Skinny returns sing a shameful tune

Australia’s top listed companies have returned just 7.3 per cent in two years, on average – woefully underperforming the struggling US. What on earth are our managers doing wrong?

Why did Australian companies significantly underperform the US given that our economic growth rates were higher?

The Boston Consulting Group’s latest annual Value Creators Report indicates that Australian shareholders were disappointed at the results achieved by our top listed companies. While that might be true I think Australian management lost the plot, particularly in mining.

As pointed out in our news story BCG shows that Australia’s top 200 companies achieved a total shareholder return (the sum of dividends and any capital gains) of 7.2 per cent in the two years to June 30, 2013 – almost half the 12 per cent achieved by US companies in the S&P 500. Over five years the picture is even worse.

BCG point out that in 2011, earnings per share growth for the ASX 200 was forecast at 15 per cent between 2010-11 and 2012-13. It came in at minus 4 per cent whereas in the US, while EPS forecasts were too high, the gap was much lower at around 10 per cent.

But the big Australian problem was in mining where we went from one of the lowest cost miners in the world to one of the highest. Miners blame the governments and unions and while they played a role, in my view the main culprits were bad managers who went for volume rather than efficiency. They are now trying to rectify their mistakes but it will not be easy.

The damage is there for all to see in the BCG report. Energy and Mining/Materials stocks, which account for almost one third (31 per cent) of the Australian market saw their capitalisation shrink dramatically, from being twice the size of banks in 2011 to parity in 2013 – the first time in a decade. Indeed banks, healthcare and telecommunications all did well.

And in two of those sectors there was a similar formula. In banks the largest player (Commonwealth) made an enormous investment in the latest technology while in telecommunications Telstra did the same thing with its mobile network. Shareholders benefited.

Today I describe the sorry story of diary in Australia where the New Zealanders, led by Fonterra, obtained volume and invested (How Australia can win the milk war, October 22). Australians sat back and were minced. The Murray Goulburn bid for Warrnambool is all about matching the New Zealanders in scale and modern plants. A lot more companies will need to use world-class plant or technology to succeed.