Key performance indicators

Choice of key performance indicators

The key performance indicators, set out on the following pages are judged by the Board to be those performance measures that are most useful in measuring the delivery of the Group’s strategy and the effective management of the business. They measure the increase in sales from the current store base, net change in new store space, total sales and operating profit growth, efficiency of the Group in its use of capital to generate operating profit and movement in net debt. The Board believes it is important to have a balance of key performance indicators which measure both operating and capital aspects of performance.

Total sales growth and operating profit growth are calculated using constant exchange rates to reflect the performance of the business rather than movements in the US dollar to pound sterling exchange rate. See Impact of constant exchange rates table for reconciliation to IFRS numbers. Similarly, the movement in net debt excludes exchange adjustments.

Performance targets

As the Board has as its prime objective the sustainable enhancement of business performance and shareholder value, it believes it is important to consider the Group’s achievements in the context of the economic cycle, not just on an annual basis. Therefore the targets for five of the key performance indicators (like for like sales growth, net new store space growth, total sales growth, operating profit growth and ROCE) are set over the economic cycle. This longer term horizon is also appropriate as the Group uses a five year time horizon when making store investment decisions.

Trading conditions in 2007/08 were challenging, particularly in the fourth quarter, and as a result four of the key performance targets were not achieved. However as the targets for five of the key performance indicators are set over the economic cycle it was judged inappropriate to alter the targets to reflect shorter term economic conditions. In addition, the other key performance indicator (movement in net debt) is greatly influenced by the economic environment and is set on an annual basis as part of the budgeting process. Therefore while a challenging trading environment continues it is anticipated that the annual performance will be below that targeted over a complete economic cycle.

The management structure of the Group consists of a small corporate function and significant delegation to the US and UK divisional executive committees that are responsible for matters such as retail operations, merchandising, marketing, real estate and human resource management. The Board measures the divisional performance using the same key performance indicators as for the Group.

Group targets largely reflect the goals and market position of each division rather than being driven by corporate-wide priorities. For example the performance target for new store space reflects the individual targets for the US and UK divisions.

Performance record

A five year record for each key performance indicator is given as the performance targets are set over an economic cycle and to provide a context in which to evaluate the most recent results. Whilst it is recognised that five years is unlikely to represent a full economic cycle, that period of time normally reflects a variety of macro-economic conditions.

Other performance data

While performance data is collected by management for many purposes, including training, customer service, employment, environmental monitoring, and supply chain performance, none were selected as a key performance indicator as they are reflected in the overall operating results. These and other statistical indicators are widely used in this document, in the management of the business, and in the performance appraisal of individuals.

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