Oui are No. 1
Walter Dods moves BancWest Corp. to the Top 250’s No. 1 spot
Walter Dods and his banking team have finally made it to No. 1 on the Hawaii Business Top 250 list. Although if you ask them, they would tell you that they qualified for that spot years ago. “We’ve been the most profitable company for quite a while,” says Dods, the president and chief executive officer for BancWest Corp., the holding group for First Hawaiian Bank and Bank of the West, which is based in San Francisco. “Our profits have been substantially more [than other companies].”
The Top 250 rankings are determined by gross annual sales derived in Hawaii. Not by profit. But Dods has a point. BancWest generated $361.3 million in net income and $1.99 billion in gross annual sales last year. The company, whose parent is France-based BNP Paribas, holds 40 percent of Hawaii’s bank deposits and ranks No. 1 in the state for consumer loans and charge-card issues. BancWest last year also acquired Los-Angeles-based United California Bank and equipment-leasing company Trinity Capital Corp., a move that set the stage for more growth. “We’ll continue to grow externally through continual acquisitions in our market areas in the western states,” Dods adds.
His bank-holding group’s new No. 1 spot on the Top 250 represents the end of a five-year reign for Hawaiian Electric Industries Inc. (HEI), parent company of American Savings Bank and Hawaiian Electric Co.
HEI held the top spot from 1998 to 2002. This year, the company drops to No. 3, with $1.65 billion in gross annual sales, about 4 percent less than the previous year. One reason for HEI’s decline in sales: lower fuel costs in the first half of 2002. “Fuel costs for most of last year went down, but it went up again at the end of the year, particularly as the war with Iraq started to heat up,” explains Robert Clarke, chairman, president and chief executive officer of the company. HEI’s utilities units are allowed to pass along hikes in fuel costs, but when prices drop, the rate that consumers pay also decreases.
While fuel prices dropped, HEI’s kilowatt-hour sales (total amount of energy sold last year) went up by a slight 2 percent. Sixty-five percent of that was due to an increased demand, mainly from residential customers.
It was a different story for Tesoro Hawaii Corp. The prices at the pump for gasoline in Hawaii shot up last year, giving a significant boost to the Hawaii oil refining and retail-gas company. Its ranking this year rises from No. 7 to No. 2, with $1.66 billion in gross annual sales, or 53.5 percent more than the previous year.
Meanwhile, Tesoro last year was under significant bottom-line pressure driven by $500 million in debt carried by its San Antonio, Texas-based parent company, Tesoro Petroleum Corp. Tesoro has gone through a number of cost-cutting measures over the past year. In Hawaii, it let go of 200 employees, including locally based President Faye Kurren. It also sold assets and streamlined its operations, including signing an agreement to lease back 30 gasoline stations.
Tesoro, however, wasn’t alone. In the past year, a number of Top 250 companies also revamped their internal operations. Here are a few of the highlights:
• Hawaiian Airlines voluntarily filed for Chapter 11 bankruptcy protection. The company is No. 8 in the list with $632 million in gross annual sales, a 3.4 percent boost over the previous year. As part of the reorganization, the airline has been negotiating with aircraft lessor Boeing Capital Corp. In late May 2002, the airline appointed a Chapter 11 Trustee: John Monahan, former president and chief executive of Liberty House. But he resigned as trustee on June 24, as this magazine went to press.
• On April 16, Central Pacific Bank (CPB Inc.) launched a hostile takeover bid for City Bank. CPB Inc. ranks No. 49 on the list with $134 million in gross sales and $1.69 billion in assets; City Bank’s parent company CB Bancshares is No. 57, with $119.8 million in gross sales and $2.02 billion in assets. At the time of this writing in late June, CPB’s attempts appeared to be faltering.
• In December 2001, Hawaiian Airlines and Aloha Airlines began merger talks and even turned to consulting company TurnWorks Inc. to head the deal. Both airlines could not agree, however, and the negotiations ended in April 2002. Aloha Airlines’ parent company Aloha Air Group Inc. is No. 18 in the list, with $358 million in sales. Both airlines no longer offer inter-island flight coupons; and they continue to add new routes from Hawaii to the U.S. mainland.
• Kamehameha Schools, the $6 billion charitable trust, lost almost $800 million in investment returns in the year 2002 (for more information, see“Getting Back on Target”). Part of that resulted in Kamehameha Schools’ fall from No. 8 last year to No. 39 in this year’s rankings. The trust generated $1.59 billion in gross sales last year, or 84.8 percent less than the previous year. For unrelated reasons, Chief Executive Officer Hamilton McCubbin resigned in early May.
MEASURES OF SUCCESS
As any business owner knows, growing gross sales is only part of the picture. Managing cash flow, nurturing the bottom line and dealing with ever-important human resources issues, are all part of successful business leadership. In that regard, it is useful to place our Top 250 listings in the context of other surveys that rank business performance.
For example, HEI no longer may be the No. 1 company on the Top 250, but it does rank No. 5 in a nationwide survey of corporate governance practices. Dow Jones announced the rankings last March after analyzing the operations of 385 small- and mid-sized publicly traded companies.
HEI executives were elated by the news, which came several months after HEI’s board of directors adopted new corporate governance guidelines, insider trading policies and codes of conduct. The announcement also came as several U.S. mainland companies still reeled from public-trade scandals. Think Martha Stewart. Think WorldCom and Enron. “We’re in the same business as Enron,” says Suzy Hollinger, manager of investor relations for HEI. “There were a lot of energy companies that overextended themselves.”
HEI was not the only local company to revamp its internal procedures over the past year. High-profile corporate mischief on the U.S. mainland forced many local organizations to straighten up – out of fear that they could be tomorrow’s headlines.
That self-examination was symbolic, though, proof that Top 250 companies have become more influential, more visible to the global community. “Despite all the talk about being local, we really will be more global as we go forward, and that’s a fact of life,” BancWest’s Dods muses. “It’s something to be embraced in a positive way.”
Perhaps it helps, too, that today’s Top 250 list is no longer dominated by Hawaii’s original Big Five companies: C. Brewer, Castle & Cooke, Alexander & Baldwin, Amfac and TheoDavies. These conglomerates had topped the list for almost 20 years. They represented the majority of industries, leaving very little room for smaller companies to compete. In fact, when the Top 250 list (the Top 100 at the time) was first published in August 1984, conglomerates represented 33.2 percent of the list and generated a total of $4.96 billion in annual sales. For more information on the Big Five and some veteran Top 250 companies, see the 20th anniversary section of this month’s issue.
No more. Conglomerates today gross $3.69 million in sales and make up only 12.3 percent of the list. And the Top 250 list is no longer dominated by one single industry. The top industries are evenly split: tourism companies, 14.2 percent; retail, 12.6 percent; financial services, 11.3 percent; and insurance, 10.5 percent. Twenty years ago, it was a different story. Tourism companies comprised 5.5 percent; retail, 12.7 percent; financial services, 9.7 percent; and insurance, 4.3 percent.
The economic environment in Hawaii truly has shifted. Today’s Top 250 list represents a total of $30.1 billion in combined gross annual sales, with average sales of $120.4 million per company. Twenty years ago, the list was a combined $15 billion in gross sales, with average sales of $60 million.
TOP 250 SALES BY INDUSTRY 1983, 1992, 2002
(Source: Hawaii Business 1984, 1993, 2003)
At the time of this writing in June, the Federal Reserve had just slashed interest rates for the 13th time in 30 months. The cut – from 1.25 percent to 1 percent – was good news for dozens of companies in the Top 250, particularly auto dealers and realtors.
Take, for example, InterPacific Motors, which ranks No. 115 in the Top 250 list. The Big Island-based, family-run company increased its 2002 sales by 4 percent to $59 million, thanks to the interest-rate cuts, says J.W. “Joe” Hanley Jr., vice president. Over the past few years, U.S. mainland factories have upped their auto inventory to Hawaii, while offering promotions that require very little down payment. (see “Family Fleet”). “More vehicles for our franchise became more available, especially trucks and sport utilities; it helped give better selections for better sales processes,” Hanley says.
Irwin Mortgage is another Top 250 company that had a successful 2002, as a result of lowered interest rates. It ranks No. 153 on the list with $125 million in sales, or 167 percent more than the previous year (see “Something to Smile About”). “The mortgage business is the premiere business to be in right now,” says Mark James, branch manager. “The price [of real estate] is going up dramatically, and I think we’re going to see a prolonged bubble.”
Unfortunately, it’s been several years since the tourism industry has seen that kind of bubble. Last year was not a good year for the visitor market, as residual fears from the Sept. 11, 2001, terrorist attacks, combined with the weak economy in Asia, convinced many travelers to stay close to home. Tourism-related companies on the Top 250 list generated $4.27 billion in gross annual sales, or 8.6 percent less than the previous year. The decrease came as no surprise, as domestic and international visitor arrivals (6.36 million) remained flat (0.9 percent increase) compared to the previous year.
Tourism companies on the Top 250 list would have been in worse shape, had it not been for U.S. mainland visitors, who returned in droves in the second half of 2002. This group of travelers not only grew by 2.7 percent last year but also increased its length of stay in Hawaii by 5 percent. International visitor arrivals, on the other hand, fell by -2.9 percent.
The demographic shift from international to domestic travel forced many Top 250 companies, such as Maui Divers Jewelry, to refocus operations. The jewelry manufacturer, which ranks No. 168 on the list with $34 million in gross annual sales, offers walking tours of its Honolulu design center. The popular tour drew as many as 300,000 visitors annually, prior to the drop in Asian travel. But today, that number is about half. “We do tour groups in English, Japanese, Korean, German, French, Spanish and Mandarin,” says Rob Taylor, president and chief executive officer. “Right now, our business is mostly domestic.”
The walking tour is just a sliver of this company’s vast empire. Maui Divers Jewelry, which increased its 2002 sales by 22.7 percent, operates more than 30 jewelry retail outlets in Hawaii. Its first U.S. mainland store opened last year in Las Vegas and Orange, Calif., and there are plans to open a store in Orlando, Fla., this year. “We’ve primarily been involved in travel retail, for our visitors in Hawaii. But we’re changing that and are starting to market to local residents as well,” he says. The plan: open an 800-square-foot-store next to Macy’s at the Ala Moana Center and operate jewelry concessions at all Hilo Hattie stores, a move that “accounted for a big part of Maui Divers Jewelry’s growth last year,” Taylor says, adding that the jewelry company projects a 20 percent growth in sales over the next year.
The pendulum swing from international visitors to domestic visitors is the reason why sales are down for Japan-centric tour company R&C Tours. Its rank on the Top 250 list fell from No. 136 to No. 172, with $33.2 million in sales, or 35.4 percent less than the previous year. The company reported its sales, based on the Japanese fiscal calendar, which began April 2002 and ended in April 2003.
R&C, unfortunately, suffered a triple whammy during that fiscal period: the slow economy in Japan; the war in Iraq; and the outbreak of SARS (Severe Acute Respiratory Syndrome). “We were looking at this year to be a great year, but we had to cancel lots of tours between March to May,” recalls Abrar Uppal, director of R&C Tours. The company’s inbound activity dropped by about 15 percent, while outbound travel – particularly to Japan and the U.S. mainland – increased by 15 percent.
Meanwhile, executives at R&C Tours expect travel to normalize by the end of this year, a prediction that mirrors forecasts by local economists. According to DBEDT (the Department of Business, Economic Development and Tourism), visitor arrivals to Hawaii are expected to increase by 7.3 percent in 2004. Beyond that, DBEDT predicts that overall visitor counts will exceed seven million by 2005 and grow by about 2 percent per year thereafter.
Perhaps by then, more companies on the Top 250 list will have ventured beyond Hawaii. They will have become more global, so to speak. Globalization may not quantify success, but it will raise the bar for many Top 250 companies. More so than profits and sales. Dods advises: “Think globally, act globally and use global technology, but have local management that is sensitive to the community. Companies that are too global and not locally responsible, or companies that are too local and cannot see the bigger picture, are not going to make it.”