Value-Based Management Is Integral to Our Corporate Policies

Value-based management is integral to our corporate policies

Value-based management is an integral part of our corporate policy. Its purpose is to achieve long-term and sustainable growth 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. As a target value, the EBITDA margin measures the company’s performance relative to its competition, with ROCE showing how efficiently the company employs its capital. The budget parameters EBITDA and net cash flow are also important for management control. In addition to these indicators, BVC (business value contribution) is used as a dedicated budget parameter for 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 2024, the key financial performance indicators for value-based management remained unchanged:

• the EBITDA margin (EBITDA as a percentage of 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. The total of noncurrent assets required for business operations and of working capital makes up our capital employed. Capital employed for a particular year under review is calculated based on the average value for the last four quarters, starting in the fourth quarter of the previous year. 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 (Business Value Contribution) to determine the internal budget target. To calculate the BVC, the cost of capital and non-operational factors, such as the income from the stake in Siltronic, are deducted from EBIT.
• 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 goal 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

Alongside the main financial performance indicators, we use other performance indicators that provide us with information on sales and liquidity trends, as well as on the Group’s debt.

The 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: As part 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: We define net financial debt as the total noncurrent and current financial liabilities and the available liquidity, consisting of securities, cash and cash equivalents.

Development of key financial performance indicators in 2024

EBITDA margin: We expected the EBITDA margin in 2024 to be considerably lower than a year earlier. The Group actually achieved an EBITDA margin of 13.3 percent.

EBITDA: WACKER had expected EBITDA for 2024 to come in between €600 million and €800 million (2023: €823.6 billion). We announced during the year that we expected our EBITDA to be in the upper half of the forecast range. At year-end, EBITDA totaled €762.8 million.

ROCE: ROCE was expected to be much lower than the year before. WACKER actually achieved a ROCE of 5.0 percent in 2024. The decline is due to lower EBIT combined with an increase in capital employed.

Net cash flow: Our guidance was for a negative figure, much lower than the prior year. WACKER achieved net cash flow of €-326.0 million in 2024, down considerably as against 2023 (€165.6 million).