IBISWorld’s 2014 Top 1000 Companies list provides an overview of Australia’s largest private, public and government organisations, ranked by revenue. During 2014, average revenue growth across the Top 1000 companies was 7.5%, down from 14.6% growth across last year’s list. Movement among the top 10 companies in the list was limited, with only AustralianSuper (15) slipping out. Resources giant BHP Billiton Limited retained top spot, with $73.0 billion in revenue – $11.8 billion more than second-placed Woolworths Limited.
Some companies have dropped out of the list altogether this year. For example, Tenix Group Pty Ltd (which last year ranked 367) demerged part of its operations, decreasing the company’s revenue to below the Top 1000 threshold. Meanwhile, notable newcomers to the list include Youi Holdings Pty Ltd (842), which experienced a 60.3% surge in revenue in 2013-14 thanks to a strong advertising campaign. Recently listed Recall Holdings Limited (576), the former information management arm of logistics group Brambles Limited (61), is another new entrant to the top 1000.
Legal services firms have performed generally well thanks to restructuring and an increase in commercial activity. Telecommunications services providers, meanwhile, posted mixed results, with competition weighing on the smaller companies. Intense competition is also present in the mature fast-food services industry, where trading conditions have benefited agile innovative players like Domino’s Pizza Enterprises Limited (615), often at the expense of well-established store-based chains such as McDonald’s Australia Holdings Limited (248). In addition, engineering consulting continued its strong run in 2014, with diversification and consolidation boosting revenue for some players, while mitigating the declines suffered by others due to falling mining investment.
The structural changes and revenue challenges since the global financial crisis have affected a number of firms in the legal services industry in different ways over the last five years. The firms in this year’s list enjoyed 18.0% growth in revenue overall, largely because of strong performance of ASX-listed firm Slater & Gordon Limited (801). Slater & Gordon, which primarily focuses on personal injury law, has rapidly expanded over the past five years due to an ambitious acquisition strategy in both Australia and the United Kingdom, with growth of 40.4% in 2013-14 alone. The firm’s UK operations accounted for approximately 44% of its revenue in 2014, highlighting the significant impact the firm’s strategy has had on its turnover. This increase outstrips the expected growth of the rest of the legal services industry and has catapulted Slater & Gordon from 998 in 2013 to 801 in 2014, a rise of 197 places. While its strategic expansion has helped Slater & Gordon to significantly increase its revenue over the last five years, other firms have not been as successful. King & Wood Mallesons (815), for example, has suffered from declining revenue over the past five years due to a decrease in commercial transactional work – a result of heightened uncertainty, lack of confidence and client cost-cutting. However, King & Wood Mallesons’ revenue in 2013-14 decreased by only 0.5%, to $408.3 million, representing a slowdown in the firm’s revenue decline. This is the result of an upswing in commercial transactions as businesses continue to recover, as well as internal restructuring, with the firm shedding approximately 100 employees last financial year. King & Wood Mallesons has fallen 27 places on this year’s Top 1000 list.
University and other higher education
After months of speculation regarding the future of higher education funding, the university and other higher education industry maintains its position in the spotlight, occupying 35 positions in the Top 1000. Consistent increases in public funding for tertiary education have supported the major universities. However, most university rankings have eased slightly compared with last year, signalling that the universities are being outpaced by other businesses. The ongoing focus on reducing government spending is likely to somewhat limit future growth in revenue for universities.
Financial and insurance services
The financial and insurance sector continues its dominance of the list, with these companies accounting for 138 positions in the Top 1000. The big four banks all retained top 10 positions in the list, while superannuation funds figure heavily through the top 100 positions. Easing investment returns have caused some superannuation funds to slide slightly in this year’s list. However, this is largely due to more remarkable growth in previous years. Despite occupying slighting lower positions in the Top 1000, the performance of the superannuation industry remains strong. AustralianSuper (15) is the highest ranked of the superannuation funds, down five places on the previous year.
Last year’s Top 1000 list highlighted the breakout growth of the $41.2 billion engineering consulting industry. Continued major infrastructure projects, and alliances and consolidation within the industry helped offset the decline in mining investment. This year, the story is no different: among industries strongly represented in the list (those with more than 10 entries), engineering consulting is growing third-fastest, after the property operators and real estate services industry and the finance industry. This comes despite a slight decline in average revenue growth across engineering consultants in the list. Global engineering company WorleyParsons Limited (36) has climbed two places due to an increase in revenue, but suffered a substantial fall in net profit due to challenging conditions in the Australian market as mining investment steadily dropped off. The company has focused on restructuring to turn its fortunes around, consolidating a number of divisions and shedding 4,200 jobs in 2013-14.
RCR Tomlinson Ltd (311) has adopted a different strategy to offset the fall in mining investment. The company has diversified its revenue base, primarily by expanding its infrastructure business with the July 2013 acquisition of Norfolk Group Limited for $140.0 million. This has provided RCR with greater access to a variety of infrastructure markets, including road, transport, rail, energy, water and telecommunications. Along with its recent signing of $125.0 million in mining-related contracts, RCR’s purchase of Norfolk fuelled RCR’s 141-rank rise in this year’s list. Calibre Group Ltd (537) also relied on gains posted by its infrastructure segment to offset the fall in revenue derived from the resources sector. Consequently, Calibre Group has held its ground in the Top 1000 list, slipping only seven places after a 1.1% slide in earnings. This shift by engineering consulting companies into the infrastructure sector could result in increased competition for building and construction firms, such as Lend Lease Group (24), that also provide engineering and construction services in the infrastructure space. The 21 building and construction firms in this year’s Top 1000 list have been exposed to divergent trends in the wider construction sector, and have therefore been growing at a slower rate than engineering consulting firms. Nonetheless, increased government spending on public infrastructure such as roads and rail, increasing technological complexity and continued industry consolidation should result in stable growth for these players over the next five years.
Operators in the telecommunications services industry have posted mixed results, with intense competition for market share – and the ongoing migration from wired to wireless telecommunications – dampening overall revenue growth. Telstra Corporation Limited (9) has continued to dominate among the telcos, posting revenue growth of 5.8%, driven by investment in their mobile network (including significant expansion of their 4G network). A change in business strategy, focusing on providing domestic and international business customers with integrated and technological advanced communications solutions, has also contributed to revenue growth. Similarly, SingTel Optus Pty Limited (43) undertook a significant change in its strategic approach, placing a new emphasis on digital services, expanding and investing in its 3G and 4G networks, and repositioning itself as a provider of integrated communications services. Despite these extensive changes, strong competition from Telstra has affected Optus’ results. The company reported a revenue decline of 4.6%, falling seven places on this year’s list.
Vodafone Hutchison Australia Pty Limited (108) is still struggling to recover from the fallout over its network reliability issues, which attracted widespread criticism and resulted in a mass exodus of customers. Vodafone reported a 13.3% contraction in revenue. However, in June last year, the company formed a partnership with Dick Smith Holdings Limited (331) that enables the electronics retailer to sell Vodafone’s smartphones and mobile broadband products throughout its retail outlets. This is expected to help boost Vodafone’s revenue. Internally, the company has looked to consolidate its operations under the Vodafone brand, winding down their subsidiary brands 3 and Crazy John’s. Revenue declines are expected for the telecommunications services industry for the coming year, with competition set to remain intense. However, increasing consumer reliance on and uptake of mobile phones, as well as rapidly changing technology, will help stimulate growth for some companies.
The fast-food services industry has suffered from weak growth, with industry demand affected by increasing consumer preferences for healthier food and volatility in consumer sentiment. Among the Top 1000 list, Domino’s Pizza Enterprises Limited (615) is one of the standouts among the retailers. The company has climbed 380 ranks, following 98.5% revenue growth for the year and a 47.6% jump in net profit. This revenue increase can be attributed to store growth, internal initiatives and strong investment in online platforms and applications, which has appealed to the industry’s core demographic of younger consumers. In contrast, McDonald’s Australia Holdings Limited (248), Quick Service Restaurant Group Pty Ltd (500) – operator of the Red Rooster, Chicken Treat and Oporto brands – and Competitive Foods Australia Pty Ltd (399) – operating through its Hungry Jacks franchise brand – have all conceded ground in the Top 1000 list. McDonald’s reported modest revenue growth of 1.6% for the year, while the others suffered small declines. Like Domino’s, McDonald’s has expanded its menu, trying to capture the more health-conscious consumer. The company has expanded its menu to include cafe-style food and beverages and healthy wraps and salads, and has also reduced the sugar and salt content in its core burger products. Many of its stores have also moved toward a 24/7 trading model. Despite these significant changes, McDonald’s continues to face strong competition from healthier and premium fast-food options, and will come under pressure to make further changes to its strategy. With consumers increasingly looking for convenience, IBISWorld expects further growth within the industry. The challenge for industry players is adapting existing strategies to cater for the health-conscious and tech-savvy consumer.
Adapting to change
The companies and industries discussed above represent only a small portion of the diverse Australian businesses in this year’s Top 1000 list, many of which have had to adapt as a result of internal and external challenges, and it is expected that such activity will continue. Cost-cutting in the legal services sector is one example, while the changing strategies in the fast-food services industry – such as the trends towards healthier products and integrating new technologies – is another. The engineering consulting industry’s sustained growth looks set to continue as firms push into the infrastructure sector following the slow decline in mining investment.
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