Airways Statement of Corporate Intent 2019

Appendix B: Core Business Economic Value Added (EVA) ($NZm)

BACKGROUND EVA provides an economic measure of performance and explicitly recognises the expected return to investors. EVA underpins our pricing framework, which is premised on achieving a fair return on the capital invested in the core business, reflected by an EVA result of zero. Key parameters and inputs into the EVA framework have been presented to our customers through the consultation process for the FY20-22 pricing round.

Plan FY20

Plan FY21

Plan FY22

EVA

X X Total capital employed Debt employed

212.4

238.1

235.4

Equity employed

137.3

143.7

150.6

349.7

381.8 386.0

X X Charge on operating capital

21.5

24.1

25.3

X X Economic value added

Cost of capital – key parameters Risk free rate – 3 year Government Stock

1.69% 1.69% 1.69% 7.00% 7.00% 7.00%

Market risk premium

Business risk factor (asset beta)

0.60 67th

0.60 67th

0.60 67th

WACC range percentile

X X Cost of capital

6.59% 6.59% 6.59% 6.59% 6.59% 6.59%

X X Return on capital (RoC)

18

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