Annex B

Performance Indicators

Financial

Profitability (Profit (EBITDA*)/Turnover)

While not a measure of efficiency and rather a blunt measure of performance that does not take into account port size or asset base, profitability may in some cases be important in assessing a trust's health. Year on year data also allows effective identification of changes in performance.

* ie Earnings before interest, tax, depreciation and amortisation.

Return on Capital Employed (RoCE)

RoCE is a widely used measure of a company's success in generating return against an asset base and it therefore indicates how effectively the ports assets are being utilised. One way of looking at RoCE is the number of pence each pound of useable asset generates. For an individual port in isolation RoCE is not a particularly useful indicator but it can be a very useful comparator. Year on year data can assist in examining longer term changes in performance.

Weighted Average Cost of Capital (WACC)

It is possible to benchmark RoCE against WACC, which is the blended cost of financing a company's operations and represents the average cost of debt and equity funding weighted by the proportion of the company's capital structure that those two components constitute.

Gearing (Total Debt/Total Assets)

This can assist a company in assessing its financing position and it is also a useful comparator across sectors, potentially indicating whether there may be in/efficient financing and investment levels ie if gearing is very different between similar companies. For trust ports low gearing may not indicate inefficiency but may simply be a function of not having to pay a dividend since in the absence of further investment cash would instead be retained within the company.

Operational

Labour productivity (EBITDA/Man hours per annum)

A measure of operational performance can be gained from labour productivity. Undertaking this broad calculation allows a comparison across all ports. Man hours per annum can be obtained by the ports from Health and Safety Reports or other records.

Profitability of Land Holdings (EBITDA/Number of Hectares)

Number of hectares relates to the land the port owns and uses, owns and rents to others, and rents off-site for its own use. This is another indicator of asset utilisation.

Channel Depth Management

Channel depths could be reported alongside strategic justification for planned dredging, deepening and widening activities. In one sense channel depths alone are not a particularly useful indication but the strategic justification will give a transparent explanation as to why a particular approach has been taken. Channel depths are easily available as should be the justification and therefore how well the port is responding to the market.

Berth Utilisation (Time Berth in Use/Time Available)

Information on berth utilisation is recorded by ports that manage berths as this is an important tool in their management. An indicator on berth utilisation would provide a measurement that could reflect various operational performance issues such as under-utilisation, capacity issues etc that a port may be experiencing. It would also raise further issues in terms of, for example, a port which is not open 24/7, but could increase opening times to accommodate capacity requirements rather than invest in a new berth.

Wider Impact

Gross Value Added/Net Value Added

(Gross Value Added = Employee costs + EBITDA/Number of employees)
(Net Value Added = Employee Costs + EBITDA - DA)/Number of Employees).

GVA and NVA can be used as measures of the value added by a company. In effect, both measures the 'retained wealth' created by a company and its employees ie wages plus the profit made from undertaking its activities. This is also a proxy measure of the local economic impact of the port, assuming there is a high level of local employment and procurement. NVA subtracts the costs of depreciation and amortisation which takes into account the costs associated with its assets. These two indicators fit well with the wider stakeholder remit that trust ports have, in that they assess the wider impacts of a port's activity. We accept that that they are also quite crude in that they do not take into account some subtleties that affect a port.