In November 2012, we presented our Strategy 2016 based on thorough analysis of the long-term megatrends that are relevant for Henkel, and of Henkel’s individual business units. As a result, we see considerable potential, both for further organic growth and for enhanced profitability, in all three business units.
Three megatrends played a key role in the definition of our new financial targets:
- We expect progressive consolidation among our competitors, customers and suppliers. Size will become an increasingly important factor for our ability to compete over the long term. As such, increasing our sales is essential to allow us to continue to operate successfully in our markets in the future.
- The shift of economic growth to the emerging markets of Eastern Europe, Africa/Middle East, Latin America and Asia (excluding Japan) will continue. This will require Henkel to steadily expand its position in these important markets and further increase sales in emerging markets.
- The speed and volatility of our markets will remain high and may even increase further. This requires processes and structures that are more flexible and more efficient, to enable us to respond to changes faster than our competitors. We therefore want to continuously improve our operational excellence and deliver outstanding financial performance.
That is why
- absolute sales of the corporation as a whole,
- sales in emerging markets,and
- growth in earnings per preferred share(EPS)
form the cornerstones of our financial targets through 2016.
Strategic priorities in summary
- Outperform: leverage potential in categories
In order to outperform our competitors in our individual business units, we will leverage the growth potential in our product categories even more.Inourcorecategorieswewillmakeinvestments that further strengthen and expand our leading positions. In our growth categories we will also make targeted investments, including the development of new segments. In our value categories, we will tap existing earnings potential by making suitable investments, while at the same time actively adjusting our portfolio. Between 2013 and 2016, we expect to discontinue or divest businesses and operations representing total sales of 500 million euros.
In addition to this active portfolio management, we intend to leverage the potential of our catego- ries by concentrating on three key areas: strengthening our top brands, innovations, and focusing on customers and consumers. Until 2016, we intend to increase the share of sales attributable to our top 10 brands to around 60 percent. A substantial portion of this will come from our rigorous customer orientation and particular focus on innovations.
We are also planning to open and/or significantly expand seven research and development sites in emerging markets around the world in order to underpin our claim to innovation leadership, while benefiting from the proximity to our customers and consumers in these strategically important markets.
Progress in fiscal 2013:
- In 2013 we were able to raise the share of sales attributable to our top 10 brands by 13 percentage points to 57 percent. Consistent implementation of our umbrella brand strategy again contributed to this. As a result, we came a significant step closer to our goal of 60 percent.
- We reinforced our innovation capabilities in the emerging markets by opening four research and development facilities in India, South Africa, South Korea, and the United Arab Emirates, as well as significantly expanding our site in Russia.
- Globalize: focus on regions with high potential
We will continue the successful globalization of our company in previous years and concentrate on regions and countries offering particularly high growth potential. In addition to further expanding our strong positions in mature markets, we specifically want to focus on further building our existing positions in emerging markets and on accelerating growth. We also plan to enter new markets on a selective basis.
Until the end of 2016, we plan to increase sales in emerging markets to 10 billion euros. We expect twelve countries from the emerging markets to rank among our top 20 countries with the highest sales by 2016. At the same time, we want to take full advantage of our strong positions and the potential in mature markets to increase our earning power compared to 2012 and to achieve more top positions.
Progress in fiscal 2013:
- We continued to post profitable sales growth in emerging markets combined with an increase in the share of sales from emerging markets to 44 percent.
- The mature markets contributed to EBIT growth through continued strong focus and cost efficiency
- Simplify: drive operational excellence
We will continuously improve our operational excellence to enable us to respond to the increasing speed and persisting volatility in our markets. To this end, we intend to further standardize our processes, invest in information technology (IT) to make these processes faster and more efficient and to improve our cost efficiency, and reduce the ratio of administrative costs to total sales. We also plan to further optimize our global presence by continuing to consolidate our production sites until the end of 2016. In addition, we aim to keep our net working capital relative to sales at the low level already achieved.
Plans for the future also include further optimization of our purchasing processes, and expansion of our shared services. Between 2013 and 2016, we want to reduce the number of global suppliers by about 40 percent, and increase the number of employees working in our shared service centers to more than 3,000. We also plan to establish two more shared service centers for the North Africa/ Middle East region and the greater region of China / Japan / South Korea.
Overall, we intend to raise our investments by more than 40 percent to about 2 billion euros between 2013 and 2016. Investments in IT infrastructure will be one key lever for optimizing our processes. These will increase between 2013 and 2016. We intend to reduce the complexity of our IT systems and significantly decrease the number of processes.
Progress in fiscal 2013:
- In 2013, the number of employees in shared service centers grew to more than 2,000.
- We continued to optimize our global presence and in the process have reduced our production sites by seven to 164.
- We further improved net working capital in relation to sales, reducing it to 2.3 percent.
- Inspire: strengthen our global team
Further strengthening our global team will be a key element in the successful development of Henkel.
We will adopt an even more active approach to competing internationally for talented profession- als to ensure Henkel’s continued ability to recruit and retain the best possible candidates around the world. One key driver of this will be the rigorous alignment of short-term and long-term remuneration components to individual performance and overall company performance. Team diversity with respect to nationality, gender and age/professional experience will also play an important role.
Progress in fiscal 2013:
- To promote optimal career development for all employees, we significantly expanded our program of globally harmonized training schemes offered by the Henkel Global Academy in 2013.
- We have instituted clear leadership principles throughout Henkel with the aid of Leadership Principles workshops in all regions.
- The long-term incentive (LTI) scheme for upper management levels was reviewed and restructured for the 2013 cycle in order to strengthen the motivation to perform and further support the attainment of our financial targets.
- The proportion of managers from emerging markets increased to around 31 percent