Greater returns from investments, achievable and essential: Auckland Council Investments
Tuesday 21 February 2012, 2:03PM
By Auckland Council Investments Limited
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Following up on comments regarding the forecast rate of return on equity of ACIL owned Ports of Auckland, ACIL Chief Executive Gary Swift today said that the anticipated rate of return of 12% was realistic.
“ACIL has an obligation under the establishing legislation to bring a strong commercial focus to the business, and POAL has an obligation under the Port Companies Act to be a successful business,” he said.
“Suggestions that the shareholder and the Auckland Council should accept a lower return on an asset as large as the port, is business nonsense. We need to provide a good return to the Council to help fund essential infrastructure in Auckland. To do anything less, results in ratepayers subsidising the activities of POAL”.
Mr Swift confirmed that a benchmarking report showing a comparative analysis of returns by similar companies operating in different countries indicated that the current rate of return on equity by the Port was not satisfactory. The return on equity by other ports averaged 13.6% and the range was between 5.4% and 22.2%. “However different companies and countries have different accounting policies, structures and operating models, which makes benchmarking difficult,” Mr Swift cautioned.
“The results of the POAL Board developing a long term strategy to achieve an improved rate of return showed that a return on equity of 12% was realistic and achievable by 30 June 2016. This is the minimum return the shareholder expects,” he said.
“To achieve this return, the company undertook an in-depth review of its structure and business, of which labour productivity is but one aspect. An increase in labour productivity is equivalent to a 20% increase in the availability of berth space and defers the future need for the port to expand. Changes are being made across the organisation to implement the other strategies.”
Mr Swift said that comments made about these strategies being designed to privatise the port are incorrect. “There are no plans to privatise the port,” he said.