apr-11.pdf (2.07 MB) - Crown Ownership Monitoring Unit

Figure 12 – TSR – return composition, 2006/07 to 2010/11 6%■ Dividend Return ■ Value Gain ReturnSource: COMUWe do not believe that the TSR calculations at the portfolio level are particularlyrobust in the early years. This is largely owing to companies in the portfolio adoptingcommercial valuation methodologies at different times.However, in recent years, greater focus has been placed on companies producingcredible commercial valuations and we think TSR is becoming a more robust measureof performance. A more detailed discussion on commercial valuations is included inthe special topic on page 26.Economic profitAnother way of considering the performance of commercial entities is to look ateconomic profit (EP) over a period of time. The special topic on EP (page 31) indicatesthat the commercial priority portfolio has generated positive EPs over the past fiveyears, despite having dropped from 2006/07 levels, and a negative return in 2008/09.The performance messages from the EP analysis are generally consistent with ouranalysis above.It is importantthatcompaniestranslate thisperiod of highinvestmentinto strongerperformancelookingforwardConclusionThe commercial priority portfolio has been through a period of high capital investmentover the past five years. While there has been an increase in dividends and someimprovement in profitability, it is important from a ‘Crown as shareholder’ expectationsperspective that companies translate this period of high investment into strongercompany performance in the years ahead.6 As noted earlier, KiwiRail is excluded from this metric owing to the significant change in its commercialvaluation following a change in its valuation methodology.page | 25