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 (sales growth, EBITDA and Return on Capital Employed) form the basis for the Management Board’s variable remuneration component.
The focus of the group’s operational management is on the value drivers that have a direct impact on the company’s medium- and long-term targets and are directly related to the strategy.
The first important key performance indicators for METRO are the exchange rate-adjusted sales growth and the EBITDA excluding earnings contributions from real estate transactions and transformation costs. Our management system also makes use of other significant performance indicators, which are explained in the following.
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 total sales growth. In financial year 2020/21, the development of like-for-like sales growth was used as the most important performance indicator in addition to total sales growth. However, since the expansion of the store-based business via new locations has become less important in recent years, the development of like-for-like sales and total sales have recently converged strongly. From financial year 2021/22 onwards, the focus will increasingly be on total sales and the variable remuneration of the Management Board will be switched from like-for-like sales growth to total sales growth adjusted for currency effects and portfolio changes. Regarding total sales growth adjusted for exchange rate and portfolio changes, the focus is on the control function of the portfolio. The key figure reflects a change in sales adjusted for significant divestments. Significant acquisitions within the financial year are only included in the key figure in the following year.
The second of our most important key performance indicators is EBITDA excluding earnings contributions from real estate transactions and transformation costs, derived from non-recurring expenses related to the concentration on the wholesale business and the associated restructuring measures as well as the closure of national subsidiaries. In light of the strategic portfolio streamlining and the associated focus on the wholesale business, METRO has presented this key performance indicator as adjusted EBITDA in addition to reported EBITDA since financial year 2019/20. Adjusted EBITDA reflects the operating efficiency of METRO in a transparent format. Irrespective of it, the development of real estate assets and the proceeds from divestments remain core components of the group’s real estate strategy.
Other important key performance indicators of METRO are the profit or loss for the period and the earnings per share. 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.
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.
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 net working capital, 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 from suppliers are reported within ‘Other financial and other non-financial assets’.
The net debt and free cash flow 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. A simplified cash flow definition, focusing on the main cash flow components, is used for the free cash flow. The simplified free cash flow is calculated as adjusted EBITDA less lease payments and cash investments (excluding mergers and acquisitions) +/− changes in net working capital. The simplified cash flow is also used to determine the free cash flow conversion, which serves as a measure of the group’s ability to transform the generated income into cash inflows. The free cash flow conversion results from the ratio between the simplified free cash flow and adjusted EBITDA after lease payments.
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 = EBIT / 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 RoCE is benchmarked against the respective segment-specific cost of capital before taxes. It 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 (EVA) and other liquidity-oriented key performance indicators such as the amortisation period to form its investment-related decisions.