Our new strategy through 2016, which we presented back in November 2012, follows on from the successful implementation of our strategic priorities and financial targets for 2012. As such, it represents a logical continuation and advancement of the progress achieved over the past four years.
The strategy is based on thorough analysis of the long-term megatrends that are relevant for Henkel, and of Henkel’s individual business sectors. We examined the existing portfolio of our three business sectors to see whether they were suitably positioned to allow continued successful and profitable growth in their respective environments. As a result, we see considerable potential, both for further organic growth and for enhanced profitability, in all three business sectors.
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 emerging markets will continue. This will require Henkel to steadily expand its position in these important markets and further increase our 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 sectors, we will leverage the growth potential in our product categories even more. In our core categories we will make investments that further strengthen and expand our leading positions. In our growth categories we will make targeted investments and we will build up 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. Over the next four years, we expect to discontinue or divest businesses and operations that generate total sales of 500 million euros.
In addition to this active portfolio management, we intend to leverage the potential of our categories by concentrating on three key areas: strengthening our top brands, innovations, and focusing on customers and consumers. Between now and 2016, we intend to increase the share of sales attributable to our top 10 brands to about 60 percent from a current 44 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.
- 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 position 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.
Between now and the end of 2016, we plan to increase sales in emerging markets to 10 billion euros. We expect twelve countries from the emerging regions 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.
- 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 between now and 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. By 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 in property, plant and equipment by more than 40 percent to about 2 billion euros between now and 2016. Investments in IT infrastructure will be one key lever for optimizing our processes. These will increase between now and 2016 compared to the past four years. We intend to reduce the complexity of our IT systems and significantly decrease the number of processes.
- Inspire: strengthen our global team
Further strengthening our global team will be a key element in the successful development of Henkel. This process will be helped by the training and development programs that have already been successfully put in place, such as the Executive Resource Program for top Henkel managers.
We will adopt an even more active approach to competing internationally for talented professionals to ensure Henkel’s continued ability to recruit 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.
In order to successfully implement our strategy and achieve our ambitious targets, we need to ensure that our employees worldwide have a clear understanding of the new Henkel strategy and know how they can specifically help to implement it. Within the space of four weeks from the announcement back in November 2012, we therefore organized a large number of information events in about 50 countries – half of which were attended by Henkel Management Board members – to present the new Henkel strategy and financial targets for 2016 to our employees.