2.2 Management system

METRO focuses strategically on creating additional customer value for the wholesale business. The objective is to increase the company value sustainably. This principle is also reflected in our internal management system. METRO uses the key performance figures described in the following for the planning, management and control of our business activities. Selected key performance indicators of our management system (like-for-like sales growth, and ) form the basis for the Management Board’s variable remuneration component.

The focus of the group’s operational management is on those value drivers that have a direct effect on the medium- and long-term corporate objectives and are directly related to the strategy.

The first important key performance indicators for METRO are exchange rate-adjusted sales growth (as a total figure and a like-for-like figure) and the EBITDA excluding and earnings contributions from real estate transactions. Our management system also makes use of other significant performance indicators, which are explained in the following.

Management system

Management system (organisational chart)

Key performance indicators describing the earnings position

The first of our most important key performance indicators for our operational business is the exchange rate-adjusted sales growth (respectively as a total figure and a like-for-like figure). The like-for-like sales growth represents the sales growth measured in local currency generated on a comparable selling space or in relation to a comparable panel of locations or merchandising concepts, such as online shopping and delivery. The figure only includes sales of locations with a comparable history of at least 1 year. It follows that sales generated by locations that were affected by openings, closures, significant redevelopment works or other conceptual changes in the reporting year or the comparison year are excluded from the analysis.

The second of our most important key performance indicators, in addition to sales growth adjusted for , is EBITDA excluding transformation costs and earnings contributions from real estate transactions. This key performance indicator gives transparent account of METRO’S operational performance. Irrespective of it, the development of real estate assets and the proceeds from divestments remain core components of the group’s real estate strategy.

In light of the strategic portfolio streamlining and the corresponding focus on the wholesale business, METRO is implementing the following changes: starting with financial year 2019/20, METRO is presenting this key performance indicator without accounting for transformation costs resulting from (usually) non-recurring expenses in connection with the efficiency measures. Therefore, deviating from previous reports, the following indicators are posted:

  • Adjusted EBITDA: excluding transformation costs and earnings contributions from real estate transactions
  • EBITDA: EBITDA as reported in the financial statements (including and earnings contributions from real estate transactions)

Other important key performance indicators of METRO are the profit or loss for the period and the . These key performance indicators ensure that the tax and net financial result are given consideration in addition to the operational result and thereby allow for a holistic assessment of METRO’S earnings position from the perspective of the shareholders.

  • For more information about these key performance indicators, see chapter 3 economic report −3.2 asset, financial and earnings position – earnings position.

Key performance indicators relating to the financial and asset position

The management of METRO’S financial and asset position aims at sustainably assuring liquidity and arranging cost-effective sources for the financing requirements of our subsidiaries.

  • For more information about the financial and asset position, see chapter 3 Economic report −3.2 Asset, financial and earnings position – financial and asset position.

The key performance indicators used in this area also include the investments, which are planned, reported and audited both in aggregate for the group as well as separately for the segments. Investments are defined as additions to non-current assets (excluding financial instruments and deferred tax assets).

Another focal point in the area of the financial and asset position are regular analyses of the , which are carried out for the purpose of managing the operational business and capital deployment. Developments in net working capital over time result from changes in stock inventories, trade receivables and trade liabilities. Receivables due from suppliers are recognised in the items other miscellaneous financial assets and non-financial assets.

The and the cash flow before financing activities are also used as key performance indicators to manage METRO’s liquidity and capital structure. The net debt results from the balance of financial liabilities (including liabilities from leases), cash or cash equivalents and short-term financial investments.

METRO also analyses the conversion to measure the group’s success in transforming the generated income into cash inflows. The results from the ratio between the simplified free cash flow and the adjusted EBITDA after leasing-payments. The simplified free cash flow is calculated as adjusted EBITDA less leasing-payments and cash investments (excluding mergers and acquisitions) +/- changes in net working capital.

Value-oriented key performance indicators

The key performance indicator Return on Capital Employed (RoCE) is still used to assess the operational business. This key figure measures the Return on Capital Employed (RoCE = / average capital employed) in a certain period under review and allows for an assessment of the performance of the group’s individual segments.

The resulting is benchmarked against the respective segment-specific cost of capital before taxes, which represents a minimum yield on the employed capital at market rates and is based on capital market models.

METRO also frequently uses value-oriented key performance indicators to assess both prospective and past investments. Accordingly, METRO uses the discounted cash flow method, the key figure economic value added () and other liquidity-oriented key performance indicators such as the amortisation period to form its investment-related decisions.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)
Profit or loss before interest result, income taxes, depreciation/amortisation/impairment losses/reversals of impairment losses on property, plant and equipment, intangible assets and investment properties. This key figure serves the purpose of comparing companies with accounting systems that follow different accounting rules.
Glossary
Return on Capital Employed (RoCE)
A key figure that indicates the rate at which the employed capital (less liquid funds and short-term borrowing) is bearing interest at METRO.
Glossary
Transformation costs
Non-recurring expenses related to the focus on the wholesale business and the restructuring measures resulting from this realignment are presented separately in the financial reporting as transformation costs.
Glossary
Currency effects
Currency effects result from situations where the same amount of currency units is translated into another currency at differing exchange rates.
Glossary
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)
Profit or loss before interest result, income taxes, depreciation/amortisation/impairment losses/reversals of impairment losses on property, plant and equipment, intangible assets and investment properties. This key figure serves the purpose of comparing companies with accounting systems that follow different accounting rules.
Glossary
Transformation costs
Non-recurring expenses related to the focus on the wholesale business and the restructuring measures resulting from this realignment are presented separately in the financial reporting as transformation costs.
Glossary
Earnings per share (basic/diluted)
The earnings per share (basic) are calculated by dividing the profit or loss attributable to the shareholders of METRO AG by the weighted average of shares in circulation. The earnings per share (diluted) give additional consideration to the effect of so-called potential shares, such as those issued in the context of stock options.
Glossary
Net working capital
The net working capital includes inventories, trade receivables and receivables due from suppliers included in the item other financial and non-financial assets. Trade liabilities are deducted from the total amount of these items.
Glossary
Net debt
The net debt results from the balance of the financial liabilities (including from leases), cash and cash equivalents less financial investments. Financial investments include short-term bank deposits and short-term liquid debt instruments.
Glossary
Free cash flow
Adjusted EBITDA − leasing-payments − cash investments (excluding mergers and acquisitions) +/− changes in net working capital.
Glossary
Free cash flow conversion
(Adjusted EBITDA − leasing-payments − cash investments (excluding mergers and acquisitions) +/− changes in net working capital) / (adjusted EBITDA − leasing-payments).
Glossary
EBIT (Earnings Before Interest and Taxes)
Profit or loss before financial result and (income) taxes. Due to its independence from different forms of financing and tax systems, this key figure is also used for international comparison with other companies, among other things.
Glossary
Return on Capital Employed (RoCE)
A key figure that indicates the rate at which the employed capital (less liquid funds and short-term borrowing) is bearing interest at METRO.
Glossary
EVA (Economic Value Added)
Value-oriented key figure that depicts the absolute value contribution of a company created in a single period under consideration of a risk-adjusted interest rate. It is the difference between the company profit after tax and the cost of capital on the average capital employed.
Glossary