Managing Director & Senior Partner; Asia-Pacific Leader, Corporate Development Practice
Related Expertise: Value Creation Strategy and Shareholder Activism Defense, Divestitures, Mergers and Acquisitions
Each year in its Australian Value Creators Report, The Boston Consulting Group identifies the companies that create the most value, describes how they create it, and shares the insights we’ve gained on value creation from working with clients of all sizes, in all industries, and in all regions.
This year’s analysis revealed that, despite the subdued market, the strongest companies in Australia created superior value. Three-quarters of the top companies—regardless of their size or sector—delivered strong revenue growth and expanded their profit margins.
The ASX 200’s overall performance, measured by total shareholder return (TSR), fell significantly in 2015. TSR was similar to that of the US market but significantly below TSR in Europe and Japan. The ASX 200’s five-year performance was also well below that of other developed markets.
Deeper analysis showed that while the ASX 200’s profit growth and cash flow returns were in line with global peers, the underperformance was explained by a negative PE multiple change.
The market’s biggest sectors—financial services (41% of the ASX 200) and mining and minerals (20% of the ASX 200)—continued to move in different directions. While mining and minerals delivered a negative TSR, financial services continued to deliver a positive TSR.
To understand what drives value creation, we studied a subgroup of the ASX 200 that included companies that had been listed for at least five years. Company performance varied significantly within each sector, showing that performance at the company level can have a more important impact on TSR than economic or sector-wide influences.
The Australian market has also experienced a rapid rise in IPO activity in recent years. We found that IPOs issued since 2013 had continually outperformed the benchmark and, that in their first 12 months, PE-backed IPOs in both 2013 and 2015 had performed significantly better than non-PE-backed IPOs.
We also took a close look at two conventional strategies that companies use to drive growth: M&A and offshore expansion. The top quartile sustained higher levels of M&A activity than the rest and, somewhat surprisingly, also had lower levels of offshore exposure.
Ultimately, regardless of sector or size, a top company succeeds because it is both a great business and a great stock. A holistic approach to value creation that addresses three fundamental areas—business strategy, financial strategy, and investor strategy—creates superior value despite the broader economic environment.