Management of the Group

The indicators used throughout the group for profitability, profit, value added and liquidity form the basis for operational and strategic management decisions at thyssenkrupp. We use them to set targets, measure performance and determine variable components of management compensation – in addition to other factors. For us, the most important financial indicators are adjusted earnings before interest and taxes (adjusted EBIT), net income/(loss) of the thyssenkrupp group, thyssenkrupp Value Added (tkVA) or the return on capital employed (ROCE) and free cash flow before merges and acquisitions (FCF before M&A).

The Executive Board also defines long-term targets for the businesses. These form the framework for the short- and medium-term financial targets and also for the budget and medium-term plans, which are prepared by all units.

Adjusted EBIT

EBIT provides information on the profitability of a unit. It contains all elements of the income statement relating to operating performance. These include items of financial income/expense that can be characterized as operational, including income and expense from investments where there is a long-term intention to hold the assets. The thyssenkrupp group has a material investment in the former Elevator Technology segment. This investment has no strategic or operational connection to the group’s continuing operations. Its earnings are therefore by definition not part of financial income/expense from operations and so are not included in EBIT. Adjusted EBIT is EBIT adjusted for special items, i.e., restructuring expenses, impairment losses, impairment reversals and disposal gains and losses. It is more suitable than EBIT for comparing operating performance over several periods.

The adjusted EBIT of the group and the segments and the special items are described in detail in the “Group review” and “Segment review” in the report on the economic position. Please also refer to the reconciliation in the segment reporting (Note 24).

Net income/(loss)

Net income is the profit generated by the group in the fiscal year. It is calculated as a positive balance of all income and expenses. Unlike EBIT, the calculation includes non-operating items, for example, interest and taxes. Net income therefore provides information on the group’s earning power. Negative net income is referred to as a net loss.

The net income/(loss) of the thyssenkrupp group is explained in detail in the section “Results of operations and financial position” in the report on the economic position.

tkVA is the value created in a reporting year. This indicator enables us to compare the financial success of businesses with different capital intensities. tkVA is calculated as EBIT less the cost of the capital employed. Capital employed mainly comprises fixed assets, inventories and receivables. Deducted from this are certain non-interest-bearing liability items such as trade accounts payable. To obtain the cost of capital, capital employed is multiplied by the weighted average cost of capital (WACC), which includes weighted equity and debt. We use the return on capital employed (ROCE) to determine the relative return generated. ROCE is the ratio of EBIT to capital employed. If ROCE exceeds WACC, i.e., the returns due to shareholders and lenders, we have created value.

ROCE is the central performance criterion for the Long-Term Incentive (LTI) plan and will be applied for all installments issued from the coming fiscal year. Therefore ROCE is included in the key financial performance indicators for the first time.

Information on the development of tkVA / ROCE in the reporting year can also be found in the “Group review” section of the report on the economic position.

FCF before M&A

FCF before M&A permits a liquidity-based assessment of performance in a period by measuring cash flows from operating activities excluding income and expenditures from material portfolio measures. It is measured as operating cash flow less cash flows from investing activities excluding cash inflows or outflows from material M&A transactions. This too links more directly to operating activities and facilitates comparability in multi-period analyses.

A reconciliation and details on the development of FCF before M&A are provided in the analysis of the statement of cash flows in the “Results of operations and financial position” section in the report on the economic position.

^{Source: Annual Report 2021/2022, p. 30-32}