Return on Capital Employed Report 2022

We are delighted to present the twelfth Armillary Private Capital Return on Capital Employed (“ROCE”) report. This year the total number of entities in our data set of NZX, Unlisted Securities Exchange (“USX”), Private and selected Crown-owned companies is 372. With some differences in the companies included in each category this year’s results are not always directly comparable with prior reports.

The ROCE methodology we use in this report was developed by Du Pont Corporation and is therefore not proprietary to us, although we are proponents. As it is simple to apply, anyone who understands the methodology can use it. We regularly use this methodology as a tool in our client engagements and our financial training curriculum.

A benefit of the ROCE methodology is that the performance of an entity can be broken down into its components of Profitability and Activity, for deeper analysis. Profitability, as measured by EBIT margin, provides an indication of operational efficiency; Activity, as measured by asset turnover, provides an indication of balance-sheet efficiency. Combined the two ratios give overall ROCE.

Again, this year’s report includes an overview of the major sectors in the economy to demonstrate the effect that differences in business models have on Profitability, Activity, and overall ROCE performance.

Analysis has primarily been conducted on financial information sourced from the S&P Capital IQ financial database. EBIT has been calculated on a normalised basis, adjusting for non-recurring items and non-trading items including (but not limited to) gains/losses on asset sales, revaluations, and unrealised gains.

We continue to advocate the ROCE methodology in our work with businesses as a simple to use and easily understood tool for measuring business performance, identifying improvement strategies, creating incentive remuneration programs, and for testing budgets and forecasts, especially those applied in valuations. We also see the data and results in this report as providing useful benchmarks for business performance in the New Zealand market.

We trust that the insights contained in this report provide value to investors, business owners and managers alike.

ROCE