Published on the 14/11/2024 | Written by Heather Wright

But employment down – and what’s the Trump factor?…

Kiwi tech companies have been trimming their sails to ensure they’re travelling profitably, with staff numbers down, but profits up in the latest TIN200 report.

The TIN (Technology Investment Network) report shows revenue for the top 200 Kiwi tech companies was up $17.95 billion, a $1.28 billion increase on last year, with total EBITDA profit soaring 21 percent – some $432 million – to $2.49 billion.

“Companies are trimming their sails and ensuring cashflow and profitability is improved.”3

That growth is down on previous years which have seen a five-year CAGR of 10.5 percent, but still outperforms the broader New Zealand economy.

Healthtech, fintech and software solutions led the charge, all experiencing double-digit growth, providing the mainstay for the growth of the whole sector. Fintech ($2.88 billion) and healthtech ($2.87 billion) are the largest categories in the index by revenue.

Speaking to iStart ahead of last night’s launch of the annual report, which quantifies the economic significance of the top 200 Kiwi tech companies, Greg Shanahan, TIN founder and managing director, said that profitability climb came against a 0.8 percent decline in employment numbers in the sector, to 59,774.

The year saw restructuring in the sector, with nearly 2,000 staff shed globally from Kiwi companies including Xero, Datacom, Magic Memories and Soul Machines.  Hi-tech manufacturing losses were offset by Fisher & Paykel Healthcare and Tait Communications who between them added nearly 950 staff.

The drop in overall employment numbers ends 10 years of continuous growth for the sector.

“We think that’s primarily around the economic conditions, with companies trimming their sails and ensuring cashflow and profitability is improved,” Shanahan says, adding that ‘as far as anyone can predict anything, we’re expecting a better 2025’.

“One of the strongest things you see in the TIN100 is the growth in the proportion of the business coming from large companies.”

The number of companies with revenues over $200 million has more than quintupled in the past 10 years, going from three to 16, with Shanahan saying it will continue to grow in the next couple of years to reach about 20.

“These are large companies with resources across multiple markets who are in the B2B space. They are robust, their income is less discretionary – particularly in areas like fintech and healthtech – so they are more immune to the vagaries of economic cycles.”

That growth in the large companies bodes well for ongoing growth in the sector, he says and for New Zealand’s tech export scene. Exports – or total offshore revenue – was $13.52 billion, up $1.10 billion or 8.8 percent on 2023.

While this year has seen technology fall back to being New Zealand’s third largest export earner, behind dairy and tourism, after briefly claiming second spot during Covid, Shanahan says tech is ‘about level pegging’ with tourism at the moment and ‘will go back to number two and be heading to number one’.

“One of the reasons for that is this rapid growth of large companies. You have this exponential compounding going on. When you have sustained 10-15 percent growth and your revenue is $1 billion or $500 million, the impact is considerable, so as we build up our stable of large companies the growth will accelerate.”

At the other end of the market, Shanahan says growth has been tough in terms of capital raising.

“And it’s a level of toughness that is not properly indicated by the topline figures.

“The number of deals for early-stage companies has been stagnant. Because of an increase in the size of the deals the absolute amount of capital was at a peak in 2023, but we see in the first half of 2024 it is down.

“It’s been difficult travelling for a lot of companies – in times of uncertainty people move away from things that are higher risk, and companies without robust cashflows and established customer bases are more high risk than others. Hopefully that will recover in the 2025 year.”

Shanahan says this year’s index also shows good growth in second-generation companies such as Tait Electronics, Buckley Systems and Gallagher Group, doing well.

“That bodes well for the growth of the sector – that we can have New Zealand-domiciled companies, that have primarily New Zealand ownership that are multi-generational. It’s a really encouraging sign.”

Greentech is also an encouraging space for the local market, he says with significant amounts of funding going into the sector.

Christchurch’s Fabrum, which is involved in hydrogen fuel, raised around $23 million last year, while Lodestone raised $600 million for their solar farms.

But the past few years have also seen a number of acquisitions of Kiwi companies by international businesses, which in some cases have largely meant the company has departed New Zealand, Shanahan notes.

Vend was acquired by Lightspeed in 2021, Invenco was acquired by Vontier in 2022 and Pushpay – which still retains a strong local presence – was sold to a consortium. In agritech Tomra, who bought BBC Technologies and Compac Sorting Equipment – two large, significant agritech companies – has ‘essentially closed down their manufacturing in New Zealand’.

“The risk is that once you have foreign ownership, these companies are potentially vulnerable to change in strategy where New Zealand is no longer relevant, so it is good to see companies are doubling down and growing from a New Zealand base.

“You want to establish a growing group of large New Zealand-domiciled companies because the bottom line in terms of employment, tax, suppliers, certainty over own future, all of those things, helps create a much stronger economy.”

When it comes to government support to grow the sector, Shanahan says there are two key areas where the government can lend support.

“One is to support ventures that have deep tech, because they are a long term development in areas where retail investors normally don’t play because it is too high risk and they don’t understand what the risks are.”

The other, he says, is making it easier for companies to source highly skilled people offshore if they need them.

“And that’s probably an area where there will be some spill over in terms of Donald Trump becoming the US president. Some people – unfortunately probably not enough – will decide that is impetus to look further afield.”

Shanahan says he’s already had enquiries from US people asking about local prospects.

As to further impacts from Trump’s re-election, Shanahan says he would be surprised it had too big an impact on TIN companies.

“There could potentially be tariffs on goods exported from NZ, but counterbalanced against that is that a lot of New Zealand manufacturers have manufacturing facilities in North America if they manufacture at all.

“And manufacturing has more of a bias to the US than the digital economy, I would be surprised if the Trump administration penalised digital players from NZ for bringing their wares to the US.

“But it is a Pandora’s box. But if you’re an entrepreneur, you don’t spend a lot of time worrying about things like that. It’s a bit like intervention from the New Zealand government – if you were blaming the government for anything, you wouldn’t be an entrepreneur. You just play the hand you’ve got and take advantage of that.

“The longer term growth of the tech space is well assured, as long as we can continue to feed talent into it.”