BOC Report and accounts 2005 - Alle jaarverslagen

Operating review 41
Exceptional items include those items classified as both operating and non-operating under UK GAAP.
The review of results excluding exceptional items is part of the normal internal management reporting
process.The growth in operating profit excluding exceptional items is also one of the measures used in the variable
element of the senior management compensation scheme.
Further information regarding the exceptional items is given in the financial review on page 55.An analysis of
all operating and non-operating exceptional items is given in note 2 b) to the financial statements on page 97.
In this review, the adjustments to eliminate exceptional items have been made to operating profit (both Group
and by segment), profit before tax and earnings per share. Exceptional items are commented on in the Group
results section as well as in the individual business segments to which they relate.A reconciliation of these adjusted
items to the equivalent UK GAAP measure is shown in the profit and loss account on page 86.When any results or
measures used in this review have been adjusted to exclude exceptional items, they are referred to as ‘adjusted’.
Within the individual business segments of the operating review, operating exceptional items are commented
on separately. Comments on other aspects of financial trends and performance are based on adjusted operating
profit.This provides more meaningful comment on underlying business performance.
A reconciliation of adjusted operating profit to operating profit is given in the table below.
2005 2004 2003
Adjusted Operating Adjusted Operating Adjusted Operating
operating exceptional Operating operating exceptional Operating operating exceptional Operating
profit items profit profit items profit profit items profit
£ million £ million £ million £ million £ million £ million £ million £ million £ million
Process Gas Solutions 207.2 – 207.2 190.3 (0.8) 189.5 184.0 (6.9) 177.1
Industrial and
Special Products 289.4 – 289.4 269.5 (15.6) 253.9 242.7 (4.5) 238.2
BOC Edwards 38.1 (20.7) 17.4 47.8 (1.0) 46.8 18.5 (10.6) 7.9
Afrox hospitals 37.2 – 37.2 59.8 – 59.8 46.1 – 46.1
Gist 24.5 – 24.5 25.1 – 25.1 29.2 – 29.2
Corporate (32.2) – (32.2) (15.6) – (15.6) (14.9) (45.0) (59.9)
Total Group 564.2 (20.7) 543.5 576.9 (17.4) 559.5 505.6 (67.0) 438.6
Other non GAAP measures
This review also presents return on capital employed (ROCE) and adjusted return on capital employed.Adjusted
return on capital employed removes exceptional items from the measure of operating profit used in the calculation.
Adjusted return on capital employed is used by management for reasons similar to those described above.
A reconciliation of these two measures is shown below.
2005 2004 2003
Average Average Average
Operating capital Operating capital Operating capital
profit employed ROCE profit employed ROCE profit employed ROCE
£ million £ million % £ million £ million % £ million £ million %
Adjusted ROCE 564.2 3,478.3 16.2 576.9 3,752.4 15.4 505.6 4,010.5 12.6
Operating
exceptional items (20.7) – (17.4) – (67.0) –
ROCE 543.5 3,478.3 15.6 559.5 3,752.4 14.9 438.6 4,010.5 10.9
1. ROCE is operating profit as a percentage of the average capital employed excluding net pension liabilities.
The Group commentary in this review also comments on free cash flow. Free cash flow is a measure often
referred to by BOC management and other users of financial information to highlight the cash flow available from
underlying ongoing business operations before acquisition and disposal activity.Whether or not this remains
positive over time is an indicator that dividends to shareholders are being paid out of cash generated by existing
Group businesses.As such it is a useful additional measure of financial performance.
A reconciliation of this measure to the nearest equivalent UK GAAP measure, net cash flow, is shown below.
2005 2004 2003
£ million £ million £ million
Free cash flow 18.6 257.9 141.8
Exceptional cash items (16.9) (11.9) (28.3)
Acquisitions and disposals 1 59.2 92.5 (118.3)
Other items within capital expenditure and financial investment:
Purchases of intangible fixed assets (0.6) (0.2) (1.2)
Net sales/(purchases) of current asset investments 4.7 (0.9) 16.6
Purchases of trade and other investments (3.4) (3.8) (3.3)
Sales of trade and other investments 30.0 5.6 5.3
Net cash inflow before use of liquid resources and financing 91.6 339.2 12.6
1. Acquisitions and disposals in 2005 is shown after an adjustment of £69.6 million relating to the disposal of the Afrox hospitals business.
This comprises £54.2 million for the minority interest element of the special dividend paid to the shareholders of African Oxygen Limited
following receipt of the proceeds of disposal and £15.4 million for the tax paid on the special dividend.