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Return on Capital Employed
Review of the NZ Listed Sector

May 2012

Return on Capital Employed
1. Opening Comment 2. Executive Summary 3. Return on Capital Employed Explained 4. Discussion of Results 5. Background on Armillary Private Capital 6. Sources of Data Appendix 1 – Detailed Results 2 3 5 12 23 23 24


The information contained in this report has been prepared by Armillary Private Capital ('Armillary'). While the intention is to provide accurate information based on historical performance and market information, Armillary accepts no liability for any errors or inaccuracies in this report. The reader is advised to perform their own research to confirm the accuracy of the information contained in this report before relying on it for any investment decision making. This report has been prepared as a 'class service' as defined by the Financial Advisers Act and is general in nature.

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Return on Capital Employed
1 Opening Comment


Dear Reader We would personally like to thank you for taking the time to read this report. We, at Armillary Private Capital, trust it provides some insights into the performance of listed NZ companies and make you think about how you can apply the methodology used in your own business. The methodology we have used in this report was developed by Du Pont Corporation and therefore is not proprietary to us. 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 in our financial training curriculum. Useable benchmarks to compare businesses are difficult to find in NZ as there is no central database of information available about business performance in general. Accordingly we hope that this report can be used to assist with benchmarking and performance expectations. We are certain that some of the insights from this report will make you pause and think. We see this report and analysis as an introduction to Return on Capital Employed (ROCE) over the NZ listed market and look forward to being able to extend the depth of the analysis in future years. We believe that by using the analysis and the insights provided by it, businesses can focus upon value creation. We would like to thank David Hill, our summer intern for his efforts in compiling this information. Yours sincerely

Armillary Private Capital David Wallace Managing Director

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Return on Capital Employed
2 Executive Summary


Every business regardless of its’ size or function needs to measure its performance and once measured, benchmark itself against its peers in the market. This, however, can be difficult as it’s hard to find a tool that not only allows for both inter-company and intracompany comparisons that can also be used year-in, year-out as a consistent basis for performance measurement. Return on Capital Employed (ROCE) is one such tool that can be used for such comparisons as it is a consistent measure of performance from year to year. ROCE is a measure of business efficiency and is a function of profitability and activity. Profitability is a measure of how much a business is earning before interest on debt and tax (Earnings before interest and tax or EBIT). Activity measures how much the business has invested in operating assets to generate that level of earnings. This report presents an explanation of ROCE and an analysis of ROCE for Issuers with primary listings on the NZX, NZAX and Unlisted for 2009, 2010 and 2011. The data has been compiled by Armillary Private Capital. It has a number of uses as a screen for investors and a benchmark for unlisted companies. The table below presents the top 10 Issuers by their 2011 ROCE performance. Interestingly, the list is dominated by retailers and services businesses which in general have high levels of activity (revenue/assets).

Top 10 - 2011 Performance Isser Fronde Hallenstein Briscoe Opus New Image...
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