Thomas Pippos, chief executive of Deloitte New Zealand.
Deloitte is incredibly proud to have been involved in recognising our Top 200 companies and their leaders over the past 25 years. Not only have the Deloitte Top 200 Awards sought to celebrate and encourage corporate success, they provide a useful data set that tracks the journey of some of our largest companies, illustrating how the Top 200 have evolved and what we may expect from that group in the future. Reflecting on the data, a number of interesting themes are apparent.
Top 200 companies are both resilient and important
Recognising the evolution of corporate groups over time, it might be a surprise to some that 25 years ago a number of the largest companies on the list (by revenue) continue to be around the top of the list today.
Relevant then and now are the current incarnations of Fletcher Challenge, the Australasian banks, Telecom, Air New Zealand, the offshoots of the Electricity Corporation and what is now Fonterra. What's more, the relative importance of the Top 200 organisations to the country has continued. They remain the backbone of our economy, if not more so now, as they did a quarter of a century ago.
Even large businesses can fail
Notwithstanding the comment around resilience, businesses don't always defy gravity, particularly if they are exposed to structural reform. Noticeable omissions today from the 1989 list are those that fell from favour following the structural reform of the share market in 1987.
These include Elders Resources NZFP, Chase Corp, Brierley Investments and NZI Corporation, although aspects of their businesses continue today in different guises.
Sustained focus results in success
Positively however, regardless of the fall from grace of some historically large corporates, the upper echelons of our Top 200 organisations are being replenished by companies that have had a prolonged period of focused growth. Fulton Hogan has moved its ranking over the past 25 years from 95th to 10th place. Other examples of noticeable corporate movers include Ebos Group, The Warehouse, Mainfreight and Zespri who respectively now rank 4th, 13th, 20th and 28th on the list.
New Zealand still has few locally based multinational corporations
Somewhat less positive is that over the last 25 years our largest companies are still predominantly servicing the local market. Noticeable exceptions exist, the clearest being what is now Fonterra. Growing out of New Zealand is not for the fainthearted, as many examples show. They include Air New Zealand, with its entry into the Australian market through the purchase of Ansett, or Telecom's purchase of AAPT.
Examples of those that have not been disheartened by the challenges of others include Ebos Group and Fulton Hogan whose stratospheric rise over time is materially impacted by their expansion into Australia. Ebos Group was the biggest mover on the list over the previous 12 months, jumping from 21st to 4th place due to the acquisition of Symbion. Showing size doesn't necessarily limit relative growth, this year Ebos was also recognised on the Deloitte Fast 50 which celebrates our fastest growing businesses, generally represented by companies smaller than those in the Top 200.
Industries evolve over time
A good example of this theme is the financial services sector, in particular the banking sector. Recognising the aggregations of what were household brands into some of the major Australasian banking groups that now lead the New Zealand market, there is no doubt this industry has gone from strength to strength over the past 25 years, generally now towering over other industries in terms of the current scale of its participants.
New sources of capital expected
Despite the growth of global private equity, its influence on the Deloitte Top 200 list is still somewhat muted and certainly under-represented in our largest companies. There is no impression this will change any time soon. Where change could arise, however, is in relation to organisations controlled by Maori groups and by foreign direct investment (FDI) out of China. Both are anticipated to play a larger part of the capital base of New Zealand in the future.
As a result, this year we have started to recognise the importance that Maori organisations play in our business markets by separately listing the top Maori business entities by total asset value. And in terms of Chinese FDI, a recent example of its reach is the acquisition by Haier of F&P Appliances, ranked as the 47th largest company by revenue this year. The scale of some of the capital that originates from China is hard to comprehend from New Zealand, but it's noteworthy that Chinese companies fill 100 places on the Fortune Global 500 list for 2014. US companies fill 128 places.
Disruption creates opportunity
Disruption creates opportunity for all market participants. The reality is disruption has always existed. Material disruption has historically occurred from social or economic upheaval, but now disruption is synonymous with technology. It is continuous and fast.
Importantly, disruption offers a way to break into the Top 200 as well as offering Top 200 companies an ability to adjust to maintain relevance and enhance their position. An example of the former is Xero, sitting just outside the Top 200 rankings. Its market capitalisation at over $2 billion dwarfs valuations that would be afforded to many Top 200 entrants, implying the market views it as likely to aggressively climb the list in the future.
Thomas Pippos is chief executive of Deloitte New Zealand.