5. CAPITAL MANAGEMENT POLICIES

The Group’s objective is to maximise the return on net invested capital while maintaining the ability to operate over time, ensuring adequate returns for its shareholders and benefits for the other stakeholders, with a sustainable financial structure.

In order to achieve these objectives, as well as pursue satisfactory earnings results and generate cash flows, the Group may adjust its dividend policy and the configuration of the Company’s capital.

The main indicators used by the Group to manage its capital are:

  1. R.O.I. (Return on Investments) - Ratio between operating income and average net invested capital: the indicator represents the capacity of business results to remunerate net invested capital, construed as the sum of non-current assets and net working capital. The Group’s objective is for this ratio to be greater than the weighted average cost of capital (WACC);
  2. Gearing: this is calculated as the ratio between net financial position and equity. It is an indicator of the sustainability of the ratio between debt and equity, which takes into account the market situation and trend in the cost of capital and debt at different times;
  3. R.O.E (Return on equity): this is calculated as the ratio between net income and average book value of equity. It is an indicator representing the Group’s ability to remunerate its shareholders. The objective is for the indicator to be higher than the rate of return on a risk-free investment, correlated to the nature of the operated businesses.

The figures for 2011 and 2010 are shown below:

(in thousands of euro)
  2011 2010
R.O.I. (operating income / average net invested capital) 16.64% 11.49%
Gearing 0.34 0.22
R.O.E. (Return on Equity) 20.89% 0.18%

 

The respective changes in R.O.I. and R.O.E. from 2010 stem mainly from the increase in operating income and net income in 2011 from 2010. The net income for 2011 benefited from the recognition of deferred tax carried forward by the parent PIRELLI & C. S.p.A.