South Island Companies Claw Back Lost Ground

Wednesday 29 July 2009

South Island Companies Claw Back Lost Ground
Deloitte South Island Index released

In the three months to June 2009, South Island companies recovered some of the ground lost over the past year, according to the Deloitte South Island Index released today. Overall, the 32 companies that comprise the South Island Index increased their market capitalisation by $299 million (+10.5%) in the second quarter of the year to a combined value of $3.14 billion.

The “glimmer of optimism” that flickered for the South Island in the March quarter continued to shine into April and May, although a four per cent decline in June went some way to dulling the optimism. To put that glimmer in perspective, the overall value of the companies on the Index remains more than $1.2 billion behind where it was tracking in June 2008.

Across the second quarter of 2009, the South Island Index outperformed the broader NZX with respective gains of 10.5% and 7.9%. Out of the 32 companies benchmarked, 19 either held or increased in value, while 13 declined.

It was something of a surprise that Retail was the quarter’s best performing sector, led by double-digit share increases from Smiths City (+15.2%) and Postie Plus (+32.3%). With the exception of Technology (-9.8%) and Ports (-4.6%), each sector made a gain across the current quarter. The Primary sector is once again the largest South Island Index sector by value, reclaiming top spot from the Development sector by the slimmest of margins.

Paul Munro, a corporate finance partner at Deloitte in Christchurch, said the current economic environment offered opportunities to reflect on how companies were being run and what needed to be done to prepare them for the future.

“Companies should be pulling all the cost levers they have at their disposal. For many that will mean more attention on streamlining infrastructure, adjusting service delivery, and even redesigning their business models. Making these structural cost improvements helps protect margins, and puts a business in the position to capitalise on opportunities and capture market share.”

Mr Munro said there would be consolidation across several industries in the next 12 -18 months. “Businesses with strong balance sheets and good cash reserves will be looking to acquire assets that are a good strategic fit. They’ve got the potential to make a long-term play that could set them up for the next decade.”

Other findings:
• Pike River Coal was the outstanding performer in the quarter, with a gain in value of $150.3m (58.0%)
• The largest decline in dollar terms was by NZ Farming Systems Uruguay, with a decline in value of $70.8m (39.2%)
• Both the ASX (Australia) and the Dow Jones enjoyed higher growth than the South Island Index across the quarter
• Ryman Healthcare remains the largest South Island Index company with market capitalisation of $800m, up 13.5% in the quarter.

About the Deloitte South Island Index

The Deloitte South Island Index measures movements in market capitalisation, tracking the performance of more than 30 listed companies with a registered office and/or a substantial portion of their operations in the South Island. For more, including the full list of companies in the Index, download “On track for growth: South Island Index June 2009” from www.deloitte.co.nz.

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