Reebok 2014 Annual Report Download - page 102

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2014
Internal Group Management System
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03.1
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adidas Group
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2014 Annual Report
Group Management Report – Financial Review
Internal Group Management System
The adidas Group’s principal financial goal for increasing shareholder value is maximising
operating cash flow. We strive to achieve this goal by continually improving our top- and
bottom-line performance while at the same time optimising the use of invested capital.
Our Group’s planning and controlling system is therefore designed to provide a variety
of tools to assess our current performance and to align future strategic and investment
decisions to best utilise commercial and organisational opportunities.
Operating cash flow as Internal Group Management focus
We believe operating cash flow is the most important driver to increase shareholder value. To
support this, Group Management focuses on four major financial key performance indicators
(KPIs). Increasing net sales and operating profit are the main contributors to improve operating
cash flow. In addition, strict management of operating working capital and value-enhancing capital
expenditure are beneficial for operating cash flow development. As a result, in order to maximise
operating cash flow generation across our organisation, management of our operating segments
have responsibility for improving net sales and operating profit as well as optimising operating
working capital and capital expenditure. In addition, in order to keep senior management focused
on long-term performance improvements, we have KPIs in place, which measure the development
of the business units over a multi-year period.
Operating margin as important measure of operational progress
Operating margin (defined as operating profit as a percentage of net sales) is our Group’s key focus
measure to drive and improve our operational performance. It highlights the quality of our top line
and operational efficiency. The primary drivers central to enhancing operating margin are as follows:
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Sales and gross margin development: Management focuses on identifying and exploiting growth
opportunities that not only provide for future top-line improvements, but also have potential to
increase gross margin. Major levers for enhancing our Group’s sales and gross margin include:
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Optimising our product mix.
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Minimising clearance activities.
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Improving the quality of distribution, with a particular focus on controlled space.
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Realising supply chain efficiency initiatives.
see Glossary, p. 258
see Diagram 01
adidas Group financial KPIs
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Net sales and operating profit
see Glossary, p. 258
01
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Financial key performance indicators (KPIs) of the adidas Group
Net sales
Operating cash flow
Operating profit
Change in operating working capital
Capital expenditure 1)
1) Less depreciation and amortisation.