Annual Report • Mar 6, 2017
Annual Report
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Annual Report 2016
Our top brands
Sales
+2.8 %
organic sales growth
Our top brands
Sales
+2.1 %
organic sales growth
Our top brands
Sales
+4.7 %
organic sales growth
pp = percentage points
1 Adjusted for one-time charges/gains and restructuring expenses.
Sales Beauty Care 7
Key financials Beauty Care 6
| in million euros | 2015 | 2016 | +/– |
|---|---|---|---|
| Sales | 3,833 | 3,838 | 0.1% |
| Operating profit (EBIT) | 561 | 526 | –6.2% |
| Adjusted1 operating profit (EBIT) | 610 | 647 | 6.1% |
| Return on sales (EBIT) | 14.6% | 13.7% | –0.9pp |
| Adjusted1 return on sales (EBIT) | 15.9% | 16.9% | 1.0pp |
| pp = percentage points |
1 Adjusted for one-time charges/gains and restructuring expenses.
3,510 2013
2012
3,547 3,833 3,838 0 2,000 4,000 6,000 8,000 2014 2015 2016
| in million euros | 2015 | 2016 | +/– |
|---|---|---|---|
| Sales | 5,137 | 5,795 | 12.8% |
| Operating profit (EBIT) | 786 | 803 | 2.2% |
| Adjusted1 operating profit (EBIT) | 879 | 1,000 | 13.7% |
| Return on sales (EBIT) | 15.3% | 13.9% | –1.4pp |
| Adjusted1 return on sales (EBIT) | 17.1% | 17.3% | 0.2pp |
pp = percentage points
1 Adjusted for one-time charges/gains and restructuring expenses.
3,542
in million euros
10,000
EBIT
+3.1%
organic sales growth 16.9 %
adjusted1 return on sales (EBIT): up 0.7 percentage points
EPS
5.36euros
adjusted1 earnings per preferred share (EPS): up 9.8 percent
Dividend
dividend per preferred share 2
| 2012 | 2013 | 2014 | 2015 | 2016 | +/– | |
|---|---|---|---|---|---|---|
| in million euros | 2015 – 2016 | |||||
| Sales | 16,510 | 16,355 | 16,428 | 18,089 | 18,714 | 3.5% |
| Operating profit (EBIT) | 2,199 | 2,285 | 2,244 | 2,645 | 2,775 | 4.9% |
| Adjusted 1 operating profit (EBIT) |
2,335 | 2,516 | 2,588 | 2,923 | 3,172 | 8.5% |
| Return on sales (EBIT) in % | 13.3 | 14.0 | 13.7 | 14.6 | 14.8 | 0.2pp |
| Adjusted 1 return on sales (EBIT) in % |
14.1 | 15.4 | 15.8 | 16.2 | 16.9 | 0.7pp |
| Net income | 1,526 | 1,625 | 1,662 | 1,968 | 2,093 | 6.4% |
| Attributable to non-controlling interests | 46 | 36 | 34 | 47 | 40 | –14.9% |
| Attributable to shareholders of Henkel AG & Co. KGaA | 1,480 | 1,589 | 1,628 | 1,921 | 2,053 | 6.9% |
| Earnings per preferred share in euros | 3.42 | 3.67 | 3.76 | 4.44 | 4.74 | 6.8% |
| Adjusted 1 earnings per preferred share in euros |
3.63 | 4.07 | 4.38 | 4.88 | 5.36 | 9.8% |
| Adjusted 1 earnings per preferred share in euros (2012 before IAS 19 revised) |
3.70 | 4.07 | 4.38 | 4.88 | 5.36 | 9.8% |
| Return on capital employed (ROCE) in % | 18.7 | 20.5 | 19.0 | 18.2 | 17.5 | –0.7pp |
| Dividend per ordinary share in euros | 0.93 | 1.20 | 1.29 | 1.45 | 1.602 | 10.3% |
| Dividend per preferred share in euros | 0.95 | 1.22 | 1.31 | 1.47 | 1.622 | 10.2% |
pp = percentage points
1 Adjusted for one-time charges/gains and restructuring expenses.
2 Proposal to shareholders for the Annual General Meeting on April 6, 2017.
Corporate = sales and services not assignable to the individual business units.
1 Eastern Europe, Africa /Middle East, Latin America, Asia (excluding Japan).
Our purpose
Leading with our innovations, brands and technologies.
Serving our customers and consumers worldwide as the most trusted partner with leading positions in all relevant markets and categories – as a passionate team united by shared values.
We put our customers and consumers at the center of what we do.
We value, challenge and reward our people.
We drive excellent sustainable financial performance.
We are committed to leadership in sustainability.
We shape our future with a strong entrepreneurial spirit based on our family business tradition.
"Our ambition is to generate more profitable growth and to become more customer-focused, innovative, agile and digital."
Hans Van Bylen Chairman of the Management Board
2016 was a very special year for Henkel. We celebrated our 140th birthday, agreed and closed the second-largest acquisition in our company's history, achieved new record levels of sales and earnings, met our financial targets for the year – and at the end of 2016, we announced our ambitions and strategic priorities for 2020 and beyond.
We are committed to continue our successful development and create sustainable value based on a strong foundation: We hold top positions with our different businesses in key markets, categories and industry segments around the world and a well-diversified portfolio with strong brands and leading technologies. We have an excellent track record of financial performance and a strong reputation in the financial markets. As a recognized leader in sustainability, we drive progress along the entire value chain – from our suppliers to our customers and consumers. All of this is only possible thanks to a highly engaged and passionate global team, united by a common purpose and strong values.
In fiscal 2016, we achieved new record levels for sales and earnings and met our financial targets for the year in a challenging and volatile market environment. Our shares again outperformed the DAX.
Henkel Group sales grew to 18,714 million euros compared to 18,089 million euros in the previous year. Organic sales growth was 3.1 percent. Adjusted¹ earnings before interest and taxes (EBIT) grew by 8.5 percent to 3,172 million euros compared to 2,923 million euros. Adjusted return on sales improved to 16.9 percent compared to 16.2 percent. Adjusted earnings per preferred share grew to 5.36 euros, an increase of 9.8 percent compared to 4.88 euros in the previous year.
All three business units again delivered solid organic growth and further improved their results in 2016. Emerging markets generated total sales of 7,814 million euros and strong organic growth of 6.8 percent. We also achieved positive organic sales growth in our mature markets.
At our Annual General Meeting on April 6, 2017, we will propose to our shareholders a dividend payment of 1.62 euros per preferred share. This represents an increase of 10.2 percent compared to the 1.47 euros paid out in 2016.
In summary, 2016 was a very important and successful year for Henkel: We delivered a strong business performance, strengthened our company and laid the foundation to continue our successful development in the future.
2016 was also a special year for me, personally. In January, the Shareholders' Committee decided to name me as new Chairman of the Management Board of Henkel. After more than 30 years with the company and more than 10 years on the Management Board, I was honored by the trust expressed through this appointment. On May 1, 2016, I took on my new role, committed to continue the successful development of our company in the future together with our strong global team.
At this point, I would also like to thank Kasper Rorsted, Chairman of the Management Board of Henkel from 2008 until 2016, for his significant contribution to Henkel's successful evolution during this period. Under his leadership, our company has become more competitive, more efficient and more successful.
organic sales growth. +3.1 %
adjusted1 return on sales. 16.9 %
adjusted1 earnings per preferred share. +9.8 %
1 Adjusted for one-time charges/gains and restructuring expenses.
The fiscal year 2016 also marks the end of our strategy cycle 2013 – 2016. For this period, Henkel had defined ambitious financial targets of 20 billion euros in total sales, 10 billion euros of which in emerging markets, and a compound annual growth rate (CAGR) of 10 percent in adjusted earnings per preferred share.
Henkel delivered a strong business performance over the past four years. We delivered good organic sales growth in key markets, gaining market share thanks to our strong brands and innovations. However, we faced substantial negative currency impacts over the four-year period, mostly in emerging markets. The translation to our reporting currency, the euro, had a net negative effect in excess of 1 billion euros on our global sales and of around 1.5 billion euros on our emerging markets sales ambition.
As we continuously improved efficiency, we were able to deliver 9.7 percent adjusted earnings per preferred share CAGR over the period 2013 – 2016 despite significant negative currency impacts on our earnings. This is a very strong performance which differentiates Henkel from its key competitors in both the consumer and the industrial businesses.
In June 2016, we announced the acquisition of The Sun Products Corporation, based in Wilton, Connecticut, USA, for a total value of around 3.2 billion euros. This is the second-largest acquisition in our company's history. On September 1, we closed the transaction and started the integration process, which is now well underway. The acquisition of The Sun Products Corporation marks a step change for our Laundry & Home Care business, adds highly attractive and established brands to our portfolio and propels Henkel to a strong number 2 position in the United States, the world's largest laundry and home care market, as well as in Canada.
We are proud of our unique company culture, expressed by our purpose, vision, mission and values, which create a clear framework for how we do business, run our company and act responsibly in everything we do.
We want to create sustainable value – for all our stakeholders. This purpose unites our employees and is complemented by a set of strong values: customers and consumers, people, financial performance, sustainability, and family business.
Through to 2020 and beyond, our ambition for Henkel is to generate more profitable growth and to become more customer-focused, innovative, agile and digital. In addition, we will promote sustainability in our business activities along the entire value chain, reinforcing our long-standing commitment to leadership in sustainability.
Over the next four years, we aim to generate average organic sales growth of between 2 and 4 percent. For adjusted earnings per preferred share, our target is a compound annual growth rate (CAGR) of 7 to 9 percent. This ambition for EPS growth includes the impact of currency developments but excludes major acquisitions and share buy-backs. In addition, we will strive to improve our adjusted EBIT margin. We are also aiming for further expansion of our free cash flow.
In order to achieve our ambitions, we have defined four clear strategic priorities: drive growth, accelerate digitalization, increase agility and fund growth. Together with our values, these priorities define our focus areas through to 2020.
On behalf of the Management Board, I would like to thank all our employees around the world for their passion and relentless focus on driving business success, engaging with our customers and consumers, developing innovative solutions and strengthening our brands. Their commitment makes the difference for our success.
We are grateful to our supervisory bodies for their valuable advice and would also like to thank you, our shareholders, for your continued trust and support. And finally, we would like to thank our customers and consumers around the world for their confidence in our company, our strong brands and leading technologies.
We are fully committed to creating sustainable value for you.
Düsseldorf, January 30, 2017
Sincerely,
Hans Van Bylen Chairman of the Management Board
"Given our successful business performance and clear strategic priorities, we believe that Henkel is well equipped to face the future."
Dr. Simone Bagel-Trah Chairwoman of the Shareholders' Committee and the Supervisory Board
The economic and political environment in which Henkel operates again proved to be challenging in 2016, with widespread uncertainty prevailing. Global economic growth was no more than moderate overall, and some emerging markets lost momentum. Fluctuations on the currency markets were again severe. In spite of these general conditions, we are very satisfied with developments in fiscal 2016. Henkel's business performance was again strong, with both sales and profits reaching new all-time highs. All of our business units contributed to this success with organic sales growth and a marked improvement in earning power.
In the 140th year since it was founded, Henkel is extremely well placed with its diversified portfolio, leading positions in its markets and categories, and its strong brands and innovative technologies.
On behalf of the Supervisory Board, I would like to thank all of our employees at Henkel for their dedicated commitment and help in securing the continuing successful development of our company. My thanks are equally due to the members of the Management Board who have steered the company successfully through these challenging times. I am also grateful to our employees' representatives and works councils for their unwavering constructive support in growing the company.
Last but not least, I extend my special thanks to you, our shareholders, for your continued confidence in our company, its management and employees, and our brands and technologies over this past fiscal year.
In fiscal year 2016, the Supervisory Board continued to discharge its duties diligently in accordance with the legal statutes, Articles of Association and rules of procedure governing our actions. In particular, we consistently monitored the work of the Management Board, advising and supporting it in its stewardship, in the strategic development of the corporation, and in decisions relating to matters of major importance.
In 2016, the Management Board and Supervisory Board continued to cooperate through extensive dialog founded on mutual trust and confidence. The Management Board kept us regularly and extensively informed of all major issues affecting the corporation's business and our Group companies with prompt written and oral reports. Specifically, the Management Board reported on the business situation, operational development, business policy, profitability issues, our short-term and long-term corporate, financial and personnel plans, as well as capital expenditures and organizational measures. Quarterly reports focused on the sales and profits of Henkel Group as a whole, with further analysis by business unit and region. The members of the Supervisory Board consistently had sufficient opportunity to critically review and address the issues raised by each of these reports and to provide their individual guidance in both the Audit Committee and in plenary Supervisory Board meetings.
Outside of Supervisory Board meetings, the Chairman of the Audit Committee and I, as Chairwoman of the Supervisory Board, remained in regular contact with individual members of the Management Board or with the Management Board as a whole. This procedure ensured that we were constantly aware of current business developments and significant events. The other members were informed of major issues no later than by the next Supervisory Board or committee meeting.
The Supervisory Board and the Audit Committee each held four regular meetings in the reporting year. One extraordinary meeting of the Supervisory Board was also convened. Attendance at the Supervisory Board and committee meetings was around 95 percent and around 83 percent respectively.
There were no indications of conflicts of interest involving Management Board or Supervisory Board members that required immediate disclosure to the Supervisory Board and reporting to the Annual General Meeting.
In each of our meetings, we discussed the reports submitted by the Management Board, conferring with it on the development of the corporation and on strategic issues. We also discussed the overall economic situation and Henkel's business performance.
In our meeting on February 23, 2016, we focused on approving the annual and consolidated financial statements for 2015, including the risk report and corporate governance report. We also discussed the findings from the Supervisory Board efficiency audit, and approved both the 2016 Declaration of Compliance and our proposals for resolution by the 2016 Annual General Meeting. A detailed report of this was included in our last Annual Report. At the same meeting, we discussed the performance of our business units, the initiatives of our Finance division, and personnel management in Western Europe.
Key items on the agenda for our meeting on April 11, 2016 included the constitution of the Supervisory Board and general business performance in the first few months of the year, together with the status of our ONE!Global Supply Chain project and the initiatives and actions that were put in place in the individual regions to strengthen our global team, such as improved recruitment concepts, flexible work time models, job rotations and training programs. We also addressed the integration of our newly acquired companies.
Our meeting on September 23, 2016 included a detailed discussion of the acquisition and integration of The Sun Products Corporation, a laundry and home care company based in Wilton, Connecticut, USA, and of business performance and market trends in North America. We also addressed issues relating to Henkel's future strategic direction.
In an extraordinary meeting on November 16, 2016, we concentrated specifically on our new strategic priorities that will shape the company up to 2020 and beyond, on the implementation of these priorities in the individual business units and on our financial ambition for the period between 2017 and 2020.
Our meeting on December 9, 2016 focused on the expected results for 2016 and our assets and financial planning for fiscal 2017. We also discussed in detail the associated budgets of our business units based on comprehensive documentation. The challenges that our people face as a result of increasing digitalization formed a further topic for discussion.
In order to enable us to efficiently comply with the duties incumbent upon us according to legal statute and our Articles of Association, we have established an Audit Committee and a Nominations Committee. The Audit Committee was chaired in the year under review by Prof. Dr. Theo Siegert, who complies with the statutory requirements of impartiality and expertise in the fields of accounting or auditing and brings experience in the application of accounting principles and internal control procedures. For more details on the responsibilities and composition of these committees, please refer to the corporate governance report on pages 29 to 38 and the membership lists on page 185 of this Annual Report.
Following the appointment of the external auditor by the 2016 Annual General Meeting, it was mandated by the Audit Committee to audit the annual financial statements and the consolidated financial statements, and to review the interim financial reports for 2016. The audit fee and focus areas of the audit were also established. The Audit Committee again obtained the necessary validation of auditor independence for the performance of these tasks. The auditor has informed the Audit Committee that there are no circumstances that might give rise to a conflict of interest in the execution of its duties.
The Audit Committee met four times in the year under review. The Chairman of the Audit Committee also remained in regular contact with the auditor outside of the meetings. The meetings and resolutions were prepared through the provision of reports and other information by the Management Board. The Chair of the Committee reported promptly and in full to the plenary Supervisory Board on the content and results of each of the Committee meetings.
The company and Group accounts, including the interim (quarterly and half-year) financial reports were discussed at all Audit Committee meetings, with all matters arising being duly examined with the Management Board. The three meetings at which we discussed and approved the interim financial reports were attended by the auditor. The latter reported on the results of the reviews and on the main issues and occurrences relevant to the work of the Audit Committee. There were no objections raised in response to these reports.
The Audit Committee also focused in greater detail on the accounting process and the efficacy and further development of the Group-wide Internal Control and Risk Management systems. The efficiency of the risk management system was reviewed, based on
the risk reports of previous years. In addition, the Audit Committee received the report of the General Counsel & Chief Compliance Officer regarding major litigations and compliance within the Group, as well as the status report of the Head of Internal Audit, and approved the audit plan prepared and submitted by Internal Audit. This extends to examining the functional efficiency and efficacy of the Internal Control System and our compliance organization. Another key item on the agenda was implementation of the EU Audit Reform: We revised the catalog of permissible non-audit-related services that an auditor may provide, and defined relevant approval processes, including monetary caps. The Audit Committee likewise discussed treasury risks and their management.
At its meeting on February 20, 2017, attended by the auditor, the Audit Committee discussed the annual and consolidated financial statements for fiscal 2016, including the audit reports, the associated proposal for appropriation of profit, and the risk report, and prepared the corresponding resolutions for the Supervisory Board. It also recommended that the Supervisory Board should propose to the Annual General Meeting the election of KPMG as auditor for fiscal year 2017. A declaration from the auditor asserting its independence was again duly received, accompanied by details pertaining to non-audit services rendered in fiscal 2016 and those envisioned for fiscal 2017. There was no evidence of any bias or partiality on the part of the auditor.
As in previous years, other members of the Supervisory Board took part as guests in this specifically accounting-related meeting of the Audit Committee.
As already reported, the members of the Nominations Committee prepared the resolution for the Supervisory Board relating to its recommendations for the election of new shareholder representatives at the 2016 Annual General Meeting.
The Supervisory Board again dealt with questions of corporate governance in the reporting year. Details of Henkel's corporate governance can be found in the management report on corporate governance (pages 29 to 38 of this Annual Report), with which we fully acquiesce.
At our meeting on February 21, 2017, we discussed and approved the joint Declaration of Compliance for 2017 to be submitted by the Management Board, Shareholders' Committee and Supervisory Board, as specified in the German Corporate Governance Code [DCGK]. The full wording of the current and previous declarations of compliance can be found on the company website.
In its capacity as auditor appointed for 2016 by the Annual General Meeting, KPMG examined the annual financial statements prepared by the Management Board in accordance with the provisions of the German Commercial Code [HGB], and the consolidated financial statements, together with the consolidated management report, which has been combined with the management report for Henkel AG & Co. KGaA for 2016. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU), and in accordance with the supplementary German statutory provisions pursuant to Section 315a (1) of the HGB. The consolidated financial statements in their present form exempt us from the requirement to prepare consolidated financial statements in accordance with German law.
KPMG conducted its audits in accordance with Section 317 of the HGB and German generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany [Institut der Wirtschaftsprüfer, IDW]. Unqualified audit opinions were issued for both the annual and the consolidated financial statements.
The annual financial statements, consolidated financial statements and combined management report, the audit reports of KPMG and the recommendations by the Management Board for the appropriation of the profit made by Henkel AG & Co. KGaA were presented in good time to all members of the Supervisory Board. We examined these documents and discussed them at our meeting on February 21, 2017. This was attended by the auditor, which reported on its main audit findings. We received and approved the audit reports. The Chair of the Audit Committee provided the plenary session of the Supervisory Board with a detailed account of the treatment of the annual financial statements and the consolidated financial statements by the Audit Committee. Having received the final results of the review conducted by the Audit Committee and concluded our own examination, we see no reason for objection to the aforementioned documents. We have agreed to the results of the audit. The assessment by the Management Board of the position of the company and the Group coincides with our own appraisal. At our meeting on February 21, 2017, we concurred with the recommendations of the Audit Committee and therefore approved the annual financial statements, the consolidated financial statements and the combined management report as prepared by the Management Board.
Additionally, we discussed and approved the proposal by the Management Board to pay out of the unappropriated profit of Henkel AG & Co. KGaA a dividend of 1.60 euros per ordinary share and of 1.62 euros per preferred share, and to carry the remainder and the amount attributable to the treasury shares held by the company at the time of the Annual General Meeting forward to the following year. This proposal takes into account the financial and earnings position of the corporation, its medium-term financial and investment planning, and the interests of our shareholders.
In our meeting on February 21, 2017, we also ratified our proposal for resolution by the Annual General Meeting relating to the appointment of the external auditor for the next fiscal year, based on the recommendations of the Audit Committee. Neither the recommendation by the Audit Committee nor the Supervisory Board's proposal to elect KPMG as auditor for 2017 were unduly influenced by any third party; nor were agreements reached that might have restricted the choice of possible auditors.
Risk management issues were examined not only by the Audit Committee but also the plenary Supervisory Board, with emphasis on the risk management system in place at Henkel and any major individual risks of which we needed to be notified. There were no identifiable risks that might jeopardize the continued existence of the corporation as a going concern. The structure and function of the risk early warning system were also integral to the audit performed by KPMG, which found no cause for reservation. It is also our considered opinion that the risk management system corresponds to the statutory requirements and is fit for the purpose of early identification of developments that could endanger the continuation of the corporation as a going concern.
A number of changes took place in the composition of the Supervisory Board and Management Board, some of which we already reported on last year.
Béatrice Guillaume-Grabisch resigned from the Supervisory Board effective end of business on March 31, 2016. Boris Canessa and Ferdinand Groos left the Supervisory Board following the routine election of new shareholder representatives by the 2016 Annual General Meeting. Johann-Christoph Frey, Benedikt-Richard Freiherr von Herman and Timotheus Höttges were newly appointed to the Supervisory Board; all other shareholder representatives were re-elected.
During its constituent meeting, I was elected to chair the Supervisory Board, and Winfried Zander was confirmed as Vice Chair. We also made new appointments to the Audit and Nominations Committees.
Effective January 1, 2017, Mayc Nienhaus, employee representative, left the Supervisory Board and was replaced by Angelika Keller.
Kasper Rorsted left the company on April 30, 2016, at his own request. Hans Van Bylen was appointed new Chairman of the Management Board with effect from May 1, 2016.
Hans Van Bylen started his successful career at Henkel back in 1984 and has many years of experience managing different businesses of Henkel at international level. Prior to his appointment as Chairman of the Management Board, he had held responsibility on the Management Board for our Beauty Care business unit since 2005.
Pascal Houdayer, who had previously held the position of Corporate Senior Vice President in the Laundry & Home Care business unit since 2011, was appointed to the Management Board effective March 1, 2016, and succeeded Hans Van Bylen as Executive Vice President with lead responsibility for the Beauty Care business unit as of May 1, 2016.
We thanked the departing members of the Supervisory Board and Management Board – some of whom had been members for many years – for their successful dedication to the interests of the company. Our particular thanks go to Kasper Rorsted, who spent eight of his eleven years on the Management Board as Chairman, for driving Henkel's successful business performance.
We are delighted to close fiscal 2016 on a successful note. At the same time, we expect 2017 and beyond to pose further challenges for both our employees and the company's management. Given our successful business performance and clear strategic priorities, we believe that Henkel is well equipped to face the future.
We thank you for your ongoing trust and support.
Düsseldorf, February 21, 2017
On behalf of the Supervisory Board
Dr. Simone Bagel-Trah (Chairwoman)
Henkel 2020+
We shape our future guided by a clear, long-term strategy based on our purpose, our vision, our mission and our values.
Driving growth in mature and emerging markets will be a key strategic priority for Henkel. In order to achieve this, we will focus on targeted initiatives to create superior customer and consumer engagement, strengthen our leading brands and technologies, develop exciting innovations and services, and capture new sources of growth.
Accelerating digitalization will help us to successfully grow our business, strengthen the relationships with our customers and consumers, optimize our processes and transform the entire company. By 2020, we will implement a range of initiatives to drive our digital business, leverage Industry 4.0, and eTransform the organization.
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 require energized and empowered teams, fastest time-to-market as well as smart and simplified processes.
In order to fund growth, we will implement new approaches to optimize resource allocation, focus on net revenue management, further increase efficiency in our structures, and continue to expand our Global Supply Chain organization. Together, these initiatives will contribute to further improving profitability and enable us to fund our growth ambitions for 2020 and beyond.
We want to create sustainable value – for our customers and consumers, for our people, for our shareholders as well as for the wider society and communities in which we operate.
We have a clear ambition for our future: We want to generate sustainable profitable growth through to 2020 and beyond. To achieve this, we want to become more customer-focused, more innovative, agile and digital. In addition, we aim to promote sustainability in all our business activities, reinforcing our leading positions in the future.
Over the next four years, we are aiming to achieve average organic sales growth of between 2 and 4 percent. For adjusted earnings per preferred share, we are targeting a compound annual growth rate (CAGR) of 7 to 9 percent. This ambition for EPS growth includes the impact of currency developments but excludes major acquisitions as well as share buy-backs. In addition, we are aiming for continued improvements of our EBIT margin and free cash flow expansion.
In order to achieve our ambitions, we will be focusing on four strategic priorities over the coming years: drive growth, accelerate digitalization, increase agility and fund growth.
We are also pursuing ambitious sustainability targets. We want to reinforce our commitment to sustainability and improve our resource efficiency. With this goal in mind, we have set challenging interim targets through to 2020: Compared to the base year 2010, we are aiming for an overall efficiency improvement of 75 percent by 2020. In addition, we want to train all employees worldwide to become sustainability ambassadors.
Henkel 2020+
In a series of employee meetings around the world at the end of 2016, the Management Board presented and discussed in detail the ambition and strategic direction of Henkel through to 2020 and beyond. This has laid the foundation for all our people worldwide to fully engage with our strategic priorities.
In Düsseldorf, Germany
In Vienna, Austria
In Santa Fe, Mexico City, Mexico
Chairman of the Management Board
Born in Berchem, Belgium on April 26, 1961; with Henkel since 1984.
Executive Vice President Finance (CFO) /Purchasing / Integrated Business Solutions
Born in Marburg / Lahn, Germany on January 11, 1969; with Henkel since 1995.
Executive Vice President Human Resources / Infrastructure Services
Born in Pritzwalk, Germany on October 16, 1964; with Henkel since 1999.
In Shanghai, China
Executive Vice President Adhesive Technologies
Born in Cologne, Germany on February 1, 1968; with Henkel since 1984.
In Moscow, Russia
Executive Vice President Beauty Care
Born in Eaubonne, France on July 5, 1969; with Henkel since 2011.
In Milan, Italy
Executive Vice President Laundry & Home Care
Born in Paris, France on December 22, 1965; with Henkel since 1990.
Modern adhesive technologies make a difference in virtually all areas of business activity and our everyday lives: from smartphones to food packaging, from cars to airplanes, from construction to industrial plants. Around the world, we offer high-impact solutions and products as the leading supplier of adhesive technologies.
Together with our customers, our experts develop pioneering innovations and customized products that generate competitive advantages and create sustainable value.
For example, Henkel has been a partner in the aviation and aerospace industry for more than 40 years, predominantly for its high-performance adhesives and system solutions for surface treatment applications.
Our compound and structural adhesives allow increased use of lightweight construction materials made of carbon and glass fibers in aircraft engineering. They enable wings, tail components and fuselage segments to bear loads ten times greater than the capacity of equivalent conventional metal structures.
We have, for example, a long-standing partnership with Airbus built on our exceptional technological expertise and innovative strengths. The photo taken in the Airbus assembly hall in Hamburg shows Guido Adolph from Henkel (right) discussing the optimal application of our 2C adhesive, Loctite EA 9394, with Andre Aldag, who heads up the Manufacturing Engineering team at Airbus.
www.annualreport.henkel.com/stories/ adhesive-technologies
Our mega-brand Schwarzkopf generates more than 2 billion euros in sales per year and is the core of our Beauty Care business unit. For almost 120 years, Schwarzkopf has been setting trends, defining new looks and developing successful innovations for millions of consumers around the world as well as for professional hairdressers.
Schwarzkopf Professional, the Hair Salon business of our Beauty Care business unit, works with more than 500,000 clients globally. With our strong "passion for hair," we support our partners, the hairdressers, in successfully running and growing their salon business – with our innovative products but also with inspiration for new creations, technical training and business advice. The world of hairdressing is constantly evolving and successfully developing with new global techniques, trends and innovations.
The Berendowicz & Kublin salon in Warsaw, Poland, has been working with Schwarzkopf Professional since 2013. In our photo, salon owner Emil Zawisza (left) is discussing the new BC Fibre Force product range with Magdalena Wieczorek and Jaroslaw Szendera from Schwarzkopf Professional after applying it to his client's hair. Schwarzkopf Professional's Bonding Technology instantly recreates the function of missing bonds in the hair matrix, deeply reconstructing and sealing each individual hair strand for superior hair quality and resistance to breakage.
www.annualreport.henkel.com/stories/ beauty-care
Our Laundry & Home Care business unit has been considerably strengthened by the acquisition of The Sun Products Corporation in 2016. As a result of this acquisition, Henkel is the second-largest laundry products supplier in North America – the world's biggest laundry care market.
North America is Henkel's largest market. We generate around 25 percent of our Group sales there. The acquisition of Sun Products marks an important step forward for Henkel in North America and is, moreover, of significant strategic importance for our Laundry & Home Care business unit.
The strong and attractive brands of Sun Products such as All and Snuggle as well as laundry detergent brands for leading retail chains complement and strengthen our attractive product portfolio in the world's biggest laundry care market. By combining our businesses, we will be able to better leverage our capacity for innovation and further improve the services we offer our customers and consumers.
During the course of 2017, the consumer goods businesses of Henkel and Sun Products will be merged into a new shared site in Stamford, Connecticut, USA.
At our research facility in Trumbull, Connecticut, USA, Jens-Martin Schwärzler (second from right), President Henkel Consumer Goods in North America, discusses innovations in our joint portfolio with Bibie Wu, Marketing, and Charles Crawford, Ph. D. (left), Product Development. Right: Senior scientist Michael Crisanti.
www.annualreport.henkel.com/stories/ laundry-and-home-care
Excellent financial performance is essential to securing our ongoing success. It allows us to continue to effectively fund growth. We have ambitious targets for the future, and we want to further improve all our key financials.
In September 2016, Henkel placed bonds with a total value of 2.2 billion euros on the capital market to fund the acquisition of The Sun Products Corporation. Henkel was the first DAX corporation in Germany to issue bonds with negative yields, which reflects the confidence that the market has in our financial strength, profitability and credit quality. Henkel has excellent "Single A" ratings, and we aim to maintain them going forward.
Financial KPIs are essential tools in successfully steering our business. Our Treasury department analyzes and assesses relevant key ratios in real time in order to make the right decisions in a volatile market environment. This requires both efficient processes and agile structures. Standardizing and digitalizing the workflows of our global purchasing and supply chain activities and throughout the entire Finance function will reduce complexity, accelerate processes and increase efficiency.
The photo shows Dr. Michael Reuter (standing), Head of Treasury, discussing the latest performance of key international financial market indicators with his team. From the left: Renate Ohmen, Wenwen Liao and Derk Wetzold.
www.annualreport.henkel.com/stories/finance
Henkel employees around the world continuously demonstrate their great commitment and passion for the company. Our shared values, a strong entrepreneurial spirit and long-term strategic orientation have been shaping the culture at Henkel for more than 140 years. We are very proud of this heritage.
To celebrate "Henkel Day" on September 26, 2016, a broad range of events were organized for our people at Henkel sites around the world – exactly 140 years to the day after Henkel was founded in 1876. Photo and video initiatives on Yammer, our internal social network, team activities and fund-raising events for social projects – these are just some of the numerous ways in which our employees demonstrated their pride in our company's unique history and the passion they put into bringing our values to life. In Shanghai, China, where our Asia-Pacific region is headquartered, Jeremy Hunter, President Henkel China, Louise Cheung (left), Head of Corporate Communications Asia-Pacific, and Cynthia Yang, Head of Shared Service Center Shanghai, take a 140 years celebration photo.
We also prepared a digital record of our company's history to mark its anniversary. It features our most important brands, technologies and innovations, together with the people who have steered the company through the decades.
www.timeline.henkel.com
www.annualreport.henkel.com/stories/people
For us, acting sustainably is more than just a duty; it is a passion. We want to make processes along our entire value chain more sustainable – together with our suppliers, in our supply chain, and with our customers and consumers. To do this, we are constantly seeking new ways to further increase our performance in all dimensions.
In 2016, we started partnering with TerraCycle in North America. The company provides recycling solutions for materials for which there are currently no collection systems or which are typically nonrecyclable – due to product residue in packaging, for example. Customers of our Adhesive Technologies business unit can now recycle their used adhesives packaging. Empty Loctite specialty adhesive bottles are collected in dedicated recycling boxes and sent to TerraCycle. Any residual adhesive is then removed using a special process developed jointly with Henkel. The cleaned bottles are melted down and processed into pellets that are used to manufacture new products such as garbage cans, watering cans or yard furniture. Plans are underway to introduce this recycling method in Europe.
The photo taken at TerraCycle headquarters in Trenton, New Jersey, USA, shows TerraCycle's Rhandi Goodman demonstrating how to handle the recycling boxes to her project partners from Henkel, Simon Mawson (left) and Chris Stanford.
www.annualreport.henkel.com/stories/ sustainability
69 Economic Value Added (EVA®)
69 Net assets and financial position
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
The Management Board, the Shareholders' Committee and the Supervisory Board are committed to ensuring that the management and stewardship of the corporation are conducted in a responsible and transparent manner aligned to achieving a long-term increase in shareholder value. With this in mind, they have pledged themselves to the following three principles:
The German Corporate Governance Code [DCGK] was introduced in order to promote confidence in the management and oversight of listed German corporations. It sets out the nationally and internationally recognized regulations and standards of responsible corporate governance applicable in Germany. The DCGK is aligned to the statutory provisions applicable to a German joint stock corporation ("Aktiengesellschaft" [AG]). It is applied analogously by Henkel AG & Co. KGaA (the corporation). For a better understanding of Henkel's situation, this report describes the principles underlying the management and control structure of the corporation. It also outlines the special features distinguishing us from an AG which derive from our specific legal form and our Articles of Association. The primary rights of shareholders of Henkel AG & Co. KGaA are likewise explained. The report takes into account the recommendations of the DCGK and contains all disclosures and explanations required according to Sections 289 (4), 289a and 315 (4) and (5) of the German Commercial Code [HGB].
Henkel is a "Kommanditgesellschaft auf Aktien" [KGaA]. A KGaA is a company with a legal identity (legal entity) in which at least one partner has unlimited liability with respect to the company's creditors (personally liable partner). The other partners' liability is limited to their shares in the capital stock and they are thus not liable for the company's debts (limited partners per Section 278 (1) German Stock Corporation Act [AktG]).
In terms of its legal structure, a KGaA is a mixture of a joint stock corporation [AG] and a limited partnership [KG], with a leaning toward stock corporation law. The differences with respect to an AG are primarily as follows: The duties of the executive board of an AG are performed at Henkel AG & Co. KGaA by Henkel Management AG – acting through its Management Board – as the sole Personally Liable Partner (Sections 278 (2) and 283 AktG in conjunction with Art. 11 of our Articles of Association).
The rights and duties of the supervisory board of a KGaA are more limited compared to those of the supervisory board of an AG. Specifically, the supervisory board is not authorized to appoint personally liable partners, preside over the partners' contractual arrangements, impose procedural rules on the management board, or rule on business transactions. A KGaA is not required to appoint a director of labor affairs, even if, like Henkel, the company is bound to abide by Germany's Codetermination Act of 1976.
The general meeting of a KGaA essentially has the same rights as the shareholders' meeting of an AG. For example, it votes on the appropriation of earnings, elects members of the supervisory board (shareholder representatives), and formally approves the supervisory board's actions. It appoints the auditor and also votes on amendments to the articles of association and measures that change the company's capital, which are implemented by the management board. Additionally, as stipulated by the legal form, it also votes on the adoption of the annual financial statements of the company, formally approves the actions of the personally liable partner(s), and elects and approves the actions of the members of the shareholders' committee as established under the articles of association. Resolutions passed in general meeting require the approval of the personally liable partner(s) where they involve matters which, in the case of a partnership, require the authorization of the personally liable partners and also that of the limited partners (Section 285 (2) AktG) or relate to the adoption of annual financial statements (Section 286 (1) AktG).
According to our Articles of Association, in addition to the Supervisory Board, Henkel also has a standing Shareholders' Committee comprising a minimum of five and a maximum of 10 members, all of whom are elected by the Annual General Meeting (Art. 27 of the Articles of Association). The Shareholders' Committee is required in particular to perform the following functions (Section 278 (2) AktG in conjunction with Sections 114 and 161 HGB, and Articles 8, 9 and 26 of the Articles of Association):
The capital stock of the corporation amounts to 437,958,750 euros. It is divided into a total of 437,958,750 bearer shares of no par value, of which 259,795,875 are ordinary bearer shares (nominal proportion of capital stock: 1 euro per ordinary share or a total of 259,795,875 euros, representing 59.3 percent) and 178,162,875 are preferred bearer shares (nominal proportion of capital stock: 1 euro per preferred share or a total of 178,162,875 euros, representing 40.7 percent). All shares are fully paid in. Multiple share certificates for shares may be issued. In accordance with Art. 6 (4) of the Articles of Association, there is no right to individual share certificates.
Each ordinary share grants to its holder one vote (Art. 21 (1) of the Articles of Association). The preferred shares grant to their holders all shareholder rights apart from the right to vote (Section 140 (1) AktG). The preferred shares carry the following preferential right in the distribution of profit (Section 139 (1) AktG in conjunction with Art. 35 (2) of the Articles of Association) unless otherwise resolved by the Annual General Meeting:
• The holders of preferred shares receive a preferred dividend in the amount of 0.04 euros per preferred share. If the profit to be distributed in a fiscal year is insufficient for payment of a preferred dividend of 0.04 euros per preferred share, the arrears are paid without interest from the profit of the following years, with older arrears to be paid in full before more recent arrears and the preferred dividend from the profit of a particular fiscal year paid only after the clearance of all arrears. The holders of ordinary shares then receive a preliminary dividend from the remaining unappropriated profit of 0.02 euros per ordinary share, with the residual amount being distributed to the holders of ordinary and preferred shares in accordance with the
proportion of the capital stock attributable to them.
• If the preferred dividend is not paid out either in part or in whole in a year, and the arrears are not paid off in the following year together with the full preferred share dividend for that second year, the holders of preferred shares are accorded voting rights until such arrears are paid (Section 140 (2) AktG). Cancellation or limitation of this preferred dividend requires the consent of the holders of preferred shares (Section 141 (1) AktG).
The shareholders exercise their rights in the Annual General Meeting as per the relevant statutory provisions and the Articles of Association of Henkel AG & Co. KGaA. In particular, they may exercise their right to vote (ordinary shares only) – either personally, by postal vote, through a legal representative or through a proxyholder nominated by the corporation (Section 134 (3) and (4) AktG in conjunction with Art. 21 (2 and 3) of the Articles of Association) – and are also entitled to submit motions on the resolution proposals of management, speak on agenda items, and raise pertinent questions and motions (Sections 126 (1) and 131 AktG in conjunction with Art. 23 (2) of the Articles of Association). The ordinary Annual General Meeting usually takes place within the first four months of the fiscal year.
Shareholders whose shares jointly represent at least one twentieth of the capital stock – corresponding to 21,897,938 ordinary or preferred shares or a combination of both – may request that a general meeting of shareholders be called. If their proportionate amount of the capital stock jointly amounts to 500,000 euros – corresponding to 500,000 ordinary or preferred shares or a combination of both – they may request that items be placed on the agenda and published (Section 122 (1 and 2) AktG). In addition, shareholders whose combined share of the capital stock amounts to 100,000 euros or more may, subject to certain conditions, request that a special auditor be appointed by the court to examine certain matters (Section 142 (2) AktG).
Through the use of electronic communications, particularly the internet, the corporation makes it easy for shareholders to participate in the Annual General Meeting. It also enables them to be represented by proxyholders nominated by the corporation for exercising their voting rights. The reports, documents and information required by law for the Annual General Meeting, including the financial statements and annual reports, are made available on the internet, as are the agenda for the Annual General Meeting and any countermotions or nominations for election by shareholders that require publication.
63 Economic report
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
Unless otherwise mandated by statute or the Articles of Association, the resolutions of the Annual General Meeting are adopted by simple majority of the votes cast. If a majority of capital is required by statute, resolutions are adopted by simple majority of the voting capital represented (Art. 24 of the Articles of Association). This also applies to changes in the Articles of Association. However, modifications to the object of the corporation require a three-quarters' majority (Section 179 (2) AktG). The Supervisory Board and Shareholders' Committee have the authority to resolve purely formal modifications of and amendments to the Articles of Association (Art. 34 of the Articles of Association). By resolution of the Annual General Meeting, the Supervisory Board is also authorized to amend Articles 5 and 6 of the Articles of Association with respect to each use of the Authorized Capital and upon expiration of the term of the authorization.
According to Art. 6 (5) of the Articles of Association, there is an Authorized Capital. The Personally Liable Partner is authorized, with the approval of the Shareholders' Committee and of the Supervisory Board, to increase the capital stock of the corporation until April 12, 2020, by up to a nominal total of 43,795,875 euros through the issue of up to 43,795,875 new preferred shares with no voting rights against cash and/or payment in kind. The authorization can be used in full or also in one or several partial amounts. The proportion of capital stock represented by shares issued against payment in kind on the basis of this authorization must not exceed a total of 10 percent of the capital stock existing at the time the authorization takes effect.
The Personally Liable Partner is authorized, with the approval of the Shareholders' Committee and of the Supervisory Board, to set aside the pre-emptive rights of shareholders in the case of a capital increase against payment in kind, particularly for the purpose of business combinations or the (direct or indirect) acquisition of entities, operations, parts of businesses, equity interests or other assets, including claims against the corporation or companies dependent upon it within the meaning of Section 17 AktG.
If capital is increased against payment in cash, all shareholders are essentially assigned pre-emptive rights. However, these may be set aside in three cases, subject to the approval of the Shareholders' Committee and of the Supervisory Board: (1) in order to dispose of fractional amounts; (2) to grant to creditors/holders of bonds with warrants or conversion rights or a conversion obligation issued by the corporation or one of the companies dependent upon it, pre-emptive rights corresponding to those that would accrue to such creditors/bondholders following exercise of their warrant or conversion rights or on fulfillment of their conversion obligations; or (3) if the issue price of the new shares is not significantly below the quoted market price at the time of
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issue price fixing.
In addition, the Personally Liable Partner is authorized to purchase ordinary and/or preferred shares of the corporation at any time until April 12, 2020, up to a maximum nominal proportion of the capital stock of 10 percent. This authorization can be exercised for any legal purpose. To the exclusion of the pre-emptive rights of existing shareholders, treasury shares may, in particular, be transferred to third parties for the purpose of acquiring entities or participating interests of entities. Treasury shares may also be sold to third parties against payment in cash, provided that the selling price is not significantly below the quoted market price at the time of share disposal. Treasury shares may likewise be used to satisfy warrants or conversion rights granted by the corporation. The Personally Liable Partner has also been authorized, with the approval of the Shareholders' Committee and of the Supervisory Board, to cancel treasury shares without the need for further resolution by the Annual General Meeting.
Insofar as shares are issued or used to the exclusion of pre-emptive rights, the proportion of capital stock represented by such shares shall not exceed 10 percent.
Concerning the number of treasury shares and their use, please refer to the disclosures provided in the notes to the consolidated financial statements under Note 10 on pages 139 and 140.
Treasury shares held by the company do not convey any rights, including voting rights (Section 71b AktG). Voting rights conveyed by the relevant shares are also excluded by law in the instances listed in Section 136 AktG.
A share-pooling agreement has been concluded between members of the families of the descendants of company founder Fritz Henkel, pursuant to which the members agree on how to exercise the voting rights conveyed by their relevant ordinary shares in Henkel AG & Co. KGaA. The agreement also contains
restrictions with respect to transfers of the ordinary shares covered (Art. 7 of the Articles of Association).
Henkel preferred shares acquired by employees through the Employee Share Program, including bonus shares acquired without additional payment, are subject to a company-imposed contractual lock-up period of three years, which begins on the first day of the respective participation period. Essentially, the shares should not be sold before the end of this period. If employee shares are sold during the lock-up period, the bonus shares are forfeited.
Contractual agreements also exist with members of the Management Board governing lock-up periods for Henkel preferred shares which they are required to purchase out of their variable annual cash remuneration (for additional information, please see the remuneration report on pages 39 to 51).
According to notifications received by the corporation on December 17, 2015, a total of 61.02 percent of the voting rights are held by members of the Henkel family share-pooling agreement. (For additional information, please see the disclosures provided in the notes to the consolidated financial statements under Note 40 on page 177.) No other direct or indirect investment in capital stock exceeding 10 percent of the voting rights has been reported to us or is known to us.
There are no shares carrying multiple voting rights, preference voting rights, maximum voting rights or special controlling rights.
The Supervisory Board of Henkel Management AG is responsible for the appointment and dismissal of members of the Management Board of Henkel Management AG (Management Board). The appointments are for a maximum tenure of five years. A reappointment or extension of the tenure is permitted for a maximum period of five years in each case (Section 84 AktG).
The Management Board is composed of at least two members in accordance with Art. 7 (1) of the Articles of Association of Henkel Management AG. The Supervisory Board of Henkel Management AG is also responsible for determining the number of members on the Management Board. The Supervisory Board of Henkel Management AG can appoint a member of the Management Board as Chairperson.
As the executive body of the Group, the Management Board is bound to uphold the interests of the business and is responsible for ensuring a sustainable increase in shareholder value. The members of the Management Board are responsible for managing Henkel's business operations in their entirety. The individual Management Board members are assigned, in accordance with a business distribution plan, areas of competence for which they bear lead responsibility. The members of the Management Board cooperate closely as colleagues, informing one another of all major occurrences within their areas of competence and conferring on all actions that may affect several such areas. Further details relating to cooperation and the division of operational responsibilities within the Management Board are regulated by the rules of procedure issued by the Supervisory Board of Henkel Management AG. The Management Board reaches its decisions by a simple majority of the votes cast. In the event of a tie, the Chairperson has the casting vote.
It is the duty of the Management Board to prepare the annual financial statements of Henkel AG & Co. KGaA, the consolidated and interim financial statements and also the corresponding management reports. The Management Board is responsible for management of the overall business including planning, coordination, allocation of resources, financial control, and risk management. It must also ensure compliance with legal provisions, regulatory requirements and internal company guidelines, and take steps to ensure that Group companies also observe them.
It is the responsibility of the Supervisory Board to advise and supervise the Management Board in the performance of its business management duties. The Supervisory Board regularly discusses business performance and planning with the Management Board. It reviews the annual financial statements of Henkel AG & Co. KGaA and the Group's consolidated financial statements as well as the associated management reports, taking into account the reviews and audit reports submitted by the auditor. It also votes on the proposal of the Management Board regarding the appropriation of profit and submits to the Annual General Meeting a proposal indicating its recommendation for the appointment of the external auditor.
As a general rule, the Supervisory Board meets four times per year. It passes resolutions by a simple majority of the votes cast. In the event of a tie, the Chairperson has the casting vote. The Supervisory Board has established an Audit Committee and a Nominations Committee.
of voting rights are held by members of the Henkel family share-pooling agreement.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
The Audit Committee is made up of three shareholder and three employee representative members of the Supervisory Board. Each member is elected by the Supervisory Board based on nominations of their fellow shareholder or fellow employee representatives on the Board. The Chairperson of the Audit Committee is elected based on a proposal of the shareholder representative members. It is a statutory requirement that at least one independent member of the Supervisory Board has expertise in the fields of accounting or auditing. The Chairperson of the Audit Committee in 2016, Prof. Dr. Theo Siegert, who is not the Chairperson of the Supervisory Board nor a present or former member of the Management Board, satisfies these requirements.
The Audit Committee, which generally meets four times a year, prepares the proceedings and resolutions of the Supervisory Board relating to the adoption of the annual financial statements and the consolidated financial statements, and also the auditor appointment proposal to be made to the Annual General Meeting. It issues audit mandates to the auditor and defines the focal areas of the audit as well as deciding on the fee for the audit and other advisory services provided by the auditor. It monitors the independence and qualifications of the auditor, requiring the latter to submit a declaration of independence which it then evaluates. Furthermore, the Audit Committee monitors the accounting process and assesses the effectiveness of the Internal Control System, the Risk Management System and the Internal Auditing and Review System. It is likewise involved in compliance issues. The Group's Internal Audit function reports regularly to the Audit Committee. It discusses with the Management Board – with the external auditor in attendance – the quarterly reports and the financial report for the half year, prior to their publication.
The Nominations Committee comprises the Chairperson of the Supervisory Board and two further shareholder representatives elected by the Supervisory Board based on nominations of the shareholders' representatives. The Chairperson of the Supervisory Board is also Chairperson of the Nominations Committee. The Nominations Committee prepares the resolutions of the Supervisory Board on election proposals to be presented to the Annual General Meeting for the election of members to the Supervisory Board (shareholder representatives).
The Shareholders' Committee generally meets six times per year and holds a joint conference with the Management Board lasting several days. The Shareholders' Committee reaches its decisions by a simple 104 Risks and opportunities report 112 Forecast
majority of the votes cast. It has established Finance and Human Resources Subcommittees that likewise meet six times per year, as a rule. Each subcommittee comprises five of the members of the Shareholders' Committee.
The Finance Subcommittee deals primarily with financial matters, questions of financial strategy, financial position and structure, taxation and accounting policy, as well as risk management within the corporation. It also performs the necessary preparatory work for decisions to be made by the Shareholders' Committee in matters for which decision authority has not been delegated to it.
The Human Resources Subcommittee deals primarily with personnel matters relating to members of the Management Board, with issues pertaining to human resources strategy, and with remuneration. It performs the necessary preparatory work for decisions to be made by the Shareholders' Committee in matters for which decision authority has not been delegated to it. The Subcommittee also addresses issues concerned with succession planning and management potential within the individual business units, taking into account relevant diversity aspects.
At regular intervals, the Supervisory Board and the Shareholders' Committee hold an internal review to determine the efficiency with which they and their committees/subcommittees carry out their duties. This self-assessment is performed on the basis of an extensive checklist, whereupon points relating to corporate governance and improvement opportunities are also discussed.
Conflicts of interest must be disclosed in an appropriate manner to the Supervisory Board or Shareholders' Committee, particularly those that may arise as the result of a consultancy or committee function performed in the service of customers, suppliers, lenders or other business partners. Members encountering material conflicts of interest that are not of a merely temporary nature are required to resign their mandate.
Some members of the Supervisory Board and of the Shareholders' Committee are or were in past years holders of senior managerial positions in other companies. If and when Henkel pursues business activities with these companies, the same arm's length principles apply as those applicable to transactions with and between unrelated third parties. In our view, such transactions do not affect the impartiality of the members in question.
The Management Board, Supervisory Board and Shareholders' Committee work in close cooperation for the benefit of the corporation.
The Management Board agrees the strategic direction of the corporation with the Shareholders' Committee and discusses with it the status of strategy implementation at regular intervals.
In keeping with good corporate governance, the Management Board informs the Supervisory Board and the Shareholders' Committee regularly, and in a timely and comprehensive fashion, of all relevant issues concerning business policy, corporate planning, profitability, the business development of the corporation and our major affiliated companies, and also matters relating to risk exposure and risk management.
For transactions of fundamental significance, the Shareholders' Committee has established a right of veto in the procedural rules governing the actions of Henkel Management AG in its function as sole Personally Liable Partner (Art. 26 of the Articles of Association). This covers, in particular, decisions or measures that materially change the net assets, financial position or results of operations of the corporation. The Management Board complies with these rights of consent of the Shareholders' Committee and also duly submits to the decision authority of the corporation's Annual General Meeting.
The members of the Management Board conduct the corporation's business with the care of a prudent and conscientious business director in accordance with legal requirements, the Articles of Association of Henkel Management AG and the Articles of Association of Henkel AG & Co. KGaA, the rules of procedure governing the actions of the Management Board, the provisions contained in the individual contracts of employment of its members, and also the compliance guidelines and resolutions adopted by and within the Management Board.
Corporate management principles which go beyond the statutory requirements are derived from our purpose, our vision, our mission and our values. For our corporation to be successful, it is essential that we share a common approach to entrepreneurship. We have defined a clear strategic framework with a longterm horizon. It guides us in making the right decisions and helps us to concentrate on our strategic priorities and focus strictly on our ambition for the future.
We want to create value – for our customers and our consumers, for our people, for our shareholders as well as for the wider society and communities in which we operate.
• Creating sustainable value.
• Leading with our innovations, brands and technologies.
• Serving our customers and consumers worldwide as the most trusted partner with leading positions in all relevant markets and categories – as a passionate team united by shared values.
The corporate management bodies of Henkel and our employees worldwide are guided by this purpose, this vision, this mission, and these values. They reaffirm our ambition to meet the highest ethical standards in everything we do. And they guide our employees in all the day-to-day decisions they make, providing a compass for their conduct and actions.
Henkel is committed to ensuring that all business transactions are conducted in an ethically irreproachable, legal fashion. Consequently, Henkel expects all our employees not only to respect the corporation's internal rules and all relevant laws, but also to avoid conflicts of interest, to protect Henkel's assets and to respect the social values of the countries and cultural environments in which the corporation does business. The Management Board has therefore issued a series of Group-wide codes and standards with precepts that are binding worldwide. These regulatory instruments are periodically reviewed and amended as appropriate, evolving in step with the changing legal and commercial conditions that affect Henkel as a globally active corporation. The Code of Conduct supports our employees in ethical and legal issues. The Leadership Principles, for example, define the scope of responsibilities for managers. The Code of Corporate Sustainability
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
describes the principles that drive our sustainable, socially responsible approach to business. This code also enables Henkel to meet the commitments derived from the United Nations Global Compact.
Ensuring compliance in the sense of adherence to laws and regulations is an integral component of our business processes. Henkel has established a Group-wide compliance organization with locally and regionally responsible compliance officers led by a globally responsible General Counsel & Chief Compliance Officer (CCO). The General Counsel & CCO, supported by the Corporate Compliance Office and the interdisciplinary Compliance & Risk Committee, manages and controls compliance-related activities undertaken at the corporate level, coordinates training courses, oversees fulfillment of both internal and external regulations, and takes appropriate action in the event of compliance violations.
The local and regional compliance officers are responsible for organizing and overseeing the training activities and implementation measures tailored to the specific requirements of their locations. They report to the Corporate Compliance Office. The General Counsel & CCO reports regularly to the Management Board and to the Audit Committee of the Supervisory Board on identified compliance violations.
The issue of compliance is also a permanent item in the target agreements signed by all managerial staff of Henkel. Due to their position, it is particularly incumbent on them to set the right example for their subordinates, to effectively communicate the compliance rules and to ensure that these are obeyed through the implementation of suitable organizational measures.
The procedures to be followed in the event of complaints or suspicion of malpractice also constitute an important element of the compliance policy. In addition to our internal reporting system and complaint registration channels, employees may also, for the purpose of reporting serious violations to the Corporate Compliance Office, anonymously use a compliance hotline operated by an external service provider. The Head of the Corporate Compliance Office is mandated to initiate the necessary follow-up procedures.
Our corporate compliance activities are focused on antitrust law and the fight against corruption. In our Code of Conduct, the corporate guidelines based upon it, and other publications, the Management Board clearly expresses its rejection of all violations of the principles of compliance, particularly anti104 Risks and opportunities report 112 Forecast
trust violations and corruption. We do not tolerate such violations in any way. For Henkel, bribery, anticompetitive agreements, or any other violations of laws are no way to initiate or conduct business.
A further compliance-relevant area relates to capital market law. Supplementing the legal provisions, internal codes of conduct have been put in place to regulate the treatment of information that has the potential to affect share prices. The corporation has an Ad Hoc Committee comprised of representatives from various departments. In order to ensure that all insider information is handled as required by law, this Committee reviews developments and events for their possible effect on share prices, determining the need to issue reports to the capital markets on an ad hoc basis. There are also rules that go beyond the legal requirements, governing the behavior of the members of the Management Board, the Supervisory Board and the Shareholders' Committee, and also employees of the corporation who, due to their function or involvement in projects, have access to insider information.
An active and open communication policy ensuring prompt and continuous information dissemination is a major component of the value-based management approach at Henkel. Hence shareholders, shareholder associations, participants in the capital market, financial analysts, the media and the public at large are kept informed of the current situation and major business changes relating to the Henkel Group. All stakeholders are treated equally in this respect. All such information is also promptly made available on the internet.
Up-to-date information is likewise incorporated in the regular financial reporting undertaken by the corporation. The dates of the major recurring publications, and also the dates for the press conference on the preceding fiscal year and the Annual General Meeting, are announced in our financial calendar, which is also available on the internet.
The corporation's advancements and targets in relation to the environment, safety, health and social responsibility are published annually in our Sustainability Report. Shareholders, the media and the public at large are further provided with comprehensive information through press releases and information events, while occurrences with the potential to materially affect the price of Henkel shares are communicated in the form of ad hoc announcements. Further information on corporate governance can be found in the section "Principles of corporate governance/Compliance" on pages 34 and 35. The composition of the Management Board is shown on page 187. For more details on the composition of the Supervisory Board and the Shareholders' Committee or the (sub)committees established by the Supervisory Board and Shareholders' Committee, please refer to pages 184 to 186. Details of the compensation of the Management Board, the Supervisory Board and the Shareholders' Committee can be found in the remuneration report on pages 39 to 51.
In accordance with Sections 76 (4) and 111 (5) AktG, targets must be set for the proportion of women on the Management Board and in the first two management levels below the Management Board. If the proportion of women is below 30 percent at the time the targets are set, the targets may not be below the proportion already achieved. Deadlines for achievement of the targets must be established at the same time. Each deadline must be within five years and the first deadline can be no later than June 30, 2017.
Proportion of women on the Management Board In September 2015, for the first time, the Supervisory Board of Henkel Management AG established a target for the proportion of women on the Management Board of 17 percent in agreement with the recommendations of the Shareholders' Committee and its Human Resources Subcommittee. This target applied until December 31, 2016.
The proportion of women on the Management Board at December 31, 2016 was 17 percent; as such, the target was met.
The Supervisory Board of Henkel Management AG has again established a target, as recommended by the Shareholders' Committee and its Human Resources Subcommittee, for the proportion of women on the Management Board of 17 percent, taking into account the current composition and an appropriate Management Board size for the corporation. This proportion will apply, and the target will be met, in the period through to December 31, 2021.
Proportion of women in the management levels below the Management Board
In September 2015, for the first time, the Management Board established the following targets for the first two levels of management below the Management Board in consideration of the current personnel mix.
In accordance with the legal requirements, the point of reference for the definition of the management levels was based exclusively on Henkel AG & Co. KGaA and not the Henkel Group – regardless of Henkel's globally aligned management organization. As a result, the figures include only employees of Henkel AG & Co. KGaA with management responsibility who report directly to the Management Board (management level 1) and those who report to management level 1 (management level 2).
Separately from the targets for the first two levels of management below the Management Board of Henkel AG & Co. KGaA – and mindful of our globally aligned management organization – it is our goal to increase our ratio of women at all levels of management at Henkel in the long term. In 2016, we were again able to raise the proportion of women in management worldwide – to around 34 percent overall at December 31, 2016.
The following targets were set for achievement by December 31, 2016:
As of December 31, 2016, the target of 17 percent for the first management level of Henkel AG & Co. KGaA had been exceeded by around 5 percentage points and the target of 28 percent for the second management level had been met.
Since our organization is globally structured, and we promote career opportunities internationally, some management executives were assigned from Henkel AG & Co. KGaA to other Group companies, and vice versa, during the reporting period. This may also cause shifts in the proportion of women in the relevant management levels at Henkel AG & Co. KGaA. Equally, the result is not dependent on whether the proportion of women in management overall has changed or, as explained above, even increased at the global level.
Based on the current personnel mix, the Management Board has established new targets for the first two levels of management below the Management Board. These targets are expected to be achieved by December 31, 2021:
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
In accordance with the legal requirements, the point of reference for the definition of the management levels was based exclusively on Henkel AG & Co. KGaA and not the Henkel Group. As a result, the figures include only employees of Henkel AG & Co. KGaA with management responsibility who report directly to the Management Board (management level 1) and those who report to management level 1 (management level 2).
Given Henkel's position as a listed corporation subject to the Codetermination Act, the Supervisory Board of Henkel AG & Co. KGaA must consist of at least 30 percent women and at least 30 percent men (Section 96 (2) AktG).
In consideration of the specific situation of the corporation, the Supervisory Board has, in addition to the statutory requirements listed above, established the objectives described below with respect to its composition in accordance with Item 5.4.1 of the German Corporate Governance Code [DCGK]. These objectives will be taken into account by the Supervisory Board when proposing election candidates to the Annual General Meeting for all re-electable and ad hoc replacement Supervisory Board positions:
104 Risks and opportunities report 112 Forecast
no more than two former members of the Management Board, no persons who perform board or committee functions or act as consultants for major competitors, and no persons whose business or personal relationship with the corporation or members of the Management Board could give rise to material conflicts of interest that are not of a merely temporary nature. Assuming that the exercise of their Supervisory Board mandate by the employee representatives as such cannot be the basis for doubt as to whether the independence criteria as defined by Item 5.4.2 of the DCGK are fulfilled, the Supervisory Board should include at least 13 members who are independent as defined by the DCGK. Consistent with the corporation's tradition as an open family business, possession of a controlling interest or attribution of a controlling interest due to membership in the Henkel family share-pooling agreement is not viewed as a circumstance that creates a conflict of interest in the meaning above. However, irrespective of this, at least three of the shareholder representatives on the Supervisory Board should, as a rule, be neither members of the Henkel family share-pooling agreement nor members of the Shareholders' Committee nor members of the Supervisory Board of Henkel Management AG.
• No persons shall be proposed for election at the Annual General Meeting who, at the time of the election, have already reached their 70th birthday. Also, as a rule, no persons should be proposed who, at the time of the election, have already served more than two full terms of office on the Supervisory Board. However, to ensure continuity, members may also serve on the Supervisory Board for longer periods of time in individual cases. Consistent with the tradition of Henkel AG & Co. KGaA as an open family business, this applies particularly to members of the Henkel family share-pooling agreement.
The statutory minimums listed above, or objectives within the meaning of the DCGK, were achieved in the year under review.
Among the 16 members of the Supervisory Board are ten men and six women. Shareholder representatives consist of six men and two women, while the employee representatives consist of four men and four women. This represents an overall ratio on the Supervisory Board of around 62 percent men and 38 percent women. Throughout the entire year under review, each gender was represented by at least 30 percent among both the shareholder representatives and the employee representatives.
Overall, the Supervisory Board has at its disposal the knowledge, skills and technical abilities needed to properly and effectively perform its duties. In addition, several members of the Supervisory Board offer international business experience or other international expertise. No individual on the Supervisory Board exceeds the specified maximum age.
None of the Supervisory Board members elected by the Annual General Meeting is a former Management Board member, or performs board or committee functions or acts as a consultant for major competitors, and none are persons whose business or personal relationship with the corporation or members of the Management Board could give rise to material conflicts of interest that are not of a merely temporary nature. Four of the eight shareholder representatives are not members of the Henkel family share-pooling agreement, and seven of the eight shareholder representatives are neither members of the Shareholders' Committee nor members of the Supervisory Board of Henkel Management AG.
Taking into account the special features arising from our legal form and Articles of Association, Henkel AG & Co. KGaA complies with the recommendations ("shall" provisions) of the DCGK, latest edition, with one exception: So as to protect the legitimate interests and privacy of those members of the corporate management bodies who are also members of the Henkel family, in deviation from Item 6.3 of the DCGK as amended on May 5, 2015, the shareholdings of those members exceeding one percent of the shares issued by the corporation have not been and will not be disclosed unless required by law. The DCGK requires disclosure of shareholdings upward of one percent. In accordance with the Declaration of Compliance, the following information is reported concerning the aggregate shareholdings of all members of a
corporate body, taking the relevant provisions for attribution into account: The aggregate holdings of the members of the Supervisory Board and of the members of the Shareholders' Committee exceed in each case one percent of the shares issued by the corporation. The members of the Management Board together hold less than one percent of the shares issued by the corporation.
Henkel also complies with all non-compulsory suggestions ("may/should" provisions) of the DCGK, in keeping with our legal form and the special statutory features anchored in our Articles of Association.
The corresponding declarations of compliance together with the reasons for deviations from recommendations can be found on our website at www.henkel.com/ir
In accordance with Article 19 (1) of the Market Abuse Regulation, members of the Management Board, the Supervisory Board and the Shareholders' Committee, and parties related to same, are obliged to disclose notifiable transactions involving shares in Henkel AG & Co. KGaA or their derivative financial instruments where the value of such transactions by the member, or a party related to the member, attains or exceeds 5,000 euros in a calendar year. The transactions reported to the corporation in the past fiscal year were properly disclosed and can be seen on the website www.henkel.com/ir
As a globally active corporation, our business is subject to various national rules and regulations, including relevant trade regulations governing imports and exports, customs provisions and price or currency restrictions, as well as – within the European Union (EU) – increasingly to harmonized laws applying throughout the EU. Trade restrictions, such as export controls, embargoes or economic sanctions, must also be observed in some countries. In addition, some of our activities are subject to rules and regulations derived from approvals, licenses, certificates or permits.
Our manufacturing operations are bound by rules and regulations with respect to the registration, evaluation, usage, storage, transportation and handling of certain substances and also in relation to emissions, wastewater, effluent and other waste. The construction and operation of production facilities and other plant and equipment are governed by framework
Around female membership on the Supervisory Board. 38%
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
rules and regulations – including those relating to legacy remediation.
Product-specific regulations of relevance to us relate in particular to ingredients and input materials, safety in manufacturing, the handling of products and their contents, and the packaging and marketing of these items. The control mechanisms include statutory material-related regulations, usage prohibitions or restrictions, procedural requirements (test and inspection, identification marking, provision of warning labels, etc.), and product liability law.
Our internal standards are geared to ensuring compliance with statutory regulations and the safety of our manufacturing facilities and products. The associated requirements have been incorporated within, and implemented throughout, our management systems, and are subject to a regular audit and review regime. This includes monitoring and evaluating relevant statutory and regulatory requirements and changes in a prompt and timely fashion.
This remuneration report provides an outline of the compensation system for the Management Board, Henkel Management AG as the Personally Liable Partner, the Supervisory Board and the Shareholders' Committee of Henkel AG & Co. KGaA, and the Supervisory Board of Henkel Management AG; it also explains the level and structure of the remuneration paid.
The report takes into account the recommendations of the German Corporate Governance Code [DCGK] and contains all disclosures and explanations pursuant to the provisions of the German Commercial Code [HGB] and the appropriate principles of German Accounting Standards [DRS], and as required by International Financial Reporting Standards (IFRS). The remuneration report forms part of the combined management report for Henkel AG & Co. KGaA and the Group; the associated information has not therefore been additionally disclosed in the notes to the consolidated financial statements.
The compensation for members of the Management Board of Henkel Management AG is set by the Supervisory Board of Henkel Management AG in consultation with the Human Resources Subcommittee of the 104 Risks and opportunities report 112 Forecast
Shareholders' Committee. The Supervisory Board of Henkel Management AG is comprised of three members of the Shareholders' Committee.
The structure and amounts of Management Board remuneration are aligned to the size and international activities of the corporation, its economic and financial position, its performance and future prospects, the normal levels of remuneration encountered in comparable companies, and also the general compensation structure within the corporation. The compensation package is further determined on the basis of the functions, responsibilities and personal performance of the individual executives, and the performance of the Management Board as a whole. The variable annual remuneration components have been devised such that they take into account both positive and negative developments. The overall remuneration mix is designed to be internationally competitive while also providing an incentive for sustainable business development and a sustainable increase in shareholder value in a dynamic environment.
The Supervisory Board of Henkel Management AG regularly reviews the compensation system as well as the appropriateness of the compensation, based on the aforementioned criteria. In doing so, Management Board remuneration is analyzed relative to the compensation paid to senior management and the staff as a whole, both overall and over time, whereby the Supervisory Board of Henkel Management AG determines the boundaries between senior management and relevant staff members.
Members of the Management Board receive remuneration consisting of non-performance-related components and variable, performance-related components. The non-performance-related compensation is made up of their fixed salary together with various in-kind and other benefits (other emoluments). The performance-related compensation has two parts. The first is a variable annual cash payment (short-term incentive or "STI"), 65 percent of which is short-term variable cash remuneration and 35 percent of which is long-term variable cash remuneration in the form of an investment financed by the recipient in Henkel preferred shares (share deferral). The second is a variable cash payment based on the long-term performance of the business (longterm incentive or "LTI"). The remuneration targeting long-term performance thus consists of the share deferral and the LTI.
If all performance targets are met in full ("at target"), around 21 percent of the remuneration (excluding
other emoluments and pension benefits) is paid as the fixed component, while the STI and share deferral account for around 56 percent, and the LTI for around 23 percent.
Pension benefits also form part of the remuneration package. In addition, the Supervisory Board of Henkel Management AG may, at its discretion and after due consideration, grant a special payment in recognition of exceptional achievements.
The components in detail:
The fixed remuneration takes into account the assigned function and responsibility and the market conditions. It is paid out monthly as salary and amounts to 1,200,000 euros per year for the Chairman of the Management Board and 750,000 euros per year for the other Management Board members.
The members of the Management Board also receive other emoluments, primarily in the form of costs associated with, or the cash value of, in-kind benefits and other fringe benefits such as standard commercial insurance policies, reimbursement of accommodation/moving costs, provision of a company car or use of a car service, including any taxes on same, and the costs of preventive medical examinations. All members of the Management Board are entitled, in principle, to the same emoluments, whereby the amounts vary depending on personal situation.
Variable annual cash remuneration The performance criteria governing the variable annual cash remuneration (STI) are return on capital employed (ROCE) and earnings per preferred share (EPS) in the relevant fiscal year ("year of payment"), adjusted in each case for exceptional items, together with separate targets for each individual member.
The ROCE targets are derived from a strategic target yield. EPS performance is measured on the basis of actual-to-actual comparison, i.e. the EPS in the year of payment is compared to the EPS from the previous year.
Thresholds have been defined for both key financials; payment is withheld if the minimum targets are not met. If adjusted EPS in the year of payment is more than 25 percent above or below the comparable prior-year figure as a result of extraordinary events, the Supervisory Board of Henkel Management AG may, at its discretion and after due consideration, decide to adjust the target within this corridor, or may determine a new reference value for measuring performance in the following year.
The STI is calculated on the basis of a 40-percent weighting each of ROCE and EPS performance in the year of payment, and a 20-percent weighting of individual targets. The following factors play a key role in measuring individual performance: the Group results and the results of the relevant business unit, the quality of management demonstrated in those business units, and the individual contribution made by the Management Board member concerned. The
63 Economic report
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
application of these performance parameters ensures that profitable growth is duly rewarded by Henkel.
In determining the STI, the Supervisory Board of Henkel Management AG also takes into account the apparent sustainability of the economic performance delivered in the course of the year, and the performance levels of the Management Board members.
The total amount of the STI is subject to a cap of 150 percent of the target amount.
Short-term and long-term components of the variable annual cash remuneration The STI is paid annually in arrears in the full amount in cash once the corporation's annual financial statements have been approved by the Annual General Meeting. The recipients can dispose of around 65 percent of this payment as they wish. This constitutes their short-term variable cash remuneration. The members of the Management Board invest the remainder of the relevant payment amount, corresponding to around 35 percent, in Henkel preferred shares. This constitutes their long-term variable cash remuneration, known as the share deferral. These shares are placed in a blocked custody account with a drawing restriction. The company transfers the relevant investment amount of each individual directly to the bank responsible for settling the investment transactions and managing the blocked custody account. On the first trading day of the month following payout, this bank invests the relevant investment amount on behalf and for the account of the relevant member of the Management Board on the stock exchange in Henkel preferred shares at the price prevailing at the time of purchase, and credits the acquired shares to the blocked custody account. The lock-up period in each case expires on December 31 of the fourth year following the year of payment. This share deferral ensures that the members of the Management Board participate through a portion of their compensation in the long-term performance of the corporation.
The long-term incentive is a variable cash payment based on the long-term performance of the corporation, the amount payable being dependent on the future increase registered in EPS over three consecutive years (the performance period).
On completion of the performance period, target achievement is ascertained by the Supervisory Board of Henkel Management AG on the basis of the increase in EPS attained. The EPS of the fiscal year preceding the year of payment is compared to the EPS of the second fiscal year following the year of payment. The figures used for the calculation of the increase are, in each case, the earnings per preferred share adjusted for exceptional items, as disclosed in the certified and approved consolidated financial statements of the relevant fiscal years.
The total amount of the LTI is subject to a cap of 150 percent of the target amount.
In addition to the remuneration components described above, the Supervisory Board of Henkel Management AG may, at its discretion and after due consideration, grant a special payment in recognition of exceptional achievements. Such special payment is limited to an amount equating to the respective Management Board member's fixed salary; the maximum compensation level – as determined by remuneration for a fiscal year if the caps on STI and LTI are reached – may not be exceeded as a result of such payment.
Taking into account the above-mentioned caps for the variable performance-related components of remuneration, the following minimum and maximum remuneration amounts result for a full fiscal year (excluding other emoluments and pension benefits).
in euros Fixed salary Short-term variable cash remuneration Long-term variable cash remuneration (share deferral) Long-term incentive, conditional entitlement Total compensation minimum Total compensation maximum Chairman of the Management Board 1,200,000 0 to 3,315,000 0 to 1,785,000 0 to 2,100,000 1,200,000 8,400,000 Ordinary member of the Management Board 750,000 0 to 1,950,000 0 to 1,050,000 0 to 1,200,000 750,000 4,950,000 * At January 2017.
The company has been operating a purely defined contribution system since January 1, 2015. Accordingly, members of the Management Board now receive a superannuation lump-sum payment comprised of the total contributions to the plan during their time in office. The annual contributions – based on a full fiscal year – are 750,000 euros for the Chairman and 450,000 euros each for the other members of the Management Board.
An entitlement to pension benefits arises on retirement, on termination of the employment relationship on or after attainment of the statutory retirement age, in the event of death, or in the event of permanent complete incapacity for work. If a member of the Management Board has received no pension benefits prior to their death, the superannuation lump sum accumulated up to time of death is paid out to the surviving spouse or surviving children.
If an active member of the Management Board who was first appointed prior to 2009 retires, or dies while still in office, payment of their fixed remuneration continues for a further six months, but not beyond their 65th birthday. In the event of death in service, the payments are made to the surviving spouse or entitled dependent children.
In the event that a member's position on the Management Board is terminated prematurely by mutual agreement, the executive contract provides for a severance settlement amounting to the remuneration for the remaining contractual term (fixed remuneration plus variable annual remuneration) in the form of a discounted lump-sum payment. These severance payments are limited to a maximum of two years' compensation (severance payment cap) and may not extend over a period that exceeds the residual term of the executive contract. Members are not entitled to severance payment if an executive contract is terminated by mutual agreement at the request of the member or because that member has been dismissed by the corporation for good cause or reason. In the event that the sphere of responsibility/executive function is altered or restricted to such an extent that it is no longer comparable to the position prior to the change or restriction, the affected members of the Management Board are entitled to resign from office and request premature termination of their contract. In such case, members are entitled to severance payments amounting to not more than two years' compensation.
Upon an executive's departure from the Management Board, the STI is paid on a time-proportion basis on the ordinary payment date after the end of the fiscal year in which the appointment ends. If not already expired, lock-up periods for the share deferral end six months after departure. This applies accordingly to entitlements under the LTI. However, entitlements from any tranche whose performance period has not yet ended at the date of departure are forfeited without replacement if the departure is based on good cause or reason that would have justified revocation of the appointment or termination of the employment contract.
In addition, the executive contracts include a postcontractual non-competition clause with a term of two years. Members of the Management Board are entitled to a discretionary payment totaling 50 percent of the annual compensation after allowing for any severance payments, which is payable in 24 monthly installments unless the Supervisory Board of Henkel Management AG waives the non-competition clause. Similarly, any earnings from new extra-contractual activities during the non-competition period shall be offset against this discretionary payment to the extent that such earnings and discretionary payment together exceed the actual compensation paid in the last fully ended fiscal year by 10 percent or more. No entitlements exist in the event of premature termination of executive duties resulting from a change in control.
The corporation maintains directors and officers insurance (D&O insurance) for directors and officers of the Henkel Group. For members of the Management Board there is a deductible amounting to 10 percent per loss event, subject to a maximum for a fiscal year of one and a half times their annual fixed remuneration.
Excluding pension entitlements, the total compensation paid to members of the Management Board for the performance of their duties for and on behalf of Henkel AG & Co. KGaA and its subsidiaries during the year under review amounted to 26,503,197 euros (previous year: 25,804,019 euros). Fixed salaries accounted for 5,075,000 euros (previous year: 4,950,000 euros), other emoluments for 422,137 euros (previous year: 360,477 euros), short-term variable cash remuneration for 10,143,939 euros (previous year: 9,810,801 euros), long-term variable cash remuneration – share deferral – for 5,462,121 euros (previous year: 5,282,741 euros), and the long-term incentive for 5,400,000 euros (previous year: 5,400,000 euros). In accordance with
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
separated into the above-mentioned components, is shown in the following table.
The amounts in this table and the tables that follow have been rounded up or down to full euros. As a result, the rounded figures in some of the rows in the tables may not add up to the totals as indicated.
legal regulations, the value of the long-term incentive granted for 2016, which is payable in 2019 contingent on the achievement of performance objectives, is recognized here based on the target amount that would be paid assuming a 30-percent increase in
Compensation for the reporting period granted to members of the Management Board serving in 2016,
EPS within the performance period.
| in euros | 1. Fixed salary 1 |
2. Other emoluments 1 |
3. Short-term variable cash remuneration1 |
Single-year remuneration (Total of 1 to 3) |
4. Long-term variable cash remuneration (share deferral)1 |
5. Long-term incentive2 |
Multi-year remuneration (Total of 4 and 5) |
Total remune ration (Total of 1 to 5) |
|
|---|---|---|---|---|---|---|---|---|---|
| Hans Van Bylen (Chairman) |
2016 | 1,050,000 | 119,576 | 2,046,007 | 3,215,583 | 1,101,696 | 1,066,667 | 2,168,363 | 5,383,946 |
| (since 5/1/2016) | |||||||||
| Member of the Management Board since 7/1/2005 |
2015 | 750,000 | 43,786 | 1,494,121 | 2,287,907 | 804,527 | 800,000 | 1,604,527 | 3,892,434 |
| Kasper Rorsted (Chairman) (until 4/30/2016) |
2016 | 400,000 | 32,173 | 806,282 | 1,238,455 | 434,152 | 466,667 | 900,819 | 2,139,274 |
| Member of the Management Board 4/1/2005–4/30/2016 |
2015 | 1,200,000 | 79,206 | 2,418,846 | 3,698,052 | 1,302,456 | 1,400,000 | 2,702,456 | 6,400,508 |
| Jan-Dirk Auris (Adhesive Technologies) |
2016 | 750,000 | 45,208 | 1,511,755 | 2,306,963 | 814,022 | 800,000 | 1,614,022 | 3,920,985 |
| Member of the Management Board since 1/1/2011 |
2015 | 750,000 | 47,361 | 1,375,171 | 2,172,532 | 740,477 | 800,000 | 1,540,477 | 3,713,009 |
| Pascal Houdayer (Beauty Care) |
2016 | 625,000 | 90,504 | 1,192,629 | 1,908,134 | 642,185 | 666,667 | 1,308,852 | 3,216,985 |
| Member of the Management Board since 3/1/2016 |
2015 | – | – | – | – | – | – | – | – |
| Carsten Knobel (Finance) |
2016 | 750,000 | 53,903 | 1,563,755 | 2,367,658 | 842,022 | 800,000 | 1,642,022 | 4,009,680 |
| Member of the Management Board since 7/1/2012 |
2015 | 750,000 | 50,806 | 1,527,921 | 2,328,727 | 822,727 | 800,000 | 1,622,727 | 3,951,454 |
| Kathrin Menges (Human Resources) |
2016 | 750,000 | 36,151 | 1,459,755 | 2,245,906 | 786,022 | 800,000 | 1,586,022 | 3,831,928 |
| Member of the Management Board since 10/1/2011 |
2015 | 750,000 | 40,285 | 1,466,821 | 2,257,106 | 789,827 | 800,000 | 1,589,827 | 3,846,933 |
| Bruno Piacenza (Laundry & Home Care) |
2016 | 750,000 | 44,622 | 1,563,755 | 2,358,377 | 842,022 | 800,000 | 1,642,022 | 4,000,399 |
| Member of the Management Board since 1/1/2011 |
2015 | 750,000 | 99,033 | 1,527,921 | 2,376,954 | 822,727 | 800,000 | 1,622,727 | 3,999,681 |
| Total | 2016 | 5,075,000 | 422,137 | 10,143,939 | 15,641,075 | 5,462,121 | 5,400,000 | 10,862,121 | 26,503,197 |
| 2015 | 4,950,000 | 360,477 | 9,810,801 | 15,121,278 | 5,282,741 | 5,400,000 | 10,682,741 | 25,804,019 |
1 The payout is reported pursuant to HGB/IFRS.
2 Target amount pursuant to HGB/IFRS, based on a 30-percent increase in adjusted earnings per preferred share within the performance period of three years.
LTI payout for 2016 occurs in 2019; LTI payout for 2015 occurs in 2018.
As contractually agreed, Kasper Rorsted, who left the company at his own request effective April 30, 2016, was paid 1,240,434 euros gross in consideration of his entitlements under the Short Term Incentive 2016 (pro rata) and a further total amount of 2,266,167 euros gross representing the target amounts of his vested entitlements under the Long Term Incentive in 2014, 2015 and 2016 (pro rata). In addition, compensation of 413,910 euros gross was paid to Kasper Rorsted for the period from May 1, 2016, until July 31, 2016, under the contractually agreed non-competition clause (with a term of two years).
In the year under review, no member of the Management Board was granted non-standard benefits by the company in connection with premature termination of their tenure, nor were any such entitlements or arrangements modified. No member of the Management Board was pledged payments from third parties in respect of their duties as executives of the company, nor were any such payments granted in the reporting period.
| Components of single-year remuneration |
Components of multi-year remuneration |
||||||
|---|---|---|---|---|---|---|---|
| in euros | Fixed salary | Other emoluments |
Short-term variable cash remuneration |
Long-term variable cash remuneration (share deferral) |
Long-term Total incentive remuneration |
||
| Total | 2016 | 5,075,000 | 422,137 | 10,143,939 | 5,462,121 | 5,400,000 | 26,503,197 |
| 19.1% | 1.6% | 38.3% | 20.6% | 20.4% | 100% | ||
| Total | 2015 | 4,950,000 | 360,477 | 9,810,801 | 5,282,741 | 5,400,000 | 25,804,019 |
| 19.2% | 1.4% | 38.0% | 20.5% | 20.9% | 100% |
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
The figures calculated in accordance with the German Commercial Code [HGB] and International Accounting Standard (IAS) 19 for service cost for entitlements acquired in the reporting year and the present value of total pension benefits accruing to the end of the fiscal year are shown in the following table:
| HGB | IAS | ||||||
|---|---|---|---|---|---|---|---|
| in euros | Service cost for pension benefits in the reporting year |
Present value of pension benefits as of December 31 |
Service cost for pension benefits in the reporting year |
Present value of pension benefits as of December 31 |
|||
| Hans Van Bylen | 2016 | 664,026 | 6,319,207 | 664,043 | 6,958,733 | ||
| 2015 | 460,637 | 5,506,250 | 460,637 | 5,937,632 | |||
| Kasper Rorsted | 2016 | 302,133 | 7,138,814 | 306,093 | 7,295,824 | ||
| (until 4/30/2016) | 2015 | 791,760 | 7,057,239 | 798,237 | 7,116,328 | ||
| Jan-Dirk Auris | 2016 | 458,482 | 3,147,578 | 458,996 | 3,325,032 | ||
| 2015 | 456,041 | 2,628,382 | 456,927 | 2,746,697 | |||
| Pascal Houdayer | 2016 | 379,457 | 623,140 | 379,457 | 623,496 | ||
| (since 3/1/2016) | 2015 | – | – | – | – | ||
| Carsten Knobel | 2016 | 457,974 | 2,492,714 | 459,243 | 2,658,267 | ||
| 2015 | 455,659 | 1,994,619 | 457,887 | 2,103,255 | |||
| Kathrin Menges | 2016 | 457,067 | 2,557,853 | 457,533 | 2,652,810 | ||
| 2015 | 454,902 | 2,051,174 | 455,704 | 2,113,541 | |||
| Bruno Piacenza | 2016 | 456,353 | 2,555,923 | 456,400 | 2,562,467 | ||
| 2015 | 454,174 | 2,045,361 | 454,174 | 2,049,561 | |||
| Total | 2016 | 3,175,492 | 24,835,229 | 3,181,765 | 26,076,629 | ||
| 2015 | 3,073,173 | 21,283,025 | 3,083,566 | 22,067,014 |
For pension obligations to former members of the Management Board and the former management of Henkel KGaA, as well as the former management of its legal predecessor and surviving dependents, 100,771,135 euros (previous year: 98,729,434 euros) is deferred. Amounts paid to such recipients during the year under review totaled 7,127,205 euros (previous year: 7,163,382 euros).
In accordance with the recommendations of the DCGK, the following tables show
| in euros | 1. Fixed salary 1 |
2. Other emolu ments 1 |
Total (1 and 2) |
3. Short term variable cash remu neration2 |
4. Long term vari able cash remunera tion (share deferral)2 |
5. Long term incentive3 |
Total (1 to 5) |
6. Service cost4 |
Total remu neration pursuant to DCGK (Total of 1 to 6) |
|
|---|---|---|---|---|---|---|---|---|---|---|
| Hans Van Bylen (Chairman) |
2016 | 1,050,000 | 119,576 | 1,169,576 | 1,944,260 | 1,046,909 | 1,066,667 | 5,227,413 | 664,043 | 5,891,456 |
| (since 5/1/2016) | 2016 (min) | 1,050,000 | 119,576 | 1,169,576 | 0 | 0 | 0 | 1,169,576 | 664,043 | 1,833,619 |
| Member of the Management Board |
2016 (max) | 1,050,000 | 119,576 | 1,169,576 | 2,600,000 | 1,400,000 | 1,600,000 | 6,769,576 | 664,043 | 7,433,619 |
| since 7/1/2005 | 2015 | 750,000 | 43,786 | 793,786 | 1,461,449 | 786,934 | 800,000 | 3,842,169 | 460,637 | 4,302,806 |
| Kasper Rorsted5 (Chairman) |
2016 | 400,000 | 32,173 | 432,173 | 807,894 | 435,020 | 466,667 | 2,141,753 | 306,093 | 2,447,846 |
| (until 4/30/2016) | 2016 (min) | 400,000 | 32,173 | 432,173 | 0 | 0 | 0 | 432,173 | 306,093 | 738,266 |
| Member of the Management Board |
2016 (max) | 400,000 | 32,173 | 432,173 | 1,105,000 | 595,000 | 700,000 | 2,832,173 | 306,093 | 3,138,266 |
| from 4/1/2005 to 4/30/2016 |
2015 | 1,200,000 | 79,206 | 1,279,206 | 2,484,464 | 1,337,788 | 1,400,000 | 6,501,458 | 798,237 | 7,299,695 |
| Jan-Dirk Auris (Adhesive |
2016 | 750,000 | 45,208 | 795,208 | 1,425,695 | 767,682 | 800,000 | 3,788,585 | 458,996 | 4,247,581 |
| Technologies) | 2016 (min) | 750,000 | 45,208 | 795,208 | 0 | 0 | 0 | 795,208 | 458,996 | 1,254,204 |
| Member of the Management Board |
2016 (max) | 750,000 | 45,208 | 795,208 | 1,950,000 | 1,050,000 | 1,200,000 | 4,995,208 | 458,996 | 5,454,204 |
| since 1/1/2011 | 2015 | 750,000 | 47,361 | 797,361 | 1,461,449 | 786,934 | 800,000 | 3,845,744 | 456,927 | 4,302,671 |
| Pascal Houdayer (Beauty Care) |
2016 | 625,000 | 90,504 | 715,504 | 1,188,079 | 639,735 | 666,667 | 3,209,985 | 379,457 | 3,589,442 |
| Member of the | 2016 (min) | 625,000 | 90,504 | 715,504 | 0 | 0 | 0 | 715,504 | 379,457 | 1,094,961 |
| Management Board since 3/1/2016 |
2016 (max) | 625,000 | 90,504 | 715,504 | 1,625,000 | 875,000 | 1,000,000 | 4,215,504 | 379,457 | 4,594,961 |
| 2015 | – | – | – | – | – | – | – | – | – | |
| Carsten Knobel (Finance) |
2016 | 750,000 | 53,903 | 803,903 | 1,425,695 | 767,682 | 800,000 | 3,797,280 | 459,243 | 4,256,523 |
| Member of the | 2016 (min) | 750,000 | 53,903 | 803,903 | 0 | 0 | 0 | 803,903 | 459,243 | 1,263,146 |
| Management Board since 7/1/2012 |
2016 (max) | 750,000 | 53,903 | 803,903 | 1,950,000 | 1,050,000 | 1,200,000 | 5,003,903 | 459,243 | 5,463,146 |
| 2015 | 750,000 | 50,806 | 800,806 | 1,461,449 | 786,934 | 800,000 | 3,849,189 | 457,887 | 4,307,076 | |
| Kathrin Menges (Human Resources) |
2016 | 750,000 | 36,151 | 786,151 | 1,425,695 | 767,682 | 800,000 | 3,779,528 | 457,533 | 4,237,061 |
| Member of the | 2016 (min) | 750,000 | 36,151 | 786,151 | 0 | 0 | 0 | 786,151 | 457,533 | 1,243,684 |
| Management Board since 10/1/2011 |
2016 (max) | 750,000 | 36,151 | 786,151 | 1,950,000 | 1,050,000 | 1,200,000 | 4,986,151 | 457,533 | 5,443,684 |
| 2015 | 750,000 | 40,285 | 790,285 | 1,461,449 | 786,934 | 800,000 | 3,838,668 | 455,704 | 4,294,372 | |
| Bruno Piacenza (Laundry & |
2016 | 750,000 | 44,622 | 794,622 | 1,425,695 | 767,682 | 800,000 | 3,787,999 | 456,400 | 4,244,399 |
| Home Care) | 2016 (min) | 750,000 | 44,622 | 794,622 | 0 | 0 | 0 | 794,622 | 456,400 | 1,251,022 |
| Member of the Management Board |
2016 (max) | 750,000 | 44,622 | 794,622 | 1,950,000 | 1,050,000 | 1,200,000 | 4,994,622 | 456,400 | 5,451,022 |
| since 1/1/2011 |
1 Payment amount.
2 Pursuant to DCGK, expected amount based on an average probability scenario (not the actual amount paid out).
3 Target amount pursuant to DCGK, based on a 30-percent increase in adjusted earnings per preferred share within the performance period of three years.
LTI payout for 2016 occurs in 2019; LTI payout for 2015 occurs in 2018.
4 Pursuant to DCGK, service cost determined in accordance with IAS.
5 As contractually agreed, Kasper Rorsted, who left the company at his own request effective April 30, 2016, was paid 1,240,434 euros gross in consideration of his entitlements under the Short Term Incentive 2016 (pro rata) and a further total amount of 2,266,167 euros gross representing the target amounts of his vested entitlements under the Long Term Incentive in 2014, 2015 and 2016 (pro rata). In addition, compensation of 413,910 euros gross was paid to Kasper Rorsted for the period from May 1, 2016, until July 31, 2016, under the contractually agreed non-competition clause (with a term of two years).
2015 750,000 99,033 849,033 1,461,449 786,934 800,000 3,897,416 454,174 4,351,590
63 Economic report
104 Risks and opportunities report 112 Forecast
| 5. Long-term incentive3 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| in euros | 1. Fixed salary1 |
2. Other emolu ments 1 |
Total (1 and 2) |
3. Short term variable cash remunera tion2 |
4. Long term vari able cash remunera tion (share deferral)2 |
2014 tranche (term 1/1/2014 – 12/31/2016) |
2013 tranche (term 1/1/2013 – 12/31/2015) |
Total (1 to 5) |
6. Service cost4 |
Total remu neration pursuant to DCGK (Total of 1 to 6) |
|
| Hans Van Bylen (Chairman) (since 5/1/2016) |
2016 | 1,050,000 | 119,576 | 1,169,576 | 2,046,007 | 1,101,696 | 249,410 | 4,566,690 | 664,043 | 5,230,733 | |
| Member of the Management Board since 7/1/2005 |
2015 | 750,000 | 43,786 | 793,786 | 1,494,121 | 804,527 | 251,081 | 3,343,515 | 460,637 | 3,804,152 | |
| Kasper Rorsted5 (Chairman) (until 4/30/2016) |
2016 | 400,000 | 32,173 | 432,173 | 806,282 | 434,152 | 399,500 | 2,072,107 | 306,093 | 2,378,200 | |
| Member of the Management Board from 4/1/2005 to 4/30/2016 |
2015 | 1,200,000 | 79,206 | 1,279,206 | 2,418,846 | 1,302,456 | 426,838 | 5,427,346 | 798,237 | 6,225,583 | |
| Jan-Dirk Auris (Adhesive Technologies) |
2016 | 750,000 | 45,208 | 795,208 | 1,511,755 | 814,022 | 249,410 | 3,370,395 | 458,996 | 3,829,391 | |
| Member of the Management Board since 1/1/2011 |
2015 | 750,000 | 47,361 | 797,361 | 1,375,171 | 740,477 | 251,081 | 3,164,090 | 456,927 | 3,621,017 | |
| Pascal Houdayer (Beauty Care) |
2016 | 625,000 | 90,504 | 715,504 | 1,192,629 | 642,185 | – | 2,550,319 | 379,457 | 2,929,776 | |
| Member of the Management Board since 3/1/2016 |
2015 | – | – | – | – | – | – | – | – | – | |
| Carsten Knobel (Finance) |
2016 | 750,000 | 53,903 | 803,903 | 1,563,755 | 842,022 | 249,410 | 3,459,090 | 459,243 | 3,918,333 | |
| Member of the Management Board since 7/1/2012 |
2015 | 750,000 | 50,806 | 800,806 | 1,527,921 | 822,727 | 251,081 | 3,402,535 | 457,887 | 3,860,422 | |
| Kathrin Menges (Human Resources) |
2016 | 750,000 | 36,151 | 786,151 | 1,459,755 | 786,022 | 249,410 | 3,281,338 | 457,533 | 3,738,871 | |
| Member of the Management Board since 10/1/2011 |
2015 | 750,000 | 40,285 | 790,285 | 1,466,821 | 789,827 | 251,081 | 3,298,014 | 455,704 | 3,753,718 | |
| Bruno Piacenza (Laundry & Home Care) |
2016 | 750,000 | 44,622 | 794,622 | 1,563,755 | 842,022 | 249,410 | 3,449,809 | 456,400 | 3,906,209 | |
| Member of the Management Board since 1/1/2011 |
2015 | 750,000 | 99,033 | 849,033 | 1,527,921 | 822,727 | 251,081 | 3,450,762 | 454,174 | 3,904,936 |
1 Payment amount.
2 Pursuant to DCGK, based on the payment amount of the remuneration components granted for the relevant fiscal year; actual allocation occurs in the following year. 3 Pursuant to DCGK, based on the payment amount of those tranches for which the plan term of three years ended in the relevant fiscal year; actual allocation occurs in the following year.
4 Pursuant to DCGK, service cost determined in accordance with IAS.
5 As contractually agreed, Kasper Rorsted, who left the company at his own request effective April 30, 2016, was paid 1,240,434 euros gross in consideration of his entitlements under the Short Term Incentive 2016 (pro rata) and a further total amount of 2,266,167 euros gross representing the target amounts of his vested entitlements under the Long Term Incentive in 2014, 2015 and 2016 (pro rata). In addition, compensation of 413,910 euros gross was paid to Kasper Rorsted for the period from May 1, 2016, until July 31, 2016, under the contractually agreed non-competition clause (with a term of two years).
2. Remuneration of Henkel Management AG for assumption of personal liability, and reimbursement of expenses to same
For assumption of personal liability and management responsibility, Henkel Management AG in its function as Personally Liable Partner receives an annual payment of 50,000 euros (=5 percent of its capital stock) plus any value-added tax (VAT) due, said fee being payable irrespective of any profit or loss made.
Henkel Management AG may also claim reimbursement from or payment by the corporation of all expenses incurred in connection with the management of the corporation's business, including the remuneration and pensions paid to its corporate management bodies.
3. Remuneration of members of the Supervisory Board and of the Shareholders' Committee of Henkel AG & Co. KGaA
The remuneration for the Supervisory Board and the Shareholders' Committee is determined by the Annual General Meeting; the corresponding provisions are contained in Articles 17 and 33 of the Articles of Association.
Each member of the Supervisory Board and of the Shareholders' Committee receives a fixed fee of 70,000 euros and 100,000 euros per year respectively. The Chairs of the Supervisory Board and the Shareholders' Committee each receive double this amount, and the Vice Chair in each case one and a half times the aforementioned amount.
Members of the Shareholders' Committee who are also members of one or more subcommittees of the Shareholders' Committee each receive additional remuneration of 100,000 euros; if they chair one or more subcommittees, they receive 200,000 euros.
Members of the Supervisory Board who are also members of one or more committees each receive additional remuneration of 35,000 euros; if they chair one or more committees, they receive 70,000 euros. Activity in the Nominations Committee is not remunerated separately.
The higher remuneration allocated to the members of the Shareholders' Committee as compared to the Supervisory Board takes into account that, under the Articles of Association, the Shareholders' Committee participates in the management of the corporation.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
The members of the Supervisory Board or a committee receive an attendance fee amounting to 1,000 euros for each meeting in which they participate. If several meetings take place on one day, the attendance fee is only paid once. In addition, the members of the Supervisory Board and of the Shareholders' Committee are reimbursed expenses incurred in connection with their positions. The members of the Supervisory Board are also reimbursed the value-added tax (VAT) payable on their total remunerations and reimbursed expenses.
The corporation maintains directors and officers insurance for directors and officers of the Henkel Group. For members of the Supervisory Board and Shareholders' Committee there is a deductible amounting to 10 percent per loss event, subject to a maximum for the fiscal year of one and a half times their annual fixed remuneration.
Total remuneration paid to the members of the Supervisory Board for the year under review (fixed fee, attendance fee, remuneration for committee activity) amounted to 1,572,896 euros plus VAT (previous year: 1,546,000 euros plus VAT). Of this amount, fixed fees accounted for 1,222,896 euros, attendance fees for 85,000 euros, and remuneration for committee activity (including associated attendance fees) for 265,000 euros.
Total remuneration paid to the members of the Shareholders' Committee for the year under review (fixed fee and remuneration for subcommittee activity) amounted to 2,350,000 euros (previous year: 2,350,000 euros). Of this amount, fixed fees were 1,150,000 euros and remuneration for subcommittee activity 1,200,000 euros.
In the year under review, no compensation or benefits were paid or granted for personally performed services, including in particular advisory or intermediation services.
The remuneration of the individual members of the Supervisory Board and of the Shareholders' Committee, broken down according to the above-mentioned components, is presented in the tables on the following pages.
| Components of total remuneration | |||||
|---|---|---|---|---|---|
| in euros | Fixed fee | Attendance fee | Fee for commit tee activity 1 |
Total remuneration2 |
|
| Dr. Simone Bagel-Trah3, | 2016 | 140,000 | 5,000 | 39,000 | 184,000 |
| Chair | 2015 | 140,000 | 4,000 | 38,000 | 182,000 |
| Winfried Zander3, | 2016 | 105,000 | 5,000 | 39,000 | 149,000 |
| Vice Chair | 2015 | 105,000 | 4,000 | 38,000 | 147,000 |
| Jutta Bernicke | 2016 | 70,000 | 5,000 | – | 75,000 |
| 2015 | 70,000 | 3,000 | – | 73,000 | |
| Dr. Kaspar von Braun | 2016 | 70,000 | 6,000 | – | 76,000 |
| 2015 | 70,000 | 4,000 | – | 74,000 | |
| Boris Canessa | 2016 | 19,508 | 2,000 | – | 21,508 |
| (until 4/11/2016) | 2015 | 70,000 | 4,000 | – | 74,000 |
| Johann-Christoph Frey | 2016 | 50,492 | 4,000 | – | 54,492 |
| (since 4/11/2016) | 2015 | – | – | – | – |
| Ferdinand Groos | 2016 | 19,508 | 2,000 | – | 21,508 |
| (until 4/11/2016) | 2015 | 70,000 | 4,000 | – | 74,000 |
| Béatrice Guillaume-Grabisch | 2016 | 17,404 | 0 | – | 17,404 |
| (until 3/31/2016) | 2015 | 70,000 | 2,000 | – | 72,000 |
| Peter Hausmann3 | 2016 | 70,000 | 5,000 | 37,000 | 112,000 |
| 2015 | 70,000 | 3,000 | 37,000 | 110,000 | |
| Birgit Helten-Kindlein3 | 2016 | 70,000 | 5,000 | 39,000 | 114,000 |
| 2015 | 70,000 | 4,000 | 38,000 | 112,000 | |
| Benedikt-Richard Freiherr von Herman | 2016 | 50,492 | 4,000 | – | 54,492 |
| (since 4/11/2016) | 2015 | – | – | – | – |
| Timotheus Höttges | 2016 | 50,492 | 3,000 | – | 53,492 |
| (since 4/11/2016) | 2015 | – | – | – | – |
| Prof. Dr. Michael Kaschke 3 | 2016 | 70,000 | 4,000 | 37,000 | 111,000 |
| 2015 | 70,000 | 3,000 | 38,000 | 111,000 | |
| Barbara Kux | 2016 | 70,000 | 6,000 | – | 76,000 |
| 2015 | 70,000 | 4,000 | – | 74,000 | |
| Mayc Nienhaus | 2016 | 70,000 | 6,000 | – | 76,000 |
| 2015 | 70,000 | 4,000 | – | 74,000 | |
| Andrea Pichottka | 2016 | 70,000 | 6,000 | – | 76,000 |
| 2015 | 70,000 | 4,000 | – | 74,000 | |
| Dr. Martina Seiler | 2016 | 70,000 | 6,000 | – | 76,000 |
| 2015 | 70,000 | 4,000 | – | 74,000 | |
| Prof. Dr. Theo Siegert3 | 2016 | 70,000 | 5,000 | 74,000 | 149,000 |
| 2015 | 70,000 | 4,000 | 73,000 | 147,000 | |
| Edgar Topsch | 2016 | 70,000 | 6,000 | – | 76,000 |
| 2015 | 70,000 | 4,000 | – | 74,000 | |
| Total | 2016 | 1,222,896 | 85,000 | 265,000 | 1,572,896 |
| 2015 | 1,225,000 | 59,000 | 262,000 | 1,546,000 |
1 Remuneration for service on the Audit Committee, including attendance fee;
there is no separate remuneration payable for service on the Nominations Committee.
2 Figures do not include VAT.
3 Member of the Audit Committee. Audit Committee Chair: Prof. Dr. Theo Siegert.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
| Total remuneration 400,000 400,000 350,000 |
|---|
| 350,000 |
| 200,000 |
| 200,000 |
| 144,262 |
| – |
| 55,738 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 200,000 |
| 2,350,000 |
| 2,350,000 |
According to Article 14 of the Articles of Association of Henkel Management AG, the members of the Supervisory Board of Henkel Management AG are each entitled to receive annual remuneration of 10,000 euros. However, those members of said Supervisory Board who are also and simultaneously members of the Supervisory Board or the Shareholders' Committee of Henkel AG & Co. KGaA do not receive this remuneration.
As the Supervisory Board of Henkel Management AG is only comprised of members who also belong to the Shareholders' Committee, no remuneration was paid in respect of this Supervisory Board in the year under review.
Henkel shares posted a positive price performance in 2016. The price of Henkel preferred shares increased by 9.7 percent to 113.25 euros. The gain recorded by the ordinary shares was even greater. These closed at 98.98 euros, 11.7 percent higher year on year. Over the course of the year, the DAX rose by 6.9 percent to 11,481 points. The EURO STOXX® Consumer Goods Index closed at 633 points, down 0.1 percent. Henkel shares therefore significantly outperformed the DAX and other shares representing the consumer goods sector.
Henkel shares largely tracked the overall market in the course of the year, although their performance in the third quarter and at the start of the fourth quarter was much better than their benchmarks. Within this environment, Henkel preferred shares reached an all-time high on October 4, 2016, of 122.90 euros. On the same day, the ordinary shares also recorded their highest price ever, 105.45 euros. Prices of Henkel shares initially decreased at the start of the fourth quarter, as did other shares representing the consumer goods sector, while the DAX lost scarcely any ground in this environment. Over the course of December, prices of Henkel shares increased significantly again, as did their benchmarks. The preferred
shares traded at an average premium of 14.8 percent over the ordinary shares in 2016.
Year on year, the trading volume (Xetra) of preferred shares declined. Each trading day saw an average of around 473,000 preferred shares changing hands (2015: around 571,000). The average volume for our ordinary shares also decreased to around 89,000 shares per trading day (2015: 104,000). Due to positive share price developments, the market capitalization of our ordinary and preferred shares increased from 41.4 billion euros to 45.9 billion euros.
Henkel shares remain an attractive investment for long-term investors. Shareholders who invested the equivalent of 1,000 euros when Henkel preferred shares were issued in 1985, and re-invested the dividends received (before tax deduction) in the stock, had a portfolio value of 37,499 euros at the end of 2016. This represents an increase in value of 3,650 percent or an average yield of 12.3 percent per year. Over the same period, the DAX provided an annual yield of 7.7 percent. Over the last five and ten years, the Henkel preferred share has shown an average yield of 20.5 percent and 11.8 percent per year respectively, offering a significantly higher return than the average DAX returns of 14.2 percent and 5.7 percent per year for the same periods.
| Key data on Henkel shares 2012 to 2016 | 19 | ||||
|---|---|---|---|---|---|
| in euros | 2012 | 2013 | 2014 | 2015 | 2016 |
| Earnings per share | |||||
| Ordinary share | 3.40 | 3.65 | 3.74 | 4.42 | 4.72 |
| Preferred share | 3.42 | 3.67 | 3.76 | 4.44 | 4.74 |
| Share price at year-end1 | |||||
| Ordinary share | 51.93 | 75.64 | 80.44 | 88.62 | 98.98 |
| Preferred share | 62.20 | 84.31 | 89.42 | 103.20 | 113.25 |
| High for the year1 | |||||
| Ordinary share | 52.78 | 75.81 | 80.44 | 99.26 | 105.45 |
| Preferred share | 64.61 | 84.48 | 90.45 | 115.20 | 122.90 |
| Low for the year1 | |||||
| Ordinary share | 37.25 | 50.28 | 67.00 | 76.32 | 77.00 |
| Preferred share | 44.31 | 59.82 | 72.64 | 87.75 | 88.95 |
| Dividends | |||||
| Ordinary share | 0.93 | 1.20 | 1.29 | 1.45 | 1.602 |
| Preferred share | 0.95 | 1.22 | 1.31 | 1.47 | 1.622 |
| Market capitalization1 in bn euros | 24.6 | 34.7 | 36.8 | 41.4 | 45.9 |
| Ordinary shares in bn euros | 13.5 | 19.7 | 20.9 | 23.0 | 25.7 |
| Preferred shares in bn euros | 11.1 | 15.0 | 15.9 | 18.4 | 20.2 |
1 Closing share prices, Xetra trading system.
2 Proposal to shareholders for the Annual General Meeting on April 6, 2017.
increase in Henkel preferred share price.
increase in Henkel ordinary share price.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
Henkel shares are traded on the Frankfurt Stock Exchange, predominantly on the Xetra electronic trading platform. Henkel is also listed on all regional stock exchanges in Germany. In the USA, investors are able to invest in Henkel preferred and ordinary shares by way of stock ownership certificates obtained through the Sponsored Level I ADR (American Depositary Receipt) program. The number of ADRs outstanding for ordinary and preferred shares at the end of the year was approximately 1.5 million (2015: 1.7 million).
The international importance of Henkel preferred shares derives not least from their inclusion in many leading indices that serve as important indicators for capital markets, and the benchmarks for fund managers. Particularly noteworthy in this respect are the MSCI World, STOXX® Europe 600, and FTSE World Europe indices. Henkel's inclusion in the Dow Jones Titans 30 Personal & Household Goods Index makes it one of the most important corporations in the personal and household goods sector worldwide. As a DAX stock, Henkel is one of the 30 most significant exchange-listed companies in Germany.
of voting rights are held by members of the Henkel family share-pooling agreement.
| Ordinary shares | |
|---|---|
| 604840 | |
| DE0006048432 | DE0006048408 |
| HEN3.ETR | HEN.ETR |
| 178,162,875 | 259,795,875 |
| Preferred shares 604843 |
| ADR data | 23 | |
|---|---|---|
| Preferred shares | Ordinary shares | |
| CUSIP | 42550U208 | 42550U109 |
| ISIN code | US42550U2087 | US42550U1097 |
| ADR symbol | HENOY | HENKY |
Once again our advances and achievements in sustainable management earned recognition from external experts in 2016. Henkel's standing was confirmed in a variety of national and international sustainability ratings and indices. Henkel has been represented in the ethics index FTSE4Good since 2001, and in the STOXX® Global ESG Leaders index family since its launch by Deutsche Börse in 2011. Our membership
in the Ethibel Pioneer Investment Register and the sustainability indices Euronext Vigeo World 120, Europe 120, and Eurozone 120 was also confirmed, as was our membership in the MSCI Global Sustainability Index series. Henkel is also included in the Dow Jones Sustainability Index World, and in the Global Challenges Index as one of only 50 companies worldwide.
At year-end 2016, the market capitalization of the preferred shares included in the DAX index was 20.2 billion euros. Henkel thus again ranked 18th, or 22nd in terms of trading volume (2015: 23rd). Our DAX weighting increased to 2.10 percent (2015: 2.05 percent)
Our preferred shares are the significantly more liquid class of Henkel stock. Apart from the treasury shares, they are entirely in free float. A large majority are owned by institutional investors whose portfolios are usually broadly distributed internationally.
According to notices received by the company, members of the Henkel family share-pooling agreement owned a majority of the ordinary shares amounting to 61.02 percent as of December 17, 2015. We have received no other notices indicating that a shareholder holds more than 3 percent of the voting rights (notifiable ownership). As of December 31, 2016, treasury stock amounted to 3.7 million shares.
Shareholder structure: Institutional investors holding Henkel shares 24
Source: Nasdaq.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
Since 2001, Henkel has offered an employee share program (ESP). For each euro invested in 2016 by an employee (limited to 4 percent of salary up to a maximum of 4,992 euros per year), Henkel added 33 eurocents. Around 11,500 employees in 53 countries purchased Henkel preferred shares under this program in 2016. At year-end, some 14,800 employees held a total of around 2.5 million shares, representing approximately 1.4 percent of total preferred shares outstanding. The lock-up period for newly acquired ESP shares is three years.
Investing in Henkel shares through participation in our share program has proven to be very beneficial for our employees in the past. Employees who invested 100 euros each month in Henkel shares since the program was first launched, and waived interim payouts, held portfolios valued at 92,866 euros at the end of 2016. This represents an increase in value of around 416 percent or an average yield of around 12.4 percent per year.
Henkel successfully issued four fixed-rate bonds in three different currencies with a total volume of 2.2 billion euros in 2016. One of the bonds with a volume of 500 million euros has a term of two years, and a coupon rate of 0 percent per year with a negative yield of –0.05 percent. A second bond with a volume of 700 million euros has a term of five years. Both its coupon rate and yield are 0 percent per year. A further eurodollar bond with a volume of 750 million US dollars was placed with a coupon rate of 1.5 percent per year and a term of three years, together with a 300 million British pound bond issue with a term of six years and a coupon rate of 0.875 percent per year. The bonds are being used to refinance the short-term bank loan for acquiring The Sun Products Corporation. The bonds were oversubscribed to a considerable extent and aroused great interest among international investors.
Further information can be found on the website: www.henkel.com/creditor-relations
| Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | |
|---|---|---|---|---|
| Currency | EUR | EUR | USD | GBP |
| Volume | 500 million | 700 million | 750 million | 300 million |
| Coupon | 0% p. a. | 0% p. a. | 1.5% p. a. | 0.875% p. a. |
| Maturity | 9/13/2018 | 9/13/2021 | 9/13/2019 | 9/13/2022 |
| Issue price | 100.10% | 100% | 99.85% | 99.59% |
| Issue yield | –0.05% p. a. | 0% p. a. | 1.55% | 0.95% |
| Interest calculation | Act/Act (ISMA) | Act/Act (ISMA) | 30/360 (ISMA) | Act/Act (ISMA) |
| Denomination | 1,000 EUR | 1,000 EUR | 2,000 USD | 1,000 GBP |
| Sec. code no. | A2BPAW | A2BPAX | A2BPAY | A2BPAZ |
| ISIN | XS1488370740 | XS1488418960 | XS1488419695 | XS1488419935 |
| Listing | Regulated Market of the Luxembourg Stock Exchange |
Henkel is covered by numerous financial analysts at an international level. Around 25 equity and debt analysts regularly publish reports and commentaries on the current performance of the company.
Henkel places great importance on dialog with investors and analysts. At 21 capital market conferences and roadshows held in Europe and North America, institutional investors and financial analysts had an opportunity to engage with the company and, in many instances, directly with senior management. We also conducted regular telephone conferences and numerous one-on-one meetings.
One highlight was our Investor and Analyst Day for the Adhesive Technologies business unit, held on June 6 and 7, 2016. Under the theme "Lead to Outperform," the business unit provided information about its strategy and financial performance, and also spotlighted its engineering and commercial potential at its facility in Heidelberg.
Retail investors can obtain all relevant information on request or via the Investor Relations website at www.henkel.com/ir. This also serves as the portal for the live broadcast of telephone conferences and parts of the Annual General Meeting (AGM). The AGM offers all shareholders the opportunity to obtain extensive information about the company directly.
The quality of our capital market communication was again evaluated in 2016 by various independent rankings. Once again, our Investor Relations team gained leading positions compared to other European corporations in the Home & Personal Care sector and other DAX companies, including third place in the Household Products & Personal Care sector in the Extel 2016 Awards. In the Institutional Investor ranking, Henkel was chosen by financial analysts as having the best Investor Relations team in the European Household & Personal Care Products sector.
The quality of our communication and our performance with respect to non-financial indicators (environmental, social and governance themes) was reflected in regular positive assessments by various rating agencies and further confirmed by our inclusion in major sustainability indices as described above.
A financial calendar with all important dates is provided on the inside back cover of this Annual Report.
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104 Risks and opportunities report 112 Forecast
Henkel was founded in 1876. Therefore, the year under review marks the 140th in our corporate history. Today, Henkel employs around 51,350 people worldwide, and we occupy globally leading market positions in our consumer and industrial businesses.
Our purpose is to create sustainable value – for our customers and consumers, for our people, for our shareholders, as well as for the wider society and communities in which we operate.
Henkel AG & Co. KGaA is operationally active as well as being the parent company of the Henkel Group. As such it is responsible for defining and pursuing Henkel's corporate objectives and also for the management, control and monitoring of Group-wide activities, including risk management and the allocation of resources. Henkel AG & Co. KGaA performs its tasks within the legal scope afforded to it as part of the Henkel Group, with the affiliated companies otherwise operating as legally independent entities.
Operational management and control is the responsibility of the Management Board of Henkel Management AG in its function as sole Personally Liable Partner. The Management Board is supported in this by the corporate functions.
Henkel is organized into three business units: Adhesive Technologies, Beauty Care and Laundry & Home Care.
The Adhesive Technologies business unit provides customer-specific solutions worldwide with adhesives, sealants and functional coatings in two business areas: Industry, and Consumers, Craftsmen and Building. The portfolio of the Beauty Care business unit encompasses hair cosmetics, products for body, skin and oral care, and products for the hair salon business. Our product range in the Laundry & Home Care business unit comprises primarily heavy-duty and specialty detergents, and dishwashing and cleaning products. We also offer air fresheners and insect control products for household applications.
Henkel leads the global market in the field of Adhesive Technologies. In our consumer businesses, we also hold top positions in numerous markets and categories.
Adhesive Technologies, Beauty Care and Laundry & Home Care are managed on the basis of globally responsible strategic business units. These are supported by the corporate functions of Henkel AG & Co. KGaA, our shared services, and our globally integrated supply chain organization in order to ensure optimum utilization of corporate network synergies. Implementation of the strategies at the country and regional level is the responsibility of the national affiliated companies whose operations are supported and coordinated by regional centers. The executive bodies of these national affiliates manage their businesses in line with the relevant statutory regulations, supplemented by their own articles of association,
+9.7% average annual growth in adjusted earnings per preferred share (CAGR 2012–2016).
internal procedural rules and the principles incorporated in our globally applicable management standards, codes and guidelines.
The past four years have been very successful for Henkel. This success was founded on our strategy and financial targets for 2013 through 2016, which we consistently advanced under challenging conditions.
Over the four-year strategy cycle from 2013 through 2016, Henkel continuously increased its organic sales, growing by 3.3 percent on average. Emerging markets contributed to this solid performance with organic growth of 7.2 percent on average. Due to negative foreign exchange effects, however, we did not fully meet our absolute sales targets for 2016.
Over the course of the strategy cycle, adjusted earnings per preferred share developed very well, growing by an annual average (CAGR) of 9.7 percent. Despite the difficult environment, we thus nearly achieved our target of 10 percent.
| 28 Achievement of financial targets 2016 |
|||
|---|---|---|---|
| Target | Achieve ment |
||
| Sales | in bn euros | 20.0 | 18.7 |
| Sales in emerging markets in bn euros | 10.0 | 7.8 | |
| Average annual growth in adjusted earnings per preferred share 1 |
10% | 9.7% | |
| 1 Compound annual growth rate/CAGR 2012–2016. |
The implementation of our four strategic priorities – Outperform, Globalize, Simplify, Inspire – has enabled us to successfully move the corporation forward and
Acquisitions signed and closed in fiscal 2016 29
to strengthen our position in the global competitive and market environment.
Our "Outperform" priority focused on leveraging the growth potential in our product categories even further. One key objective in this respect was to strengthen our 10 top brands, which we achieved by increasing their share of sales from 44 percent in 2012 to 61 percent in 2016.
In pursuing our "Globalize" priority, we drove the further globalization of the corporation and grasped opportunities for growth in both emerging and mature markets. Above-average organic sales growth has enabled us to expand our position in emerging markets. In addition, we have strengthened our portfolio worldwide through attractive acquisitions (for details of acquisitions in 2016, please refer to table 29 below). Our most important acquisition was The Sun Products Corporation, which elevated Henkel to 2nd place in the North American laundry market.
As part of our priority "Simplify," we significantly improved our operational excellence, enabling us to effectively respond to the increasing speed and persisting volatility of our markets. We have successfully expanded our shared service centers, with more than 3,000 employees now working at seven sites. We are also integrating our production, logistics and purchasing activities across all business units in one integrated Global Supply Chain organization.
We advanced the development of our global team through our "Inspire" priority: by strengthening our leadership team and encouraging high potentials, and through our clear performance orientation and greater diversity in all areas of the corporation. Within our globally standardized system of annual management assessment, we are increasingly aligning career plans to individual interests.
| Business | Key brands | Key countries |
Contract signed on |
Comple tion on |
Annual sales in million euros |
Purchase price1 in million euros |
For further information, see pages |
|---|---|---|---|---|---|---|---|
| 57.5% of the shares in Expand Global Industries UK Ltd. (Detergents) |
Waw, Nittol | Nigeria | 5/31/2016 | 5/31/2016 | ~50 | 110 | 69, 80, 123–126 |
| Hair care business in Africa/Middle East & Eastern Europe |
Pert, Shamtu, Blendax |
Russia/ Saudi Ara bia/Turkey |
3/2/2016 | 6/1/2016 | ~75 | 212 | 69, 93, 123–126 |
| Tile adhesive business in Colombia |
Alfalisto, Pegalisto |
Colombia | 4/4/2016 | 6/30/2016 | ~10 | 17 | 69, 90, 91, 123–126 |
| Detergent business in Iran | Tage | Iran | 4/30/2016 | 8/21/2016 | ~70 | 1412 | 69, 80, 123–126 |
| The Sun Products Corporation All, Sun, Snuggle USA, Canada | 6/24/2016 | 9/1/2016 | ~1,450 | ~3,200 | 69, 80, 97, 123–126 |
1 Excluding contingent purchase price components.
2 Provisional purchase price.
Henkel has defined four strategic priorities to continue its sustainable profitable growth through to 2020 and beyond: drive growth, accelerate digitalization, increase agility and fund growth. Our balanced and broadly diversified portfolio with strong brands, innovative technologies and leading positions in attractive markets and categories provides a strong foundation. Our passionate global team is united in a strong corporate culture with shared values.
Building on its strong foundation, Henkel intends to continue its path of profitable growth. On November 17, 2016, we presented the ambition and strategic priorities that will drive the company through to 2020 and beyond.
We have defined our ambition in a very volatile market environment characterized by increasing globalization, accelerating digitalization, rapidly changing markets, and an increasing relevance of resource scarcity and social responsibility.
We want to become more customer-focused and make the company even more innovative, agile and digital, in both our internal processes and our customer-facing activities. In addition, we are aiming to further promote sustainability in all our business activities.
Henkel has defined the following financial ambition for the period until 2020:
| Financial ambition 2020 | 30 | ||||
|---|---|---|---|---|---|
| Organic growth | 2–4% (average 2017–2020) |
||||
| Adjusted EPS growth | 7–9% (CAGR1 2016–2020, per preferred share) |
||||
| Adjusted EBIT margin | Continued improvement in adjusted EBIT margin |
||||
| Continued focus Free cash flow on free cash flow expansion |
|||||
| 1 Compound annual growth rate. |
Alongside organic growth, acquisitions will continue to be an integral part of our strategy. Our assessment of potential acquisitions is based on whether the targets are available, fit Henkel's strategy, and are financially attractive. The focus in the Adhesive Technologies business unit is on expanding technology leadership, whereas in the Beauty Care and Laundry & Home Care business units, we will be striving to strengthen our categories.
Driving growth in mature and emerging markets will be a key strategic priority for Henkel. In order to achieve this, we will focus on targeted initiatives to create superior customer and consumer engagement, strengthen our leading brands and technologies, develop exciting innovations and services, and capture new sources of growth.
Accelerating digitalization will help us to successfully grow our business, strengthen the relationships with our customers and consumers, optimize our processes and transform the entire company. By 2020, we will implement a range of initiatives to drive our digital business, leverage Industry 4.0, and eTransform the organization.
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 require energized and empowered teams, fastest time-to-market as well as smart and simplified processes.
In order to fund growth, we will implement new approaches to optimize resource allocation, focus on net revenue management, further increase efficiency in our structures, and continue to expand our Global Supply Chain organization. Together, these initiatives will contribute to further improving profitability and enable us to fund our growth ambitions for 2020 and beyond.
Sustainability as one of our corporate values Our commitment to leadership in sustainability is anchored in our corporate values. We want to create more value – for our customers and consumers, for the communities we operate in, and for our company – while, at the same time, reducing our environmental footprint. We aim to pioneer new solutions for sustainable development while continuing to shape our business responsibly and increasing our economic success. Our sustainability strategy provides a clear framework for this aim and reflects the high expectations of our stakeholders.
We are concentrating our activities on six focal areas that reflect the key challenges of sustainable development as they relate to our operations. Three of them describe how we want to deliver more value – for our customers and consumers, our shareholders and our company – for example, by enhancing occupational health and safety, and encouraging social progress. The three other focal areas describe the ways in which we want to reduce our environmental footprint, for instance through reduced water and energy use and less waste.
We are convinced that our focus on sustainability is more important than ever before, and that it supports our growth, improves our cost efficiency, and reduces risks. We already have a strong foundation on which to build, and can demonstrate a successful track record. To reflect the growing importance of sustainability for our stakeholders and our long-term economic success, we defined three key drivers in 2016 that will help us to advance sustainability at Henkel over the coming years.
In order to reconcile people's desire to live well with the resource limits of the planet, and to allow us to build on our economic success, we will have to significantly improve our efficiency. In light of the global challenges of sustainable development, Henkel has set itself a long-term goal: Taking 2010 as the base year, our aim by 2030 is to triple the value we create through our business operations in relation to the environmental footprint of our products and services. We call this goal "Factor 3."
To reach this goal by 2030, we will have to improve our efficiency by an average of 5 to 6 percent each year. We managed to meet and even exceed some of the interim targets for the first five years through to
of the Group 63 Economic report 100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
At the same time, we are going to further improve our reporting and measurement systems to enable an integrated approach to assessing and managing progress toward our 20-year target for 2030 across our entire company and value chain. Our ongoing dialog with stakeholders and experts, as well as performance benchmarking, are part of the underlying basis of our work.
When it comes to implementing our sustainability strategy, our people play a key role – through their dedication, skills and knowledge. They make their own contributions to sustainable development, both in their daily business lives and as members of society. They interface with our customers and drive innovation – and give Henkel its unique identity.
112 Forecast
104 Risks and opportunities report
This is why we have set ourselves the goal of engaging all of our employees as sustainability ambassadors. The program was launched in 2012 to encourage our employees to become even more involved in the issue of sustainability. Since then, Henkel has trained more than 10,000 sustainability ambassadors in 79 countries. At the same time, we want to encourage our people to make a contribution as ambassadors at our sites, as well as by engaging with our customers, in schools and in our communities.
We want to strengthen our contribution toward overcoming major global challenges, and to maximize the impact we can achieve through our operations, our brands, and our technologies.
In light of the Paris agreement on climate change from December 2015 and the clear need to reduce emissions, Henkel is striving to become a climatepositive company. As a first step, we are aiming – by 2030 – to reduce the CO2 footprint of our production by 75 percent, and to help our customers and consumers save 50 million metric tons of CO2 by 2020.
Equally, Henkel is striving to encourage social progress and work with partners to create shared value
More details and background reading on the subject of sustainability can be found in our Sustainability Report on the internet.
1 Compared to 2010 as the base year.
2 Waste generated by our production sites, excluding construction and demolition waste.
along the entire value chain. This includes improving income opportunities, chances for development for girls and women, and labor standards for the workforce in our supply chains.
Our brands and technologies are used a million times over, every day, in households and industrial processes. For this reason, we want to expand their contributions to sustainability by focusing more strongly on pioneering innovations and engaging our customers and consumers.
Henkel plans to continue generating sustainable profitable growth to 2020 and beyond. To this end, we have defined four strategic priorities: drive growth, accelerate digitalization, increase agility and fund growth. To enable efficient management of the Group, we align our actions to these strategic priorities and have translated them into strategy plans for our three business units Adhesive Technologies, Beauty Care and Laundry & Home Care, and their respective business areas.
Our management system and key performance indicators are derived from our ambition to continue generating sustainable profitable growth. The key performance indicators are organic sales growth, adjusted return on sales development, and growth in adjusted earnings per preferred share.
Over the coming four years, Henkel is aiming to achieve organic sales growth of 2 to4 percent on average. For adjusted earnings per preferred share, Henkel is targeting a compound annual growth rate (CAGR) of 7 to9 percent. We are also aiming for a continued improvement of the adjusted EBIT margin.
The key performance indicators are represented in both the year and the medium-term plans. A regular comparison of these plans with current developments and expected figures enables focused management of the company based on the described performance indicators.
Moreover, we report further key performance indicators, such as net working capital as a percentage of sales, return on capital employed (ROCE) and free cash flow, which we are aiming to further expand, as described in our financial ambition for 2020.
The cost of capital is calculated as a weighted average of the cost of equity and debt capital (WACC).
We regularly review our cost of capital in order to reflect changing market conditions. In addition, we apply different WACC rates depending on the business unit involved. These are based on business unit-specific beta factors determined from a peer group benchmark.
The following two tables indicate the WACC rates before and after tax for the Henkel Group and each business unit.
| 2016 | 2017 | |
|---|---|---|
| Adhesive Technologies | 10.75% | 10.25% |
| Beauty Care | 9.00% | 9.00% |
| Laundry & Home Care | 9.00% | 9.00% |
| Henkel Group | 8.25% | 7.75% |
| WACC after tax by business unit | 33 | ||
|---|---|---|---|
| 2016 | 2017 | |
|---|---|---|
| Adhesive Technologies | 7.50% | 7.00% |
| Beauty Care | 6.25% | 6.25% |
| Laundry & Home Care | 6.25% | 6.25% |
| Henkel Group | 5.75% | 5.50% |
8.25% Group WACC before tax in fiscal 2016.
29 Corporate governance
Economic report
The general economic conditions described here are based on data published by IHS Global Insight.
In 2016, the global economy achieved only moderate growth. Gross domestic product expanded by approximately 2.5 percent worldwide. The mature markets grew by approximately 1.5 percent, while the emerging markets achieved an increase of approximately 4 percent.
In 2016, private consumption increased by approximately 2.5 percent, while industrial production expanded by around 2 percent. Growth was stronger in export-dependent industries in particular and more subdued in consumer-related sectors.
Over the year as a whole, the North American economy grew by 1.5 percent. Western Europe showed moderate growth of around 2 percent, while the economy in Japan exhibited weaker growth of approximately 1 percent. Economic growth in Asia (excluding Japan) was approximately 5.5 percent, with China coming in slightly higher. The Africa/Middle East region recorded growth of approximately 2.5 percent. Growth in Eastern Europe was only moderate, at around 1 percent, impacted by the persisting difficult conditions in Russia. Economic performance in Latin America was negative, declining by around 1 percent.
Global unemployment was on a par with the prior year at around 7 percent. The unemployment rates in North America and Western Europe improved slightly year on year, coming in at approximately 5 percent and around 9 percent respectively. At approximately 6 percent, the unemployment rate in Germany was slightly lower than in the previous year. In Latin America, it rose to approximately 8.5 percent. The unemployment rate in Eastern Europe, Africa/Middle East and Asia (excluding Japan) declined slightly year on year.
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Global inflation was approximately 5 percent and thus higher year on year. Consumer prices increased by around 11 percent in the emerging markets, with only a slight rise being registered in the mature markets. The overall trend differed by region and country. Inflation rose slightly in Western Europe – including Germany – and in North America, but decreased slightly in Japan. Prices rose moderately in Asia, and significantly in Eastern Europe and Africa/ Middle East. In Latin America, inflation was well into the double digits, due to developments in Venezuela.
In 2016, prices for direct materials (raw materials, packaging, and purchased goods and services) were slightly below the level of the prior year. This development was driven by lower prices for relevant input materials, particularly crude oil. In contrast, the price of palm kernel oil increased significantly in 2016 versus prior year. In our expectations for 2016, we had assumed that prices for direct materials would be more or less on a par with the prior-year level.
Currencies in the emerging markets of relevance to Henkel trended downward on average for the year, as expected. The US dollar remained relatively stable over the first nine months of the year, before appreciating toward the end of the fourth quarter. It closed at 1.05 US dollars to the euro at year-end. On average for the year as a whole, the US dollar remained stable against the euro, as expected.
Changes in the exchange rates of the currencies of relevance to Henkel are indicated in the following table:
| 2015 | 2016 | |
|---|---|---|
| Chinese yuan | 6.97 | 7.36 |
| Mexican peso | 17.61 | 20.67 |
| Polish zloty | 4.18 | 4.36 |
| Russian ruble | 68.05 | 74.07 |
| Turkish lira | 3.02 | 3.34 |
| US dollar | 1.11 | 1.11 |
Source: ECB daily foreign exchange reference rates.
Private consumer spending grew moderately at a rate of approximately 2.5 percent. Consumer spending in mature markets increased by approximately 2 percent year on year. Consumers in North America increased their spending by around 3 percent. In Western Europe, consumer spending grew by approximately 2 percent compared to the previous year. Consumers in emerging markets spent around 3 percent more.
Industrial production grew by around 2 percent in 2016 and was thus more or less on a par with the previous year.
A particularly important customer sector for Henkel, the transport industry, saw production expand by around 3 percent. Output in the electronics sector rose by around 4 percent and in the metal industry by around 2 percent. Growth was subdued in consumer-related sectors, such as the global packaging industry which recorded an increase of around 1 percent. The construction industry grew by approximately 3 percent.
Developments in industrial production differed from one region to the next. Manufacturing increased in North America and Western Europe by approximately 1 percent. At approximately 4 percent, growth in industrial production in the emerging markets was slightly higher year on year. Industrial production increased by approximately 3 percent in Africa/ Middle East and by approximately 5 percent in Asia (excluding Japan), while continuing to decline in Latin America. Eastern Europe recorded an increase of around 2 percent in industrial production.
In a challenging economic environment, Henkel continued the success of the previous year with a solid business performance and increased sales to 18,714 million euros.
+3.1% organic sales growth.
Organically we achieved a sales increase of 3.1 percent. Our businesses in the emerging markets
showed strong organic growth, with sales increasing by 6.8 percent. Organic sales growth in the mature markets was positive.
We increased adjusted1 gross margin by 0.1 percentage points to 48.4 percent. Savings from cost reduction measures and efficiency improvements, selective price increases and slightly lower prices for direct materials (raw materials, packaging, and purchased goods and services) more than offset the negative impact of foreign exchange rate movements and acquisition effects.
As a result of our cost discipline and the adjustment of our structures to our markets and customers, we were able to further improve our profitability once again year on year. Adjusted return on sales increased by 0.7 percentage points in 2016, reaching a new all-time high of 16.9 percent (2015: 16.2 percent).
Adjusted earnings per preferred share grew to 5.36 euros, a significant increase of 9.8 percent over the 2015 figure of 4.88 euros.
We were able to improve net working capital as a percentage of sales by 0.3 percentage points to 3.5 percent.
We generated free cash flow of 2,205 million euros. We closed the year with a net financial position of –2,301 million euros (2015: 335 million euros).
Sales in fiscal 2016 increased year on year to 18,714 million euros. The development of currency movements had a negative effect on sales of 3.6 percent. Adjusted for foreign exchange effects, sales grew by 7.1 percent. Acquisitions/divestments contributed to this performance with a 4.0-percent increase in sales, mainly as a result of our purchase of The Sun Products Corporation.
With growth of 3.1 percent, organic sales, i.e. sales adjusted for foreign exchange and acquisitions/ divestments, showed a solid increase. This was mainly driven by volume.
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| in million euros | Western Europe |
Eastern Europe |
Africa/ Middle East |
North America |
Latin America |
Asia Pacific |
Total Regions |
Corporate | Henkel Group |
|---|---|---|---|---|---|---|---|---|---|
| Sales 2 2016 | 5,999 | 2,713 | 1,378 | 4,202 | 1,055 | 3,246 | 18,593 | 121 | 18,714 |
| Sales2 2015 | 6,045 | 2,695 | 1,329 | 3,648 | 1,110 | 3,134 | 17,961 | 128 | 18,089 |
| Change from previous year | –0.8% | 0.7% | 3.7% | 15.2% | –5.0% | 3.6% | 3.5% | – | 3.5% |
| Adjusted for foreign exchange | 0.1% | 7.4% | 12.2% | 15.2% | 15.9% | 6.0% | 7.2% | – | 7.1% |
| Organic | –0.1% | 7.0% | 5.6% | 1.7% | 13.8% | 3.2% | 3.2% | – | 3.1% |
| Proportion of Group sales 2016 | 32% | 15% | 7% | 22% | 6% | 17% | 99% | 1% | 100% |
| Proportion of Group sales 2015 | 34% | 15% | 7% | 20% | 6% | 17% | 99% | 1% | 100% |
| Operating profit (EBIT) 2016 | 1,335 | 328 | 111 | 505 | 126 | 485 | 2,890 | –115 | 2,775 |
| Operating profit (EBIT) 2015 | 1,223 | 356 | 141 | 544 | 110 | 434 | 2,809 | –164 | 2,645 |
| Change from previous year | 9.2% | –7.9% | –21.2% | –7.1% | 14.2% | 11.5% | 2.9% | – | 4.9% |
| Adjusted for foreign exchange | 9.9% | –0.8% | –14.0 % | –7.1% | 66.9% | 15.0% | 7.1% | – | 8.2% |
| Return on sales (EBIT) 2016 | 22.3% | 12.1% | 8.1% | 12.0% | 11.9% | 14.9% | 15.5% | – | 14.8% |
| Return on sales (EBIT) 2015 | 20.2% | 13.2% | 10.6% | 14.9% | 9.9% | 13.9% | 15.6% | – | 14.6% |
1 Calculated on the basis of units of 1,000 euros.
2 By location of company.
| Sales development1 | 36 |
|---|---|
| in percent | 2016 |
| Change versus previous year | 3.5 |
| Foreign exchange | –3.6 |
| Adjusted for foreign exchange | 7.1 |
| Acquisitions/divestments | 4.0 |
| Organic | 3.1 |
| of which price | 0.2 |
| of which volume | 2.9 |
1 Calculated on the basis of units of 1,000 euros.
We achieved a solid increase in organic sales in each of our business units. Organic sales grew by 2.8 percent in the Adhesive Technologies business unit, by 2.1 percent in Beauty Care, and by 4.7 percent in Laundry & Home Care.
| in percent | Organic sales growth |
of which price |
of which volume |
|---|---|---|---|
| Adhesive Technologies |
2.8 | 0.3 | 2.5 |
| Beauty Care | 2.1 | 0.4 | 1.7 |
| Laundry & Home Care |
4.7 | 0.0 | 4.7 |
| Henkel Group | 3.1 | 0.2 | 2.9 |
In a market environment that continues to be highly competitive, sales in the Western Europe region, at 5,999 million euros, were slightly down year on year. Organic sales were on a par with the previous year. The positive performance in Southern Europe did not entirely compensate for the decline in Germany and France. The share of sales from the region decreased to 32 percent.
We were able to increase sales in Eastern Europe by 0.7 percent to 2,713 million euros. Organically, sales grew by 7.0 percent. This very strong organic sales growth was primarily driven by the performance of our businesses in Russia and Turkey. The share of sales from the region remained unchanged at 15 percent.
Our sales in the Africa/Middle East region increased nominally by 3.7 percent to 1,378 million euros. Despite the political and social unrest in some countries, we were able to grow organic sales by 5.6 percent. The share of sales from the region remained unchanged at 7 percent.
Sales in the North America region increased substantially by 15.2 percent to 4,202 million euros. Organically, the region posted sales growth of 1.7 percent. In addition, the acquisition of The Sun Products Corporation also contributed substantially to the increase in nominal sales. The share of sales from the region increased to 22 percent.
Year on year, sales in Latin America declined by –5.0 percent to 1,055 million euros due to foreign exchange effects. Organically, sales grew by 13.8 percent. Double-digit organic sales growth by our businesses in Mexico made an especially important contribution to this performance. The share of sales from the region remained unchanged at 6 percent.
Sales in the Asia-Pacific region increased year on year by 3.6 percent to 3,246 million euros. Organically, we were able to increase regional sales by 3.2 percent. The share of sales from the Asia-Pacific region remained stable at 17 percent.
Sales in the emerging markets of Eastern Europe, Africa/Middle East, Latin America and Asia (excluding Japan) were slightly higher year on year at 7,814 million euros. Organically, we increased sales by 6.8 percent, driven by all business units. Thus the emerging markets again made an above-average contribution to organic sales growth. The share of sales from emerging markets was 42 percent, which was slightly lower year on year due to foreign exchange and acquisition effects.
In order to adapt our structures to our markets and customers, we spent 277 million euros on restructuring (previous year: 193 million euros). A substantial portion of this amount was used to reorganize our business in North America following the acquisition of The Sun Products Corporation. We also progressed with the combination of our supply chain and sourcing activities into one integrated Global Supply Chain organization, and continued to integrate newly acquired entities and brands.
The following explanations relate to results adjusted for one-time charges/gains and restructuring expenses, in order to provide a more transparent presentation of operational performance.
| Adjusted operating profit (EBIT) | ||||
|---|---|---|---|---|
| 2015 | 2016 | +/– | ||
| 2,645 | 2,775 | 4.9% | ||
| –15 | –1 | |||
| 100 | 121 | |||
| 193 | 277 |
Adjusted EBIT 2,923 3,172 8.5%
We were able to increase adjusted operating profit (adjusted EBIT) to 3,172 million euros, a rise of 8.5 percent on the prior-year figure of 2,923 million euros. All three business units contributed to this positive development. We improved adjusted return on sales (adjusted EBIT margin) for the Group by 0.7 percentage points to 16.9 percent.
Adjusted return on sales in the Adhesive Technologies business unit showed an increase of 1.1 percentage points, reaching a new all-time high of 18.2 percent for the year. The Beauty Care business unit was also again able to increase its adjusted return on sales, reaching 16.9 percent for the first time (2015: 15.9 percent). Adjusted return on sales of the Laundry & Home Care business unit, excluding the acquisitions completed in 2016, showed a very strong increase. Taking the acquisitions in 2016 into account, adjusted return on sales showed a solid increase, reaching a new all-time annual high of 17.3 percent (previous year: 17.1 percent).
In all business units, we benefited from our successful innovations together with ongoing measures to reduce costs and improve efficiency. Slightly lower prices for direct materials also had a positive impact.
Further explanations relating to our business performance can be found in the description of the business units starting on page 88.
adjusted return on sales, up 0.7 percentage points. 16.9%
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| Guidance for 2016 | Updated guidance for 2016* | Performance in 2016 | ||
|---|---|---|---|---|
| Organic sales growth | Henkel Group: 2–4 percent | Henkel Group: 2–4 percent | Henkel Group: 3.1 percent | |
| All business units within this range | All business units within this range | Adhesive Technologies: 2.8 percent Beauty Care: 2.1 percent Laundry & Home Care: 4.7 percent |
||
| Percentage of sales from emerging markets |
Slight increase compared to prior-year level |
Slight decrease compared to prior-year level |
Slight decrease compared to prior-year level |
|
| Adjusted return on sales (EBIT) |
Increase to around 16.5 percent | Increase to more than 16.5 percent | Increase to 16.9 percent | |
| Adjusted earnings per preferred share |
Increase of 8–11 percent | Increase of 8–11 percent | Increase of 9.8 percent |
We updated our guidance for fiscal 2016 in August 2016: We expected Henkel Group to generate organic sales growth of 2 to 4 percent. We also anticipated a slight decrease in the share of sales from our emerging markets due to foreign exchange effects. For adjusted return on sales (EBIT), we forecasted an increase to more than 16.5 percent for fiscal 2016 and anticipated that the adjusted return on sales of each individual business unit would be above the level of the previous year. We expected an increase in adjusted earnings per preferred share of between 8 and 11 percent.
With organic growth of 3.1 percent, we achieved our sales growth forecast of 2 to 4 percent. Organic sales growth in the Adhesive Technologies and Beauty Care business units was within this range, as expected. The Laundry & Home Care business unit achieved organic sales growth of 4.7 percent, not least due to a solid fourth quarter. This was somewhat stronger than forecasted.
As anticipated, the share of sales from emerging markets was slightly lower year on year at 42 percent, due to both the effect of exchange rate movements and the acquisition of The Sun Products Corporation.
Adjusted return on sales of the Henkel Group increased by 0.7 percentage points to 16.9 percent. This growth was in line with our updated guidance of more than 16.5 percent.
The significant increase in adjusted earnings per preferred share of 9.8 percent to 5.36 euros (2015: 4.88 euros) is consistent with our forecast of growth expected in a range of 8 to 11 percent.
Our restructuring expenses totaled 277 million euros and were thus within the expected bandwidth that we revised to 250 million to 300 million euros in November 2016. Capital expenditures on property, plant and equipment and intangible assets totaled 543 million euros in fiscal 2016. In November 2016, we had expected capital expenditures of between 550 million and 600 million euros.
of our sales generated in emerging markets.
adjusted earnings per preferred share.
Reconciliation from sales to adjusted operating profit1 41
| in million euros | 2015 | % | 2016 | % | Change |
|---|---|---|---|---|---|
| Sales | 18,089 | 100.0 | 18,714 | 100.0 | 3.5% |
| Cost of sales | –9,350 | –51.7 | –9,665 | –51.6 | 3.4% |
| Gross profit | 8,739 | 48.3 | 9,049 | 48.4 | 3.5% |
| Marketing, selling and distribution expenses | –4,521 | –25.0 | –4,543 | –24.4 | 0.5% |
| Research and development expenses | –464 | –2.6 | –460 | –2.5 | –0.9% |
| Administrative expenses | –878 | –4.8 | –868 | –4.6 | –1.1% |
| Other operating income/expenses | 47 | 0.3 | –6 | 0.0 | – |
| Adjusted operating profit (EBIT) | 2,923 | 16.2 | 3,172 | 16.9 | 8.5% |
1 Calculated on the basis of units of 1,000 euros; figures commercially rounded.
€2,093m
net income.
The following explanations relate to our operating expenses adjusted for one-time charges/gains and restructuring expenses. The reconciliation statement and the allocation of the restructuring expenses between the various expense items of the consolidated statement of income can be found on page 171.
The cost of sales increased by 3.4 percent to 9,665 million euros. Gross profit increased by 3.5 percent to 9,049 million euros. Savings from cost reduction measures and efficiency improvements, selective price increases and slightly lower prices for direct materials (raw materials, packaging, and purchased goods and services) more than offset the negative impact of foreign exchange rate movements as well as acquisition effects, and enabled us to improve gross margin by 0.1 percentage points to 48.4 percent.
At 4,543 million euros, marketing, selling and distribution expenses slightly exceeded the prior-year figure of 4,521 million euros. Compared to fiscal 2015, the ratio to sales decreased to 24.4 percent. We spent a total of 460 million euros for research and development. The ratio to sales, at 2.5 percent, was on a par with the prior year. Administrative expenses decreased to 868 million euros (2015: 878 million euros). At 4.6 percent, administrative expenses as
At –6 million euros, the balance of adjusted other operating income and expenses decreased year on year (2015: 47 million euros), arising mainly from lower gains on disposals of non-current assets.
a percentage of sales were slightly lower year on year.
The financial result improved from –42 million euros to –33 million euros. The financing costs relating to the acquisition of The Sun Products Corporation were more than offset by the positive effects from redeeming the hybrid bond.
Income before tax increased by 139 million euros to 2,742 million euros. Taxes on income amounted to 649 million euros. The tax rate of 23.7 percent was slightly lower year on year (2015: 24.4 percent). The adjusted tax rate decreased year on year by 0.3 percentage points to 24.7 percent. Net income increased by 6.4 percent from 1,968 million euros to 2,093 million euros. After taking into account 40 million euros attributable to non-controlling interests, net income attributable to shareholders of Henkel AG & Co. KGaA amounted to 2,053 million euros, 6.9 percent higher than the prior-year figure (2015: 1,921 million euros). Adjusted net income after deducting non-controlling interests was 2,323 million euros compared to 2,112 million euros in fiscal 2015. A condensed version of the annual financial statements of the parent company of the Henkel Group – Henkel AG & Co. KGaA – can be found on pages 100 to 103.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
Earnings per preferred share rose from 4.44 euros to 4.74 euros. Earnings per ordinary share increased from 4.42 euros to 4.72 euros. Adjusted earnings per preferred share rose by 9.8 percent to 5.36 euros (2015: 4.88 euros).
Adjusted earnings per preferred share 43 in euros
According to our dividend policy, dividend payouts of Henkel AG & Co. KGaA shall, depending on the company's asset and profit positions as well as its financial requirements, amount to 25 percent to 35 percent of net income after non-controlling interests and adjusted for exceptional items. We will propose to the Annual General Meeting an increased dividend compared to the previous year: 1.62 euros per preferred share and 1.60 euros per ordinary share. The payout ratio would then be 30.3 percent.
1 Proposal to shareholders for the Annual General Meeting on April 6, 2017.
104 Risks and opportunities report 112 Forecast
At 17.5 percent, return on capital employed (ROCE) decreased year on year, mainly due to the capital effect of acquisitions.
Economic Value Added (EVA®) increased to 1,463 million euros.
Effective May 31, 2016, we acquired 57.5 percent of the shares of Expand Global Industries UK Limited, London, UK. Expand Global Industries UK Limited holds nearly 100 percent of the shares of Expand Global Industries Ltd. headquartered in Ibadan, Nigeria, which has a strong presence in the detergent market in Nigeria. With this acquisition, the Laundry & Home Care business unit has expanded its detergent business.
Effective June 1, 2016, we completed the acquisition of a range of hair care brands and the associated hair care business of Procter & Gamble in the Africa/Middle East and Eastern Europe regions.
Effective June 30, 2016, we acquired the tile adhesives business and the associated brands of the Colombian company Alfagres S.A. With this, the Adhesive Technologies business unit has expanded its business in the segment Adhesives for Consumers, Craftsmen and Building.
Effective August 15, 2016, we completed the acquisition of all shares of Zhejiang Golden Roc Chemicals JSC, China, expanding our superglue business in the Adhesive Technologies business unit.
Effective August 21, 2016, we completed the acquisition of the detergent business and the associated brands of Behdad Chemical Company PJSC in Iran.
Effective September 1, 2016, we completed the acquisition of all shares of The Sun Products Corporation, a laundry and home care company based in Wilton, Connecticut, USA.
Effective December 8, 2016, we completed the acquisition of all shares of Jeyes Group Limited, UK.
Additional disclosures relating to the acquisitions and divestments can be found on pages 123 to 126 of the notes to the consolidated financial statements.
30.3% proposed dividend payout ratio.
increase in adjusted earnings per preferred share.
+9.8%
in million euros
investments in property, plant and equipment and intangible assets.
Neither the acquisitions and divestments nor other measures undertaken resulted in any material changes in our business and organizational structure. For detailed information on our organization and business activities, please refer to the disclosures on pages 57 and 58.
Our long-term ratings remain at "A flat" (Standard & Poor's) and "A2" (Moody's). We intend to maintain a solid "A" rating to ensure our continued unrestricted access to the money and capital markets and to favorable financing terms and conditions.
In the reporting period, capital expenditures (excluding acquisitions) amounted to 543 million euros. Investments in property, plant and equipment for existing operations totaled 460 million euros, following 514 million euros in 2015. We invested 83 million euros in intangible assets (2015: 111 million euros). Around two-thirds of the expenditures were channeled into expansion projects, innovations and streamlining measures, which included increasing our production capacity, introducing innovative product lines, and optimizing our production structure and business processes.
The major projects of 2016 were as follows:
In regional terms, capital expenditures focused primarily on Western Europe, Eastern Europe and North America.
The acquisitions resulted in additions to intangible assets and property, plant and equipment in the amount of 3,866 million euros. Details of these additions can be found on pages 131 to 136 of the notes to the consolidated financial statements.
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104 Risks and opportunities report 112 Forecast
| in million euros | Existing operations |
Acquisitions | Total |
|---|---|---|---|
| Intangible assets | 83 | 3,589 | 3,672 |
| Property, plant and equipment |
460 | 277 | 737 |
| Total | 543 | 3,866 | 4,409 |
Corporate = sales and services not assignable to the individual business units. 1 Existing operations.
Compared to year-end 2015, total assets rose by 5.6 billion euros to 27.9 billion euros.
Under non-current assets, intangible assets increased by 3,861 million euros, and property, plant and equipment by 226 million euros. The increase was mainly due to acquisitions. Capital expenditures of 460 million euros on assets in property, plant and equipment were partially offset by depreciation of 364 million euros.
Current assets increased from 6.9 billion euros to 8.2 billion euros. This was attributable in particular to higher trade accounts receivable and an increase in inventories. Cash and cash equivalents also increased by 213 million euros in the reporting period.
Compared to year-end 2015, equity including non-controlling interests increased by 1.4 billion euros to 15.2 billion euros. The individual components influencing equity development are shown in the consolidated statement of changes in equity on page 119. Equity rose with the addition of net income amounting to 2,093 million euros. The dividend distribution in April 2016 and the adjustment of –138 million euros resulting from the remeasurement of the net liability from defined benefit pension plans led to a reduction in equity. Compared to year-end 2015, the equity ratio decreased by 7.5 percentage points to 54.4 percent due to the debt-financed acquisition of the shares of The Sun Products Corporation.
Non-current liabilities increased by 3.5 billion euros to 5.7 billion euros, mainly as a result of higher borrowings following the acquisition of the shares of The Sun Products Corporation, and a rise in other financial liabilities.
Current liabilities increased by 0.7 billion euros to 7.0 billion euros. The increase was substantially attributable to higher trade accounts payable and other provisions, partially offset by lower borrowings.
Effective December 31, 2016, our net financial position 1 amounted to –2,301 million euros (December 31, 2015: 335 million euros). The change compared to the end of the previous year was primarily due to payments for acquisitions.
| 48 |
|---|
| –85 |
| 959 |
| –153 |
| 335 |
| –2,301 |
€–2,301m net financial position.
1 Cash and cash equivalents plus readily monetizable financial instruments classified as "available for sale" or using the "fair value option," less borrowings, plus positive and less negative fair values of hedging transactions.
1 Including purchase of non-controlling interests with no change of existing control. 2 Primarily foreign exchange effects.
€2,205m free cash flow.
At 2,850 million euros, cash flow from operating activities in 2016 was significantly higher versus the previous year (2,384 million euros). Apart from the higher operating profit, this increase was due to higher inflows from trade accounts payable and other liabilities, and provisions compared to 2015.
Net working capital1 as a percentage of sales improved by 0.3 percentage points to 3.5 percent year on year, despite acquisitions.
The cash outflow in cash flow from investing activities (–4,250 million euros) was substantially higher compared to prior year (–893 million euros). The increase is primarily attributable to acquisitions resulting in higher investments in subsidiaries and other business units compared to 2015.
The cash inflow in cash flow from financing activities of 1,678 million euros (2015: –1,555 million euros) resulted mainly from the debt capital obtained to fund acquisitions. Higher dividend payments and allocation to pension funds reduced this figure.
Cash and cash equivalents rose compared to December 31, 2015 by 213 million euros to 1,389 million euros.
The increase in free cash flow to 2,205 million euros in 2016 (2015: 1,690 million euros) resulted from higher cash flow from operating activities.
Financing of the Group is centrally managed by Henkel AG & Co. KGaA. Funds are, as a general rule, obtained centrally and distributed within the Group. Our financial management is based on the financial ratios defined in our financial strategy (see table of key financial ratios on page 73). We pursue a conservative and flexible investment and borrowings policy with a balanced investment and financing portfolio. The primary goals of our financial management are to secure the liquidity and creditworthiness of the Group, together with ensuring access at all times to the capital market, and to generate a sustainable increase in shareholder value. Measures deployed in order to achieve these aims include optimization of our capital structure, adoption of an appropriate dividend policy, equity management and debt reduction. Our capital needs and capital procurement activities are coordinated to ensure that requirements with respect to earnings, liquidity, security and independence are taken into account and properly balanced.
1 Inventories plus payments on account, receivables from suppliers and trade accounts receivable, less trade accounts payable, liabilities to customers, and current sales provisions.
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In fiscal 2016, Henkel paid a higher dividend for both ordinary and preferred shares compared to 2015. Cash flows not required for capital expenditures, dividends and interest payments were used for allocations to pension funds and to finance acquisitions. We covered our short-term financing requirement primarily through commercial paper. Our multicurrency commercial paper program is additionally secured by a syndicated credit facility.
Our credit rating is regularly assessed by the rating agencies Standard & Poor's and Moody's. As in the previous year, our ratings remain within the "single A" target corridor, at "A"/"A–1" (Standard & Poor's) and "A2"/"P1" (Moody's). Even after the acquisition of The Sun Products Corporation, both Standard & Poor's and Moody's continue to rate Henkel as investment grade, which is the best possible category.
| Standard & Poor's | Moody's | |
|---|---|---|
| Long-term | A | A2 |
| Outlook | Stable | Stable |
| Short-term | A–1 | P1 |
We financed the acquisition of The Sun Products Corporation by taking out a three-year syndicated bank loan of 1.1 billion US dollars and issuing four fixed-rate bonds in September 2016 with a total volume of 2.2 billion euros.
104 Risks and opportunities report 112 Forecast
As of December 31, 2016, our borrowings totaled 3,725 million euros and mainly comprised the bonds we had issued, the syndicated bank loan and commercial paper.
Henkel's financial risk management activities are explained in the risks and opportunities report on pages 104 to 111. Further detailed information on our financial instruments can be found in the financial instruments report on pages 153 to 165 of the notes to the consolidated financial statements.
Our operating debt coverage in the reporting period was above the minimum of 50 percent, as it was at year-end 2015. The reduction in operating debt coverage is primarily due to the lower net financial position following the financing of the acquisitions made in the current year. The interest coverage ratio improved further in 2016.
| Key financial ratios | 51 | |
|---|---|---|
| 2015 | 2016 | |
| Operating debt coverage (net income + amortization and depre ciation, impairment and write-ups + interest element of pension obliga tions) /net borrowings and pension obligations |
375.2% | 80.8% |
| Interest coverage ratio EBITDA/ interest result including interest element of pension obligations |
75.7 | 107.9 |
| Equity ratio equity / total assets |
61.9% | 54.4% |
Left: HR management is supporting the digital transformation process and strengthening digital forms of learning and cooperation. Right: Internships and shadowing allow refugees to learn more about professions and career opportunities – here at Henkel's "Forscherwelt" young researcher facility in Düsseldorf.
At the end of 2016, Henkel employed around 51,350 people worldwide (annual average: around 49,950). The headcount as of December 31, 2016, was above the figure at year-end 2015 (around 49,450). The increase was primarily due to the acquisitions in our Laundry & Home Care business unit. Personnel expenses amounted to 3,001 million euros.
The commitment, skills and experience of all of our employees are the foundations on which we build our international success. We focused on the following areas to strengthen our global team in fiscal 2016:
external sources of knowledge on a flexible basis, and support their ongoing personal development.
We hold regular assessment meetings and provide open and fair feedback to specifically promote the development of our people. Our Development Round Table forms the basis for the annual assessment and development meetings for about 11,000 managers and around 1,300 selected non-managerial talents.
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104 Risks and opportunities report 112 Forecast
Apart from providing feedback on performance and potential, our managers discuss development plans and possible career opportunities with their staff. In addition to this globally established assessment system, we also ensure we pay competitive wages and salaries. We have established an internationally standardized incentive system for managers that takes account of the personal performance of staff and reflects our medium-term financial ambition. It serves to highlight the personal contribution made by each individual and offers incentives for outstanding performance.
In assessing performance, we avoid focusing on employees having to be at a certain place at certain times. For us, it is the result that counts. Supported by digitalization, our employees can approach their work flexibly. We encourage our managers to promote flexible work models and to actively help in the reconciliation of career with a person's private sphere. This not only raises the satisfaction of our existing team; it is also a decisive factor in the competition for future employees.
We take full advantage of the opportunities offered by digitalization. It starts with our approach to potential job applicants and continues through the company: how we communicate with our employees, how we actively engage them and network them with one another, in the design of flexible work models, and in the automation of processes. Indeed, the entire daily work routine is being increasingly shaped by digital forms of cooperation. Modern communication and network technologies enable us to give our workforce more independence to choose where and when to work, which also makes it easier to virtually manage international teams comprising members from different sites.
Some 24,500 members of staff now use Yammer, our digital network, to learn from and to work with one another on a more efficient basis. There are more than 850 topic-specific groups for staff to exchange ideas, and this has now become part of the everyday routine for many of them. Members of staff from entirely different parts of the company who would not necessarily have any dealings with one another in their everyday work are able to use the network to contact each other. Through this, we encourage an interdisciplinary approach to problem-solving and
| Employees | 56 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (At December 31) | 2012 | % | 2013 | % | 2014 | % | 2015 | % | 2016 | % |
| Western Europe | 14,600 | 31.3 | 14,400 | 30.7 | 14,900 | 30.0 | 14,900 | 30.2 | 14,450 | 28.1 |
| Eastern Europe | 9,150 | 19.7 | 9,600 | 20.5 | 10,000 | 20.1 | 9,800 | 19.8 | 9,500 | 18.5 |
| Africa/Middle East | 5,100 | 11.0 | 4,800 | 10.2 | 4,850 | 9.7 | 4,700 | 9.4 | 5,250 | 10.2 |
| North America | 5,200 | 11.1 | 5,150 | 11.0 | 6,200 | 12.5 | 6,250 | 12.7 | 8,300 | 16.2 |
| Latin America | 3,650 | 7.8 | 3,750 | 8.0 | 3,650 | 7.3 | 3,500 | 7.1 | 3,550 | 6.9 |
| Asia-Pacific | 8,900 | 19.1 | 9,150 | 19.6 | 10,150 | 20.4 | 10,300 | 20.8 | 10,300 | 20.1 |
| Total | 46,600 | 100.0 | 46,850 | 100.0 | 49,750 | 100.0 | 49,450 | 100.0 | 51,350 | 100.0 |
Basis: permanent employees excluding apprentices. Figures rounded.
to make better use of existing knowledge by promoting the exchange of ideas throughout the company.
Around of our managers are women. 34%
Digital platforms give our employees fast and flexible access to general training content. We encourage our workforce to integrate knowledge-building exercises into their everyday work routines. 2016 marked the first year in which we offered managementrelated Massive Open Online Courses (MOOCs) and webinars in collaboration with IESE Business School for live attendance by our employees around the globe. More than 200 people took advantage of this service.
Henkel offers 25 apprenticeship and dual-track study programs in Germany. In 2016, we welcomed 159 new apprentices and students. Currently, close to 500 apprentices and students are working toward a professional qualification at Henkel in Germany.
We use different learning formats in providing training opportunities around the world so as to strengthen our global team. Based on their individual needs and development plans, employees can choose general or function-specific seminars. One of the new modules added this year focuses on career orientation, training our staff to assess how they can best leverage their potential. We enhance the Henkel Global Academy with content from external providers to give us more flexibility in offering the training content we need. One pilot project focuses primarily on video-based training sessions covering current digital issues such as digital marketing. Through this approach, we are able to help our employees to navigate the digital world efficiently and to grasp the opportunities associated with it.
The success of our business is driven by the diversity and individuality of our people. We are proud of our strong global team. We place great value on encouraging diversity in an inclusive environment. The approach we adopt is holistic, embracing individual characteristics together with personal experience, knowledge and skills.
Promoting women in management is key to strengthening the diversity within our company. In 2016, we were able to increase the share of women in management by more than 1 percentage point versus the previous year.
Women in management 57
| 2012 | 2013 | 2014 | 2015 | 2016 |
|---|---|---|---|---|
| 32.6% | 32.9% | 33.2% | 33.6% | 33.1% |
| 30.5% | 31.6% | 32.5% | 33.1% | 34.3% |
| 18.6% | 19.8% | 20.6% | 21.1% | 22.5% |
1Corporate Senior Vice Presidents, management circles I and IIa.
The inclusive attitude of our staff is key to our successful international and intercultural collaboration. In their everyday dealings with colleagues from all over the world, our employees learn to adapt to one another. Hence Henkel also provides opportunities for international experience along an individual's career path as a means of promoting new ways of thinking and the acceptance and adoption of new perspectives. It also enables us to nurture the performance capabilities of our people.
We place great importance on all employees behaving inclusively and making every personal effort to promote an inclusive work environment. During our global Diversity Weeks, we again organized numerous activities to highlight the diversity of our global team.
We compete internationally for the most talented professionals. The established channels of communication used to recruit new members of staff have been successfully extended. We are making more use of digital networks to actively approach potential candidates. We are thus able to reach them directly and inspire them to work for Henkel through fast, personalized communication.
In many countries, we also make successful use of staff recommendations of potential candidates. Our staff know best which sort of people fit us and can enhance the performance capabilities of our company.
We remain in contact with highly qualified students and graduates whom we meet at our university events or whom we get to know during internships. We use our digital platforms to inform selected talents about career opportunities and the latest news at our company. In 2016, our public social media channels focusing on career topics had more than 750,000 fans and followers.
For Henkel, it is a matter of course that, beyond our business operations, we accept our responsibility toward society around the world. The volunteer work of our employees and retirees in numerous social projects also makes a substantial contribution in this regard. We have been supporting these activities for many years.
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Code [HGB])
(condensed version according to the German Commercial
Overall, we donated around 8 million euros throughout the world in 2016 to sponsor more than 2,000 projects that reached more than 1.2 million people.
Educational initiatives are a key focus of our social engagement. Education is an essential foundation on which to build both the personal development of each individual and a functioning society. We focus primarily on projects and initiatives that allow the involvement of our employees.
Throughout Europe, helping refugees was a key area of focus in 2016. Henkel's efforts to help in this respect were concentrated on integration in the labor market. We offered some 100 refugees who had fled to Germany the opportunity to prepare for working life in a range of projects which included workoriented language courses and internships.
We also depend on the commitment of our staff to successfully implement our sustainability strategy. Sustainability issues therefore form a large part of our internal communications and are specifically integrated into our current training and education programs. In 2012, we launched our Sustainability Ambassadors program to offer our people additional qualifications and to give them opportunities for social engagement. By the end of 2016, more than 10,000 employees had successfully taken part in the program, including the entire Management Board. As part of the program, these employees have meanwhile also passed on their knowledge to around 84,000 elementary school children in 47 countries.
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We use externally sourced materials (raw materials, packaging and purchased goods) and services to produce our finished products. These items all fall under the general category of direct materials. Examples include washing-active substances (surfactants), adhesive components, cardboard boxes and external filling services.
Aside from supply and demand, the prices of direct materials are mainly determined by the prices of the input materials used to manufacture them. At the start of 2016, prices for input materials were much lower by year-on-year comparison, gradually rising as the year progressed. As a result, prices overall were higher in the fourth quarter than in the first quarter. The situation differed by both region and type of input material. Despite increasing over the course of the year, the average price of crude oil – and with it the prices of other petrochemicals such as ethylene – was lower year on year. Prices for corrugated paper and cardboard also declined slightly. In contrast, the price of palm kernel oil increased significantly in 2016 versus the previous year. Overall, prices for direct materials in 2016 were slightly below the level of the prior year.
Direct material expenditures amounted to 8.0 billion euros and were therefore higher than 2015. Savings from cost-reduction measures, improvements in production and supply chain efficiency, and slightly declining prices were offset by foreign exchange and acquisition effects, among others.
Our five most important groups of raw materials within the direct materials category are washingactive substances (surfactants), raw materials for use in hotmelt adhesives, inorganic raw materials, waterand acrylic-based adhesive raw materials, and raw materials for polyurethane-based adhesives. These account for around 38 percent of our total direct material expenditures. Our five largest suppliers account for around 11 percent of purchasing volume in direct materials.
Purchases made in the general category of indirect materials and services are not directly used in the production of our finished products. Examples include maintenance materials, and logistics, marketing and IT services. We were able to more than compensate for the marginal increases in gross prices in these areas in 2016 through our global procurement strategy and structural cost-reduction measures. At 4.7 billion euros, expenditure on indirect materials and services in 2016 was lower year on year.
expenditures on direct materials. €8.0bn
In order to improve efficiency and secure material supplies, we continuously optimize our value chain while ensuring that we maintain our level of quality. In addition to negotiating new, competitive contract terms, our ongoing initiative to lower total procurement expenses is a major factor in the success of our purchasing strategy. Together with the three business units, Purchasing works continuously on reducing product complexity, optimizing the raw materials mix and further standardizing packaging and raw materials. We enter into long-term business relationships with selected suppliers to encourage the development of innovations, and to optimize manufacturing costs and logistics processes. At the same time, we ensure the risk of supply shortages is minimized. We also agree on individual targets with our strategic suppliers to strengthen our negotiating position and give us greater flexibility in consolidating our supplier base. In 2016, we succeeded in reducing the number of suppliers by approximately 9 percent.
We were able to increase the efficiency of our purchasing activities by further standardizing, automating and centralizing our procurement processes. In addition to again making greater use of eSourcing tools to support our purchasing operations, we have also pooled large portions of our purchasing administration activities such as order processing, price data maintenance, and reporting activities within our shared service centers. We are also integrating our production, logistics and purchasing activities across all business units in one integrated global supply chain organization. This organization is managed from its head office in Amsterdam and from a branch office in Singapore. Following successful completion of the first implementation stage in 2015, we achieved on-schedule introduction in a further 11 European countries in 2016. We also made progress with the digitalization of our purchasing activities. For example, we launched digital communication platforms to optimize collaboration with
our strategic suppliers and rolled out new digital applications to raise the transparency of our value chain.
Given the uncertainties with respect to raw material price changes and ensuring supply in the procurement markets, risk management is an important part of our purchasing strategy. The emphasis here is on reducing price and supply risks while maintaining consistently high quality. As part of our active price management approach, we employ strategies to safeguard prices over the longer term. These are implemented both by means of contracts and, where appropriate and possible, through financial hedging instruments. In order to minimize the risk of supplier default, we stipulate supplier default clauses and perform detailed risk assessments of suppliers to determine their financial stability. With the aid of an external, independent financial services provider, we continuously monitor important suppliers whose financial situation is seen as critical. If a high risk of supplier default is identified, we systematically prepare back-up plans in order to ensure uninterrupted supply.
We expect our suppliers and contractual partners to conduct themselves in a manner consistent with our own corporate ethics and values. The basic requirements in this regard are set out in our purchasing standards, valid across the Group, and our safety, health and environmental standards, initially formulated in 1997, through which we have long acknowledged our responsibility for the entire supply chain. Consequently, in selecting our suppliers and contractual partners, we take into account their performance in terms of sustainable development. We use the cross-industry Code of Conduct published by the German Federal Association of Materials Management, Purchasing and Logistics (BME) as a globally applicable supplier code, and the basis for our multistage Responsible Supply Chain Process. The objec-
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tive of this process is to ensure supplier compliance with these standards and to improve the sustainability levels of our supply chain in tandem with our strategic suppliers. A global training program ensures that the requirements regarding the sustainability profile of our suppliers are understood and properly applied by our employees in Purchasing.
The evaluation of our suppliers with respect to sustainability is based on a comprehensive assessment and audit program which we developed as a common standard in 2011 together with five other companies in the chemical industry under the initiative "Together for Sustainability." The results of audits and assessments are shared among the members of the initiative, producing valuable synergies when evaluating what are – in many cases – common suppliers. The Together for Sustainability initiative continued to grow in the past year and now includes 19 members. Global implementation of the assessment and audit program was continued through various events including a supplier conference in Mumbai, India, and a supplier training program in Shanghai, China. The initiative again received recognition last year when Together for Sustainability and EcoVadis, which is a partner to the initiative, were awarded the Market Transformation Award 2016 by the Sustainable Purchasing Leadership Council (SPLC).
104 Risks and opportunities report 112 Forecast
In 2016, Henkel manufactured products of a total weight of 8.5 million metric tons at 171 sites in 57 countries. Our largest production facility is in Düsseldorf, Germany. Here we manufacture not only laundry detergents and household cleaners but also adhesives for consumers and craftsmen, and products for our industrial customers.
Cooperation with toll manufacturers is an integral component of our production strategy, enabling us to optimize our production and logistics structures when entering new markets or when volumes are still small. We currently purchase around 10 percent in additional production tonnage from toll manufacturers each year.
| Total | 170 | 171 |
|---|---|---|
| Laundry & Home Care | 28 | 30 |
| Beauty Care | 7 | 7 |
| Adhesive Technologies | 135 | 134 |
| 2015 | 2016 | |
| Number of production sites | 60 |
The global production network in the Adhesive Technologies business unit spans 134 sites and is strictly aligned to demand in its sales markets. Capital expenditures are used to expand capacities, predominantly in emerging markets. At the same time, we invest in the implementation of customer-specific requirements and continuous production optimization in the mature markets. Other focus areas include the leveraging of cutting-edge manufacturing technologies, exploiting cost and quality advantages in the manufacture of our products, and improving our production and warehousing network to suit our needs.
Our multi-technology sites play a particularly important role as they combine various manufacturing technologies with a shared infrastructure to exploit economies of scale. In addition to expansions in China and the ongoing development of our plant in India, we also further expanded our Eastern European multi-technology site in Hungary and laid the foundation for a further plant in Turkey. These sites help us provide the best possible service within a growing and dynamic market environment. With the opening of our plant in Georgia, we are also driving growth in building material products in Eastern Europe.
Optimized structures and workflows in our plants and the production network are key elements in an integrated and optimized supply chain. Our lean teams have not only put numerous optimization measures in place at our production sites; they have also improved integration into the overall process.
Again in 2016, our focus in the Beauty Care business unit was on further enhancing our agility and on delivering excellent customer service. In order to respond more quickly and flexibly to market changes, we are also driving forward implementation of Industry 4.0. The integration of our production, logistics and purchasing activities in our new Global Supply Chain organization has boosted the optimization and further development of our global processes. We have achieved a substantial improvement in our service level through increased integration of the planning processes across the entire supply chain as far as the interface with our customers. We have also focused on complexity control to raise efficiency when managing the product diversity that Beauty Care offers to meet the various needs of its global customer base.
In addition to capital expenditures at European sites, we also invested extensively in emerging markets to support organic growth. In particular, Eastern Europe saw further expansion of the factory in Russia and an increase in production capacities enabling us to supply local markets with even greater speed and efficiency. Another focal point of our activity was the strategic further development of our production network in order to ensure long-term growth in emerging markets.
The motivation of our people, supported by the consistent implementation of our continuous improvement process HPS (Henkel Production System) has led to enhancements in both quality and productivity. Tailored to Henkel's requirements, the "Lean Management Program" is serving to harmonize our crossbusiness systems with ever-increasing effect.
We further optimized the production network in our Laundry & Home Care business unit over the course of the year. This included the sale of our plants at Nemours in France and Ain Temouchent in Algeria. New sites were added through acquisitions in both emerging markets (Qazvin, Iran, and Ibadan, Nigeria) and in mature markets (Salt Lake City and Bowling Green, both USA). As a result, the production network spanned 30 plants in total as of the end of 2016.
Our solid organic growth brought about another increase in production volume. We are responding to this by carefully expanding our manufacturing capacities, with a particular eye on innovations and emerging markets. In 2016, we also continually enhanced the performance capabilities of our plants by rolling out the Henkel Production System to more countries as a means of further improving production organization and efficiency.
We successfully renewed the external certification of Group headquarters and all our existing plants, confirming our compliance with international quality, environmental, safety and energy management standards. Continuous improvements in sustainability enabled us to make significant progress in our focal areas of safety and resource conservation, aided in particular by the further expansion of our centralized real-time system for measuring and evaluating total resource use around the world. The business unit is also investing systematically in expanding the digital infrastructure of its production and warehousing systems.
As an important aspect in our promise of quality, our optimization efforts in all three business units aim to reduce the environmental footprint of our production activities. We focus in particular on cutting energy use, thereby contributing to climate protection, on reducing material input and waste volume, and on lowering water usage and wastewater pollution. New warehousing concepts and the production of packaging materials directly on-site where filling takes place reduce transport mileage and thus also contribute to climate protection.
Overall, our global programs in 2016 resulted in 44 percent of our sites reducing their energy use, 53 percent lowering their water usage, and 54 percent decreasing their waste footprint (excluding construction and demolition waste).
Keeping our "Factor 3" goal in mind for the year 2030, we set concrete interim targets for our production sites for the five years from 2011 through 2015, which we managed to exceed. We are continuing our efforts to further improve our performance in these areas over the coming years, as we move toward our longterm goal of "Factor 3." To this end, we have set medium-term targets for completion by 2020: Compared to the base year 2010, we want to raise occupational safety by 40 percent, and to reduce the direct and indirect carbon dioxide emissions of our production sites, the water we use and the waste we generate by 30 percent per ton of product in each case.
29 Corporate governance
Environmental indicators per ton of production
Direct and indirect carbon
portation of our products.
Report on the internet:
www.henkel.com/sustainabilityreport
cially at the production level.
tal management systems.
projects. Base year 2010.
Sustainability targets 2020 61
volume Target Status Occupational safety 1 +40% +17%
dioxide emissions –30% –22% Water used –30% –23% Waste generated2 –30% –26%
We have also defined other areas of program focus, including more concerted efforts to save water in regions where it is scarce, to reduce landfill waste, to increase the use of renewable energies, and to lower carbon dioxide emissions associated with the trans-
For further details on our sustainability targets, please see pages 60 to 62 and our Sustainability
Our standards for safety, health and the environment, and the Henkel Social Standards, apply to all our sites worldwide. Using a clearly defined process consisting of communication, training and audits, we ensure compliance with these standards, espe-
We have the environmental management systems at our sites externally certified wherever this is recognized by our partners in the respective markets. By the end of 2016, around 90 percent of our production volume came from sites certified to ISO 14001, the internationally recognized standard for environmen-
1 Fewer occupational accidents per million hours worked. 2 Waste from our production sites (excluding construction and demolition waste). 4 percent increase in 2016 including construction and demolition waste due to extensive infrastructure
| 100 Henkel AG & Co. KGaA |
|---|
| (condensed version according |
| to the German Commercial |
| Code [HGB]) |
(condensed version according
104 Risks and opportunities report 112 Forecast
Expenditures by the Henkel Group for research and development (R&D) in fiscal 2016 amounted to 463 million euros (adjusted for restructuring expenses: 460 million euros), following 478 million euros (adjusted: 464 million euros) in 2015. As a percentage of sales, we spent 2.5 percent (adjusted: 2.5 percent) on research and development (2015: 2.6 percent, adjusted: 2.6 percent).
In 2016, internal personnel expenses accounted for around 60 percent of total R&D spending. Our research and development costs were fully expensed; no product- or technology-related development costs were capitalized in accordance with International Financial Reporting Standards (IFRS).
1 Including restructuring expenses of 2 million euros (2012), 1 million euros (2013), 3 million euros (2014), 14 million euros (2015), 3 million euros (2016).
R&D expenditures in percent of sales.
Selected research and development sites 64
On an annual average, around 2,700 employees worked in research and development (2015: around 2,800). This corresponds to around 5 percent of the total workforce. Our teams are composed of natural scientists – predominantly chemists – as well as material scientists, engineers and technicians.
Our capital expenditures and the capabilities of our highly qualified employees form the foundation on which the success of our R&D activities is built. Moreover, our Group-wide cooperation models, successful project outsourcing as part of our Open Innovation strategy, and the relocation of resources in the direction of emerging markets all demonstrate our ongoing focus on innovation and our concerted efforts to continuously reduce our resource consumption while maintaining or improving performance.
| 2012 | 2013 | 2014 | 2015 | 2016 | |
|---|---|---|---|---|---|
| R&D expenditures1 (in million euros) |
406 | 414 | 410 | 464 | 460 |
| R&D expenditures1 (in % of sales) |
2.6 | 2.6 | 2.5 | 2.6 | 2.5 |
| Employees2 (annual average) |
2,650 | 2,600 | 2,650 | 2,800 | 2,700 |
1 Adjusted for restructuring expenses.
2 Figures rounded.
The research and development experts in the three business units align their project portfolios to the specific needs of their individual businesses. They work together on fundamental processes, basic innovation, evaluating partners for innovation, and on sustainability. The Research and Development Committee is responsible for Group-wide coordination.
One example of the joint approach is our technology scouting and screening procedure for startups. The research experts in the business units update one another regularly about their search criteria, activities, and any technology partners they have identified. This further accelerates the continuous exchange of knowledge and research activities, and increases the likelihood of successful disruptive innovations. The business units also continually update one another on innovations in common areas of knowledge. This is particularly relevant to all surface-modifying technologies such as surfactants, multifunctional polymers and silicones. In a joint initiative, documentation of advances in sustainability made within the development projects is being standardized throughout the Group.
As our innovations come from both internal and external sources, the concept of Open Innovation continues to hold great significance for us. Accordingly, we have intensified our efforts to involve external partners such as universities, research institutes and suppliers in many of our development projects.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
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The following examples demonstrate the success achieved with our Open Innovation concept:
In addition to its central research laboratories, Henkel maintains regional research and development sites in all regions around the world as hubs for innovative problem-solving. Worldwide research and development activity is managed globally by the business units. Research-intensive basic technologies are developed at a central location with optimal
access to external resources. These basic technologies are applied in the regional research and development sites to customer- and market-specific innovations. At the same time, the research and development staff in the regional sites obtain information about specific problems for the next generation of innovations, working in close contact with markets and customers. The new basic technologies needed for the relevant solutions are again developed centrally.
The following examples illustrate the contribution made by our regional research and development laboratories:
Worldwide, growth and quality of life need to be decoupled from resource use and emissions. Our contribution here lies in the development of innovative products and processes that consume less resources while offering the same or better performance. It is therefore both our duty and our desire to ensure that all new products contribute to sustainable development in at least one of our six defined focal areas. These are systematically integrated within our innovation process. Early on, our researchers must demonstrate the specific advantages of their project in regard to product performance, added value for our customers, resource efficiency, and social progress. We thus aim to combine product performance and quality with social and environmental responsibility. Our focus in this respect is on two goals. The first is to continuously improve the sustainability profile of the raw materials we use, in collaboration with our suppliers. The second is to help our customers and consumers reduce energy use and carbon dioxide emissions through our innovations.
Life cycle analyses, profiles of potential raw materials and packaging options, and our many years of experience in sustainable development help us to identify and evaluate improvement opportunities right from the start of the product development process. A key tool in this respect is our Henkel Sustainability#Master®. This evaluation system centers around a matrix based on the individual steps in our value chain and on our six focal areas. It shows which areas are most relevant from a sustainability perspective, and allows a transparent and quantifiable comparison to be made between two products or processes.
Our scientists again made valuable contributions to the company's success through their innovations in 2016. A selection of particularly outstanding research projects is provided in the examples below:
• For Adhesive Technologies, a leading role in sustainability constitutes a strategic competitive advantage: Groundbreaking product innovations and high-impact solutions offer our customers added value. Automotive manufacturers, for example, use our sprayable sound deadeners. The liquid material is sprayed onto the floor, doors or roof of a car body and weighs as much as 20 percent less than the bitumen mats otherwise used to dampen noise and vibrations. As robotic automation allows pinpoint precision when applying the
material, the technology accelerates production processes and reduces waste. Our portfolio of sprayable sound deadeners also includes materials based on renewable oils, and has been extended to include a water-based acrylate system that is currently being developed through to series production on a pilot system operated by BMW Group for the new BMW 3 series.
The use of renewable raw materials is a key aspect of sustainable laundry detergents and household cleaners. In an exclusive cooperation project between Henkel and Aachen University – the Henkel Innovation Campus for Advanced Sustainable Technologies, or HICAST for short –, we were able to make promising progress in the field of sustainable base raw materials. This work builds on cellulose, which is the most common organic compound on Earth. Intermediate products made from biomass serve as basic modules from which to develop innovative and sustainable ingredients for laundry detergents and household cleaners. We have managed to convert these intermediate products into innovative surfactants with property profiles that can be put to good commercial use. We have already applied for patent protection of several substances. This constitutes a key contribution toward ensuring that the laundry detergents and household cleaners of the future use less resources and are properly sustainable.
29 Corporate governance
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
www.henkel-adhesives.com/ aluminum-wheels
Each year we select a number of outstanding developments for our Fritz Henkel Award for Innovation. In 2016, the innovation award went to three international, interdisciplinary project teams for the realization and successful commercialization of the following concepts:
was first used in the Bonacure Color Freeze salon range before being successfully launched onto the retail market in the Gliss Kur Ultimate Color range. Users benefit from outstanding hair care combined with long-lasting glossy color.
• Persil ProClean has successfully established the Persil brand in the North American market. A special cold wash formula was developed to cater to the American preference for short cycles and low temperatures. The product is built around an innovative and unique blend of enzymes and surfactants that guarantees superior stain removal, even in these special conditions. Together with its specific scent, the overall formula – which has also been tailored to American preferences – guarantees fiber-deep clean, brilliantly white and noticeably fresh laundry. Persil's superior performance has also been confirmed by external sources: On the first-time inclusion of the top variant, Persil ProClean Liquid 2in1, in annual assessments conducted by a leading US test journal – which was in 2015 following the product's launch – it was ranked the best laundry detergent ever trialed in the USA.
We hold nearly 8,100 patents to protect our technologies around the world. Approximately 5,400 patents are currently pending. And we have registered just over 1,450 design patents to protect our intellectual property.
Further information on our research and development activities can be found on our website www.henkel.com/brands-and-businesses
We put our customers and consumers at the center of what we do. We offer them maximum benefit, quality and service, together with attractive innovations, brands and technologies to create sustainable value.
As a market leader, Adhesive Technologies creates high-impact solutions worldwide through groundbreaking innovations and close partnerships with its customers. The portfolio is aligned to the globally specialized markets for adhesives, sealants and functional coatings.
We develop the marketing strategies for our strong brands and leading technologies at both the global and regional level. The measures derived from our planning are then implemented locally. Within our branding strategy, we consistently leverage our five global technology cluster brands in the industrial markets and our four brand platforms in the consumer business.
direct industry and retail customers.
specialists serving our Adhesive Technologies 6,500 Around
customers.
Our relationships with around 130,000 direct industry and retail customers are managed primarily by our own sales teams, while our retail customers service the needs of private users, craftsmen and smaller industrial customers.
We foster long-term relationships with our customers through our team of around 6,500 technical experts. We therefore have an in-depth understanding of the various applications. In light of the significant complexity of many of our solutions and technologies, technical customer service and thorough user training are of key importance. Our global presence enables us to provide technical services to customers worldwide as well as in-depth product training on site.
As part of our worldwide digitalization strategy, we have rolled out a global process for further improving the efficiency of our digital customer relationship management. This lead management system enables us to reach existing and potential customers very quickly to provide them with relevant technical and commercial information. In addition, we already offer our industrial customers a successful eCommerce platform in the shape of our Henkel POD. In future, we plan to further develop this approach, based on an integrated concept that focuses on our customers.
In addition to digital communications, we strive to optimize our approach to consumers and craftsmen through the continued use of conventional advertising coupled with measures to attract our target groups at the point of sale. Leveraging our close customer relationships and our comprehensive technical expertise, we continue to offer tailored solutions and innovative branded products that provide sustainable added value for our customers.
Within the Beauty Care business unit, our focused portfolio of brands with unique, distinct brand equities forms the basis for leading, consumer-relevant innovations in our Branded Consumer Goods and Hair Salon business. We develop new products and launch strategies with as much global synergy as is possible, while implementing them as locally as is necessary. Through our customer and consumer proximity, we are able to identify global trends at an early stage and quickly respond to these on an individual basis with innovative products. In consumer marketing, advancing digitalization alongside classic advertising and point of sale activities enables a significant increase in media efficiency. With personalized 1:1 experiences, we target the right consumer group with the right message in the right environment and also accelerate efficient re-targeting.
We not only specifically choose which consumers we communicate with and by what means, but also which sales channels are of strategic relevance for us. We leverage our category leadership positions both in brick and mortar retail and in the field of eCommerce, also adding value for our online customers through our shopper knowledge and our expertise.
Having hosted more than 200 customer visits in our "Beauty Care Lighthouse," which opened in Düsseldorf in 2012, we have been able to consistently intensify our customer focus. The Lighthouse was thoroughly revamped in 2016 and now offers our customers from around the world an interactive experience of all our beauty competences with stronger focus on digitalization.
We are also committed in our Hair Salon business to close partnership and cooperation with our customers. With our globally established Schwarzkopf Academies, we offer value-adding services in the form of state-of-the-art seminars and ongoing further train-
63 Economic report
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
ing opportunities, with the focus on the professional hairdresser's role as an entrepreneur.
In the Laundry & Home Care business unit, we develop our marketing strategies and product innovations for our strong brands on a global scale, adapting them to regional consumer needs and market conditions, and implementing them at the local level. We thus ensure central, efficient management of our brands and an innovation process that enables us to both recognize global consumer trends early on and implement new products quickly while at the same time remaining closely attuned to local needs. We are steadily increasing the use of digital media communication – particularly social media – to develop our media strategies and engage our consumers in the most effective way possible.
More than 150 customers have already visited our Global Experience Center, which opened in 2015, keen to learn more about the latest Laundry & Home Care concepts. Offering a basis for future partnerships, the innovative platform brings together customers from a wide range of global and local spheres. Customized solutions are developed to match specific partner requirements and to identify opportunities to create value together. Offering various experience stations, this customer center showcases the business unit's expertise and innovative concepts – from new product offerings and digitalization to sustainability and shopper marketing. Each station is designed to be interactive, allowing visitors to explore the world of laundry and home care with all of their senses. The business unit uses its 360 Degree Customer Collaboration concept to ensure each customer relationship develops in as many areas as possible.
We have continued to expand our expertise in the areas of shopper intelligence and shopper marketing as a key strength in both traditional sales and eCommerce.
The importance of sustainability in our relationships with customers and consumers continues to grow in all three business units. Our customers expect their suppliers to ensure compliance with global environmental, safety, and social standards. Our standards and management systems, our many years of experience in sustainability reporting, and excellent appraisals by external rating agencies all help us to convince our audience of our credentials in this
104 Risks and opportunities report 112 Forecast
domain. Moreover, the credible implementation of our sustainability strategy strengthens both our brands and the reputation of our company in the marketplace.
With decades of experience in aligning our activities to sustainable development, we are able to position ourselves as a leader in the field and as a partner able to offer our customers future-capable solutions. And we cooperate closely with our customers in trade and industry in the development and implementation of viable concepts.
In order to convey to our customers and consumers the added value of our innovations – best possible performance combined with responsibility toward people and the environment – we use direct product communication supported by more detailed information provided in new media such as electronic newspapers and online platforms, as well as events and campaigns implemented together with our partners.
We have combined these approaches in a joint program for our three business units: "Say yes! to the future" provides sales training for our employees and strengthens our cooperation with our trade customers.
We intend to increase our involvement in the development of appropriate measurement and assessment methods in order to facilitate effective, credible communication of our contributions to sustainability. To this end, we have developed a variety of tools, which are integrated within our Henkel Sustainability#Master®. We have launched various projects in collaboration with selected partners to improve and standardize measurement and assessment methods.
For further information on the products and brands of our three business units, please go to our website www.henkel.com/brands-and-businesses
Sales growth
organic sales growth
Adjusted 1 operating profit
+2.8 % €1,629 m 18.2 %
adjusted1 operating profit (EBIT): up 6.2 percent
Adjusted 1 return on sales
adjusted1 return on sales (EBIT): up 1.1 percentage points
Pattex Re-New makes bathroom joints look as good as new – without any need to replace the old sealant. The innovative special silicone comes in a practical tube with an integrated smoothing tool for quick and easy single-step application on top of the old joints. It also stops mildew spreading.
www.pattex.de
Our broad portfolio of products under the Loctite brand supports a wide range of digital innovations in automotive construction. Manufacturers and suppliers around the world rely on our high-performance solutions to overcome their network, eMobility and autonomous driving challenges – whether in sensors for assistance systems, camera modules, digital instruments, battery technologies or printed electronics.
Our new lubricants and cooling agents in the Bonderite L-FM series enable our Metal Packaging customers to raise both their productivity and sustainability. With an improved biostable formulation, the products increase machine capacities to as many as 3,000 cans per minute. At the same time, their use reduces scrap rates, which means less waste. www.henkel-adhesives.com/
metal-packaging-solutions
| in million euros | 2015 | 2016 | +/– |
|---|---|---|---|
| Sales | 8,992 | 8,961 | –0.3% |
| Proportion of Henkel sales | 50% | 48% | – |
| Operating profit (EBIT) | 1,462 | 1,561 | 6.8% |
| Adjusted operating profit (EBIT) | 1,534 | 1,629 | 6.2% |
| Return on sales (EBIT) | 16.3% | 17.4% | 1.1pp |
| Adjusted return on sales (EBIT) | 17.1% | 18.2% | 1.1pp |
| Return on capital employed (ROCE) |
18.4% | 19.9% | 1.5pp |
| Economic Value Added (EVA®) | 626 | 719 | 15.0% |
Sales development * 67
| in percent | 2016 |
|---|---|
| Change versus previous year | –0.3 |
| Foreign exchange | –3.5 |
| Adjusted for foreign exchange | 3.2 |
| Acquisitions/divestments | 0.4 |
| Organic | 2.8 |
| of which price | 0.3 |
| of which volume | 2.5 |
pp = percentage points
* Calculated on the basis of units of 1,000 euros;
figures commercially rounded.
* Calculated on the basis of units of 1,000 euros.
1 Adjusted for one-time charges/gains and restructuring expenses.
nomic development.
Business activity and strategy
value for our customers.
solutions.
Economic environment
to the German Commercial Code [HGB])
100 Henkel AG & Co. KGaA
(condensed version according
The economic environment for the Adhesive Technologies business unit was characterized by subdued growth in the relevant markets, with expansion in the key industrial sectors lower than initially forecasted due to continuing political and economic uncertainties. Although growth in emerging markets was only moderate, it continued to drive global eco-
Despite this difficult market environment, the Adhesive Technologies business unit continued to grow, with overall sales outperforming market expansion, supported by its globally leading positions, active portfolio management and innovative product
As a market leader, the Adhesive Technologies business unit creates high-impact solutions worldwide through groundbreaking innovations and close partnerships with its customers. With our leading technologies, strong brands and the competence of our global expert teams, we supply tailor-made products that create competitive advantages and sustainable
Our market leadership and global presence enable us to offer solutions and systems across all business areas and regions for adhesives, sealants and functional coatings. Our products are an essential part of industrial products and consumer goods, and make them better, safer and more sustainable. The acquisition of leading technologies that complement our portfolio and offer synergy potential represents an additional attractive option for further profitable business expansion. Our acquisitions to date demonstrate our ability to consistently integrate newly acquired businesses quickly and successfully on the basis of our standardized business processes.
In the Packaging and Consumer Goods Adhesives business area, we work with major brand manufacturers and international customers to develop innovative and sustainable solutions for food packaging and consumer goods. Our technical customer service makes comprehensive applications expertise globally available. Strategically cooperating with partners along the value chain also makes a significant contri104 Risks and opportunities report 112 Forecast
bution to creating more value and helping our customers to both satisfy the manifold needs of consumers and comply with regulations.
In the Transport and Metal business area, we provide our customers in the automotive, aircraft and aerospace, and metal processing industries with outstanding system solutions, a comprehensive technology portfolio, and specialized technical services. We work closely with major international manufacturers and their suppliers. Through our early involvement in design and development processes, we are able to create innovative, customized solutions to new challenges – for example, in lightweight construction or eMobility.
In the General Industry business area, we offer our customers a comprehensive portfolio of products for the manufacture and maintenance of durable goods. Our customers range from household appliance manufacturers through to operators of large-scale industrial plants, and service specialists operating in all branches of industry. In addition to providing direct support for our customers from industry, we can also tap into a global network of trained distribution partners. We raise the value added for our customers while securing competitive advantages and growth by working with industrial clients on the development of high-impact adhesive solutions, and by regularly and systematically training users.
Our Electronics business area offers customers from the electronics industry a specialized portfolio of innovative high-technology adhesives and materials for the manufacture of microchips, electronic assemblies and thermal management systems. We combine our expertise with targeted investments in our technology portfolio to develop new solutions for the growing challenges encountered in the fields of digital networking and the Internet of Things. Our global presence enables us to collaborate closely with development centers of major electronics firms and provide support for their production processes.
Our Adhesives for Consumers, Craftsmen and Building business area markets an extensive range of brand-name products for private, trade and construction users. We offer innovative products and specific system solutions based on our globally strong brands, and secure competitive advantages by quickly and efficiently translating the latest technological developments from our industrial business
Top brands
into corresponding products for consumers, craftsmen and the building industry. Our distribution networks are aligned to the different target groups.
Active portfolio management plays a central role in continuing our profitable and sustainable growth. We manage our businesses guided by specific business plans to take the best possible advantage of market opportunities, and we invest our resources with a targeted, differentiated approach. We aim primarily to strengthen organic growth and therefore invest in attractive growth markets and advancing our technology expertise.
The ongoing expansion of our innovation leadership is a further key component of our growth strategy. In 2016, the proportion of sales from products successfully launched onto the market in the last five years was around 30 percent. This is achieved through consistent implementation of our innovation strategy that uses especially developed programs, innovation processes and employee initiatives to drive our profitable growth. We focus our research and development activities on top innovation programs, and on tailor-made high-impact customer solutions in attractive markets. We further focus on strategic innovations by systematically searching for profitable new technologies and business opportunities in promising adjacent markets. To further develop new business ideas, we cooperate with innovative startups and invest in venture capital funds with specific expertise in material sciences and digitalization. Collaborating with strategic suppliers and focusing strictly on sustainability are further key drivers of innovation and growth.
We invest continually in expanding and strengthening our top brands. In 2016, we generated more than 80 percent of all sales with our five technology cluster brands in the industrial business, and four strong brand platforms in the consumer business. We are focusing on expanding the leading position of Loctite as the world's largest adhesive brand through a regular flow of innovations and high-performance solutions for both industrial customers and consumers.
In line with our acquisition strategy, we strengthened our portfolio in 2016 with the acquisition of the tile adhesives business and associated brands of Colombian company Alfagres S.A. We also completed the acquisition of all shares in Zhejiang Golden Roc Chemicals JSC, thus expanding our portfolio of
In 2016, the Adhesive Technologies business unit recorded solid organic growth while raising adjusted return on sales to 18.2 percent.
Organically (i.e. adjusted for foreign exchange and acquisitions/divestments), sales grew by 2.8 percent, thus outperforming the market. Growth was driven primarily by increased volumes.
In the following, we comment on our organic sales performance in the regions.
Year on year, sales growth was strong in the emerging markets, with double-digit increases in the Latin America region and strong growth in the Eastern Europe region. The Asia (excluding Japan) region recorded a solid increase in sales. Sales performance in the Africa/Middle East region was positive, despite the difficult ongoing political situation and subsequent deterioration in the economic conditions prevailing in parts of the region.
Our sales in the mature markets were on a par with the previous year. Sales performance in North America was positive, while sales in the Western Europe region reached the prior-year level. The mature markets in the Asia-Pacific region recorded lower sales growth year on year.
Adjusted operating profit increased to 1,629 million euros, its highest level ever. Adjusted return on sales, at 18.2 percent, was higher year on year. The Adhesive Technologies business unit was again able to increase gross margin and offset negative transactional currency effects through ongoing measures to optimize organizational and administrative struc-
innovation rate 1. Around 30%
organic sales growth.
+2.8%
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
tures and by enhancing production and supply chain efficiency. Lower prices for direct materials also had a positive impact.
At 11.0 percent, net working capital as a percentage of sales was below the already low level of the prior year. Return on capital employed (ROCE) increased year on year to 19.9 percent. Economic Value Added (EVA®) increased by 93 million euros versus the previous year, to 719 million euros.
In the following, we comment on the organic sales performance of our business areas.
Sales in the Packaging and Consumer Goods Adhesives business area showed positive performance versus the previous year. Packaging adhesives for use in the food and beverage industries, and especially our leading food safety products, were an important contributor to this growth. We work closely in this field with international customers, globally active brand manufacturers, institutes and the authorities to enhance consumer safety around the globe. Our innovations are always tailored to growing consumer needs – for more convenience, for example – thereby strengthening the products and brands of our customers. New applications for our structural adhesives for furniture and building components enabled us to tap further growth potential.
We posted a strong increase in sales in our Transport and Metal business area. Our growth in this business area was driven primarily by our business with automotive manufacturers and their suppliers. Our broad product and technology portfolio enables us to provide customized solutions for assemblies such as drive trains. In doing so, we enable our customers to develop lightweight construction, downsizing and eMobility innovations for both conventional and electric drive trains.
The General Industry business area posted a positive sales performance, again mainly due to activities involving customers in various industrial markets and the vehicle repair and maintenance sector. Working closely with our key accounts, we develop customized integrated solutions to reduce noise and improve thermal performance – in household appliances and consumer goods, for example. In addition to the improved performance capabilities of their products, our customers also benefit from greater automation, process efficiency and sustainability.
104 Risks and opportunities report 112 Forecast
Sales development in the Electronics business area was positive year on year, driven mainly by our business with consumer electronics manufacturers and by thermal management products for the electronics industry. We are stimulating new growth with our high-impact solutions for the rapidly expanding automotive electronics market, to which we can supply a broad portfolio of products that manufacturers and components suppliers are increasingly using in sensors, assistance systems, displays, and battery technology, enabling the development of new digital networks and driverless vehicle systems.
Sales performance in the Adhesives for Consumers, Craftsmen and Building business area was positive. The increase was based in part on our construction industry business. Here we further strengthened our portfolio with the acquisition of the tile adhesives business and associated brands of Alfagres S.A. in Colombia. We also strengthened our position with respect to DIY products by strategically cooperating with one of our key European retail customers. This is enabling us to tap new local growth potential, especially in Eastern Europe.
Investment in property, plant and equipment totaled 187 million euros in 2016 (2015: 227 million euros), with the focus on expanding production capacity, mainly in the emerging markets, and building manufacturing facilities aligned to specific customer requirements.
investments in property, plant and equipment.
Sales growth
organic sales growth
Adjusted 1 operating profit
€647 m
adjusted1 operating profit (EBIT): up 6.1 percent
Adjusted 1 return on sales
16.9 %
adjusted1 return on sales (EBIT): up 1.0 percentage points
Innovation from the Hair Repair Expert: Gliss Kur Magnificent Strength for weak, depleted hair. The range featuring powerful Tri-Protein Complex gives the hair an effective protein kick, strengthening hair and protecting the hair cuticle – for beautiful hair that is up to 20 times stronger.
New Fa Dry Protect has been specifically developed for reliable protection to give increased confidence in the face of everyday challenges. Its innovative Micro-Absorber Technology absorbs perspiration for 48 hours of wetness protection. For an immediately fresh feeling accompanied by a delicate, powdery-fresh scent of Cotton Mist or Linen Touch. www.int.fa.com
The first Taft range for up to four times fuller hair: Taft Fullness with Biotin & Boost Complex for tangibly fuller hair and visible texture – developed specifically for women with fine or thinning hair. The innovative formula increases the distance between the individual hair fibers, while guaranteeing longlasting 48-hour hold.
www.taft.de
| in million euros | 2015 | 2016 | +/– |
|---|---|---|---|
| Sales | 3,833 | 3,838 | 0.1% |
| Proportion of Henkel sales | 21% | 20% | – |
| Operating profit (EBIT) | 561 | 526 | –6.2% |
| Adjusted operating profit (EBIT) | 610 | 647 | 6.1% |
| Return on sales (EBIT) | 14.6% | 13.7% | –0.9pp |
| Adjusted return on sales (EBIT) | 15.9% | 16.9% | 1.0pp |
| Return on capital employed (ROCE) |
20.4% | 18.2% | –2.2pp |
| Economic Value Added (EVA®) | 328 | 266 | –18.7% |
Sales development * 70 in percent 2016
| Change versus previous year | 0.1 |
|---|---|
| Foreign exchange | –3.4 |
| Adjusted for foreign exchange | 3.5 |
| Acquisitions /divestments | 1.4 |
| Organic | 2.1 |
| of which price | 0.4 |
| of which volume | 1.7 |
pp = percentage points
* Calculated on the basis of units of 1,000 euros;
figures commercially rounded.
* Calculated on the basis of units of 1,000 euros.
1 Adjusted for one-time charges/gains and restructuring expenses.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
In 2016, growth in the world cosmetics sector continued to slow down in markets of key relevance, with developments in some major markets recessionary. Despite a difficult and highly competitive environment, the Beauty Care business unit was able to outpace market growth.
In our Branded Consumer Goods business, the mature markets in particular showed weak development. In Western Europe especially, the environment was characterized by a further intensification of promotional activities, with rising price pressure and declining average prices. However, the markets in the North America region posted positive growth.
Within the emerging markets, the Africa/Middle East region exhibited continuing growth, although the rate was once again lower year on year. Business growth in Asia (excluding Japan) also slowed due to weaker developments in relevant markets in China. The markets in Latin America showed a positive development. The markets of the Eastern Europe region exhibited moderate growth under persistently difficult trading conditions.
The professional hairdressing market remained under pressure in 2016 as customers continued to exhibit restraint. Despite this difficult market environment overall, we were again able to exceed the sales level of the previous year and to further extend our position as the world number 3 in the hair salon field.
Worldwide, the Beauty Care business unit is successfully active in the Branded Consumer Goods business area with Hair Cosmetics, Body Care, Skin Care and Oral Care, as well as in the professional Hair Salon business.
To further drive the growth of our Beauty Care business, we place the customer and the consumer at the center of everything we do. At the focus of our growth strategy are specific choices regarding customers
and channels, category prioritization and the central management of our global brands portfolio. This enables us to pursue targeted investments in segments offering above-average growth and profitability.
We strengthen our brand investments on a global scale through strict cost management, an improved portfolio structure, complexity reduction and premiumization.
At the center of our strategy is our drive for organic growth, supported in particular by innovations and our strong brands. Our innovation approach focuses on fewer but bigger, better and more margin-accretive innovations, with early recognition and identification of relevant consumer trends, a conscious commitment to game-changing offerings and rapid international rollouts all key contributors to success. Again in 2016, we achieved an innovation rate of more than 45 percent.
By continuously strengthening our top brands, we were able to further boost the sales generated by our top 10 brands, with disproportionate growth in those segments of most importance to us. In 2016, our top 10 brands again contributed over 90 percent of our sales revenues. In addition to strengthening our brands, we focus particularly on the growth potential available in our key accounts.
We also intend to further leverage the potential of digitalization. With determined acceleration of the digital transformation process across all areas, we can better interact with consumers, transfer our shopper knowledge and category captaincies to digital channels, and organize manufacturing and logistics more efficiently.
We supplement organic growth with carefully selected acquisitions. In line with our strategy, we have expanded our portfolio in attractive categories through the acquisition of a range of leading hair care brands in Africa/Middle East and Eastern Europe.
Top brands
innovation rate 1. Over 45%
The Beauty Care business unit achieved solid organic sales growth and an excellent increase in adjusted return on sales in the reporting period, thus continuing to build on the profitable growth of previous years.
Organically (i.e. adjusted for foreign exchange and acquisitions/divestments), sales increased by 2.1 percent. Organic growth was again higher than the rate of expansion in our relevant markets, with sales being driven by both price and volume.
In the following, we comment on our organic sales performance in the regions.
From a regional perspective, business performance was very strong in the emerging markets. The Latin America region posted double-digit sales growth. Sales development in the region of Asia (excluding Japan) was positive. In the Africa/Middle East region the business unit matched its success of previous years, recording a positive growth. Driven by business development in Russia, we achieved double-digit growth in the Eastern Europe region.
The mature markets continue to be impacted by fierce crowding-out competition and intense price and promotional pressures. In this challenging market environment, sales declined slightly year on year. While in the Western Europe region and in the mature markets of the Asia-Pacific region, sales were lower year on year, we were able to increase revenues in the North America region, achieving solid growth there versus the previous year.
Adjusted operating profit increased in the reporting period to 647 million euros. Adjusted return on sales rose by 1.0 percentage points to a new high of 16.9 percent. Our innovation initiatives and ongoing
Sales and profits measures to reduce costs and enhance production and supply chain efficiency enabled us to extensively offset the effects on gross margin exerted by negative foreign exchange movements and sustained promotional intensity.
Compared to the already low level of the previous year, net working capital as a percentage of sales improved further to 0.6 percent. At 18.2 percent, return on capital employed (ROCE) was lower compared to the 2015 figure. Economic Value Added (EVA®) decreased by 62 million euros to 266 million euros.
In the following, we comment on the organic sales performance of our two business areas.
Our Branded Consumer Goods business posted another solid increase in sales in 2016. Growth was driven, in particular, by successful innovations under the brands Schwarzkopf, Syoss and Dial, and by the introduction of our Schwarzkopf brand throughout North America. The Hair Cosmetics business performed especially well, with aboveaverage sales growth and success in generating market momentum.
We introduced a number of compelling innovations in the strategically important Hair Colorants business. Syoss Gloss Sensation, the first ammonia-free intensive tint under the Syoss brand, offers a gentle alternative to classic coloring. Schwarzkopf Palette Intensive Color Creme with its intensive, caring hair mask with Keratin Complex provides long-lasting color intensity and healthy looking hair. New Schwarzkopf Brillance contains a highly effective technology for the prevention of colorant fade, ensuring particularly long-lasting color intensity. The formulation with Diamond Gloss Serum also gives the hair up to three times more color gloss compared to untreated hair.
We strengthened our Hair Care business with the launch of new Gliss Kur Magnificent Strength with Tri-Protein Complex. The range with its Express Repair Conditioner provides for beautiful hair that is up to 20 times stronger. Positive momentum was also generated by the Syoss line Ceramide Complex formulated especially for weak and brittle hair. The innovative Ceramide Keratin Complex gives hair up to ten times more strength. With Schauma 7 Blossom Oil, we have launched a new line offering a formula
organic sales growth. +2.1%
63 Economic report
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
that penetrates deep into the hair structure and repairs the hair at every layer. The Hair Care business was additionally boosted by the innovation Schwarzkopf Men ZincPT, an anti-dandruff treatment for the male market. Used regularly, this offers men's hair a reduction in visible dandruff of up to 100 percent combined with an immediate freshness kick.
Within the Hair Styling business, the Taft brand was able to further expand its leading market position. The new line, Taft Fullness, leaves hair noticeably fuller with visible texture and good manageability. The new Taft Power Electro series offers the strongest Taft hold ever. And within our trendsetting brand Got2b, we developed a new line of products under the name Glam Force, which offers 48 hours of ultrastrong, glamorous hold with protection against flyaways.
In Body Care, we profited from the success of the new Fa shower gels Coconut Water and Coconut Milk with coconut extract for a perfect combination of care and a refreshed feeling for the skin. The innovative antiperspirant Fa Dry Protect continued to show positive development. The formula based on Micro-Absorber technology offers an immediate feeling of dryness and 48 hours of protection from underarm wetness. North America saw the launch of the body care series Dial Soothing Care. The body wash with collagen is pH-neutral on the skin and imparts a soothing effect. Also launched onto the market was the deodorant stick Right Guard Xtreme Odor Combat, which successfully combats body odor for up to 96 hours.
The Skin Care business was expanded through the introduction of Diadermine Lift+ Super Corrector, our first anti-aging innovation capable of combating both existing and future pigmentation spots. We also offer a series especially formulated for mature dry skin in the form of the innovation Diadermine Nutrition Expert 3D.
Within the Oral Care business we have strengthened the freshness variants of the Theramed 2in1 line with improved formulations. The new technology creates a three times fresher feel while also ensuring a thorough antibacterial clean. We continue to set new standards for our Denivit brand: After just 10 days, the innovation Pro-Laser White removes up to 90 percent of stains discoloring the teeth.
104 Risks and opportunities report 112 Forecast
The professional hairdressing market remained under pressure in 2016 as customers continued to exhibit restraint. Nevertheless, our sales figures experienced positive development, with major contributions coming from, in particular, Schwarzkopf Professional and the brands Sexy Hair, Alterna and Kenra that we acquired in North America in 2014.
Within the Hair Care category, Schwarzkopf Professional generated strong momentum with the BC Bonacure brand. New Schwarzkopf Professional BC Bonacure Repair Rescue with patented Reversilane technology durably restores hair fibers while sealing the hair surface with a protective shield. In the Colorants category, Schwarzkopf Professional launched new Igora Royal Highlifts with Fibre Bond technology onto the market. These products minimize hair breakage while producing the coolest blond tones from Igora of all time. In the Styling category, the brand Osis+ with its slogan "Made to Create" offers a complete product range for the creation of uniquely individual hair styles whenever required.
Investments focused on efficiency improvements and optimization in our production and distribution processes and the further expansion of our manufacturing capacities, especially the scheduled expansion of our plant in Russia. Further capital expenditures went into the environmental sphere with the refurbishment of the wastewater treatment facilities located at our factories in Slovenia and the USA. In all, we invested 54 million euros in property, plant and equipment compared to 61 million euros in the previous year.
Sales growth
organic sales growth
Adjusted 1 operating profit
€1,000 m
adjusted1 operating profit (EBIT): up 13.7 percent
Adjusted 1 return on sales
17.3 %
adjusted1 return on sales (EBIT): up 0.2 percentage points
New and unique fine fabric detergent formula with color renewal effect: Perwoll Renew 3D rejuvenates fabric colors in three dimensions – intensity, color accuracy and brightness. The innovative formula has been introduced in more than 25 countries in Eastern and Western Europe and Latin America, and reinforces Perwoll's global leadership in our active markets. www.perwoll.de
| in million euros | 2015 | 2016 | +/– |
|---|---|---|---|
| Sales | 5,137 | 5,795 | 12.8% |
| Proportion of Henkel sales | 28% | 31% | – |
| Operating profit (EBIT) | 786 | 803 | 2.2% |
| Adjusted operating profit (EBIT) | 879 | 1,000 | 13.7% |
| Return on sales (EBIT) | 15.3% | 13.9% | –1.4pp |
| Adjusted return on sales (EBIT) | 17.1% | 17.3% | 0.2pp |
| Return on capital employed (ROCE) |
21.1% | 15.7% | –5.4pp |
| Economic Value Added (EVA®) | 469 | 344 | –26.8% |
Henkel's first automatic dishwashing product that is free of phosphates yet offers 100-percent performance. Somat Phosphate-free has a new, patented formula that delivers the ideal combination of environmental compatibility and gleaming clean results. Innovative Somat Phosphate-free has been introduced in Germany and in more than 20 countries in Western and Eastern Europe. www.somat.de
Bref Power Aktiv is the global number one in the WC rim block segment of our active markets. Its tried and trusted combination of four active agents is coupled with a longer-lasting fragrance. The formula has been enriched with a "power core." New Bref Power Aktiv with "fragrance boost" has been launched in more than 60 countries across the world.
www.breftoiletcare.com.au
| Sales development * | 73 |
|---|---|
| in percent | 2016 |
| Change versus previous year | 12.8 |
| Foreign exchange | –4.0 |
| Adjusted for foreign exchange | 16.8 |
| Acquisitions/divestments | 12.1 |
| Organic | 4.7 |
| of which price | 0.0 |
| of which volume | 4.7 |
* Calculated on the basis of units of 1,000 euros.
pp = percentage points
* Calculated on the basis of units of 1,000 euros;
figures commercially rounded.
1 Adjusted for one-time charges/gains and restructuring expenses.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
Prioritizing categories and centrally steering our global brand portfolio helps us to direct our investments specifically toward those segments that offer growth and profitability, enabling us to generate above-average sales increases with our top brands and in our most important market segments. Invest-
In 2016, the relevant world market for laundry and home care showed moderate growth. Despite renewed fierce price and promotional competition in our relevant markets, our growth again significantly outpaced the relevant global market in 2016. Both the sustained success of our strong brands and the successful global introduction of our innovations contributed to this solid performance.
Market performance in the mature markets was slightly positive. In Western Europe, the relevant market for laundry and home care products remained flat, while growth in North America was moderate.
Developments in the emerging markets varied. Our relevant markets in the Africa/Middle East region declined as a result of the challenging market environment. The market in Eastern Europe recorded solid growth. In Latin America, performance in the relevant market for laundry and home care products was also solid.
The Laundry & Home Care business unit sells laundry detergents and household cleaners around the globe. The Laundry Care business includes not only heavy-duty and specialty detergents but also, in particular, fabric softeners, laundry additives, and other fabric care products. The product portfolio of our Home Care business encompasses hand and automatic dishwashing products, household cleaners for the bathroom and WC, and surface, glass and specialty cleaners. We also offer air fresheners and insect control products for household applications.
Our aim is to continue generating profitable growth in the future through ongoing expansion of our current business and targeted acquisitions.
Our strategy of profitable growth is supported particularly by our leading brands and technologies, and builds on winning innovations that offer added value for consumers. Key elements of our strategy also include our strategic partnerships with customers and the expansion of our digital business activities.
ments in our brands are also strengthened by further optimizing our use of resources. In 2016, we generated more than 80 percent of our sales with our top 10 brand clusters. A brand cluster comprises individual global and local brands that share a common brand positioning internationally. By adopting this approach, we generate synergies in
our marketing mix.
Our efficient marketing and distribution processes enable us to identify consumer trends at an early stage and bring a number of relevant innovations to market. Accordingly, successful product launches again contributed substantially to our positive financial performance in the year under review. Our innovation rate in 2016 was 43 percent. Looking ahead, we plan to further strengthen our differentiation and increase our agility in a fiercely competitive environment.
Our global strategy builds on both organic growth and acquisitions. Our aim is to invest in attractive category positions so as to accelerate our growth in profitable segments. In 2016, we strengthened our business through attractive acquisitions in both emerging and mature markets, most importantly through that of The Sun Products Corporation, as a result of which we now rank number 2 in the North American laundry and home care market. Integration of our acquired businesses is proceeding successfully and according to plan.
Top brands
innovation rate 1. 43%
The Laundry & Home Care business unit achieved sales of 5,795 million euros in the year under review, while also recording solid organic growth. Adjusted operating profit showed double-digit growth. Excluding acquisitions in 2016, adjusted return on sales increased very strongly. Taking account of the acquisitions, the figure showed a solid increase. The business unit therefore continued its path of profitable growth again in 2016.
Organically (i.e. adjusted for foreign exchange and acquisitions/divestments), sales increased by 4.7 percent. This was significantly above the growth rate of the relevant markets. Sales performance was driven by volume.
In the following, we comment on our organic sales performance in the regions.
The emerging markets registered a very strong increase in sales and were once again the biggest driver of organic growth in Laundry & Home Care. The Asia (excluding Japan) region recorded double-digit growth, and the Africa/Middle East region contributed very strong sales growth. Sales in the Eastern Europe and Latin America regions showed a strong increase.
Performance in the mature markets was solid, with solid sales growth in the North America region. Our sales performance in Western Europe was positive.
Adjusted operating profit (EBIT) rose by 13.7 percent from 879 million euros to 1,000 million euros. Excluding acquisitions in 2016, adjusted return on sales increased very strongly. Taking account of the acquisitions in 2016, adjusted return on sales recorded solid growth, reaching a new all-time
annual high of 17.3 percent (previous year: 17.1 percent). Gross margin was lower year on year due to acquisitions.
Excluding the acquisitions in 2016, we were able to significantly improve net working capital as a percentage of sales. Taking the acquisitions into account, net working capital as a percentage of sales was above the previous year's level, but still low at –5.4 percent. Return on capital employed (ROCE) was 15.7 percent. As a result of acquisitions, Economic Value Added (EVA®) decreased by 125 million euros to 344 million euros.
In the following, we comment on the organic sales performance of our two business areas.
The Laundry Care business area posted a strong sales performance, driven mainly by the continued expansion of our leading positions in heavy-duty detergents, especially with our core brand Persil, and by the introduction of successful innovations.
In the premium detergent category, we further strengthened Persil ProClean in North America by expanding distribution. We also enhanced our range by adding a liquid detergent variant with "Fresh Linen" scent. In the Africa/Middle East region, we launched an improved formula for all Persil liquid detergents. The innovative formulation features thermostable enzymes that ensure top performance even in warm conditions and after lengthy product storage. We also launched Persil Black Abaya in further countries in the Africa/Middle East region; this contains a UV-absorbing formula that protects black garments from fading under sunlight. We extended Persil's leadership in the liquid detergents market in South Korea by launching a new variant: Persil Hygiene Gel with the power of eucalyptus removes not only the most stubborn stains but also dust mite residue, which has been known to cause allergies. We also launched an improved formula of Persil Sensitive around the globe.
In the category of value-for-money detergents, we launched the Aromatherapy series in Australia and New Zealand. This new range under the Fab brand features intense, sensual fragrances.
In the fine fabric detergent category, we further strengthened the market leadership position of the Perwoll brand and launched an improved formulation:
organic sales growth. +4.7%
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Perwoll Renew 3D. The new formula rejuvenates colors in three dimensions: intensity, color accuracy and brightness. New Perwoll Renew 3D has been introduced in more than 30 countries throughout Europe and Latin America.
In the fabric softeners category, we improved the formulations of the variants available under the Vernel and Silan brands. As a result, the concentrates now keep laundry fresh and fragrant for up to ten weeks. The formula and fragrant appeal of the successful Soft&Oils range were further improved. We also added a new variant – Inspiring Orange Oil featuring a seductive fragrance – to the Soft&Oils range.
The pre-wash category provided further growth stimulus. For example, we started marketing Dylon – our internationally leading brand for fabric dyes – in additional countries. We also introduced our Colour Catcher sheets with their new 6 Protect formula in various European countries. Colour Catcher sheets have a water-soluble layer containing active stain removers to enhance washing performance even at 30 degrees Celsius.
Sales in the Home Care business area were solid in 2016, driven mainly by the sustained success of our WC products. Hand dishwashing products also made an important contribution.
In WC products, we optimized the formula of our products sold under the Bref Power Aktiv brand. Bref Power Aktiv is number one in the WC rim block segment of our active markets. The products in the range are now available with an innovative "power core" loaded with 40 percent more perfume than the outer layer – for a longer-lasting, fresh fragrance boost. The new formula has been introduced in more than 60 countries worldwide. We also launched a new Power Aktiv variant in Eastern and Western Europe, and in South Korea, with Odor Stop technology. This special technology minimizes unpleasant odors to ensure a fresh, fragrant smell.
Nine months before a corresponding EU Regulation became applicable at the start of 2017, we introduced new Somat Phosphate-free in the automatic dishwashing category throughout Europe – with no phosphates but with the usual top Somat performance. The new, patented formula is remarkable for its optimal combination of environmental compatibility and powerful cleaning performance.
104 Risks and opportunities report 112 Forecast
We also introduced a new Somat dishwasher cleaner, the first and only one of its kind in the marketplace that can be used during a dishwashing cycle. This innovation saves both water and energy, thus contributing to sustainability.
In the hand dishwashing category, we launched an improved formula under the Pril brand in Europe. For the first time, new Pril Double Decruster features two enzymes and impressively removes even the most stubborn residue. The product is also fitted with an innovative flip-top cap that can be opened and closed with just one hand.
In the household cleaners category, we launched our successful spray surface cleaners in the countries around the Persian Gulf and in South Korea. Their innovative formulas act immediately on even stubborn stains, removing them effortlessly without leaving any residue. The products also have a pleasantly fresh smell.
In the insect control category, we launched two products under the licensed Vape brand in Italy which are formulated with up to 90-percent natural ingredients: one plug-in and one insect control lotion.
In our air fresheners category, we introduced a new range of sensitive fragrances featuring three different variants and types of product under the Renuzit brand in the USA.
In 2016, our capital expenditures for property, plant and equipment amounted to 210 million euros following 217 million euros in 2015. Investments focused on expanding production capacity, enhancing plant safety and quality systems, on innovations, and on optimizing our production processes. The biggest single investment was at our site in Düsseldorf where Henkel expanded its largest automatic high bay warehouse.
investments in property, plant and equipment. €210m
The annual financial statements of Henkel AG & Co. KGaA have been prepared in accordance with the rules and regulations of the German Commercial Code [HGB] and the German Stock Corporation Act [AktG]. The provisions of the German Accounting Directive Implementation Act [BilRUG] were applied for the first time in 2016. Deviations from the International Financial Reporting Standards (IFRS) applicable to the Group arise particularly with respect to the methods of recognition and measurement of intangible assets, financial instruments and provisions.
Henkel AG & Co. KGaA is operationally active in the three business units Adhesive Technologies, Beauty Care and Laundry & Home Care, as well as being the parent company of the Henkel Group. As such it is responsible for defining and pursuing Henkel's corporate objectives and also for the management, control and monitoring of Group-wide activities, including risk management and the allocation of resources. As of year-end 2016, some 8,000 people were employed at Henkel AG & Co. KGaA.
The operating business of Henkel AG & Co. KGaA represents only a portion of the business activity of the entire Henkel Group and is managed across the Group by the business units, particularly on the basis of the performance indicators organic sales growth, adjusted return on sales (EBIT) and adjusted earnings per preferred share. Only the Group approach can provide complete insight into these key financials (see the discussion of the management system and performance indicators applicable to the Henkel Group on page 62).
The net assets, financial position and results of operations of Henkel AG & Co. KGaA are influenced both by its own operating activity and by the operating activity of its subsidiaries on the basis of their dividend distributions. Thus the financial situation of Henkel AG & Co. KGaA generally corresponds to that of the Group as a whole, which is discussed in the section "Review of overall business performance" on page 64.
Business performance at Henkel AG & Co. KGaA was solid in fiscal 2016, characterized by the reorganization of our supply chain activities within one globally active corporation, and by a high level of competitive intensity.
At 3,676 million euros, sales of Henkel AG & Co. KGaA in 2016 were 8.0 percent lower year on year. As indicated in our guidance, the reorganization of our supply chain activities into one globally active company resulted in a strong decline in sales with Group companies. In addition the sales figure for 2015 included 258 million euros from the sale of inventories to the global supply chain company that was not repeated in 2016. The negative effects on sales were, however, partly offset by application of the BilRUG regulations, which resulted in licensing income of 456 million euros being reclassified from other operating income to sales in 2016. In terms of financial result and unappropriated profit, we exceeded our forecast for 2016 of merely flat development. This improvement was mainly due to the lower interest expense for pension obligations and higher income from the financial assets held in the plan assets.
In fiscal 2016, the Adhesive Technologies business unit generated sales of 1,032 million euros, below the figure of the previous year. This decline in sales was driven in particular by the decrease in sales to affiliated companies following the reorganization of the supply chain activities. In addition, the sales figure for 2015 includes a one-time gain of 114 million euros from the sale of inventories to the global supply chain company. The merger with Novamelt GmbH at the start of 2016 resulted in positive external sales growth.
The Beauty Care business unit achieved sales of 540 million euros in 2016, representing a decrease versus 2015. The main driver of this decline in sales was the relocation of export business with affiliated companies to the global supply chain company. In addition, the sale of inventories to the global supply chain company accounted for 75 million euros of sales in 2015, while there were no such transactions in fiscal 2016.
The Laundry & Home Care business unit generated sales of 928 million euros in 2016, which is below the figure for 2015. Positive domestic sales performance only partially offset the decline in sales relating to the
* The full financial statements of Henkel AG & Co. KGaA with the auditor's unqualified opinion are filed with the commercial register and accessible on the internet at www.henkel.com/reports.
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104 Risks and opportunities report 112 Forecast
| Condensed income statement in accordance with the German Commercial Code [HGB] | 75 | ||
|---|---|---|---|
| in million euros | 2015 | 2016 | |
| Sales | 3,994 | 3,676 | |
| Cost of sales | –2,770 | –2,444 | |
| Gross profit | 1,224 | 1,232 | |
| Marketing, selling, distribution and administrative expenses | –1,121 | –911 | |
| Research and development expenses | –327 | –312 | |
| Other operating income / expenses | 353 | 154 | |
| Operating profit | 129 | 163 | |
| Financial result | 578 | 911 | |
| Income before tax | 707 | 1,074 | |
| Taxes on income | –91 | –179 | |
| Net income | 616 | 895 | |
| Profit brought forward | 150 | 133 | |
| Unappropriated profit | 766 | 1,028 |
reorganization of the supply chain activities. In addition, the figure for 2015 includes 69 million euros for the sale of inventories to the global supply chain company, while there were no such transactions in fiscal 2016.
Sales in the Corporate segment increased from 685 million euros in 2015 to 1,176 million euros in 2016. This figure includes licensing income that has been recognized under sales for the first time following application of the BilRUG regulations. In 2015, the item was included under other operating income.
The operating profit of Henkel AG & Co. KGaA improved by 34 million euros to 163 million euros, mainly due to additional costs charged on to affiliated companies.
Cost of sales decreased compared to 2015 by 326 million euros to 2,444 million euros, primarily as a result of reorganizing our supply chain activities into one globally active company. Gross margin increased by 2.8 percentage points to 33.5 percent. Following application of the BilRUG regulations, licensing fees of 206 million euros were recognized under cost of sales for the first time in 2016. In 2015, these fees were included in an amount of 156 million euros under other operating expenses.
At 678 million euros, marketing, selling and distribution expenses were below the prior-year figure of 842 million euros. The ratio to sales was 18.4 percent, which is slightly below the level of 2015.
The expenses attributable to the administrative functions decreased compared to 2015 by 46 million euros to 233 million euros, which mainly reflected lower overheads and payroll costs. Their ratio to sales declined by 0.7 percentage points to 6.3 percent.
Expenditures for research and development in the reporting period decreased by 15 million euros to 312 million euros. At 8.5 percent, the ratio to sales was higher than the figure of 8.2 percent in 2015.
Restructuring expenses of 33 million euros, included in the expense items mentioned, were lower compared to 2015 (44 million euros).
Other operating result decreased in 2016, by 199 million euros compared to the previous year.
Year on year, other operating income declined in 2016 by 372 million euros to 247 million euros. This was primarily attributable to the reclassification of licensing fees to sales, while higher costs charged on to affiliated companies had a countervailing effect.
At 93 million euros, other operating expenses in 2016 were significantly lower than the prior-year figure of 266 million euros, mainly as a result of changes in recognition of some of the licensing fees following application of the BilRUG.
The financial result improved from 578 million euros in 2015 to 911 million euros in 2016.
The increase is mainly attributable to higher unit prices and the resulting higher earnings generated by the financial assets held in the pension fund. The interest expense was, moreover, lower as a result of changes to the discount rate for pension obligations. Pursuant to the legislation implementing the Mortgage Credit Directive and amending commercial regulations, the underlying discount rate increased in 2016.
In 2016, taxes on income amounted to –179 million euros following –91 million euros in 2015.
Net income amounted to 895 million euros and was therefore above the result for 2015 of 616 million euros. The increase was mainly attributable to the improved financial result in 2016.
| Condensed balance sheet in accordance with the German Commercial Code [HGB] | 76 |
|---|---|
| ----------------------------------------------------------------------------- | ---- |
| in million euros | December 31, 2015 | December 31, 2016 |
|---|---|---|
| Intangible assets and property, plant and equipment | 884 | 1,045 |
| Financial assets | 9,171 | 11,032 |
| Non-current assets | 10,055 | 12,077 |
| Inventories | 14 | 13 |
| Receivables and miscellaneous assets | 2,043 | 3,335 |
| Marketable securities | 4 | 4 |
| Liquid funds | 289 | 485 |
| Current assets | 2,350 | 3,837 |
| Deferred income | 22 | 19 |
| Assets arising from the overfunding of pension obligations | 187 | 392 |
| Total assets | 12,614 | 16,325 |
| Equity | 6,144 | 6,406 |
| Special accounts with reserve element | 104 | 94 |
| Provisions | 694 | 781 |
| Liabilities /deferred charges | 5,672 | 9,044 |
| Total equity and liabilities | 12,614 | 16,325 |
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104 Risks and opportunities report 112 Forecast
As of December 31, 2016, the total assets of Henkel AG & Co. KGaA increased compared to year-end 2015 by 3,711 million euros to 16,325 million euros.
Net assets and financial position
Non-current assets increased by 2,022 million euros compared to 2015, to 12,077 million euros. The increase in financial assets is primarily due to our acquisitions and various capital measures involving affiliated companies. In addition, a loan was issued to a US subsidiary in 2016.
Current assets increased in 2016 from 2,350 million euros to 3,837 million euros, primarily as a result of higher receivables from affiliated companies.
At 392 million euros, overfunding from offsetting the plan assets against the pension obligations was significantly higher year on year.
Equity increased from 6,144 million euros to 6,406 million euros. Provisions increased by 87 million euros to 781 million euros. The balance of pension obligations and plan assets is reported in assets due to overfunding.
For details of issued capital and treasury stock, please refer to the disclosures in the notes to the consolidated financial statements of Henkel AG & Co. KGaA.
Liabilities and deferred charges rose overall in 2016 by 3,372 million euros compared to 2015, mainly due to increased borrowings used to fund our acquisitions.
For an overview of the financing and capital management of Henkel AG & Co. KGaA, please refer to the information about the Henkel Group on pages 72 and 73.
The business performance of Henkel AG & Co. KGaA is essentially subject to the same risks and opportunities as that of the Henkel Group. With respect to the risks of its subsidiaries, Henkel AG & Co. KGaA is generally exposed in proportion to its shareholding in each case.
Due to the different discount rates for pension obligations under the German Commercial Code [HGB] and IFRS, the conclusion drawn from the risk assessment for the separate financial statements of Henkel AG & Co. KGaA differs from that of the Group. We assess the potential financial impact of this risk for Henkel AG & Co. KGaA as "major."
Additional information regarding risks and opportunities and the risk management system can be found on the following pages 104 to 111.
The performance of Henkel AG & Co. KGaA in its function as an operating holding company is influenced primarily by the development and dividend distributions of the companies in which it has shareholdings. We expect sales in 2017 to be on a par with the figure for 2016. The positive performance reported for the Group also impacts Henkel AG & Co. KGaA through dividend payments from subsidiaries. Assuming continued positive development of the financial result, we expect the unappropriated profit generated in 2017 by Henkel AG & Co. KGaA to be flat or to increase slightly. This will enable our shareholders to participate to a reasonable extent in the Group's net income, with retained earnings also available for utilization if necessary.
The forecast for the Henkel Group can be found on pages 112 and 113.
In the pursuit of our business activities, Henkel is exposed to multiple risks inherent in the global market economy. We deploy an array of effective monitoring and control systems aligned to identifying risks at an early stage, evaluating the exposure, and introducing effective countermeasures. We have incorporated these instruments within a risk management system as described below.
Entrepreneurial activity also involves identifying and exploiting opportunities as means of securing and extending the corporation's competitiveness. The reporting aspect of our risk management system, however, does not encompass entrepreneurial opportunities. Early and regular identification, analysis and exploitation of opportunities are performed at the Group level and within the individual business units. This is a fundamental component of our strategy. We perform in-depth analysis of the markets and our competitors, and study the relevant cost variables and key success factors.
The risk management system at Henkel is integrated into the comprehensive planning, controlling, and reporting systems used in the subsidiaries, in the business units, and at Group level. Our early warning system and Internal Audit function are also important components of our risk management system. Within the corporate governance framework, our internal control and compliance management systems support our risk management capability. The risk reporting system encompasses the systematic identification, evaluation, documentation and communication of risks. We have defined the principles, processes and responsibilities relating to risk management in a corporate standard that is binding on the Henkel Group. With the continuous development of our corporate standards and systems, we take into account updated findings.
Within our risk strategy framework, the assumption of calculated risk is an intrinsic part of our business. However, risks that endanger the existence of the company must be avoided. When it is not possible to avoid these critical risks, they must be reduced or transferred, for example through insurance. Risks are controlled and monitored at the level of the subsidiaries, the business units, and the Group. Risk management is thus performed with a holistic, integrative approach to the systematic handling of risks.
We understand risks as potential future developments or events that could lead to negative deviations from our guidance. Risks with a probability of occurrence of over 50 percent are taken into account in our guidance and short-term planning. As a rule, we estimate risks for the one-year forecast period.
The annual risk reporting process begins with identifying material risks using checklists based on defined operating (for example procurement and production) and functional (for example information technology and human resources) risk categories. We evaluate the risks in a two-stage process according to the probability of occurrence and potential loss. Included in the risk report are risks with a loss potential of at least 1 million euros or 10 percent of the net external sales of a country, where the probability of occurrence is considered greater than zero.
The first step entails determining gross risk to the extent that this is possible. We then calculate the net risk, taking countermeasures into account. Initially, risks are compiled on a decentralized, per-country basis, with the assistance of regional coordinators. The locally collated risks are then analyzed by experts in the business units and corporate functions. In particular areas such as Corporate Treasury, risks are determined with the support of sensitivity analyses including value-at-risk computations. Risk analyses are then prepared for the respective executive committees of the business units and corporate functions, and finally assigned to an area-specific risk inventory. The risk situation is subsequently reported to our Compliance & Risk Committee, the Management Board and the various supervising boards. Material unforeseen changes are reported immediately to the CFO and the Compliance & Risk Committee. Corporate Accounting is responsible for coordinating the overall process and analyzing the inventoried exposures.
The risk reporting process is supported by an intranet-based database which ensures transparent communication throughout the entire Group. Our Internal Audit function regularly reviews the quality and function of our risk management system. Within the framework of the 2016 audit of our annual financial statements, our external auditor examined the structure and function of our risk early
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
warning system in accordance with Section 317 (4) of the German Commercial Code [HGB] and confirmed its compliance.
The following describes the main features of the internal control and risk management system in relation to our accounting processes, in accordance with Section 315 (2) no. 5 HGB. Corresponding with the definition of our risk management system, the objective of our accounting processes lies in the identification, evaluation and management of all risks that jeopardize the regulatory preparation of our annual and consolidated financial statements. Accordingly, the internal control system's function is to implement relevant principles, procedures and controls so as to ensure the financial statement closing process is regulatory compliant. Within the organization of the internal control system, the Management Board assumes overriding responsibility at Group level. The duly coordinated subsystems of the internal control system lie within the responsibility of the Corporate Accounting, Controlling, Corporate Treasury, Compliance and Regional Finance functions. Within these functions, there are a number of integrated monitoring and control levels. These are assessed by regular and comprehensive effectiveness tests performed by our Internal Audit function. Of the multifaceted control processes incorporated into the accounting process, several are important to highlight.
The basis for all our accounting processes is provided by our corporate standard "Accounting," which contains detailed accounting and reporting instructions covering all material circumstances, including clear procedures for inventory valuation or how transfer prices applicable for intra-group transactions should be determined. This corporate standard is binding on the entire Group and is regularly updated and approved by the CFO. The local Presidents and Heads of Finance of all consolidated subsidiaries must confirm their compliance with this corporate standard on an annual basis.
Further globally binding procedural instructions affecting our accounting practice are contained in our corporate standards "Treasury" and "Investments." Through appropriate organizational measures in conjunction with restrictive access to our information systems, we ensure segregation of duties in our accounting systems between transaction entry on the one hand, and checking and approval on the other. Documentation relating to the operational accounting and closing processes
104 Risks and opportunities report 112 Forecast
ensures that important tasks – such as the reconciliation of receivables and payables on the basis of account balance confirmations – are clearly assigned. Additionally, binding authorization regulations exist governing the approval of contracts, credit notes and the like, with strict adherence to the principle of dual control as a mandatory requirement. This is also stipulated in our Group-wide corporate standards.
The significant risks for Henkel and the corresponding controls with respect to the regulatory preparation of our annual and consolidated financial statements are collated in a central documentation pack. This documentation is reviewed and updated annually by the respective process owners. The established systems are regularly reviewed with regard to their improvement and optimization potential. We consider these systems to be appropriate and effective.
The accounting activities for subsidiaries included in the consolidated financial statements are performed either locally by the subsidiary or through a shared service center, taking the corporate standards into account. The individual subsidiaries' financial statements are transferred to our central consolidation system and checked at corporate level for correctness. After all consolidation steps have been completed, the consolidated financial statements are prepared by Corporate Accounting in consultation with the specialist departments. Preparation of the combined management report is coordinated by Investor Relations in cooperation with each business unit and corporate function. The Management Board then compiles the consolidated financial statements and annual financial statements of Henkel AG & Co. KGaA, and the combined management report for the Group, and subsequently presents these documents to the Supervisory Board for approval.
| Risk category | Probability | Potential financial impact | ||
|---|---|---|---|---|
| Operating risks | ||||
| Procurement market risks | Low | Major | ||
| Production risks | Moderate | Major | ||
| Macroeconomic and sector-specific risks | High | Major | ||
| Functional risks | ||||
| Financial risks | ||||
| Credit risk | Low | Major | ||
| Liquidity risk | Low | Minor | ||
| Currency risk | Moderate | Major | ||
| Interest rate risk | Moderate | Minor | ||
| Risks from pension obligations | High | Minor | ||
| Legal risks | Low | Major | ||
| IT risks | Low | Major | ||
| Personnel risks | High | Minor | ||
| Risks in connection with brand image or reputation of the company |
Low | Major | ||
| Environmental and safety risks | Low | Major | ||
| Business strategy risks | Moderate | Moderate |
Classification of risks in ascending order 78
| Probability | |
|---|---|
| Low | 1–9% |
| Moderate | 10–24% |
| High | ≥25% |
| Potential financial impact | |
| Minor | 1–49 million euros |
| Moderate | 50–99 million euros |
| Major | ≥100 million euros |
Risks are presented from a net perspective, i.e. where their respective mitigation measures are taken into account.
Description of risk: We expect prices for direct materials in our procurement markets to increase moderately overall in 2017 compared to 2016. This increase will be driven primarily by higher anticipated prices for input materials, and especially crude oil and petrochemicals. However, due to geopolitical, global economic, and climatic uncertainties, we expect prices to fluctuate in the course of the year. As a result of this uncertainty as it relates to the development of raw material prices that cannot always be passed on in full, we see risks arising
beyond the forecasted moderate increase in relation to important raw materials and packaging materials.
The segments in the industrial goods sector are affected to a greater extent by these price risks than the individual segments in the consumer goods sector. Additional price and supply risks exist due to possible demand- or production-related shortages in the procurement markets. Furthermore, continued major volatility can be expected from global economic, geopolitical and climate risks, which could lead to rising material prices and supply shortages.
Measures: The measures taken include active supplier portfolio management through our globally engaged, cross-divisional sourcing capability, together with strategies aimed at securing price and volume both through contracts and, where appropriate and possible, through financial hedging instruments. Furthermore, we work in interdisciplinary
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
104 Risks and opportunities report 112 Forecast
teams within Research and Development, Supply Chain Management and Purchasing on devising alternative formulations and packaging forms so as to be able to respond flexibly to unforeseen fluctuations in raw material prices. We also avoid becoming dependent on individual suppliers to better secure the constant supply of the goods and services that we require. Finally, close collaboration with our strategic suppliers plays an exceptionally important role in our risk management. Further details regarding the assessment of supplier financial stability can be found in the section on "Procurement" on pages 77 to 79. The basis for our risk management approach is a comprehensive procurement information system aimed at ensuring permanent transparency with respect to our purchasing volumes.
Impact: Low probability rating, possible major impact on our earnings guidance.
Description of risk: Henkel faces production risks in the event of low capacity utilization due to volume decreases and unplanned operational interruptions, especially at our single-source sites.
Measures: We can offset the negative effects of possible production outages through flexible production control and, where economically viable, insurance policies. Such production risks are minimized by ensuring high employee qualification, clearly defined safety standards, and regular plant and equipment maintenance. Capital expenditure decisions on property, plant and equipment are made in accordance with defined, differentiated responsibility procedures and approval processes. They incorporate all relevant specialist functions and are regulated in an internal corporate standard. Investments are analyzed in advance on the basis of detailed risk aspects. Further audits accompanying projects provide the foundation for project management and risk reduction.
Impact: Moderate probability rating, possible major impact on our earnings guidance.
Macroeconomic and sector-specific risks Description of risk: We remain exposed to macroeconomic risks emanating from the uncertainties of the current geopolitical and economic environment. We currently see geopolitical risk arising in connection with the increased number of conflict zones. A decline in the macroeconomic environment poses a risk to the industrial sector in particular. A downturn in consumer spending is relevant for the consumer goods segments. A further significant risk is posed by an increasingly competitive environment, as this could result in stronger price and promotional pressures in the consumer goods sector. As consolidation in the retail sector continues and private labels occupy a growing share of the market, crowding-out competition in the consumer goods sector could intensify. The risk of product substitution inherent in this could, in principle, affect all business units. Technological change associated with digitalization may involve risks for the success of our products and processes.
Measures: We focus on continuously strengthening our brands (see separate risk description on page 110) and consistently developing further innovations. We consider innovative products and processes to be a significant success factor for our company, enabling us to differentiate ourselves from the competition. We also pursue specific sales and marketing initiatives, for example advertising and promotional activities. In addition, we have the capability to react quickly to potential sales declines through flexible production control.
Impact: High probability rating, possible major impact on our sales and earnings guidance.
Description of risk: Henkel is exposed to financial risk in the form of credit risks, liquidity risks, currency risks, interest rate risks, and risks arising from pension obligations.
For the description of credit risks, liquidity risks, currency risks and interest rate risks, please refer to the notes to the consolidated financial statements on pages 160 to 165. For the risks arising from our pension obligations, please see pages 147 to 149.
Measures: Risk-mitigating measures and the management of these risks are also described in the notes to the consolidated financial statements on the pages mentioned.
Impact: We classify financial risks as follows:
Description of risk: As a globally active corporation we are exposed, in the course of our ordinary business activities, to a range of risks relating to litigations and other actions, including government agency proceedings in which we are currently involved or may become involved in the future. These risks arise, in particular, in the fields of product liability, product deficiency, competition and cartel law, infringement of proprietary rights, patent law, tax law, environmental protection and legacy remediation. We cannot rule out the likelihood of negative rulings on current litigations and further litigations being initiated in the future. Legal uncertainty in some regions could also limit our ability to assert our rights.
Our business is subject to various national rules and regulations and – within the European Union (EU) – increasingly to harmonized laws applicable throughout the EU. In addition, some of our operations are subject to rules and regulations derived from approvals, licenses, certificates or permits. Our manufacturing operations are bound by rules and regulations with respect to the registration, evaluation, usage, storage, transportation and handling of certain substances and also in relation to emissions, wastewater, effluent and other waste. The construction and operation of production facilities and other plant and equipment are governed by framework rules and regulations, including those relating to legacy remediation. Violation of such regulations may lead to legal proceedings or compromise our future business activities.
Changes to the regulatory environment in our relevant markets could influence our business activities, and thus adversely affect our assets, financial position and results of operations. Such changes might involve import and export controls, customs or other trade regulations, or pricing and foreign exchange restrictions.
Equally, as a globally active company, we maintain business relations with customers in countries that are subject to export control legislation, embargoes, economic sanctions or other forms of trade restriction. Changes to these regulations, new or extended sanctions, or corresponding initiatives by institutional investors or non-governmental organizations may result in restrictions being imposed on our business activities in these countries or, indirectly, in other countries, or may prevent us from acquiring or keeping customers and suppliers.
Measures: Our internal standards, guidelines, codes of conduct, and training measures are geared to ensuring compliance with the aforementioned statutory requirements and, for example, safeguarding our manufacturing facilities and products. These requirements have also been incorporated into our management systems and are regularly audited. Ensuring compliance with laws and regulations is an integral component of our business processes. This includes the early monitoring and evaluation of relevant statutory and regulatory requirements and changes. Henkel has further established a Groupwide compliance organization with locally and regionally responsible compliance officers led by a globally responsible General Counsel & Chief Compliance Officer (details can be found in the corporate governance report on pages 29 to 38). In addition, our corporate legal department maintains constant contact with local counsel. Current proceedings and potential risks are recorded in a separate reporting system. For certain legal risks, we have concluded insurance policies that are standard for the industry and that we consider to be appropriate. However, the outcome of proceedings is inherently difficult to foresee, especially in cases in which the claimant is seeking substantial or unspecified damages. In view of this, we are unable to predict what obligations may arise from such litigations. Consequently, major losses may result from litigations and proceedings that are not covered by our insurance policies or provisions. Potential damage to our reputation is not covered by insurance, nor is there any guarantee that
Henkel will acquire adequate insurance cover at reasonable terms and conditions in future.
Impact: Low probability rating, possible major impact on our earnings guidance.
Description of risk: Information technology has strategic significance for Henkel. Our business processes rely to a great extent on internal and external IT services, applications, networks, and infrastructure systems. The failure or disruption of critical IT services and the manipulation or loss of data constitute material risks for Henkel. The failure of computer networks or disruption of important IT applications can impair critical business processes. The loss of confidential data, for example formulations, customer data or price lists, could benefit our competition. Henkel's reputation could also be damaged by such loss.
Measures: The technical and organizational safeguards for protecting information at Henkel are based on the international standards ISO 27001 and 27002. Major components include the classification of information, business processes, IT applications, and IT infrastructure safeguards with respect to confidentiality, availability, integrity, and data protection requirements, as well as measures for avoiding risk. In addition, Henkel has put technical and organizational measures in place to prevent, discover and defeat cyber attacks. As a member of Cyber Security Sharing and Analytics (CSSA) e.V., Henkel also maintains regular contact with other major corporations to enable the early detection of threats and implementation of effective countermeasures.
Our critical business processes operate through redundantly configured systems designed for high availability. Our data backup procedures reflect stateof-the-art technology and practice. We regularly review our restore and disaster recovery processes. We develop our systems using proven project management and program modification procedures.
Access to buildings and areas containing IT systems, access to computer networks and applications, as well as user authorizations for our information systems, are strictly limited to the minimum level necessary. For critical business processes, the required segregation of duties is enforced by technological means.
Our networks are protected against unauthorized external access where economically viable. Operating systems and anti-virus software are automati-
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
cally updated to their latest version on a continual basis.
104 Risks and opportunities report
112 Forecast
We inform and instruct our employees in the proper and secure use of information systems as part of their regular duties.
The implementation of our security measures is continually reviewed by our Internal Audit function, other internal departments, and independent third parties.
Impact: Low probability rating, possible major impact on our earnings guidance.
Description of risk: The motivation and the qualification of our employees are key drivers of Henkel's business success. Therefore, it is strategically important to attract highly qualified professionals and executives and ensure they stay with the company. In selecting and employing talent, we compete globally for qualified professionals and executives. In many of our markets, we see clear signs of increasingly tough competition for the most talented professionals and the impacts of demographic change. These developments expose us to the risk of losing valuable employees or of being unable to recruit relevant qualified professionals and executives.
Measures: We combat the risk of losing valuable employees through specifically devised personnel development programs and incentive systems. Supporting this is an established, thorough annual review process from which we derive individually tailored and future-viable qualification programs as well as performance-related remuneration systems. Further areas of our HR management focus include a global health management system and support for flexible work models to ensure better work-life flexibility.
We reduce the risk of not being able to recruit qualified professionals and executives by expanding our employer branding initiatives and through targeted cooperation with colleges and universities in all regions where we conduct business. Our attractiveness as an employer is reinforced by our focus on promoting talent and specialized development programs.
Further information relating to our employees can be found on pages 74 to 77.
Impact: High probability rating, possible minor impact on our earnings guidance.
Risks in connection with brand image or reputation of the company
Description of risk: As a globally active corporation, Henkel is exposed to potential damage to its image in the event of negative reports in the media – including social media – regarding Henkel's corporate brand or individual product brands, particularly in the consumer goods sector. These could lead to a negative impact on sales.
Measures: We minimize these risks through the measures described under legal and regulatory risks (see pages 108 and 109). These are designed to ensure that our production facilities and products are safe. We also pursue a policy of pro-active public relations management that serves to reinforce the reputation of our corporate brand and individual product brands. These measures are supported by a global communication network, and international and local crisis management systems with regular training sessions and crisis response planning.
Impact: Low probability rating, possible major impact on our sales and earnings guidance.
Description of risk: Henkel is a global manufacturing corporation and is therefore exposed to risks pertaining to the environment, safety, health, and social standards, manifesting in the form of personal injury, physical damage to goods, and reputational damage. Soil contamination and the associated remediation expense, as well as leakage or other technical failures, could give rise to direct costs for the corporation. Furthermore, indirect costs such as fines, claims for compensation or reputational damage may also be incurred.
Measures: We minimize these risks through the measures described under legal and regulatory risks (see pages 108 and 109), and through our auditing, advisory and training activities. We update these preventive measures continuously in order to properly safeguard our facilities, assets and reputation. We ensure compliance with high technical standards, rules of conduct, and relevant statutory requirements as a further means of preserving our assets, and that our corporate values – one of which is sustainability – are put into practice.
Impact: Low probability rating, possible major impact on our earnings guidance.
Description of risk: Business strategy risks can arise from our expectations for internal projects, acquisitions and strategic alliances failing to materialize. The associated capital expenditures may not generate the originally anticipated value added due to internal or external influences. Individual projects could also be delayed or even halted by unforeseen events.
Measures: We combat these risks through comprehensive project management. We limit exposure through financial viability assessments in the review, decision, and implementation phases. These assessments are performed by specialist departments, assisted by external consultants where appropriate. Project transparency and control are supported by our management systems.
Impact: Moderate probability rating, possible moderate impact on our earnings guidance.
Entrepreneurial opportunities are identified and evaluated at Group level and in the individual business units, and duly incorporated into the strategy and planning processes. We understand the opportunities presented in the following as potential future developments or events that could lead to a positive deviation from our guidance. We also assess the probabilities of price-related procurement market and financial opportunities.
Procurement market opportunities Description of opportunities: Countervailing the procurement market risks listed on pages 106 and 107, opportunities may also arise in which the influencing factors described in this section develop in a direction that is advantageous to Henkel.
Impact: Low probability rating, possible major impact on our earnings guidance.
Macroeconomic and sector-specific opportunities Description of opportunities: Additional business opportunities would arise if the uncertain geopolitical and macroeconomic situation in some regions, or the economic conditions in individual sectors, develop substantially better than expected.
100 Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB])
Impact: The opportunities described could have a major impact on our sales and earnings guidance.
Description of opportunities: Countervailing the currency and interest rate risks indicated under financial risks, and the risks arising from pension obligations as described on pages 107 and 108, opportunities may also arise in which the influencing factors described in this section develop in a direction that is advantageous to Henkel.
Impact: We classify financial opportunities as follows:
Description of opportunities: Acquisitions are a key component of our strategy.
Impact: Large acquisitions could have a major impact on our earnings guidance.
Description of opportunities: Opportunities arising from our largely continuous innovation process are a key component of our strategy and are already accounted for in our guidance. There are additional opportunities in the event of product introductions that exceed our expectations of market acceptance, and in the development of exceptional innovations that have not yet been taken into account.
Impact: Innovations arising from future research and development could have a major impact on our sales and earnings guidance.
104 Risks and opportunities report 112 Forecast
At the time this report was prepared, there were no identifiable risks related to future developments that could endanger the existence either of Henkel AG & Co. KGaA, or a material subsidiary included in the consolidation, or the Group, as a going concern. As we have no special-purpose vehicles, there is no risk that might originate from such a source.
Compared to the previous year, our expectation of the likelihood and/or of the possible financial impact of individual risk and opportunity categories has changed slightly. Overall, however, the risk and opportunities situation has not altered to any significant degree.
The system of risk categorization adopted by Henkel continues to indicate that the most significant exposure currently relates to the impact of macroeconomic and sector uncertainty together with financial risks, to which we are responding with the countermeasures described above. The Management Board remains confident that the earning power of the Group forms a solid foundation for future business development and provides the necessary resources to leverage our opportunities.
Our assessment of future world economic development is based on data provided by IHS Global Insight.
Global economic growth is expected to remain no more than moderate in 2017. IHS expects gross domestic product to rise by approximately 3 percent.
The mature markets should grow by approximately 2 percent. The North American economy is expected to grow by approximately 2 percent, while Japan's economy is forecasted to expand by approximately 1 percent. For Western Europe, IHS anticipates growth of approximately 1.5 percent.
The emerging markets are forecasted to achieve robust economic growth of approximately 4.5 percent in 2017, but developments are expected to vary widely between individual regions and countries. Economic output should increase by approximately 5.5 percent in Asia (excluding Japan), and by around 3 percent in the Africa/Middle East region. IHS expects positive performance of approximately 1 percent in Latin America in 2017. An increase of approximately 2 percent is forecasted for the Eastern Europe region.
Global inflation of approximately 3.5 percent is predicted in 2017. While IHS expects a high degree of price stability for mature markets with a rise of approximately 2 percent, the inflation rate in emerging markets is forecasted to average around 5 percent.
We expect prices for raw materials, packaging and purchased goods and services to increase moderately compared to the previous year.
We expect continued high volatility in the currency markets. We anticipate a slightly stronger average US dollar rate for 2017 compared to 2016. Conversely, major currencies in emerging markets could weaken.
IHS predicts that global private consumption will increase by around 3 percent in 2017. Consumers in mature markets are likely to spend approximately 2 percent more than in the previous year. The emerging markets should again demonstrate a somewhat higher propensity to spend, with a rise of approximately 3.5 percent in 2017.
Starting in fiscal 2017, we will be using the industrial production index (IPX) as a reference for describing the market environment in which our Adhesive Technologies business unit operates. The index covers the manufacturing, mining, utilities and construction sectors and is therefore an appropriate indicator for the market environment in which our industrial business operates.
Year on year, the industrial production index is expected to gain approximately 2.5 percent worldwide, with growth slightly below that of the world economy as a whole. Industrial production is forecasted to expand by approximately 1.5 percent in the mature markets, and by approximately 4 percent in emerging markets.
We expect the Henkel Group to generate organic sales growth of 2 to 4 percent in fiscal 2017. Our expectation is that each business unit will generate organic sales growth within this range.
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Code [HGB])
(condensed version according to the German Commercial
The starting point for our forecasted organic sales growth is our strong competitive position. We have consolidated and further developed this in recent years through our innovative strength, strong brands and leading market positions, as well as the quality of our portfolio.
We expect the contribution to the nominal sales growth of the Henkel Group from our acquisitions in 2016 to be in the mid-single-digit percentage range. The translation of sales in foreign currencies is expected to have a neutral or slightly negative effect.
In recent years we have introduced a number of measures that have had a positive effect on our cost structure. Again this year, we intend to continue adapting our structures to constantly changing market conditions, and to maintain our strict cost discipline. Through optimization and standardization of processes, we can further improve our efficiency while simultaneously enhancing the quality of our customer service. Moreover, the optimization of our production and logistics networks will contribute to improving our cost structures.
These factors, together with the expected increase in sales, will have a positive effect on our earnings performance. For adjusted return on sales (EBIT), we anticipate an increase year on year to more than 17.0 percent. All three business units are expected to contribute to this positive development. We anticipate an increase in adjusted earnings per preferred share of between 7 and 9 percent.
104 Risks and opportunities report 112 Forecast
Furthermore, we have the following expectations for 2017:
In accordance with our dividend policy and depending on the company's asset and profit positions as well as its financial requirements, we expect a dividend payout by Henkel AG & Co. KGaA in the range of 25 percent to 35 percent of net income after non-controlling interests, and adjusted for exceptional items.
In fiscal 2017, we plan to increase our investments in property, plant and equipment and intangible assets to approximately 750 to 850 million euros. We intend to allocate our budget to expanding our businesses in emerging markets and mature markets in approximately equal proportions. In line with our strategic priorities, considerable investments are planned in strengthening our innovation capabilities, and in expanding and further streamlining our production. Specific investments in IT infrastructure will drive the digitalization of our processes.
123 Notes to the consolidated financial statements – Accounting principles and methods applied in preparation of the consolidated financial statements
131 Notes to the consolidated financial statements – Notes to the consolidated statement of financial position
178 Auditor's fees and services
179 Notes to the consolidated financial statements – Subsequent events
| 79 |
|---|
| % |
| 55.7 |
| 10.3 |
| 0.3 |
| – |
| 0.7 |
| 3.6 |
| 70.6 |
| 6.9 |
| 12.0 |
| 2.6 |
| 1.0 |
| 1.6 |
| 5.0 |
| 0.3 |
| 29.4 |
| 100.0 |
| 16 17 20 18 19 9 |
1,564 880 3,176 109 351 5 – 6,348 |
7.0 3.9 14.2 0.5 1.6 – – 28.4 |
1,966 425 3,665 164 395 16 13 7,002 |
7.0 1.5 13.1 0.6 1.5 0.1 – 25.1 |
|---|---|---|---|---|
| 1.3 | ||||
| 20.5 | ||||
| 3.0 | ||||
| 0.1 | ||||
| 0.4 | ||||
| 11.8 | ||||
| 1.2 | ||||
| 0.4 | ||||
| 3.6 | ||||
| 13,811 | 61.9 | 15,183 | 54.4 | |
| 14 | 150 | 0.7 | 138 | 0.5 |
| 13,661 | 61.2 | 15,045 | 53.9 | |
| 13 | –322 | –1.4 | –188 | –0.7 |
| 12 | 12,984 | 58.1 | 14,234 | 51.0 |
| –91 | –0.4 | –91 | –0.3 | |
| 11 | 652 | 2.9 | 652 | 2.3 |
| 10 | 438 | 2.0 | 438 | 1.6 |
| Note | 2015 | % | 2016 | % |
| 15 16 16 17 18 19 5 |
988 89 396 4 1 16 670 2,164 |
4.4 0.4 1.8 – – 0.1 3.0 9.7 |
1,007 106 347 3,300 114 25 833 5,732 16 263 1.2 358 |
81
| in million euros | Note | 2015 | % | 2016 | % | +/– | |
|---|---|---|---|---|---|---|---|
| Sales | 22 | 18,089 | 100.0 | 18,714 | 100.0 | 3.5% | |
| Cost of sales | 23 | –9,368 | –51.8 | –9,742 | –52.1 | 4.0% | |
| Gross profit | 8,721 | 48.2 | 8,972 | 47.9 | 2.9% | ||
| Marketing, selling and distribution expenses | 24 | –4,608 | –25.5 | –4,635 | –24.7 | 0.6% | |
| Research and development expenses | 25 | –478 | –2.6 | –463 | –2.5 | –3.1% | |
| Administrative expenses | 26 | –1,012 | –5.6 | –1,062 | –5.7 | 4.9% | |
| Other operating income | 27 | 127 | 0.7 | 109 | 0.6 | –14.2% | |
| Other operating expenses | 28 | –105 | –0.6 | –146 | –0.8 | 39.0% | |
| Operating profit (EBIT) | 2,645 | 14.6 | 2,775 | 14.8 | 4.9% | ||
| Interest income | 28 | 0.2 | 20 | 0.1 | –28.6% | ||
| Interest expense | –45 | –0.2 | –25 | –0.1 | –44.4 % | ||
| Other financial result | –24 | –0.2 | –26 | –0.2 | 8.3% | ||
| Investment result | –1 | – | –2 | – | – | ||
| Financial result | 29 | –42 | –0.2 | –33 | –0.2 | –21.4% | |
| Income before tax | 2,603 | 14.4 | 2,742 | 14.6 | 5.3% | ||
| Taxes on income | 30 | –635 | –3.5 | –649 | –3.4 | 2.2% | |
| Tax rate in % | 24.4 | 23.7 | |||||
| Net income | 1,968 | 10.9 | 2,093 | 11.2 | 6.4% | ||
| Attributable to non-controlling interests | 31 | 47 | 0.3 | 40 | 0.2 | –14.9% | |
| Attributable to shareholders of Henkel AG & Co. KGaA | 1,921 | 10.6 | 2,053 | 11.0 | 6.9% | ||
| Earnings per ordinary share – basic and diluted | in euros | 4.42 | 4.72 | 6.8% | |||
| Earnings per preferred share – basic and diluted | in euros | 4.44 | 4.74 | 6.8% |
See Notes 15 and 21 for further explanatory information
| 82 | ||
|---|---|---|
| in million euros | 2015 | 2016 |
| Net income | 1,968 | 2,093 |
| Components to be reclassified to income: | ||
| Exchange differences on translation of foreign operations | 593 | 141 |
| Gains/losses from derivative financial instruments (Hedge reserve per IAS 39) | –17 | – |
| Gains/losses from financial instruments in the available-for-sale category (Available-for-sale reserve) | – | – |
| Components not to be reclassified to income: | ||
| Remeasurement of net liability from defined benefit pension plans (net of taxes) | 265 | –138 |
| Other comprehensive income (net of taxes) | 841 | 3 |
| Total comprehensive income for the period | 2,809 | 2,096 |
| Attributable to non-controlling interests | 58 | 47 |
| Attributable to shareholders of Henkel AG & Co. KGaA | 2,751 | 2,049 |
119 Consolidated statement of changes in equity 120 Consolidated statement
122 Key financials by region
See Notes 10 to 14 for further explanatory information
| Issued capital | Other components of equity | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| in million euros | Ordinary shares |
Preferred shares |
Capital reserve |
Treasury shares |
Retained earnings |
Currency transla tion |
Hedge reserve per IAS 39 |
Available for sale |
Share holders of Henkel AG & Co. KGaA |
Non-con trolling interests |
Total |
| At January 1, 2015 | 260 | 178 | 652 | –91 | 11,396 | –723 | –167 | 3 | 11,508 | 136 | 11,644 |
| Net income | – | – | – | – | 1,921 | – | – | – | 1,921 | 47 | 1,968 |
| Other comprehensive income | – | – | – | – | 265 | 582 | –17 | – | 830 | 11 | 841 |
| Total comprehensive income for the period |
– | – | – | – | 2,186 | 582 | –17 | 0 | 2,751 | 58 | 2,809 |
| Dividends | – | – | – | – | –564 | – | – | – | –564 | –33 | –597 |
| Sale of treasury shares | – | – | – | – | – | – | – | – | – | – | – |
| Changes in ownership interest with no change in control |
– | – | – | – | –34 | – | – | – | –34 | –11 | –45 |
| Other changes in equity | – | – | – | – | – | – | – | – | – | – | – |
| At Dec. 31, 2015/Jan. 1, 2016 | 260 | 178 | 652 | –91 | 12,984 | –141 | –184 | 3 | 13,661 | 150 | 13,811 |
| Net income | – | – | – | – | 2,053 | – | – | – | 2,053 | 40 | 2,093 |
| Other comprehensive income | – | – | – | – | –138 | 134 | – | – | –4 | 7 | 3 |
| Total comprehensive income for the period |
– | – | – | – | 1,915 | 134 | – | – | 2,049 | 47 | 2,096 |
| Dividends | – | – | – | – | –633 | – | – | – | –633 | –33 | –666 |
| Sale of treasury shares | – | – | – | – | – | – | – | – | – | – | – |
| Changes in ownership interest with no change in control |
– | – | – | – | –70 | – | – | – | –70 | –26 | –96 |
| Other changes in equity | – | – | – | – | 38 | – | – | – | 38 | – | 38 |
| At December 31, 2016 | 260 | 178 | 652 | –91 | 14,234 | –7 | –184 | 3 | 15,045 | 138 | 15,183 |
83
84
See Note 37 for further explanatory information
| in million euros | 2015 | 2016 |
|---|---|---|
| Operating profit (EBIT) | 2,645 | 2,775 |
| Income taxes paid | –715 | –769 |
| Amortization/depreciation/impairment/write-ups of intangible assets and property, plant and equipment1 | 460 | 570 |
| Net gains/losses on disposal of intangible assets and property, plant and equipment, and from divestments | –26 | –7 |
| Change in inventories | –25 | 10 |
| Change in trade accounts receivable | –140 | –240 |
| Change in other assets | –79 | –108 |
| Change in trade accounts payable | 77 | 341 |
| Change in other liabilities and provisions | 187 | 278 |
| Cash flow from operating activities | 2,384 | 2,850 |
| Purchase of intangible assets and property, plant and equipment, including payments on account | –625 | –557 |
| Acquisition of subsidiaries and other business units | –322 | –3,727 |
| Purchase of associated companies and joint ventures held at equity | –6 | – |
| Proceeds on disposal of subsidiaries and other business units | 25 | – |
| Proceeds on disposal of intangible assets and property, plant and equipment | 35 | 34 |
| Cash flow from investing activities | –893 | –4,250 |
| Dividends paid to shareholders of Henkel AG & Co. KGaA | –564 | –633 |
| Dividends paid to non-controlling shareholders | –33 | –33 |
| Interest received | 130 | 20 |
| Interest paid | –155 | –26 |
| Dividends and interest paid and received | –622 | –672 |
| Repayment / Issuance of bonds | –1,300 | 2,221 |
| Other changes in borrowings | 275 | 519 |
| Allocation to pension funds | –60 | –185 |
| Other changes in pension obligations | –79 | –116 |
| Purchase of non-controlling interests with no change of control | –52 | –102 |
| Other financing transactions2 | 283 | 13 |
| Cash flow from financing activities | –1,555 | 1,678 |
| Net change in cash and cash equivalents | –64 | 278 |
| Effect of exchange rates on cash and cash equivalents | 12 | –65 |
| Change in cash and cash equivalents | –52 | 213 |
| Cash and cash equivalents at January 1 | 1,228 | 1,176 |
| Cash and cash equivalents at December 31 | 1,176 | 1,389 |
1 Of which: Impairment in fiscal 2016: 68 million euros (fiscal 2015: 16 million euros).
2 Other financing transactions in fiscal 2016 include payments of –34 million euros for the purchase of short-term
securities and time deposits as well as for the provision of financial collateral (fiscal 2015: –472 million euros).
Reconciliation to free cash flow 85 in million euros 2015 2016 Cash flow from operating activities 2,384 2,850 Purchase of intangible assets and property, plant and equipment, including payments on account –625 –557 Proceeds on disposal of intangible assets and property, plant and equipment 35 34 Net interest paid –25 –6 Other changes in pension obligations –79 –116 Free cash flow 1,690 2,205
119 Consolidated statement of changes in equity 120 Consolidated statement
of cash flows 121 Group segment report by business unit
Henkel Annual Report 2016 Notes to the consolidated financial statements 121
| 86 | |
|---|---|
| in million euros | Adhesives for Con sumers, Craftsmen and Building |
Industrial Adhesives |
Total Adhesive Techno logies |
Beauty Care |
Laundry & Home Care |
Operating business units total |
Corporate | Henkel Group |
|---|---|---|---|---|---|---|---|---|
| Sales 2016 | 1,822 | 7,139 | 8,961 | 3,838 | 5,795 | 18,593 | 121 | 18,714 |
| Proportion of Henkel sales | 10 % | 38% | 48% | 20% | 31% | 99% | 1% | 100% |
| Sales 2015 | 1,869 | 7,123 | 8,992 | 3,833 | 5,137 | 17,961 | 128 | 18,089 |
| Change from previous year | –2.5% | 0.2% | –0.3% | 0.1% | 12.8% | 3.5% | –6.1% | 3.5% |
| Adjusted for foreign exchange | 2.0% | 3.5% | 3.2% | 3.5% | 16.8% | 7.2% | – | 7.1% |
| Organic | 1.7% | 3.1% | 2.8% | 2.1% | 4.7% | 3.2% | – | 3.1% |
| EBIT 2016 | 278 | 1,284 | 1,561 | 526 | 803 | 2,890 | –115 | 2,775 |
| EBIT 2015 | 283 | 1,179 | 1,462 | 561 | 786 | 2,809 | –164 | 2,645 |
| Change from previous year | –2.1% | 8.9% | 6.8% | –6.2% | 2.2% | 2.9% | – | 4.9% |
| Return on sales (EBIT) 2016 | 15.2% | 18.0% | 17.4% | 13.7% | 13.9% | 15.5% | – | 14.8% |
| Return on sales (EBIT) 2015 | 15.2% | 16.5% | 16.3% | 14.6% | 15.3% | 15.6% | – | 14.6% |
| Adjusted EBIT 2016 | 293 | 1,336 | 1,629 | 647 | 1,000 | 3,276 | –104 | 3,172 |
| Adjusted EBIT 2015 | 278 | 1,256 | 1,534 | 610 | 879 | 3,023 | –100 | 2,923 |
| Change from previous year | 5.6% | 6.3% | 6.2% | 6.1% | 13.7% | 8.4 % | – | 8.5% |
| Adjusted return on sales (EBIT) 2016 | 16.1% | 18.7% | 18.2% | 16.9% | 17.3% | 17.6% | – | 16.9% |
| Adjusted return on sales (EBIT) 2015 | 14.9% | 17.6% | 17.1% | 15.9% | 17.1% | 16.8% | – | 16.2% |
| Capital employed 20162 | 779 | 7,054 | 7,833 | 2,882 | 5,104 | 15,819 | 77 | 15,895 |
| Capital employed 20152 | 898 | 7,068 | 7,967 | 2,743 | 3,726 | 14,436 | 75 | 14,511 |
| Change from previous year | –13.3% | –0.2% | –1.7% | 5.1% | 37.0% | 9.6% | – | 9.5% |
| Return on capital employed (ROCE) 2016 | 35.7% | 18.2% | 19.9% | 18.2% | 15.7% | 18.3% | – | 17.5% |
| Return on capital employed (ROCE) 2015 | 31.6% | 16.7% | 18.4% | 20.4% | 21.1% | 19.5% | – | 18.2% |
| Amortization/depreciation/impairment/write-ups of intangible assets and property, plant and equipment 2016 |
43 | 223 | 266 | 97 | 194 | 557 | 13 | 570 |
| of which impairment losses 2016 | 1 | 7 | 8 | 23 | 37 | 68 | – | 68 |
| of which write-ups 2016 | – | – | – | – | – | – | – | – |
| Amortization/depreciation/ impairment /write-ups of intangible assets and property, plant and equipment 2015 |
43 | 207 | 250 | 73 | 126 | 449 | 11 | 460 |
| of which impairment losses 2015 | – | 2 | 2 | – | 14 | 16 | – | 16 |
| of which write-ups 2015 | – | 6 | 6 | – | – | 6 | – | 6 |
| Capital expenditures (excl. financial assets) 2016 | 89 | 191 | 280 | 274 | 3,846 | 4,400 | 9 | 4,409 |
| Capital expenditures (excl. financial assets) 2015 | 83 | 294 | 377 | 142 | 450 | 969 | 10 | 979 |
| Operating assets 20163 | 1,399 | 8,698 | 10,096 | 4,233 | 7,752 | 22,082 | 459 | 22,540 |
| Operating liabilities 2016 | 660 | 2,145 | 2,805 | 1,537 | 2,380 | 6,722 | 382 | 7,104 |
| Net operating assets 20163 | 739 | 6,553 | 7,291 | 2,696 | 5,372 | 15,359 | 77 | 15,436 |
| Operating assets 20153 | 1,441 | 8,535 | 9,976 | 4,041 | 5,928 | 19,945 | 456 | 20,401 |
| Operating liabilities 2015 | 585 | 1,982 | 2,566 | 1,484 | 2,005 | 6,055 | 381 | 6,435 |
| Net operating assets 20153 | 856 | 6,553 | 7,410 | 2,557 | 3,923 | 13,890 | 75 | 13,965 |
1 Calculated on the basis of units of 1,000 euros.
2 Including goodwill at cost prior to any accumulated impairment in accordance with IFRS 3.79 (b).
3 Including goodwill at net book value.
87
| in million euros | Western Europe |
Eastern Europe |
Africa/ Middle East |
North America |
Latin America |
Asia Pacific |
Total Regions |
Corporate | Henkel Group |
|---|---|---|---|---|---|---|---|---|---|
| Sales 2 2016 | 5,999 | 2,713 | 1,378 | 4,202 | 1,055 | 3,246 | 18,593 | 121 | 18,714 |
| Sales2 2015 | 6,045 | 2,695 | 1,329 | 3,648 | 1,110 | 3,134 | 17,961 | 128 | 18,089 |
| Change from previous year | –0.8% | 0.7% | 3.7% | 15.2% | –5.0% | 3.6% | 3.5% | – | 3.5% |
| Adjusted for foreign exchange | 0.1% | 7.4% | 12.2% | 15.2% | 15.9% | 6.0% | 7.2% | – | 7.1% |
| Organic | –0.1% | 7.0% | 5.6% | 1.7% | 13.8% | 3.2% | 3.2% | – | 3.1% |
| Proportion of Group sales 2016 | 32% | 15% | 7% | 22% | 6% | 17% | 99% | 1% | 100% |
| Proportion of Group sales 2015 | 34% | 15% | 7% | 20% | 6% | 17% | 99% | 1% | 100% |
| Operating profit (EBIT) 2016 | 1,335 | 328 | 111 | 505 | 126 | 485 | 2,890 | –115 | 2,775 |
| Operating profit (EBIT) 2015 | 1,223 | 356 | 141 | 544 | 110 | 434 | 2,809 | –164 | 2,645 |
| Change from previous year | 9.2% | –7.9% | –21.2% | –7.1% | 14.2% | 11.5% | 2.9% | – | 4.9% |
| Adjusted for foreign exchange | 9.9% | –0.8% | –14.0% | –7.1% | 66.9% | 15.0% | 7.1% | – | 8.2% |
| Return on sales (EBIT) 2016 | 22.3% | 12.1% | 8.1% | 12.0% | 11.9% | 14.9% | 15.5% | – | 14.8% |
| Return on sales (EBIT) 2015 | 20.2% | 13.2% | 10.6% | 14.9% | 9.9% | 13.9% | 15.6% | – | 14.6% |
1 Calculated on the basis of units of 1,000 euros.
2 By location of company.
In 2016, the affiliated companies domiciled in Germany, including Henkel AG & Co. KGaA, generated sales of 2,339 million euros (previous year: 2,345 million euros). Sales realized by the affiliated companies domiciled in the USA amounted to 3,943 million euros in 2016 (previous year: 3,422 million euros). In fiscal 2015 and 2016, no individual customer accounted for more than 10 percent of total sales.
Of the total non-current assets disclosed for the Henkel Group at December 31, 2016 (excluding financial instruments and deferred tax assets) amounting to 18,599 million euros (previous year: 14,539 million euros), 1,964 million euros (previous year: 1,842 million euros) was attributable to the affiliated companies domiciled in Germany, including Henkel AG & Co. KGaA. The non-current assets (excluding financial instruments and deferred tax assets) recognized in respect of the affiliated companies domiciled in the USA amounted to 10,735 million euros at December 31, 2016 (previous year: 7,308 million euros).
119 Consolidated statement of changes in equity 120 Consolidated statement
of cash flows 121 Group segment report by business unit
Henkel Annual Report 2016 Notes to the consolidated financial statements 123
statements
The consolidated financial statements of Henkel AG & Co. KGaA (Düsseldorf Regional Court, HRB 4724), Düsseldorf, as of December 31, 2016, have been prepared in accordance with International Financial Reporting Standards (IFRS) and the relevant interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as adopted per Regulation number 1606/2002 of the European Parliament and the Council, on the application of international accounting standards, in the European Union, and in compliance with Section 315a of the German Commercial Code [HGB]. The consolidated financial statements are published in the electronic federal gazette.
The individual financial statements of the companies included in the consolidation are drawn up on the same accounting date, December 31, 2016, as that of Henkel AG & Co. KGaA.
Members of the KPMG organization or other independent firms of auditors instructed accordingly have audited the financial statements of the material companies included in the consolidation. The Management Board of Henkel Management AG – which is the Personally Liable Partner of Henkel AG & Co. KGaA – compiled the consolidated financial statements on January 30, 2017, and approved them for forwarding to the Supervisory Board and for publication.
The consolidated financial statements are based on the principle of historical cost with the exception that certain financial instruments are accounted for at their fair values, and pension obligations are measured using the projected unit credit method. The functional currency of Henkel AG & Co. KGaA and the reporting currency of the Group is the euro. Unless otherwise indicated, all amounts are shown in million euros. In order to improve the clarity and informative value of the consolidated financial statements, certain items are combined in the consolidated statement of financial position, the consolidated statement of income and the consolidated statement of comprehensive income, and then shown separately in the notes.
In addition to Henkel AG & Co. KGaA as the ultimate parent company, the consolidated financial statements at December 31, 2016, include eight German and 199 non-German companies in which Henkel AG & Co. KGaA has a dominating influence over financial and operating policies, based on the concept of control. The Group has a dominating influence on a company when it is exposed, or has rights, to variable returns from its involvement with the company and has the ability to affect those returns through its power over the company. Companies in which the stake held represents less than half of the voting rights are fully consolidated if Henkel AG & Co. KGaA controls them, as defined in IFRS 10, through contractual agreements or the right to appoint corporate bodies.
Henkel AG & Co. KGaA prepares the consolidated financial statements for the largest and the smallest groups of companies to which Henkel AG & Co. KGaA and its subsidiaries belong.
The following table shows the changes to the scope of consolidation in fiscal 2016:
| At December 31, 2016 | 208 |
|---|---|
| Disposals | –3 |
| Mergers | –8 |
| Additions | 17 |
| At January 1, 2016 | 202 |
| Scope of consolidation | 88 |
Further details can be found in the section "Acquisitions and divestments" below.
Subsidiaries which are of secondary importance to the Group and to the presentation of a true and fair view of our net assets, financial position and results of operations due to their inactivity or low level of activity are generally not included in the consolidated financial statements. The total assets of these companies represent less than 1 percent of the Group's total assets; their total sales and income (net of taxes) are also less than 1 percent of the Group totals.
Effective May 31, 2016, we acquired 57.5 percent of the shares of Expand Global Industries UK Limited, London, UK. Expand Global Industries UK Limited holds nearly 100 percent of the shares of Expand Global Industries Ltd. headquartered in Ibadan, Nigeria, which has a strong presence in the detergent market in Nigeria. With this acquisition, the Laundry & Home Care business unit has expanded its detergent business. The acquisition is part of our strategy to further strengthen our presence in emerging markets. The purchase price was 110 million euros, settled in cash. With regard to the remaining 42.5 percent of shares, put and call contracts have been entered into between Henkel and the seller. Henkel has decided to apply the anticipated acquisition method to account for the acquisition in the financial statements. Accordingly, acquisition of the outstanding non-controlling shares is already included as part of the first-time consolidation in the form of a contingent purchase price liability of 113 million euros. The purchase price of the outstanding non-controlling interests is based on the market value of the shares less net financial debt. Please refer to the details on pages 156 and 157 for Henkel's estimated bandwidth of potential fluctuations arising from changes in valuation parameters. A maximum payment was not agreed. Because the acquisition is recognized using the anticipated acquisition method, non-controlling interests from the acquired business are not disclosed in the statement of comprehensive income. Effects from foreign exchange and measurement of the contingent purchase price liability are recognized directly in equity and disclosed as other changes in the statement of changes in equity. Provisional goodwill was recognized in the amount of 199 million euros. Because the acquisition was completed in the course of the year, the allocation of the purchase price to the acquired assets and liabilities in accordance with IFRS 3 "Business combinations" is provisional. Tax-deductible goodwill is not expected.
Effective June 1, 2016, we completed the acquisition of a range of hair care brands and the associated hair care business of Procter & Gamble in the Africa/Middle East and Eastern Europe regions. The acquisition is part of our strategy to further strengthen our presence in emerging markets. The purchase price was 212 million euros, settled in cash. Provisional goodwill was recognized in the amount of 160 million euros. Because the acquisition was completed in the course of the year, the allocation of the purchase price to the acquired assets and liabilities in accordance with IFRS 3 "Business combinations" is provisional. Goodwill of 54 million euros was recognized for tax purposes.
Effective June 30, 2016, we acquired the tile adhesives business and the associated brands of the Colombian company Alfagres S.A. With this, the Adhesive Technologies business unit has expanded its business in the segment Adhesives for Consumers, Craftsmen and Building. The acquisition is part of our strategy to further strengthen our presence in emerging markets. We do not expect any material impact from this acquisition on the net assets, financial position and results of operations of Henkel.
Effective August 15, 2016, we completed the acquisition of all shares of Zhejiang Golden Roc Chemicals JSC, China, expanding our superglue business in the Adhesive Technologies business unit. The acquisition is part of our strategy to further strengthen our presence in emerging markets. We do not
expect any material impact from this acquisition on the net assets, financial position and results of operations of Henkel.
Effective August 21, 2016, we completed the acquisition of the detergent business and the associated brands of Behdad Chemical Company PJSC in Iran. The acquisition is part of our strategy to further strengthen our presence in emerging markets. The provisional purchase price of 5,436 billion Iranian rials (around 141 million euros) was settled in cash. Provisional goodwill was recognized in the amount of 100 million euros. Because the acquisition was recently completed, the allocation of the purchase price to the acquired assets and liabilities in accordance with IFRS 3 "Business combinations" is provisional. We do not expect any material impact from this acquisition on the net assets, financial position and results of operations of Henkel.
Effective September 1, 2016, we completed the acquisition of all shares of The Sun Products Corporation, a laundry and home care company based in Wilton, Connecticut, USA. The transaction had a purchase price of around 3.6 billion US dollars including debt redeemed at closing of 1.7 billion US dollars, and is fully debt-financed. In fiscal 2015, the company generated sales of around 1.6 billion US dollars in the USA and Canada. Acquisition-related costs amounted to 17 million euros. This acquisition is part of our strategy to invest in attractive country category positions in mature markets. Provisional goodwill was recognized in the amount of 2.1 billion euros. This goodwill represents the offensive and defensive synergies that Henkel expects to gain by integrating The Sun Products Corporation into its organization, and reflects the growth potential of the acquired business. Because the acquisition was recently completed, the allocation of the purchase price to the acquired assets and liabilities in accordance with IFRS 3 "Business combinations" is provisional. If the acquired company had been included from January 1, 2016, sales for the Henkel Group for the reporting period January 1 to December 31, 2016, would be higher by 1,457 million euros and income (net of taxes) would be lower by 98 million euros, taking restructuring and integration costs into account. The actual contributions of the company were 475 million euros to sales and –77 million euros to income (net of taxes). Tax-deductible goodwill is not expected.
Effective December 8, 2016, we completed the acquisition of all shares of Jeyes Group Limited, UK, thus expanding our business with WC products and household detergents in the Laundry & Home Care business unit. As specified in IFRS 10 "Consolidated financial statements," the acquired business has not yet been consolidated as control has not yet passed to Henkel. First-time consolidation is expected for the second quarter of 2017. We do not expect any material impact from this acquisition on the net assets, financial position and results of operations of Henkel.
In 2016, we spent around 62 million euros for the acquisition of the outstanding non-controlling shares in Henkel Pakvash PJSC based in Tehran, Iran, increasing our ownership interest to 97.98 percent.
In the third quarter of 2016, we spent around 10 million euros for the acquisition of the outstanding non-controlling shares in Henkel Industrie AG based in Tehran, Iran, increasing our ownership interest to 100 percent.
In the fourth quarter of 2016, we spent around 22 million euros for the acquisition of the outstanding non-controlling shares in Henkel (Siam) Adhesive Technologies Ltd. based in Samut Prakan, Thailand, increasing our ownership interest to 100 percent.
The carrying amounts of the acquired assets and liabilities are determined by the contracts and our opening balances on each respective acquisition date. The recognition and measurement principles adopted by the Henkel Group were applied. If the acquisition of the shares of Expand Global Industries UK Limited and of the range of hair care brands and the associated hair care business of Procter & Gamble – and thus their business activities – had been included from January 1, 2016, sales for the Henkel Group for the reporting period January 1 to December 31, 2016, would be higher by 126 million euros and income (net of taxes) would be higher by 2 million euros, taking acquisition-related costs into account. The actual contributions of the companies were 61 million euros to sales and –2 million euros to income (net of taxes).
| Detergent business in Nigeria, effective May 31, 2016 |
Hair care business in Africa/Middle East and Eastern Europe, effective June 1, 2016 |
The Sun Products Corporation, effective September 1, 2016 |
||
|---|---|---|---|---|
| in million euros | Fair value | Fair value | Fair value | Total |
| Intangible assets | 213 | 205 | 3,016 | 3,434 |
| Property, plant and equipment | 13 | 1 | 245 | 259 |
| Other non-current assets | – | 11 | 127 | 138 |
| Non-current assets | 226 | 217 | 3,388 | 3,831 |
| Inventories | 9 | 3 | 185 | 197 |
| Trade accounts receivable | 1 | – | 134 | 135 |
| Liquid funds | 2 | – | 11 | 13 |
| Other current assets | 2 | – | 14 | 16 |
| Current assets | 14 | 3 | 344 | 361 |
| Total assets | 240 | 220 | 3,732 | 4,192 |
| Net assets | 223 | 219 | 3,200 | 3,642 |
| Non-current liabilities | 6 | 1 | 308 | 315 |
| Other current provisions / liabilities | 5 | – | 90 | 95 |
| Trade accounts payable | 6 | – | 134 | 140 |
| Current liabilities | 11 | – | 224 | 235 |
| Total equity and liabilities | 240 | 220 | 3,732 | 4,192 |
| in million euros | 2016 |
|---|---|
| Detergent business in Nigeria, effective May 31, 2016 | |
| Purchase price | 110 |
| Contingent purchase price | 113 |
| Fair value of the acquired assets and liabilities | 24 |
| Provisional goodwill | 199 |
| Hair care business in Africa/Middle East and Eastern Europe, effective June 1, 2016 | |
| Purchase price | 212 |
| Contingent purchase price | 7 |
| Fair value of the acquired assets and liabilities | 59 |
| Provisional goodwill | 160 |
| The Sun Products Corporation, effective September 1, 2016 | |
| Purchase price | 3,197 |
| Adjustment based on purchase agreement | 3 |
| Fair value of the acquired assets and liabilities | 1,137 |
| Provisional goodwill | 2,063 |
Reconciliation of the purchase price to provisional goodwill 90
We did not conclude the sale of any businesses in fiscal 2016.
The financial statements of Henkel AG & Co. KGaA and of the subsidiaries included in the consolidated financial statements were prepared on the basis of uniformly valid principles of recognition and measurement, applying the standardized year-end date adopted by the Group. Such entities are included in the consolidated financial statements as of the date on which the Group acquired control.
All receivables and liabilities, sales, income and expenses, as well as intra-group profits on transfers of non-current assets or inventories, are eliminated on consolidation.
The purchase method is used for capital consolidation. With business combinations, therefore, all hidden reserves and hidden charges in the entity acquired are revalued at the time of acquisition, and all identifiable intangible assets are separately disclosed if they are clearly separable or if their recognition arises from a contractual or other legal right. Any difference arising between the acquisition cost and the (share of) net assets after purchase price allocation is recognized as goodwill. The goodwill of subsidiaries is measured in the functional currency of the subsidiary.
Entities acquired are included in the consolidation for the first time as subsidiaries by offsetting the carrying amount of the respective parent company's investment in them against their assets and liabilities. Contingent consideration is recognized at fair value as of the date of first-time consolidation. Subsequent changes in value do not result in an adjustment to the valuation at the time of acquisition. Acquisition-related costs are not included in the purchase price. Instead, they are recognized through profit or loss in the period in which they occur.
In the recognition of acquisitions of less than 100 percent, non-controlling interests are measured at the fair value of the share of net assets that they represent. Contingent futures contracts on non-controlling interests are recognized using the anticipated acquisition method. Accordingly, the acquisition of the outstanding non-controlling interests is already included as part of the first-time consolidation in the form of a contingent purchase price liability.
In subsequent years, the carrying amount of the Henkel AG & Co. KGaA investment is eliminated against the current (share of) equity in the subsidiary entities concerned.
Changes in the shareholdings of subsidiary companies resulting in a decrease or an increase in the participating interests of the Group without loss of control are recognized within equity as changes in ownership without loss of control.
As soon as the control of a subsidiary is relinquished, all the assets and liabilities and the non-controlling interests, and also the accumulated currency translation gains or losses, are derecognized. In the event that Henkel continues to own non-controlling interests in the non-consolidated entity, these are measured at fair value. The result of deconsolidation is recognized under other operating income or expenses.
Associated companies and joint ventures are recognized by the equity method.
An associated company is a company over which the Group can exercise material influence on the financial and operating policies without controlling it. Material influence is generally assumed when the Group holds 20 percent or more of the voting rights. Where a Group company conducts transactions with an associated company or a joint venture, the resulting profits or losses are eliminated in accordance with the share of the Group in that company.
The Group consolidates Dekel Investment Holdings Ltd. and Vitriflex, Inc. using the equity method. The carrying amount of the shareholdings recognized using the equity method as of December 31, 2016, was 7 million euros (previous year: 12 million euros).
Associated companies that are less relevant for the Group and for the presentation of a fair view of its net assets, financial position and results of operation, are never recognized using the equity method. They are always recognized at amortized cost.
The annual financial statements of the consolidated companies, including the hidden reserves and hidden charges of Group companies recognized by the purchase method, goodwill arising on consolidation, and the consolidated statement of cash flows, are translated into euros using the functional currency method outlined in International Accounting Standard (IAS) 21 "The Effects of Changes in Foreign Exchange Rates." The functional currency is the currency in which a foreign company predominantly generates funds and makes payments. As the functional currency for all the companies included in the consolidation is generally the local currency of the company concerned, assets and liabilities are translated at closing rates, while income and expenses are translated at the average rates for the year as an approximation of the actual rates at the date of the transaction. Equity items are recognized at historical exchange rates. The differences arising from using average rather than closing rates are taken to equity and shown as other components of equity or non-controlling interests, and remain neutral in respect of net income until the shares are divested.
In the subsidiaries' annual financial statements, transactions in foreign currencies are converted at the rates prevailing at the time of the transaction. Financial assets and liabilities in foreign currencies are measured at closing rates through profit or loss. For the main currencies in the Group, the following exchange rates have been used based on 1 euro:
| Average exchange rate | Exchange rate on December 31 | ||||
|---|---|---|---|---|---|
| ISO code | 2015 | 2016 | 2015 | 2016 | |
| Chinese yuan | CNY | 6.97 | 7.36 | 7.06 | 7.32 |
| Mexican peso | MXN | 17.61 | 20.67 | 18.91 | 21.77 |
| Polish zloty | PLN | 4.18 | 4.36 | 4.26 | 4.41 |
| Russian ruble | RUB | 68.05 | 74.07 | 80.67 | 64.30 |
| Turkish lira | TRY | 3.02 | 3.34 | 3.18 | 3.71 |
| US dollar | USD | 1.11 | 1.11 | 1.09 | 1.05 |
Summary of selected measurement methods 92
| Financial statement figures | Measurement method |
|---|---|
| Assets | |
| Goodwill | Lower of carrying amount and recoverable amount ("impairment only" method) |
| Other intangible assets | |
| with indefinite useful lives | Lower of carrying amount and recoverable amount ("impairment only" method) |
| with definite useful lives | (Amortized) cost less any impairment losses |
| Property, plant and equipment | (Depreciated) cost less any impairment losses |
| Financial assets (categories per IAS 39) | |
| "Loans and receivables" | (Amortized) cost using the effective interest method |
| "Available for sale" | Fair value with gains or losses recognized directly in equity 1 |
| "Held for trading" | Fair value through profit or loss |
| "Fair value option" | Fair value through profit or loss |
| Other assets | (Amortized) cost |
| Inventories | Lower of cost and fair value less costs to sell |
| Assets held for sale | Lower of cost and fair value less costs to sell |
1Apart from permanent impairment losses and effects arising from measurement in a foreign currency.
| Provisions for pensions and similar obligations | Present value of future obligations (projected unit credit method) |
|---|---|
| Other provisions | Settlement amount |
| Financial liabilities (categories per IAS 39) | |
| "Measured at amortized cost" | (Amortized) cost using the effective interest method |
| "Held for trading" | Fair value through profit or loss |
| Other liabilities | Settlement amount |
The methods of recognition and measurement, which are basically unchanged from the previous year, are described in detail in the notes relating to the individual items of the statement of financial position on these pages. Also provided as part of the report on our financial instruments (Note 21 on pages 153 to 165) are the disclosures relevant to International Financial Reporting Standard (IFRS) 7 showing the breakdown of our financial instruments by category, our methods for fair value measurement, and the derivative financial instruments that we use.
Changes in the methods of recognition and measurement arising from revised and new standards are applied retrospectively, provided that the effect is material and there are no alternative regulations that supersede the standard concerned. The consolidated statement of income from the previous year and the opening balance of the consolidated statement of financial position for this comparative period are adjusted as if the new methods of recognition and measurement had always been applied.
Preparation of the consolidated financial statements is based on a number of accounting estimates and assumptions. These have an impact on the reported amounts of assets, liabilities and contingent liabilities at the reporting date and the disclosure of income and expenses for the reporting period. The actual amounts may differ from these estimates.
The accounting estimates and their underlying assumptions are based on past experience and are continually reviewed. Changes in accounting estimates are recognized in the period in which the change takes place where such change exclusively affects that period. A change is recognized in the period in which it occurs and in later periods where such change affects both the reporting period and subsequent periods. The judgments of the Management Board regarding the application of those IFRSs which have a significant impact on the consolidated financial statements are presented in particular in the explanatory notes on taxes on income (Note 30 on pages 168 to 170), intangible assets (Note 1 on pages 131 to 134), provisions for pensions and similar obligations (Note 15 on pages 141 to 149), income tax provisions and other provisions (Note 16 on pages 149 and 150), financial instruments (Note 21 on pages 153 to 165) and sharebased payment plans (Note 34 on page 172).
Material discretionary judgments are made in respect of the demarcation of the cash-generating units as explained in Note 1 on pages 131 to 134 and the segment reporting as explained in Note 35 on pages 172 to 174. Contingent forward contracts for acquired minority interests are recognized using the anticipated acquisition method.
Accounting methods applied for the first time in the year under review 93
| Mandatory for fiscal years beginning on or after |
|
|---|---|
| IFRS 11 (Amendment) "Acquisition of an Interest in a Joint Operation" |
January 1, 2016 |
| IAS 1 (Amendment) "Notes" | January 1, 2016 |
| IAS 16 and IAS 38 (Amendment) "Clarification of Acceptable Methods of Depreciation and Amortisation" |
January 1, 2016 |
| IAS 19 (Amendment) "Defined Benefit Plans: Employee Contributions" |
February 1, 2015 |
| General standard "Improvements to IFRS 2010 – 2012" | February 1, 2015 |
| General standard "Improvements to IFRS 2012 – 2014" | January 1, 2016 |
| IFRS 10, IFRS 12 and IAS 28 (Amendment) "Investment Entities: Applying the Consolidation Exception" |
January 1, 2016 |
The amendments to IAS 19 clarify the requirements governing the allocation of contributions by employees or third parties to periods of service if the contributions are linked to the period of service. In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of service.
As part of the annual improvement project "Improvements to IFRS 2010 – 2012," amendments were made to seven standards. Adjustments to the wording of individual IFRSs are intended to clarify existing regulations. Amendments affecting disclosures in the notes have also been implemented. The following standards are affected: IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38.
The first-time application of the amended standards had no material impact on the presentation of our consolidated financial statements.
The following standards and amendments to existing standards of possible relevance to Henkel, which have been adopted into EU law (endorsement mechanism) but are not yet mandatory, have not been applied early:
Accounting regulations not applied in advance of their effective date 94
| Mandatory for fiscal years beginning on or after |
|
|---|---|
| IFRS 9 "Financial Instruments" | January 1, 2018 |
| IFRS 15 "Revenue from Contracts with Customers" | January 1, 2018 |
These standards and amendments to existing standards will be applied by Henkel starting in fiscal 2018. We are currently examining what impact IFRS 15 "Revenue from Contracts with Customers" will have on the consolidated financial statements. Given the current situation, we expect a minor impact on sales and on cost of sales in the year of implementation due to the recognition of rights of return in the financial statements. A conclusive assessment of the effects is not possible at present. We are also currently examining what impact IFRS 9 "Financial Instruments" will have on the consolidated financial statements. A conclusive assessment of the effects is not possible.
In fiscal 2016, the IASB issued the following standards and amendments to existing standards of relevance to Henkel, which still have to be adopted into EU law (endorsement mechanism) before they become applicable:
Accounting regulations not yet adopted into EU law 95
| Mandatory for fiscal years beginning on or after |
|
|---|---|
| IFRS 16 "Leases" | January 1, 2019 |
| IFRS 2 (Amendment) "Classification and Measurement of Share-Based Payment Transactions" |
January 1, 2018 |
| IFRS 10 and IAS 28 (Amendment) "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture" |
outstanding |
| IFRS 15 (Amendment) "Clarifications to IFRS 15" | January 1, 2018 |
| IAS 7 (Amendment) "Disclosure Initiative" | January 1, 2017 |
| IAS 12 (Amendment) "Recognition of Deferred Tax Assets for Unrealised Losses" |
January 1, 2017 |
| IAS 40 (Amendment) "Transfers of Investment Property" | January 1, 2018 |
| IFRIC 22 "Foreign Currency Transactions and Advance Consideration" |
January 1, 2018 |
| Improvements to IFRS 2014 – 2016 "Amendments to IFRS 12" |
January 1, 2017 |
| Improvements to IFRS 2014 – 2016 "Amendments to IFRS 1 and IAS 28" |
January 1, 2018 |
These new standards and amendments to existing standards will be applied by Henkel starting in fiscal 2017 or later. A conclusive assessment of the effects is not possible.
119 Consolidated statement of changes in equity
122 Key financials by region
123 Accounting principles and methods applied in preparation of the consolidated financial statements
131 Notes to the consolidated statement of financial position
The measurement and recognition policies for financial statement items are described in the relevant note.
All non-current assets with definite useful lives are depreciated or amortized exclusively using the straight-line method on the basis of estimated useful lives. The useful life estimates are reviewed annually. If facts or circumstances indicate the need for impairment, the recoverable amount is determined. It is measured as the higher of the fair value less costs to sell (net realizable value) and the value in use. Impairment losses are recognized if the recoverable amounts of the assets are lower than their carrying amounts. They are charged to the relevant functions.
The following unchanged, standardized useful lives are applied:
| Useful life | 96 |
|---|---|
| in years | |
| Intangible assets with definite useful lives | 3 to 20 |
| Residential buildings | 50 |
| Office buildings | 40 |
| Research and factory buildings, workshops, stores and staff buildings |
25 to 33 |
| Plant facilities | 10 to 25 |
| Machinery | 7 to 10 |
| Office equipment | 10 |
| Vehicles | 5 to 20 |
| Factory and research equipment | 2 to 5 |
Cost 97
| Trademarks and other rights | ||||||
|---|---|---|---|---|---|---|
| in million euros | Assets with indefinite useful lives |
Assets with definite useful lives |
Internally generated intangible assets with definite useful lives |
Intangible assets in development |
Goodwill | Total |
| At January 1, 2015 | 1,820 | 1,506 | 220 | 64 | 8,085 | 11,695 |
| Acquisitions | 101 | 18 | – | – | 224 | 343 |
| Divestments | –1 | – | – | – | –1 | –2 |
| Additions | – | 12 | 35 | 64 | – | 111 |
| Disposals | – | –9 | – | – | – | –9 |
| Reclassifications to assets held for sale | – | – | – | – | – | – |
| Reclassifications | – | – | 11 | –11 | – | – |
| Translation differences | 159 | 71 | 4 | – | 553 | 787 |
| At December 31, 2015/January 1, 2016 | 2,079 | 1,598 | 270 | 117 | 8,861 | 12,925 |
| Acquisitions | 1,012 | 26 | 12 | – | 2,539 | 3,589 |
| Divestments | – | – | – | – | – | – |
| Additions | – | 6 | 8 | 69 | – | 83 |
| Disposals | – | –30 | –8 | – | – | –38 |
| Reclassifications to assets held for sale | – | –8 | – | – | –3 | –11 |
| Reclassifications | –101 | 101 | 105 | –105 | – | – |
| Translation differences | 77 | 29 | 4 | – | 240 | 350 |
| At December 31, 2016 | 3,067 | 1,722 | 391 | 81 | 11,637 | 16,898 |
| Trademarks and other rights | ||||||
|---|---|---|---|---|---|---|
| in million euros | Assets with indefinite useful lives |
Assets with definite useful lives |
Internally generated intangible assets with definite useful lives |
Intangible assets in development |
Goodwill | Total |
| At January 1, 2015 | 16 | 921 | 157 | – | 11 | 1,105 |
| Divestments | – | – | – | – | – | – |
| Write-ups | –5 | – | – | – | – | –5 |
| Scheduled amortization | – | 91 | 19 | – | – | 110 |
| Impairment losses | – | – | – | – | – | – |
| Disposals | – | –7 | – | – | – | –7 |
| Reclassifications to assets held for sale | – | – | – | – | – | – |
| Reclassifications | 1 | –1 | – | – | – | – |
| Translation differences | – | 35 | 5 | – | – | 40 |
| At December 31, 2015/January 1, 2016 | 12 | 1,039 | 181 | – | 11 | 1,243 |
| Divestments | – | – | – | – | – | – |
| Write-ups | – | – | – | – | – | – |
| Scheduled amortization | – | 104 | 34 | – | – | 138 |
| Impairment losses | – | – | 1 | – | – | 1 |
| Disposals | – | –28 | –8 | – | – | –36 |
| Reclassifications to assets held for sale | – | –5 | – | – | – | –5 |
| Reclassifications | – | – | – | – | – | – |
| Translation differences | –4 | 16 | 2 | – | – | 14 |
| At December 31, 2016 | 8 | 1,126 | 210 | – | 11 | 1,355 |
in million euros
| Trademarks and other rights | |||||
|---|---|---|---|---|---|
| Assets with indefinite useful lives |
Assets with definite useful lives |
Internally generated intangible assets with definite useful lives |
Intangible assets in development |
Goodwill | Total |
At December 31, 2016 3,059 596 181 81 11,626 15,543 At December 31, 2015 2,067 559 89 117 8,850 11,682
Goodwill represents the future economic benefit of assets that are acquired through business combinations and not individually identifiable and separately recognized, as well as expected synergies, and is recognized at cost. Trademarks and other rights acquired for valuable consideration are stated at purchase cost, while internally generated software is stated at development cost.
Additions to internally generated intangible assets mostly reflect investments in consolidating and optimizing our IT system architecture for managing business processes.
The change in goodwill resulting from acquisitions and divestments made in the fiscal year is presented in the section "Acquisitions and divestments" on pages 123 to 126.
Goodwill as well as trademarks and other rights with indefinite useful lives are subjected to an impairment test at least once a year and also when indicators of impairment are present ("impairment only" approach).
Amortization and impairment of trademarks and other rights are recognized as selling expenses. Amortization and impairment of other intangible assets are allocated to the relevant functions in the consolidated statement of income.
131 Notes to the consolidated
statement of financial position
In the course of our annual impairment test, we reviewed the carrying amounts of goodwill. The following table shows the cash-generating units together with the associated goodwill
Book values – Goodwill 100
at book value at the reporting date. The description of the cash-generating units can be found in the notes to the consolidated financial statements, Note 35 on page 172 and in the combined management report on pages 88 to 99.
| At December 31, 2015 | At December 31, 2016 | |||||
|---|---|---|---|---|---|---|
| Cash-generating units in million euros |
Goodwill | Terminal growth rate |
Weighted average cost of capital |
Goodwill | Terminal growth rate |
Weighted average cost of capital |
| Packaging and Consumer Goods Adhesives |
2,005 | 1.50% | 7.50% | 2,012 | 1.50% | 7.00% |
| Transport and Metal | 462 | 1.50% | 7.50% | 476 | 1.50% | 7.00% |
| General Industry | 385 | 1.00% | 7.50% | 416 | 1.00% | 7.00% |
| Electronics | 1,473 | 1.50% | 7.50% | 1,513 | 1.50% | 7.00% |
| Adhesives for Consumers, Craftsmen and Building |
373 | 1.00% | 7.50% | 404 | 1.00% | 7.00% |
| Total Adhesive Technologies | 4,698 | 4,821 | ||||
| Branded Consumer Goods | 1,294 | 1.00% | 6.25% | 1,461 | 1.00% | 6.25% |
| Hair Salon Business | 305 | 1.00% | 6.25% | 314 | 1.00% | 6.25% |
| Total Beauty Care | 1,599 | 1,775 | ||||
| Laundry Care | 1,286 | 1.00% | 6.25% | 3,727 | 1.00% | 6.25% |
| Home Care | 1,267 | 1.00% | 6.25% | 1,303 | 1.00% | 6.25% |
| Total Laundry & Home Care | 2,553 | 5,030 |
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
We assess goodwill impairment according to the fair-valueless-costs-to-sell approach on the basis of future estimated cash flows which are obtained from the business budgets approved by the appropriate corporate management bodies. The determination of fair value (before deduction of costs to sell) is allocated to valuation level 3 of the fair value hierarchy (see Note 21 on pages 153 to 165). The assumptions upon which the essential planning parameters are based reflect experience gained in the past, aligned to current information provided by external sources. Budgets are prepared on the basis of a financial planning horizon of four years. For the period after that, a growth rate in a range between 1 and 2 percent in the cash flows is assumed for the purpose of impairment testing. The euro to US dollar exchange rate applied is 1.08. Taking into account specific tax effects, the cash flows of the various cash-generating units are discounted at different rates reflecting the weighted average cost of capital (WACC) in each business unit: 6.25 percent after tax for both Laundry & Home Care and Beauty Care, and 7 percent after tax for Adhesive Technologies.
In the Laundry & Home Care business unit, we have assumed an increase in sales during the four-year detailed forecasting horizon of 4 percent per year, with a slight increase in market share. Sales growth in the Beauty Care business unit over the four-year forecasting horizon is budgeted at between 2 and 4 percent per annum. Here, too, we expect a slight increase in market share. Sales in the Adhesive Technologies business unit are expected to grow by between 3 and 5.5 percent per annum on average over the detailed four-year forecasting horizon, thus exceeding the market average.
In all the business units, we assume that a future increase in the cost of raw materials can be extensively offset by cost reduction measures in purchasing and by passing the increase on to our customers, as well as through the implementation of efficiency improvement measures. Given our continued pro-active management of the portfolio, we anticipate achieving at least stable gross margins in all our business units.
The impairment tests revealed sufficient impairment buffers so that, as in the previous year, no impairment of goodwill was required.
Book values – Trademarks and other rights 101
| At December 31, 2015 | At December 31, 2016 | |||||
|---|---|---|---|---|---|---|
| Cash-generating units (summarized) in million euros |
Trademarks and other rights with indefinite useful lives |
Terminal growth rate |
Weighted average cost of capital |
Trademarks and other rights with indefinite useful lives |
Terminal growth rate |
Weighted average cost of capital |
| Packaging and Consumer Goods Adhesives |
51 | 1.50% | 7.50% | 51 | 1.50% | 7.00% |
| Transport and Metal | 14 | 1.50% | 7.50% | 18 | 1.50% | 7.00% |
| General Industry | 0 | 1.00% | 7.50% | – | 1.00% | 7.00% |
| Electronics | 90 | 1.50% | 7.50% | 90 | 1.50% | 7.00% |
| Adhesives for Consumers, Craftsmen and Building |
68 | 1.00% | 7.50% | 67 | 1.00% | 7.00% |
| Total Adhesive Technologies | 223 | 226 | ||||
| Branded Consumer Goods | 572 | 0.20–1.80% | 6.25–9.50% | 603 | 0.20–1.80% | 6.25–9.00% |
| Hair Salon Business | 121 | 0.20–1.80% | 6.25–9.80% | 124 | 0.20–1.80% | 6.25–7.80% |
| Total Beauty Care | 693 | 727 | ||||
| Laundry Care | 779 | 1.00–1.80% | 6.25–12.30% | 1,745 | 1.00–2.00% | 6.25–14.40% |
| Home Care | 372 | 1.00–1.80% | 6.25–11.50% | 361 | 1.00–2.00% | 6.25–14.30% |
| Total Laundry & Home Care | 1,151 | 2,106 |
We assess impairment of trademarks and other rights with indefinite useful lives according to the fair-value-less-coststo-sell approach at the level of the cash-generating unit, which consists of either global business units (Adhesive Technologies) or regional strategic business units. We base the approach on future estimated cash flows which are obtained from business budgets. The determination of fair value (before deduction of costs to sell) is allocated to valuation level 3 of the fair value hierarchy (see Note 21 on pages 153 to 165). The assumptions upon which the essential planning parameters are based reflect experience gained in the past, aligned to current information provided by external sources. Budgets are prepared on the basis of a financial planning horizon of four years. For the period after that, a growth rate in a range between 0.2 and 2 percent in the cash flows is assumed for the purpose of impairment testing. The euro to US dollar exchange rate applied is 1.08. Taking into account specific tax effects, the cash flows of the various cash-generating units are discounted at different rates, with a range between 6.25 and 14.40 percent applied as the applicable weighted average cost of capital (WACC) to each cash-generating unit. The impairment tests revealed sufficient impairment buffers so that – as in the previous year – no impairment of trademarks and other rights with indefinite useful lives was required.
The trademarks and other rights with indefinite useful lives with a net book value of 3,059 million euros (previous year: 2,067 million euros) are established in their markets and will continue to be intensively promoted. Moreover, there are no other statutory, regulatory or competition-related factors that limit our usage of our brand names.
Our annual impairment tests on trademarks and other rights with indefinite useful lives required impairment losses of 0 million euros (previous year: 0 million euros). Following the acquisition of The Sun Products Corporation and the associated integration and restructuring measures, trademark book values with indefinite useful lives were reclassified to trademarks with finite useful lives in an amount of 101 million euros. The scheduled amortization ends in December 2017. In 2016, amortization of around 14 million euros was recognized.
The company also intends to continue using the brands disclosed as having definite useful lives. No impairment losses were registered with respect to trademarks and other rights with definite useful lives in 2016.
by business unit
| in million euros | Land, land rights and buildings |
Plant and machinery |
Factory and office equipment |
Assets in the course of construction |
Total |
|---|---|---|---|---|---|
| At January 1, 2015 | 2,088 | 2,872 | 973 | 310 | 6,243 |
| Acquisitions | 3 | 6 | 2 | – | 11 |
| Divestments | – | – | – | – | – |
| Additions | 45 | 136 | 77 | 256 | 514 |
| Disposals | –16 | –94 | –75 | – | –185 |
| Reclassifications to assets held for sale | – | 1 | 3 | – | 4 |
| Reclassifications | 62 | 153 | 65 | –282 | –2 |
| Translation differences | 46 | 51 | 2 | 18 | 117 |
| At December 31, 2015/January 1, 2016 | 2,228 | 3,125 | 1,047 | 302 | 6,702 |
| Acquisitions | 85 | 160 | 11 | 21 | 277 |
| Divestments | – | – | – | – | – |
| Additions | 44 | 142 | 68 | 222 | 476 |
| Disposals | –41 | –137 | –83 | – | –261 |
| Reclassifications to assets held for sale | –155 | –10 | – | – | –165 |
| Reclassifications | 41 | 179 | 51 | –271 | – |
| Translation differences | 12 | 20 | 1 | –10 | 23 |
| At December 31, 2016 | 2,214 | 3,479 | 1,095 | 264 | 7,052 |
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
| in million euros | Land, land rights and buildings |
Plant and machinery |
Factory and office equipment |
Assets in the course of construction |
Total |
|---|---|---|---|---|---|
| At January 1, 2015 | 1,008 | 2,042 | 733 | –1 | 3,782 |
| Divestments | – | – | – | – | – |
| Write-ups | – | –1 | – | – | –1 |
| Scheduled depreciation | 62 | 182 | 96 | – | 340 |
| Impairment losses | 2 | 12 | 2 | – | 16 |
| Disposals | –10 | –86 | –73 | – | –169 |
| Reclassifications to assets held for sale | 1 | –1 | 2 | – | 2 |
| Reclassifications | –1 | –3 | 3 | – | –1 |
| Translation differences | 19 | 36 | 19 | –2 | 72 |
| At December 31, 2015/January 1, 2016 | 1,081 | 2,181 | 782 | –3 | 4,041 |
| Divestments | – | – | – | – | – |
| Write-ups | – | – | – | – | – |
| Scheduled depreciation | 65 | 192 | 107 | – | 364 |
| Impairment losses | 50 | 13 | 4 | – | 67 |
| Disposals | –27 | –129 | –81 | – | –237 |
| Reclassifications to assets held for sale | –75 | –9 | – | – | –84 |
| Reclassifications | –4 | 4 | –3 | 3 | – |
| Translation differences | 4 | 8 | 2 | – | 14 |
| At December 31, 2016 | 1,094 | 2,260 | 811 | – | 4,165 |
| in million euros | Land, land rights and buildings |
Plant and machinery |
Factory and office equipment |
Assets in the course of construction |
Total |
|---|---|---|---|---|---|
| At December 31, 2016 | 1,120 | 1,219 | 284 | 264 | 2,887 |
| At December 31, 2015 | 1,147 | 944 | 265 | 305 | 2,661 |
Additions are stated at purchase or manufacturing cost. The latter includes direct costs and appropriate proportions of necessary overheads. Interest charges on borrowings are not included, as Henkel does not currently hold any qualifying assets in accordance with International Accounting Standard (IAS) 23 "Borrowing Costs." Cost figures are shown net of investment grants and allowances. Acquisition-related costs incurred in order to make the asset ready for the intended use are capitalized. An overview of the primary investment projects undertaken during the fiscal year can be found on page 70 in the combined management report.
At December 31, 2016, property, plant and equipment with a carrying amount of 0 million euros had been pledged as collateral for existing liabilities. The periods over which the assets are depreciated are based on their estimated useful lives as set out on page 131. Scheduled depreciation and impairment losses recognized are allocated to the relevant functions in the consolidated statement of income.
Of the impairment losses amounting to 67 million euros, 46 million euros are attributable to the site in Scottsdale, Arizona, USA, due to the merger of administrative functions as part of the process of integrating The Sun Products Corporation.
3 Other financial assets
| At December 31, 2015 | At December 31, 2016 | |||||
|---|---|---|---|---|---|---|
| in million euros | Non-current | Current | Total | Non-current | Current | Total |
| Receivables from associated companies | – | 1 | 1 | 4 | 1 | 5 |
| Financial receivables from third parties | 15 | 24 | 39 | 13 | 25 | 38 |
| Derivative financial instruments | – | 72 | 72 | – | 103 | 103 |
| Investments accounted for using the equity method |
12 | – | 12 | 7 | – | 7 |
| Other investments | 21 | – | 21 | 56 | – | 56 |
| Receivable from Henkel Trust e.V. | – | 349 | 349 | – | 501 | 501 |
| Securities and time deposits | – | 5 | 5 | – | 2 | 2 |
| Financial collateral provided | – | 10 | 10 | – | 7 | 7 |
| Sundry financial assets | 15 | 79 | 94 | 15 | 95 | 110 |
| Total | 63 | 540 | 603 | 95 | 734 | 829 |
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
With the exception of investments, derivatives, securities and time deposits, other financial assets are measured at amortized cost.
The receivable from Henkel Trust e.V. relates to pension payments made by Henkel AG & Co. KGaA to retirees, for which reimbursement can be claimed from Henkel Trust e.V.
Included under securities and time deposits are monies deposited as part of our short-term financial management arrangements. The monies involved are primarily time deposits.
Sundry non-current financial assets include, among others, receivables from employees. The sundry current financial assets include the following:
| At December 31, 2015 | At December 31, 2016 | |||||
|---|---|---|---|---|---|---|
| in million euros | Non-current | Current | Total | Non-current | Current | Total |
| Tax receivables | – | 202 | 202 | – | 242 | 242 |
| Payments on account | – | 28 | 28 | – | 55 | 55 |
| Overfunding of pension obligations | 58 | – | 58 | 24 | – | 24 |
| Reimbursement rights related to employee benefits |
100 | 11 | 111 | 102 | 13 | 115 |
| Accruals | 18 | 72 | 90 | 21 | 88 | 109 |
| Sundry other assets | 1 | 17 | 18 | 8 | 36 | 44 |
| Total | 177 | 330 | 507 | 155 | 434 | 589 |
Deferred taxes are recognized for temporary differences between the valuation of an asset or a liability in the financial statements and its tax base, for tax losses carried forward, and for unused tax credits. This also applies to temporary differences in valuation arising through acquisitions, with the exception of goodwill.
Deferred tax liabilities on taxable temporary differences related to shares in subsidiaries are recognized to the extent that a reversal of this difference is expected in the foreseeable future.
Changes in the deferred taxes in the statement of financial position result in deferred tax expenses or income unless the underlying item is directly recognized in other comprehensive income. For items recognized directly in other comprehensive income, the associated deferred taxes are also recognized in other comprehensive income.
The valuation, recognition and breakdown of deferred taxes in respect of the various items in the statement of financial position are disclosed under Note 30 ("Taxes on income") on pages 168 to 170.
In accordance with IAS 2, reported under inventories are those assets that are intended to be sold in the ordinary course of business (finished products and merchandise), those in the process of production for such sale (work in progress) and those to be utilized or consumed in the course of manufacture or the rendering of services (raw materials and supplies). Payments on account made for the purpose of purchasing inventories are likewise disclosed under the inventories heading.
Inventories are measured at the lower of cost and net realizable value.
Inventories are measured using either the "first in, first out" (FIFO) or the average cost method. Manufacturing cost includes not only the direct costs but also appropriate portions of necessary overheads (for example goods inward department, raw material storage, filling, costs incurred through to the finished goods warehouse), productionrelated administrative expenses, the costs of the pensions of people who are employed in the production process, and production-related amortization/depreciation. The overhead add-ons are calculated on the basis of average capacity utilization. Not included, however, are interest expenses incurred during the manufacturing period.
The net realizable value is determined as an estimated selling price less costs yet to be incurred through to completion, and necessary selling and distribution costs. Write-downs to the net realizable value are made if, at year-end, the carrying amounts of the inventories are above their realizable fair values. The resultant valuation allowance amounted to 142 million euros (previous year: 120 million euros). The carrying amount of inventories recognized at fair value less costs to sell amounted to 359 million euros. The carrying amount of inventories pledged as security for liabilities amounted to 0 million euros.
Analysis of inventories 107
| in million euros | December 31, 2015 |
December 31, 2016 |
|---|---|---|
| Raw materials and supplies | 483 | 544 |
| Work in progress | 69 | 95 |
| Finished products and merchandise | 1,157 | 1,290 |
| Payments on account for merchandise | 12 | 9 |
| Total | 1,721 | 1,938 |
Trade accounts receivable amounted to 3,349 million euros (previous year: 2,944 million euros). They are all due within one year. Valuation allowances have been recognized in respect of specific risks as appropriate. Overall, we recognized total valuation allowances of 25 million euros (previous year: 21 million euros).
| Trade accounts receivable, net | 2,944 | 3,349 |
|---|---|---|
| less: cumulative valuation allowances on trade accounts receivable |
112 | 118 |
| Trade accounts receivable, gross | 3,056 | 3,467 |
| in million euros | December 31, 2015 |
December 31, 2016 |
| Trade accounts receivable | 108 |
Development of valuation allowances on trade accounts receivable 109
| in million euros | 2015 | 2016 |
|---|---|---|
| Valuation allowances at January 1 | 108 | 112 |
| Additions | 15 | 22 |
| Derecognition of receivables | –12 | –15 |
| Currency translation effects | 1 | –1 |
| Valuation allowances at December 31 | 112 | 118 |
Recognized under cash and cash equivalents are liquid funds, sight deposits and other financial assets with an original term of not more than three months. In accordance with IAS 7, also recognized under cash equivalents are shares in money market funds which, due to their first-class credit rating and investment in extremely short-term money market securities, undergo only minor value fluctuations and can be readily converted within one day into known amounts of cash. Utilized bank overdrafts are recognized in the statement of financial position as liabilities to banks.
The volume of cash and cash equivalents increased compared to the previous year from 1,176 million euros to 1,389 million euros. Of this figure, 1,259 million euros (previous year: 950 million euros) relates to cash and 130 million euros (previous year: 226 million euros) to cash equivalents. The change is shown in the consolidated statement of cash flows.
Assets held for sale are assets that can be sold in their current condition and whose sale is very probable. Disposal must be expected within one year from the time of reclassification as held for sale. Such assets may be individual assets, groups of assets (disposal groups) or business operations (discontinued operations). Assets held for sale are no longer subject to scheduled depreciation and amortization and are instead recognized at the lower of carrying amount and fair value less costs to sell (level 3), which is determined by current price negotiations with potential buyers.
Compared to December 31, 2015, assets held for sale increased by 85 million euros to 95 million euros. This increase is primarily due to the merger of administrative functions as part of the process of integrating The Sun Products Corporation. As a result, the office in Scottsdale, Arizona, USA, will probably be sold in the first half of 2017. The impairment of 41 million euros resulting from measurement of the assets at the lower of fair value and carrying amount has been recognized as a loss in administrative expenses. Liabilities held for sale also exist in an amount of 13 million euros (December 31, 2015: 0 million euros), mainly due to the signed agreement governing the sale of Henkel's Western European flooring, tiling and waterproofing business.
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
| in million euros | At December 31, 2015 |
At December 31, 2016 |
|---|---|---|
| Intangible assets and property, plant and equipment |
6 | 92 |
| Inventories and trade accounts receivable | 3 | 2 |
| Cash and cash equivalents | – | – |
| Other assets | 1 | 1 |
| Provisions | – | 13 |
| Borrowings | – | – |
| Other liabilities | – | – |
| Net assets | 10 | 82 |
| Capital stock | 438 | 438 |
|---|---|---|
| Preferred bearer shares | 178 | 178 |
| Ordinary bearer shares | 260 | 260 |
| in million euros | 31, 2015 | 31, 2016 |
| At December | At December |
Comprising:
259,795,875 ordinary shares, 178,162,875 non-voting preferred shares.
All shares are fully paid in. The ordinary and preferred shares are bearer shares of no par value, each of which represents a nominal proportion of the capital stock amounting to 1 euro. The liquidation proceeds are the same for all shares. The number of ordinary shares issued remained unchanged year on year. The number of preferred shares in circulation was also unchanged year on year, at 174,482,323 as at December 31, 2016.
According to Art. 6 (5) of the Articles of Association, there is an authorized capital. Under Authorized Capital 2015, the Personally Liable Partner is authorized, with the approval of the Shareholders' Committee and of the Supervisory Board, to increase the capital of the corporation at any time until April 12, 2020, by up to a nominal amount of 43,795,875 euros in total by issuing up to 43,795,875 new non-voting preferred shares for cash and/or in-kind consideration. The authorization may be utilized to the full extent allowed or once or several times in installments. The proportion of capital stock represented by shares issued against payment in kind on the basis of this authorization must not exceed a total of 10 percent of the capital stock existing at the time the authorization takes effect.
The Personally Liable Partner is authorized, with the approval of the Shareholders' Committee and of the Supervisory Board, to set aside the pre-emptive rights of shareholders in the case of a capital increase against payment in kind, particularly for the purpose of business combinations or the (direct or indirect) acquisition of entities, operations, parts of businesses, equity interests or other assets, including claims against the corporation or companies dependent upon it within the meaning of Section 17 of the German Stock Corporation Act [AktG].
If capital is increased against payment in cash, all shareholders are essentially assigned pre-emptive rights. However, these may be set aside where necessary, subject to the approval of the Shareholders' Committee and of the Supervisory Board, in order to dispose of fractional amounts or to grant to holders of bonds with warrants or conversion rights issued by the corporation, or one of the companies dependent upon it, pre-emptive rights corresponding to those that would accrue to such bondholders following the exercise of their warrant or conversion rights or on fulfillment of their conversion obligations, or if the issue price of the new shares is not significantly below the quoted market price at the time of issue price fixing.
In addition, the Personally Liable Partner is authorized to purchase ordinary and/or preferred shares of the corporation at any time until April 12, 2020, up to a maximum nominal proportion of the capital stock of 10 percent. This authorization can be exercised for any legal purpose. To the exclusion of the pre-emptive rights of existing shareholders, treasury shares may, in particular, be transferred to third parties for the purpose of acquiring entities or participating interests of entities. Treasury shares may also be sold to third parties against payment in cash, provided that the selling price is not significantly below the quoted market price at the time of share disposal. The shares may likewise be used to satisfy warrants or conversion rights granted by the corporation. The Personally Liable Partner has also been authorized, with the approval of the Shareholders' Committee and of the Supervisory Board, to cancel treasury shares without the need for further resolution by the Annual General Meeting.
Insofar as shares are issued or used to the exclusion of preemptive rights, the proportion of capital stock represented by such shares shall not exceed 10 percent.
Treasury shares held by the corporation at December 31, 2016 amounted to 3,680,552 preferred shares (December 31, 2015: 3,680,552). This represents 0.84 percent of the capital stock and a proportional nominal value of 3.7 million euros.
See also the explanatory notes on pages 31 and 32 of the combined management report.
The capital reserve comprises the amounts received in previous years in excess of the nominal value of preferred shares and convertible warrant bonds issued by Henkel AG & Co. KGaA.
Recognized in retained earnings are the following:
For details on the acquisition of ownership interests in subsidiaries with no change in control in fiscal 2016, please see the section "Acquisitions and divestments" on pages 123 to 126.
Reported under this heading are differences reported in equity arising from the currency translation of annual financial statements of foreign subsidiaries and also the effects arising from the valuation in total comprehensive income of financial assets in the "Available for sale" category and of derivative financial instruments for which hedge accounting is used. The latter are derivatives used in connection with cash flow hedges or hedges of a net investment in a foreign entity. Due in particular to the appreciation of the US dollar versus the euro, the negative difference attributable to shareholders of Henkel AG & Co. KGaA arising from currency translation decreased compared to the figure at December 31, 2015, by 134 million euros to –7 million euros.
Recognized under non-controlling interests are equity shares held by third parties measured on the basis of the proportion of net assets.
122 Key financials by region
123 Accounting principles and methods applied in preparation of the consolidated financial statements
statement of financial position 166 Notes to the consolidated
Employees in companies included in the consolidated financial statements have entitlements under company pension plans which are either defined contribution or defined benefit plans. These take different forms depending on the legal, financial and tax regimes of each country. The level of benefits provided is based, as a rule, on the length of service and on the income of the person entitled. Details of pension benefits for members of the Management Board are provided in the remuneration report on pages 39 to 51.
In defined benefit plans, the liability for pensions and other post-employment benefits is calculated at the present value of the future obligations (projected unit credit method). This actuarial method of calculation takes future trends in wages, salaries and retirement benefits into account.
The majority of the recipients of pension benefits are located in Germany and the USA. The pension obligations are primarily financed via various external trust assets that are legally independent of Henkel.
Active employees of Henkel in Germany participate in a defined contribution system, "Altersversorgung 2004 (AV 2004)," which was newly formed in 2004. AV 2004 is an employerfinanced pension plan that reflects the personal income development of employees during their career at Henkel and thus provides a performance-related pension. Henkel guarantees a minimum return on the company's contributions. The benefit essentially consists of an annuity payable upon attainment of the retirement age plus a lump-sum payment if the annuity threshold is exceeded in the employee's service period. In addition to age and disability pensions, the plan benefits include surviving spouse and surviving child benefits.
Employees who started at Henkel after April 1, 2011, participate in the pension plan "Altersversorgung 2011 (AV 2011)." AV 2011 is an employer-financed, fund-linked retirement plan funded by contributions based on the income development of the employee. Henkel ensures its employees that a lump-sum amount is available upon retirement which is at least equivalent to the level of principal contributions made by Henkel. Henkel makes the pension contribution to an investment fund established for the purpose of the company pension plan. Upon attaining retirement age, the employee can choose between an annuity through transfer of the superannuation lump-sum to a pension fund, or a one-time payment.
To provide protection under civil law of the pension entitlements of future and current pensioners of Henkel AG & Co. KGaA against insolvency, we have transferred the proceeds of the bond issued in 2005 and certain other assets to Henkel Trust e.V. The trustee invests the cash with which it has been entrusted in the capital market in accordance with investment policies laid down in the trust agreement. In addition, we also subsidize medical benefits for retired employees resident mainly in the USA. Under these programs, retirees are reimbursed for a certain percentage of their medical expenses. We build provisions during the employees' service period and pay the promised benefits when they are claimed.
The defined contribution plans are structured in such a way that the corporation pays contributions to public or private sector institutions on the basis of statutory or contractual terms or on a voluntary basis and has no further obligations regarding the payment of benefits to employees. The contributions for defined contribution plans, excluding multi-employer plans, for the reporting period amounted to 103 million euros (previous year: 82 million euros). In 2016, we paid 47 million euros to public sector institutions (previous year: 46 million euros) and 56 million euros to private sector institutions (previous year: 36 million euros).
No extraordinary events occurred in the reporting period.
Henkel provides defined pension benefits that are financed by more than one employer. The ensuing multi-employer plans are treated as defined contribution plans because, due to the limited share of the contribution volume in the plans, the information available for each of the financing companies is insufficient for defined benefit accounting. In the Henkel Group, benefits from multi-employer plans are provided for employees primarily in the USA and Japan. Withdrawal from our multi-employer plans at the present time would incur a one-time expense of around 29 million euros (previous year: around 30 million euros). Payments into multi-employer plans in fiscal 2016 amounted to 2 million euros (previous year: 2 million euros). We expect contributions of around 2 million euros in fiscal 2017.
Group-wide, the obligations from our pension plans are valued by an independent external actuary at the end of the fiscal year. The calculations at the end of the fiscal year are based on the actuarial assumptions below. These are given as the weighted average. The mortality rates used are based on published statistics and experience relating to each country. In Germany, the assumptions are based on the "Heubeck 2005G" mortality table. In the USA, the assumptions are based on the modified "RP 2014" mortality table. The valuation of pension obligations in Germany was based essentially on the assumption of a 1.9 percent increase in retirement benefits (previous year: 2 percent).
The discount rate is based on yields in the market for highranking corporate bonds on the respective date. The currency and term of the underlying bonds are aligned with the currency and expected maturities of the post-employment pension obligation.
| Germany | USA | Other countries 1 | ||||
|---|---|---|---|---|---|---|
| in percent | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 |
| Discount rate | 2.20 | 1.60 | 4.30 | 4.10 | 2.85 | 2.10 |
| Income trend | 3.25 | 3.25 | 2.85 | 3.00 | 2.50 | 2.85 |
| Expected increases in costs for medical benefits | – | – | 7.10 | 6.80 | 3.80 | 3.60 |
| in years | ||||||
| Life expectancy at age 65 as of the valuation date for a person currently | ||||||
| 65 years old | 21.0 | 21.2 | 22.0 | 22.0 | 24.0 | 24.0 |
| 40 years old | 24.2 | 24.4 | 23.0 | 23.0 | 26.0 | 26.0 |
| 1 Weighted average. |
166 Notes to the consolidated
| in million euros | Germany | USA | Other countries | Total |
|---|---|---|---|---|
| At January 1, 2015 | 3,254 | 1,174 | 1,137 | 5,565 |
| Changes in the Group | 5 | – | – | 5 |
| Translation differences | – | 124 | 34 | 158 |
| Actuarial gains (–)/losses (+) | –251 | –68 | –89 | –408 |
| of which: from changes in demographic assumptions | – | –36 | 2 | –34 |
| of which: from changes in financial assumptions | –246 | –27 | –74 | –347 |
| of which: from experience adjustments | –5 | –5 | –17 | –27 |
| Current service cost | 46 | 18 | 26 | 90 |
| Employee contributions | 11 | – | 1 | 12 |
| Gains (–)/losses (+) arising from the termination and curtailment of plans | –1 | –5 | –2 | –8 |
| Interest expense | 54 | 50 | 28 | 132 |
| Retirement benefits paid out of plan assets | –144 | –69 | –35 | –248 |
| Employer's payments for pension obligations | –8 | –26 | –9 | –43 |
| Other changes | – | – | – | – |
| At December 31, 2015 | 2,966 | 1,198 | 1,091 | 5,255 |
| of which: obligations not covered by plan assets | 87 | 298 | 94 | 479 |
| of which: obligations covered by plan assets | 2,879 | 789 | 997 | 4,665 |
| of which: obligations covered by reimbursement rights | – | 111 | – | 111 |
| in million euros | Germany | USA | Other countries | Total | |
|---|---|---|---|---|---|
| At January 1, 2015 | 2,646 | 815 | 867 | 4,328 | |
| Changes in the Group | 3 | – | – | 3 | |
| Translation differences | – | 93 | 29 | 122 | |
| Employer contributions | 25 | – | 35 | 60 | |
| Employee contributions | 11 | – | 1 | 12 | |
| Retirement benefits paid out of plan assets | –144 | –69 | –35 | –248 | |
| Planned income on plan assets | 49 | 34 | 22 | 105 | |
| Remeasurements in equity | –13 | –39 | 2 | –50 | |
| Other changes | – | – | – | – | |
| At December 31, 2015 | 2,577 | 834 | 921 | 4,332 |
| in million euros | Germany | USA | Other countries | Total |
|---|---|---|---|---|
| At January 1, 2015 | – | – | 1 | 1 |
| Interest cost for asset ceiling | – | – | – | – |
| Remeasurements in equity | – | – | 6 | 6 |
| At December 31, 2015 | – | – | 7 | 7 |
| in million euros | Germany | USA | Other countries | Total |
|---|---|---|---|---|
| Net obligation at January 1, 2015 | 608 | 359 | 270 | 1,237 |
| Recognized through profit or loss | ||||
| Current service cost | 46 | 18 | 26 | 90 |
| Gains (–)/losses (+) arising from the termination and curtailment of plans | – 1 | –5 | – 2 | –8 |
| Interest expense | 5 | 16 | 6 | 27 |
| Recognized in equity in other comprehensive income | ||||
| Actuarial gains (–)/losses (+) | –251 | –68 | –89 | –408 |
| Remeasurements in equity | 13 | 39 | –2 | 50 |
| Change in the effect of the asset ceiling | – | – | 6 | 6 |
| Other items recognized in equity | ||||
| Employer's payments | –33 | –26 | –43 | –102 |
| Changes in the Group | 2 | – | – | 2 |
| Translation differences | – | 31 | 5 | 36 |
| Net obligation at December 31, 2015 | 389 | 364 | 177 | 930 |
| Overfunding of pension obligations | – | 23 | 35 | 58 |
| Recognized provision at December 31, 2015 | 389 | 387 | 212 | 988 |
| in million euros | Germany | USA | Other countries | Total |
|---|---|---|---|---|
| At January 1, 2016 | 2,966 | 1,198 | 1,091 | 5,255 |
| Changes in the Group | –7 | 1 | – | –6 |
| Translation differences | – | 46 | –63 | –17 |
| Actuarial gains (–)/losses (+) | 224 | 30 | 177 | 431 |
| of which: from changes in demographic assumptions | – | – | –4 | –4 |
| of which: from changes in financial assumptions | 233 | 26 | 164 | 423 |
| of which: from experience adjustments | –9 | 4 | 17 | 12 |
| Current service cost | 43 | 26 | 85 | |
| Employee contributions | 16 | – | 1 | 17 |
| Gains (–)/losses (+) arising from the termination and curtailment of plans | –9 | – | –4 | –13 |
| Interest expense | 64 | 48 | 25 | 137 |
| Retirement benefits paid out of plan assets | –173 | –69 | –38 | –280 |
| Employer's payments for pension obligations | –6 | –33 | –10 | –49 |
| Other changes | 2 | – | –1 | 1 |
| At December 31, 2016 | 3,120 | 1,237 | 1,204 | 5,561 |
| of which: obligations not covered by plan assets | 98 | 182 | 115 | 395 |
| of which: obligations covered by plan assets | 3,022 | 940 | 1,089 | 5,051 |
| of which: obligations covered by reimbursement rights | – | 115 | – | 115 |
statement of financial position
| in million euros | Germany | USA | Other countries | Total | |
|---|---|---|---|---|---|
| At January 1, 2016 | 2,577 | 834 | 921 | 4,332 | |
| Changes in the Group | – | – | – | – | |
| Translation differences | – | 28 | –62 | –34 | |
| Employer contributions | 98 | 27 | 60 | 185 | |
| Employee contributions | 16 | – | 1 | 17 | |
| Retirement benefits paid out of plan assets | –173 | –69 | –38 | –280 | |
| Planned income on plan assets | 66 | 34 | 21 | 121 | |
| Remeasurements in equity | 132 | 17 | 95 | 244 | |
| Other changes | 2 | – | –1 | 1 | |
| At December 31, 2016 | 2,718 | 871 | 997 | 4,586 |
| in million euros | Germany | USA | Other countries | Total | |
|---|---|---|---|---|---|
| At January 1, 2016 | – | – | 7 | 7 | |
| Interest cost for asset ceiling | – | – | – | – | |
| Changes directly recognized in equity | – | – | 1 | 1 | |
| At December 31, 2016 | – | – | 8 | 8 |
| in million euros | Germany | USA | Other countries | Total |
|---|---|---|---|---|
| Net obligation at January 1, 2016 | 389 | 364 | 177 | 930 |
| Recognized through profit or loss | ||||
| Current service cost | 43 | 16 | 26 | 85 |
| Gains (–)/losses (+) arising from the termination and curtailment of plans | – 9 | – | –4 | –13 |
| Interest expense | –2 | 14 | 4 | 16 |
| Recognized in equity in other comprehensive income | ||||
| Actuarial gains (–)/losses (+) | 224 | 30 | 177 | 431 |
| Remeasurements in equity | –132 | –17 | –95 | –244 |
| Change in the effect of the asset ceiling | – | – | 1 | 1 |
| Other items recognized in equity | ||||
| Employer's payments | –104 | –60 | –70 | –234 |
| Changes in the Group | –7 | 1 | – | –6 |
| Translation differences | – | 18 | –1 | 17 |
| Net obligation at December 31, 2016 | 402 | 366 | 215 | 983 |
| Overfunding of pension obligations | – | 18 | 6 | 24 |
| Recognized provision at December 31, 2016 | 402 | 384 | 221 | 1,007 |
| in million euros | 2015 | 2016 |
|---|---|---|
| At January 1 | 105 | 111 |
| Changes in the Group | – | – |
| Translation differences | 10 | 5 |
| Employer contributions | 3 | 3 |
| Employee contributions | – | – |
| Retirement benefits paid | –7 | –8 |
| Interest income | 5 | 5 |
| Remeasurements in equity | –5 | –1 |
| At December 31 | 111 | 115 |
The total present value (defined benefit obligation – DBO) is comprised of:
The average weighted duration of pension obligations is 16 years for Germany, 9 years for the USA and 20 years for other countries.
In determining net liability, we take into account amounts that are not recognized due to asset ceiling restrictions. If the fair value of the plan asset item exceeds the obligations arising from the pension benefits, an asset is recognized only if the reporting entity can also derive economic benefit from these
assets, for example in the form of return flows or a future reduction in contributions ("Asset Ceiling" per IAS 19.58 ff.). In the reporting period, we recorded an amount of 8 million euros as an asset ceiling (previous year: 7 million euros).
Within our consolidated statement of income, current service costs are allocated on the basis of cost of sales to the respective function. Only the net of interest expense for the present value of obligations and interest income from plan assets is reported in the interest result. All gains/losses from the termination and curtailment of plans have been recognized in other operating income/expenses. The employer's contributions in respect of state pension provisions are included as "Social security contributions and staff welfare costs" under Note 33, page 171. In 2016, allocations to the pension fund amounted to 185 million euros (previous year: 60 million euros).
The reimbursement rights covering a portion of the pension obligations in the USA are assets that do not fulfill the definition of plan assets as stated in IAS 19.
The reimbursement rights indicated are available to the Group in order to cover the expenditures required to fulfill the respective pension obligations. Reimbursement rights and the associated pension obligations must, according to IAS 19, be shown unnetted in the statement of financial position.
Payments into pension funds in fiscal 2017 are expected to total 52 million euros.
| December 31, 2015 | December 31, 2016 | ||||||
|---|---|---|---|---|---|---|---|
| in million euros | Quotation on active markets |
No quotation on active markets |
Total | Quotation on active markets |
No quotation on active markets |
Total | |
| Shares | 1,274 | – | 1,274 | 1,407 | – | 1,407 | |
| Europe | 555 | – | 555 | 646 | – | 646 | |
| USA | 223 | – | 223 | 229 | – | 229 | |
| Others | 496 | – | 496 | 532 | – | 532 | |
| Bonds and hedging instruments | 2,891 | 11 | 2,902 | 3,086 | 5 | 3,091 | |
| Government bonds | 994 | – | 994 | 1,048 | – | 1,048 | |
| Corporate bonds | 1,897 | – | 1,897 | 2,038 | – | 2,038 | |
| Derivatives | – | 11 | 11 | – | 5 | 5 | |
| Alternative investments | – | 214 | 214 | – | 275 | 275 | |
| Cash | – | 78 | 78 | – | 104 | 104 | |
| Liabilities 1 | – | –349 | –349 | – | –501 | –501 | |
| Other assets | – | 213 | 213 | – | 210 | 210 | |
| Total | 4,165 | 167 | 4,332 | 4,493 | 93 | 4,586 |
1 Liability to Henkel AG & Co. KGaA from the assumption of pension payments for Henkel Trust e.V.
The objective of the investment strategy for the global plan assets is the long-term security of pension payments. This is ensured by comprehensive risk management that takes into account the asset and liability portfolios of the defined benefit pension plans. Henkel pursues a liability-driven investment (LDI) approach in order to achieve the investment objective. This approach takes into account the structure of the pension obligations and manages the cover ratio of the pension plans. In order to improve the funding ratio, Henkel invests plan assets in a diversified portfolio for which the expected longterm yield is above the interest costs of the pension obligations.
In order to cover the risks arising from trends in wages, salaries and life expectancies, and to close the potential deficit between plan assets and pension obligations over the long term, additional investments are made in a return-enhancing portfolio as an add-on instrument that contains assets such as equities, private equity and real estate. The target portfolio structure of the plan assets is essentially determined in asset-liability studies. These studies are conducted regularly with the help of external advisors who assist Henkel in the investment of plan assets. They examine the actual portfolio structure, taking into account current capital market conditions, investment principles and the obligation structure, and can suggest adjustments be made to the portfolio.
The expected long-term yield for individual plan assets is derived from the target portfolio structure and the expected long-term yields for the individual asset classes.
Major plan assets are administered by external fund managers in Germany and the USA. These countries pursue the above investment strategies and are monitored centrally. At December 31, 2016, other assets making up the plan assets included the present value of a non-current receivable of 64 million euros (previous year: 60 million euros) relating to claims pertaining to a hereditary building lease assigned by Henkel AG & Co. KGaA to Henkel Trust e.V. Also shown here is a claim of 115 million euros (previous year: 123 million euros) against BASF Personal Care & Nutrition GmbH (formerly Cognis
GmbH) for indemnification of pension obligations. This claim represents the nominal value, which is equivalent to the market price. In the reporting year, as in the previous year, we held no direct investments and no treasury shares in respect of plan assets in the portfolio.
Our internal pension risk management monitors the risks of all pension plans Group-wide in compliance with local legal regulations. As part of the monitoring process, guidelines on the control and management of risks are adopted and continuously developed; these guidelines mainly govern external funding, portfolio structure and actuarial assumptions. The objective of the financing strategy within the Group is to ensure that plan assets cover 90 to 100 percent of the present value of the funded pension obligations. The contributions and investment strategies are intended to ensure nearly complete coverage of the plans for the duration of the pension obligations.
Henkel's pension obligations are exposed to various market risks. These risks are counteracted by the degree of external funding and the structure of pension benefits. The risks relate primarily to changes in market interest rates, inflation, and life expectancy, as well as general market fluctuations. Pension obligations based on contractual provisions in Germany generally entail lifelong benefits payable in the event of death or disability or when the employee reaches retirement age.
In order to reduce the risks arising from the payment of lifelong benefits as well as inflation, pension benefits have been gradually converted since 2004 to what are known as modular benefits with a pension option in which the benefit is initially divided into an annuity and lump-sum benefit portion. Newly hired employees since 2011 receive a commitment based primarily on the lump-sum benefit. Generally, lump-sum benefits may also be paid out as an annuity through a pension fund. All benefits in Germany are financed through a provident fund
(Vorsorgefonds) established for the purpose of the occupational pension plan. Benefits for new employees since 2011 as well as a portion of the entitlements vested since 2004 are linked to the performance of this provident fund, resulting in a reduction in overall risk to the Group. The described adjustments within the pension structure reduce the financial risk arising from pension commitments in Germany. By linking the benefit to the capital investment, the net risk is also largely eliminated. An increase in the long-term inflation assumption would mainly affect the expected increase in pensions and the expected trend in pension-eligible salaries.
The pension obligations in the USA are based primarily on three retirement plans that are all closed to new employees. New employees receive pension benefits based on a defined contribution plan. The pension benefits generally have a lump-sum option which is usually exercised. When a pension becomes payable, the amount of the annuity granted is determined on the basis of current market interest rates. As a result, the impact of a change to the interest rate used in the calculation is low compared to pension commitments entailing lifelong benefits. Additionally, in the USA, pensions paid once are not adjusted by amount, thus there are no direct risks during the pension payment period arising from pending annuity adjustments. Inflation risks therefore result mainly from the salary adjustments awarded.
In addition to the pension obligation risks already presented, there are specific risks associated with multi-employer plans. In the Henkel Group, these essentially relate to the USA. The contributions to these plans are raised mainly through an allocation process based on the pension-eligible income of active employees. Restructuring contributions may also be made in order to close gaps in coverage. The risks of such plans arise largely from higher future contributions to close coverage gaps or through discontinuation by other companies obligated to make contributions.
The impact of changes to assumptions in medical benefits for employees and retirees in the USA is shown in the sensitivities analysis.
The analysis of our Group-wide pension obligations revealed no extraordinary risks.
In the next five financial years, the following payments from pension plans are expected:
| Future payments for pension benefits | ||||||
|---|---|---|---|---|---|---|
| in million euros |
Germany | USA | Other countries |
Total | ||
| 2017 | 137 | 125 | 36 | 298 | ||
| 2018 | 127 | 102 | 33 | 262 | ||
| 2019 | 127 | 102 | 34 | 263 | ||
| 2020 | 128 | 100 | 37 | 265 | ||
| 2021 | 133 | 100 | 37 | 270 |
The future level of the funded status and thus of the pension obligations depends on the development of the discount rate, among other factors. Companies based in Germany and the USA account for 78 percent of our pension obligations. The medical costs for employees of our subsidiaries in the USA which are incurred after retirement are also recognized in the pension obligations for defined benefit plans. A rate of increase of 6.8 percent (previous year: 7.1 percent) was assumed for the medical costs. We expect this rate of increase to fall gradually to 4.5 percent by 2037 (previous year: 4.5 percent by 2037). The effects of a change in material actuarial assumptions for the present value of pension obligations are as follows:
166 Notes to the consolidated
| in million euros | Germany | USA | Other countries | Total |
|---|---|---|---|---|
| Present value of obligations | 3,120 | 1,237 | 1,204 | 5,561 |
| in the event of | ||||
| Increase in the discount rate by 0.5pp | 2,903 | 1,187 | 1,091 | 5,181 |
| Reduction of the discount rate by 0.5pp | 3,364 | 1,293 | 1,338 | 5,995 |
| Rise in future income increases by 0.5pp | 3,119 | 1,242 | 1,232 | 5,593 |
| Reduction of future income increases by 0.5pp | 3,118 | 1,230 | 1,180 | 5,528 |
| Rise in retirement benefits increases by 0.5pp | 3,280 | 1,235 | 1,287 | 5,802 |
| Reduction of retirement benefits increases by 0.5pp | 2,970 | 1,235 | 1,140 | 5,345 |
| Rise in medical costs by 0.5pp | 3,118 | 1,238 | 1,205 | 5,561 |
| Reduction of medical costs by 0.5pp | 3,118 | 1,232 | 1,205 | 5,555 |
The extension of life expectancy in Germany by one year would increase the present value of pension obligations by 4 percent. This would have a more limited effect in the USA because a significant share of the pension plans is based on lump-sum benefits.
It should be noted with respect to the sensitivities presented that, due to mathematical effects, the percentage change is not and does not need to be linear. Thus the percentage increases and decreases do not vary with the same absolute amount. Each sensitivity is independently calculated and is not subject to scenario analysis.
| Initial balance January 1, 2016 |
Acquisitions | Utilized | Released | Added | Other changes |
End balance December |
|
|---|---|---|---|---|---|---|---|
| in million euros | 31, 2016 | ||||||
| Income tax provisions | 352 | 2 | –137 | –20 | 285 | –18 | 464 |
| of which: non-current | 89 | 2 | –1 | 0 | 24 | –8 | 106 |
| of which: current | 263 | 0 | –136 | –20 | 261 | –10 | 358 |
| Restructuring provisions | 225 | 1 | –126 | –12 | 172 | 5 | 265 |
| of which: non-current | 72 | 0 | –15 | –2 | 19 | –16 | 58 |
| of which: current | 153 | 1 | –111 | –10 | 153 | 21 | 207 |
| Sundry provisions | 1,735 | 62 | –1,172 | –93 | 1,502 | 14 | 2,048 |
| of which: non-current | 324 | 1 | –32 | –4 | 53 | –53 | 289 |
| of which: current | 1,411 | 61 | – 1,140 | –89 | 1,449 | 67 | 1,759 |
| Total | 2,312 | 65 | –1,435 | –125 | 1,959 | 1 | 2,777 |
| of which: non-current | 485 | 3 | –48 | –6 | 96 | –77 | 453 |
| of which: current | 1,827 | 62 | –1,387 | –119 | 1,863 | 78 | 2,324 |
Provisions are recognized for obligations toward third parties where the outflow of resources is probable and the expected obligation can be reliably estimated. Provisions are measured to the best estimate of the expenditures required in order to meet the current obligation as of the reporting date. Price increases expected to take place prior to the time of performance are included in the calculation. Provisions in which the interest effect is material are discounted to the reporting date
at a pre-tax interest rate. For obligations in Germany, we have applied interest rates of between –0.1 and 2.3 percent.
The income tax provisions comprise accrued tax liabilities and amounts set aside for the outcome of external tax audits.
Other provisions include identifiable obligations toward third parties. They are measured at total cost.
Other changes in provisions include changes in the scope of consolidation, movements in exchange rates, compounding effects, and adjustments to reflect changes in maturity as time passes.
Provisions are recognized in respect of restructuring measures, provided that work has begun on the implementation of a detailed, formal plan or such a plan has already been communicated. Additions to the restructuring provisions are related to the closure of the administrative office in Scottsdale, Arizona, USA, as part of the integration of The Sun Products Corporation in North America, and to the further optimization of production and process structures in all business units.
The provisions for obligations arising from our sales activities cover expected burdens in the form of subsequent reductions in already generated revenues, and risks arising from pending transactions.
Provisions for payroll obligations essentially cover expenditures likely to be incurred by the Group for variable, performance-related remuneration components.
Provisions for obligations in the production and engineering sphere relate primarily to provisions for warranties.
Analysis of sundry provisions by function 128
in million euros At December 31, 2015 At December 31, 2016 Sales 817 977 of which: non-current 14 10 of which: current 803 967 Payroll 638 691 of which: non-current 228 199 of which: current 410 492 Production and engineering 37 45 of which: non-current 20 20 of which: current 17 25 Various sundry obligations 243 335 of which: non-current 62 60 of which: current 181 275 Total 1,735 2,048 of which: non-current 324 289 of which: current 1,411 1,759
Risks arising from legal disputes and proceedings
Provisions have been made for individual risks arising from civil disputes in the amount of probable claims plus associated procedural costs. The amount accrued for claims arising from product liability actions in the USA was adjusted to reflect the latest information. Overall, the total amount in euros is in the double-digit millions. In accordance with IAS 37.92, further disclosures with respect to the proceedings and their related risks to Henkel have not been made in order to refrain from interference with their outcome.
On December 18, 2014, in an action relating to infringements between 2003 and 2006, the French antitrust authorities imposed fines amounting to around 951 million euros in total against various international companies in the cosmetic and detergent industries. Henkel received a fine of 109 million euros, which was paid provisionally on May 15, 2015. A final decision on the appeal filed by Henkel with regard to the amount of the fine is still pending.
Henkel and its Group companies are also defendants in or parties to other judicial, arbitrational, and official proceedings. The course and outcomes of legal disputes are inherently uncertain and unpredictable. Based on the knowledge currently available, no negative future impact, material or otherwise, on the net assets, financial position and results of operations of the corporation is expected.
| At December 31, 2015 | ||||||
|---|---|---|---|---|---|---|
| in million euros | Non-current | Current | Total | Non-current | Current | Total |
| Bonds | – | – | – | 2,254 | 4 | 2,258 |
| Commercial paper1 | – | 811 | 811 | – | 381 | 381 |
| Liabilities to banks2 | – | 69 | 69 | 1,042 | 40 | 1,082 |
| Other borrowings | 4 | – | 4 | 4 | – | 4 |
| Total | 4 | 880 | 884 | 3,300 | 425 | 3,725 |
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
1 From the euro and US dollar commercial paper program (total volume 2 billion US dollars and 1 billion euros).
2 Obligations with floating rates of interest or interest rates pegged for less than one year.
| Issuer | Type | Nominal value Carrying amounts | excluding accrued interest |
Market values excluding accrued interest1 |
Market values including accrued interest1 |
Interest rate | Maturity | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| in million euros | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | |||
| Henkel AG & Co. KGaA | Bond | 500 million euros | – | 499 | – | 501 | – | 501 | – | 0% p.a. | September 13, 2018 |
| Henkel AG & Co. KGaA | Bond | 700 million euros | – | 698 | – | 699 | – | 699 | – | 0% p.a. | September 13, 2021 |
| Henkel AG & Co. KGaA | Bond | 750 million US dollars | – | 709 | – | 707 | – | 710 | – | 1.5% p.a. | September 13, 2019 |
| Henkel AG & Co. KGaA | Bond 300 million GB pounds2 | – | 348 | – | 344 | – | 345 | – | 0.875% p.a. | September 13, 2022 |
|
| Total bonds | – | 2,254 | – | 2,251 | – | 2,255 |
1 Market value of the bonds derived from the stock market price at December 31.
2 A cross-currency swap is in place to convert the interest and principal payments on the bond denominated in British pounds into euro payments.
Henkel issued four fixed-rate bonds with a volume of 2.2 billion euros in September 2016 to finance the acquisition of The Sun Products Corporation. Additionally, Henkel took out a three-year floating-rate syndicated bank loan of 1.1 billion US dollars (based on the interest rate for 1M US dollar LIBOR plus 0.55 percent spread), which is recognized under liabilities to banks.
| At December 31, 2015 | At December 31, 2016 | ||||||
|---|---|---|---|---|---|---|---|
| in million euros | Non-current | Current | Total | Non-current | Current | Total | |
| Liabilities to non-consolidated affiliated companies and associated companies |
– | 8 | 8 | – | 7 | 7 | |
| Liabilities to customers | – | 42 | 42 | – | 58 | 58 | |
| Derivative financial instruments | – | 44 | 44 | 13 | 64 | 77 | |
| Sundry financial liabilities | 1 | 15 | 16 | 101 | 35 | 136 | |
| Total | 1 | 109 | 110 | 114 | 164 | 278 |
Of the liabilities to non-consolidated affiliated companies and associated companies, 7 million euros is attributable to non-consolidated affiliated companies. Included in the sundry financial liabilities are the contingent purchase price liability relating to our acquisition in Nigeria (75 million euros) and liabilities from finance leases (17 million euros).
| At December 31, 2015 | At December 31, 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| in million euros | Non-current | Current | Total | Non-current | Current | Total | ||
| Other tax liabilities | – | 174 | 174 | – | 211 | 211 | ||
| Liabilities to employees | – | 28 | 28 | 6 | 41 | 47 | ||
| Liabilities relating to employee deductions | – | 70 | 70 | – | 62 | 62 | ||
| Liabilities in respect of social security | 1 | 22 | 23 | – | 23 | 23 | ||
| Sundry other liabilities | 15 | 57 | 72 | 19 | 58 | 77 | ||
| Total | 16 | 351 | 367 | 25 | 395 | 420 |
The sundry other liabilities primarily comprise various income deferrals for other accounting periods amounting to 29 million euros (previous year: 14 million euros) and payments on account received in the amount of 10 million euros (previous year: 3 million euros).
Trade accounts payable increased from 3,176 million euros to 3,665 million euros. In addition to purchase invoices, they also relate to accruals for invoices outstanding in respect of goods and services received. They are all due within one year.
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Within the Henkel Group, financial instruments are reported under trade accounts receivable, trade accounts payable, borrowings, other financial assets, other financial liabilities, and cash and cash equivalents within the statement of financial position.
Financial instruments are recognized once Henkel becomes a party to the contractual provisions of the financial instrument. The recognition of financial assets takes place at the settlement date, with the exception of derivative financial instruments, which are recognized on the transaction date. All financial instruments are initially reported at their fair value. Transaction costs are only capitalized if the financial instruments are not subsequently remeasured to fair value through profit or loss. For subsequent remeasurement, financial instruments are divided into the following classes in accordance with IAS 39:
Different valuation categories are allocated to these two classes. Financial instruments assigned to the valuation categories "Available for sale" and "Held for trading" are generally measured at fair value. Other securities and time deposits as well as other investments which are not measured using the equity method, both part of other financial assets in the statement of financial position, are categorized as "Available for sale." Only the derivative financial instruments held by the Henkel Group which are not included in hedge accounting are designated as "Held for trading." We recognize all other financial instruments including the financial assets categorized as "Loans and receivables" at amortized cost using the effective interest method. The measurement categories "Held to maturity" and "Fair value option" are not currently used within the Henkel Group.
The financial instruments in the measurement category "Loans and receivables" are non-derivative financial instruments. They are characterized by fixed or determinable payments and are not traded in an active market. Within the Henkel Group, this category is mainly comprised of trade accounts receivable, cash and cash equivalents, and other financial assets with the exception of investments, derivatives, securities and time deposits. The carrying amounts of the financial instruments categorized as "Loans and receivables" closely approximate their fair value due to their predominantly short-term nature. If there are doubts as to the realizability of these financial instruments, they are recognized at amortized cost less appropriate valuation allowances.
Financial instruments in the category "Available for sale" are non-derivative financial assets and are recognized at fair value, provided that this is reliably determinable. If the fair value cannot be reliably determined, they are recognized at cost. Value changes between the reporting dates are essentially recognized in equity through comprehensive income (available-for-sale reserve) without affecting profit or loss, unless the cause lies in permanent impairment. Impairment losses are recognized through profit or loss. When the asset is derecognized, the amounts recognized in the revaluation reserve are released through profit or loss. In the Henkel Group, the securities and time deposits recognized under other financial assets are categorized together with other investments as "Available for sale." The fair values of the securities and time deposits are based on quoted market prices, or derived from market data. As the fair values of other investments cannot be reliably determined, they are measured at amortized cost. Henkel is currently not planning to sell any of the financial instruments recognized under other investments.
The derivative financial instruments that are not included in a designated hedging relationship are categorized as "Held for trading" and recognized at their fair value. All fair value changes are recognized through profit or loss. Hedge accounting is applied in individual cases – where possible and economically sensible – in order to avoid profit and loss variations arising from fair value changes in derivative financial instruments. Fair value and cash flow hedges are designated within the Group depending on the type of underlying and the risk being hedged. Details relating to the hedging contracts transacted within the Group and how the fair values of the derivatives are determined are provided on pages 157 to 159.
All financial liabilities – with the exception of derivative financial instruments and the contingent purchase price liability relating to our acquisition in Nigeria – are essentially recognized at amortized cost using the effective interest method.
Borrowings for which a hedging transaction has been concluded that meets the requirements of IAS 39 with respect to a designated hedging relationship are recognized according to hedge accounting rules.
| Valuation according to IAS 39 | |||||
|---|---|---|---|---|---|
| At December 31, 2015 in million euros |
Carrying amount December 31 |
Amortized cost |
Fair value, through other comprehen sive income |
Fair value, through profit or loss |
Fair value December 31 |
| Assets | |||||
| Loans and receivables | 4,603 | 4,603 | – | – | 4,603 |
| Trade accounts receivable | 2,944 | 2,944 | – | – | 2,944 |
| Other financial assets | 483 | 483 | – | – | 483 |
| Receivables from associated companies | 1 | 1 | – | – | 1 |
| Financial receivables from third parties | 39 | 39 | – | – | 39 |
| Receivables from Henkel Trust e.V. | 349 | 349 | – | – | 349 |
| Sundry financial assets | 94 | 94 | – | – | 94 |
| Cash and cash equivalents | 1,176 | 1,176 | – | – | 1,176 |
| Financial assets available for sale | 36 | 21 | 15 | – | 36 |
| Other financial assets | 36 | 21 | 15 | – | 36 |
| Other investments | 21 | 21 | – | – | 21 |
| Floating-interest securities and time deposits (level 1) | 3 | – | 3 | – | 3 |
| Floating-interest securities (level 2) | 2 | – | 2 | – | 2 |
| Fixed-interest securities (level 1) | – | – | – | – | – |
| Financial collateral provided (level 1) | 10 | – | 10 | – | 10 |
| Financial assets held for trading (level 2) | 60 | – | – | 60 | 60 |
| Derivative financial instruments not included in a designated hedging relationship |
60 | – | – | 60 | 60 |
| Derivative financial instruments included in a designated hedging relationship (level 2) |
12 | – | 12 | – | 12 |
| Total | 4,711 | 4,624 | 27 | 60 | 4,711 |
| Liabilities | |||||
| Amortized cost | 4,126 | 4,126 | – | – | 4,126 |
| Trade accounts payable | 3,176 | 3,176 | – | – | 3,176 |
| Borrowings not included in a designated hedging relationship | 884 | 884 | – | – | 884 |
| Borrowings included in a designated hedging relationship | – | – | – | – | – |
| Other financial liabilities | 66 | 66 | – | – | 66 |
| Financial liabilities held for trading (level 2) | 34 | – | – | 34 | 34 |
| Derivative financial instruments not included in a designated hedging relationship |
34 | – | – | 34 | 34 |
| Derivative financial instruments included in a designated hedging relationship (level 2) |
10 | – | 10 | – | 10 |
| Other financial liabilities (level 3) | – | – | – | – | – |
| Sundry financial liabilities | – | – | – | – | – |
| Total | 4,170 | 4,126 | 10 | 34 | 4,170 |
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
| Valuation according to IAS 39 | |||||
|---|---|---|---|---|---|
| At December 31, 2016 in million euros |
Carrying amount December 31 |
Amortized cost |
Fair value, through other comprehen sive income |
Fair value, through profit or loss |
Fair value December 31 |
| Assets | |||||
| Loans and receivables | 5,392 | 5,392 | – | – | 5,392 |
| Trade accounts receivable | 3,349 | 3,349 | – | – | 3,349 |
| Other financial assets | 654 | 654 | – | – | 654 |
| Receivables from associated companies | 5 | 5 | – | – | 5 |
| Financial receivables from third parties | 38 | 38 | – | – | 38 |
| Receivables from Henkel Trust e.V. | 501 | 501 | – | – | 501 |
| Sundry financial assets | 110 | 110 | – | – | 110 |
| Cash and cash equivalents | 1,389 | 1,389 | – | – | 1,389 |
| Financial assets available for sale | 65 | 56 | 9 | – | 65 |
| Other financial assets | 65 | 56 | 9 | – | 65 |
| Other investments | 56 | 56 | – | – | 56 |
| Floating-interest securities (level 2) | 2 | – | 2 | – | 2 |
| Financial collateral provided (level 1) | 7 | – | 7 | – | 7 |
| Financial assets held for trading (level 2) | 72 | – | – | 72 | 72 |
| Derivative financial instruments not included in a designated hedging relationship |
72 | – | – | 72 | 72 |
| Derivative financial instruments included in a designated hedging relationship (level 2) |
31 | – | 31 | – | 31 |
| Total | 5,560 | 5,448 | 40 | 72 | 5,560 |
| Liabilities | |||||
| Amortized cost | 7,516 | 7,516 | – | – | 7,513 |
| Trade accounts payable | 3,665 | 3,665 | – | – | 3,665 |
| Borrowings not included in a designated hedging relationship | 3,725 | 3,725 | – | – | 3,722 |
| Other financial liabilities | 126 | 126 | – | – | 126 |
| Financial liabilities held for trading (level 2) | 68 | – | – | 68 | 68 |
| Derivative financial instruments not included in a designated hedging relationship |
68 | – | – | 68 | 68 |
| Derivative financial instruments included in a designated hedging relationship (level 2) |
9 | – | 9 | – | 9 |
| Other financial liabilities (level 3) | 75 | – | 75 | – | 75 |
| Sundry financial liabilities | 75 | – | 75 | – | 75 |
| Total | 7,668 | 7,516 | 84 | 68 | 7,665 |
The following hierarchy is applied in order to determine and disclose the fair value of financial instruments:
The fair value of securities and time deposits classified as level 1 is based on the quoted market prices on the reporting date. Observable market data are used to measure the fair value of level 2 securities. If bid and ask prices are available, the mid price is used to determine the fair value.
The fair value of the contingent purchase price liability reported under other financial liabilities that resulted from our acquisition in Nigeria is classified as level 3. The fair value of the contingent purchase price liability on the date of the acquisition was 113 million euros. As a result of remeasurement as of December 31, 2016, this figure was adjusted to 75 million euros.
122 Key financials by region
123 Accounting principles and methods applied in preparation of the consolidated financial statements
statement of financial position 166 Notes to the consolidated
The measurement effects were recognized directly in equity and reported in the statement of changes in equity as other changes in equity. The fair value was determined using the discounted cash flow method, taking into account the key financial figures of the acquired company based on a detailed planning horizon up to 2025. A discount rate was applied as derived from the capital costs in euros. A further material valuation parameter – in addition to the long-term growth rate reflected in the perpetual annuity of 1.5 percent and the weighted average cost of capital (WACC) of 6.2 percent that was used as the discount rate – is the exchange rate of the Nigerian naira. A rise in interest rates or a depreciation of the naira would result in a lower negative fair value of the liability. An interest rate reduction or an appreciation of the naira would result in a higher negative fair value.
We did not perform any reclassifications between the valuation categories or transfers within the fair value hierarchy either in fiscal 2016 or in the previous year.
The net gains and losses from financial instruments can be allocated to the following categories:
Net results of the measurement categories and reconciliation to financial result 136
| in million euros | 2015 | 2016 |
|---|---|---|
| Loans and receivables | 57 | 19 |
| Financial assets available for sale | 2 | 0 |
| Financial assets and liabilities held for trading including derivatives in a designated hedging relationship |
64 | 65 |
| Financial liabilities measured at amortized cost |
–77 | –29 |
| Total net results | 46 | 55 |
| Foreign exchange effects | –60 | –74 |
| Interest expense of pension provisions less interest income from plan assets and reimbursement rights |
–22 | –11 |
| Other financial result (not related to financial instruments) |
–6 | –3 |
| Financial result | –42 | –33 |
The net result of "Loans and receivables" is attributable in full to interest income. Net expenses arising from additions and releases of valuation allowances amounting to –25 million euros (previous year: –21 million euros) and income from payments on financial instruments already written off and derecognized amounting to 1 million euros (previous year: 1 million euros) were recognized in operating profit.
The net result from securities and time deposits classified as "Available for sale" amounts to 0 million euros (previous year: 1 million euros) for interest income, 0 million euros (previous year: 1 million euros) for income from sales and 0 million euros (previous year: 0 million euros) for income from other investments. As was also the case in 2015, the measurement of these financial instruments at fair value did not result in recognition of a gain or loss in equity.
The net result from "Held for trading" financial instruments and derivatives in a designated hedging relationship includes, in addition to the outcome of measurement of these derivatives at fair value amounting to 66 million euros (previous year: 17 million euros), an expense of –2 million euros arising from additions to the valuation allowance made for counterparty credit risk (previous year: 0 million euros). Moreover, 1 million euros of interest income and expenses from interest rate and currency derivatives and amounts recycled from cash flow hedges recognized in equity are also included under this heading (previous year: 47 million euros).
The net result from "Financial liabilities measured at amortized cost" is essentially derived from the interest expense for borrowings amounting to –25 million euros (previous year: –116 million euros). Fees amounting to –4 million euros for procuring money and loans were also recognized under this heading (previous year: –4 million euros).
The realization and valuation of financial assets and liabilities in foreign currencies (without derivative financial instruments) resulted in an expense of –74 million euros (previous year: –60 million euros).
Derivative financial instruments are measured at their fair value at the reporting date. Recognition of the gains and losses arising from fair value changes of derivative financial instruments is dependent upon whether the requirements of IAS 39 are fulfilled with respect to hedge accounting.
Hedge accounting is not applied to the large majority of derivative financial instruments. We recognize through profit or loss the fair value changes in these derivatives which, in economic terms, represent effective hedges within the framework of Group strategy. These are largely compensated by fair value changes in the hedged items. In hedge accounting, derivative financial instruments are qualified as instruments for hedging the fair value of a recognized underlying ("fair value hedge"), as instruments for hedging future cash flows ("cash flow hedge") or as instruments for hedging a net investment in a foreign entity ("hedge of a net investment in a foreign entity").
The following table provides an overview of the derivative financial instruments utilized and recognized within the Group, and their fair values:
| At December 31 | Nominal value | Positive fair value2 | Negative fair value2 | |||
|---|---|---|---|---|---|---|
| in million euros | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 |
| Forward exchange contracts1 | 5,879 | 4,000 | 72 | 80 | –44 | –64 |
| (of which: for hedging loans within the Group) | (4,277) | (2,433) | (51) | (53) | (–29) | (–44) |
| (of which: designated as cash flow hedge) | (696) | (657) | (12) | (11) | (–10) | (–9) |
| Foreign exchange options | 5 | 1 | – | – | – | – |
| Cross-currency swaps | – | 359 | – | – | – | –13 |
| Equity forward contracts | – | 167 | – | 23 | – | – |
| (of which: designated as cash flow hedge) | (–) | 147 | (–) | 20 | (–) | – |
| Total derivative financial instruments | 5,884 | 4,527 | 72 | 103 | –44 | –77 |
1 Maturity less than 1 year.
2 Fair values including accrued interest and excluding valuation allowance for counterparty credit risk of 2 million euros (previous year: 0 million euros).
We determine the fair value of forward exchange contracts and cross-currency swaps on the basis of the reference rates issued by the European Central Bank for the reporting date, taking into account forward premiums/forward discounts for the remaining term of the respective contract versus the contracted foreign exchange rate. Foreign exchange options are measured using price quotations or recognized models for the determination of option prices. The fair value of equity forward contracts is measured on the basis of the closing price of Henkel preferred shares on the reporting date, taking into account forward premiums/forward discounts for the remaining term of the respective contract versus the contracted forward share price. Interest rate hedges are measured on the basis of discounted cash flows expected in the future, taking into account market interest rates applicable for the remaining term of the contracts. These are indicated for the two most important currencies in the following table. It shows the interest rates quoted on the interbank market in each case on December 31.
| Interest rates in percent p.a. | 138 | |||
|---|---|---|---|---|
| At December 31 | Euro | US dollar | ||
| Term | 2015 | 2016 | 2015 | 2016 |
| 1 month | –0.21 | –0.37 | 0.43 | 0.77 |
| 3 months | –0.13 | –0.32 | 0.61 | 1.00 |
| 6 months | –0.04 | –0.22 | 0.85 | 1.32 |
| 1 year | 0.06 | –0.08 | 1.18 | 1.69 |
| 2 years | –0.03 | –0.16 | 1.18 | 1.46 |
| 5 years | 0.33 | 0.08 | 1.74 | 1.96 |
| 10 years | 1.00 | 0.66 | 2.19 | 2.32 |
In measuring derivative financial instruments, counterparty credit risk is taken into account with an adjustment to the fair values concerned, determined on the basis of credit risk premiums. The adjustment relating to fiscal 2016 amounts to 2 million euros (previous year: 0 million euros). The addition is recognized in profit or loss under financial result.
Depending on their fair value and their maturity on the reporting date, derivative financial instruments are included in financial assets (positive fair value) or in financial liabilities (negative fair value).
Most of the forward exchange contracts serve to hedge risks arising from trade accounts receivable and payable, and those pertaining to Group financing.
Fair value hedges: A fair value hedge hedges the fair value of recognized assets and liabilities. The change in the fair value of the derivatives and the change in the fair value of the underlying relating to the hedged risk are simultaneously recognized in profit or loss.
The Henkel Group did not use any fair value hedges in fiscal 2016. In 2015, receiver interest rate swaps used to hedge the fair value risk of the hybrid bond issued by Henkel AG & Co. KGaA were designated as fair value hedges. They expired when the hybrid bond was redeemed in November 2015.
The following table provides an overview of the gains and losses arising from fair value hedges (valuation allowance made for the counterparty credit risk not included):
| Gains and losses from fair value hedges | 139 | |
|---|---|---|
| in million euros | 2015 | 2016 |
| Gains (+)/losses (–) from hedged items | 43 | – |
| Gains (+)/losses (–) from hedging instruments | –45 | – |
| Net | –2 | – |
Cash flow hedges: A cash flow hedge hedges fluctuations in future cash flows from recognized assets and liabilities, and also transactions that are either planned or highly probable, or firmly contracted unrecognized financial commitments, from which an interest-rate, currency, or share price risk arises. The effective portion of a cash flow hedge is recognized in the hedge reserve in equity. The ineffective portion arising from the change in value of the hedging instrument is recognized through profit or loss in the financial result or operating profit, depending on the item hedged. The gains and losses recorded in equity are subsequently recognized through profit or loss in the period in which the results are affected by the hedged transaction.
| Cash flow hedges (after tax) | 140 |
|---|---|
| Initial balance in million euros |
Addition (recognized in equity) |
Disposal (recognized through profit or loss) |
End balance | ||
|---|---|---|---|---|---|
| 2016 | –215 | 31 | –31 | –215 | |
| 2015 | –202 | 1 | –14 | –215 |
The initial value of the cash flow hedges recognized in equity reflects the fair values of the payer interest swaps that were used in previous years to hedge the cash flow risks of the floating-interest US dollar liabilities at Henkel of America, Inc., and of currency hedges for acquisitions.
An addition of 11 million euros after tax relates to currency hedges of planned inventory purchases against fluctuations in spot rates. Of the gains recognized in equity, 11 million euros was reclassified to operating profit in the reporting period. The positive and negative fair values of the derivatives contracted as a currency hedge of planned inventory purchases amounted to 11 million and –9 million euros respectively. The cash flows from the currency derivatives and the cash flows from the hedged inventory purchases are expected to occur and affect profit or loss in the next fiscal year.
An addition of 20 million euros resulted from the hedges to protect planned payments relating to our long-term incentive (LTI) scheme – some of which were effected in the course of the fiscal year just ended – against fluctuations in Henkel share prices. All of the gains recognized in equity were reclassified to operating profit in the reporting period. The positive fair values of the equity forward contracts totaled 20 million euros. The cash flows relating to these derivatives will occur during the next fiscal year, as will the cash flows from the hedged LTI payments. The ineffective portions recognized in operating profit amounted to 1 million euros.
122 Key financials by region 123 Accounting principles and methods applied in preparation of the consolidated financial
statements
Hedges of a net investment in a foreign entity: The accounting treatment of hedges of a net investment in a foreign entity against translation risk is similar to that applied to cash flow hedges. The gain or loss arising from the effective portion of the hedging instrument is recognized in equity through other comprehensive income; the gain or loss of the ineffective portion is recognized directly through profit or loss. The gains or losses recognized directly in equity remain there until disposal or partial disposal of the net investment.
The items recognized in equity relate essentially to translation risks arising from net investments in Swiss francs and US dollars for which the associated hedges were entered into and settled in previous years. Henkel did not hedge any net investments in foreign entities in fiscal 2016.
| Hedges of a net investment | |
|---|---|
| in a foreign entity (after tax) | 141 |
| in million euros | Initial balance |
Addition (recognized in equity) |
Disposal (recognized through profit or loss) |
End balance |
|---|---|---|---|---|
| 2016 | 31 | – | – | 31 |
| 2015 | 35 | –4 | – | 31 |
As a globally active corporation, Henkel is exposed in the course of its ordinary business operations to credit risks, liquidity risks and market risks (currency translation, interest rate and commodity price risks). The purpose of financial risk management is to restrict the exposure arising from operating activities through the use of selective derivative and non-derivative hedges. Henkel uses derivative financial instruments exclusively for the purposes of risk management. Without these instruments, Henkel would be exposed to higher financial risks. Changes in exchange rates, interest rates or commodity prices can lead to significant fluctuations in the fair
values of the derivatives used. These variations in fair value should not be regarded in isolation from the hedged items, as derivatives and the underlying constitute a unit in terms of countervailing fluctuations.
Management of currency, interest rate and liquidity risks is based on the treasury guidelines introduced by the Management Board, which are binding on the entire corporation. They define the targets, principles and competences of the Corporate Treasury organizational unit. These guidelines describe the fields of responsibility and establish the distribution of these responsibilities between Corporate Treasury and Henkel's subsidiaries. The Management Board is regularly and comprehensively informed of all major risks and of all relevant hedging transactions and arrangements. A description of the objectives and fundamental principles adopted in capital management can be found in the combined management report on pages 72 and 73. There were no major risk clusters in the reporting period.
In the course of its business activities with third parties, the Henkel Group is exposed to global credit risk arising from both its operating business and its financial investments. This risk derives from the possibility of a contractual party not fulfilling its obligations.
The maximum credit risk is represented by the carrying value of the financial assets recognized in the statement of financial position (excluding financial investments recognized using the equity method), as indicated in the following table:
| Maximum risk position | 142 | |
|---|---|---|
| in million euros | 2015 | 2016 |
| Trade accounts receivable | 2,944 | 3,349 |
| Derivative financial instruments not included in a designated hedging relationship |
60 | 72 |
| Derivative financial instruments included in a designated hedging relationship |
12 | 31 |
| Other financial assets | 519 | 719 |
| Cash and cash equivalents | 1,176 | 1,389 |
| Total carrying values | 4,711 | 5,560 |
In its operating business, Henkel is confronted by progressive concentration and consolidation on the customer side, as reflected in the receivables from individual customers.
A credit risk management system operating on the basis of a globally applied credit policy ensures that credit risks are constantly monitored and bad debts minimized. This policy, which applies to both new and existing customers, governs the allocation of credit limits and compliance with those limits, individual analyses of customers' creditworthiness based on both internal and external financial information, risk classification, and continuous monitoring of the risk of bad debts at the local level. We also monitor our key customer relationships at the regional and global level. In addition, safeguarding measures are implemented on a selective basis for particular countries and customers inside and outside the eurozone.
Collateral received and other safeguards include countryspecific and customer-specific protection afforded by credit insurance, confirmed and unconfirmed letters of credit in the export business, and guarantees, warranties, and cover notes.
We make valuation allowances with respect to financial assets so that the assets are recognized at their fair value at the reporting date. In the case of impairment losses that have already occurred but have not yet been identified, we make global valuation allowances on the basis of empirical evidence, taking into account the overdue structure of the trade accounts receivable. As a rule, the impairment test on loans and receivables that are more than 180 days overdue results in a valuation allowance of 100 percent.
The decision as to whether a credit risk is accounted for through a valuation allowance account or by derecognition of the impaired receivable depends upon the probability of incurring a loss. For accounts receivable classified as irrecoverable, we report the credit risk directly through derecognition of the impaired item or entry of the relevant amount in the valuation allowance account. If the basis for the original impairment is eliminated, we recognize a reversal through profit or loss.
In all, we recognized valuation allowances on loans and receivables in 2016 in the amount of 25 million euros (previous year: 21 million euros).
The carrying amount of loans and receivables, the term of which was renegotiated because they would have otherwise fallen overdue or been impaired, was 0 million euros (previous year: 0 million euros).
Based on our experience, we do not expect the necessity for any further valuation allowances, other than those described above, on non-overdue, non-impaired financial assets.
123 Accounting principles and methods applied in preparation of the consolidated financial statements
131 Notes to the consolidated statement of financial position
| Analysis | |||||||
|---|---|---|---|---|---|---|---|
| in million euros | Less than 30 days | 30 to 60 days | 61 to 90 days | More than 91 days | Total | ||
| At December 31, 2016 | 235 | 73 | 35 | 7 | 350 | ||
| At December 31, 2015 | 194 | 67 | 32 | 6 | 299 |
Credit risks also arise from financial investments such as cash at banks, securities and the positive fair value of derivatives. Such exposure is limited by our Corporate Treasury specialists through the selection of counterparties with strong credit ratings, and limitations on the amounts allocated to individual investments. In financial investments and derivatives trading with German and international banks, we only enter into transactions with counterparties of high financial standing. We invest exclusively in securities from issuers with an investment grade rating. Our cash deposits can be liquidated at short notice. Our financial investments are broadly diversified across various counterparties and various financial assets. To minimize the credit risk, we agree netting arrangements to
offset bilateral receivables and obligations with counterparties. We additionally enter into collateral agreements with relevant banks, on the basis of which reciprocal sureties are established twice a month to secure the fair values of contracted derivatives and other claims and obligations. The netting arrangements only provide for a contingent right to offset transactions conducted with a contractual party. Accordingly, associated amounts can be offset only under certain circumstances, such as the insolvency of one of the contractual parties. Thus, the netting arrangements do not meet the offsetting criteria under IAS 32 "Financial Instruments: Presentation." The following table provides an overview of financial assets and financial liabilities from derivatives that are subject to netting, collateral, or similar arrangements:
Financial assets and financial liabilities from derivatives subject to netting, collateral, or similar arrangements 144
| At December 31 | Gross amount recog nized in the statement of financial position1 |
Amount eligible for offsetting |
Financial collateral received / provided |
Net amount | ||||
|---|---|---|---|---|---|---|---|---|
| in million euros | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 |
| Financial assets | 72 | 103 | 35 | 76 | 35 | 21 | 2 | 6 |
| Financial liabilities | 44 | 77 | 35 | 76 | 10 | 7 | –1 | –6 |
1 Fair values excluding valuation allowance of 2 million euros made for counterparty credit risk (previous year: 0 million euros).
In addition to netting and collateral arrangements, investment limits are set, based on the ratings of the counterparties, in order to minimize credit risk. These limits are monitored and adjusted regularly. When determining the limits, we also apply certain other indicators, such as the pricing of credit default swaps (CDS) by banks. A valuation allowance of 2 million euros exists to cover the remaining credit risk from the positive fair values of derivatives (previous year: 0 million euros).
Liquidity risk is defined as the risk of an entity failing to meet its financial obligations at any given time.
We minimize this risk by deploying financing instruments in the form of issued bonds and commercial paper. With the help of our existing debt issuance program in the amount of 6 billion euros, this is also possible on a short-term and flexible basis. In order to ensure the financial flexibility of Henkel at any time, the liquidity within the Group is largely centralized and managed through the use of cash pools. We predominantly invest cash in financial assets traded in a liquid market in order to ensure that they can be sold at any time to procure liquid funds. In addition, the Henkel Group has at its disposal
confirmed credit lines of 1.5 billion euros. These credit lines have terms until 2019. The individual subsidiaries additionally have at their disposal committed bilateral loans of 0.1 billion euros with a revolving term of up to one year. Our credit rating is regularly assessed by the rating agencies Standard & Poor's and Moody's.
Our liquidity risk can therefore be regarded as very low.
The maturity structure of the original and derivative financial liabilities within the scope of International Financial Reporting Standard (IFRS) 7 based on cash flows is shown in the following table.
| Remaining term | |||||
|---|---|---|---|---|---|
| in million euros | December 31, 2015 Carrying amounts |
Up to 1 year |
Between 1 and 5 years |
More than 5 years |
December 31, 2015 Total cash flow |
| Bonds | – | – | – | – | – |
| Commercial paper1 | 811 | 811 | – | – | 811 |
| Liabilities to banks | 69 | 70 | – | – | 70 |
| Trade accounts payable | 3,176 | 3,176 | – | – | 3,176 |
| Sundry financial instruments2 | 70 | 65 | 1 | 4 | 70 |
| Original financial instruments | 4,126 | 4,122 | 1 | 4 | 4,127 |
| Derivative financial instruments | 44 | 44 | – | – | 44 |
| Total | 4,170 | 4,166 | 1 | 4 | 4,171 |
1 From the euro and US dollar commercial paper program (total volume 2 billion US dollars and 1 billion euros). 2 Sundry financial instruments include amounts due to customers, and finance bills.
| Remaining term | |||||
|---|---|---|---|---|---|
| in million euros | December 31, 2016 Carrying amounts |
Up to 1 year |
Between 1 and 5 years |
More than 5 years |
December 31, 2016 Total cash flow |
| Bonds | 2,258 | 14 | 1,946 | 353 | 2,312 |
| Commercial paper1 | 381 | 385 | – | – | 385 |
| Liabilities to banks | 1,082 | 53 | 1,071 | – | 1,124 |
| Trade accounts payable | 3,665 | 3,665 | – | – | 3,665 |
| Sundry financial instruments2 | 205 | 100 | 96 | 11 | 207 |
| Original financial instruments | 7,591 | 4,217 | 3,113 | 364 | 7,693 |
| Derivative financial instruments | 77 | 64 | – | 13 | 77 |
| Total | 7,668 | 4,281 | 3,113 | 377 | 7,770 |
1 From the euro and US dollar commercial paper program (total volume 2 billion US dollars and 1 billion euros).
2 Sundry financial instruments include amounts due to customers, and finance bills.
131 Notes to the consolidated statement of financial position 166 Notes to the consolidated
Market risk exists where the fair value or future cash flows of a financial instrument may fluctuate due to changes in market prices. Market risks primarily take the form of currency risk, interest rate risk and various price risks (particularly the commodity price risk, and the share price risk arising from our long-term incentive [LTI]). Henkel uses equity forward contracts to hedge against the share price risk.
The Corporate Treasury department manages currency exposure and interest rates centrally for the Group and is therefore responsible for all transactions with financial derivatives and other financial instruments. Trading, Treasury Controlling and Settlement (front, middle and back offices) are separated both physically and in terms of organization. The parties to the contracts are German and international banks which Henkel monitors regularly, in accordance with Corporate Treasury guidelines, for creditworthiness and the quality of their quotations. Financial derivatives are used to manage currency exposure and interest rate risks in connection with operating activities and the resultant financing requirements, again in accordance with the Corporate Treasury guidelines. Financial derivatives are entered into solely for hedging purposes.
The currency and interest rate risk management of the Group is supported by an integrated treasury system which is used to identify, measure and analyze the Group's currency exposure and interest rate risks. In this context, "integrated" means that the entire process from the conclusion of financial transactions to their entry in the accounts is covered. Much of the currency trading takes place on internet-based, multibank dealing platforms. These foreign currency transactions are automatically transferred into the treasury system. The currency exposure and interest rate risks reported by all subsidiaries under standardized reporting procedures are integrated into the treasury system by data transfer. As a result, it is possible to retrieve and measure at any time all currency and interest rate risks across the Group and all derivatives entered into to hedge the exposure to these risks. The treasury system supports the use of various risk concepts.
Market risk is monitored on the basis of sensitivity analyses and value-at-risk computations. Sensitivity analyses enable estimation of potential losses, future gains, fair values or cash flows of instruments susceptible to market risks arising from one or several selected hypothetical changes in foreign exchange rates, interest rates, commodity prices or other relevant market rates or prices over a specific period. We use sensitivity analyses in the Henkel Group because they enable reasonable risk assessments to be made on the basis of direct assumptions (e.g. an increase in interest rates). Value-at-risk computations reveal the maximum potential future loss of a certain portfolio over a given period based on a specified probability level.
The global nature of our business activities results in a huge number of cash flows in different currencies. The resultant currency exposure breaks down into two categories, namely transaction and translation risks.
Transaction risks arise from possible exchange rate fluctuations causing changes in the value of future foreign currency cash flows. The hedging of the resultant exchange rate risks forms a major part of our central risk management activity. Transaction risks arising from our operating business are partially avoided by the fact that we largely manufacture our products in those countries in which they are sold. Residual transaction risks on the operating side are proactively managed by Corporate Treasury. This includes the ongoing assessment of the specific currency risk and the development of appropriate hedging strategies. The objective of our currency hedging is to fix prices based on hedging rates so that we are protected from future adverse fluctuations in exchange rates. Because we limit our potential losses, any negative impact on profits is restricted. The transaction risk arising from major financial payables and receivables is, for the most part, hedged. In order to manage these risks, we primarily utilize forward exchange contracts and currency swaps. The derivatives are designated as cash flow hedges or "Held for trading" and measured accordingly. The currency risk that exists within the Group in the form of transaction risk initially affects equity in the case of cash flow hedges, while all changes in the value of derivatives designated as "Held for trading" are recognized directly in income.
The value-at-risk pertaining to the transaction risk of the Henkel Group as of December 31, 2016 amounted to 99 million euros after hedging (previous year: 102 million euros). The value-at-risk shows the maximum expected risk of loss in a year as a result of currency fluctuations. Starting in fiscal 2013, our value-at-risk analysis has been extended to one year in our internal risk reports as it provides a more comprehensive representation of the risk associated with a fiscal year. The risk arises from imports and exports by Henkel AG & Co. KGaA and its foreign subsidiaries. Due to the international nature of its activities, the Henkel Group has a portfolio with more than 50 different currencies. The following table shows the valueat-risk for Henkel's major currencies.
| in million euros | 2015 | 2016 |
|---|---|---|
| Russian ruble | 23 | 19 |
| Egyptian pound | 8 | 17 |
| Iranian rial | 3 | 11 |
| Chinese yuan | 12 | 9 |
| US dollar | –4 | –14 |
| Others | 60 | 57 |
| 102 | 99 |
1 Transaction risk.
The value-at-risk analysis assumes a time horizon of one year and a unilateral confidence interval of 95 percent. We adopt the variance-covariance approach as our basis for calculation. Volatilities and correlations are determined using historical data. The value-at-risk analysis is based on the operating book positions and budgeted positions in foreign currency, normally with a forecasting horizon of nine months.
Translation risks emanate from changes caused by foreign exchange fluctuations to items on the statement of financial position and the income statement of a subsidiary, and the effect these changes have on the translation of individual company financial statements into Group currency. However, unlike transaction risk, translation risk does not necessarily impact future cash flows. The Group's equity reflects the changes in carrying values resulting from foreign exchange influences. The risks arising from the translation of the earnings results of subsidiaries in foreign currencies and from net investments in foreign entities are only hedged in exceptional cases.
Interest rate risk encompasses those potentially negative influences on profits, equity or cash flow in current or future reporting periods arising from changes in interest rates. In the case of fixed-interest financial instruments, changing capital market interest rates result in a fair value risk, as the attributable fair values fluctuate depending on those capital market interest rates. In the case of floating-interest financial instruments, a cash flow risk exists because the interest payments may be subject to future fluctuations.
The Henkel Group obtains and invests the majority of the cash it requires from and in the international money and capital markets. The resulting financial liabilities and our cash deposits may be exposed to the risk of changes in interest rates. The aim of our centralized interest rate management system is to manage this risk through our choice of interest commitments and the use of derivative financial instruments. Only those
derivative financial instruments that can be modeled, monitored and assessed in the risk management system may be used to hedge the interest rate risk.
Henkel's interest management strategy is essentially aligned to optimizing the net interest result for the Group. The decisions made in interest management relate to the bonds and commercial paper issued to secure Group liquidity, the securities and time deposits used for cash investments, and the other financial instruments. The financial instruments exposed to interest rate risk are primarily denominated in euros and US dollars.
Depending on forecasts with respect to interest rate developments, Henkel enters into derivative financial instruments, primarily interest rate swaps, in order to optimize the interest rate lock-down structure. In the event of an expected rise in interest rate levels, Henkel protects its positions by transacting additional interest rate derivatives as an effective means of hedging against interest rates rising over the short term. In addition to the two fixed-rate euro-denominated bonds, Henkel entered into a cross-currency swap to convert the bond denominated in British pounds into a fixed-rate euro obligation. A fixed-rate bond denominated in US dollars was also issued. The interest on all other financial instruments is floating. Our exposure (after hedging) to interest rate risk at the reporting dates was as follows:
| Interest rate exposure | 148 |
|---|---|
| Carrying amounts | ||
|---|---|---|
| in million euros | 2015 | 2016 |
| Fixed-interest financial instruments | ||
| Euro | – | –1,546 |
| US dollar | – | –712 |
| Others | – | – |
| – | –2,258 | |
| Floating-interest financial instruments | ||
| Euro | 254 | 357 |
| US dollar | –1,036 | –1,797 |
| Chinese yuan | 474 | 511 |
| Russian ruble | 16 | 26 |
| Others | 627 | 860 |
| 335 | –43 |
122 Key financials by region
123 Accounting principles and methods applied in preparation of the consolidated financial statements
The calculation of the interest rate risk is based on sensitivity analyses. The analysis of cash flow risk examines all the main floating-interest financial instruments as of the reporting date. Net financial position is defined as cash and cash equivalents plus readily monetizable financial instruments classified as "Available for sale" or according to the "Fair value option," less borrowings, and plus positive and less negative fair values of hedging transactions. The interest rate risk figures shown in the table are based on this calculation at the relevant reporting date. When analyzing fair value risk, we assume a parallel shift in the interest curve of 100 basis points and calculate the hypothetical loss or gain of the relevant interest rate derivatives at the reporting date.
The risk of interest rate fluctuations with respect to the earnings of the Henkel Group is shown in the basis point value (BPV) analysis in the following table.
| Interest rate risk | 149 | |
|---|---|---|
| in million euros | 2015 | 2016 |
| Based on an interest rate change of 100 basis points |
–3 | – |
| of which: | ||
| Cash flow through profit and loss | –3 | – |
| Fair value recognized in equity through comprehensive income |
– | – |
Other price risks (commodity price risk) Uncertainty with respect to commodity price development impacts the Group. Purchase prices for raw materials can affect the net assets, financial position and results of operations of Henkel. The risk management strategy put in place by the Group management for safeguarding against procurement market risk is described in more detail in the risk and opportunities report on pages 106 and 107.
As a small part of the risk management strategy, cash-settled commodity futures may be entered into on the basis of forecasted purchasing requirements in order to hedge future uncertainties with respect to commodity prices. Cash-settled commodity derivatives are only used at Henkel where there is a direct relationship between the hedging derivative and the physical underlying. Henkel does not practice hedge accounting and can therefore be exposed to temporary price risks when holding commodity derivatives. Such price risks arise due to the fact that the commodity derivatives are measured at fair value whereas the purchasing requirement, as a pending transaction, is not measured or recognized. This can lead to losses being recognized in profit or loss and equity. Developments in fair values and the resultant risks are continuously monitored.
Sales increased year on year to 18,714 million euros. Revenues and their development by business unit and region are summarized in the Group segment report and in the key financials by region on pages 121 and 122. A detailed explanation of the development of major income and expense items can be found in the combined management report on pages 64 to 69.
Sales comprise sales of goods and services less direct sales deductions such as customer-related rebates, credits and other benefits paid or granted. Sales are recognized once the goods have been delivered or the service has been performed. In the case of goods, this coincides with the physical delivery and so-called transfer of risks and rewards. Henkel uses different terms of delivery that contractually determine the transfer of risks and rewards. It must also be probable that the economic benefits associated with the transaction will flow to the Group, and the costs incurred with respect to the transaction must be reliably measurable.
Services are generally provided in conjunction with the sale of goods, and recorded once the service has been performed. No sale is recognized if there are significant risks relating to the receipt of the consideration or it is likely that the goods will be returned.
Interest income is recognized on a time-proportion basis that takes into account the effective yield on the asset and the interest rate in force. Dividend income from investments is recognized when the shareholders' right to receive payment is legally established.
The cost of sales increased from 9,368 million euros to 9,742 million euros.
Cost of sales comprises the cost of products and services sold and the purchase cost of merchandise sold. It consists of the directly attributable cost of materials and primary production cost, as well as indirect production overheads including the production-related amortization/depreciation and impairment of intangible assets and property, plant and equipment.
Marketing, selling and distribution expenses amounted to 4,635 million euros (previous year: 4,608 million euros).
In addition to marketing organization and distribution expenses, this item comprises, in particular, advertising, sales promotion and market research expenses. Also included here are the expenses of technical advisory services for customers, valuation allowances on trade accounts receivable and valuation allowances and impairment losses on trademarks and other rights.
Research and development expenses decreased year on year to 463 million euros (previous year: 478 million euros). Expenditures directly attributable to research and development activities amounted to 460 million euros (previous year: 464 million euros).
The capitalization of research expenses is not permitted. Development expenditures are recognized as an asset if all the criteria for recognition are met, the research phase can be clearly distinguished from the development phase, and the expenditures can be attributed to distinct project phases. Currently, the criteria set out in International Accounting Standard (IAS) 38 "Intangible Assets" for recognizing development expenditures are not all met in regard to product and technology developments, due to a high level of interdependence within these developments and the difficulty of assessing which products will eventually be marketable.
Administrative expenses amounted to 1,062 million euros (previous year: 1,012 million euros).
Administrative expenses include personnel and material costs relating to the Group management, Human Resources, Purchasing, Accounting and IT functions, as well as the costs of managing and administering the business units.
| in million euros | 2015 | 2016 |
|---|---|---|
| Release of provisions1 | 11 | 37 |
| Gains on disposal of non-current assets | 34 | 13 |
| Insurance claim payouts | 4 | 2 |
| Write-ups of non-current assets | 1 | – |
| Payments on derecognized receivables | 2 | 1 |
| Impairment reversal on assets held for sale | – | – |
| Sundry operating income | 75 | 56 |
| Total | 127 | 109 |
1 Including income from the release of provisions for pension obligations (curtailment gains) of 13 million euros in 2016 (2015: 2 million euros).
Sundry operating income relates to a number of individual items arising from ordinary operating activities, such as grants and subsidies, tax refunds for indirect taxes, and similar income.
| –105 | –146 |
|---|---|
| –96 | –137 |
| – | –1 |
| –1 | –1 |
| –8 | –7 |
| 2015 | 2016 |
Sundry operating expenses include a number of individual items arising from ordinary operating activities, such as fees, provisions for litigation and third party claims, sundry taxes, and similar expenses.
122 Key financials by region
123 Accounting principles and methods applied in preparation of the consolidated financial statements
131 Notes to the consolidated statement of financial position
| 152 | |
|---|---|
| 2015 | 2016 |
| –17 | –5 |
| –24 | –26 |
| –1 | –2 |
| –42 | –33 |
| Interest result | 153 | |
|---|---|---|
| in million euros | 2015 | 2016 |
| Interest and similar income from third parties1 | 28 | 20 |
| Interest to third parties1 | –45 | –25 |
| Total | –17 | –5 |
1 Including interest income and interest expense, both in the amount of 0 million euros in 2016 (2015: 26 million euros) with respect to mutually offset deposits and liabilities to banks, reported on a net basis.
| Other financial result | 154 | |
|---|---|---|
| in million euros | 2015 | 2016 |
| Interest result from net obligation (pensions) | –27 | –15 |
| Interest income from reimbursement rights (IAS 19) | 5 | 5 |
| Other financial expenses | –71 | –118 |
| Other financial income | 69 | 102 |
| Total | –24 | –26 |
Other financial expenses include –106 million euros (previous year: –60 million euros) from currency losses. Other financial income includes 98 million euros (previous year: 63 million euros) for currency gains. Please see page 157 of the financial instruments report for information on the net results of the valuation categories under International Financial Reporting Standard (IFRS) 7, and the reconciliation to financial result.
The investment result includes 2 million euros for expenses from the valuation of companies that are recognized using the equity method (2015: 2 million euros).
Income tax expense/income breaks down as follows:
| Income before tax and analysis of taxes | 155 |
|---|---|
| in million euros | 2015 | 2016 | |
|---|---|---|---|
| Income before tax | 2,603 | 2,742 | |
| Current taxes | 708 | 830 | |
| Deferred taxes | –73 | –181 | |
| Taxes on income | 635 | 649 | |
| Tax rate in percent | 24.4% | 23.7% |
Main components of tax expense and income 156
| in million euros | 2015 | 2016 |
|---|---|---|
| Current tax expense/income in the reporting year | 688 | 816 |
| Current tax adjustments for prior years | 20 | 14 |
| Deferred tax expense/income from temporary differences |
–77 | –164 |
| Deferred tax income from unused tax losses | –13 | –8 |
| Deferred tax expense from tax credits | 2 | –4 |
| Deferred tax expense/income from changes in tax rates |
–4 | –8 |
| Increase/decrease in valuation allowances on deferred tax assets |
19 | 3 |
on the statement of financial position 157
| in million euros | 2015 | 2016 |
|---|---|---|
| Intangible assets | –140 | 16 |
| Property, plant and equipment | –8 | –38 |
| Financial assets | 82 | –1 |
| Inventories | –9 | 8 |
| Other receivables and other assets | –17 | 14 |
| Special tax items | –2 | –2 |
| Provisions | 1 | –66 |
| Liabilities | 8 | –104 |
| Tax credits | 2 | –4 |
| Unused tax losses | –9 | –7 |
| Valuation allowances | 19 | 3 |
| Financial statement figures | –73 | –181 |
We have summarized the individual company reports – prepared on the basis of the tax rates applicable in each country and taking into account consolidation procedures – in the statement below, showing how the expected tax charge, based on the tax rate applicable to Henkel AG & Co. KGaA of 31 percent, is reconciled to the effective tax charge disclosed.
| in million euros | 2015 | 2016 |
|---|---|---|
| Income before tax | 2,603 | 2,742 |
| Tax rate (including trade tax) | ||
| of Henkel AG & Co. KGaA | 31% | 31% |
| Expected tax charge | 807 | 850 |
| Tax reductions due to differing tax rates abroad | –100 | –122 |
| Tax increases/reductions for prior years | –2 | 6 |
| Tax increases/reductions due to changes in tax rates |
–4 | –8 |
| Tax increases/reductions due to the recognition of deferred tax assets relating to unused tax losses and temporary differences |
19 | 3 |
| Tax reductions due to tax-free income and other items |
–216 | –208 |
| Tax increases/reductions arising from additions and deductions for local taxes |
4 | –1 |
| Tax increases due to withholding taxes | 43 | 43 |
| Tax increases due to non-deductible expenses | 84 | 86 |
| Tax charge disclosed | 635 | 649 |
| Tax rate | 24.4% | 23.7% |
Deferred taxes are calculated on the basis of tax rates that apply in the individual countries at the year-end date or which have already been legally decided. In Germany, there is a uniform corporate income tax rate of 15 percent plus a solidarity surcharge of 5.5 percent. After taking into account trade tax, this yields an overall tax rate of 31 percent.
Deferred tax assets and liabilities are netted where they involve the same tax authority and the same tax creditor.
Henkel Annual Report 2016 Notes to the consolidated financial statements 169
122 Key financials by region
123 Accounting principles and methods applied in preparation of the consolidated financial statements
131 Notes to the consolidated statement of financial position 166 Notes to the consolidated statement of income
171 Other disclosures
179 Subsequent events
euros) relating to intangible assets are mainly attributable to business combinations such as the acquisition of the National Starch businesses in 2008, Spotless Group SAS in 2014, and The Sun Products Corporation in 2016.
An excess of deferred tax assets is only recognized insofar as it is likely that the company concerned will achieve sufficiently positive taxable profits in the future against which the deductible temporary differences can be offset and tax loss carryforwards can be used. Deferred taxes have not been recognized with respect to unused tax losses of 269 million euros (previous year: 146 million euros), as it is not probable that sufficient taxable profit will be available against which they may be utilized. Of these tax losses carried forward, 190 million euros (previous year: 62 million euros) expire after more than three years. Thereof 58 million euros (previous year: 53 million euros) are attributable to state taxes of our US subsidiaries (tax rate around 2 percent). Of the tax losses carried forward, 73 million euros are non-expiring (previous year: 76 million euros). Deferred tax liabilities of 62 million euros (previous year: 42 million euros) relating to the retained earnings of foreign subsidiaries have been recognized due to the fact that these earnings will be distributed in 2017.
We have summarized the expiry dates of unused tax losses and tax credits in the following table, which includes unused tax losses arising from losses on the disposal of assets of 10 million euros (previous year: 10 million euros) which may be carried forward without restriction. In addition to the unused tax losses listed in the table, an interest expense of 5 million euros (previous year: 8 million euros) is available which may be carried forward in full with no expiration.
| Unused tax losses | Tax credits | |||
|---|---|---|---|---|
| December | December | December | December | |
| in million euros | 31, 2015 | 31, 2016 | 31, 2015 | 31, 2016 |
| Expire within | ||||
| 1 year | 3 | 12 | 1 | 1 |
| 2 years | 3 | 2 | – | – |
| 3 years | 6 | 7 | – | – |
| more than 3 years | 180 | 674 | 2 | 6 |
| May be carried forward without restriction | 103 | 107 | – | – |
| Total | 295 | 802 | 3 | 7 |
| Deferred tax assets | Deferred tax liabilities | |||
|---|---|---|---|---|
| in million euros | December 31, 2015 |
December 31, 2016 |
December 31, 2015 |
December 31, 2016 |
| Intangible assets | 341 | 360 | 749 | 1,037 |
| Property, plant and equipment |
16 | 18 | 75 | 73 |
| Financial assets | 1 | 1 | 167 | 168 |
| Inventories | 50 | 50 | 1 | 3 |
| Other receivables and other assets |
39 | 38 | 37 | 48 |
| Special tax items | – | – | 35 | 33 |
| Provisions | 704 | 822 | 26 | 9 |
| Liabilities | 58 | 169 | 7 | 12 |
| Tax credits | 3 | 7 | – | – |
| Unused tax losses | 60 | 164 | – | – |
| Amounts netted | –427 | –550 | –427 | –550 |
| Valuation allowances | –29 | –62 | – | – |
| Financial statement |
The deferred tax assets and liabilities stated on the reporting date relate to the following items of the consolidated statement of financial position, unused tax losses and tax credits:
Allocation of deferred taxes 159
The deferred tax assets of 822 million euros (previous year: 704 million euros) relating to provisions in the financial statement result primarily from recognition and measurement differences with respect to pension obligations. The deferred tax liabilities of 1,037 million euros (previous year: 749 million
figures 816 1,017 670 833
In many countries, different tax rates apply to losses on the disposal of assets than to operating profits, and in some cases losses on the disposal of assets may only be offset against gains on the disposal of assets.
Tax loss carryforwards in the amount of 353 million euros are attributable to our US subsidiaries. Of this amount, 112 million euros relate to federal and state tax loss carryforwards, and 231 million euros (previous year: 101 million euros) relate exclusively to state taxes.
Equity-increasing deferred taxes of 55 million euros were recognized (previous year: equity-decreasing deferred taxes of 82 million euros). Within this figure, income of 55 million euros (previous year: expense of 88 million euros) results from actuarial gains and losses on pension obligations, while income of 0 million euros (previous year: income of 2 million euros) is attributable to hedges of net investments in foreign entities and an expense of 1 million euros (previous year: 0 million euros) is attributable to foreign exchange effects.
The amount shown here represents the proportion of net income and losses attributable to other shareholders of consolidated affiliated companies.
Their share of net income was 41 million euros (previous year: 49 million euros) and that of losses was 1 million euros (previous year: 2 million euros).
The non-controlling interests included in the Henkel Group at the end of fiscal 2016 had no material impact on our net assets, financial position and results of operations. The Group has no joint operations or unconsolidated structured entities.
119 Consolidated statement of changes in equity 120 Consolidated statement
131 Notes to the consolidated statement of financial position 166 Notes to the consolidated
122 Key financials by region
statements
in million euros 2015 2016 +/– EBIT (as reported) 2,645 2,775 4.9% One-time gains –15 –1 – One-time charges 100 121 – Restructuring expenses 193 277 – Adjusted EBIT 2,923 3,172 8.5% Adjusted return on sales in % 16.2 16.9 0.7 pp Financial result –42 –33 –21.4 % Taxes on income (adjusted) –720 –775 7.6 % Adjusted tax rate in % 25.0 24.7 –0.3 pp Adjusted net income 2,161 2,364 9.4% Attributable to non-controlling interests 49 41 –16.3% Attributable to shareholders of Henkel AG & Co. KGaA 2,112 2,323 10.0% Adjusted earnings per ordinary share in euros 4.86 5.34 9.9% Adjusted earnings per preferred share in euros 4.88 5.36 9.8%
The one-time gains recognized in fiscal 2016 and in 2015 stemmed from performance-related purchase price components.
Of the adjusted charges in fiscal 2016, 33 million euros is attributable to provisions for litigations (2015: 18 million euros), 26 million euros to the optimization of our IT system architecture for managing business processes (2015: 60 million euros), 42 million euros to costs relating to the integration of The Sun Products Corporation (2015: 0 million euros), and 20 million euros to acquisition-related costs (2015: 8 million euros).
Of the restructuring expenses in fiscal 2016, 47 million euros is attributable to cost of sales (2015: 18 million euros) and 77 million euros to marketing, selling and distribution expenses (2015: 87 million euros). A further 3 million euros is attributable to research and development expenses (2015: 14 million euros), and 150 million euros to administrative expenses (2015: 74 million euros).
| Total | 3,047 | 3,001 |
|---|---|---|
| Pension costs | 179 | 164 |
| Social security contributions and staff welfare costs |
404 | 410 |
| Wages and salaries | 2,464 | 2,427 |
| in million euros | 2015 | 2016 |
| Payroll cost1 | 162 |
1 Excluding personnel-related restructuring expenses of 137 million euros (previous year: 104 million euros).
1 Basis: annual average headcount of full-time employees, excluding apprentices and trainees, work experience students and interns; figures rounded.
Total 49,850 49,950
161
In fiscal 2013, the general terms and conditions of the previously implemented Global CPU Plan 2004 were amended and replaced by the Global LTI Plan 2013, which is a share-based remuneration scheme with cash settlement. Since 2013, Cash Performance Units (CPUs) are granted on condition that the member of the Plan is employed for four years by Henkel AG & Co. KGaA or one of its subsidiaries in a position senior enough to qualify to participate and that he or she is not under notice during that period. This minimum period of employment pertains to the calendar year in which the CPUs are granted and the three subsequent calendar years. In addition, an Outperformance Reward, which awards CPUs based on the achievement of target figures established in advance, may be set at the beginning of a four-year medium-term plan.
The total value of the cash remuneration payable to senior management personnel is recalculated on each reporting date and on the settlement date, based on the fair value of the CPUs, and recognized through an appropriate increase in provisions as a payroll cost that is spread over the period of service of the beneficiary. All changes to the measurement of this provision are reported under payroll cost.
Due to the extension of the cycle, one tranche with a threeyear term and another with a four-year term were issued in 2013. The number of CPUs granted depends not only on the seniority of the officer but also on the achievement of set target figures. For the cycles issued from 2013 onward, the target is based on growth in adjusted earnings per preferred share. The value of a CPU in each case is the average price of the Henkel preferred share as quoted 20 stock exchange trading days after the Annual General Meeting following the performance period. As of the reporting date, the calculation of the provision was based on a fair value of 113.25 euros (closing price of Henkel preferred shares on December 30, 2016; on December 30, 2015: 103.20 euros) per CPU. The overall payout of the long-term incentive is subject to a cap.
The tenth three-year cycle, which was issued in 2013, became due for payment in 2016. At December 31, 2016, the CPU Plan worldwide comprised 505,750 CPUs (December 31, 2015: 537,431 CPUs) from the four-year tranche issued in 2013, 516,200 CPUs (December 31, 2015: 542,998 CPUs) from the tranche issued in 2014, 576,746 CPUs (December 31, 2015: 673,099 CPUs) from the tranche issued in 2015, and 560,687 CPUs from the tranche issued in the reporting year. The Outperformance Reward comprised 361,375 CPUs (December 31, 2015: 511,098 CPUs). This resulted in an additional expense in the reporting year of 61.8 million euros (December 31, 2015: 101.8 million euros). The corresponding provision amounted to 189.5 million euros (December 31, 2015: 178.9 million euros), of which 97.6 million euros (December 31, 2015: 52.3 million euros) is vested.
The format for reporting the activities of the Henkel Group by segment is by business unit and reportable segments; selected regional information is also provided. The segment report corresponds to the way in which the Group manages its operating business, and the Group's reporting structure.
The assignment of operating segments to individual reportable segments is based on the economic characteristics of the business, the nature of products and production processes, the type of customer groups, and the characteristics of the sales and distribution structure and of the regulatory environment.
Adhesives for Consumers, Craftsmen and Building In the Adhesives for Consumers, Craftsmen and Building operating segment, we market a comprehensive range of brandname products for private users, craftsmen and the construction industry. Based on our four international brand platforms, namely Loctite, Pritt, Pattex and Ceresit, we offer target-groupaligned system solutions for applications in the household, in schools and in offices, for do-it-yourselfers and craftsmen, and also for the building industry.
The Industrial Adhesives reportable segment covers four operating segments: Packaging and Consumer Goods Adhesives, Transport and Metal, General Industry, and Electronics.
The Packaging and Consumer Goods Adhesives operating segment serves major international customers as well as medium- and small-sized manufacturers of the consumer goods and furniture industries. Our economies of scale allow us to offer attractive solutions for standard and volume applications.
The Transport and Metal operating segment serves major international customers in the automotive and metal-processing industries, offering tailor-made system solutions and specialized technical services that cover the entire value chain – from steel strip coating to final vehicle assembly.
In the General Industry operating segment, our customers comprise manufacturers from a multitude of industries, ranging from household appliance producers to the wind power industry. Our portfolio here encompasses Loctite products for industrial maintenance, repair and overhaul, a wide range of
122 Key financials by region
131 Notes to the consolidated statement of financial position
171 Other disclosures
179 Subsequent events
sealants and system solutions for surface treatment applications, and specialty adhesives.
Our Electronics operating segment offers customers from the worldwide electronics industry a broad spectrum of innovative high-technology adhesives and soldering materials for the manufacture of microchips and electronic assemblies.
The Beauty Care reportable segment covers our globally active Branded Consumer Goods operating segment with Hair Care, Hair Colorants, Hair Styling, Body Care, Skin Care and Oral Care, as well as the professional Hair Salon operating segment.
This reportable segment covers the global activities of Henkel in laundry and home care branded consumer goods. The Laundry Care operating segment includes not only heavy-duty and specialty detergents but also fabric softeners, laundry performance enhancers, and other fabric care products. Our Home Care operating segment encompasses hand and automatic dishwashing products, cleaners for bathroom and WC applications, and household, glass and specialty cleaners. We also offer air fresheners and insect control products for household applications in selected regions.
In determining the segment results, assets and liabilities, we apply essentially the same principles of recognition and measurement as in the consolidated financial statements. We have valued net operating assets in foreign currencies at average exchange rates.
The Group measures the performance of its segments on the basis of a segment income variable referred to by Internal Control and Reporting as "adjusted EBIT." For this purpose, operating profit (EBIT) is adjusted for one-time charges and gains and also restructuring expenses.
Of the restructuring expenses, 61 million euros (previous year: 77 million euros) is attributable to Adhesive Technologies, 94 million euros (previous year: 43 million euros) to Beauty Care and 119 million euros (previous year: 66 million euros) to Laundry & Home Care.
For reconciliation with the figures for the Henkel Group, Group overheads are reported under Corporate together with income and expenses that cannot be allocated to the individual business units.
Proceeds transferred between the segments only exist to a negligible extent and are therefore not separately disclosed.
Operating assets, provisions and liabilities are assigned to the segments in accordance with their usage or origin. Where usage or origin is attributable to several segments, allocation is effected on the basis of appropriate ratios and keys.
For regional and geographic analysis purposes, we allocate sales to countries on the basis of the country-of-origin principle, and non-current assets in accordance with the domicile of the international company to which they pertain.
| Net operating assets | Financial statement figures |
Net operating assets | Financial statement figures |
|||
|---|---|---|---|---|---|---|
| in million euros | Annual average1 2015 |
December 31, 2015 |
December 31, 2015 |
Annual average1 2016 |
December 31, 2016 |
December 31, 2016 |
| Goodwill at book value | 8,605 | 8,850 | 8,850 | 9,742 | 11,626 | 11,626 |
| Other intangible assets and property, plant and equipment (including assets held for sale) |
5,266 | 5,503 | 5,503 | 5,833 | 6,899 | 6,899 |
| Deferred taxes | – | – | 816 | – | – | 1,017 |
| Inventories | 1,836 | 1,721 | 1,721 | 1,818 | 1,938 | 1,938 |
| Trade accounts receivable from third parties | 3,171 | 2,944 | 2,944 | 3,326 | 3,349 | 3,349 |
| Intra-group accounts receivable | 1,018 | 1,246 | – | 1,291 | 1,311 | – |
| Other assets and tax refund claims2 | 505 | 440 | 1,313 | 530 | 617 | 1,699 |
| Cash and cash equivalents | 1,176 | 1,389 | ||||
| Operating assets/Total assets | 20,401 | 20,704 | 22,323 | 22,540 | 25,740 | 27,917 |
| Operating liabilities | 6,435 | 6,716 | – | 7,104 | 7,815 | – |
| of which: Trade accounts payable to third parties |
3,242 | 3,176 | 3,176 | 3,382 | 3,665 | 3,665 |
| Intra-group accounts payable |
1,018 | 1,246 | – | 1,291 | 1,311 | – |
| Other provisions and other liabilities2 (financial and non-financial) |
2,175 | 2,294 | 2,437 | 2,431 | 2,839 | 3,011 |
| Net operating assets | 13,965 | 13,988 | – | 15,436 | 17,925 | – |
| – Goodwill at book value | 8,605 | – | – | 9,742 | – | – |
| + Goodwill at cost3 | 9,151 | – | – | 10,201 | – | – |
| Capital employed | 14,511 | – | – | 15,895 | – | – |
1 The annual average is calculated on the basis of the 12 monthly figures.
2 We take only amounts relating to operating activities into account in calculating net operating assets.
3 Before deduction of accumulated impairment pursuant to IFRS 3.79 (b).
119 Consolidated statement of changes in equity 120 Consolidated statement
statements
131 Notes to the consolidated statement of financial position
| 2015 | 2016 | ||||
|---|---|---|---|---|---|
| in million euros (rounded) | Reported | Adjusted | Reported | Adjusted | |
| Net income attributable to shareholders of Henkel AG & Co. KGaA | 1,921 | 2,112 | 2,053 | 2,323 | |
| Dividends, ordinary shares | 377 | 377 | 416 | 416 | |
| Dividends, preferred shares | 256 | 256 | 283 | 283 | |
| Total dividends | 633 | 633 | 699 | 699 | |
| Retained earnings, ordinary shares | 771 | 885 | 810 | 972 | |
| Retained earnings, preferred shares | 517 | 594 | 544 | 652 | |
| Retained earnings | 1,288 | 1,479 | 1,354 | 1,624 | |
| Number of ordinary shares | 259,795,875 | 259,795,875 | 259,795,875 | 259,795,875 | |
| Dividend per ordinary share in euros | 1.45 | 1.45 | 1.603 | 1.603 | |
| Of which preliminary dividend per ordinary share in euros1 | 0.02 | 0.02 | 0.02 | 0.02 | |
| Retained earnings per ordinary share in euros | 2.97 | 3.41 | 3.12 | 3.74 | |
| EPS per ordinary share in euros | 4.42 | 4.86 | 4.72 | 5.34 | |
| Number of outstanding preferred shares2 | 174,482,312 | 174,482,312 | 174,482,323 | 174,482,323 | |
| Dividend per preferred share in euros | 1.47 | 1.47 | 1.623 | 1.623 | |
| Of which preferred dividend per preferred share in euros1 | 0.04 | 0.04 | 0.04 | 0.04 | |
| Retained earnings per preferred share in euros | 2.97 | 3.41 | 3.12 | 3.74 | |
| EPS per preferred share in euros | 4.44 | 4.88 | 4.74 | 5.36 | |
| Number of ordinary shares | 259,795,875 | 259,795,875 | 259,795,875 | 259,795,875 | |
| Dividend per ordinary share in euros | 1.45 | 1.45 | 1.603 | 1.603 | |
| Of which preliminary dividend per ordinary share in euros1 | 0.02 | 0.02 | 0.02 | 0.02 | |
| Retained earnings per ordinary share in euros (after dilution) | 2.97 | 3.41 | 3.12 | 3.74 | |
| Diluted EPS per ordinary share in euros | 4.42 | 4.86 | 4.72 | 5.34 | |
| Number of potentially outstanding preferred shares2 | 174,482,312 | 174,482,312 | 174,482,323 | 174,482,323 | |
| Dividend per preferred share in euros | 1.47 | 1.47 | 1.623 | 1.623 | |
| Of which preferred dividend per preferred share in euros1 | 0.04 | 0.04 | 0.04 | 0.04 | |
| Retained earnings per preferred share in euros (after dilution) | 2.97 | 3.41 | 3.12 | 3.74 | |
| Diluted EPS per preferred share in euros | 4.44 | 4.88 | 4.74 | 5.36 |
1 See combined management report, Corporate governance, Capital stock denominations/Shareholder rights/Amendments to the Articles of Association on pages 30 and 31.
2 Weighted annual average of preferred shares.
3 Proposal to shareholders for the Annual General Meeting on April 6, 2017.
We prepare the consolidated statement of cash flows in accordance with International Accounting Standard (IAS) 7 "Statement of Cash Flows." It describes the flow of cash and cash equivalents by origin and usage of liquid funds, distinguishing between changes in funds arising from operating activities, investing activities, and financing activities. Financial funds include cash on hand, checks and credit at banks, and other financial assets with a remaining term of not more than three months. Securities are therefore included in financial funds, provided that they are available at short term and are only exposed to an insignificant price change risk. The computation is adjusted for effects arising from currency translation. In some countries, there are administrative hurdles to the transfer of money to the parent company.
Cash flows from operating activities are determined by initially adjusting operating profit for non-cash variables such as amortization/depreciation/impairment/write-ups on intangible assets and property, plant and equipment – supplemented by changes in provisions, changes in other assets and liabilities, and also changes in net working capital. We disclose payments made for income taxes under operating cash flow.
Cash flows from investing activities occur essentially as a result of outflows of funds for investments in intangible assets and property, plant and equipment, subsidiaries and other business units, as well as investments accounted for using the equity method, and joint ventures. Here, we also recognize inflows of funds from the sale of intangible assets and property, plant and equipment, subsidiaries and other business units. In the reporting period, cash flows from investing activities mainly involved outflows for the acquisition of subsidiaries and other business units in the amount of –3,727 million euros (previous year: –322 million euros), as well as outflows for investments in intangible assets, and property, plant and equipment, including payments on account, in the amount of –557 million euros (previous year: –625 million euros). Outflows for the acquisition of subsidiaries and other business units relate to the acquisitions as described in the section "Acquisitions and divestments" on pages 123 to 126.
In cash flow from financing activities, we recognize interest and dividends paid and received, the change in borrowings and in pension provisions, and also payments made for the acquisition of non-controlling interests and other financing transactions. In fiscal 2016, the change in borrowings was influenced by the acquisition-related issuance of four fixedrate bonds with a total volume of 2.2 billion euros, a floatingrate syndicated bank loan of 1.1 billion US dollars that was taken out, and outflows from the repayment of commercial paper.
Free cash flow shows how much cash is actually available for acquisitions and dividends, reducing debt and/or contributions to pension funds.
| Analysis | 166 | |
|---|---|---|
| in million euros | December 31, 2015 |
December 31, 2016 |
| Liabilities under guarantee and warranty agreements |
12 | 5 |
Operating leases as defined in IAS 17 comprise all forms of rights of use of assets, including rights of use arising from rent and leasehold agreements. Payment commitments under operating lease agreements are shown at the total amounts payable up to the earliest date of termination. The amounts shown are the nominal values. At December 31, 2016, they were due for payment as follows:
| Operating lease commitments | 167 | |
|---|---|---|
| ----------------------------- | -- | ----- |
| Total | 228 | 404 |
|---|---|---|
| Due after 5 years | 17 | 144 |
| Due within 1 to 5 years | 139 | 98 |
| Due in the following year | 72 | 162 |
| in million euros | December 31, 2015 |
December 31, 2016 |
Within the Group, we primarily lease office space and equipment, automobiles, and IT equipment. Some of these contracts contain extension options and price adjustment clauses. In the course of fiscal 2016, 75 million euros became due for payment under operating leases (previous year: 66 million euros).
Finance lease commitments 168
| in million euros At Dec. 31, 2016 |
Future payments relating to finance lease commitments |
Interest portion |
Present value of future lease installments |
|---|---|---|---|
| Due in the following year | 2 | 0 | 2 |
| Due within 1 to 5 years | 10 | 2 | 9 |
| Due after 5 years | 7 | 1 | 6 |
| Total | 19 | 3 | 17 |
At December 31, 2015, the company had no finance lease commitments.
As of the end of 2016, commitments arising from orders for property, plant and equipment amounted to 68 million euros (previous year: 65 million euros).
As of the reporting date, payment commitments under the terms of agreements for capital increases and share purchases contracted prior to December 31, 2016 amounted to 4 million euros (previous year: 0 million euros).
Related parties as defined by IAS 24 "Related Party Disclosures" are legal entities or natural persons who may be able to exert influence on Henkel AG & Co. KGaA and its subsidiaries, or be subject to control or material influence by Henkel AG & Co. KGaA or its subsidiaries. These mainly include all members of the Henkel family share-pooling agreement, the non-consolidated affiliated companies in which Henkel holds shares, the associated companies, and the members of the corporate bodies of Henkel AG & Co. KGaA, whose remuneration is explained in the remuneration report in the combined management report (pages 39 to 51). Related parties as defined in IAS 24 also include Henkel Trust e.V. and Metzler Trust e.V.
Information required by Section 160 (1) no. 8 of the German Stock Corporation Act [AktG]:
Henkel AG & Co. KGaA, Düsseldorf, has been notified that on December 17, 2015 the proportion of voting rights held by the members of the Henkel family share-pooling agreement represented in total a share of 61.02 percent of the voting rights (158,535,741 votes) in Henkel AG & Co. KGaA (International Securities Identification Number [ISIN]: DE0006048408), held by
under the terms of a share-pooling agreement per Section 22 (2) of the German Securities Trading Act [WpHG], whereby the shares held by the two private limited companies, by the 13 limited partnerships with a limited company as general partner, and by the one limited partnership, representing a percentage of 16.97 percent of the voting rights (44,081,965 votes), are attributed (per Section 22 (1) no. 1 WpHG) to the family members who control those companies.
122 Key financials by region
No party to the share-pooling agreement is obliged to notify that it has reached or exceeded 3 percent or more of the total voting rights in Henkel AG & Co. KGaA, even after adding voting rights expressly granted under the terms of usufruct agreements.
Dr. Simone Bagel-Trah, Germany, is the authorized representative of the parties to the Henkel family share-pooling agreement. (Latest notification November 5, 2014.)
Financial receivables from and payables to other investments in the form of non-consolidated affiliated entities and associated entities are disclosed in Notes 3 and 18.
Henkel Trust e.V. and Metzler Trust e.V., as parties to relevant contractual trust arrangements (CTA), hold the assets required to cover the pension obligations in Germany. The claim on Henkel Trust e.V. for reimbursement of pension payments made is shown under other financial assets (Note 3 on page 137). The receivable does not bear interest.
As was also the case in 2015, the following German companies included in the consolidated financial statements of Henkel AG & Co. KGaA exercised exemption options in fiscal 2016:
The Dutch company Henkel Nederland B.V., Nieuwegein, exercised the exemption option afforded in Article 2:403 of the Civil Code of the Netherlands.
The total remuneration of the members of the Supervisory Board and of the Shareholders' Committee of Henkel AG & Co. KGaA amounted to 1,572,896 euros plus value-added tax (previous year: 1,546,000 euros) and 2,350,000 euros (previous year: 2,350,000 euros), respectively. The total remuneration (Section 285 no. 9a and Section 314 (1) no. 6a HGB) of the Management Board and members of the Management Board of Henkel Management AG amounted to 26,503,197 euros (previous year: 25,804,019 euros).
For pension obligations to former members of the Management Board and the management of Henkel KGaA, as well as the former management of its legal predecessor and surviving dependents, 100,771,135 euros (previous year: 98,729,434 euros) is deferred. The total remuneration for this group of persons (Section 285 no. 9b and Section 314 (1) no. 6b HGB) in the reporting year amounted to 7,127,205 euros (previous year: 7,163,382 euros). For further details regarding the compensation of the corporate management bodies, please refer to the audited remuneration report on pages 39 to 51.
In February 2016, the Management Board of Henkel Management AG and the Supervisory Board and Shareholders' Committee of Henkel AG & Co. KGaA approved a joint declaration of compliance with the recommendations of the German Corporate Governance Code [DCGK] in accordance with Section 161 of the German Stock Corporation Act [AktG]. The declaration has been made permanently available to shareholders on the company website: www.henkel.com/ir
Details relating to the investments held by Henkel AG & Co. KGaA and the Henkel Group, which are part of these financial statements, are provided in a separate schedule appended to these notes to the consolidated financial statements but not included in the printed form of the Annual Report. Said schedule is included in the accounting record submitted for publication in the electronic Federal Gazette and can be viewed there and at the Annual General Meeting. The schedule is also published on our website: www.henkel.com/reports
The total fees charged to the Group for services provided by the auditor KPMG AG Wirtschaftsprüfungsgesellschaft and other companies of the worldwide KPMG network in fiscal 2015 and 2016 were as follows:
| Type of fee | 169 | |||
|---|---|---|---|---|
| in million euros | 2015 | of which Germany |
2016 | of which Germany |
| Audits | 8.4 | 1.8 | 9.6 | 2.3 |
| Other audit-related services | 1.7 | 0.6 | 1.6 | 0.6 |
| Tax advisory services | 0.8 | 0.1 | 1.2 | 0.2 |
| Other services | 1.1 | 1.0 | 0.2 | 0.1 |
| Total | 12.0 | 3.5 | 12.6 | 3.2 |
The item "Audits" includes fees and disbursements with respect to the audit of the Group accounts and the legally prescribed financial statements of Henkel AG & Co. KGaA and its affiliated companies. The fees for "Other audit-related services" relate primarily to the quarterly reviews. The item "Tax advisory services" includes fees for advice and support on tax issues and the performance of tax compliance services on behalf of affiliated companies outside Germany. "Other services" comprise fees predominantly for project-related consultancy services.
119 Consolidated statement of changes in equity 120 Consolidated statement
122 Key financials by region
statements
After December 31, 2016, there were no reportable events of particular significance for the net assets, financial position and results of operations of the Henkel Group.
Düsseldorf, January 30, 2017
Henkel Management AG, Personally Liable Partner of Henkel AG & Co. KGaA
Management Board Hans Van Bylen, Jan-Dirk Auris, Pascal Houdayer, Carsten Knobel, Kathrin Menges, Bruno Piacenza
131 Notes to the consolidated statement of financial position 166 Notes to the consolidated
To Henkel AG & Co. KGaA, Düsseldorf
We have audited the accompanying consolidated financial statements of Henkel AG & Co. KGaA, Düsseldorf, and its subsidiaries, which comprise the consolidated statement of financial position, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows, and notes to the consolidated financial statements for the business year from January 1 to December 31, 2016.
The personally liable partner of Henkel AG & Co. KGaA is responsible for the preparation of these consolidated financial statements. This responsibility includes preparing these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the EU, and the supplementary requirements of German law pursuant to § [Article] 315a Abs. [paragraph] 1 HGB [Handelsgesetzbuch: German Commercial Code], to give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The personally liable partner of the company is also responsible for the internal controls that management determines are necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Accordingly, we are required to comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The selection of audit procedures depends on the auditor's professional judgment. This includes the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In assessing those risks, the auditor considers the internal control system relevant to the entity's preparation of the consolidated financial statements that give a true and fair view. The aim of this is to plan and perform audit procedures that are appropriate in the given circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the company's personally liable partner, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Pursuant to § 322 Abs. 3 Satz 1 HGB, we state that our audit of the consolidated financial statements has not led to any reservations.
In our opinion, based on the findings of our audit, the consolidated financial statements comply in all material respects with IFRSs as adopted by the EU and the supplementary requirements of German commercial law pursuant to § 315a Abs. 1 HGB and give a true and fair view of the net assets and financial position of the Henkel Group as at December 31, 2016, as well as the results of operations for the business year then ended, in accordance with these requirements.
We have audited the accompanying Group management report of Henkel AG & Co. KGaA, which is combined with the management report of the company, for the business year from January 1 to December 31, 2016. The personally liable partner of Henkel AG & Co. KGaA is responsible for the preparation of the combined management report in compliance with the applicable requirements of German commercial law pursuant to § [Article] 315a Abs. [paragraph] 1 HGB [Handelsgesetzbuch: German Commercial Code]. We conducted our audit in accordance with § 317 Abs. 2 HGB and German generally accepted standards for the audit of combined management reports promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Accordingly, we are required to plan and perform the audit to obtain reasonable assurance
about whether the combined management report is consistent with the consolidated financial statements and the audit findings, complies with the German statutory requirements, and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Pursuant to § 322 Abs. 3 Satz 1 HGB, we state that our audit of the combined management report has not led to any reservations.
In our opinion, based on the findings of our audit of the consolidated financial statements and combined management report, the combined management report is consistent with the consolidated financial statements, complies with the German statutory requirements, and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Düsseldorf, January 30, 2017
KPMG AG Wirtschaftsprüfungsgesellschaft
Prof. Dr. Kai C. Andrejewski Simone Fischer Wirtschaftsprüfer Wirtschaftsprüferin (German Public Auditor) (German Public Auditor)
It is proposed that the annual financial statements of Henkel AG & Co. KGaA be approved as presented and that the unappropriated profit of 1,027,893,701.02 euros for fiscal 2016 be applied as follows:
| a) | Payment of a dividend of 1.60 euros per ordinary share (259,795,875 shares) |
= 415,673,400.00 euros |
|---|---|---|
| b) | Payment of a dividend of 1.62 euros per preferred share (178,162,875 shares) |
= 288,623,857.50 euros |
| c) | Carried forward as retained earnings | = 323,596,443.52 euros |
| 1,027,893,701.02 euros |
According to Section 71b German Stock Corporation Act [AktG], treasury shares do not qualify for a dividend. The amount in unappropriated profit which relates to the shares held by the corporation (treasury shares) at the date of the Annual General Meeting will be carried forward as retained earnings. As the number of such treasury shares can change up to the time of the Annual General Meeting, a correspondingly adapted proposal for the appropriation of profit will be submitted to it, providing for an unchanged payout of 1.60 euros per ordinary share qualifying for a dividend and 1.62 euros per preferred share qualifying for a dividend, with corresponding adjustment of the payout totals and of retained earnings carried forward to the following year.
Düsseldorf, January 30, 2017
Henkel Management AG, Personally Liable Partner of Henkel AG & Co. KGaA
Management Board
To the best of our knowledge, and in accordance with the applicable accounting principles, the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the management report of the Group, which is combined with the management report of Henkel AG & Co. KGaA, includes a fair review of the development, performance and results of the business and the position of the Group, together with a cogent description of the principal opportunities and risks associated with the expected development of the Group.
Düsseldorf, January 30, 2017
Henkel Management AG
Management Board Hans Van Bylen, Jan-Dirk Auris, Pascal Houdayer, Carsten Knobel, Kathrin Menges, Bruno Piacenza
Boards /memberships as defined by Section 125 (1) sentence 5 of the German Stock Corporation Act [AktG] as at January 2017
Honorary Chairman of the Henkel Group: Dipl.-Ing. Albrecht Woeste
Supervisory Board of Henkel AG & Co. KGaA
Chair, Private Investor, Düsseldorf
Born in 1969 Member since: April 14, 2008
Memberships: Henkel Management AG (Chair)1 Henkel AG&Co. KGaA (Shareholders' Committee, Chair)2 Bayer AG1 Heraeus Holding GmbH1
Vice Chair,
Chairman of the General Works Council of Henkel AG & Co. KGaA and Chairman of the Works Council of Henkel AG & Co. KGaA, Düsseldorf site
Born in 1954 Member since: May 17, 1993
Member of the Works Council of Henkel AG & Co. KGaA, Düsseldorf site
Born in 1962 Member since: April 14, 2008
Dr. rer. nat. Kaspar von Braun Astrophysicist, Pasadena
Born in 1971 Member since: April 19, 2010
(until April 11, 2016) Private Investor, Düsseldorf Born in 1963 Member from: April 16, 2012
(since April 11, 2016) Private Investor, Klosters
Born in 1955 Member since: April 11, 2016
(until April 11, 2016) Managing Partner, Cryder Capital Partners LLP, London Born in 1965 Member from: April 16, 2012
Béatrice Guillaume-Grabisch (until March 31, 2016) Chairwoman of the Executive Board, Nestlé Deutschland AG, Frankfurt am Main
Born in 1964 Member from: April 16, 2012
Member of the Executive Board of IG Bergbau, Chemie, Energie and responsible for Wages / Finance, Hannover
Born in 1954 Member since: April 15, 2013
Memberships: Continental AG1 Covestro Deutschland AG1 Vivawest Wohnen GmbH (Vice Chair)1 50 Hertz Transmission AG (Vice Chair)1 Birgit Helten-Kindlein* Member of the Works Council of Henkel AG & Co. KGaA, Düsseldorf site
Born in 1964 Member since: April 14, 2008
Private Investor, Wain Born in 1972
Member since: April 11, 2016
(since April 11, 2016) Chairman of the Executive Board, Deutsche Telekom AG, Bonn
Born in 1962 Member since: April 11, 2016
Memberships: BT Group plc, Great Britain2 FC Bayern München AG1 Telekom Group: Telekom Deutschland GmbH (Chair)1 T-Mobile US, Inc. (Chair), USA2
Chairman of the Executive Board, Carl Zeiss AG, Oberkochen
Born in 1957 Member since: April 14, 2008
Memberships: Deutsche Telekom AG1 Robert Bosch GmbH1 Carl Zeiss Group: Carl Zeiss Industrielle Messtechnik GmbH (Chair)1 Carl Zeiss Meditec AG (Chair)1 Carl Zeiss Microscopy GmbH (Chair)1 Carl Zeiss SMT GmbH (Chair)1 Carl Zeiss Australia Pty. Ltd. (Chair), Australia 2 Carl Zeiss Far East Co. Ltd. (Chair), China/Hong Kong2 Carl Zeiss Inc. (Chair), USA2 Carl Zeiss India (Bangalore) Private Ltd., India 2 Carl Zeiss Pte. Ltd. (Chair), Singapore 2 Carl Zeiss (Pty.) Ltd., South Africa 2
* Employee representatives.
1 Membership of statutory supervisory and administrative boards in Germany.
2 Membership of comparable oversight bodies.
(since January 1, 2017)
Member of the General Works Council of Henkel AG & Co. KGaA and Chairwoman of the Works Council of Henkel AG & Co. KGaA, Munich site
Born in 1965 Member since: January 1, 2017
Private Investor, Zurich
Born in 1954 Member since: July 3, 2013
Engie S.A., France 2 Firmenich S.A., Switzerland2 Pargesa Holding S.A., Switzerland2 Total S.A., France 2 Umicore N.V., Belgium2
(until December 31, 2016)
Member of the General Works Council of Henkel AG & Co. KGaA and Chairman of the Works Council of Henkel AG & Co. KGaA, Unna site
Born in 1961 Member from: January 1, 2010
Managing Director, IG BCE Bonusagentur GmbH, Hannover Managing Director, IG BCE Bonusassekuranz GmbH, Hannover
Born in 1959 Member since: October 26, 2004
Chemist, Duisburg Chairwoman of the General Senior Staff Representative Committee and of the Senior Staff Representative Committee of Henkel AG & Co. KGaA
Born in 1971 Member since: January 1, 2012
Managing Partner of de Haen-Carstanjen&Söhne, Düsseldorf
Born in 1947 Member since: April 20, 2009
Memberships: E.ON SE 1 Merck KGaA1 DKSH Holding Ltd., Switzerland2 E. Merck OHG2
Member of the General Works Council of Henkel AG & Co. KGaA and Vice Chairman of the Works Council of Henkel AG & Co. KGaA, Düsseldorf site
Born in 1960 Member since: August 1, 2010
The Nominations Committee prepares the resolutions of the Supervisory Board on election proposals to be presented to the Annual General Meeting for the election of members of the Supervisory Board (representatives of the shareholders).
Dr. Simone Bagel-Trah, Chair Dr. Kaspar von Braun Prof. Dr. Theo Siegert
The Audit Committee prepares the proceedings and resolutions of the Supervisory Board relating to the approval of the annual financial statements and the consolidated financial statements, and relating to ratification of the proposal to be put before the Annual General Meeting regarding appointment of the auditor. It also deals with accounting, risk management and compliance issues.
Prof. Dr. Theo Siegert, Chair Prof. Dr. Michael Kaschke, Vice Chair Dr. Simone Bagel-Trah Peter Hausmann Birgit Helten-Kindlein Winfried Zander
Chair, Private Investor, Düsseldorf
Born in 1969 Member since: April 18, 2005
Memberships: Henkel AG&Co. KGaA (Chair)1 Henkel Management AG (Chair)1 Bayer AG1 Heraeus Holding GmbH1
Vice Chair, Founding Partner, Canyon Equity LLC, London Born in 1958
Member since: May 27, 1991
Chairman of the Supervisory Board, Deutsche Bank AG, Munich
Born in 1956 Member since: April 30, 2001
Memberships: Bayer AG1 Daimler AG1 Deutsche Bank AG (Chair)1
(since April 11, 2016) Private Investor, Düsseldorf
Born in 1963 Member since: April 11, 2016
(until April 11, 2016) Private Investor, Klosters Born in 1955 Member from: April 16, 2012
Private Investor, Düsseldorf Born in 1963 Member since: May 3, 1999
Former Chairman of the Management Board of Henkel KGaA, Düsseldorf
Born in 1946 Member since: April 14, 2008
Memberships: Deutsche Telekom AG (Chair)1 E.ON SE 1 Porsche Automobil Holding SE 1 ThyssenKrupp AG (Chair)1
Chairman of the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft, Munich Born in 1956
Member since: April 11, 2011 Memberships:
Bayerische Motoren Werke Aktiengesellschaft (Chair)1 Siemens AG1
Konstantin von Unger
Managing Director, CKA Capital Limited, London Born in 1966
Member since: April 14, 2003 Membership:
Henkel Management AG1
Chairman of the Executive Board of Heineken N.V., Amsterdam
Born in 1961 Member since: April 15, 2013
Membership: Mondelez International Inc., USA2
Chairman of the Supervisory Board of Bayer AG, Leverkusen
Born in 1946 Member since: April 14, 2008
Memberships: Bayer AG (Chair)1 Henkel Management AG1 Siemens AG1
The Finance Subcommittee deals principally with financial matters, accounting issues including the statutory year-end audit, taxation and accounting policy, internal auditing, and risk management in the company.
Dr. Christoph Henkel, Chair Stefan Hamelmann, Vice Chair Prof. Dr. Paul Achleitner Prof. Dr. Ulrich Lehner Dr. Dr. Norbert Reithofer
The Human Resources Subcommittee deals principally with personnel matters relating to members of the Management Board, issues pertaining to human resources strategy, and with remuneration.
Dr. Simone Bagel-Trah, Chair Konstantin von Unger, Vice Chair Boris Canessa (since April 11, 2016) Johann-Christoph Frey (until April 11, 2016) Jean-François van Boxmeer Werner Wenning
1 Membership of statutory supervisory and administrative boards in Germany.
2 Membership of comparable oversight bodies.
Management Board of Henkel Management AG*
Chairman of the Management Board (since May 1, 2016) Born in 1961 Member since: July 1, 2005 3
(until April 30, 2016) Chairman of the Management Board
Born in 1962 Member since: April 1, 2005 3
Memberships: Anheuser-Busch InBev SA, Belgium2 Bertelsmann Management SE 1 Danfoss A/S, Denmark 2
Adhesive Technologies
Born in 1968 Member since: January 1, 2011
Membership: Henkel Corporation (Chair), USA2
(since March 1, 2016) Beauty Care Born in 1969 Member since: March 1, 2016 Membership: The Dial Corporation (Chair), USA2
Finance /Purchasing / Integrated Business Solutions
Born in 1969 Member since: July 1, 2012
Memberships: Henkel Central Eastern Europe GmbH (Chair), Austria 2 Henkel (China) Investment Co. Ltd., China 2 Henkel & Cie AG, Switzerland2 Henkel Consumer Goods Inc. (Chair), USA2 Henkel Ltd., Great Britain2 Henkel of America Inc. (Chair), USA2
Human Resources / Infrastructure Services
Born in 1964 Member since: October 1, 2011
Memberships: Adidas AG1 Henkel Central Eastern Europe GmbH, Austria 2 Henkel Nederland BV, Netherlands2 Henkel Norden AB, Sweden2 Henkel Norden Oy, Finland2
Laundry & Home Care
Born in 1965 Member since: January 1, 2011
Membership: GfK SE, Nuremberg 1
Supervisory Board of Henkel Management AG*
Chair, Private Investor, Düsseldorf
Born in 1969 Member since: February 15, 2008
Memberships: Henkel AG&Co. KGaA (Chair)1 Henkel AG&Co. KGaA (Shareholders' Committee, Chair)2 Bayer AG1 Heraeus Holding GmbH1
Vice Chair Managing Director, CKA Capital Limited, London
Born in 1966 Member since: April 17, 2012
Membership: Henkel AG & Co. KGaA (Shareholders' Committee)2
Chairman of the Supervisory Board of Bayer AG, Leverkusen
Born in 1946 Member since: September 16, 2013
Memberships: Bayer AG (Chair)1 Siemens AG1 Henkel AG & Co. KGaA (Shareholders' Committee)2
*Personally Liable Partner of Henkel AG & Co. KGaA.
1 Membership of statutory supervisory and administrative boards in Germany.
2 Membership of comparable oversight bodies.
3 Including membership of the Management Board of Henkel KGaA.
170
| 1st quarter | 2nd quarter | 3rd quarter | 4th quarter | Full year | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| in million euros | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 |
| Sales | ||||||||||
| Adhesive Technologies | 2,160 | 2,144 | 2,343 | 2,290 | 2,279 | 2,272 | 2,209 | 2,255 | 8,992 | 8,961 |
| Beauty Care | 940 | 950 | 1,006 | 988 | 964 | 968 | 922 | 932 | 3,833 | 3,838 |
| Laundry & Home Care | 1,298 | 1,333 | 1,314 | 1,345 | 1,314 | 1,479 | 1,211 | 1,638 | 5,137 | 5,795 |
| Corporate | 32 | 30 | 31 | 31 | 33 | 29 | 32 | 31 | 128 | 121 |
| Henkel Group | 4,430 | 4,456 | 4,695 | 4,654 | 4,590 | 4,748 | 4,374 | 4,856 | 18,089 | 18,714 |
| Cost of sales | –2,264 | –2,293 | –2,439 | –2,373 | –2,361 | –2,453 | –2,304 | –2,623 | –9,368 | –9,742 |
| Gross profit | 2,166 | 2,163 | 2,256 | 2,281 | 2,229 | 2,295 | 2,070 | 2,233 | 8,721 | 8,972 |
| Marketing, selling and distribution expenses |
–1,166 | –1,092 | –1,185 | –1,167 | –1,158 | –1,171 | –1,099 | –1,205 | –4,608 | –4,635 |
| Research and development expenses |
–119 | –114 | –122 | –118 | –120 | –116 | –117 | –115 | –478 | –463 |
| Administrative expenses | –245 | –225 | –241 | –240 | –278 | –232 | –248 | –365 | –1,012 | –1,062 |
| Other operating expenses and income |
12 | –15 | 7 | 1 | –7 | –1 | 10 | –22 | 22 | –37 |
| EBIT | ||||||||||
| Adhesive Technologies | 345 | 364 | 388 | 403 | 367 | 423 | 362 | 371 | 1,462 | 1,561 |
| Beauty Care | 133 | 143 | 158 | 162 | 142 | 155 | 128 | 67 | 561 | 526 |
| Laundry & Home Care | 192 | 236 | 198 | 218 | 211 | 228 | 186 | 121 | 786 | 803 |
| Corporate | –22 | –25 | –29 | –26 | –54 | –31 | –58 | –33 | –164 | –115 |
| Henkel Group | 648 | 717 | 715 | 757 | 666 | 775 | 616 | 526 | 2,645 | 2,775 |
| Interest result | –3 | 2 | –3 | 2 | –8 | –4 | –3 | –5 | –17 | –5 |
| Other financial result | –6 | –9 | –7 | –2 | –3 | –11 | –8 | –4 | –24 | –26 |
| Investment result | – | – | –1 | – 1 | – | – | – | – 1 | –1 | – 2 |
| Financial result | –9 | –7 | –11 | –1 | –11 | –15 | –11 | –10 | –42 | –33 |
| Income before tax | 639 | 710 | 704 | 756 | 655 | 760 | 605 | 516 | 2,603 | 2,742 |
| Taxes on income | –157 | –172 | –173 | –184 | –161 | –176 | –144 | –117 | –635 | –649 |
| Net income | 482 | 538 | 531 | 572 | 494 | 584 | 461 | 399 | 1,968 | 2,093 |
| Attributable to non-controlling interests |
12 | 13 | 10 | 11 | 10 | 8 | 15 | 8 | 47 | 40 |
| Attributable to shareholders | ||||||||||
| of Henkel AG & Co. KGaA | 470 | 525 | 521 | 561 | 484 | 576 | 446 | 391 | 1,921 | 2,053 |
| Earnings per preferred share in euros |
1.09 | 1.21 | 1.20 | 1.30 | 1.12 | 1.33 | 1.03 | 0.90 | 4.44 | 4.74 |
| 1st quarter | 2nd quarter | 3rd quarter | 4th quarter | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 |
| 648 | 717 | 715 | 757 | 666 | 775 | 616 | 526 | 2,645 | 2,775 |
| – | – | – | – 1 | – | – | –15 | – | –15 | –1 |
| 5 | 7 | 24 | 22 | 34 | 27 | 37 | 65 | 100 | 121 |
| 54 | 27 | 29 | 41 | 78 | 35 | 32 | 174 | 193 | 277 |
| 707 | 751 | 768 | 819 | 778 | 837 | 670 | 765 | 2,923 | 3,172 |
| 5.36 | |||||||||
| 1.18 | 1.27 | 1.29 | 1.40 | 1.30 1.42 |
1.11 | 1.27 4.88 |
The quarterly figures are specific to the quarter to which they refer and have been rounded for commercial convenience.
Calculated on the basis of units of 1,000 euros.
192 Glossary 194 Credits 195 Contacts
| in million euros | 2010 | 2011 restated1 |
2012 | 2013 | 2014 | 2015 | 2016 |
|---|---|---|---|---|---|---|---|
| Results of operations | |||||||
| Sales | 15,092 | 15,605 | 16,510 | 16,355 | 16,428 | 18,089 | 18,714 |
| Adhesive Technologies | 7,306 | 7,746 | 8,256 | 8,117 | 8,127 | 8,992 | 8,961 |
| Beauty Care | 3,269 | 3,399 | 3,542 | 3,510 | 3,547 | 3,833 | 3,838 |
| Laundry & Home Care | 4,319 | 4,304 | 4,556 | 4,580 | 4,626 | 5,137 | 5,795 |
| Corporate | 199 | 156 | 155 | 148 | 128 | 128 | 121 |
| Gross margin | 46.5 | 45.3 | 46.8 | 47.7 | 47.0 | 48.2 | 47.9 |
| Research and development expenses | 391 | 410 | 408 | 415 | 413 | 478 | 463 |
| Operating profit (EBIT) | 1,723 | 1,765 | 2,199 | 2,285 | 2,244 | 2,645 | 2,775 |
| Adhesive Technologies | 878 | 1,002 | 1,191 | 1,271 | 1,345 | 1,462 | 1,561 |
| Beauty Care | 411 | 471 | 483 | 474 | 421 | 561 | 526 |
| Laundry & Home Care | 542 | 419 | 621 | 682 | 615 | 786 | 803 |
| Corporate | –108 | –127 | –97 | –141 | –137 | –164 | –115 |
| Income before tax | 1,552 | 1,610 | 2,018 | 2,172 | 2,195 | 2,645 | 2,742 |
| Tax rate in % |
26.4 | 26.0 | 24.4 | 25.2 | 24.3 | 24.4 | 23.7 |
| Net income | 1,143 | 1,191 | 1,526 | 1,625 | 1,662 | 1,968 | 2,093 |
| Attributable to shareholders of Henkel AG & Co. KGaA |
1,118 | 1,161 | 1,480 | 1,589 | 1,628 | 1,921 | 2,053 |
| Net return on sales2 in % |
7.6 | 7.6 | 9.2 | 9.9 | 10.1 | 10.9 | 11.2 |
| Interest coverage ratio | 12.8 | 14.0 | 14.3 | 23.9 | 48.4 | 75.7 | 107.9 |
| Net assets | |||||||
| Total assets | 17,525 | 18,487 | 19,525 | 19,344 | 20,961 | 22,323 | 27,917 |
| Non-current assets | 11,590 | 11,848 | 11,927 | 11,360 | 14,150 | 15,406 | 19,704 |
| Current assets | 5,935 | 6,639 | 7,598 | 7,984 | 6,811 | 6,917 | 8,213 |
| Equity | 7,950 | 8,670 | 9,511 | 10,158 | 11,644 | 13,811 | 15,183 |
| Liabilities | 9,575 | 9,817 | 10,014 | 9,186 | 9,317 | 8,512 | 12,734 |
| Equity ratio in % |
45.4 | 46.9 | 48.7 | 52.5 | 55.6 | 61.9 | 54.4 |
| Return on equity 3 in % |
17.5 | 15.0 | 17.6 | 17.1 not |
16.4 | 16.9 | 15.2 |
| Operating debt coverage ratio in % |
71.4 | 91.6 | >500 | relevant4 | 274.8 | 375.2 | 80.8 |
| Financial position | |||||||
| Cash flow from operating activities | 1,851 | 1,562 | 2,634 | 2,116 | 1,914 | 2,384 | 2,850 |
| Capital expenditures | 260 | 443 | 516 | 465 | 2,214 | 979 | 4,409 |
| Investment ratio as % of sales |
1.7 | 2.8 | 3.1 | 2.8 | 13.5 | 5.4 | 23.6 |
| Shares | |||||||
| Dividend per ordinary share in euros |
0.70 | 0.78 | 0.93 | 1.20 | 1.29 | 1.45 | 1.605 |
| Dividend per preferred share in euros |
0.72 | 0.80 | 0.95 | 1.22 | 1.31 | 1.47 | 1.625 |
| Total dividends | 310 | 345 | 411 | 529 | 569 | 639 | 7045 |
| Payout ratio in % |
25.5 | 25.5 | 25.6 | 30.0 | 30.0 | 30.2 | 30.35 |
| Share price, ordinary shares, at year-end in euros |
38.62 | 37.40 | 51.93 | 75.64 | 80.44 | 88.62 | 98.98 |
| Share price, preferred shares, at year-end in euros |
46.54 | 44.59 | 62.20 | 84.31 | 89.42 | 103.20 | 113.25 |
| Market capitalization at year-end in bn euros |
18.3 | 17.6 | 24.6 | 34.7 | 36.8 | 41.4 | 45.9 |
| Employees | |||||||
| Total6 (at December 31) 47,850 |
47,250 | 46,600 | 46,850 | 49,750 | 49,450 | 51,350 | |
| Germany | 8,600 | 8,300 | 8,000 | 8,050 | 8,200 | 8,350 | 8,250 |
| Abroad | 39,250 | 38,950 | 38,600 | 38,800 | 41,550 | 41,100 | 43,100 |
1 Application of IAS 8 "Accounting policies, changes in accounting estimates and errors" (see notes on pages 116 and 117 of the 2012 Annual Report).
2 Net income divided by sales.
3 Net income divided by equity at the start of the year.
4 Figure not relevant due to the positive balance of net financial position and pension obligations.
5 Proposed.
6 Basis: permanent employees excluding apprentices.
171
| 10 Remuneration structure | 40 |
|---|---|
| 11 Caps on remuneration | 41 |
| 12 Remuneration of Management Board members who served in 2016 |
43 |
| 13 Structure of Management Board remuneration |
44 |
| 14 Service cost / Present value of pension benefits |
45 |
| 15 Pursuant to DCGK, payments / benefits granted for the reporting year to members of the Management Board serving in 2016 |
46 |
| 16 Pursuant to DCGK, payments / benefits made for the reporting year to members of the Management Board serving in 2016 |
47 |
| 17 Supervisory Board remuneration | 50 |
| 18 Shareholders' Committee remuneration | 51 |
| Shares and bonds | |
| 19 Key data on Henkel shares 2012 to 2016 |
52 |
| 20 Performance of Henkel shares versus market January through December 2016 |
53 |
| 21 Performance of Henkel shares versus market 2007 through 2016 |
53 |
| 22 Share data | 54 |
| 23 ADR data | 54 |
| 24 Shareholder structure: Institutional investors holding Henkel shares |
54 |
25 Bond data 55
26 Analyst recommendations 56
| Operational activities | |
|---|---|
| 27 Henkel around the world: Regional Centers |
57 |
| Strategy and financial targets 2016 | |
| 28 Achievement of financial targets 2016 |
58 |
| 29 Acquisitions signed and closed in fiscal 2016 |
58 |
| Henkel 2020+–our ambition and strategic priorities |
|
| 30 Financial ambition 2020 | 59 |
| Sustainability strategy | |
| 31 Our focal areas and targets | 61 |
| Cost of capital | |
| 32 WACC before tax by business unit | 62 |
| 33 WACC after tax by business unit | 62 |
| Economic report | |
| Macroeconomic and industry-related conditions |
|
| 34 Average rates of exchange versus the euro |
63 |
| Results of operations | |
| 35 Key financials by region | 65 |
| 36 Sales development | 65 |
| 37 Sales | 65 |
| 38 Price and volume effects | 65 |
| 39 Adjusted operating profit (EBIT) | 66 |
| 40 Guidance versus performance 2016 | 67 |
| 41 Reconciliation from sales to adjusted operating profit |
68 |
| 42 Net income | 68 |
| 43 Adjusted earnings per preferred share |
69 |
| 44 Preferred share dividend | 69 |
| Net assets and financial position | |
| 45 Financial structure | 70 |
| 46 Capital expenditures 2016 | 71 |
| 47 Capital expenditures by business unit |
71 |
| 48 Net financial position 2012 to 2016 | 71 |
| 49 Net financial position | 72 |
| 50 Credit ratings | 73 |
| 51 Key financial ratios | 73 |
| Employees | |
| 52 Employees by region | 74 |
| 53 Employees by organizational unit | 74 |
| 54 Employees by activity | 75 |
55 Employees by age group 75 56 Employees 75 57 Women in management 76
| 58 Material expenditures by business unit | 78 |
|---|---|
| 59 Material expenditures by type | 78 |
| Production | |
| 60 Number of production sites | 79 |
| 61 Sustainability targets 2020 | 81 |
| Research and development | |
| 62 R&D expenditures | 81 |
| 63 R&D expenditures by business unit | 81 |
| 64 Selected research and development sites |
82 |
| 65 Key R&D figures | 82 |
| Adhesive Technologies | |
| 66 Key financials | 88 |
| 67 Sales development | 88 |
| 68 Sales Adhesive Technologies | 90 |
| Beauty Care | |
| 69 Key financials | 92 |
| 70 Sales development | 92 |
| 71 Sales Beauty Care | 94 |
| Laundry & Home Care | |
| 72 Key financials | 96 |
| 73 Sales development | 96 |
| 74 Sales Laundry & Home Care | 98 |
| Henkel AG & Co. KGaA (condensed version according to the German Commercial Code [HGB]) 75 Condensed income statement in accordance with the German |
|
| Commercial Code [HGB] | 101 |
| 76 Condensed balance sheet in accordance with the German Commercial Code [HGB] |
102 |
| Risks and opportunities report | |
| 77 Overview of major risk categories | 106 |
| 78 Classification of risks in ascending order |
106 |
| Consolidated financial statements | |
| 79 Consolidated statement of financial position – Assets |
116 |
| 80 Consolidated statement of financial position – Equity and liabilities |
117 |
| 81 Consolidated statement of income | 118 |
| 82 Consolidated statement of comprehensive income |
118 |
| 83 Consolidated statement of | |
| changes in equity | 119 |
| 84 Consolidated statement of cash flows | 120 |
188 Quarterly breakdown of key financials 189 Multi-year summary
Notes to the consolidated financial
business unit 121 87 Key financials by region 122 88 Scope of consolidation 123
89 Acquisitions 125 90 Reconciliation of the purchase price to provisional goodwill 126
91 Currencies 127 Recognition and measurement methods 92 Summary of selected measurement methods 128 New international accounting regulations according to International Financial Reporting Standards (IFRSs)
93 Accounting methods applied for the first time in the year under review 129
94 Accounting regulations not applied in advance of their effective date 130
adopted into EU law 130
96 Useful life 131
97 Cost 131
impairment 132 99 Net book values 132 100 Book values – Goodwill 133
other rights 134
impairment 135 Net book values 136 Other financial assets 137 Other assets 137
102 Cost 135
107 Analysis of inventories 138
108 Trade accounts receivable 138
receivable 138 110 Assets and liabilities held for sale 139 111 Issued capital 139
95 Accounting regulations not yet
98 Accumulated depreciation/
101 Book values – Trademarks and
Property, plant and equipment
103 Accumulated depreciation/
Trade accounts receivable
109 Development of valuation allowances on trade accounts
Inventories
Non-current assets
Intangible assets
86 Group segment report by
Acquisitions and divestments
Currency translation
statements
| 192 Glossary | ||
|---|---|---|
| Provisions for pensions and similar | ||
|---|---|---|
| obligations |
| 112 Actuarial assumptions | 142 |
|---|---|
| 113 Development of defined benefit obligation at December 31, 2015 |
143 |
| 114 Development of plan assets at December 31, 2015 |
143 |
| 115 Development of asset ceiling at December 31, 2015 |
143 |
| 116 Development of the net obligation at December 31, 2015 |
144 |
| 117 Development of defined benefit obligation at December 31, 2016 |
144 |
| 118 Development of plan assets at December 31, 2016 |
145 |
| 119 Development of asset ceiling at December 31, 2016 |
145 |
| 120 Development of the net obligation at December 31, 2016 |
145 |
| 121 Development of reimbursement rights 146 | |
| 122 Analysis of plan assets | 146 |
| 123 Plan assets by country 2016 | 147 |
| 124 Classification of bonds by rating 2016 | 147 |
| Risks associated with pension obligations | |
| 125 Future payments for pension benefits 148 | |
| 126 Sensitivities – Present value of pension obligations at December 31, 2016 |
149 |
| Income tax provisions and other provisions | |
| 127 Development in 2016 | 149 |
| 128 Analysis of sundry provisions by function |
150 |
| Borrowings | |
| 129 Borrowings | 151 |
| 130 Bonds | |
| 151 | |
| 131 Other financial liabilities | 152 |
| 132 Other liabilities | |
| Financial instruments report | 152 |
| 133 Financial instruments report 134 Carrying amounts and fair values of financial instruments |
153 155 |
| 135 Carrying amounts and fair values of financial instruments |
156 |
| 136 Net results of the measurement categories and reconciliation to |
|
| financial result | 157 |
| 137 Derivative financial instruments | 158 |
| 138 Interest rates in percent p.a. | 158 |
| 139 Gains and losses from fair value hedges |
159 |
| 140 Cash flow hedges (after tax) | 159 |
| 141 Hedges of a net investment in a foreign entity (after tax) |
159 |
142 Maximum risk position 160
| 143 Age analysis of non-impaired overdue loans and receivables |
161 |
|---|---|
| 144 Financial assets and financial liabilities from derivatives subject to netting, collateral, or similar arrangements |
161 |
| 145 Cash flows from financial liabilities at December 31, 2015 |
162 |
| 146 Cash flows from financial liabilities at December 31, 2016 |
162 |
| 147 Currency exposure | 164 |
| 148 Interest rate exposure | 164 |
| 149 Interest rate risk | 165 |
| 150 Other operating income | 167 |
| 151 Other operating expenses | 167 |
| Financial result | |
| 152 Financial result | 167 |
| 153 Interest result | 167 |
| 154 Other financial result | 167 |
| Taxes on income | |
| 155 Income before tax and analysis of taxes |
168 |
| 156 Main components of tax expense and income |
168 |
| 157 Deferred tax expense by items on the statement of financial position |
168 |
| 158 Tax reconciliation statement | 168 |
| 159 Allocation of deferred taxes | 169 |
| 160 Expiry dates of unused tax losses and tax credits |
169 |
| 161 Reconciliation of adjusted net income |
171 |
| Payroll cost and employee structure | |
| 162 Payroll cost | 171 |
| 163 Number of employees per function | 171 |
| Group segment report | |
| 164 Reconciliation between net operating | |
| assets / capital employed and financial statement figures |
174 |
| 165 Earnings per share | 175 |
| 166 Contingent liabilities | 176 |
| Lease and other unrecognized financial commitments |
|
| 167 Operating lease commitments | 176 |
| 168 Finance lease commitments | 176 |
| Auditor's fees and services | |
| 170 Quarterly breakdown of key financials 188 | ||
|---|---|---|
| 171 Multi-year summary | 189 |
169 Type of fee 178
Earnings Before Interest and Taxes (EBIT) adjusted for exceptional items in the form of one-time charges, one-time gains and restructuring expenses.
Capital invested in company assets and operations. Equity + interest-bearing liabilities.
Acting in conformity with applicable regulations; adherence to laws, rules, regulations and in-house or corporate codes of conduct.
Year-over-year rate of growth, e.g. of an investment.
System of management and control, primarily within listed companies. Describes the powers and authority of corporate management, the extent to which these need to be monitored and the extent to which structures should be put in place through which certain interest / stakeholder groups may exert influence on the corporate management.
The German Corporate Governance Code (abbreviation: DCGK) is intended to render the rules governing corporate management and control for a stock corporation in Germany transparent for national and international investors, engendering trust and confidence in the corporate management of German companies.
Instrument used by Henkel to evaluate the credit risks of banks.
Aggregate of all loan services available on call from one or several banks as cover for an immediate credit requirement.
Declaration made by the management /executive board and supervisory board of a company according to Section 161 of the German Stock Corporation Act [AktG], confirming implementation of the recommendations of the Governmental Commission for the German Corporate Governance Code.
Post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in current and prior periods.
Financial instrument, the value of which changes in response to changes in an underlying asset or an index, which will be settled at a future date and which initially requires only a small or no investment.
Metric indicating the income of a joint stock corporation divided between the weighted average number of its shares outstanding. The calculation is performed in accordance with International Accounting Standard (IAS) 33.
Abbreviation for Earnings Before Interest and Taxes. Standard profit metric that enables the earning power of the operating business activities of a company to be assessed independently of its financial structure, facilitating comparability between entities where these are financed by varying levels of debt capital.
Abbreviation for Earnings Before Interest, Taxes, Depreciation and Amortization.
The EVA concept reflects the net wealth generated by a company over a certain period. A company achieves positive EVA when the operating result exceeds the weighted average cost of capital. The WACC corresponds to the yield on capital employed expected by the capital market. EVA is a registered trademark of Stern Stewart & Co.
Financial metric indicating the ratio of equity to total capital. It expresses the share of total assets financed out of equity (owners' capital) rather than debt capital (provided by lenders). Serves to assess the financial stability and independence of a company.
Cash flow actually available for acquisitions, dividend payments, the reduction of borrowings, and contributions to pension funds.
Indicates the percentage by which a company's sales exceed cost of sales, i.e. the ratio of gross profit to sales.
Difference between sales and cost of sales.
Method for accounting for hedging transactions whereby the compensatory effect of changes in the fair value of the hedging instrument (derivative) and of the underlying asset or liability is recognized in either the statement of income or the statement of comprehensive income.
192 Glossary 194 Credits 195 Contacts
Contains investments in equities and alternative investments, and serves to improve the overall return of the pension plan assets over the long term in order to raise the coverage ratio of pension funds. In addition, a broader investment horizon increases the level of investment diversification.
Profitability metric reflecting the ratio of earnings before interest and taxes (EBIT) to capital employed.
Operating business metric derived from the ratio of EBIT to revenues. Also known as EBIT margin.
Term given to the exchange of capital amounts in differing currencies (currency swap) or of different interest obligations (interest swap) between two entities.
Method, based on fair value, used to calculate the maximum likely or potential future loss arising from a portfolio.
Average return on capital, expressed as a percentage and calculated on the basis of a weighted average of the cost of debt and equity. WACC represents the minimum return expected of a company by its lenders for financing its assets.
Abbreviation for "Kommanditgesellschaft auf Aktien." A KGaA is a company with a legal identity (legal entity) in which at least one partner has unlimited liability with respect to the company's creditors (personally liable partner), while the liability for such debts of the other partners participating in the share-based capital stock is limited to their share capital (limited shareholders).
Bonus aligned to long-term financial performance.
Net financial position is defined as cash and cash equivalents plus readily monetizable financial instruments classified as "available for sale" or in the "fair value option," less borrowings, and plus positive and less negative fair values of hedging transactions.
Inventories plus payments on account, receivables from suppliers and trade accounts receivable, less trade accounts payable, liabilities to customers, and current sales provisions.
Proportion of equity attributable to third parties in subsidiaries included within the scope of consolidation. Previously termed "minority interests." Valued on a proportional net asset basis. A pro-rata portion of the net income of a corporation is due to shareholders owning non-controlling interests.
A comprehensive program to structure and optimize all Henkel's business processes based on customer needs, quality and efficiency.
Growth in revenues after adjusting for effects arising from acquisitions, divestments and foreign exchange differences – i.e. "top line" growth generated from within.
Indicates what percentage of annual net income (adjusted for exceptional items) is paid out in dividends to shareholders, including non-controlling interests.
Published by Henkel AG & Co. KGaA 40191 Düsseldorf, Germany Phone: +49(0) 211-797-0
© 2017 Henkel AG & Co. KGaA
Edited by: Corporate Communications, Investor Relations, Corporate Accounting and Subsidiary Controlling
Coordination: Renata Casaro, Dr. Hannes Schollenberger, Wolfgang Zengerling
English translation: Donnelley Language Solutions, London
Pre-print proofing: Paul Knighton, Cambridge; Thomas Krause, Krefeld
Design and typesetting: MPM Corporate Communication Solutions, Mainz
Photographs: Ralph Belfiglio, Tobias Ebert, Owen Gao, Anne Großmann, Claudia Kempf, Nils Hendrik Müller; Henkel
Printed by: Druckpartner, Essen
Date of publication of this Report: February 23, 2017
PR No.: 02 17 3,000 ISSN: 0724-4738 ISBN: 978-3-941517-70-7
The Annual Report is printed on LuxoArt Silk FSC. The paper is made from pulp bleached without chlorine. It has been certified and verified in accordance with the rules of the Forest Stewardship Council (FSC). The printing inks contain no heavy metals. This publication was cover-finished and bound with these Henkel products: Cellophaning with Aquence GA 6080 HGL laminating adhesive, bound using Technomelt PUR 3400 ME COOL and Technomelt GA 3960 Ultra for the highest occupational health and safety standards.
Except as otherwise noted, all marks used in this publication are trademarks and/or registered trademarks of the Henkel Group in Germany and elsewhere. This document contains forward-looking statements which are based on the current estimates and assumptions made by the corporate management of Henkel AG & Co. KGaA. Forward-looking statements are characterized by the use of words such as expect, intend, plan, predict, assume, believe, estimate, anticipate, forecast and similar formulations. Such statements are not to be understood as in any way guaranteeing that those expectations will turn out to be accurate. Future performance and the results actually achieved by Henkel AG & Co. KGaA and its affiliated companies depend on a number of risks and uncertainties and may therefore differ materially from forward-looking statements. Many of these factors are outside Henkel's control and cannot be accurately estimated in advance, such as the future economic environment and the actions of competitors and others involved in the marketplace. Henkel neither plans nor undertakes to update forward-looking statements. This document has been issued for information purposes only and is not intended to constitute an investment advice or an offer to sell securities, or a solicitation of an offer to buy securities.
188 Quarterly breakdown of key financials 189 Multi-year summary 190 Index of tables and graphs
192 Glossary 194 Credits 195 Contacts
Phone: +49(0) 211-797-3533 Fax: +49(0) 211-798-2484 E-mail: [email protected]
Investor Relations Phone: +49(0) 211-797-3937 Fax: +49(0) 211-798-2863 E-mail: [email protected]
www.henkel.com/annualreport www.henkel.com/sustainabilityreport www.youtube.com/henkel
Henkel app available for iOS and Android:
www.facebook.com/henkel www.twitter.com/henkel www.linkedin.com/company/henkel_2 www.instagram.com/henkelglobal/
Annual General Meeting Henkel AG & Co. KGaA 2017: Thursday, April 6, 2017
Publication of Report for the First Quarter 2017: Thursday, May 11, 2017
Publication of Report for the Second Quarter /Half Year 2017: Thursday, August 10, 2017
Publication of Report for the Third Quarter /Nine Months 2017: Tuesday, November 14, 2017
Publication of Report for Fiscal 2017: Thursday, February 22, 2018
Annual General Meeting Henkel AG & Co. KGaA 2018: Monday, April 9, 2018
Up-to-date facts and figures on Henkel also available on the internet: www.henkel.com
Henkel AG & Co. KGaA 40191 Düsseldorf, Germany Phone: +49(0) 211-797-0 www.henkel.com
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