NZ tech firms shine in profitability, productivity stakes

Thursday 25th October 2018

Technology companies are a bright spot in a sometimes lacklustre productivity performance by New Zealand businesses, according to the latest Technology Investment Network (TIN) report.

The country's top-200 tech firms enjoyed a 38 percent increase in profitability in the year to March 2018, grew research and development by 10 percent, but employed only 4.7 percent more people, according to the 2018 TIN200 report. That contrasts with the 11 percent increase in staff reported in the previous year.

Revenue per employee rose more than 16 percent to $245,000 for the companies in this year's report, compared to those last year.

While it’s not a completely apples-with-apples comparison, year-on-year GDP per capita growth in New Zealand is pretty much flat.

The TIN report divides the technology sector into three segments: ICT, with 48 percent of the total by number of workers, high-tech manufacturing at 47 percent, and biotech at 5 percent.

ICT was the standout performer in the profitability stakes, with a 250 percent lift in earnings before interest, tax, depreciation and amortisation. High-tech manufacturing and biotech companies both grew ebitda by around 23 percent.

“The profitability story is a key one for this year’s TIN report,” research and operations manager Deanne Bloom told BusinessDesk. “For a long time, there was speculation, particularly with some of the high-growth ICT companies, about when they would get into the black. Now they are starting to prove they can become profitable.”

Four listed ICT companies moved into positive ebitda territory in the March year, including accounting software firm Xero and corporate travel software business Serko.

Skills shortages are still a problem for tech company CEOs, according to the 122-page report, with average wages rising 3.6 percent as companies paid more to attract good staff. That is double New Zealand’s current average wage inflation of 1.8 percent.

TIN200 companies employ 47,400 people globally, paying 36 percent more than the NZ average. Just over half those staff are based in New Zealand, although less than a third of total TIN200 revenue is generated at home.

Meanwhile, revenue for the TIN200 companies increased by over $1 billion during the year – the second billion-dollar growth result in three years. Exports rose 12.4 percent.

TIN200 firms remain ranked number three in terms of New Zealand export sectors, with $7.9 billion of goods and services sent overseas in the March 2018 year. And while they aren’t going to be catching tourism at $11.3 billion or dairy's $14.1 billion any time soon, the report writers are optimistic their strong growth will continue.

“As technology sector growth is not encumbered by the land and resource constraints of other primary-based and tourism export industries, it is likely this positive growth disparity will continue well into the future,” the report says.

The TIN200 companies are chosen out of 700 technology companies surveyed for the annual NZTE-backed report.

The report suggests tech companies aren’t short of early-stage capital. Angel investment increased 21.8 percent between 2015 and 2017 – higher than TIN200 revenue growth. And foreigners want in. More than $200 million of overseas investment went into these companies during the past two years.

There were eight foreign buyouts of TIN200 firms in the past year and international tech giants Apple and Tencent made New Zealand acquisitions for the first time. By contrast, TIN companies bought 16 other companies.

About a sixth of the companies in the survey are foreign-owned and about the same number are publicly-listed.

(BusinessDesk)

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