Annual Report 2013

Fundamental principles of the Group

8.0 %

Group WACC before tax in fiscal 2013.

Cost of capital

The cost of capital is calculated as a weighted average of the cost of equity and debt capital (WACC). In fiscal 2013 we applied a WACC before tax of 8.0 percent. After tax, the figure was 5.5 percent. We regularly review our cost of capital in order to reflect changing market conditions. Starting in fiscal 2014, we will be applying a WACC of 8.5 percent before tax and 6.0 percent after tax.

We apply different WACC rates depending on the business unit involved. These are based on business unit-specific beta factors determined from a peer group benchmark. In fiscal 2013, this resulted in a WACC before tax of 7.5 percent (5.25 percent after tax) for both Laundry & Home Care and Beauty Care, and of 10.5 percent before tax (7.25 percent after tax) for Adhesive Technologies. In 2014 we will be using a weighted average cost of capital (WACC)weighted average cost of capital (WACC)
Average return on capital, calculated on the basis of a weighted average of the cost of debt and equity. WACC represents the minimum return expected of a company by its lenders for financing its assets.
of 8.5 percent before tax (6.0 percent after tax) for the Laundry & Home Care and Beauty Care business units, and 11.0 percent before tax (7.75 percent after tax) for Adhesive Technologies.

Weighted average cost of capital (WACC)
  2013 from 2014
Risk-free interest rate 2.25 % 2.75 %
Market risk premium 5.5 % 5.5 %
Beta factor 0.7 0.7
Cost of equity after tax1 6.1 % 6.7 %
     
Cost of debt capital before tax 3.2 % 3.6 %
Tax shield (30 %) – 1.0 % – 1.1 %
Cost of debt capital after tax1 2.2 % 2.5 %
     
Share of equity2
(peer group structure) 
85 % 85 %
Share of debt capital2
(peer group structure)
15 % 15 %
     
WACC after tax1 5.5 % 6.0 %
Tax rate 30 % 30 %
WACC before tax1 8.0 % 8.5 %

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WACC before tax by business unit
2013 from 2014
Laundry & Home Care 7.5 % 8.5 %
Beauty Care  7.5 % 8.5 %
Adhesive Technologies  10.5 % 11.0 %
 

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