Durie’s Ver­dict

Sur­vival of the fittest Time at the top of the cor­po­rate ta­ble is limited, trans­formed by the tec­tonic ef­fects of mar­ket forces

The Australian - The Deal - - First Up -

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.

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