1.5 Internal Management System
The economic planning and steering for the business units is carried out within a framework laid down by the Board of Management that is refined during the strategic planning process. Operational planning then translates this framework into specific, measurable targets. Continuous monitoring of business developments complements the planning and management process, and key management and performance indicators are regularly updated. This process also involves tracking the implementation of the strategic objectives and adopting countermeasures in the event of deviations from the budget.
One of the prime objectives of the Bayer Group is to steadily increase enterprise value. We use the following steering parameters to plan, steer and monitor the development of our business.
The key performance indicators at the strategic level are cash value added Cash value added (CVA) This is the difference between the gross cash flow and the gross cash flow hurdle. It is therefore the amount by which the gross cash flow exceeds the return and reproduction requirements. If CVA is positive, the investors’ return and reproduction requirements have been satisfied and value has been created for the company. (CVA), which is a value-based steering parameter, and cash flow Cash flow Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. return on investment (CFROI). These indicators support management in its decision-making, especially in the areas of strategic portfolio optimization and the allocation of resources for acquisitions and capital expenditures. In fiscal 2015, Bayer achieved a positive CVA of €1,285 million and a CFROI of 9.6%. (See Chapter 14.4 “Value Management” for further details.)
The principal economic steering parameters within the Bayer Group at the operational level are sales and earnings figures. With regard to earnings, special attention is paid to EBITDA EBITDA EBIT plus the amortization of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognized in profit or loss during the reporting period; this indicator is not defined in the International Financial Reporting Standards. (EBIT plus the amortization of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognized in profit or loss during the reporting period) before special items. The EBITDA margin before special items EBITDA margin before special items The EBITDA margin before special items is calculated by dividing EBITDA before special items by sales. This indicator is not defined in the International Financial Reporting Standards. , which is the ratio of EBITDA before special items EBITDA before special items EBITDA plus special charges, minus special gains; this indicator is not defined in the International Financial Reporting Standards. to sales, serves as a relative indicator for the internal and external comparison of operational earning power. In 2015, EBITDA before special items amounted to €10,266 million, resulting in an EBITDA margin before special items of 22.2%. (See Chapter 14.2 “Calculation of EBIT(DA) Before Special Items” for further details.)
The Board of Management and the relevant committees steer the sustainable alignment of the company, defining responsibilities and framework conditions by way of Group directives, for example. Operations are steered using defined targets and performance indicators in areas such as innovation, supplier management, safety, product stewardship and environmental protection. On the basis of a materiality analysis, Bayer has determined the principal activities in these areas and established the relevant management systems, committees and working groups, which have been implemented by the subgroups. The ongoing review and revision of guidelines and regular internal audits ensure that our management systems are continuously improved and aligned to the specific requirements at any given time.