something to smile about? - Euromoney Institutional Investor PLC

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LEAD STORYVALUE CREATIONTop 25 Europe (by market value)Company Name Industry MVA Market Value Capital EVA NOPAT ROCE1 Shell combined Oil Comp - Integrated 93,946 195,314 90,772 6,125 12,416 15.9%2 GSK Medical - Drugs 86,968 121,994 37,503 6,347 9,107 25.7%3 BP PLC Oil Comp - Integrated 69,006 192,160 112,251 144 8,786 8.0%4 Novartis Medical - Drugs 59,662 96,985 37,260 2,743 5,252 13.8%5 Nokia OYJ Telecoms Equipment 56,686 73,530 16,671 2,429 3,852 24.6%6 Nestle SA Food-Misc 52,254 103,950 51,136 3,953 7,082 13.6%7 Total SA Oil Comp - Integrated 51,952 114,630 65,399 1,798 6,703 11.3%8 Roche Holding Medical - Drugs 43,661 89,207 42,126 (1,203) 1,742 4.0%9 ENI SPA Oil Comp - Integrated 28,990 84,195 53,111 1,471 5,729 11.0%10 Unilever Group Food-Misc 27,541 62,008 33,839 1,494 4,292 11.5%11 Carrefour SA Food-Retail 21,978 44,808 21,947 621 2,435 10.5%12 Orange SA Cellular Telecom 16,757 39,844 22,676 (6,049) (3,819) -15.4%13 Siemens AG Diversified 11,999 52,082 39,542 (1,031) 2,244 5.4%14 Philips Electronics Electonic Compo 11,548 31,170 19,443 (4,925) (2,907) -13.2%15 France Telecom Telephone - Integrated 11,360 113,852 92,711 (29,954) (18,476) -18.0%16 ENEL SPA Electric - Integrated 9,877 63,308 53,360 (1,289) 2,694 5.2%17 BASF AG Chemicals 8,556 32,077 23,125 249 2,043 8.9%18 Tesco PLC Food-Retail 8,143 26,609 18,404 305 1,776 10.1%19 E. ON AG Electric - Integrated 5,132 99,743 88,101 (5,408) 789 1.0%20 Telefonica SA Telephone - Integrated 4,834 83,745 73,398 (6,053) 996 1.3%21 DaimlerChrysler AG Autocars/Light Trucks 248 139,642 138,962 (9,128) 5,521 3.8%22 Deutsche Telekom AG Telephone - Integrated (2,005) 125,748 123,764 (20,258) (7,559) -5.6%23 Telecom Italia S Telephone - Integrated (17,723) 65,550 74,288 (4,638) 3,557 4.5%24 Vivendi Universal SA Media (37,963) 50,621 83,087 (10,413) (1,938) -1.9%25 Vodafone Group Cellular Telecom (143,865) 150,541 295,675 (11,676) 11,130 4.1%Market value as of 31 December 2002Capital as of 31 December 2002, year-end operating capitalExchange rate as of 31 December 2002, EUR per USD 0.9531, source BloombergExcludes banks, insurance and other financial institutionsSOURCE: STERN STEWARTgreater assertiveness by shareholders.They are more eager than ever todiscover exactly how much value corporatemanagement has added to theirinvestment capital and spelling outwhat it is that the management teamshould be credited with achieving.Value Based Management, based onMVA/EVA, is a management approachthat ensures corporations are run consistentlyon value – and normally onmaximising shareholder value. Itincludes creating value, managing forvalue and measuring value. It usessimple transparent metrics that notonly highlight where a company hasadded or destroyed shareholder valuebut gives investors a good indication ofhow capable the management team is.CFOS LEADING EUROPEShell Judith BoyntonGSK John CoombeBP Byron GroteNovartis Raymond BreuNokia Olli Pekka KallasvuoNestle Wolfgang H ReichenbergerTotal Robert CastaigneDefine shareholder value?Nurturing the conditions to best createshareholder wealth is harder than youmight think. Boards can often lack ashared perspective on how stock marketsevaluates corporate performance.Equally, they may not fully understandthe key strategic factors for creatingvalue in today’s market. That’s wherethe CFO is meant to step in.The CFO has traditionally served as acompany’s shareholder value steward.He is often the first to introduce corevalue principles, is the one pushing forthe resources, methodologies and –most importantly – management timerequired to make ‘value´ work. It isinevitably he who argues that effectivecompany-wide programmes will returnRoche Holding Erich HunzikerENI Marco MangiagalliUnilever Rudy MarkhamCarrefour Jose-Luis DuranOrange Wilfried VerstraeteSiemens Heinz-Joachim NeuburgerPhilips Jan H M HommenFrance Telecom Michel CombesENEL Fulvio Contimany times the initial investment. So ifa CFO is the shareholder value steward,then a positive MVA/EVA is surely acredit to his strong leadership, clarity offocus and firm controls over cash.But what is shareholder value?“Shareholder value is why we come towork everyday,” says Pat Mulva, head ofIR at Exxon Mobil, the world’s largest oilcompany (which does not have a CFO,by the way). “Everyday we compete forthat investment dollar and it is our jobto provide value to the people makingthat investment decision everyday.”Mulva defines shareholder value asthe appreciation of the share price andthe long-term impact of dividends andshare buy-backs. In 2002, Exxon distributedmore than $10 billion toBASF Kurt BockTesco Andrew Higginson (FD)E.ON Erhard SchipporeitTelefonica Santiago ValbuenaDaimlerChrysler Dr Manfred GentzDeutsche Telekom Karl-Gerhard EickTelecom Italia Enrico ParazziniVivendi Sandrine DufourVodafone Kenneth Hydon24 cf March 2004 corporatefinancemag.com
Top 25 US (by market value)Company Name Industry MVA Market Value Capital EVA NOPAT ROCE1 Microsoft Corp Software & Services 208,888 233,329 24,441 1,025 4,371 17.75%2 General Electric Co Capital Goods 174,786 269,547 94,760 5,667 12,930 14.51%3 Wal-Mart Stores Retailing 174,198 244,370 70,171 2,797 8,652 13.03%4 Johnson & Johnson Pharmaceuticals 110,938 156,298 45,360 2,706 6,785 15.01%5 Merck & Co Pharmaceuticals 98,803 134,590 35,787 3,690 6,771 19.12%6 Coca-Cola Co Food 87,701 110,671 22,971 2,331 3,847 17.46%7 Procter & Gamble Co Household 85,514 125,333 39,818 1,835 4,824 12.99%8 Exxon Mobil Corp Energy 80,422 260,108 179,686 (2,072) 11,685 6.61%9 Intl Business Machines Technology Hardware 71,650 170,328 98,678 (7,655) 3,517 3.66%10 Dell Computer Corp Technology Hardware 60,659 67,533 6,874 356 1,229 17.64%11 Intel Corp Technology Hardware 56,961 92,397 35,436 (3,560) 2,282 6.25%12 United Parcel Service Inc Transportation 54,968 74,327 19,359 834 2,457 13.05%13 Lilly (Eli) & Co Pharmaceuticals 54,390 70,969 16,579 1,045 2,396 15.52%14 Pfizer Inc Pharmaceuticals 50,114 183,869 133,755 (3,367) 8,759 6.59%15 Pepsico Inc Food 47,326 77,093 29,767 1,032 3,073 10.55%16 Altria Group Inc Food 47,158 117,027 69,868 5,705 9,951 14.25%17 Cisco Systems Inc Technology Hardware 45,156 89,180 44,025 (5,616) 566 1.30%18 Bellsouth Corp Telecomms 21,488 67,993 46,505 (1,225) 3,697 7.76%19 Verizon Communications Telecomms 18,446 193,812 175,366 (5,349) 12,285 7.04%20 Chevrontexaco Corp Energy 6,725 92,812 86,087 (2,991) 3,248 3.76%21 Viacom Inc -Cl B Media 5,960 90,482 84,522 (4,854) 2,924 3.46%22 General Motors Corp Automobiles (14,724) 99,437 114,161 (6,014) 2,058 1.80%23 SBC Communications Inc Telecomms (24,649) 124,922 149,571 (8,287) 7,190 4.82%24 AT&T Corp Telecomms (61,066) 78,583 139,649 (27,148) (12,982) -8.70%25 AOL Time Warner Inc Media (79,113) 95,276 174,389 (31,211) (14,360) -8.01%NOTE:Market value as of 31 December 2002Capital as of 31 December 2002, year-end operating capitalExchange rate as of 31 December 2002, EUR per USD 0.9531, source BloombergExcludes banks, insurance and other financial institutionsSOURCE: STERN STEWARTCFOS LEADING USMicrosoft John ConnorsGeneral Electric Dennis DammermanWal-Mart Stores Thomas SchoeweJohnson & Johnson Robert DarrettaMerck Judy LewentCoca-Cola Gary FayardProcter & Gamble Clayton Daleyshareholders through dividends andshare buybacks. In 2002, its dividendincreased for the 20th consecutive year.There is little disagreement with thisbasic definition. Ladislas Paszkiewicz,head of IR at oil company Total, agreeswith Mulva’s definition of shareholdervalue as the sum of a contribution ofstock performance and yield throughdividend. Likewise, a spokesman atNovartis, the Swiss-based pharmaceuticalgiant asserts that, “The ultimatemeasure [of shareholder value] is thedevelopment of the share price, dividendpay outs and value of spin offs.”But Paszkiewicz also says that shareholdervalue is simply a by-product ofhow well (or badly) a company performs.“At Total, shareholder value isthe result of our emphasis to improvecompany performance. We controlwhat we deliver through thecompany’s internal plans that focus ongrowth and productivity. This translatesinto shareholder value creation.The two are linked.”Exxon’s overriding objective is tocreate sustainable shareholder value byseeking high returns at low risk andfocussing on the long-term, says Mulva.“Exxon has an investment discipline,operational excellence and is carefulwhere it invests. Exxon’s standards ofinvestment discipline have consistentlydelivered superior returnsdemonstrating we are using [investor’s]Exxon Mobil N/AIntl Business Machines John JoyceDell Computer James SchneiderIntel Andy BryantUnited Parcel Service Scott Davis(Eli)Lilly Charles GoldenPfizer David ShedlarzPepsico Indra NooviAltria Group Dinyar Devitrecapital wisely and creating long-termsustainable growth and value.”Novartis takes a similar approach.“Novartis is committed to shareholdervalue but on a sustainable basis, notjust for optimising short termmeasures,” It attributes its success to aclear focus on sustainable growth, acorresponding, consistently innovation-orientedstrategy, and thecapabilities and commitment of itsmanagement.Interestingly, pharmaceutical companies,which feature strongly in thelisting, perform well in MVA measuresbecause of their investment in R&D.“MVA is made up of the future cash lineof the company,” says Stern StewartCisco Systems Dennis PowellBellsouth Ronald DykesVerizon Comms Doreen TobenChevrontexaco John WatsonViacom Richard BresslerGeneral Motors John DevineSBC Comms Randall StephensonAT&T Thomas HortonAOL Time Warner Wayne Pacecorporatefinancemag.com March 2004 cf 25
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