Value-oriented management

Evonik is managed on the basis of a consistent system of value-oriented indicators. These are used to assess the performance of the operational units and the Group. Through systematic alignment to these indicators, the Group endeavors to create value by raising profitability and ensuring profitable growth.

Due to Evonik’s structure, the indicators have to take account of the differences between the various operations yet be comparable across the Group. To sharpen our focus on the goal of profitable growth and enhance its transparency, at the start of 2010 the indicator used for value-oriented management at Evonik was altered to EVA^® (economic value added). Compared with EBIT, EVA^® extends the performance view to include the cost of capital, which is the minimum return the Group has to earn. If EVA^® is above the cost of capital, the Group creates additional value (value spread approach).

EVA^® is calculated as follows: EVA^® = EBIT – cost of capital.

The cost of capital is calculated by multiplying capital employed by the weighted average cost of capital.

The cost of capital is the risk-adjusted return target. It is derived from the capital asset pricing model and WACC (weighted average cost of capital) and reflects the internal mid-term management perspective.

As the key indicator, EVA^® is supported by relevant value drivers and additional indicators, which are used to manage the Group and create value. In addition, specific value drivers are used to manage the individual businesses. All of these metrics are derived from uniformly defined performance indicators taken from the income statement, balance sheet and cash flow statement.

Since the EBITDA margin is a relative figure, it provides a key basis for internal and external comparison of cost structures and profitability. Depreciation, amortization and impairment losses are not included in EBITDA, so the EBITDA margin can be taken as an approximation of the return on sales-related cash flows.