Value-Based Management Is Integral to Our Corporate Policies
Value-based management is an integral part of our corporate policies. Its purpose is to achieve a lasting increase in our company’s value. In our management processes, we distinguish between performance parameters and budget parameters. Performance parameters serve the financial management of the company. They include the EBITDA margin and ROCE. The EBITDA margin indicates how successful the company is compared with the competition, while ROCE shows how efficiently the company employs its capital. Budget parameters such as EBITDA and net cash flow are also important for management control. In addition to these indicators, BVC (business value contribution) is a dedicated budget parameter used when calculating variable compensation for Executive Board members. The EBITDA trend is considered to be the most important financial indicator for communication with capital markets.
Key Financial Performance Indicators for the WACKER Group
In 2021, the key financial performance indicators for value-based management remained unchanged:
- EBITDA margin (EBITDA in relation to sales). We compare historical performance with planned performance as well as with that of the competition, and use the results to calculate a target EBITDA margin. We calculate the weighted divisional average as our target margin for the Group.
- ROCE, or return on capital employed. ROCE is defined as earnings before interest and taxes (EBIT) divided by capital employed. Capital employed comprises the average value, calculated over four quarters, of working capital and of noncurrent assets required for business operations. It is determined retroactively for the previous quarter. Investment income from Siltronic AG and the corresponding carrying amount in equity are not included when ROCE is calculated. ROCE is a clear indicator of how profitably the capital required for business operations is being employed.
- EBITDA (earnings before interest, taxes, depreciation and amortization). This shows the company’s operational performance capability before considering the cost of capital. We set absolute EBITDA targets for the business divisions and take the cost of capital into account by using BVC to determine the internal budget target. We calculate BVC by deducting the cost of capital, non-operational factors, and depreciation/amortization and impairments from EBITDA. The BVC trend depends mainly on changes in EBITDA.
- Net cash flow (defined as the sum of cash flow from operating activities and long-term investing activities before securities). Net cash flow shows whether we can finance ongoing operations and necessary investments with the funds from our own operating activities. WACKER’s aim is to generate a sustained positive net cash flow. Apart from profitability, the main factors affecting net cash flow are the effective management of net current assets and the level of capital expenditures.
Supplementary Financial Performance Indicators
Our key financial performance indicators are supplemented by additional performance indicators that provide us with information on the Group’s sales and liquidity situation and on its debt levels.
These supplementary financial performance indicators include:
- Sales: profitable growth is an important factor in increasing the company’s value over the long term and one of the main drivers of a positive cash flow trend.
- Capital expenditures: in the course of our medium-term planning, we set capital-expenditure priorities and an investment budget. Capital expenditures do not include right-of-use assets from lease accounting.
- Net financial debt: defined as the sum of cash and cash equivalents, noncurrent and current securities, and noncurrent and current financial liabilities.
Non-Financial Performance Indicators Are Not Intended for Groupwide Management Control
None of the non-financial indicators we employ are used universally for corporate decision-making.
Development of Key Financial Performance Indicators in 2021
EBITDA margin: we expected the EBITDA margin in 2021 to be slightly higher than a year earlier. The Group actually achieved an EBITDA margin of 24.8 percent.
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€ million |
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Reported for |
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Forecast |
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2020 |
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EBITDA margin (%) |
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24.8 |
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Slightly higher than last year |
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14.2 |
EBITDA |
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1,538.5 |
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10 to 20 percent higher than last year |
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666.3 |
ROCE (%) |
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28.3 |
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Substantially higher than last year |
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5.6 |
Net cash flow |
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760.8 |
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Clearly positive, |
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697.7 |
EBITDA: WACKER had expected EBITDA for 2021 to surpass the year-earlier figure by 10 to 20 percent (2020: €666 million). We raised our EBITDA guidance three times during the year. At year end, EBITDA had more than doubled, climbing 130.9 percent.
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€ million |
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2021 |
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2020 |
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|
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EBIT |
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1,134.3 |
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262.8 |
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Capital employed1 |
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3,782.2 |
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4,111.4 |
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ROCE2 (%) |
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28.3 |
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5.6 |
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Pre-tax cost of capital (%) |
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10.0 |
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-10.1 |
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BVC3 |
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708.2 |
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-169.3 |
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ROCE: we expected ROCE to be clearly positive and higher than a year earlier. In fact, it came in well above the cost of capital and was clearly positive. WACKER’s ROCE for 2021 was 28.3 percent.
Net cash flow: our guidance was for a markedly positive figure, but much lower than the prior year. At €760.8 million, net cash flow was markedly positive and 9 percent higher than a year earlier.
