Bodycote uses various APMs, in addition to those reported under IFRS, as management believe these measures enable users of the financial statements to assess the underlying trading performance of the business. The APMs used include headline operating profit, headline profit before taxation, EBITDA, headline EBITDA, headline earnings per share (EPS), headline operating cash flow, free cash flow, net cash and return on capital employed (ROCE). These measures reflect the underlying performance of the business as they exclude the impact of amortisation of acquired intangible assets and exceptional items. The Group also uses revenue growth percentages adjusted for the impact of foreign exchange movements, where appropriate, also to better represent the underlying performance of the business. The measures described above are also used in the targeting process for executive and management annual bonuses (headline operating profit, operating cash-flow) and share schemes (headline operating profit, headline operating cash flow, ROCE, headline EPS).

The constant exchange rate comparison uses the current year reported segmental information, stated in the relevant functional currency, and translates the results into its presentational currency using the prior year's monthly exchange rates.

APMs are defined and reconciled to the IFRS statutory measure as follows:

Headline operating profit

	2017 £m	2016 £m
Statutory operating profit	119.4	94.5
Add back:
Amortisation of acquired intangibles	4.5	4.5
Acquisition costs	–	0.6
Headline operating profit	123.9	99.6

Headline profit before taxation

	2017 £m	2016 £m
Profit before taxation	117.0	91.9
Add back:
Amortisation of acquired intangibles	4.5	4.5
Acquisition costs	–	0.6
Headline profit before taxation	121.5	97.0

EBITDA and Headline EBITDA (Earnings Before Interest, Taxation, Depreciation, and Amortisation)

	2017 £m	2016 £m
Operating profit	119.4	94.5
Depreciation and amortisation	64.3	59.7
Impairment of fixed assets	0.4	5.1
Profit on disposal of property, plant and equipment	(0.7)	(4.5)
Profit on disposal of businesses	–	(0.1)
Share-based payments	7.8	0.5
EBITDA	191.2	155.2
Add back exceptional items:
Acquisition costs	–	0.6
Headline EBITDA	191.2	155.8

Headline earnings per share

A detailed reconciliation is provided in note 10.

Headline operating cash flow

	2017 £m	2016 £m
Cash generated by operations	182.8	146.3
Less:
Net capital expenditure	(74.8)	(63.1)
Add:
Restructuring cash flows	3.7	7.6
Acquisition expenses	–	0.6
Headline operating cash flow	111.7	91.4

Free cash flow

	2017 £m	2016 £m
Cash generated by operations	182.8	146.3
Less:
Net capital expenditure	(74.8)	(63.1)
Financing costs	(2.1)	(2.3)
Taxation	(22.9)	(20.4)
Free cash flow	83.0	60.5

Net cash

	2017 £m	2016 £m
Cash and bank balances	41.0	12.0
Bank overdrafts (included in borrowings)	(1.4)	(5.8)
Loans	–	(5.0)
Finance leases	–	(0.1)
Net cash	39.6	1.1

Return on capital employed

	2017 £m	2016 £m
Headline operating profit	123.9	99.6
Average capital employed1	642.5	582.3
Return on capital employed	19.3%	17.1%

1. Average capital employed is calculated as average of opening (£627.2m) and closing (£657.8m) capital employed.

Revenue and headline operating profit at constant exchange rates

Reconciled to revenue and headline operating profit in the table below.

	Year to 31 December 2017
	ADE £m	AGI £m	Costs and eliminations £m	Consolidated £m
Revenue	273.1	417.1	–	690.2
Constant exchange rates adjustment	(10.5)	(21.6)	–	(32.1)
Revenue at constant exchange rates	262.6	395.5	–	658.1
Headline operating profit	64.2	74.2	(14.5)	123.9
Constant exchange rates adjustment	(2.4)	(4.0)	0.1	(6.3)
Headline operating profit at constant exchange rates	61.8	70.2	(14.4)	117.6