IAS 1 paras 134, 135, capital management disclosures including covenants and reconciliations

Electrocomponents plc – Annual report – 31 March 2020

Industry: distribution

23 Financial risk management (extract)

Capital management

The Board’s policy is to always maintain a strong capital base, with an appropriate debt to equity mix, to ensure investor, creditor and market confidence and to support the future development of the business. The Board monitors the return on capital employed (ROCE), which the Group defines as adjusted operating profit as a percentage of net assets excluding net debt and retirement benefit obligations, and the level of dividends to ordinary shareholders.

The Group seeks to raise debt from a variety of sources and with a variety of maturities. As at 31 March 2020, the Group had a revolving credit facility of £85 million, US$75 million and €50 million with a maturity of August 2022 and private placement loan notes of €18 million with a maturity of October 2026, US$80 million with a maturity of December 2026, €13 million with a maturity of October 2029, US$35 million with a maturity of March 2030 and US$50 million with a maturity of October 2031. Since the year end the Group has secured eligibility to participate in the Bank of England Covid Corporate Financing Facility (CCFF) and are negotiating an additional £100 million bank facility for a 12-month term plus six months. The Group’s debt covenants are EBITA to interest to be greater than 3 times and net debt to adjusted EBITDA to be less than 3.25 times. At the year end the Group comfortably met these covenants with net debt to adjusted EBITDA of 0.7x (2019: 0.5x) and EBITA to interest of 33.6x (2019: 37.7x).

There were no significant changes in the Group’s approach to capital management during the year.

3 Alternative Performance Measures (APMs) (extracts)

Adjusted profit measures

These are the equivalent IFRS measures adjusted to exclude amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, substantial asset write-downs, one-off pension credits or costs, significant tax rate changes and, where relevant, associated tax effects.

1. Operating profit margin is operating profit expressed as a percentage of revenue.

2. Operating profit conversion is operating profit expressed as a percentage of gross profit.

Earnings before interest, tax, depreciation and amortisation (EBITDA) and net debt to adjusted EBITDA

EBITDA is operating profit excluding depreciation and amortisation. Net debt to adjusted EBITDA is the ratio of net debt to EBITDA excluding one-off pension costs, substantial asset write-downs and substantial reorganisation costs.

The adoption of IFRS 16 resulted in net debt to adjusted EBITDA increasing by 0.2x (Note 1).

Earnings before interest, tax and amortisation (EBITA) and EBITA to interest

EBITA is adjusted EBITDA after depreciation. EBITA to interest is the ratio of EBITA to net finance costs including capitalised interest.

The adoption of IFRS 16 resulted in EBITA to interest decreasing by 5.9x.

Return on capital employed (ROCE)

ROCE is adjusted operating profit expressed as a percentage of net assets excluding net debt and retirement benefit obligations.

The adoption of IFRS 16 resulted in ROCE decreasing by 1.2 percentage points (Note 1).