APMs, explanation, purpose, use, limitations, caveats, warning to review entire report

AstraZeneca PLC – Annual report – 31 December 2020

Industry: pharmaceutical

Financial Review (extract)

Measuring performance

The following measures are referred to in this Financial Review when reporting on our performance in absolute terms, but more often in comparison to earlier years:

  • Reported performance: Reported performance takes into account all the factors (including those which we cannot influence, such as currency exchange rates) that have affected the results of our business, as reflected in our Group Financial Statements prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU. The Consolidated Financial Statements also comply fully with IFRSs as issued by the International Accounting Standards Board (IASB). On 31 December 2020, EU-adopted IFRS was brought into UK law and became UK-adopted international accounting standards, with future changes to IFRS being subject to endorsement by the UK Endorsement Board.
  • Core performance: Core performance measures are adjusted to exclude certain significant items, using a set of established principles.

Use of non-GAAP performance measures

Non-GAAP performance measures: Core performance measures, EBITDA, Net debt, Ongoing Collaboration Revenue and Initial Collaboration Revenue are non-GAAP financial measures because they cannot be derived directly from the Financial Statements.

Management believes that these non-GAAP performance measures, when provided in combination with Reported results, will provide investors with helpful supplementary information to understand the financial performance and position of the Group better on a comparable basis from period to period. These non-GAAP performance measures are not a substitute for, or superior to, financial measures prepared in accordance with GAAP.

By disclosing non-GAAP performance and growth measures, in addition to our Reported financial information, we are enhancing investors’ ability to evaluate and analyse the financial performance and trends of our ongoing business and the related key business drivers. The adjustments are made to our Reported financial information in order to show non-GAAP performance measures that illustrate clearly, on a year-on-year or period-by-period basis, the impact on our performance caused by factors such as changes in revenues and expenses driven by volume, prices and cost levels relative to such prior years or periods.

As shown in the 2020 Reconciliation of Reported results to Core results table on page 86, our reconciliation of Reported financial information to Core performance measures includes a breakdown of the items for which our Reported financial information is adjusted, and a further breakdown by specific line item as such items are reflected in our Reported income statement. This illustrates the significant items that are excluded from Core performance measures and their impact on our Reported financial information, both as a whole and in respect of specific line items.

Management presents these results externally to meet investors’ requirements for transparency and clarity. Core financial measures are also used internally in the management of our business performance, in our budgeting process and when determining compensation. As a result, Core performance measures merely allow investors to differentiate between different kinds of costs and they should not be used in isolation.

Our determination of non-GAAP measures, and our presentation of them within this financial information, may differ from similarly titled non-GAAP measures of other companies.

The SET retains strategic management of the costs excluded from Reported financial information in arriving at Core financial measures, tracking their impact on Reported Operating profit and EPS, with operational management being delegated on a case-by-case basis to ensure clear accountability and consistency for each cost category.

We strongly encourage readers of the Annual Report not to rely on any single financial measure but to review our Financial Statements, including the Notes thereto, and our other publicly filed reports, carefully and in their entirety.

Non-GAAP measures: definitions