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Port's 12% target achievable - Auckland Council Investments

Auckland Council Investments (ACIL) has dismissed suggestions its demands for a 12% return on equity from the Ports of Auckland are unrealistic.

In a statement ACIL’s chief executive Gary Swift says that between 1999 and 2003 the return was between 13.2 and 17.8%.

“On that basis, claims that the ports cannot earn a return on equity of 12 per cent are absolute nonsense. Auckland Council accepted the target based on advice from both ACIL and the Ports of Auckland, it is challenging but achievable,” Mr Swift says.

The port’s board identified four key strategies to boost the return on equity including increasing revenue earned per container, labour flexibility, the review of all operating processes, and freeze on non-essential capital expenditure. The return on equity is expected to reach 12% by June 30, 2016.

First NZ Capital figures show a number of companies expecting to achieve ROE higher than 12 per cent, including Briscoe Group 19.5 per cent, Fisher and Paykel Healthcare 19.3 per cent, Freightways 20.3 per cent, Mainfreight 18.5 per cent, Restaurant Brands 29.4 per cent, Sky City 18.1 per cent and Telecom 18 per cent.

Mr Swift says the agreement to reach 12% was not what started the labour dispute between the port and the Maritime Union and the target was set months before the dispute began. 

More by Conor O'Brien

Comments and questions

The point is not that its, "achievable".
Given that a "normal return on capital divvy is 4/7%, the real concern must be; If the Port returns a 12% "return on capital employed" divvy to Council, is this not saying port users (exporters/importers) will be subsidising Auckland rates? And, is that good for NZ?

Mind you, a 4-7% dividend can be got from putting your money in the bank. If that was the POA return, Auckland would be better off closing the port, selling the land and putting the lot in the bank - 6% easy. 12% is, I consider, a light return on an enterprise like POA and nothing less should be expected to ensure it does provide a return for Auckland rate-payers.

You realise the council is not including capital gain in its request!!

A 12% ROE is a very different target than a 12% return on capital employed.

Correct, if somebody can direct me to an investment that returns me 12% interest and a share of capital gain. I'll have a bit of it.
Thanks Anon....