RS Group plc – Annual report – 31 March 2023
Industry: distribution
22 Financial risk management (extract)
Capital management
The Board’s policy is to maintain a strong capital base always, 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 ROCE, which the Group defines as adjusted operating profit as a percentage of monthly average 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 2023, the Group had a £400 million sustainability-linked loan, with an accordion of up to a further £100 million, which has a maturity of October 2027 with an option for the Group to extend for up to two further one-year terms subject to individual lender approval; 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.
The Group’s debt covenants are net debt to adjusted EBITDA to be less than 3.25 times and EBITA to interest to be greater than 3 times. At the year end the Group comfortably met these covenants with net debt to adjusted EBITDA of 0.2x (2021/22: 0.1x) and EBITA to interest of 34.2x (2021/22: 44.6x).
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 UK IAS measures adjusted to exclude amortisation and impairment of intangible assets arising on acquisition of businesses, acquisition-related items, substantial reorganisation costs, substantial asset write-downs, one-off pension credits or costs, significant tax rate changes and, where relevant, associated tax effects. Adjusted profit before tax is a performance measure for the annual bonus and the all employee Long Term Incentive Plan (LTIP) called the RS YAY! Award. Adjusted earnings per share is a performance measure for the LTIP and Journey to Greatness (J2G) LTIP Award. Adjusted operating profit conversion, adjusted operating profit margin and adjusted earnings per share are financial key performance indicators (KPIs) which are used to measure the Group’s progress in delivering the successful implementation of its strategy and monitor and drive its performance.
1. Operating costs are distribution and marketing expenses plus administrative expenses.
2. Operating profit margin is operating profit expressed as a percentage of revenue.
3. Operating profit conversion is operating profit expressed as a percentage of gross profit.
Acquisition-related items comprise transaction costs directly attributable to the acquisition of businesses and any deferred consideration payments relating to the retention of former owners of acquired businesses.
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 (one of the Group’s debt covenants) is the ratio of net debt to EBITDA excluding impairment of intangible assets arising on acquisition of businesses, acquisition-related items, substantial reorganisation costs, substantial asset write-downs and one-off pension credits or costs.
Earnings before interest, tax and amortisation (EBITA) and EBITA to interest EBITA is adjusted EBITDA after depreciation. EBITA to interest (one of the Group’s debt covenants) is the ratio of EBITA to finance costs including capitalised interest less finance income.
Return on capital employed (ROCE)
ROCE is adjusted operating profit expressed as a percentage of monthly average net assets excluding net debt and retirement benefit obligations and is an underpin for the LTIP and J2G LTIP Award and a financial KPI.
Accounts examples 