Value-based corporate management and capital costs

Energie AG’s value management strategy serves as an instrument for measuring and controlling the economic success of the Group’s business activities. It helps to assess the attractiveness of investments and secure the value of the company by ensuring capital market-oriented returns for the owners. In addition to the operating result, the capital costs, measured using the weighted average cost of capital (WACC) ratio plays a central role. The WACC value provides the basis for determining the minimum yield objectives for Group management and is therefore used as a yardstick for value generation in the company.

Energie AG calculates the cost of capital as the weighted average of equity and borrowing costs. The cost of equity is calculated using the Capital Asset Pricing Model (CAPM), taking into account factors such as the risk-free interest rate, a country and market risk premium, and a beta factor. Borrowing costs are composed of the risk-free interest rate, a country risk premium and the credit spreads of the peer group. The parameters specified by the regulatory authority are used for the regulated business units. In those business units of the company that operate in free market areas, the cost of capital is calculated in line with the reporting date principle and is then aggregated into segment and Group cost of capital using the bottom-up method.

WACC calculations are under continuous review and are adjusted as needed, taking into account the latest specialist publications and expert opinions. The consolidated WACC value for the 2023/2024 fiscal year was 4.5% (previous year: 4.7%).

Along with the operating result, one of the most important key figure for the Group’s internal management is the ROCE (Return on Capital Employed), which states how efficiently and profitably the available capital is employed. The ROCE is calculated as the quotient of Net Operating Profit After Tax (NOPAT) and average capital employed.

The NOPAT key indicator denotes the taxed profit from operating activities excluding the at equity result of associated companies. One-time effects such as impairments and market valuations are taken into account and are included in the NOPAT. When calculating taxes, all at equity income is eliminated in the tax base, as the former is already adjusted for taxes.

The capital employed is derived by subtracting the non-productive assets and non-interest-bearing liabilities from the average total assets. It reflects the interest-bearing capital pooled in the company. The average capital employed (ø CE) is calculated as the average of the total capital employed of the last two fiscal years. For information on Capital Employed, please refer to the Notes to the Consolidated Financial Statements, section 7. Segment reporting.

The goal of the Energie AG Group is to generate an ROCE above the WACC through consistent value-oriented corporate management and control. The ROCE minus the WACC results in the relative value contribution. The absolute economic value added is calculated by multiplying it by the capital employed. In addition to the development of operating earnings, the level of ROCE and value added specifically depends on the capital employed. The NOPAT key figure is equivalent to EBIT less related taxes in the amount of EUR 81.5 million and less results calculated using the equity method in the amount of EUR 43.8 million. In the Energie AG Group, in addition to strategic considerations, resources for future capital investments and acquisitions are allocated by prioritising projects exclusively on the basis of the presented value-oriented criteria and methods.

In the 2023/2024 fiscal year, the ROCE of the Energie AG Group was 15.4%, 6.6 percentage points above the previous year (8.8%).