Reebok 2010 Annual Report Download - page 132

128 Group Management Report – Financial Review Internal Group Management System
adidas Group targets versus actual key metrics
2009
Actual 2010 Initial outlook 1 )
2010
Actual 2011 Targets
Sales
(year-over-year change, currency-neutral) (6%) low- to mid-single-digit
increase 9% mid- to high-single-digit increase
Gross margin 45.4% 46% to 47% 47.8% 47.5% to 48.0%
Other operating expenses (in % of sales) 42.3% moderate decline 42.1% moderate decline
Operating margin 4.9% around 6.5% 7.5% 7.5% to 8.0%
(Diluted) earnings per share (in €) 1.22 1.90 to 2.15 2.71 2.98 to 3.12
Average operating working capital
(in % of net sales) 24.3% further reduction 20.8% increase
Capital expenditure (€ in millions) 2 ) 240 300 to 400 269 350 to 400
Net debt (€ in millions) 917 further reduction 221 further reduction
1) As published on March 3, 2010. The outlook was updated over the course of the year.
2) Excluding acquisitions and finance leases.
03
M&A activities focus on long-term
value creation potential
We see the majority of our Group’s
future growth opportunities in our
organic business. However, as part of
our commitment to ensuring sustainable
profitable development we regularly
review merger and acquisition options
that may provide additional commercial
and operational opportunities. Acquisitive
growth focus is primarily related to
improving our Group’s positioning within
a sports category, strengthening our
technology portfolio or addressing new
consumer segments.
The strategies of any potential acqui-
sition candidate must correspond with
the Group’s direction. Maximising return
on invested capital above the cost of
capital in the long term is a core consid-
eration in our decision-making process.
Of particular importance is evaluating
the potential impact on our Group’s
free cash flow. We assess current and
future projected key financial metrics to
evaluate a target’s contribution potential.
In addition, careful consideration is given
to potential financing needs and their
impact on the Group’s financial leverage.
Cost of capital metric used to measure
investment potential
Creating value for our shareholders
by earning a return on invested capital
above the cost of that capital is a
guiding principle of our Group strategy.
We source capital from equity and
debt markets. Therefore, we have a
responsibility that our return on capital
meets the expectations of both equity
shareholders and creditors. Our Group
calculates the cost of capital utilising
the weighted average cost of capital
(WACC) formula. This metric allows us to
calculate the minimum required financial
returns of planned capital investments.
The cost of equity is computed utilising
the risk-free rate, market risk premium
and beta. Cost of debt is calculated using
the risk-free rate, credit spread and
average tax rate.