Published on the 18/11/2022 | Written by Heather Wright
Story of resilience and diversity for NZ tech…
Tech stocks may have had a rough year, but New Zealand’s tech sector remains buoyant with the top 200 tech export companies generating $15.1 billion in revenue for FY22.
“The profile of TIN companies is increasingly one of large and profitable companies.”
The nine percent revenue growth – a $1.2 billion increase on FY21 – is down slightly on last year’s 11.5 percent but has tech companies growing nine times faster than the general New Zealand.
Speaking to iStart ahead of last night’s launch of the 18th annual Technology Investment Network (TIN) Report, Greg Shanahan said: “You look at the market and say the share prices have plunged for these companies, is the world about to collapse?
“Well the profile of TIN companies is increasingly one of large and profitable companies.
“The markets reflect the investor sentiment, but these companies are continuing to do well,” he says.
Growth for the 28 public companies in the TIN200 – which includes include big names such as Xero, Fisher & Paykel Healthcare, Pushpay and Rocket Lab – was 6.9 percent, or $317 million, for the year. That saw the companies reaching a collective market capitalisation of $40 billion and accounting for nearly-one third of total TIN200 revenue and one-quarter of total revenue growth.
ICT companies were the primary growth driver for the overall TIN200 growth in FY22, with a 15.1 percent ($860 million) increase in revenue as digital adoption accelerated with high demand for solutions to improve business, financial, communication and organisational efficiencies. The ICT sector was also the only primary sector to achieve positive profitability growth this year, with EBITDA of 16.3 percent, thanks in part to the strong operating performances of Pushpay, Xero, Eroad and Straker Translations.
“One of the key stories is the resiliency of the tech sector with near double digit growth during fluctuating economic times,” Shanahan told iStart.
That’s something he attributes in part to the scale of the sector – there are now four companies with revenue over $1 billion, 30 companies with revenues over $100 million and about 60 pulling in revenue over $50 million.
Alongside that is the diversity of the sector. Shanahan notes not just the diversity in terms of markets local companies are operating, with more sectors like communications, creative industries and software solutions showing double digit growth – but also geographic diversity as exports expanded and Kiwi companies took their operations increasingly outside of Auckland.
“That diversity is de-risking the sector and it has essentially hit its stride,” Shanahan says.
Exports were up 9.1 percent to $11.5 billion with Asian exports topping $1 billion for the first time. That 18.2 percent growth was supported by growing shipments of healthtech and electronic goods.
New Zealand, Australia, Europe and the United States have been the traditional strong markets for New Zealand tech companies, with Asia accounting for just seven percent of exports. That’s got Shanahan picking the ‘highly under-represented’ Asia as a key area for growth in the years ahead.
Strong growth was also recorded in Europe and Latin America.
“That’s a demonstration that we now have larger companies with more resources to sell their products in more markets.”
The sector is New Zealand’s second largest export earner behind dairy and comprises 14 percent of New ?Zealand’s total export revenue for the year to June 2022.
This year’s report also highlights increased movement and diversity in the sector, with early stage companies as diverse as cryptocurrency exchange EasyCrypto, energy storage technology Energy Bank, and Boundary Labs, which is a metal parts production.
“There is a whole diversity of technologies that is quite surprising. There’s a more diverse base and that’s having a massive impact on our domestic economy in terms of wages – there’s estimated about $260m worth of new wages coming into the economy as a result of the employment growth in New Zealand.”
Even in the face of crushing talent shortages, staff numbers across the sector were up 10.9 percent to 62,718. And if Fisher & Paykel Healthcare is anything to go by there’s more growth to come: The company has just bought a Karaka site 2.5 times the size of their current Highbrook site.
“I think what it says is that a larger percentage of people will be working in tech related businesses,” Shanahan notes.
And while Kiwi companies might be panned at time for underspending on R&D, Shanahan has a different take on things.
R&D spend was up a significant 19 percent to $1.8 billion. While that seems low, Shanahan says he believes the efficiency of the way local companies spend their R&D is a lot higher than in other markets.
“Because we don’t have lots of money so we have to find ways to do it cheaply and our culture is less stratified and more egalitarian so you get more efficiency from the talent you have.”
Healthtech and fintech have been shining lights for the sector in recent years. Covid accelerated investment appetite for healthtech as it became clear radical change was needed in the sector.
“In some ways, where banks were disintermediated by fintech, I think hospitals will increasingly be disintermediated by new healthtech solutions as more money is spent on caring for patients in the community and a patient-centric model, as opposed to bringing them into hospital,” Shanahan says.
“There are massive sea changes in the way we operate mainstream services in our society and any market changes – including the introduction of open banking – give an opportunity for first mover advantage.”
There’s also been some some good news with the kiwi dollar. While process of componentry sourced off shore increases with the dropping dollar, Shanahan notes anything south of 65 cents and down into the high 50s is ‘highly’ favourable for exports.
Among the other standout figures in this year’s report is an 11.5 percent increase in investment backed private company growth, or $324 million, and software solutions revenue growth of 25.6 percent to $1.05 billion.
Shanahan says the growth of Kiwi tech companies spells good news on another front too.
“As these companies get bigger, they’re feeding that experienced talent to other companies, so you get this cluster effect of a pool of highly experienced talent migrating across the sector, taking commercial and technical knowledge with them.”
With the ongoing talent crisis, that’s something many companies will be only to happy to hear.
