Value-based management

METRO’s strength is reflected, among other things, in its ability to continuously increase the company’s value through growth and operational efficiency as well as optimal capital deployment. In order to ensure sustained value creation, we have been using value-oriented key figures for group management for many years.

The use of performance metrics generally enables METRO to focus on the key drivers of the operating business that management can influence: value-adding growth, increases in operational earnings strength and the optimisation of capital employed. Value-adding growth is achieved through our strategy of focusing on like-for-like sales growth in the company’s existing markets, complementing the store-based business through targeted new sales channels such as delivery services and online retail as well as continuing the company’s expansion in select countries. In this context, we further strengthened our delivery business in financial year 2016/17, for example through the acquisition of Pro à Pro.

Our customers are always at the core of our thoughts and actions. For example, we are enhancing customer value for our target customer groups HoReCa, Trader and SCO by offering customised digital and operational solutions. Among other things, a customer-oriented product group management that is geared towards their specific needs with regard to assortment, price groups, packaging and marketing plays an important role in this context. In addition, we continue to implement measures to ensure operational and administrative efficiency and are forging ahead with the optimisation of capital deployment. We accomplish this by, for example, country-specific investment strategies, the needs-oriented design of our market formats and cooperation in purchasing and administrative functions.

To assess the operating business performance, the metric return on capital employed (RoCE) is used, among others RoCE measures the return on capital employed in a given period, thus enabling an assessment of the business performance of the various segments. For the purpose of comparing these segments, capital employed also includes cash rental values to account for the different ownership structures of real estate assets. We base the calculation of RoCE on EBIT before special items because it adequately reflects the units’ operational earnings strength independent of special effects. Like capital employed, EBIT is also adjusted for the financing component of rents.

RoCE = EBIT¹ / capital employed

1 EBIT before special items.

Capital employed represents interest-carrying assets. It comprises segment assets plus cash and cash equivalents less trade liabilities as well as other operational liabilities and deferred income. Hereby, we use an average capital employed that is calculated from quarterly financial statements in order to also consider developments in capital employed that occur during the relevant period.

Once the RoCE is established, it is contrasted with the segment-specific cost of capital before taxes as the latter represents a market-oriented minimum rate of interest on capital employed based on capital market models.

Another important application for value-oriented key figures at METRO is the assessment of planned and completed investments. In addition to the discounted cash flow method, we are using the key figure of Economic Value Added (EVA) and liquidity-oriented key figures such as the amortisation period for investment decisions.

As the group continued to position itself for value-adding growth, so-called Value Creation Plans were implemented as a key instrument in financial year 2015/16. These plans provide the management with binding long-term benchmarks regarding strategy, key value drivers and the derived financial targets at the level of individual countries and also serve as a reference point in the context of the remuneration system. In the past financial year, the units of the various countries continued to push ahead with the implementation of the adopted Value Creation Plans.