from revenue, with profit after tax up an impressive 18.8 per cent. Among those doing the heavy lifting are notable Kiwi companies such as The Warehouse Group, Air New Zealand, and Z Energy.

While total revenues fell by 0.7 per cent compared with the 2015 figure, underlying earnings (EBITDA) rose by 11.1 per cent. This indicates that Top 200 companies have achieved a far greater reduction in costs than the fall in revenue.

The trend of doing more with less is reflected when one digs deeper too. Cumulative return on equity ticked up to 20.88 per cent this year, from 19.38 per cent in 2015.

At the high end of the Top 200, the revenue gap between Fonterra and the rest closed somewhat, as New Zealand’s dairy co-operative saw an 8.7 per cent drop in revenue.

However, after-tax profits rallied, increasing 64.8 per cent for Fonterra (a reflection of a move towards higher-value products) and 68.9 per cent for Fletcher Building (ranked second in terms of revenues and third in terms of after-tax profit).

The opposite is true for Woolworths New Zealand Group, who increased revenue by 6.6 per cent but saw after-tax profit fall 204.6 per cent, into negative territory (posting a loss of almost $190 million).

Xero, after debuting on the Top 200 last year, once again performed strongly in terms of revenue, with 60.1 per cent growth. As expected, the company once more posted a loss, as it continues to spend on sales to gain market share throughout the US in particular.

Silver Fern Farms’ profit growth has been particularly impressive. An increase from $474,000 to $24.9 million saw them ranked second in terms of percentage increase in profit — the result of a new value chain strategy that has improved returns.

A similar story of a company reaping the rewards of a highly strategic approach is that of the A2 Milk Company. They are a new entrant to the Top 200, ranking 97th in terms of overall revenue, and topped the list in terms of revenue growth.

One area where revenue certainly did increase was in the Government’s tax take from the companies that comprise the Top 200.

Tax paid increased by 14 per cent, contributing to the much-vaunted Crown surplus increase announced in October.