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More Henkel Corporate Reporting 2014
In 2014, we achieved our financial targets, made very good progress with our strategy implementation and laid a strong foundation to achieve our targets for 2016.
In 2014, we made very good progress in implementing our strategy and delivering on our financial targets.
Guided by our long-term vision to become a global leader in brands and technologies, a set of shared values, a clear strategy and ambitious targets for the period up to 2016, we were able to navigate our company through a challenging, volatile global environment.
In 2014, the global economy achieved only moderate growth. The conflict between Russia and Ukraine impacted the overall economic situation beyond Eastern Europe, in particular during the second half of the year. While emerging markets continued to grow faster than mature markets, their momentum slowed during the year. This development was accentuated by the ongoing devaluation of many emerging market currencies as well as continued unrest in the Middle East. In the mature markets, the eurozone still did not return to stable growth, while Germany benefited from rising employment numbers and modest economic growth. The US economy improved during the year on the back of lower energy costs, higher employment and improving business dynamics.
Excellence in execution and our continued cost focus helped us to meet our financial targets for fiscal 2014 and make progress toward our financial targets for the period up to 2016: 20 billion euros sales, 10 billion euros emerging markets sales and 10 percent compound annual growth (CAGR) in adjusted earnings per preferred share (EPS).
At the beginning of 2014, the Henkel family extended its share-pooling agreement, which covers around 61 percent of the ordinary voting shares. The agreement was concluded for an indefinite term and can now first be terminated as of December 31, 2033. As the Management Board, we welcome and appreciate the family’s long-term commitment to the company and the trust they put into Henkel’s strategy and future growth potential.
In 2014, Henkel reported Group sales of 16,428 million euros, representing solid organic growth of 3.4 percent. Reported sales were slightly above previous-year level. Adjusted1 earnings before interest rates and taxes (EBIT) grew by 2.9 percent to 2,588 million euros compared to 2,516 million euros in 2013. Adjusted1 return on sales climbed to 15.8 percent, a strong increase over the 15.4 percent in the previous year. Adjusted1 earnings per preferred share (EPS) grew 7.6 percent to 4.38 euros.
All three business units contributed with profitable organic growth to this good performance. As in previous years, emerging markets were the main growth drivers for Henkel. They reported very strong organic growth of 7.8 percent, while on a reported basis sales were slightly above the level of the previous year, mainly due to negative exchange rates. In mature markets, organic sales were up slightly.
We generated cash flow from operating activities of 1,914 million euros and invested substantially in strengthening our business. Capital expenditures (excluding acquisitions) rose to 517 million euros after 436 million euros in the previous year. In addition, we closed a number of sizeable acquisitions to strengthen all three business units with a total volume of 1.8 billion euros.
At the Annual General Meeting on April 13, 2015, we will propose to our shareholders a dividend payment of 1.31 euros per preferred share. This represents an increase of 7.4 percent compared to the 1.22 euros paid out in 2014.
“We will outperform our competition as a globalized company with simplified operations and a highly inspired team.” By focusing on this strategy, combined with high flexibility and fast response to changing market conditions, we were able to make 2014 another successful year for Henkel.
We continued to strengthen our top brands in 2014. The share of sales generated by our top 10 brands further increased from 57 percent to 59 percent of total sales. Our top three brands, Persil, Schwarzkopf and Loctite, generated around 5 billion euros. This is a result of our ongoing investments in innovation and brand equity. Strong, recognized brands generate higher margins and drive our performance in highly competitive global markets.
Successful innovations are key in all our business units. Over the past years, we have continuously expanded existing research and development centers and opened new ones, especially in emerging markets such as India, South Africa and South Korea. In 2014, we generated more than 45 percent of sales in our Laundry & Home Care and Beauty Care businesses with products launched within the last three years. In our Adhesive Technologies business, the share of sales from products launched within the last five years increased to more than 30 percent.
We continued to strengthen the close relationships with our major retail and industrial customers. This commitment to customer focus helped us to generate a growing share of sales with them.
In 2014, the share of emerging market sales amounted to 44 percent, at the level of the previous year, as a number of emerging market currencies declined. Despite higher volatility and adverse currency developments in these countries, we are firmly committed to further strengthening our market positions, expanding into new segments and selectively entering new markets.
In mature markets, we reported organic growth slightly above the previous year. We benefited from our established strong market positions across a broad range of categories as well as the overall positive economic development in our home market Germany. In the US market, however, we were not able to capture the full growth potential.
We enhanced our global footprint in 2014 through a number of targeted acquisitions: The acquisition of the Spotless Group will strengthen the position of our Laundry & Home Care business in Western Europe. We also bought three US hair professional companies, making Henkel one of the top three companies in the world’s largest hair professional market. With the acquisition of The Bergquist Company in the USA, we will be able to market Bergquist’s leading thermal management technologies to our customers on a global scale, both in mature and emerging markets.
We are convinced that digitization can create important competitive advantages for our company. Consequently, we have progressed the development of standardized, scalable business platforms to become faster and more efficient. This includes the start of the rollout of our integrated SAP platform in Europe after its successful launch in Asia in 2013. In addition, we converted over 45,000 users at Henkel to a new digital workplace environment which will enable better collaboration and networking for our employees around the world.
In 2014, we began to combine our supply chain and sourcing activities into an integrated global supply chain organization and expanded our network of global sourcing hubs.
Only a strong global team can drive excellent performance – especially in a challenging business environment. We put particular emphasis on attracting, developing and retaining talents especially in emerging markets, through specifically designed programs. At the same time, we aim to continuously improve and strengthen our leadership team and foster a unique performance culture at Henkel. We are proud that we were also able to promote around 1,150 employees over the course of the year.
For a global company, a diverse workforce that unites different cultural backgrounds and work experience is an important success factor. We actively manage diversity and have made significant progress over the past years. In 2014, the share of employees in emerging markets was around 57 percent and the share of female managers increased to around 33 percent (excluding acquisitions).
Henkel has had a long-standing commitment to sustainability. We have defined a long-term strategy for our company, aiming at becoming three times more efficient by 2030 than in the base year 2010 – we want to improve by “Factor 3.”
We made very good progress toward these highly ambitious targets in 2014. We have already achieved the intermediate targets we set for 2015 in four out of our six sustainability focal areas. This strong performance has been recognized externally. We again achieved leading positions in the Dow Jones Sustainability Index as well as in several other rankings and indices.
2014 was a successful year for Henkel in many respects. We achieved our financial targets, made very good progress with our strategy implementation and laid a strong foundation to achieve our targets for 2016. On behalf of the Management Board, I would like to thank all Henkel employees for their dedication and contribution to our business performance. I would also like to thank our supervisory bodies for their extremely valuable advice.
On behalf of Henkel, I would like to especially thank you, our shareholders, for your trust and support. We also thank our customers around the world for their confidence in our company, people, brands and technologies.
Everyone at Henkel is fully committed to our strategy and targets. We are well on track and will continue relentlessly to implement our strategy globally and to deliver excellent performance.
Düsseldorf, January 30, 2015
Chairman of the Management Board
1Adjusted for one-time charges / gains and restructuring charges.