Bodycote uses various APMs, in addition to those reported under IFRS, as management believe these measures enable users of the financial statements to assess the underlying trading performance of the business. The APMs used include headline operating profit, return on sales, headline profit before taxation, EBITDA, headline EBITDA, headline tax rate, headline earnings per share (EPS), headline operating cash flow, free cash flow, headline operating cash conversion, net cash and return on capital employed (ROCE). These measures reflect the underlying trading performance of the business as they exclude certain non-operational items, acquisition costs and amortisation of acquired intangible assets. The Group also uses revenue growth percentages adjusted for the impact of foreign exchange movements, where appropriate, also to better represent the underlying performance of the business. The measures described above are also used in the targeting process for executive and management annual bonuses (headline operating profit, operating cash-flow) and share schemes (headline operating profit, headline operating cash flow, headline EPS).
The constant exchange rate comparison uses the current year reported segmental information, stated in the relevant functional currency, and translates the results into its presentational currency using the prior year's monthly exchange rates. Expansionary capital expenditure is defined as capital expenditure invested to grow the Group's business.
APMs are defined and reconciled to the IFRS statutory measure as follows:
Headline operating profit
| 2018
£m | 2017
£m |
| Statutory operating profit | 134.1 | 119.4 |
| Add back: | | |
| Amortisation of acquired intangibles | 3.7 | 4.5 |
| Acquisition costs | 0.5 | – |
| Headline operating profit | 138.3 | 123.9 |
Return on sales
| 2018
£m | 2017
£m |
| Headline operating profit | 138.3 | 123.9 |
| Revenue | 728.6 | 690.2 |
| Return on sales | 19.0% | 18.0% |
Headline profit before taxation
| 2018
£m | 2017
£m |
| Profit before taxation | 132.2 | 117.0 |
| Add back: | | |
| Amortisation of acquired intangibles | 3.7 | 4.5 |
| Acquisition costs | 0.5 | – |
| Headline profit before taxation | 136.4 | 121.5 |
EBITDA and Headline EBITDA (Earnings Before Interest, Taxation, Depreciation, and Amortisation)
| 2018
£m | 2017
£m |
| Operating profit | 134.1 | 119.4 |
| Depreciation and amortisation | 65.7 | 64.3 |
| Impairment of fixed assets | 1.8 | 0.4 |
| Profit on disposal of property, plant and equipment | (1.7) | (0.7) |
| Loss on disposal of businesses | 0.6 | – |
| Share-based payments | 3.8 | 7.8 |
| EBITDA | 204.3 | 191.2 |
| Acquisition costs | 0.5 | – |
| EBITDA and Headline EBITDA | 204.3 | 191.2 |
Headline tax rate
| 2018
£m | 2017
£m |
| Headline tax charge | 29.5 | 27.8 |
| Headline profit before taxation | 136.4 | 121.5 |
| Headline tax rate | 21.7% | 22.9% |
Headline tax charge excludes tax on amortisation of acquired intangibles and US tax reform impact in 2017: £0.9m (2017: £8.1m).
Headline earnings per share A detailed reconciliation is provided in note 8.
Headline operating cash flow
| 2018
£m | 2017
£m |
| Cash generated by operations | 197.8 | 182.8 |
| Less: | | |
| Net capital expenditure | (74.0) | (74.8) |
| Add: | | |
| Restructuring cash flows | 4.4 | 3.7 |
| Acquisition costs | 0.5 | – |
| Headline operating cash flow | 128.7 | 111.7 |
Free cash flow
| 2018
£m | 2017
£m |
| Cash generated by operations | 197.8 | 182.8 |
| Less: | | |
| Net capital expenditure | (74.0) | (74.8) |
| Financing costs | (1.9) | (2.1) |
| Taxation | (24.5) | (22.9) |
| Free cash flow | 97.4 | 83.0 |
Headline operating cash conversion
| 2018
£m | 2017
£m |
| Headline operating cashflow | 128.7 | 111.7 |
| Headline operating profit | 138.3 | 123.9 |
| Headline operating cash conversion | 93.0% | 90.2% |
Net cash
| 2018
£m | 2017
£m |
| Cash and bank balances | 38.5 | 41.0 |
| Bank overdrafts (included in borrowings) | (2.3) | (1.4) |
| Net cash | 36.2 | 39.6 |
Return on capital employed
| 2018
£m | 2017
£m |
| Headline operating profit | 138.3 | 123.9 |
| Average capital employed* | 673.4 | 642.5 |
| Return on capital employed | 20.5% | 19.3% |
* Capital employed is defined as net assets adjusted for net cash/(debt)
Revenue and headline operating profit at constant exchange rates
Reconciled to revenue and headline operating profit in the table below:
| Year to 31 December 2018 |
ADE
£m | AGI
£m | Central
cost and
eliminations
£m | Consolidated
£m |
| Revenue | 288.0 | 440.6 | – | 728.6 |
| Constant exchange rates adjustment | 4.0 | 3.7 | – | 7.7 |
| Revenue at constant exchange rates | 292.0 | 444.3 | – | 736.3 |
| Headline operating profit | 68.7 | 82.4 | (12.8) | 138.3 |
| Constant exchange rates adjustment | 1.0 | 0.4 | – | 1.4 |
| Headline operating profit at constant exchange rates | 69.7 | 82.8 | (12.8) | 139.7 |