Financial-Management Principles and Goals
Our key financial-management goal is to secure WACKER’s financial strength over the long term. The central task is to sufficiently cover the financial needs of our operations and investment projects. Financial management at WACKER comprises capital-structure management, cash and liquidity management, and the management of market-price risk (currencies, interest rates). The Group organizes financial management centrally. A groupwide financial regulation sets out the tasks and responsibilities. Capital-structure management involves shaping the capital structure of the Group and its subsidiaries. The latter are capitalized and financed in accordance with the principles of cost and risk optimization. This involves taking account of restrictions on the movement of capital, as well as other capital and foreign-currency transfer constraints.
In liquidity management, WACKER continuously monitors cash flows from operations and from financial business. WACKER covers the resulting liquidity needs via suitable instruments, such as intra-Group financing through borrowings, or through external loans from local banks. We receive the necessary outside funding from contractually agreed lines of credit denominated in various currencies and with differing maturities. We invest surplus liquidity in the money and capital markets at an optimum risk/return rate. WACKER has centralized cash management procedures in place to calculate cash requirements and surpluses.
WACKER pursues a careful financing policy that targets a balanced financing portfolio, a diversified maturity portfolio and a comfortable liquidity buffer. In addition to the financing instruments already mentioned, WACKER expects to be able to tap the bond markets and other instruments if necessary. Our aim is to maintain our corporate financial structures so that the Group’s credit rating remains – at a minimum – in the investment-grade range.
WACKER’s key liquidity source is the operations of its Group companies and the resultant incoming payments. As part of our cash-management systems, we use liquidity surpluses at individual Group companies to cover the financing requirements of other Group companies. This centralized system of internal transfers reduces our interest expense and the need for debt financing. The purpose of managing market-price risks is to limit the effects of fluctuations in exchange rates and interest rates on the Group’s bottom line. That involves first determining the Group’s overall exposure to currency risks. On the basis of the information obtained, we can then make decisions as regards hedging – namely, the volume to be hedged, the respective term of the hedge and the choice of hedging instrument.
Financing Measures in 2018
A promissory note (German Schuldschein) of €300 million taken out at the end of 2017 was disbursed in January 2018. Of this total amount, €150 million matures in five years while the remaining €150 million matures in seven years. In Q1 2018, WACKER prematurely repaid a total of US$250 million for loans taken out in 2016. WACKER also repaid the first scheduled installment of US$70 million agreed in its private placement of 2013. A promissory note (German Schuldschein) of €50 million was refinanced.
The Group’s financing agreements contain standard market credit terms. The major loans are subject to financial covenants (net debt-to-EBITDA ratio and maximum debt level of all Group companies).
Financial Analysis
The Group’s cash flow is a key instrument of liquidity management. Net cash flow serves as the internal indicator for measuring the liquidity of operating activities.