Key performance indicators of the Group and its businesses

The three key performance indicators of net sales, EBITDA pre, and business free cash flow (to be replaced by operating cash flow (OCF) in 2021) are the most important factors for assessing operational performance. Therefore, 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 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.

EBITDA pre

EBITDA pre is the main performance indicator measuring ongoing operational profitability and is used internally and externally. To provide an alternative understanding of the underlying operational performance, it excludes from the operating result 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 selected 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 underlies strict governance at the Group level. Within the scope of internal performance management, EBITDA pre allows for necessary changes or restructuring without penalizing the performance of the operating business. The following table shows the composition of EBITDA pre in fiscal 2020 compared to the previous year. The IFRS figures have been modified to reflect the elimination of adjustments included in the respective functional costs.

Business free cash flow (BFCF)

Business free cash flow comprises the major cash-relevant items that the operating businesses can influence and that are under their full control. It comprises EBITDA pre less investments in property, plant, equipment, software, advance payments for intangible assets, changes in inventories, trade accounts receivable, and receivables from royalties and licenses. To manage working capital on a regional and local level, the businesses use the two indicators ”days sales outstanding” and ”days in inventory”.

Operating cash flow (OCF) from 2021

For fiscal 2021, the key performance indicator of business free cash flow will be replaced by operating cash flow (OCF). In the future, this means that our internal indicator for controlling cash flow will be the same as the externally relevant indicator OCF, which we already report.