Value-Based Management Is an Integral Part of Our Corporate Policies

Value-based management is an integral part of our corporate policies for sustainably increasing our company’s value in the long term. In our management processes, we distinguish between performance and budget parameters. Performance parameters serve the financial management of the company. Performance parameters include the EBITDA margin and ROCE. The EBITDA margin indicates how successful the company is compared with the competition, while ROCE shows how successfully the company employs its capital. Further, EBITDA and net cash flow are budget parameters used for control purposes. In addition to these indicators, BVC (business value contribution) is included as a pure budget parameter in calculating the variable compensation for Executive Board members and senior managers at our divisions and corporate departments.

In this context, value management and strategic planning complement each other. Consequently, we align the strategic positioning of a business entity with its contribution to increasing the company’s value. As part of annual planning, we make fundamental decisions on capital expenditure and innovation plans, on harnessing new markets and on a variety of other projects.

The management decision-making process makes active use of key financial performance indicators. For example, lower-than-expected net cash flow could result in adjusting our investments during the year. Being highly flexible, WACKER can react to both positive and negative changes, as seen in the extension of the Tennessee project’s timeline. This decision supported our 2013 cash flow by several hundred million euros.

The EBITDA trend is perceived as the most important financial indicator for communication with capital markets.

Key Financial Performance Indicators for the WACKER Group

In 2013, we continued to use the same key financial performance indicators for value management as in previous years. Value management is based on the following key performance indicators:

  • EBITDA margin (EBITDA in relation to sales). We compare historical performance with planned performance and the competition, and use the result to calculate a target EBITDA margin. For the Group, we take the weighted divisional average as our target margin.
  • ROCE or return on capital employed is a measure of the efficient use of capital. ROCE is defined as earnings before interest and taxes (EBIT) divided by capital employed. Capital employed comprises noncurrent assets and net current assets. ROCE makes clear how profitably the capital required for business operations is being employed. ROCE is influenced not only by profitability, but also by capital intensity with regard to noncurrent and net current assets. ROCE is reviewed annually as part of our planning process and is a key criterion for managing our capital expenditure budget.
  • EBITDA (earnings before interest, taxes, depreciation and amortization). Our goal is to achieve a high level of profitability, and the benchmark for this is EBITDA. This demonstrates the operative performance capability of the company before cost of capital. We set absolute EBITDA targets for the business divisions. By using BVC to determine the internal budget target, we take the cost of capital into account. EBITDA is the starting point for calculating BVC. We calculate BVC by deducting the cost of capital, non-operational factors, and depreciation and amortization from EBITDA. We call earnings after cost of capital business value contribution (BVC). The development of BVC is mainly related to changes in EBITDA. Changes in the cost of capital and in depreciation and amortization have only a marginal effect on BVC.
  • Net cash flow (defined as the sum of cash flow from operating activities and long-term investing activities, before securities, including additions from finance leases less the change in advance payments received). Net cash flow shows whether we can finance ongoing operations and the necessary investments from our own operating activities. WACKER’s aim is to generate sustainably 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 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.
  • Investments. As our business is capital intensive, managing capital expenditures is of crucial importance. In the course of our medium-term planning, we determine the focus of our capital expenditures and the corresponding budget. Investments of overriding importance for the company are decided on by the Executive Board on the basis of the Group’s strategy. The individual business divisions are responsible for additional capital expenditures. The focus here is generally on expansion and extension projects with a low specific level of investment and projects targeting the expansion of capacity for downstream products that add value. To this end, the individual business divisions regularly analyze their capacity utilization and anticipated capacity requirements. Both these factors are essential in determining capital-expenditure requirements. The respective business divisions and WACKER’s Corporate Engineering are responsible for the operational management of the individual investment projects (i.e. for handling, deadlines, budgets, quality, safety). Both current and planned capital expenditures are managed flexibly and aligned with developments in the respective markets. This ensures that, if required, we can make ad hoc adjustments to our investment budget throughout the year. To this end, all capital-expenditure projects are regularly consolidated and analyzed at Group level.
  • Net financial debt. Net financial debt is a supplementary performance indicator that we use to monitor WACKER’s financial situation. We define it as the sum of cash and cash equivalents, noncurrent and current securities, and noncurrent and current financial liabilities. Net financial debt is also an important factor in our financing activities. The financing instruments used by WACKER contain standard market credit terms and a net debt-to-EBITDA ratio as the only financial covenant. By monitoring and managing our net financial debt, we ensure that it remains within the limits set by the net debit-to-EBITDA financial covenant ratio agreed with our creditors.

Non-Financial Performance Indicators

None of the non-financial performance indicators, which we describe in detail in the Annual Report, is used by us across the board for corporate decision-making, although certain indicators, such as the accident rate, are important in some parts of the company. The following table shows which non-financial performance indicators are used in individual parts of the company.

Non-Financial Performance Indicators Used for Decision-Making in Parts of the Company

  Download XLS


Non-Financial Performance Indicators


Indicator for




Number of employees


Corporate departments/production

Order intake


Business divisions

New-product rate


Business divisions

Electricity/energy consumption


Business divisions/sites

Production utilization


Business divisions/sites

Key environmental indicators


Business divisions/sites

Accident rate


Business divisions/sites

Development of Key Financial Performance Indicators in 2013

EBITDA margin: In 2013, the target margin was 20 percent. The Group actually posted an EBITDA margin of 15.2 percent for 2013. Continuing pressure on prices and negative exchange-rate effects were the principal reasons for not achieving our target. Our programs for reducing production costs had a positive impact on the EBITDA margin.

ROCE: WACKER achieved ROCE of 2.2 percent in 2013. The decline in ROCE was mainly due to weaker profitability.

EBITDA: We were expecting EBITDA for 2013 to be below the 2012 figure. At € 678.7 million, it was € 116.7 million below the previous year. The primary reasons were lower prices for polysilicon in the first nine months of 2013 compared with the previous year, and the persistent pressure on silicon-wafer prices, which had a negative impact on EBITDA. In 2013, the cost of capital was 11 percent, and we did not meet our BVC target at Group level. At € –478.6 million, the actual BVC was clearly negative.

Planned and Actual Figures

  Download XLS


€ million




Forecast 2013


Actual 2013








EBITDA margin (%)







ROCE (%)











below prior year



Net cash flow







Net cash flow: Our 2013 forecast for net cash flow was in negative territory because our investment level was still high. We clearly surpassed this target. By lowering our capital expenditures and imposing strict inventory management, we posted a positive net cash flow of € 109.7 million.


  Download XLS






€ million











Capital employed is made up of average noncurrent fixed assets (less noncurrent securities) plus inventories, and trade receivables less trade payables. It is a variable used in calculating the cost of capital.


Return on capital employed is the profitability ratio relating to the capital employed.


BVC is calculated by correcting EBIT for non-operational factors.


Not adjusted for IAS 19 (revised)






Capital employed1





ROCE2 (%)





Pre-tax cost of capital (%)