The Group reports certain financial measures that are not required under International Financial Reporting Standards (IFRS) which represent the generally accepted accounting principles (GAAP) under which the Group reports. The Group believes that the presentation of these non-GAAP measures provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides investors with a more meaningful understanding of the underlying financial and operating performance of the Group and its divisions.
These non-GAAP financial measures are primarily used for the following purposes:
- to evaluate the historical and planned underlying results of our operations;
- to set director and management remuneration; and
- to discuss and explain the Group’s performance with the investment analyst community.
None of the non-GAAP measures should be considered as an alternative to financial measures derived in accordance with GAAP. The non-GAAP measures can have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP.
The principal non-GAAP measures used by the Group are as follows:
Operating profit before net exceptionals and amortisation of intangible assets (EBIT)
This comprises operating profit as reported in the Group Income Statement before net operating exceptional items and amortisation of intangible assets.
EBITDA represents earnings before net interest, tax, depreciation, amortisation of intangible assets, share of associates’ profit after tax and net exceptional items.
The Group defines net interest as the net total of finance costs and finance income before interest related exceptional items as presented in the Group Income Statement.
Adjusted earnings per share
The Group defines adjusted earnings per share as basic earnings per share adjusted for the impact of net exceptional items and amortisation of intangible assets.
Net capital expenditure
Net capital expenditure comprises purchases of property, plant and equipment, proceeds from the disposal of property, plant and equipment and government grants received in relation to property, plant and equipment.
Free cash flow
Free cash flow is defined by the Group as cash generated from operations before exceptional items as reported in the Group Cash Flow Statement after net capital expenditure, interest paid, income tax paid and interest received.
Cash conversion ratio
The cash conversion ratio expresses free cash flow before interest paid, income tax paid and interest received as a percentage of EBIT.
Net debt represents the net total of current and non-current borrowings, current and non-current derivative financial instruments and cash and cash equivalents as presented in the Group Balance Sheet.
Return on capital employed (‘ROCE’)
ROCE represents operating profit before net operating exceptional items and amortisation of intangible assets expressed as a percentage of the average capital employed. Capital employed represents total equity adjusted for net debt, goodwill and intangibles previously written off, deferred and contingent consideration and investments in associates.
Committed acquisition expenditure
The Group defines committed acquisition expenditure as the total of the acquisition of subsidiaries as presented in the Group Cash Flow Statement and future deferred and contingent consideration amounts for acquisitions committed to during the year.
Net working capital
Net working capital represents the net total of inventories, trade and other receivables (excluding interest receivable), and trade and other payables (excluding interest payable, amounts due in respect of property, plant and equipment and current government grants).
Net working capital days
Working capital days is defined by the Group as the number of day’s sales represented by the closing net working capital.