Henkel has recently presented its new strategic priorities and financial ambition, which will shape the company until 2020 and beyond, summarized as “Henkel 2020+”. Based on its strong foundation, Henkel aims to generate continued profitable growth by focusing on four strategic priorities: Driving growth, accelerating digitalization, increasing agility, and funding growth.
“We will build our future on a strong foundation, which will enable us to generate sustainable profitable growth in the coming years. At Henkel, we share the common purpose of creating sustainable value for our customers and consumers, employees, shareholders, as well as for our stakeholders and the communities in which we operate. In addition, our values guide all our actions, decisions and behaviour,” said Hans Van Bylen, Chief Executive Officer of Henkel.
Ambition for 2020+: Continue Henkel’s successful development
“We want to continue Henkel’s successful development in a highly volatile business environment. By 2020 and beyond, Henkel’s ambition is to generate more profitable growth and to become more customer-focused, more innovative, more agile, and fully digitized in our internal processes and customer-facing activities. In addition, we aim to promote sustainability in all our business activities, reinforcing our leading position,” he explained.
“In order to achieve this ambition, we will focus on driving growth, accelerating digitalization across all our businesses and functions, increasing agility in our organization and teams, and funding our growth through targeted initiatives. In addition to organic growth, acquisitions will continue to be an integral part of our strategy in order to further strengthen our portfolio. We will begin to implement our strategic priorities in a highly energized way from day one, to continue our successful development and create sustainable value” summarised Mr. Bylen.
Profitable growth and attractive returns
In a highly volatile and uncertain market environment, Henkel has defined a concrete financial ambition for the period until 2020. Over the next four years, Henkel aims to achieve an average organic sales growth between 2% and 4% with an over-proportionate contribution from emerging markets. For adjusted earnings per preferred share, Henkel targets a CAGR of 7% to 9%. This ambition for EPS growth includes the impact of currency developments and excludes major acquisitions as well as share buy-back. In addition, Henkel aims for continued improvements of its adjusted EBIT margin and free cash flow expansion.
“We have set financial ambitions for 2020 which reinforce our strong confidence in our ability to deliver excellent financial performance and attractive returns. We will continue to focus on cost discipline, improving our profitability, optimizing net working capital and generating strong cash flows. This will enable us to further invest in both organic and inorganic growth,” said Carsten Knobel, Chief Financial Officer of Henkel.
Overview of strategic priorities
- Drive Growth
Driving growth in mature and emerging markets will be a key strategic priority for Henkel. The company will launch a range of targeted initiatives to create superior customer and consumer engagement, further strengthen its leading brands and technologies, develop exciting innovations and services, and capture new sources of growth.
As part of its recently released strategic footprint, Henkel aims to fuel growth by looking at acquisitions in emerging markets. Emerging markets including India account for 55% of Henkel’s 50,000 employees. In 2015, sales in emerging markets accounted for 43% of total sales and it is expected to account for half of Henkel’s sales by 2016. In India, Henkel has been constantly driving innovations and investing heavily to reiterate its leadership position. The company has made a key investment of about Rs.220 crore for setting up the first phase of India’s largest adhesives plant in Kurkumbh, near Pune. Henkel has also established its largest research lab in the IMEA (India, Middle East, and Africa) region at Pune.
Henkel also wants to increase sales of its top-performing global brands as well as its leading local brands. Sales of the top 10 brands should increase to 75% of total group sales by 2020. Targeted acquisitions will also help complement Henkel’s portfolio, strengthen its position in attractive markets and categories, and expand into adjacent categories. In addition, the company will set-up a dedicated Venture Capital Fund with up to 150 million euros to invest in start-ups with specific digital or technological expertise.
In order to support its growth ambition, Henkel will increase its investments and raise capital expenditures (Capex) from around 2 billion euros in the period 2013 to 2016 up to 3 billion euros over the period 2017 to 2020. While Henkel aims to drive organic growth, acquisitions will be an integral part of the company’s strategy to further strengthen its portfolio. Henkel will continue to pursue potential options with a highly disciplined approach based on clear criteria: strategic fit, availability, and financial attractiveness. At the same time, Henkel is committed to its “Single A” rating.
- Accelerate Digitalization
Accelerating digitalization will help Henkel to successfully grow its business, strengthen the relationships with its customers and consumers, optimize its processes and transform the entire company. By 2020, Henkel will implement a range of initiatives to drive its digital business, leverage industry 4.0 projects, and transform the organization. “Digitally-driven” sales should be doubled to more than 4 billion euros by 2020.
- Increase Agility
In a highly volatile and dynamic business environment, increasing the agility of the organization will be a critical success factor for Henkel in the future. This will include energized and empowered teams, fastest time-to-market as well as smart and simplified processes.
- Fund Growth
In order to fund growth, Henkel will implement new approaches to optimize resource allocation, focus on net revenue management, further increase efficiency in its structures, and continue to expand its Global Supply Chain organization. Together, these initiatives will contribute to further improve profitability and enable Henkel to fund its growth ambitions for 2020 and beyond.
Sustainable value generation
“Henkel aims to create sustainable value in all dimensions of its business activities. This purpose unites all of our employees and is aligned with a set of strong values, customers and consumers, people, financial performance, sustainability, and family business,” said Hans Van Bylen.
To reinforce its commitment to sustainability, Henkel has defined clear targets to improve its resource efficiency, for example by creating more value with less resources. Henkel has defined ambitious sustainability milestones which would result in an overall efficiency improvement of 75 percent by 2020 compared to 2010.