The Annual Report includes both GAAP measures and Alternative Performance Measures (APMs). The latter of which are considered by management to better allow the readers of the accounts to understand the underlying performance of the Group. A number of these APMs are used by management to measure the KPIs of the business (see Key Performance Indicators) and are therefore aligned to the Group's strategic aims. They are also used at Board level to monitor financial performance throughout the year.

The APMs used in the Annual Report (including the basis of calculation, assumptions, use and relevance) are detailed in note 2 (underlying profit before tax, EBITDA and underlying EBITDA) and below.

  • Constant Exchange Rate (CER) figures

These are used predominantly in the Business review and give the readers a better understanding of the performance of the Group, regions and entities from a trading perspective. They have been calculated by translating the 2017 income statement results (of subsidiaries whose presentational currency is not sterling) using FY2016 average annual exchange rates to provide a comparison which removes the foreign currency translational impact. The impact of translational gains and losses made on non-functional currency net assets held around the Group have not been removed.

  • Underlying diluted EPS

A key measure for the Group as it is one of the measures used to set the Directors' variable remuneration, as disclosed in the Directors' remuneration report. The calculation has been disclosed in note 25.

  • Return on capital employed (ROCE)

Return on capital employed is a key metric used by investors to understand how efficient the Group is with its capital employed. The calculation is detailed in the Glossary. The numerator is underlying EBIT which has been reconciled to operating profit below. Note 2 explains why the separately disclosed items have been removed to aid understanding of the underlying performance of the Group.

Note2017
£000
2016
£000
Underlying EBIT/Underlying operating profit21,01816,793
Separately disclosed items within administrative expenses
IFRS2 share based payment charge22(1,512)(1,687)
Acquired intangible amortisation(1,273)(974)
Net acquisition costs32(264)
Profit on sale of fixed assets195
Costs on exercise of executive share options(567)
Operating profit17,86113,868
  • Normalised net debt

The calculation, assumptions, use and relevance are disclosed in the net debt section of the Business review.

  • Underlying cash conversion as a percentage of underlying EBITDA

This is another key metric used by investors to understand how effective the Group were at converting profit into cash. Since the underlying cash conversion is compared to underlying EBITDA, which has removed the impact of IFRS2 share based payment charges (see note 2), the impact of these have also been removed from the underlying cash conversion. The adjustments made to arrive at underlying cash conversion from cash generated from operations are detailed below. To reconcile operating profit to underlying EBITDA, see note 2.

2017
£000
2016
£000
Underlying cash conversion22,24915,873
Costs on exercise of executive share options(567)
Movement in trade payables due to exercise of share options1,205
Cash generated from operations22,88715,873
  • Underlying effective tax rate

This is used in the underlying diluted EPS calculation. It removes the tax impact of separately disclosed items in the year to arrive at a tax rate based on the underlying profit before tax.

One off tax adjustments have also been removed from the calculation as they are unlikely to repeat and therefore do not reflect recurring trading performance. In FY2017 the one-off adjustment relates to a deferred tax asset not recognised for losses in the year due to significant tax deductions available from the exercise of executive share options. In FY2016 the adjustment related to the recognition of deferred tax assets in TR Fastenings Inc on the grounds that recovery was considered probable.

2017
Profit impact
£000
Tax impact
£000
ETR
%
2016
Profit impact
£000
Tax impact
£000
ETR
%
Profit before tax17,340(4,642)26.8%13,077(2,852)21.8%
Separately disclosed items3,157(192)6.1%2,925(1,132)38.7%
Underlying profit before tax20,497(4,834)23.6%16,002(3,984)24.9%