Super funds dominate growth

IN 2014, the nation’s largest 500 private enterprises generated revenues of $278 billion or 6.8 per cent of all revenue.

IN 2014, the nation’s largest 500 private enterprises generated revenues of $278 billion or 6.8 per cent of all revenue across the nation’s economy ($4.4 trillion), and about 492,000 jobs or 4.2 per cent of all employment (11.6 million).

In this survey, 2014 is taken as the 12 months ended March to allow for varying year-endings (some being December 2013 and other months up to June 2014).

GRAPHIC: Top 500 private enterprises

In this 2014 survey, the dominance of superannuation funds (38 per cent of the total revenue) led to a splitting of the enterprises into the 35 super fund enterprises ($104.5bn) and the addition of another 35 companies to make up a list of 500 enterprises with revenues of $176bn. The “true” 500 list had the revenue shown above $278bn.

All private enterprises in the economy had a combined revenue of $1.33 trillion in 2014, so the Top 500 revenue accounted for a significant 21 per cent of all private enterprise revenue.

The other sectors in terms of type of enterprise are: listed companies (32 per cent of total ­revenue); foreign owned (18 per cent); and government (20 per cent, in the form of GBEs and general government activities), making up the $4.4 trillion across the nation’s economy.

Growth in revenue of the Top 500 Privates was an astonishing 17.7 per cent compared with the ­nation’s 4 per cent. This growth rate is affected by two factors: new entrants replacing departing companies with faster year-on-year growth; and a spectacular growth year for the 35 superannuation funds (including takeovers of other funds) that accounted for 38 per cent of the revenue, growth of a whopping 35.7 per cent, but just 0.1 per cent of the employment. This performance is unlikely to be repeated in the 2015 year.

Interestingly, the Top 500 privates have accounted for much the same 7 per cent of the nation’s revenues for decades (6.8 per cent in 2014), but this share has more recently been maintained by the emergence of super funds and their growth over the past decade or so. Ironically, super funds had a no-show in the list in the depths of the GFC about 5 years ago due to negative revenues — the result of the stockmarket crash.

There is a high attrition rate among the Top 500, about 10 per cent or more a year on average, due to four factors: listing on the exchange to become a public company; being taken over; growing too slowly to stay in the list; and ­insolvency.

Interestingly, 125 companies — a quarter of this year’s enterprises on the list — had negative growth, yet managed to stay in the Top 500 as their revenue exceeded the $64m entry point. Among these 120 enterprises were: RACQ (-37.8 per cent); Tibra Capital (-32.6 per cent); Ventura Bus Lines (-30.7 per cent); ESH Group (-27.5 per cent); and Patterson Securities (-22.7 per cent). However, most of these five have June 2013 reporting dates, and will almost certainly all have had recovery growth in FY2014.

However, there was some ­astonishing growth in the 20 fastest growing enterprises in the list, as the first exhibit shows. Fourteen of the 20 are super funds. Among the best were: Central Equity (206.9 per cent) in the property development industry; Australian Super (191 per cent) in the finance industry; Kogan (171.3 per cent) in the online retail industry. Even the slowest on this fast growth list, AUSCOAL Super enjoyed growth of 66.5 per cent (finance industry).

By way of background to the size of enterprises in the Australian economy, the second chart shows the breakdown of the nation’s $4.4 trillion revenue by size brackets.

There are about 2.2 million business entities in Australia, but over half of them (1.2 million) employ no one except the owner or owners, many part-time, and 1.3 million of them contribute less than 5 per cent of all revenue.

At the big end of enterprises in FY2013, there were 28 with revenues of more than $10bn, 237 with revenues over $1bn, 1110 over $100m, and a huge 14,600 with revenues over $10m. These large companies represented 49 per cent of the nation’s revenue.

The Top 500 privates played in three of these four brackets, the exception being the $10bn-plus bracket. However, the top 500 had 36 of the 237 entrants in the $1bn-plus bracket (15 per cent of them), 389 of the 1100 in the $100m-plus bracket (35 per cent), and the balance of 75 entrants in the bracket of less than $100m bracket.

Most of the largest players in the Top 500 were in industrial-age industries of manufacturing, commerce and construction, headed by Visy Industries ($4.4bn revenue), 7-Eleven Stores ($3.9bn) and Murray Goulburn ($2.9bn).

In looking at the industry mix, we have excluded the super fund enterprises, but return to their true importance later.

The chart above shows the breakdown of the Top 500, excluding the super funds.

The chart suggests a heavily pre-new age mix, where the ­primary, secondary and tertiary sectors industries dominate with 65 per cent of the revenue, compared with 52.5 per cent for the nation’s total revenue.

Retailing, with 73 players, is the largest industry with 16.2 per cent of the $176bn revenue. Manufacturing with 75 players comes in second with 15 per cent of the total, and the construction industry third with 56 players and 13.5 per cent of the total revenue.

However, when the super funds are added back in, the picture changes dramatically.

The primary, secondary and tertiary sectors drop back to 41 per cent of the true Top 500.

And the new-age quaternary and quinary sectors rise to a dominant 59 per cent, of which the finance and insurance industry alone is a whopping 42.9 per cent. The super funds make up 37.6 of this 42.9 per cent.

So, the Top 500 is a leading ­indicator of where the nation is headed. Phew.

Finally, it is encouraging to see that the breakdown of the states shows a fairly close correlation with individual gross state product shares, although when the super funds are included, the two big states of NSW and Victoria have an even bigger share than the nominal 65 per cent, given the dominance of Sydney and Melbourne in the overall finance and insurance industry.

The main tables in this survey make for fascinating browsing, surprises, and very useful data for forward planning purposes in terms of potential (if not existing) customers, suppliers and targets for listings (IPOs) and takeovers.

Phil Ruthven is the chairman of IBISWorld