NZX performance best in the developed world over last five years
New Zealand’s most successful stock-market performers have benefited from a strong economy however tougher times may be
ahead, says new BCG report
AUCKLAND, 1 November 2006. New Zealand’s leading companies created wealth for shareholders at a faster rate than their
peers in the world’s major developed economies in the five years to the end of 2005. They did so by achieving a better
balance between three factors: profitability improvement, the management of investor expectations and strong dividend
These are some of the key findings of The Boston Consulting Group’s recently-released global Value Creators Report and
its New Zealand Supplement, which measured the performance of the NZX and twelve of New Zealand’s largest companies with
The local report reveals that companies on the NZX outperformed Australian and global counterparts, delivering an
average Total Shareholder Return (TSR) of 17% over the past five years.
This compares with 0.5% TSR in the USA, 1.2% in the UK, 6.3% in Japan and 13% in Australia.
More recently, however, the TSR performance of New Zealand’s largest companies has been disappointing, foreshadowing
some tougher times ahead. The NZX’s one year 2005 TSR lagged global indices at only 9% return, while TSR returns over
the eight months to September have been even lower with annualised growth of only 2%.
BCG Vice President, David Pitman, who leads the firm’s Corporate Development Practice in the Asia Pacific region, said
New Zealand companies have capitalised on a prolonged period of economic expansion and minimal exposure to the global
downturn, while demonstrating a willingness to return dividends to shareholders when investment opportunities are
“Overall, these results suggest that New Zealand managers have done a great job of delivering revenue growth, while
keeping market expectations in check. Expectation premiums have been relatively steady since 2002 and are currently at a
similar level to global and Australian benchmarks.”
“New Zealand’s top performers concentrated on growing revenue without sacrificing excessive margin. Some used
acquisitions to increase revenue. The TSR performance of New Zealand companies was all the more remarkable, given that
Australia’s best performing industries – resources and banks – are notably absent from the sample.”
Mr Pitman noted, however, that recent performance has been less spectacular, and that New Zealand companies may face
tougher times ahead.
“As the New Zealand economy slows, managers must address the challenge of continuing to create value in a less
favourable economic climate.”
BCG Vice President, David Tapper, who leads the firm’s Auckland office, says that New Zealand companies will need to
think hard about where growth in the coming years might come from.
“Maintaining growth in a slowing economy may mean growing internationally, something that has historically been
difficult for New Zealand companies. Home-grown success is often built off a strong market position and high barriers to
entry for potential attackers, while expanding internationally means being the attacker and requires a different set of
Fletcher Building Tops Value Creators List
The report found that Fletcher Building topped the list of value creators over the past five years, with a TSR of 39%,
followed by Infratil (32%), Sky City (27%) and Contact Energy (26%).
Fletcher Building’s strong revenue growth was driven off buoyant New Zealand and Australian construction markets and a
series of acquisitions in local and overseas businesses based on strict criteria.
Fletcher Building’s acquisition history demonstrates the way in which a New Zealand company can successfully break out
internationally with a disciplined approach and a good understanding of its own capabilities and sources of advantage.
New Zealand Findings Consistent With Those of Latest Global Report
Also released with the New Zealand research is Spotlight on Growth, the firm’s eighth annual global study of corporate
value creation. The report describes the importance of growth to achieving strong shareholder returns and helps senior
executives navigate the key choices and tradeoffs around growth in order to create superior shareholder value.
Just as New Zealand companies face the challenge of finding growth outside their traditional markets, BCG’s global
report highlights a similar situation emerging across many developed economies. After years of cost reduction and
improvements in asset productivity, many companies find themselves able to fund far more growth than their core markets
can sustain. One symptom of this is a hotter mergers and acquisitions market. As companies compete over a constrained
set of growth opportunities, finding the right path will become more and more difficult.
“Senior executives are right to focus on growth” the report states. “Consistent revenue growth is critical to delivering
above-average shareholder value. But the relationship between growth and shareholder value is neither simple nor
straightforward. Growth can destroy value just as easily as it creates it.”
Important questions the report seeks to answer include:
• What is the right tradeoff between growth and other priorities?
• Does the source of growth matter?
• How does growth affect a company’s valuation multiple?
• What is the right tradeoff between short-term and long-term growth?
Other key points from the New Zealand Report
Fundamental Value grew at 9% p.a., compared to 7% p.a in global sample
The Fundamental Value of our sample of large New Zealand companies grew at 9% per annum compared with a global average
of 7% per annum, and an Australian average of 12% for the same period. This was achieved through a balance of steady
investment growth, relatively stable cash margins and increasing asset productivity. Expectation Premiums remained
stable and lay within a ‘reasonable’ range. (BCG uses a proprietary methodology to disaggregate the market value of
companies into Fundamental Value, which is the present value of a business’ future cash flows, faded by competition to
long-term industry averages; and Expectation Premium - the difference between Fundamental Value and Market Value).
Lower volatility, driven off high dividend yield
Like their Australian counterparts, New Zealand companies have achieved strong five-year returns at relatively low
levels of volatility. The report suggests that a relatively high dividend yield of 8% for New Zealand companies,
compared with 4% in Australia and 2% in the United States, may have been a contributing factor.
When developing future strategies for creating value, New Zealand managers must consider four important questions:
• What is the right target for shareholder value creation? Is Australasian top-quartile TSR performance appropriate?
• Will efficiency gains and high dividend yields be sufficient to achieve the TSR target? BCG research suggests that
for most companies this will not be the case.
• Should they focus on growth opportunities within New Zealand, winning share in existing and adjacent markets? Will
this be feasible for the top 15 companies that already occupy leading positions in their respective markets?
• Is overseas expansion an attractive path to dampen the effects of the local economic cycle on earnings and the
limited growth opportunities in a small economy?
About The Boston Consulting Group
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has helped companies in every major industry and market to achieve competitive advantage by developing and implementing
unique strategies. Founded in 1963, the firm now operates 61 offices in 36 countries. For further information, please
visit our website at www.bcg.com.