Ann: Appendix 4E and Annual Report, page-5

I'm in full agreement @madamswer.

In a year in which R&D (capitalised + expensed) went up by nearly 30% (and that R&D now nearly equivalent to a whopping 14% of EBITAR&D [1] ), the business still managed to increase underlying "cash" EBIT [2] by a fraction over 10%. R&D now  represents nearly 3% of sales, up from 2.5% in FY17 (2.7% in FY16).

What's not to like?! (questions of valuation aside).

Here's the thing, if the business had simply increased its R&D in line with sales, it would have sported an annual increase in underlying "cash" EBIT of 13.4% (according to my numbers).

So again, what's not to like?!

My only negative, which we have discussed before, is that working capital and PPE is continuing to weigh on profitability, no doubt largely due to the demands of the export opportunity. Nevertheless, I am cautiously supportive of management here, as this is clearly a worthy opportunity (though not the slam-dunk some would seem to think). In any case, the business is still demonstrating very healthy returns on its capital, as demonstrated below:

EBIT to (PPE+WC) : >26%​

EBIT to (equity+ debt-cash) : >25%​

EBIT to equity: ~25%​

[1-T] x EBIT to (equity+debt-cash): >19%​

[1-T] x ("cash" EBIT) to ("adjusted equity"+debt-cash): >19%  [3]​

[1]: Earnings before interest, tax, amortisation and R&D (but after depreciation).
[2]: "cash EBIT" is the EBIT that would result if ALL R&D was expensed (and thus development amortisation was added back).
[3]: "adjusted equity" is the book value after subtracting all development intangibles (as would be the case if all R&D was expensed).