Reebok 2014 Annual Report Download - page 103

Group Management Report – Financial Review
99
2014
Internal Group Management System
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03.1
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adidas Group
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2014 Annual Report
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Operating expense control: Management puts high emphasis on tightly controlling operating
expenses to leverage the Group’s sales growth through to the bottom line. This requires a particular
focus on ensuring flexibility in the Group’s cost base. Marketing working budget is one of our largest
operating expenses and at the same time one of the most important mechanisms for driving top-line
growth sustainably. Therefore, we are committed to improving the utilisation of our marketing
expenditure. This includes concentrating our communication efforts on key global brand initiatives
and focusing our promotion spend on well-selected partnerships with top events, leagues, clubs
athletes and artists.
We also aim to increase operational efficiency and tightly manage operating overhead expenses.
In this respect, we regularly review our operational structure – streamlining business processes,
eliminating redundancies and leveraging the scale of our organisation. These measures may also
be supplemented by short-term initiatives such as temporarily curtailing operational investments,
for example staff hiring.
Furthermore, we carefully analyse the different mix effects which impact the Group’s profit ratios, as
our business performance differs significantly across geographical markets, business models and
sales channels. The strategic implications and decisions taken in this respect are a key element of
our strategic planning efforts, ensuring clarity and focus of the organisation to balance and broaden
the Group’s future earnings stream and sustainably increase the Group’s operating margin.
Tight operating working capital management
Due to a comparatively low level of fixed assets required in our business, the efficiency of the Group’s
balance sheet depends to a large degree on our operating working capital management. In this
context, our key metric is operating working capital as a percentage of net sales. Monitoring the
development of this metric facilitates the measurement of our progress in improving the efficiency
of our business cycle.
We strive to proactively manage our inventory levels to meet market demand and ensure fast
replenishment. Inventory ageing is controlled tightly to reduce inventory obsolescence and
to minimise clearance activities. As a result, inventory days lasting is an important metric as it
measures the average number of days goods remain in inventory before being sold, highlighting
the efficiency of capital locked up in products. To optimise capital tied up in accounts receivable,
we strive to improve collection efforts in order to reduce the Days of Sales Outstanding (DSO) and
improve the ageing of accounts receivable. Likewise, we strive to optimise payment terms with our
suppliers to best manage our accounts payable.
see Glossary, p. 258
see Glossary, p. 258
adidas Group financial KPIs
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Change in operating working capital