Survival of the fittest Time at the top of the corporate table is limited, transformed by the tectonic effects of market forces
Time at the top of the corporate tables is shaped by market forces
THE IBIS Top 500 Australian Private Companies provides a remarkable glimpse at the growth engine of the economy. However, like their counterparts on the public bourse, time at the top for the private stars is limited, for both good and bad reasons. Few companies cope with change over the long term and in the publicly-listed space from 1980 to 2014 there are just nine survivors left from the 1980 top 50, with 34 taken over and seven underperforming.
The IBIS top 500 has an attrition rate of 10 to 12 per cent a year, which highlights the performance of those like Visy and Linfox that manage to remain at the top
The top 500 private companies produced $278 billion in revenues last year or 6.8 per cent of national revenues, of which superannuation funds accounted for some 38 per cent. For the purposes of this list, the superannuation companies are excluded. Obviously, their inclusion would highlight the importance of service companies. All private companies accounted for revenues of $1.3 trillion, 21 per cent of the national total compared with listed companies, which accounted for 32 per cent of the total. Foreign companies accounted for 18 per cent and government 20 per cent.
Visy is the only remaining member from the 2000 top 10, jumping from third to first place. The others have all gone, primarily through takeover or public listing. This may be seen as a natural progression and, in many cases, those companies are now part of stronger organisations which, on paper, should
‘The Top 500 has an attrition rate of 10 to 12 per cent a year which highlights the performance of those like Visy and Linfox that manage to remain at the top’
ensure their survival. One company from the 2000 top 10, Retravision, has since collapsed and disappeared. But in its place comes thriving consumer-goods retailer The Good Guys. And, just as 7-Eleven has taken over the number two slot, Peregrine, its fast-growing Adelaide based look-alike, has moved to 16, from 34 last year. Peregrine combines tobacco, fast food, petrol and convenience shopping.
The 2000 top 10 was headed by Tattersalls and Transfield which morphed into ASX listed companies Tatts and Transfield Services. Others such as NRMA (IAG), Dairy Farmers (Lion) Gardner Smith (Grain Corp) and Multiplex (Brookfield), have been gobbled by larger rivals.
What stands out from the 2000 and 2014 top 10 lists is the diversity. The 2000 list was headed by a gaming company, two retailers, including City Ford, two construction and two rural companies. The 2014 list is headed by packager Visy, three farm companies – including Murray Goulburn which was just outside the top 10 in 2000 – two retailers, 7-Eleven and the Good Guys and one miner, Hancock Prospecting.
Agricultural companies have been poor performers in the listed market because of their inability to sell cycles as a positive the way resources companies do. The sector is dominated by foreign companies and Murray Goulburn, while championing itself as a national champion, has until recently been anything but.
As a representative list of Australian industry, the Top 500 is perhaps a better guide to the real economy than the listed companies. John Connolly and Partners figures show the top 10 listed companies in 2000 were headed by News Corp, all four big banks, two phone companies, with Optus gone to Singapore Telecom. and Cadbury Schweppes. The biggest company now is Commonwealth Bank, up from number four in 2000 with BHP, at number two, and Woodside the only resources companies in the list. Wind back the clock to 1980 and every company in the top 10 was a resources company if you include conglomerate CSR’s mining interests. The two big listed retailers, Wesfarmers and Woolworths are now well entrenched in the top 10 along with Telstra and CSL.
At a glance, then, you would have to conclude that the top 10 listed companies show an Australian economy that is heavily service oriented with two retailers, four banks and Telstra, meaning seven of the 10 are service companies. The service element would be clear in the IBIS rankings had superannuation groups not been kept separate. Comparison with 2000 shows the retailers have grown larger on the stock market although it is worth noting that in 1990, Coles Myer was the fifth biggest company behind BHP.
The private top 10 list has changed for four key reasons – listing, takeover, slow growth and insolvency – whereas the changes at the top of the listed companies has come primarily through corporate action. What is now Rio Tinto includes four of the 1980 top 10 – Bouganville, Hammersley, Comalco and CRA – while BHP owns another fallen star, WMC.
From today’s perspective, it is difficult to conceive that both the private and public lists will change dramatically in the next decade, but history shows they will.