South African companies are among the most profitable in the world, trumping the performance of those in developed countries like the United Kingdom, the United States and Australia, and their success is owed in part to their superior business acumen and efficiency.
This is according to the global industry CFROI (cash flow return on investment) performance handbook produced by Holt, a group in the equities division of Credit Suisse.
CFROI is a real measure of the cash flow return on operating assets. Because it is an inflation-adjusted profitability metric, it can be compared over time and across borders.
The global sample included more than 31 000 unique firms dating back to 1985 with an average 10 years of reported data from a total of 57 different countries. The study focused on companies with a market capitalisation of $250-million plus.
According to the handbook, the long-term global average real return on capital for industrial and services firms is 6%. However, the data shows that South African firms such as these, overall, scored a 10% median economic return for the period 2002 to 2011.
These companies performed better than those in Sweden, India, Taiwan, France, Switzerland and Hong Kong, among others.
Detailed data shows that Coronation Fund Managers topped the list with an enormous economic return of 112%, followed by above-average performances from 83 listed companies, ranging from 37.1% to 6.9% median return over the past 10 years.
These impressive returns were achieved despite those companies that dragged down the median by achieving a lower-than-average return over the same period.
They included Harmony Gold at -1.2% and Sappi at 1.5%. But the overall result shows South African companies are very well run and very attractive to foreign investors.
David Holland, senior adviser to Credit Suisse HOLT, said each country has a tendency to prefer certain qualifications for senior executives. In Germany, for example, many chief executives have a PhD degree in physics or engineering.
"But in South Africa it is orientated towards studies in business management, or qualification in chartered accountancy," he said.
Subsequently, "for the most part, managers here understand balance sheets, return on capital and the importance of quality of earnings".
Retailers are particularly prized by foreign investors, who love to invest in them because they are well-managed and very profitable.
The Holt data shows that 10-year media returns are especially impressive when it comes to this sector.
Companies such as Truworths, Spar, Massmart and MTN are also in the top 10, with returns ranging from 19% to 22%. Lower down, retailers like Shoprite and Foschini still have high 10-year median returns of 15% and 14% respectively.
But there are exceptions. "[Investors] aren't interested in … South African mines. They say, if they want to invest in mining, they would rather go to Australia."
Holland said mining does not create shareholder value, thanks to depressed metal prices and spiralling cost increases. Foreign investors are put off by the large and disruptive labour component and policy uncertainty.
Current returns on capital are below the cost of capital for South African mining companies, so growth resulted in the destruction of shareholder value.
Ten-year median returns for some platinum miners are okay, but their returns over the past three to four years were poor, with Anglo's Kumba Iron Ore being the only exception in mining.
Gold miners have been and remain in trouble, he said, with Harmony, Anglogold and Gold Fields at the bottom of the list for 10-year returns.
Although platinum is the most recent to have had its moment in the sun, "ever since the global slowdown began and the commodity super cycle ended, platinum has had poor returns. To grow is not in their best interest and it will further hurt their share prices," Holland said.
Labour-intensive businesses tend to be towards the bottom of the list, with returns getting worse.
Another constraint to growth, and not included in South Africa's profitability finding, are the state-owned enterprises (SOEs) such as Transnet, Eskom and South African Airways.
"It is difficult to gather their financial data in an efficient manner," Holland said.
"My finding should not be misinterpreted that SOEs are wonderful and profitable businesses. They aren't. They are eating capital and have required repeated recapitalisation, obvious indications that they are destroying wealth. In fact, the result implies that government should privatise SOEs sooner rather than later so they can be run more effectively and stop acting as constraints to national growth."
If companies could generate a 10% real return on capital, they have the potential to grow their assets at 10% in real terms.
"This country's companies have cash to invest but general uncertainty about government policy and labour act as a constraint to growth. It would be best for government to do all it can to make business a partner in developing the nation," Holland said.