The Executive Board charts the company’s course on the basis of various financial parameters. Under the “EAGLE” acronym (Eye At Growing a Longterm Enterprise), WACKER has been consolidating value-based management groupwide since 2002. We view value-based management as an integral part of strategic planning. For this reason, the strategic positioning of a business entity and its contribution to boosting the company’s value must be coordinated. This coordination is done as part of annual planning and comprises fundamental decisions on investments, innovation plans, new markets and a variety of other projects.
At WACKER, key performance indicators in assessing the corporate value trend are BVC (Business Value Contribution), EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), cash flow and ROCE (Return on Capital Employed). The cost of capital employed is calculated as a weighted cost average of equity and debt. The various business segments are evaluated differently, depending on their specific risks. The company’s ROCE shows us whether we have employed our capital successfully. CE (Capital Employed) is set in relation to EBIT. If CE generates a higher interest return than the cost of capital employed, that means WACKER has a positive BVC. BVC is a company-specific financial indicator, in which EBIT (adjusted for special factors) is set in relation to CE.
WACKER Prioritizes Value-Oriented Management
ROCE rose from 25.3 in 2007 to 25.7 in 2008. The minimum target of 14%, corresponding to the cost of capital, has thus been clearly exceeded.
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Cost of Capital | ||
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2008 |
2007 |
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Riskless interest rate |
5.0% |
4.0% |
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Market premium |
3.0% |
4.0% |
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Beta coefficient |
1.5 |
1.2 |
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Post-tax cost of equity |
9.5% |
8.8% |
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Tax rate |
35.0% |
37.0% |
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Pre-tax cost of equity |
14.6% |
14.0% |
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Pre-tax borrowing costs |
5.0% |
5.0% |
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Tax shield (35 and 37%, respectively) |
1.7% |
1.8% |
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Borrowing costs after taxes |
3.3% |
3.2% |
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Share of equity capital |
90.0% |
80.0% |
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Share of borrowed capital |
10.0% |
20.0% |
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Post-tax cost of capital |
8.9% |
7.7% |
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Pre-tax cost of capital |
13.7% |
12.2% |
Strategic planning shows how value-related and corporate goals can be met. It is divided into two steps. First, divisions identify their market and competitive positions, as well as their value-related strength. The results are integrated into a proposal for each division’s strategic positioning and planned measures. This information – which includes innovation and investment plans – is then consolidated on a Group level. The strategy-planning stage ends with a strategy conference, where plans are passed on the basis of their underlying target values.
Strategic planning decisions are then included in operational planning, which takes place in the second half of the year. The Executive and Supervisory Boards jointly approve the annual plan. We check on our success level via monthly reporting, which compares planned and actual figures. The reporting system also forms the basis for our monthly rolling forecasts. Our four-year medium-term planning provides a general framework for operational planning.