SOURCE: The Boston Consulting Group

The Boston Consulting Group

September 17, 2013 00:01 ET

Top Value Creators Delivered High Growth in a Low-Growth Economy

The Top Ten Value Creators in 19 of the 25 Industrial Sectors Studied by The Boston Consulting Group Delivered Double-Digit Sales Growth in the Five-Year Period From 2008 Through 2012

BOSTON, MA--(Marketwired - Sep 17, 2013) - The big winners in global equity markets since the 2008 financial crisis have been those companies that have successfully fought the economic headwinds and delivered above-average growth, according to a new report by The Boston Consulting Group (BCG).

The top ten value creators in 25 industrial sectors delivered sales growth ranging from 6 percent per year, on average, in the forest products and multibusiness industries to 27 percent per year in the pharmaceutical and technology sectors. These growth rates are between two times and nine times the current rate of growth in global GDP (roughly 3 percent). These findings were released today in BCG's fifteenth annual Value Creators report, "Unlocking New Sources of Value Creation."

The 2013 Value Creators Rankings

The 2013 Value Creators rankings are based on an analysis of total shareholder return (TSR) at 1,616 global companies for the five-year period from 2008 through 2012. The rankings list the top ten value creators for the entire sample, for large-cap companies (defined as those with a market valuation of at least $50 billion), and for 25 separate industrial sectors.

Among the key findings:

  • The average annual TSR for the 1,616 companies in our sample was approximately 4 percent. The average annual TSR for the 25 industry sectors ranged from 11 percent (in retail and in consumer nondurables) to -8 percent (in metals).

  • The average TSR of the top ten companies in each industry outpaced their industry averages by between 11 percentage points (in insurance) and 32 percentage points (in pharmaceuticals).

  • A company had to deliver an average annual TSR of at least 12 percent per year to be in the top quartile of the global sample and at least 49.2 percent to make the top ten. The most successful companies delivered TSR of more than 60 percent per year. And this year's top value creator -- U.S. biopharma company Pharmacyclics -- had an average annual TSR greater than 100 percent.

  • Companies from emerging markets continue to dominate the global top ten, with the majority coming from countries such as Brazil, the Philippines, Russia, and Thailand.

  • When it comes to the world's largest companies, however, the balance shifts back toward the developed world. Although the number-one large-cap value creator is the Chinese online media company Tencent, seven of the top ten companies in this category are from developed-world economies -- including familiar companies such as Danish pharmaceutical manufacturer Novo Nordisk at number three, South Korean powerhouse Samsung Electronics at number four, Spanish retailer Inditex at number five, and Apple (by far, the company with the biggest market valuation on our list) at number six.

  • In some sectors, dividend yields were a major contributor to top performance. For example, dividends accounted for roughly a quarter of the average TSR (24 percent) delivered by the oil industry's top ten, more than a third of the average TSR (16 percent) delivered by the power and gas utilities top ten, and almost half of the average TSR (9 percent) delivered by the insurance top ten.

How to Think About Growth

Just because the top value creators are delivering high growth doesn't necessarily mean that all companies should make growth their top priority.

"All things being equal, sustainable earnings growth is the key to long-term value creation," said Gerry Hansell, a BCG senior partner and coauthor of the report. "But investments to drive earnings growth often end up destroying value. Other actions -- raising margins, reducing risk, allocating capital differently, restructuring the portfolio -- may be more relevant depending on the company's opportunity set and starting position."

The report describes ten different starting positions -- what BCG terms "value patterns" -- that determine the most appropriate ways for a given company to create shareholder value. It also profiles three companies from the rankings -- North American retailer of high-end yoga and exercise clothes Lululemon Athletica, Korean automaker Hyundai Motor Company, and U.S. industrial supplier W.W. Grainger -- to illustrate how companies can create superior value from very different starting positions.

The Advantage of a TSR Focus

The report also describes the advantage of a focus on TSR in order to make sure a company delivers growth that actually creates value. "The value of looking at a business through the lens of TSR," said BCG senior partner and report coauthor Jeff Kotzen, "is that it allows a management team to distinguish between the kinds of growth that will create value and the kinds of growth that will destroy it." The report illustrates this point through a detailed case study of U.S. apparel maker VF Corporation. It describes how the company has used a consistent focus on TSR to reshape its portfolio in order to deliver higher growth with higher gross margins -- making it a leading value creator in its peer group.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

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Contact Information

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    Eric Gregoire
    Global Media Relations Manager

    Tel +1 617 850 3783
    Fax +1 617 850 3701
    gregoire.eric@bcg.com