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Times, Friday, April 7, 2000 Research estimating New Zealand companies destroyed $6.6 billion in shareholder value in 1998 is a "wake-up call" for senior executives, stock exchange chairman Eion Edgar says. He said that as executive remuneration packages were renegotiated, they were more accurately reflecting the returns generated for shareholders through "at risk" performance bonuses. ANZ Bank research showed 500 of New Zealand's largest companies lost an estimated $6.5 billion of shareholder wealth in 1998, based on the economic value added (EVA) measure tax paid profits less the cost of capital. The sharemarket's top 40 companies excluding Brierley Investments lost $1.2 billion in shareholder value last year alone, taking their combined losses since 1991 to $14 billion. In many cases, senior executives received salaries bearing little relationship to the erosion of shareholder wealth. "You could argue around the edges about whether EVA is the best measure, but the general message is a reality," Mr Edgar said. "I hope this information becoming public is a wakeup call for the management of both listed and unlisted companies in New Zealand." ANZ corporate finance head Joseph Healy said the results were a huge concern for corporate New Zealand and the broader economy. One third of' the companies studied had not even covered their cost of capital in 1998. Mr Edgar said some outstanding success stories among smaller New Zealand companies had been overshadowed by poor performing larger businesses. Waikato
Times, Thursday, April 6, 2000 Chief executives of big companies often receive generous salaries bearing little relationship to the sharply lower returns they generate for shareholders, research by ANZ Bank shows. The bank estimates 500 of New Zealand's largest companies lost about $6.5 billion of shareholder wealth in 1998. Last year alone, the sharemarket's top 40 companies shed $1.2 billion. The research, which updates an ANZ analysis on shareholder wealth, issued last year, estimates companies on the sharemarket's NZSE 40 index have shed $14 billion in shareholder value since 1991. That represents more than a quarter of the sharemarket's total current value. Questions are raised about the caliber of corporate management, the executive remuneration structure and New Zealand's broader economic performance, ANZ's head of corporate finance, Joseph Healy, said. "It's a massive concern for the whole economy and needs to be addressed." The loss of shareholder wealth explained both the sharemarket's recent poor performance and New Zealand's lackluster economic rankings on several scores internationally. Poor underlying company performances and the way they were measured were at the heart of the problem. ANZ's research also highlighted flaws in the remuneration structures of many chief executives and other senior managers particularly in companies that had surrendered shareholder wealth in recent years. "The more million dollar plus executives we have in New Zealand the better, so long as compensation is aligned to value creation," Mr Healy said. "Right now, there is virtually no link, except for a few businesses such as Telecom." Evidence suggested remuneration packages for chief' executives and other senior executives were "insensitive" to the creation of shareholder wealth. "Instead, compensation is linked to the size of firms and to comparisons with similar sized overseas firms. "There is little correlation to shareholder added value." This mismatch of' executive compensation and shareholder wealth, combined with an "explosive growth" in executive salaries in the past decade, had sparked concerns among shareholders in many countries. "To pay high fixed salaries regardless of how well you have governed shareholder funds is clearly a flaw in any sensible governance structure," Mr Healy said. "Equally, a failure to reward in a material way those responsible for creating shareholder wealth is a fundamental mistake." Waikato
Times, Friday, March 23, 2001 New Zealand's biggest corporates are also the biggest wealth destroyers for shareholders, according to rankings by international consultants Stern Stewart. Stern Stewart specialises in measuring creation of shareholder wealth and pioneered the measures of EVA (economic value added), and MVA (market value added) now widely used by corporates worldwide. MVA measures the difference between what investors have injected into a company and what the company is worth today, and EVA is the company's net operating profit after tax, minus the cost of capital. Both tools measure what companies actually earn on capital invested. Measuring the performance of New Zealand's top 40 listed companies in the year 2000 shows a sad picture for many of our biggest names. The total MVA for the New Zealand top 40 fell from $20.3 billion in 1999 to $16.6 billion in 2000, an 18 per cent fall. Leading the way down was Air New Zealand, which lost $1.9 billion in value for its shareholders. Stern Stewart said Air NZ took a significant amount of capital in 2000 to fund its purchase of Ansett Australia, while the market's assessment of the airline's future had also declined. However, it noted the airline sector was facing tough times; with Qantas also losing value last year. Telecom's market value added also fell, down $1.2 billion, though it still has by far the highest overall because of its size. It also had a sizable increase in capital, up from $5.1 billion to $7.3 billion, but had a large fall in economic value added. Other large losers for shareholders were Carter Holt Harvey, Fletcher Forests and Fletcher Building. The biggest wealth creator was Independent Newspapers Ltd, which through a subsidiary is the publisher of The Waikato Times, The Evening Post, The Dominion and The Press. Stern Stewart didn't comment specifically on INL, which added $643.7 million, except to note that its market value added includes the rising value of INL's 47 per cent stake in Sky Television. Sky TV's EVA performance has been poor but its market value remains strong, showing the market expects substantial improvement in the pay TV operator's economic value added in years to come. Second biggest wealth creator was Baycorp, which gained $481 million over the previous year, followed by Warehouse Group, Sky Television and Fletcher Energy. Among smaller companies, stand-out performer was Lyttelton Port, which on the profitability index was the best in the country. Waikato
Times, Wednesday, March 28, 2001 A report by international consultants Stern Stewart, suggesting some large New Zealand corporates are destroying shareholder wealth, confirms what many people already knew, says a leading Hamilton strategist. Tony Street, director of Capex Systems Ltd, said too many New Zealand corporates relied on management performance measures that were not aligned to value creation. His company provides companies with strategies to manage their capital resources. The Stern Stewart report found that a number of large New Zealand companies lost billions for shareholders, while Baycorp and INL created the most wealth. "Executive remuneration structures were often unrelated to value added. This has led to understandable reactions by shareholder groups recently," said Mr Street. Only when rewards for management performance were linked directly to value creation would the efforts of managers be linked to shareholder expectations, he said. Capital expenditure management and strategy represented one of several important aspects of shareholder wealth creation. "This is an area that presents a tangible opportunity for swift improvement." Many
large New Zealand corporates could learn from the success of the dairy
industry, he said. "Such projects generally have long term impacts on financial health and shareholder wealth." By
undertaking risk analysis and testing assumptions companies had the potential
to do better, he said. |