Economic success does not come about coincidentally, but is rather the result of taking goal-driven action. Strategic objectives lead to operative measures that have to be carefully planned and implemented. Value-based management numbers among the instruments, which MVV Energie utilises in evaluating, planning and controlling its corporate activities.

The guiding principle of our value-based management concept is a sustainable increase in shareholder value. Shareholder value will increase when the return on capital employed (ROCE) is higher than the weighted average cost of capital.

We have been utilising this value-based corporate concept throughout the MVV Energie Group. Comparable criteria have been applied with respect to EBITA relative to capital employed. This value-based approach has put us in a position to evaluate all of our business divisions with regard to sustainability of value as well as to formulate minimum standards for windows of opportunity for future growth. In this way we intend to ensure the best possible use of capital employed and sustainable increases in shareholder value for our investors.

Determining Value Spread

Value spread is the main factor in our value-based management concept. It indicates growth in the shareholder value of our company and is calculated by comparing the return on capital employed (ROCE) and the weighted average cost of capital (WACC).

ROCE is determined by dividing earnings before interest, taxes and goodwill amortisation (EBITA) by capital employed.

WACC stands for a mean value between equity and debt capital costs and reflects the minimum demands for a commensurate return on investment on the part of our shareholders and other providers of financing. To determine the total cost of capital accurately, we calculate equity costs at market value; with debt capital we use the book value while taking the interest on debt capital as a deductible by means of a tax shield into account.

As ROCE represents pre-tax earnings, we also convert the after-tax indicator WACC into a pre-tax indicator by means of a tax shield.

The capital asset pricing model (CAPM) serves the purpose of determining equity costs, i.e., the demand for a return on investment of our shareholders. In so doing, MVV Energie set the market-risk premium at 5% (5% last year) and risk-free rate of return at 4.8% (4.5% last year). The Beta factor, which reflects the specific market risk for MVV Energie’s stock, was reduced to 0.7% (0.8% last year) for fiscal year 2002/03; MVV Energie thus followed the general estimate for its sector, which was confirmed in a number ofstudies last year.

Positive Contribution to Value Spread in 2002/03 due to a One-off Factor

In fiscal year 2002/03, the MVV Energie Group’s ROCE amounted to 14.0% (10.1% last year). With a weighted average cost of capital (WACC) before taxes of 8.8% (9.3% last year), MVV Energie thus had a positive value spread of 5.2% (0.8% last year) during the past fiscal year. This unusually high value spread is, however, solely attributable to the profits from the sale of MVV Energie’s shares in Gasversorgung Süddeutschland GmbH. When this one-off factor is not taken into effect, which can not be exactly calculated relative to ROCE, the MVV Energie Group would not have had a positive value spread in such a difficult fiscal year as 2002/03.