Wealth creation through capex strategy

Waikato Times, Wednesday, March 28, 2001
Wealth creation through capex strategy

A report by international consultants Stern Stewart, suggesting some large New Zealand corporates are destroying shareholder wealth, confirms what many people already knew, says a leading Hamilton strategist.

Tony Street, director of Capex Systems Ltd, said too many New Zealand corporates relied on management performance measures that were not aligned to value creation.

His company provides companies with strategies to manage their capital resources.

The Stern Stewart report found that a number of large New Zealand companies lost billions for shareholders, while Baycorp and INL created the most wealth.

“Executive remuneration structures were often unrelated to value added. This has led to understandable reactions by shareholder groups recently,” said Mr Street.

Only when rewards for management performance were linked directly to value creation would the efforts of managers be linked to shareholder expectations, he said.

Capital expenditure management and strategy represented one of several important aspects of shareholder wealth creation. “This is an area that presents a tangible opportunity for swift improvement.”

Many large New Zealand corporates could learn from the success of the dairy industry, he said.
Many companies did not use formal tendering procedures when planning capital acquisitions. Corporates also took a less rigorous approach to evaluating capital projects than best practice required.

“Such projects generally have long term impacts on financial health and shareholder wealth.”

By undertaking risk analysis and testing assumptions companies had the potential to do better, he said.

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