KEY POINTS:
New Zealand's listed companies led the developed world's powerhouse markets in creating and returning value to shareholders in the first half of the decade, says Boston Consulting Group.
However, the management consultancy pointed to the local market's much more subdued performance of 9 per cent last year and
just 2 per cent so far this year and said New Zealand businesses faced significant challenges in creating value in a less favourable economic climate.
Boston's eighth annual Value Creators Report found the New Zealand sharemarket's Total Shareholder Return (TSR) over the five years to December 2005 was 16.5 per cent a year, well ahead of Australia, Japan, the United States and Germany.
The New Zealand market also outshone developing Asian markets with the exception of India, which returned 19.7 per cent.
With the local economy enjoying a prolonged period of expansion that outstripped the OECD average, profits had risen through a combination of strong business investment and a higher return on capital stock.
The report noted that returns in New Zealand and Australia had been steady over the five years thanks to the markets' minimal exposure to the dot-com boom and bust and the global downturn in 2001-02.
The New Zealand market's relatively high dividend yield of 8 per cent might have reduced the volatility of returns, "because paying profits out as dividends means they are not put at risk as they would be if they were reinvested in the business".
New Zealand firms' high dividend yield was probably due to their need to compete for capital with high-yielding fixed-interest securities, a lack of identifiable growth opportunities, and the dividend imputation system.
The key contributors to the "great performance" of the top companies in Boston's New Zealand sample group were revenue growth, dividends and a reduction in gearing.
"What makes the revenue growth more impressive is that it has been achieved without increased leverage and while paying dividends."
The top performers in the sample group were Fletcher Building, with a five-year TSR of 39 per cent a year, Infratil with 32 per cent and Sky City with 27 per cent.
Key questions for New Zealand companies in the present economic conditions included whether overseas expansion was an attractive path to dampen the effects of the local economic cycle on earnings and the limited growth opportunities in a small economy.
However, Boston warned that companies should be aware of the stiffer competition overseas.
"Expanding into larger economies means that they can no longer rely on facing limited competition, a status many incumbents in our sample currently enjoy."