With a market value of $139 billion, the 11-20 section of the Sydney Top Companies list has three new faces this year - drinks, licensed venue and pokies giant Endeavour Group which spun off from Woolworths Group, Soul Patts following its merger with Milton Corporation, and developer Mirvac.
As one of the very few female-led companies on the ASX100 (and there are only four of them in this list), Mirvac achieved its highest residential sales in five years in FY21 while also breaking new ground on the sustainability front by trialling “green ceramics” from recycled materials.
Meanwhile, Westfield shopping centre operator Scentre Group rose five spots as it reaped the rewards of pent-up demand from cashed-up Australians who have flocked to retail outlets when they could and have been largely unable to spend their savings on overseas holidays.
11. Scentre Group (SCG)
2020 rank: 16
Market Cap: $15.62b
1H21 revenue (operates on a calendar year): $1.08b
1H21 profit (operates on a calendar year): $400.4m
CEO: Peter Allen
CEO salary: $4.67m
The retail sector has been pushed from pillar to post over the past year, and larger shopping centres have been among the hardest hit.
However, Scentre Group (ASX: SCG), which operates 42 Westfield centres in Australia and New Zealand, experienced a solid improvement in earnings over the first half of CY21, with a 28 per cent lift in net operating profit to $460.1 million.
Despite lockdowns throughout the period, demand for retail space held up well with occupancy of 98.5 per cent across the group’s portfolio of 42 Westfield Living Centres in Australia and New Zealand.
The love of shopping by consumers is reflected in a strong rebound in visitation noted by Scentre Group as soon as government restrictions were eased. Online shopping can only go so far.
“When restrictions are removed, customers want to return to our centres to purchase and consume goods, services and experiences,” says the company.
Scentre Group adapted to the online sales trend by launching a click-and-collect pilot program across its centres in 2020. The Westfield Direct program, which offers customers aggregated click-and-collect through its retail centres from a wide range of businesses, is planned to be launched in the current half.
Scentre Group has a development pipeline of 10 new shopping centres in place, worth a total of $4.5 billion.
Before its recently announced profit rebound, the group slumped to a $3.7 billion loss in the 12 months to the end of December last year, with the result impacted by a $4.2 billion hit on the value of its property portfolio.
The result set the scene for a testy AGM in April, when investors voted against the company’s remuneration report. There was also a sizeable vote against a proposed issue of performance rights to CEO Peter Allen.
The remuneration vote puts Scentre Group’s board on notice for next year’s AGM. Following this first-strike vote against the report, all that is needed is 25 per cent vote against the report at next year’s meeting to force a board spill. The vote came despite senior management cutting their pay by 20 per cent for three months during the pandemic.
Chairman Brian Schwartz noted at the AGM that Allen had lost $11 million in potential incentive payments by the end of last year due to the tough conditions experienced by the group.
12. ASX (ASX)
2020 rank: 10
Market Cap: $15.46b
FY21 revenue: $1.02b
FY21 profit: $480.9m
CEO: Dominic Stevens
CEO salary: $4.3m
A full day’s outage in November last year highlighted the challenges facing ASX (ASX: ASX) in upgrading its systems to keep pace with the dynamics of global equities.
The outage for the ASX – one of the world’s top 10 securities exchanges by market capitalisation - followed a major upgrade to ASX’s equity trading platform, ASX Trade, which was supported by Nasdaq as the technology provider.
After an external investigation was sought by the corporate watchdog ASIC and the Reserve Bank of Australia, and a separate internal inquiry was launched by ASX and led by IBM Australia, an obvious conclusion was reached – the trade platform was not ready to go live. IBM also suggested the system would have benefitted from external scrutiny before being implemented.
The single positive to come from the investigation by IBM was that ASX exceeded industry leading practices in 58 of 75 categories examined. ASX is expected to apply the IBM recommendations, no doubt hoping that there will be no repeat of the error when it comes to replacing the CHESS share trade settlements and registry system. The implementation of the CHESS replacement was postponed last year and is now set to go live in April 2023.
ASX chairman Damian Roche says the company will incorporate the review findings into the ASX’s own program of improvement over the next 12 to 18 months.
Meanwhile, if the value of new listings on the ASX in FY21 is any guide, the Australian share market’s appetite for IPOs came rushing back in 2021.
A total of $40.57 billion in capital was raised from share floats during the year, up from $26.96 billion in FY20. The raisings over the last financial year managed to shoot past the pre-COVID level of $37.4 billion in FY19. A quarter of the new listings in FY21 were technology companies.
The share rush continued into this financial year, with $6.85 billion in IPO capital raised in July and August, compared with $657 million this time last year. With $5.8 billion raised in July alone, this was the fourth highest monthly total of capital raised on the ASX in the past two years.
FY20 was a year spent fortifying the balance sheet for many companies on the ASX looking to keep ahead of the impact of COVID-19, and that was reflected in the level of secondary capital raisings in FY21.
Secondary raising totalled $50.56 billion in FY21, down from $65.03 billion in FY20. A great deal of the latter was raised in direct response to uncertainty for corporate Australia as the pandemic bit the economy hard.
The ASX comprised 2,238 listed entities at the end of August, up 3 per cent from a year earlier.
13. Ramsay Health Care (RHC)
Health Care Equipment & Services
2020 rank: 11
Market Cap: $15.41b
FY21 revenue: $13.33b
FY21 profit: $511.5m
CEO: Craig McNally
CEO salary: $2.14m
Australia’s largest private hospital group Ramsay Health Care (ASX: RHC) made the most of a year when the health business boomed by launching a $3.7 billion takeover offer for Britain’s Spire Healthcare (LON: SPI).
The offer was rejected by Spire shareholders, thwarting Ramsay’s efforts to become the UK’s largest private hospital operator. Spire would have added 39 hospitals and eight clinics to the company’s UK division.
Acquisitions have been a key driver of growth for Ramsay in the past decade, most notably in Europe where the group is number two in the market.
CEO Craig McNally says Ramsay will continue to pursue other opportunities for growth, putting the $1.4 billion the company raised last year to good use.
Ramsay’s mood for spending was elevated earlier this year when it resumed dividend payments to shareholders after announcing a $226 million interim net profit, although this figure was 12.5 per cent down on the previous period. While the pandemic has offered opportunities for the company, it has also led to increased costs associated with operating in a COVID-19 environment.
One rumour doing the rounds after Ramsay walked away battered and bruised from its tilt at Spire Healthcare was that Ramsay itself could be a takeover target. The reasoning is the intrinsic value of the company’s $4 billion in property assets.
However, the failure of the market to fire up from this rumour quickly put it to bed, not least because of the 19 per cent stake held by the Ramsay family that would easily block any bid.
Ramsay’s shares have kicked on since the end of July, spurred by the collapse of the bid for Spire. They peaked after the announcement of a 65 per cent increase in net profit to $511.5 million for FY21.
Continued lockdowns are expected to impact Ramsay’s Australian operations in FY22, although the company says surgical backlogs and ‘latent demand for non-surgical services’ will drive volumes as its markets globally emerge from lockdowns.
Ramsay also expects to benefit from receiving public patients through its facilities to assist with growing waiting lists.
14. Brambles (BXB)
2020 rank: 9
Market Cap: $15.22b
FY21 revenue: US$5.21b
FY21 profit: US$526.1m
CEO: Graham Chipchase
CEO salary: $5.39m
A surge in lumber prices not only impacted the construction industry, but it also caused some headaches in FY21 for transport and logistics giant Brambles (ASX: BXB) and its CHEP business, the world’s largest operator of pallet rentals.
With demand for logistics heightened globally through the pandemic, Brambles had to fork out an extra $US150 million ($205 million) in capital expenditure to meet demand for pallets.
The US was the worst-affected market for increases in timber prices, especially in the fourth quarter. Prices for pallets surged 45 per cent in the US, leading Brambles to claw back some of that through a $US60 million ($82 million) surcharge – adding to costs for consumers in the transport of goods over the past year.
However, despite robust demand for pallets, Brambles is finding conditions a little unpredictable. Brexit has added to that instability driven by changes in demand patterns and higher transport, handling and repair costs.
As expected, the transport of consumer staples was strong for the company, while vehicle shipments also improved during the year.
Shareholders wouldn’t have much to complain about with Brambles’ FY21 performance as net profit rose 5 per cent to US$535 million ($733 million).
Brambles continues to drive its ambitious 2025 sustainability targets which last year saw the company receive the highest score in the Dow Jones Barron’s sustainability rankings. The magazine ranked Brambles number two in the world in its list for 2021.
“The feedback on our new sustainability ambition has been overwhelmingly positive,” says Brambles. “Many investors noted that Brambles’ targets are at the forefront of sustainability best practices and preserve our leadership position.”
15. Cochlear (COH)
2020 rank: 13
Market Cap: $14.11b
FY21 revenue: $1.49b
FY21 profit: $326.5m
CEO: Dig Howitt
CEO salary: $5.38m
Hearing technology company Cochlear (ASX: COH), one of Australia’s very early tech start-up successes, reached a milestone in 2021 by notching up 40 years since its foundation.
The company that set out in 1981 to commercialise the cochlear implants pioneered by Australian ear surgeon Professor Graeme Clark, is now the world’s leading hearing implant provider with two-thirds of the global market.
Clark was inspired by his deaf father’s struggles that led to his ground-breaking discovery in 1978 for the cochlear implant technology. The technology’s path to commercialisation was the product of a collaboration with the University of Melbourne and Paul Trainor’s Nucleus Group.
A vastly different company today, Cochlear marked its 40th year with record sales revenue of $1.49 billion in FY21. This led to a 237 per cent increase in full-year profit to $326.5 million, with the result driven by growth in market share and a rush of procedures following the rescheduling of elective surgeries previously delayed due to the pandemic.
It’s not been an easy path for the company which, to some extent, still faces the challenges around the commercial acceptance of its technology.
That was highlighted earlier this year when Cochlear revealed Lou Ferrigno, the 69-year-old star of The Incredible Hulk TV series, received a cochlear implant to address childhood hearing loss.
“I heard a lot of misinformation about cochlear implants over the years, but a friend of mine received the device and went from 15 percent word understanding before the implant to 95 percent with the implant,” says Ferrigno, a fitness expert and retired bodybuilder.
“I’m someone that has had profound hearing loss almost all my life, so if this cochlear implant is working for me already, it can give other people hope too. I wish I would have entertained a cochlear implant sooner.”
Cochlear earlier this year welcomed the World Health Organisation’s (WHO) landmark World Report on Hearing which calls on governments and societies to prioritise hearing health. The WHO estimates 1.5 billion people globally live with some degree of hearing loss, including about 60 million with severe or higher hearing loss.
China has become a leading market for cochlear implants, buoyed by government funding for children, although Cochlear says most other markets remain ‘under-penetrated’ and primed for growth.
Cochlear has taken a cautious outlook for the current year, forecasting growth to increase between 12 and 20 per cent which is below consensus forecasts by analysts.
That has knocked some of the momentum out of the company’s share gains since the beginning of this year.
Cochlear is among the many Australian companies that can potentially benefit from the federal government’s proposed patent box legislation designed to encourage investment in the biotechnology and medical technology sectors. The $206 million scheme, announced in this year’s federal Budget, will reduce taxes on income from innovative research.
Cochlear boosted its product and service offering to professional customers over the past year through the rollout of a number of new products, including a telehealth patient assessment tool and the new Nucleus SmartNav System to support surgeons in optimising electrode placement during cochlear implant surgery. The company says it has recorded positive engagement and feedback from customers using these products.
Cochlear revealed it had recently received a patent infringement complaint from the University of Pittsburgh. The company will be defending the lawsuit, arguing that the Cochlear patents concerned predate the university’s patent by several years.
16. Washington H Soul Pattinson & Company (SOL)
2020 rank: 34
Market Cap: $13.78b
FY21 revenue: $1.5b
FY21 profit: $273.19m
CEO: Todd Barlow
CEO salary (FY20): $3.66m
Two of Sydney’s top companies have become one with the merger of Washington H. Soul Pattinson and Co. (ASX: SOL) and Milton Corporation (ASX: MLT) this month.
The $10 billion union of the investment groups became official on October 5 with the merged entity’s shares debuting on the ASX today.
The deal has bolstered the diversity of Soul Patts’ portfolio and delivers a bigger warchest for the company to pursue new investments.
Soul Patts is currently underweight in global equities and it sees the merger with Milton provides as opening opportunities to lift its exposure to offshore equities.
Soul Patts, now in its 118th year, is the second-oldest publicly listed company on the ASX with investments in telecommunications, pharmaceuticals, property, construction, resources and financial services. Its major shareholdings include Brickworks (ASX: BKW), New Hope Group (ASX: NHC), TPG Telecom (ASX: TPG) and Australian Pharmaceutical Industries (ASX: API).
Soul Patts is never far from the action on the ASX, most recently from Wesfarmers’ (ASX: WES) $764 million bid for API. The offer, recently sweetened by Wesfarmers, has been backed by Soul Patts but there has since been a competing offer from Sigma Healthcare (ASX: SIG).
The company’s strengths lie in private equity investing and partnering with private companies as an investor of choice. Soul Patts also has a successful record in sourcing pre-IPO and high-growth, small-cap companies. The merger gives the group more clout in chasing these opportunities.
Milton, which was incorporated in 1938 and listed in 1958, invests long in the domestic equities market with an eye on increasing fully franked dividends. The company brings its investments in residential housing estates to Soul Patts, which has been picking up industrial property assets in recent years, so the union expands the group’s exposure to the real estate sector.
The merger was a positive for the shares of both companies, with the value of the merged entity now sitting at $13.78 billion.
Prior to the merger, Soul Patts was valued at $7.2 billion and Milton at $3.3 billion. The offer to Milton shareholders was pitched at a healthy premium to the group’s net tangible assets, making it an easy deal to get over the line.
The merger will also see Soul Patts’ chairman Robert Millner take a $154,000 cut in pay after losing his role as chairman of the now delisted Milton. That was his fee for chairing Milton. Milner, who has a reputation for being a canny investor, is also chair of Brickworks (ASX: BKW) and New Hope (ASX: NHC).
17. TPG Telecom Limited (TPG)
2020 rank: 12
Market Cap: $13.12b
1H21 revenue (operates on a calendar year): $2.63b
1H21 profit (operates on a calendar year): $76m
CEO: Iñaki Berroeta
CEO salary: $1.68m
It’s been a difficult year for telecommunications provider TPG Telecom (ASX: TPG), and that’s reflected in the company sliding down the Sydney Top Companies list in 2021.
The group’s shares were in a steady downtrend since the $15 billion merger of TPG’s broadband assets with Vodafone’s mobile phone network in June last year, although the share price has rebounded significantly from a low in May.
The company’s shares had been pushed lower in that month after a cyber-attack on one of its cloud services, TrustedCloud.
The pandemic has constrained TPG’s retail mobile phone activities over the past year, while the company reported another slide in mobile phone customers in the latest half year to the end of June. The group lost 136,000 customers, adding to the 737,000 it lost in the previous corresponding period.
Although TPG boosted revenue in the June half by 61 per cent to $2.63 billion and EBITDA by 67 per cent to $886 million, the previous year only took into account four days of the merged entity’s figures.
On a pro forma basis, the group’s EBITDA for the half fell 3 per cent or $32 million, putting pressure on the company to lift its game.
In announcing its latest earnings, TPG raised the prospect of selling its telecommunications tower network, which analysts say could be worth up to $1.2 billion. TPG has a network of 5,800 towers and owns the passive infrastructure on around 1,200 of those sites.
“Demand for telecommunications infrastructure assets is strong, and TPG Telecom has commenced this review to obtain a preliminary market assessment,” the company says.
However, TPG is quick to point out that it has not made any commitment to sell just yet.
CEO Iñaki Berroeta remains upbeat, describing the company’s underlying performance over the past year as ‘solid’ under the circumstances.
"In an environment with continued headwinds from COVID-19, NBN margin erosion and the new RBS (Regional Broadband Scheme) levy, and residual challenges from the merger delay and 5G vendor restrictions, we are performing well,” he says.
18. Endeavour Group (EDV)
Food & Staples Retailing
2020 rank: N/A
Market Cap: $12.76b
FY21 revenue: $11.6b
FY21 profit: $445m
CEO: Steve Donohue
CEO salary: $3.68m
Beverage supplier Endeavour Group (ASX: EDV) makes its debut on the Sydney Top Companies list in 2021 after the company was spun off from Woolworths (ASX: WOW) in June this year.
The group owns a network of 1,643 retail outlets including bottle shop chains Dan Murphy's and BWS, as well as 339 licensed venues and 12,000 poker machines. The group includes the ALH hotels and gaming machines business operated by Gold Coast-based billionaire pubs king Bruce Mathieson.
Endeavour Group benefitted from being largely exempt from lockdowns, with revenue holding up strongly over FY21, rising 9.3 per cent. The business model is heavily reliant on bricks-and-mortar sales activity.
With the coming summer season and an expected easing of lockdowns as vaccination rates rise, Endeavour Group has embarked on a hiring blitz with plans to recruit more than 4,400 people to cope with demand.
In a sign of the company’s confidence for the year ahead, Dan Murphy’s will account for almost half the intake of new recruits, or 2,000 staff, which is almost twice as many jobs as were available last year.
Even though there was a 34.7 per cent surge in online sales over the past year, this still only represents 7.4 per cent of total group sales. However, online sales growth is a key target for the company.
Endeavour Group has shown early ambitions to grow its pub network after teaming up with funds manager Charter Hall to acquire the Terrey Hills Tavern in Sydney for $39.8 million. It comes after the group added five hotels to its portfolio in FY21.
Pubs have been a favoured play for a number of public and private hotel operators in recent years. Endeavour Group, with an appetite for growth now that it has been unshackled from Woolworths, is expected to add a new layer of competition for prime assets in the sector.
19. Insurance Australia Group (IAG)
2020 rank: 18
Market Cap: $12.37b
FY21 revenue: $18.89b
FY21 loss: $427m
CEO: Nick Hawkins
CEO salary: $2.95m
Insurance Australia Group (ASX: IAG) is deferring to the umpire when it comes to sorting out the eligibility of business disruption claims brought by policyholders due to COVID-19.
IAG is among a number of insurers participating in an industry test case in the Federal Court of Australia.
It comes as Melbourne-based CMC Hospitality, which owns two bars in the city, filed a representative proceeding against IAG in the Federal Court in early September, leading the charge for several businesses seeking payouts from the insurer over losses incurred due to mandated lockdowns.
“IAG is participating in the industry test case, which it believes is the most efficient process to obtain clarity and to resolve issues for customers with business interruption claims,” says the company.
While IAG says it is satisfied with the $1.15 billion in provisions it has made for a range of COVID-19 claims, it wants the court to make its ruling as quickly as possible.
The pandemic added another layer of risk to the insurance industry over the past 18 months, coming on top of natural disasters coming in at $84 million above what the company allowed. The insurance sector faced a wave of claims from floods in NSW and Queensland earlier this year.
IAG slumped to a loss of $427 million in FY21 and reported weaker underlying insurance margins. The loss was driven by several one-off items including provisions for business disruptions.
However, IAG is confident of a turnaround in the current year even though the forecast is for low single-digit growth. Among the pressures ahead are higher costs of repairs and wage inflation for insurance claims which will lead to premium increases for consumers.
20. Mirvac Group (MGR)
2020 rank: 22
Market Cap: $11.47b
FY21 revenue: $1.94b
FY21 profit: $901m
CEO: Susan Lloyd-Hurwitz
CEO salary: $5.92m
Diversified property developer Mirvac Group (ASX: MGR) has been sitting pretty amid the scramble for homes by Aussies over the past year.
The group achieved 3,375 residential sales in FY21, the highest residential sales result since FY16, and residential settlements of 2,526 lots, comfortably exceeding guidance of about 2,200 lots.
While the market is braced for a potential dip in activity in the current year, that hasn’t deterred Mirvac from growing its development pipeline to $28 billion.
The company, which also has office, industrial and retail assets, is making a big push into the build-to-rent sector which offers long-term rental options for tenants as an alternative to home ownership.
Mirvac delivered its first build-to-rent property, LIV Indigo at Sydney Olympic Park, in FY21 which brought to fruition a plan that was five years in the making.
Usually the domain of institutional investors, Mirvac is seen as a market leader in the build-to-rent sector in Australia. The company secured development approval late last year for its LIV Newstead project, which has boosted its development portfolio to 2,200 apartments across five future projects worth a total of $1.6 billion.
Mirvac posted a 61 per cent increase in statutory net profit in FY21 to $901 million, with almost half of that buoyed by asset revaluations. It was a clear sign that the market has come through the worst of the pandemic with improvements also reflected in the group’s $15.9 billion office portfolio.
Mirvac CEO Susan Lloyd-Hurwitz says although retail continues to be challenging, the company is experiencing ‘steady improvements quarter by quarter in sales and foot traffic’.
Lloyd-Hurwitz says sales momentum continues in both its master-planned communities and apartments targeting owner occupiers.
Earlier this year, the group also demonstrated its willingness to tackle the pressing challenge of rubbish reduction in our landfills and oceans, building an industry-first apartment using waste materials.
In March, Mirvac described the apartment in Sydney Olympic Park as “revolutionary”, providing a glimpse into the future with flooring, wall tiles, kitchen and lighting features, and furniture and artworks, made from waste glass and textiles.
“Every year, an estimated 11 billion tonnes of waste are sent to landfill globally. 92 billion tonnes of materials are extracted, with buildings responsible for around 50 per cent of global materials used,” Lloyd Hurwitz said at the time.
“The ‘take make waste’ approach is no longer acceptable, and we are working hard to find a better, more sustainable way to provide Australians with homes and office buildings that are kinder to the planet.”
The “green ceramics”, used for the first time as a construction material, are the result of a collaboration that began in 2019 between Mirvac and the UNSW Centre of Sustainable Materials Research and Technology (SMaRT) led by global pioneer in waste technology, Professor Veena Sahajwalla.
“Our collaboration with Professor Sahajwalla’s team at the SMaRT Centre, makes a valuable contribution to our Planet Positive strategy to send zero waste to landfill by 2030,” the Mirvac CEO said.
Market caps are based on the close of trade, 5 October, 2021. This list was prepared with information provided by the ASX.
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