Key Performance Indicators
- In this section
The Group has identified these financial KPIs to measure progress of our strategic priorities in delivering profitability, returns and cash flow.
Following the disposal of our US business, the majority of these KPIs are shown on a continuing basis except for Adjusted EPS and Free Cash Flow which are shown as total measures. Although the measures are separate, the relationship between them is also monitored.
The Group uses Pro Forma Revenue Growth as it believes this provides a more accurate guide to underlying revenue performance.
The medium term financial ambition for Pro Forma Revenue Growth is for mid single digit organic revenue growth.
Pro Forma Revenue Growth increased by 2.6% in FY19, primarily driven by growth in food to go categories.
Pro Forma Revenue Growth+2.6%
The Group uses Adjusted Operating Profit to measure the underlying and ongoing operating performance of each business unit and of the Group as a whole.
Adjusted Operating Profit was £105.5m in FY19, compared to £104.6m in FY18, an increase of £0.9m with an improved performance in food to go categories offset by a mixed performance in other convenience categories.
The Group uses Adjusted EPS as a key measure of the overall underlying performance of the Group and returns generated for each share.
The Group has a medium-term target to achieve a high single-digit Adjusted EPS growth.
Adjusted EPS was 16.0 pence compared to 15.1 pence in FY18, an increase of 0.9 pence or 6.0%. This reflects a decrease in Adjusted Earnings offset by a reduction in the weighted number of shares.
The Group uses ROIC as a key measure to determine returns from each business unit and of the Group as a whole, and as a key measure to determine potential new investments. With the significant change in the Group’s structure following the disposal of the US business, the Group only calculates ROIC relating to continuing operations.
The medium term financial ambition for the Group is to achieve a mid-teen ROIC.
The Group’s ROIC in FY19 was 14.4% which is down 120bps on the FY18 measure. FY19 ROIC was negatively impacted by an increase in the effective tax rate and an increase to the invested capital base, in particular with the timing of the acquisition of Freshtime in September 2019.
The Group uses Free Cash Flow to measure the amount of underlying cash generation and the cash available for distribution and allocation.
Free Cash Flow was £54.9m compared to £92.4m in FY18, a decrease of £37.5m. This reflected the impact of cash flows from the US business disposed of during the period. Excluding cash flows relating to the disposed US business the result would have been an increase of £20.8m to £67.1m driven by an improved operating profit, lower working capital outflows, lower interest costs and lower exceptional cash flows.
This is a new KPI. The Group uses Free Cash Flow Conversion as a measure of how efficiently profits from the overall underlying performance of the Group are transformed to cash available for distribution and allocation.
The Group has a medium term target to achieve a conversion rate of 50%.
The Free Cash Flow Conversion was 36.3% in FY19, down 880bps on FY18. This was driven by the impact of cash flows relating to the disposed US business in FY19. Excluding cash flows relating to the disposed US business the Free Cash Flow Conversion would have increased to 47.3% from 33.1% in FY18.
The remuneration of Executive Directors is aligned closely with our financial KPIs through the Company’s Performance Share Plan (‘PSP’) and Annual Bonus Plan (‘ABP’). The performance element of the PSPs is measured on two fundamental KPIs, ROIC and Adjusted EPS, as well as Total Shareholder Return. The financial performance element of the ABP is also measured on ROIC and Adjusted EPS, however, for awards granted from FY20 onwards, they will be replaced with Adjusted Operating Profit and Free Cash Flow. Therefore, from FY20, four out of the six financial KPIs will be used to monitor the performance payouts. The performance against all of the financial and non-financial KPIs is taken into account when considering the personal and strategic element of the ABP. Further information can be found in our Report on Directors’ Remuneration.