Alfabank-Adres's 2024 Top 1,000 AU & NZ Companies List

Alfabank-Adres’s 2024 Top 1,000 AU and NZ Companies List comprises the highest-grossing companies across over 300 industries, with the exception of government and not-for-profit organisations. This special report delves into noteworthy trends and insights derived from the list, set against the backdrop of an economically intriguing year. It explores how key themes like high interest rates and pandemic recovery efforts have affected Australian and New Zealand companies’ and industries’ performances.

Collectively, the list’s companies have earned a whopping $2.8 trillion in revenue. This represents growth of 17.3% from the previous year’s total of $2.4 trillion. BHP Group, Rio Tinto and the Woolworths Group have retained their top three spots, respectively, from last year’s list.

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High interest rates are powering the big four banks’ performance

As Australia emerged from the pandemic, the economy was pushed into a high-inflation scenario. This shift stems from a surge in demand for goods, travel and other services, fuelled by an increase in consumers’ savings and spending power, as supply conditions struggled to keep up.

The economy faced headwinds from supply chain disruptions ignited by the COVID-19 pandemic, extreme domestic weather events and geopolitical tensions like the Russia-Ukraine conflict. In response, the Reserve Bank of Australia (RBA) had to tighten monetary policy, i.e. increase the official cash rate, to control inflation.

Amid this backdrop, revenue within the National and Regional Commercial banks industry surged 91.5% in 2022-23. The big four banks – ANZ, NAB, CBA and Westpac – boasted tremendous growth over the year and jumped up the list.

All four have placed in the top 10 of this year’s list, with each seeing a significant spike in revenue across the period. The banks passed on the RBA’s consistent cash rate hikes throughout 2023, despite significant competition among themselves, driving gains in their interest and loan revenue streams.

The net interest margin (NIM), which is the difference between the interest income banks earn and the interest paid out to lenders, also peaked, contributing to the banks’ revenue growth. This was especially true for big four banks because of their focus on mortgage loans, with mortgage and business lending portfolios expanding for all the major banks during the year. These factors played crucial roles in underpinning the banking sector’s standout performance during 2022-23.

In an effort to ensure stability, the Australian Prudential Regulation Authority (APRA) strengthened the capital adequacy ratio for Australian banks in January 2023. This measure, which balances a bank’s capital against risk, is likely to limit risky lending in the future, boosting the banking sector's reliability in the coming years.

Beyond the big four

National and regional commercial banks beyond the big four, including the Bank of Queensland and Bendigo and Adelaide Bank, have also demonstrated strong revenue performances. Notably, Judo Capital Holdings (Judo Bank) has made its debut on this list in 755^th place, experiencing massive revenue growth of 157.5%. As a publicly listed entity, Judo Bank specialises in providing financial solutions and credit to small-to-medium enterprises (SMEs). Its offerings encompass asset financing, business loans, lines of credit and residential mortgages.

Being a fairly new company, Judo Bank's success can be partially attributed to adopting modern technology that sets it apart from its older, more traditional counterparts. Its focus on serving businesses that’ve been rejected by the big four banks has given it a unique market position. Judo's exceptional performance has brought it to the attention of several top banks, including Westpac, Macquarie, and Bendigo and Adelaide Bank, for acquisition opportunities.

With the NIM falling from its peak due to higher deposit costs, competitive mortgage pricing and inflationary pressures, the banking sector’s growth will slow in this financial year. While the RBA’s tight monetary policy has succeeded in controlling inflation to an extent, it hasn’t yet reached Australia’s target band. High inflation is driving up operating costs, including labour and technology expenses, and squeezing disposable incomes for households. These trends will slow down demand for bank lending in 2023-24, moderating the banking sector’s performance.

Super funds’ super performance

Superannuation funds invest their members’ pooled funds across various asset classes – like stocks, bonds, property, infrastructure and cash – with the aim to generate returns that’ll provide for members’ retirement needs. While super funds offer a variety of investment choices, with focuses ranging from single asset classes to more diversified options, a significant portion of working members gravitates towards balanced options.  

Balanced super options diversify investments across different asset classes, with much of this allocated to shares. Consequently, the equity market’s performance is a key determinant of how balanced options fare in the long term.

Given their investment in inherently volatile markets, super funds’ performances often fluctuate. However, superannuation funds have rebounded significantly in 2023 compared to their previous year’s performance. The average balanced option yielded a robust return of 9.6% in 2023, effectively offsetting a 4.8% loss clocked in 2022.

This is reflected in strong revenue growth for the majority of super funds on this year’s Top 1,000 list. Several funds have moved up the rankings, with three companies making it into the top 50 this year – AustralianSuper, Aware Super and UniSuper.

The elite-performing super funds share a common trait of allocating a larger portion of investments to shares. International shares have been the year’s high flyers, delivering an impressive return of 19.1% thanks to booming growth in tech stocks. Investment chiefs across various funds have echoed this sentiment, as well as noting growth in assets under management that’s bolstered their performance metrics.

MFF Capital Investments: a success story

MFF Capital Investments Limited is an ASX-listed investment company with a portfolio of international and Australian companies. MFF Capital took the cake for the largest positive swing of this year’s list, with a staggering 1,990.6% increase in its revenue between reporting periods.

The single major reason behind this monumental swing was the fair value of investments, which rose from approximately negative $240 million in 2022 to a positive $470 million in 2023. The company placed 837^th this year as a newcomer, as its previous revenue was well below $25.0 million, reaching over $500.0 million in revenue for the year.

MFF Capital's exceptional performance stemmed from its strategic focus on high-quality US stocks at favourable valuations. With a meticulously curated portfolio that struck a balance between diversification and concentration, MFF Capital positioned itself strongly, particularly with a keen interest in tech giants. As of June 2023, the investment firm held stakes in industry leaders like Visa, Amazon, MasterCard, Microsoft, Alphabet and American Express.

Now, let's shift focus to the Mining sector...

The new hero: transition to net zero

Moving towards net zero emissions is vital for addressing climate change, aiming to balance the amount of produced and removed greenhouse gases. This involves reforestation and carbon capture technologies to keep warming under 2 degrees Celsius, as per the Paris Agreement.

Achieving this requires major shifts in energy, transportation, industry, agriculture and forestry, highlighting the need for collective action to ensure a sustainable future.

So, what does this mean for Australian mining companies?

In order to align with a net zero pathway, coal production worldwide must decrease, leading to a grim outlook for the Coal Mining industry. However, this didn’t directly affect the coal mining companies on this list in 2023 due to surging global energy demand heading out of the pandemic.

The Federal and state governments have also commissioned new fossil fuel projects over recent years, despite their commitment to move towards renewable energy. These factors have allowed all the coal mining companies on this list to record revenue growth in 2023.

Australian mining companies’ role in decarbonisation

Mining companies play a pivotal role in extracting essential minerals and metals crucial for facilitating the transition to a decarbonised economy. With abundant mineral resources available, Australia's mining sector possesses the potential to actively contribute to addressing climate change.

Some critical minerals mined in Australia include nickel, manganese and lithium. These are necessary for energy storage, battery manufacturing and many other solutions that will lead the world towards renewable energy.

Critical mineral mining companies, including Pilbara Minerals, Nickel Industries, Allkem, PRL Global and IGO, have clocked robust revenue growth in 2023. Minerals like lithium are now more in need than ever before, and these companies have leveraged this demand to grow, jumping several ranks from last year's rankings.

Resurgent travel and tourism

Airlines' sky-high growth

International and domestic travel restrictions imposed during the COVID-19 pandemic severely hampered airlines’ performance up until 2021-22. With restrictions lifted and pent-up travel demand unleashed in 2022-23, revenue surged by 101.7% in the Domestic Airlines industry.

As a result, three domestic airlines in Australia and New Zealand – namely Qantas Airways, Air New Zealand and Virgin Australia – made their way into the top 100 ranks for this year’s list, climbing significantly from the previous year. The industry’s impressive performance also allowed Regional Express (Rex Airlines) to debut in 699^th position on the list, growing nearly 100% over the year.

Despite strong demand for travel, domestic passenger numbers and capacity haven’t reached pre-pandemic levels and, in April 2023, both metrics sat at around 92% of April 2019 values. Airlines’ growth in the coming years will rely on their operation and service quality as more and more customers complain about flight delays and cancellations.

A chain reaction

For similar reasons to airlines, the Airport Operations industry also grew in 2022-23. Recovering travel numbers saw all industry businesses on the list with a June 2023 balance date boast double-digit growth. These businesses include Australia Pacific Airports Corporation, which owns and manages the Melbourne and Launceston airports; BAC Holdings, which operates the Brisbane airport; Perth Airport Development Group; and Auckland International Airport.

Businesses in the Travel Agencies and Tour Arrangement Services industry also boasted massive growth in 2022-23 from both leisure and corporate revenue streams as travel restrictions lifted. Flight Centre Travel Group more than doubled its revenue over the year, taking 237^th place on this year's list. Corporate Travel Management is another company from the industry that made its way up the Top 1,000 list, with revenue growth of 70.1% from the previous year.

Wise Payments is growing strong and steady

Another winner benefiting from greater international mobility and trade is Wise Payments, a UK-based firm providing online international money transfer services. Globalisation, increased migration and technological advancements are rapidly expanding the market for cross-border transfers, driving Wise Payments’ growth. The company's services are used for remittances, ecommerce transactions, real estate investments, tuition fees and international payments for salaries, suppliers and services.

Banks dominate the market, offering expensive, slow and inefficient services due to outdated infrastructure and a reliance on intermediaries. High fees are maintained to cover these costs, with a lack of transparency leading to limited pressure for improvement.

Wise Payments has identified this problem and built an alternative infrastructure for correspondent banking, making significant strides in addressing the challenges of cross-border money transfers. These advances have lifted the company almost 120 places in this year’s list.

Labour shortages are a pressing concern

Several businesses in the Aged Care Residential Services and Child Care Services industries have achieved revenue growth in 2023, including Estia Health and Summerset Group Holdings. Despite these economic gains, a persistent challenge across these and many other sectors remains: a shortage of skilled workers.

Out of the 916 occupations assessed in 2023, Jobs and Skills Australia found that 332, or 36%, experienced a shortage of skilled workers. This was higher than the shortage experienced in 2022 according to the Skills Priority List.

The shortage is especially pronounced among technicians and trades workers, where about half the occupations are experiencing a national shortage. Notably, all occupations within groups like construction trades workers and food trades workers were identified as experiencing national shortages.

This was closely followed by occupations within the professionals group, especially health professionals. Around 48% of occupations in this category have also faced staff shortages due to the high level of skills, qualifications and experience required to fill these roles. Community and personal service workers have also been in short supply in health, care and support sectors.

Around 1% of employers increased remuneration to attract skilled labour in 2023 – a significant leap from just 0.4% the previous year. However, this approach has yet to yield the desired effect, as the labour supply continues to show a relatively inelastic response to wage increases.

These shortages are due to a scarcity of skilled labour in the country. Most occupations experiencing shortages are those that rely on skilled labour, and Australia has been heavily dependent on immigrants to satisfy these requirements.

Pandemic-driven border closures caused a drop in net migration and the number of foreign students from 2020 to 2022. Although these factors somewhat recovered in 2022-23, it hasn’t been enough to mitigate shortages. A more streamlined approach to migration, which is what the government is planning, will be necessary to truly solve labour shortages across the economy.