Notes to the consolidated financial statements

5) Capital and enterprise value management

Capital management practices are based on the Repower Group's overall strategic goals. The most important goals of capital management are:

  • Optimised allocation of capital, taking returns and risk into account
  • Achievement of a market-appropriate interest on deployed capital
  • Timely availability of sufficient liquidity
  • Acceptable cap on debt

These objectives are measured and monitored using the strategic performance indicators of Economic Value Added, the equity ratio and the net debt ratio (net debt/EBITDA). Targets for the strategic parameters are determined by the Board of Directors. The Board of Directors also specifies the risk targets to be monitored by the Executive Board. Only minor changes have been made to Repower's strategic direction since the previous year.

Repower's capital is managed and allocated taking into account the Group's financial development and risk structure. To manage this capital the Group can, for instance, borrow or repay capital, carry out capital increases or reductions, or change its dividend policy. The Repower Group is not subject to any prescribed regulatory minimum capital requirements.

Positive Economic Value Added means that the company has generated economic added value within a defined period. This is the case if operating income is higher than borrowing costs. The borrowing costs reflect the expected interest on net operating assets (NOA).

Repower calculates Economic Value Added as follows: Economic Value Added = NOPAT – (NOA x WACC)

Operating income corresponds to net operating profit after tax (NOPAT). Borrowing costs are obtained by multiplying average net operating assets by the borrowing rate. This rate reflects the weighted average cost of capital (WACC). The parameters used to calculate the WACC are regularly reviewed and adjusted if necessary to take into account significant market developments. In 2013 the WACC after tax was 6.2 per cent (previous year: 6.2 %). Interest-bearing capital results from current and non-current operating assets, adjusted by cash and cash equivalents not required for operational purposes and available non-interest-bearing capital. The average net operating assets are calculated as a mean between the value at the start and end of the financial year in order to obtain a better picture of tied-up capital throughout the year.

The equity ratio (including non-controlling interests) describes the relationship between equity including non-controlling interests and total assets.

The net debt ratio is the ratio between net debt (interest-bearing liabilities plus pension and provisions for pensions and reversions, minus cash and cash equivalents and securities) and EBITDA. This key figure indicates the number of years within which the company is likely to be able to meet its financial obligations, assuming the amounts remain unchanged. This key indicator expresses a company's ability to reduce debts or raise further loans for the purpose of business development.

The target figure for Economic Value Added is CHF -50 million, accumulated over a period of ten years since the 2013 financial year, while the equity ratio must be kept within the 35-45 per cent range. In principle, the net debt ratio must not exceed 3. These key figures and their individual parameters also have an impact on Repower's credit rating and thus its borrowing costs.

Economic Value Added

Economic Value Added
  2013 2012
in CHF millions    
EBIT -150.3 83.0
Calculatory tax rate 30.0% 30.0%
NOPAT -105.2 58.1
NOA 1) 1,339.7 1,396.0
WACC 6.2% 6.2%
Capital costs 83.1 86.6
Economic Value Added -188.3 -28.5

1) Average based on start and end of year

Equity ratio

Equity ratio
  31.12.2013 31.12.2012
in CHF millions    
Total balance sheet 2043.3 2302.4
Equity including minority interests 805.0 957.4
Equity quote (including minority interests) 39.4% 41.6%

Net debt ratio

Net debt ratio
  31.12.2013 31.12.2012
in CHF millions    
Net debt 327.5 381.4
EBITDA 1) 135.9 148.4
Net debt ratio 2.4 2.6

1) 2013 figure adjusted for impairments (CHF 61.9 million) in EBITDA.

As in 2012, a negative Economic Value Added was generated in 2013. The equity ratio and net debt ratio targets were adhered to.