lue-Based Management

WACKER's strengths lie in its innovations and new products that greatly benefit customers. To do so, we continually invest and thus build on a stable company that is fit for the future. In line with this strategy, WACKER stands for increasing its corporate value over the long term, and not for a short-term improvement in results.

WACKER's growth should be profitable and financed with positive cash flow. To reach this goal, a suitable strategy is based on analyzing business entities and orienting them toward their value-creation potential. The resultant recommendation for a business entity could read as follows: "grow," "structure profitably," "maintain" or "check business logic." This evaluation leads to optimal budgets for investments, innovations, acquisitions and the tapping of new markets. The procedure is documented in an internal value management tool called "EAGLE" (Eye at Growing a Longterm Enterprise). It helps us to grow profitably and thus boost our return.

How do we calculate corporate value?

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 three performance indicators BVC, EBITDA and cash flow have equal weight.

Success with the capital employed is measured using ROCE. CE (Capital Employed) is set in relation to EBITDA. WACKER generates a positive BVC if CE shows a higher interest rate return than the WACC (Weighted Average Cost of Capital). BVC is a company-specific financial indicator, in which EBIT (adjusted for special factors) is set in relation to CE.

How does the Group generate value?

Two levers are generally available for value creation: the increase in profitability and profitable capital growth. On the one hand, BVC rises when the total rate of return on capital increases despite stable capital employment. On the other, BVC rises when a higher interest rate is generated for the capital employed despite a stable return. WACKER uses both levers to achieve the best possible value growth. These enable employees in daily operations to make their own contribution to value-based management. This is how we ensure that all activities are always focused on boosting corporate value.

What is WACKER's value-creation goal?

WACKER determines its value-creation goal by observing competitors and analyzing its divisions' strategic potential. To do so, an average return on sales (EBIT/sales) is calculated and agreed upon as a target value with divisions. The target value for return on sales can be used to derive the BVC target for each division and the Group. The BVC target may not, however, be lower than interest on capital employed amounting to the WACC plus two percent.

The WACKER Group has set itself a BVC target of €100 million based on a sales target of €4 billion. That corresponds to a 12 percent return on sales and a 12.5 percent total return on capital employed. During economic peaks, these average values can certainly be exceeded.

ROCE falls from 24.8 in 2010 to 18.4 in fiscal 2011. The minimum target of 14 percent, corresponding to the cost of capital, has thus been clearly exceeded.