CORPORATE PERFORMANCE CRITERIA, GOALS AND STRATEGY

The Management Board controls the business segments by setting strategic and operating goals and through various financial ratios. In line with our growth strategy, organic growth is a key indicator. Operating income (EBIT – earnings before interest and taxes) is another useful yardstick for measuring the profitability of the business segments.

The Management Board believes that, in addition to operating income, EBITDA (earnings before interest, taxes, depreciation, and amortization) is a good indicator of the business segments’ ability to achieve positive financial results and to discharge their financial commitments. The operating cash flow contributions of our business segments are also controlled on the basis of days sales outstanding (DSO) and scope of inventory (SOI). A key performance indicator at the group level is the net debt/EBITDA ratio.

Financing is a central Group function over which the business segments have no control. The financial goals for the business segments therefore exclude both interest payments resulting from financing activities and tax expenses.

At Group level we use return on operating assets (ROOA) and return on invested capital (ROIC) as benchmarks for evaluating our business segments and their contribution to the value creation of the Group. Group ROIC is 7.3% (2007: 8.4%) and Group ROOA is 9.8% (2007: 11.4%). The decline in the two ratios compared to 2007 is due to the acquisition of APP Pharmaceuticals. We expect an improvement in ROIC and ROOA in the future.