ROCE measures the efficiency of the Group in using capital to generate operating profit. Variation in operating profit and assets employed are the drivers of ROCE.
As the Group operates mainly leasehold stores, inventories, US customer receivables and shop fixtures are the largest elements in the Group’s capital employed.
In the US, ROCE is adversely impacted by new store space, which in the first year of trading requires investment in inventory and receivables but normally makes only a small contribution to operating profit. In the UK, the strategy to improve store productivity should increase ROCE as little additional inventory is required.
Target: A Group ROCE of over 20% assuming the current target for new store space growth over the economic cycle. While trading conditions continue to be challenging, the five year average ROCE is anticipated to decline.
Definition: Annual Group operating profit divided by the average monthly Group capital employed for that year, expressed as a percentage.
Performance: The five year average ROCE of 22.8% was above target. While ROCE at 16.8% in 2007/08 was below the five year average, primarily due to the operating profit performance, it remained comfortably above the Group's cost of capital.