Value on the Horizon

A small lines company created the biggest glow when analysts did their sums to see who was the best at making money. JIM EAGLES writes.

The small Whakatane-based lines company Horizon Energy was New Zealand's most effective wealth creator last financial year.

The latest rankings of New Zealand Wealth Creators, issued today by international management consultants Stern Stewart, show that Horizon may not have generated the most wealth last year - that honour went to Auckland International Airport - but it did make the best use of its capital.

The Stern Stewart analysis of the top 35 listed companies reveals that during the year Horizon increased its Market Value Added (MVA) - the difference between the capital invested in the company and its market value - by $17 million.

Stern Stewart calculates that the capital invested in the company is $15 million, so that is a 113 per cent return during the 12 months.

Horizon was one of a select band of New Zealand companies, many of them infrastructure operators, which improved performance and market expectations.

Horizon's continuing solid profitability meant its Economic Value Added (EVA) for last year - the surplus left after covering the cost of its capital - was an impressive $6 million.

As well, its Future Growth Value (FGV) - the portion of its market value which is due to investor expectations - improved sharply from -$15 million to -$2 million.

That means a substantial portion of its remarkable rise in MVA was due to investors belatedly starting to recognise its potential.

Auckland International Airport produced an even more stellar performance. Not only did it create more wealth than any other company- $501 million - it also came second on our table of most effective wealth creators. The increase was due to good profits, which took its EVA from $10 million to $17 million, and growing market approval, which led to its FGV nearly doubling.

In third place on the table is carpetmaker Cavalier. Although its profits fell slightly, a $25 million share buyback meant its EVA rose from $3 million to $5 million.

More importantly, the company's restructuring of its troubled wool operation obviously won market approval and its FGV rocketed from $10 million to $64 million.

All three port companies did extremely well. Ports of Auckland and Port of Tauranga achieved good improvements in EVA, showing that their hot competition has yet to hurt their bottom lines.

Fishing company Sanford had a significant drop in returns, and an increase in capital invested slashed its EVA. But market enthusiasm sent its FGV up by $253 million and it had the fifth biggest increase in MVA.

Perennial market darling Baycorp, now merged into Baycorp Advantage, had a modest year by its own standards. Its EVA fell from $8 million to $5 million, and its rip-roaring growth in MVA slowed from close to $400 million the previous year to less than $100 million.

The EVA of another popular company, the Warehouse, fell from $42 million to $25 million, because of teething troubles across the Tasman.

That in turn produced a marked slowing in its MVA growth. But the Warehouse's MVA grew to $1.4 billion, the second highest overall.

Sky City Entertainment had a marvellous year in 2001 and its MVA rose by $401 million. Since 1998, Sky City's EVA has risen from -$5 million to $24 million. The market obviously expects more to come because its FGV nearly doubled during the year.

United Networks was another infrastructure company to turn in a fine performance. Three years of improving EVA have been rewarded by a jump in FGV. As a result its MVA rose by $357 million to make it third biggest wealth creator overall.

DB Group's MVA is still strongly negative, at -$85 million, as a result of the Magnum years. But its EVA has steadily improved, from -$34 million in 1999 to -$4 million last year, and its MVA has improved in concert, this year rising by $112 million.

As ever, some of the biggest companies trailed the field. Air New Zealand had succeeded in destroying $2 billion in wealth even before its subsequent meltdown. It had the worst EVA of all last year, at -$576 million.

Forestry giant Carter Holt Harvey managed a further modest improvement in EVA, though it was still -$478 million, but failed to convince the market it has turned the corner. FGV fell by $1.2 billion, dragging the company's total MVA to -$2.2 billion.

By contrast, the EVA of the other big forestry company, Fletcher Forests, worsened to -$453 million. But market sentiment was more favourable to it, possibly in expectation of a solution to the Central North Island Forests conundrum, and its FGV rose by $314 million.

Sky Network Television and major shareholder INL had difficult years. Sky was unable to arrest the slide in its EVA, now -$65 million, and as a result market expectations also started to fall.

Telecom, still the country's biggest wealth creator overall, was also the biggest wealth destroyer last year as its MVA fell by $2.8 billion. Telecom's EVA rose last year, but this was outweighed by the worldwide trend against telecos.

Taken overall the Stern Stewart analysis shows that most listed companies in New Zealand are doing a good job for investors. At June 30 last year, the 35 companies studied had created $14 billion in wealth.

But, as Stern Stewart's Australasian managing director Martin Concannon puts it, "clearly some are better than others."