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Key performance indicators of the Group and its businesses

The three key performance indicators of net sales, EBITDA pre, and operating cash flow (OCF) are the most important financial factors for assessing operational performance. Accordingly, we refer to these KPIs in the “Report on Economic Position”, the “Report on Risks and Opportunities”, and the “Report on Expected Developments”. As the most important indicators of financial business performance, the KPIs are key elements of our performance management system.

Net sales

Net sales are defined as the revenues from the sale of goods, services rendered to external customers, and commission income and profit sharing from collaborations, net of value-added-tax, and after sales deductions such as rebates or discounts. Net sales are the main indicator of our business growth and therefore an important parameter of external as well as internal performance measurement. In addition, organic sales growth compared with the target is used for internal performance management. Organic sales growth shows the percentage change in net sales versus a comparative period, adjusted for exchange rate and portfolio effects. Exchange rate effects may arise as a result of foreign exchange fluctuation between the functional non-euro currency of a consolidated company and the reporting currency (euro). By contrast, portfolio effects reflect sales changes due to acquisitions and divestments of consolidated companies or businesses.

Group

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change

€ million

 

2023

 

2022

 

€ million

 

%

Net sales

 

20,993

 

22,232

 

-1,239

 

-5.6%

EBITDA pre

EBITDA pre is the main performance indicator measuring ongoing operational profitability and is used internally and externally. To permit a better understanding of the underlying operational performance, the operating result is adjusted to exclude depreciation and amortization, impairment losses and reversals of impairment losses, as well as adjustments. These adjustments are restricted to the following categories: integration expenses, IT expenses for certain projects, restructuring expenses, gains/losses on the divestment of businesses, acquisition expenses, and other adjustments. The classification of specific income and expenses as adjustments follows clear rules and is subject to strict governance at the Group level. Within the scope of internal performance management, EBITDA pre permits process efficiency increases without influencing the performance of the operating business through exceptional items or restructuring expenses. The following table shows the composition of EBITDA pre in fiscal 2023 compared with the previous year. The IFRS figures have been modified to reflect the elimination of adjustments included in the respective functional costs.

Group

Reconciliation EBITDA pre1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

20222

 

Change

€ million

 

IFRS

 

Elimination of adjustments

 

pre1

 

IFRS

 

Elimination of adjustments

 

pre1

 

pre1

Net sales

 

20,993

 

 

20,993

 

22,232

 

 

22,232

 

-5.6%

Cost of sales

 

-8,600

 

43

 

-8,558

 

-8,527

 

32

 

-8,496

 

0.7%

Gross profit

 

12,392

 

43

 

12,435

 

13,705

 

32

 

13,737

 

-9.5%

Marketing and selling expenses

 

-4,510

 

44

 

-4,466

 

-4,714

 

32

 

-4,681

 

-4.6%

Administration expenses

 

-1,392

 

246

 

-1,146

 

-1,306

 

115

 

-1,191

 

-3.8%

Research and development costs

 

-2,445

 

7

 

-2,438

 

-2,521

 

75

 

-2,446

 

-0.3%

Impairment losses and reversal of impairment losses on financial assets (net)

 

-51

 

 

-51

 

-6

 

0

 

-6

 

>100.0%

Other operating income and expenses

 

-385

 

138

 

-247

 

-685

 

323

 

-361

 

-31.6%

Operating result (EBIT)1

 

3,609

 

 

 

 

 

4,474

 

 

 

 

 

 

Depreciation/amortization/impairment losses/reversals of impairment losses

 

1,880

 

-87

 

1,792

 

2,030

 

-232

 

1,798

 

-0.3%

EBITDA2

 

5,489

 

 

 

 

 

6,504

 

 

 

 

 

 

Restructuring expenses

 

249

 

-249

 

 

198

 

-198

 

 

 

Integration expenses/IT expenses

 

118

 

-118

 

 

88

 

-88

 

 

 

Gains (-)/losses (+) on the divestment of businesses

 

-51

 

51

 

 

-38

 

38

 

 

 

Acquisition-related adjustments

 

18

 

-18

 

 

29

 

-29

 

 

 

Other adjustments

 

56

 

-56

 

 

68

 

-68

 

 

 

EBITDA pre1

 

5,879

 

 

5,879

 

6,849

 

 

6,849

 

-14.2%

thereof: organic growth1

 

 

 

 

 

 

 

 

 

 

 

 

 

-9.0%

thereof: exchange rate effects

 

 

 

 

 

 

 

 

 

 

 

 

 

-4.9%

thereof: acquisitions/divestments

 

 

 

 

 

 

 

 

 

 

 

 

 

-0.3%

1

Not defined by International Financial Reporting Standard (IFRS).

2

Not defined by International Financial Reporting Standards (IFRS); EBITDA corresponds to operating result (EBIT) adjusted by depreciation, amortization, impairment losses, and reversals of impairment losses.

Operating cash flow (OCF)

Operating cash flow results from the Group’s current business activities and describes the cash generated from operating activities. It is influenced mainly by EBITDA pre, income tax, the financial result and changes in net working capital.

Group

Operating cash flow

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change

€ million

 

2023

 

2022

 

€ million

 

%

EBITDA pre1

 

5,879

 

6,849

 

-970

 

-14.2%

Adjustments1

 

-390

 

-345

 

-45

 

13.1%

Finance result2

 

-125

 

-187

 

62

 

-33.0%

Income tax2

 

-650

 

-948

 

298

 

-31.4%

Changes in working capital1

 

-141

 

-917

 

776

 

-84.7%

thereof: Changes in inventories3

 

-89

 

-604

 

516

 

-85.3%

thereof: Changes in trade accounts receivable3

 

-8

 

-413

 

405

 

-98.0%

thereof: Changes in trade accounts payable/refund liabilities3

 

-43

 

101

 

-144

 

>100.0%

Changes in provisions3

 

188

 

279

 

-91

 

-32.5%

Changes in other assets and liabilities3

 

-755

 

-445

 

-310

 

69.6%

Neutralization of gains/losses on disposal of fixed assets and other disposals3

 

-150

 

-48

 

-102

 

>100.0%

Other non-cash income and expenses3

 

-72

 

21

 

-93

 

>100.0%

Operating cash flow

 

3,784

 

4,259

 

-475

 

-11.2%

1

Not defined by International Financial Reporting Standard (IFRS). Adjustments according to definition above.

2

According to Consolidated Income Statement.

3

According to the Consolidated Cash Flow Statement.

4

As of January 1, 2023, the tranche of the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, to be paid out in the months following the balance sheet date is disclosed under other current non-financial liabilities and no longer under current provisions for employee benefits. For better comparibility, the previous year’s figures have been adjusted.

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