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57
Annual Report 2009
Group management report » Sustainability / Corporate social responsibility
corruption. Our understanding of socially responsible behav-
ior has been specified and communicated to our employees
throughout the entire Group through our Code of Corpo-
rate Sustainability and our Code of Conduct. From these
codes are derived our more detailed internal SHE standards
(governing safety, health and environmental protection),
our social standards and our Group purchasing standards.
Compliance with these rules and requirements is regularly
monitored throughout the Group by Internal Audit. In ad-
dition, Henkel companies have their management systems
externally certified. As of the end of 2009, 58 percent of
our production volume was generated at sites certified in
accordance with the international environmental manage-
ment standard ISO 14001.
As a responsible corporate citizen, Henkel provides
financial and in-kind support for activities aligned to social
needs, the environment, education, science, health, sport,
art and culture. Since 1998, we have also actively supported
the volunteer work performed by our employees and retirees
through our MIT Initiative (Make an Impact on Tomorrow).
In 2009, we supported a total of 1,143 charitable MIT projects
in 76 countries, of which 349 were children-related.
Future-capable solutions promoting sustainability can
only be developed in dialogue with all social groups. In order
to be able to consider and evaluate the interests of the vari-
ous parties involved, we constantly seek dialogue with our
stakeholders at the local, regional and international level.
These include our employees, shareholders, customers and
suppliers, public authorities, politicians, associations and
non-governmental organizations as well as representatives
of academia, the sciences and the public at large.
We deploy a wide range of communication instruments
in order to meet the specific information requirements of
our stakeholders. More details and background information
on the subject of sustainability including our value added
statement can be found in our Sustainability Report. With
this, we document the high priority assigned to the prin-
ciples of sustainable development by our company, at the
same time satisfying the reporting obligations laid down
in the United Nations Global Compact.
Further information, reports, background details and
the latest news on sustainable development at Henkel can
be found on our website www.henkel.com/sustainability.
» To reduce waste per ton of output by a further 10 percent
» To reduce occupational accidents per million hours worked
by a further 20 percent
Again in the year under review, we were able to improve
our sustainability performance on a number of important
points. For example, the savings we have made with respect
to energy consumption have helped to mitigate the effect
of rising energy prices. Further, the associated reduction in
carbon dioxide emissions contributes to the achievement
of climate protection targets.
In addition to optimizing our own production processes,
we focus particularly on the development of products and
technologies that save energy in the use phase – for the ma-
jority of the energy consumption and the associated carbon
dioxide emissions occur once our products have been sold
and put into use. One example is laundry detergent. Energy
savings made by washing at low temperatures can make an
important contribution to climate protection. Appropriate
methods of measurement have yet to be developed in order
to communicate these contributions in a persuasive and
credible manner, and this is an area in which we are keen
to drive progress forward. We are therefore currently taking
part with products from all three of our business sectors
in the “Product Carbon Footprint” pilot project with full
participation in the national and international dialogue
relating to this issue.
Organization and dialogue
The Henkel Management Board bears overall responsibility
for our sustainability policy. Our Sustainability Council
steers our global sustainability activities in collaboration
with our operating business sectors, our corporate functions
and our regional and national companies.
By joining the United Nations Global Compact in July
2003, we publicly underscored our commitment to respect
human rights and fundamental labor standards, to promote
environmental protection and to work against all forms of
Sustainability performance 2005 to 2009
Environmental indicators per ton of output
Energy consumption – 26 %
Waste – 37 %
Water consumption –12 %
Occupational accidents1)
– 57 %
1) Per million hours worked
Group management report » Laundry & Home Care
Purex is the USA’s number one in the rapidly growing segment of mid-priced liquid laundry detergents. Now Purex
Complete 3-in-1, launched in 2009, has also been enthusiastically received by retailers and consumers alike. This
innovation combines the performance of detergents and softeners with an anti-static compound to prevent wash
static in the drier. And it was developed by the interdisciplinary team pictured here in Scottsdale, Arizona, USA.
From the left:
Thomas Britt Keith Cardinal Katherine Yu Stephen Koven Jack Hudson Margaret Heyer Kristopher Stathakis
Director –
Supply Chain
Manager,
Package Engineering –
Laundry Care
Senior Scientist –
Product Research
and Development
Brand Manager –
Laundry Care
Engineering Fellow –
Process Development
Manager, Contract
Manufacturing –
Supply Chain
Senior Project
Manager –
Supply Chain
59
Annual Report 2009
Group management report » Laundry & Home Care
Laundry & Home Care
Sales development
in percent 2009
Change versus previous year –1.0
Foreign exchange
– 3.9
After adjusting for foreign exchange 2.9
Acquisitions/divestments
0.0
Organic 2.9
Key financials1)
in million euros 2008 2009 +/–
Sales 4,172
4,129
–1.0 %
Proportion of Henkel sales 30 %
30
%
0.0 pp
Operating profit (EBIT) 439
501
14.0 %
Adjusted operating
profit (EBIT)
2) 450
530
17.8 %
Return on sales (EBIT) 10.5 %
12.1
%
1.6 pp
Adjusted return on sales (EBIT)
2) 10.8 %
12.8
%
2.0 pp
Return on capital employed
(ROCE)
16.9 %
19.6
%
2.7 pp
EVA®166
232
39.8 %
1) Calculated on the basis of units of 1,000 euros
2) Adjusted for one-time charges/gains and
restructuring charges
pp = percentage points
e
» Organic sales growth of 2.9 percent
» Adjusted operating profit improved to 530 mil-
lion euros
» Adjusted EBIT margin increased by 2.0 percentage
points to 12.8 percent
Economic environment and market position
The volume of the world market for laundry and home care
products in 2009 amounted to around 91 billion euros. The
markets of relevance to Henkel remained robust, expand-
ing slightly despite the difficult world economic situation.
Once again, market growth from a world perspective was
more price than volume-driven. In the course of the year,
however, price levels came under pressure as the general
economic climate deteriorated.
Western Europe saw a moderate expansion in the market
for detergents and household cleaners in the year under
review. The economic slump caused uncertainty among
consumers. This led to increased price sensitivity and, as
a result, a rise in the market share of private labels and
also an increase in the share of the market attributable to
discounters. Despite these rather unfavorable competitive
conditions for brand manufacturers, we were able to main-
tain our leading position in the overall Western European
market.
Many countries in Eastern Europe were unable to repeat
the double-digit percentage growth rates exhibited in previ-
ous years, reflecting particularly clearly the impact of the
global economic and financial crisis. This had the effect
of restricting growth and appreciably influenced the pur-
chasing behavior of consumers. In this challenging market
environment, we nevertheless succeeded in expanding our
market share and further reducing the gap to our biggest
competitor.
In the growth regions of Africa/Middle East, Latin Amer-
ica and Asia, the markets of relevance to us underwent, in
some cases, double-digit growth rates. And with our strong
market position, we were able to benefit from the dynamic
developments encountered in the Middle East and also in
North Africa.
The laundry and home care market in North America
remained generally stable last year, albeit with a mixed set of
developments across the individual categories. While we no-
ticed a small degree of growth in the detergents market, sales
4,000
3,000
2,000
1,000
4,129
4,172
4,088 4,117 4,148
2009
2008200720062005
0
Sales
in million euros
Detergents 53 %
World market for laundry and home care products
Insecticides 6 %
Air fresheners 6 %
Cleaning products 35 %
as a whole. Our local brands offering high inherent brand
identity in terms of positioning, formulation and packaging
are being more closely associated with these focus brands.
This enables us to generate synergies in both production
and in our advertising investments. Through this strategy,
our ten top brand clusters account for almost 80 percent
of our sales, effectively utilizing both the strength of our
international brand concepts and those of our well estab-
lished local brands.
Sales and profits
Sales nominally decreased by 1.0 percent to 4,129 million
euros in the year under review. In organic terms – i.e. after
adjusting for foreign exchange and acquisitions/divestments
– sales growth came in at 2.9 percent. In 2009, this organic
improvement in sales was due exclusively to higher pricing
levels, while volumes sold underwent a slight decline.
In the regional breakdown, the main increase in sales
achieved was in Europe/Africa/Middle East. We posted
double-digit organic sales growth both in Eastern Europe
and in Africa/Middle East. And sales underwent particu-
larly significant expansion in Russia and Egypt, with our
market positions in those countries further expanding. In
Western Europe, on the other hand, we were unable to quite
reach the sales level of the previous year in volume terms,
although the average revenue generated by our products
rose substantially. The contributory factors in this regard
were the price increases implemented at the end of the
previous year, and new product launches that enabled us
to successfully combat the rise in demand for cheap own
labels. In Latin America, we were able to substantially in-
crease organic sales and expand our market position. Our
sales performance in Asia was affected by our exit from
the Chinese market at the end of 2008. After adjusting for
this exceptional circumstance, sales in Asia underwent a
gratifying increase, with our entry into the South Korean
laundry care market yielding very promising initial results.
In addition to our position as market leader in the supply
of household insecticides, we have also been present in
the South Korean market since the fourth quarter of 2009
with our biggest international laundry brand Persil, which
is already enjoying a high level of retailer acceptance. Our
business in North America remained stable overall. Here we
celebrated a major market success in the form of our innova-
tion Purex Complete 3-in-1. These groundbreaking laundry
volumes in the household cleaners market decreased slightly.
With our detergent brand Purex, we were able to expand our
market position through the launch of new products such
as Purex Complete 3-in-1, providing us with a good position
as competition became increasingly price-driven.
Business activity and strategy
The business sector is globally active in the marketing, sell-
ing and distribution of branded products for the laundry and
home care markets. The Laundry segment includes not only
heavy-duty and specialty detergents but also fabric softeners,
laundry performance enhancers and laundry care products.
The portfolio of our Home Care segment encompasses clean-
ers for bath and WC applications together with household,
glass and specialty cleaners. We also manufacture hand and
machine dishwashing products and have a market presence
in selected regions with air fresheners and insecticides.
Our objective is to further promote profitable growth by
driving the organic expansion of our continuing operations.
To this end, we intend over the medium term to further ex-
pand the share of sales accounted for by our growth regions
from the strong and profitable platform provided by our
positions in Western Europe and North America. Specifi-
cally, our aim is to harness the dynamics of the emerging
economies, increase our market shares in the countries
concerned and raise profitability to the high level of the
more mature regions. We are endeavoring to further extend
our leading market positions in Eastern Europe and North
Africa. In our other growth regions, we intend to further
reduce the gap to the current market leaders.
The year under review demonstrated that successful
innovation can make a significant contribution to profit-
able growth, particularly in economically difficult times.
Consequently, it remains our objective to achieve and main-
tain over the long term a high innovation rate of around
40 percent and to consolidate and expand our innovation
leadership in our markets. With thorough, efficient con-
trol of the entire innovation process, we are able to quickly
identify and harness consumer trends and convert them
into products. We are also continuously reviewing our ex-
isting supply portfolio, responding to changing consumer
needs by adapting our product range. For this, we pursue
a “brand cluster” strategy in which our main focus is on
our major international brands and on promoting their
continuing disproportionate growth versus our portfolio
Group management report » Laundry & Home Care
60 Annual Report 2009
61
Annual Report 2009
to further consolidate our market positions with double-
digit growth rates in many countries. In the market for
machine dishwashing detergents in Western Europe, we
launched Somat 9, once again exemplifying our innova-
tive strengths by extending the integral functions with an
odor neutralizer and an extra-dry effect. In the case of our
WC products, we achieved our highest growth in Eastern
Europe, increasing our market share overall with the aid
of new products such as Bref WC Tornado Gel: once the
gel makes contact with water, a powerful cleaning foam is
produced that extends around the toilet bowl, exerting a
self-acting cleaning effect.
Capital expenditures
Our investments in the year under review were primarily
geared to optimizing and rationalizing our production pro-
cesses. Further capital expenditures were assigned to the
field of plant safety. In total, we invested 151 million euros
in property, plant and equipment, compared to 163 mil-
lion euros in the previous year. This decrease is due to the
completion of a number of special projects in 2008.
Outlook
We expect the laundry and home care markets of relevance
to us to exhibit a slight decline in their growth dynamics in
2010. In North America and Western Europe particularly,
we anticipate that market expansion will be no more than
minor, while competition is expected to remain intense.
The anticipated rise in sales will therefore be generated by
our growth regions.
Within this environment, we intend to expand our
market positions in 2010 and to once again outperform
our relevant markets in terms of organic sales growth. We
also expect a slight increase in adjusted operating profit
compared to prior year.
We see opportunities arising from a revival in demand in
Western Europe and North America, a continuation in the
sales dynamics exhibited by the growth regions, and in the
successful launch of innovations. There is a risk that the pro-
pensity to consume could significantly decline, for example
as a result of a rapid rise in unemployment. We also see risks
arising from increasing competition and promotional pres-
sure in today’s already highly competitive markets. Added
to this is the uncertainty of commodity price developments,
which will depend on the world economic situation.
sheets combine the performance of a laundry detergent and
fabric softener while at the same time preventing the wash
load from becoming charged with static in the drier.
We increased our operating profit (EBIT) by 14.0 percent
to a new record high of 501 million euros. After adjusting
for foreign exchange, the rise was an even more respectable
19.3 percent. Reflected in this result are, in addition to sell-
ing price stability as compared to the end of the previous
year, our successful measures aimed at reducing cost and
enhancing efficiency, plus a decline in our raw material
prices. In order to support our new product launches and
as a contra-cyclic response to the difficult overall economic
situation, we substantially increased our advertising invest-
ments last year. At 12.1 percent, return on sales reached a
new record level, improving by 1.6 percentage points. Return
on capital employed (ROCE) also exhibited a substantial rise
of 2.7 percentage points to 19.6 percent, due in particular
to the improvement in the management of our net work-
ing capital.
Business segments
In the Laundry business segment, the greatest growth mo-
mentum in the year under review came from our heavy-
duty detergents and fabric softeners. In regional terms, the
main boost to growth was from our heavy-duty detergents
in Europe/Africa/Middle East, with double-digit growth rates
having been achieved in a number of countries of Eastern
Europe and the Middle East. We also succeeded in expanding
the market share of our heavy-duty detergents in Western
Europe, with benefits accruing from our successful innova-
tions in this category. We launched new Persil ActicPower
in a number of countries of Western Europe. This product
requires only half the usual detergent dosage and develops
its full laundry power at just 15 degrees Celsius. Our fabric
softeners saw sales increase primarily in Eastern Europe. We
were able to generate additional sales and increase market
share through the launch of Vernel Crystals – innovative
fragrance crystals for the wash – and new fragrance variants
for our Vernel and Silan brands.
The main contributors to the organic sales growth regis-
tered by our Home Care segment were our dishwashing deter-
gents and WC products. While sales in machine dishwashing
products increased particularly in Eastern Europe, hand
dishwashing product sales achieved their highest growth
rates in the Africa/Middle East region. Here, we were able
Group management report » Laundry & Home Care
Group management report » Cosmetics / Toiletries
In 2009, Schwarzkopf – the Henkel brand that generates the company’s highest revenue – celebrated 111 years
of quality, competence and innovation in hair cosmetics. Our experts in colorants are constantly developing
fascinating hair colors for consumers and stylists alike.
From the left:
Nicola delli Venneri Dr. Astrid Kleen Marie-Eve Schroeder Renate Simon-Florek Dr. Mustafa Akram Anett Kaplan
International Production
and Packaging
Development
International Research
and Development –
Colorants
International Marketing –
Colorants, Consumer
Business
International Marketing –
Colorants, Salon Business
International Research
and Development –
Colorants
International Marketing –
Colorants, Consumer
Business
63
Annual Report 2009
Group management report » Cosmetics / Toiletries
Kosmetik /KörperpflegeCosmetics / Toiletries
Key financials1)
in million euros 2008 2009 +/–
Sales 3,016
3,010
–0.2 %
Proportion of Henkel sales 21 %
22
%
1.0 pp
Operating profit (EBIT) 376
387
3.1 %
Adjusted operating
profit (EBIT)
2) 379
387
2.1 %
Return on sales (EBIT) 12.5 %
12.9
%
0.4 pp
Adjusted return on sales (EBIT)
2) 12.6 %
12.9
%
0.3 pp
Return on capital employed
(ROCE)
17.5 %
18.2
%
0.7 pp
EVA®150
164
9.3 %
1) Calculated on the basis of units of 1,000 euros
2) Adjusted for one-time charges/gains and
restructuring charges
pp = percentage points
e
» Organic sales growth of 3.5 percent
» Adjusted operating profit increased to 387 mil-
lion euros
» Adjusted EBIT margin increased by 0.3 percent-
age points to 12.9 percent
Economic environment and market position
The world cosmetics market of relevance to us was valued in
2009 at 135 billion euros, representing a slight decline due
to the world economic situation. The regional developments
observed were very mixed. Our core markets in Western
Europe and North America experienced a decline overall,
particularly with respect to retail hair cosmetics. Neverthe-
less, we succeeded in generating disproportionate growth
and in achieving significant market share increases. We
substantially expanded our already strong market positions
in Western Europe on the back of positive developments in
hair cosmetics and body care. And in North America, we
were able to effectively enhance our position in the core
segments of styling and body care.
The markets in Eastern Europe, the Africa/Middle East
region and Asia-Pacific continued to exhibit above-aver-
age growth, and we were able to generate disproportionate
expansion in these regions, gaining significant market
share.
The hair salon market was heavily impacted worldwide
by the economic crisis, undergoing a substantial decline in
activity. Within this difficult market environment, Schwarz-
kopf Professional was nevertheless able to successfully main-
tain its market share and strengthen its position as the
global number three.
The Cosmetics/Toiletries business sector holds leading
positions in the markets of relevance to us around the world
and was again able to substantially expand its market shares
in the year under review.
Business activity and strategy
The Cosmetics/Toiletries business sector is active both in
the branded consumer goods segments of hair cosmetics,
body care, skin care and oral care, and in the professional
Sales development
in percent 2009
Change versus previous year – 0.2
Organic 3.5
3,000
2,000
1,000
3,010
3,016
2,629
2,864 2,972
2009
2008200720062005
0
Sales
in million euros
Oral care 11 % Hair cosmetics &
salon products 32 %
Skin care 35 %
World market for cosmetics and toiletry products
64 Annual Report 2009
Group management report » Cosmetics / Toiletries
bound environment. In nominal terms, sales decreased by
0.2 percent to 3,010 million euros due to negative foreign
exchange effects and the divestments in North America.
The improvement in organic sales achieved in 2009 was due
not just to higher price levels but also primarily to positive
volume expansion.
The main contributors to organic growth were the suc-
cessful development of our branded consumer goods busi-
ness in Eastern Europe, with good performances also being
posted in the regions of Africa/Middle East, Latin America
and Asia-Pacific. In Western Europe too, we achieved en-
couraging results despite the recessive environment, and
in North America we outperformed the market.
Sales of our hair salon business were below the level of
the previous year, although developments were significantly
better than those of the overall market.
At 387 million euros, operating profit (EBIT) was 3.1 per-
cent above the prior-year level. After adjusting for foreign
exchange, operating profit rose by 6.3 percent compared to
the previous year. Systematic cost reduction measures, selec-
tive price increases and a further reduction in complexity
led to an improvement in our cost structures. Return on
sales rose by 0.4 percentage points compared to the previous
year, attaining a new record level of 12.9 percent.
We increased return on capital employed (ROCE) by
0.7 percentage points to 18.2 percent. This was helped not
only by the increase in profitability but also by the sub-
stantial reduction in capital employed arising from strict
management of our net working capital.
Business segments
In our Hair Cosmetics business, we succeeded in achieving
a significant organic increase in sales to new record levels
accompanied by a corresponding expansion in our market
shares.
We were able to further improve our market position
through the early and successful launch of some top inno-
vations in all segments, aligned to the changing require-
ments of consumers in this time of economic crisis. The
main growth drivers were our Hair Care and Colorants
businesses.
In the case of Hair Care, we saw our market shares reach
new record levels, with the highly successful international
launch of our Syoss brand making a notable contribution.
The Gliss Kur brand further strengthened its European mar-
ket share as a result of the launch of the Asia Straight and
hair salon business. Our strategy to expand our branded
consumer goods operations is focused on strengthening our
market positions in Western Europe and North America, in
Eastern Europe, the Middle East and other specific growth
markets. In the hair salon business, we are continuing to
pursue our globalization strategy and aiming to generate
growth particularly in Asia-Pacific, Latin America and the
Middle East.
The achievement of organic expansion lies at the focus
of our growth strategy, which we are implementing through
the development of innovative products and their rapid
launch. We also aim to complement our organic sales growth
through the acquisition of carefully selected businesses. As
part of our active style of portfolio management, we regu-
larly review our business activities. Hence, for example, we
sold our marginal amenities and chemical products busi-
ness in conjunction with the disposal of our US cosmetics
plant in Aurora, Illinois. And in July 2009, we concluded the
sale of the Agree brand. We also discontinued a number of
further minor brands.
In our branded consumer goods business, our focus is
on the international expansion of our core segments of Hair
Cosmetics, Body Care, Oral Care and Skin Care. The emphasis
of our strategy is on further developing our leading core
brands. With this concentrated portfolio management ap-
proach, our ten top brands again made a disproportionate
contribution to sales in 2009, accounting for more than
87 percent of the business sector’s revenues. And we intend
to follow this dynamic and profitable growth path in the
future through our proactive innovation strategy and dedica-
tion to consistently strengthening our brand equities. Our
current innovation rate lies in the region of 40 percent,
helped by harnessing the additional growth potential avail-
able from strategic partnerships with our customers.
We want to drive forward our hair salon business with
further product innovations, and with efficient sales and
distribution structures. And additionally, we will be looking
to develop new regional potential on a selective basis.
Our aim is to consistently improve our profitability
through the consistent expansion of our core businesses
and core competences.
Sales and profits
With organic sales growth of 3.5 percent, the Cosmetics/
Toiletries business sector was able to continue the very
good growth of the previous years, despite the recession-
65
Annual Report 2009
Group management report » Cosmetics / Toiletries
Despite the difficulties of the market environment, we were
able to further expand the position of our Hair Salon segment
innovation leader, particularly in the core categories of color
and care. The Bonacure relaunch with Amino Cell Rebuild
Technology once again underlined Bonacure’s claim as one
of the fastest growing and most innovative care brands. The
focus in the colorants category was on the launch of Igora
Color 10, the first salon colorant that takes just ten minutes
to apply, and Essensity – the first colorant without ammonia,
fragrance, silicones and preservatives to offer permanent
performance combined with 100 percent gray coverage.
Capital expenditures
The emphasis of our investment activity was on measures
designed to optimize our structures and production pro-
cesses. In all, we spent 40 million euros on property, plant
and equipment compared to 84 million euros in the previous
year. The decrease is due to the completion of a number of
special projects in 2008.
Outlook
With the market environment remaining difficult, we ex-
pect 2010 to bring a further slowdown in the growth dy-
namics of the world cosmetics market of relevance to us.
We expect sales momentum to emanate from the growth
regions of Eastern Europe, Latin America, Africa/Middle
East and Asia-Pacific.
In terms of organic sales growth, our aim is once again
to outperform our relevant markets. We further expect a
slight increase in adjusted operating profit compared to
the previous year.
Our opportunities lie primarily in the further expan-
sion of our market positions in Europe and North America,
driven by the focused pursuit of our innovation offensive,
and in extensively utilizing the potential that lies in our
growth regions. The further expansion of our Schwarzkopf
megabrand is of key importance in this regard.
Risks lie in the possibility of an increasing deterioration
in the consumer climate in the face of rising unemployment.
We expect the intensity of competition to remain persis-
tently high, and that this will be manifested in continuous
promotional pressure and high advertising expenditures.
Further rising raw material and packaging prices may also
increase the pressure on margins.
Hair Active lines. We were also able to strengthen the lead-
ing position of our Schauma brand through the launch of
In the Colorants business, the introduction of, in par-
ticular, the brand Schwarzkopf Essential Color – a perma-
nent colorant without ammonia – generated market share
growth. We were also able to increase the market share
enjoyed by Palette, the market leader in Europe, with Pal-
ette Deluxe and the ten-minute colorant Palette 10. In the
case of our Brillance brand, the focus was on expanding
the range through the introduction of Brillance Intense
Couleur. The colorant Diadem was enriched with the active
ingredient Q10.
Against a background of contracting markets, our Styling
business likewise made significant gains in market share.
We consolidated the growth of Taft, the market leader in
the European styling segment, through the launch of Taft
Ultra with Silk Touch, and also Taft Maxx Power Styling Gel.
And our “young fashion” brand Got2b gained further posi-
tive momentum through the introduction of “superkleber”
[superglue] and “guardian angel.”
The 2009 innovation program was supported by mea-
sures celebrating the 111th anniversary of the Schwarz-
kopf brand, including a raft of special media and customer
events.
The Body Care segment likewise continued to perform
well. The core brands Fa and Dial successfully maintained
their innovation offensive. The launch of the Fa Cream &
Oil series with valuable care oils and the introduction of
the men’s variant Extreme Cool led to an increase in market
shares across Europe. There was a substantial rise in Dial
sales resulting from the launch of Dial Antioxidant with
Cranberry and Dial 3D Odor Defense. Right Guard also made
significant inroads in the US American deodorant market
with Right Guard Fast Break.
In the Skin Care business, the introduction of Diader-
mine’s Dr. Caspari Method Dermo-Ident treatment contrib-
uted to further consolidation of the position enjoyed by
Diadermine in the rapidly growing anti-aging segment. The
Chinese child skin care series Haiermian exhibited double-
digit percentage sales growth as a result of the introduction
of innovative products in that line.
In the Oral Care business, we likewise achieved good re-
sults with the new freshness variant Theramed 2-in-1 Arctic
White.
Group management report » Adhesive Technologies
The worldwide activities of the Packaging, Consumer Goods and Construction Adhesives segment of the Adhesive
Technologies business sector are presented and decided upon in team sessions. Included in these discussions is the
segment’s best selling brand, Dispomelt. Here we see the global management team at a meeting in Bridgewater,
New Jersey, USA.
Sitting, from the left:
Steven Essick Jerry Perkins Jean Chesterfield Jürgen Convent Jean Fayolle Bjoerk Ohlhorst
Head of Finance
Head of North
America
European HR
Key Account Manager
Head of Marketing &
Innovation
Head of Packaging,
Consumer Goods and
Construction Adhesives
Global Purchasing
Key Account Manager –
Adhesive Technologies
Standing, from the left:
Ray Di Muzio Jörg Raichle Thomas Auris Gary Raykovitz Ellen Greenhorn Julio Muñoz Kampff
Head of Global
Operations
Head of Controlling,
Asia-Pacific –
Adhesive Technologies
Head of Asia-Pacific
Head of Global Product
Development
Marketing Head of Adhesive
Technologies,
Latin America
67
Annual Report 2009
Group management report » Adhesive Technologies
Adhesive Technologies
Key financials1)
in million euros 2008 2009 +/–
Sales 6,700
6,224
– 7.1 %
Proportion of Henkel sales 47 %
46
%
–1.0 pp
Operating profit (EBIT) 658
290
– 55.9 %
» Decline in organic sales of 10.2 percent
» Adjusted operating profit of 506 million euros
» Adjusted EBIT margin of 8.1 percent
Economic environment and market position
Fiscal 2009 was characterized by the economic and financial
crisis that gripped the world, exerting a negative impact on
all the sales markets of the Adhesive Technologies business
sector. There was a significant decline in production, particu-
larly in the steel, automotive and electronics industries. The
capital goods sector and the construction industry likewise
registered heavy contraction. Private consumption also suf-
fered from the consequences of the economic crisis, yet as-
sumed the role of economic stabilizer. The effects of the situ-
ation were particularly noticeable in the developed regions
of North America, Western Europe and Japan. The picture
in the growth regions was mixed: although some countries
in Asia and Eastern Europe suffered from the effects of the
crisis, China and India proved to be more robust as the year
unfolded. With the exception of Mexico, Latin America was
also less adversely affected by the market downturn.
In this exceptionally difficult economic climate, the market
of relevance to us for adhesives, sealants and surface treat-
ment technologies exhibited disparate developments. In the
first half of the year particularly, we had to cope with – in
some cases – substantial decreases in sales in individual
market segments, while other segments and regions were
less impacted. Overall, we benefited from the high level of
diversification inherent in our business portfolio. We are
convinced that the megatrends underlying our markets re-
main relevant and intact and will, in future, return to drive
business expansion. Increasing consumption in the growth
regions will also lead to higher adhesives usage in the future;
and the persistent need for energy efficiency and carbon
dioxide reduction will add further growth impetus to the
adhesives markets. The increased usage of lightweight con-
struction materials, and measures to improve the thermal
insulation of buildings will necessarily require the deploy-
ment of modern adhesive systems.
With the unique breadth of our product portfolio, further
enhanced by the acquisition of the adhesives businesses of
National Starch in April 2008, we have assumed a leading po-
sition both on a global scale and in the individual regions.
6,000
6,224
6,700
5,008
5,510 5,711
Sales
in million euros
World market for adhesives, sealants
68 Annual Report 2009
The Packaging, Consumer Goods and Construction Adhesives busi-
ness was reorganized in 2008 following the acquisition of the
National Starch businesses. We have merged the associated
portfolios of both companies within a single organization,
substantially reducing complexity in the process. With this
basis, we can now offer our customers in various sectors even
more persuasive problem solutions with high-performance
products of real quality.
Served by our Electronics business, our customers in the
electronics industry use our range of high-tech adhesives
and soldering pastes in the manufacture of microchips and
printed circuit boards.
The Adhesive Technologies business sector therefore
serves a wide range of customer groupings and industries
around the world. And because we have such a broad spec-
trum of technologies, we can offer tailored services capable
of generating optimum customer benefits. The high level of
diversification in our business portfolio, serving sectors of
differing cyclicality, also proved beneficial under the very
difficult market conditions that prevailed in 2009, cushion-
ing the decline in sales and securing our profitability.
In the case of branded products for private users sold via
the retail trade, particular emphasis is placed on distribution
and brand management, with the associated advertising
and point-of-sale activities. With our leading brands and
often high market shares, we occupy good positions right
across the board.
In the industrial business, it is important to have a
deep insight into different customer requirements and
user expectations in order to create the basis for supply-
ing the tailored systems required. Aside from the products
themselves, such solutions will usually also include major
advisory and training components. Following the assign-
ment of our production activities to the individual strategic
business units in 2009, we are now even better positioned
to offer the flexibility necessary to reliably satisfy customer-
specific demands.
We endeavor to achieve high innovation rates in all our
business segments in order to generate sustainable, profit-
able sales growth. Our current innovation rate lies at around
20 percent. In addition to the development of new solutions
for existing fields of activity, finding and exploiting new ap-
plications for our products constitutes an important aspect
of our strategy.
Business activity and strategy
Following the realignment implemented in the year under
review, the Adhesive Technologies business sector now con-
sists of five strategic business units (SBU). In order to sharpen
our customer focus, we decided in 2009 to define our busi-
nesses more accurately on the basis of the market segments
and the client requirements they serve. By also removing
reporting levels, we not only shortened the decision-making
paths, enabling us to respond more quickly to the require-
ments of our markets, we were able to cut cost as well. The
individual strategic business units were also strengthened
through a higher level of operating responsibility and the
integration of important functions such as production. In
Europe, we no longer manage our businesses on the basis
of national boundaries but rather in accordance with these
newly defined SBUs. There has been a significant improve-
ment in management efficiency, now that the new structure
is in place.
In the Adhesives for Craftsmen, Consumers and Building busi-
ness, our focus is on brandname products for private and
professional users together with products and system so-
lutions for building professionals. For use in the home,
school and office, we offer adhesives under the international
brands of Loctite and Pattex, together with glue and correc-
tion products under the Pritt brand. And for decoration,
renovation and house building or refurbishment work, our
customers can choose from a wide range of adhesives and
sealants including our Pattex power adhesives, Sista sealing
compounds and Metylan decoration products. Under the
Ceresit brand, we market products and systems for tiling,
waterproofing and façade insulation.
The Transport and Metal business has overall responsibility
for our activities involving major international customers
in the automotive and metal processing industries. We of-
fer our clients tailored system solutions and specialized
technical services covering the entire value chain – from
steel coating to final vehicle assembly.
The customers served by our General Industry business are
small and medium-sized manufacturers from a multitude of
industries ranging from household appliance producers to
the wind power sector. Our product portfolio encompasses
Loctite products for industrial maintenance, repair and
overhaul, plus a select range of sealants and system solu-
tions for surface treatment.
Group management report » Adhesive Technologies
69
Annual Report 2009
Operating profit for the year as a whole fell significantly, by
55.9 percent to 290 million euros, as a result of substantial
volume decreases, the corresponding low capacity utiliza-
tion levels and the exceptional charges that had to be rec-
ognized. After adjusting for these one-time items and for
restructuring charges, adjusted operating profit (“adjusted
EBIT”) fell by 25.6 percent to 506 million euros. Compared to
the previous year, return on sales decreased by 5.1 percent-
age points to 4.7 percent; nevertheless, the adjusted figure
only decreased by 2.0 percentage points to 8.1 percent.
Return on capital employed (ROCE) fell by 5.2 percentage
points to 4.8 percent. However, we were able to substantially
decrease working capital through specific measures aligned
to reducing inventories and trade accounts receivable.
Business segments
In the Adhesives for Craftsmen, Consumers and Building business,
performance was affected not only by consumer reluctance
and destocking by our customers but also the continuing
recession affecting the building industry. Even against this
background, we continued to pursue the launch of innova-
tive products such as our new building adhesive under the
Pattex brand. We were able to increase our business with
the building industry overall, due primarily to the particu-
larly gratifying developments encountered in the regions
of Eastern Europe and Africa/Middle East.
The effects of the global economic and financial cri-
sis were particularly noticeable in the Transport and Metal
business. Nevertheless, here too there was a slight recovery
observed during the course of the year, in which we also
successfully participated. In our business activities involving,
in particular, major OEM customers from the automotive
and metal industries, we pursue a policy of maintaining
close cooperation on a partnership basis. As an example,
we were able to implement the first innovative process so-
lutions to involve our Bonderite products for surface treat-
ment on behalf of a major German premium automobile
manufacturer.
The General Industry business suffered from the decline
in industrial production and a low level of propensity to in-
vest, particularly in the case of durable goods. Sales overall
were well below the prior-year levels for this segment. Our
operations involving products for industrial maintenance,
repair and overhaul under the Loctite brand performed
We regularly review all the components of our portfolio
against the long-term objectives of the business sector. As
a consequence of this process, spring 2009 saw the divest-
ment of our adhesive tapes operation under the brands
Duck, Painter’s Mate Green and Easy Liner in the USA and
Canada.
Our business priority going forward is on achieving
profitable organic growth and harnessing the potential
for synergies and economies of scale that lie within our
organization following the successful acquisition of the
National Starch businesses. We intend to utilize the favor-
able positions we enjoy as a supplier in the various market
segments in order to generate further growth while real-
izing in full the planned savings arising from the latest
cost-reducing measures.
Sales and profits
In a heavily contracted overall market, sales of the Adhesive
Technologies business sector decreased in the year under
review by 7.1 percent to 6,224 million euros. Organically –
i.e. after adjusting for foreign exchange and acquisitions/
divestments – the decline was 10.2 percent. In this difficult
environment, sales in the mature markets of Western Europe
and North America in particular were well below the prior-
year levels. In the growth regions, the decreases were less
pronounced; and in Latin America, sales actually increased
compared to the previous year.
Through accelerated realization of synergies arising
from the integration of the National Starch businesses, the
early introduction of our efficiency enhancement program
“Global Excellence” and further substantial efforts to re-
duce cost, we were able to significantly improve our return
on sales in the course of the year. Overall, we considerably
reduced our structural cost levels while maintaining in-
vestments in research and development. In pursuit of our
policy to consolidate our production network, we have closed
30 factories in the last two years, concentrating produc-
tion at our most efficient sites. We have also earmarked
a number of marginal activities for divestment and have
already accounted for the valuation losses necessary in the
event of their sale. In addition, we re-evaluated certain long-
term contracts with suppliers and performed a number of
impairment tests which led to the write-down of identified
intangible assets.
Group management report » Adhesive Technologies
70 Annual Report 2009
Outlook
For 2010 we expect the markets of relevance to us to stabilize
or even undergo a small degree of growth. As in the past, the
growth regions are likely to develop better than the mature
markets. At the moment, we anticipate that Europe and
North America will only experience minor recovery across
major market segments.
We expect the prices for raw materials and packaging
to increase again, due particularly to the capacity adjust-
ments that have occurred in the associated manufacturing
industries.
Following the setbacks of 2009, we intend to return to
the path of profitable growth in 2010. We aim to once again
outperform our relevant markets in terms of organic sales
growth. Given the significant improvement in our cost struc-
ture resulting from the measures introduced in 2009, we
expect adjusted operating profit to undergo a substantial
increase compared to the prior-year figure.
Our opportunities lie primarily in the introduction of
innovations in existing areas of application, the develop-
ment of new applications for adhesives, and the positive
market dynamics of the growth regions.
The primary risks lie in the possibility that the antici-
pated market recovery will not take place, that individual
customers and suppliers might disappear from the markets,
and that raw material prices will again rise significantly.
at a more stable level and even posted a small degree of
growth in the region of North America. We were able once
again to underline our commitment to sustainability with
the expansion of our product range to include halogen-
free adhesives, and threadlock products which, thanks to
new development work, no longer need to be marked with
hazard symbols.
The Packaging, Consumer Goods and Construction Adhesives
business remained somewhat more robust in a market
environment characterized by falling demand for consumer
goods. Although organic sales growth in this SBU declined,
we were able to achieve in part substantial increases in the
growth regions of Eastern Europe, Africa/Middle East and
Latin America. Our adhesives for flexible packaging contin-
ued to perform well. As a result of the integration of the
National Starch businesses, we are able to offer an even more
comprehensive product portfolio. Our customers from the
packaging industry, for example, have given an enthusias-
tic welcome to our integrated solutions comprising both
adhesive and application system.
The Electronics business was heavily affected by devel-
opments in the semiconductor market, with significant
shrinkage during the first half of the year being followed
by a degree of recovery in the second half. However, sales
overall remained substantially below the prior-year level.
In the case of numerous product innovations, as with our
lead-free soldering pastes, sustainability aspects were again
given high priority.
Capital expenditures
2009 saw a continuation of our investment activities pro-
moting the integration of the National Starch businesses.
Due to the difficult economic climate with contracting
production volumes worldwide, we raised the priority of
investments aligned to the consolidation of our produc-
tion capacities. This resulted in a significant decrease in
capital expenditures on property, plant and equipment to
135 million euros in the year under review, compared to
201 million euros in the previous year.
Group management report » Adhesive Technologies
71
Annual Report 2009
Group management report » Risk report
management system, confirming its adequacy and regula-
tory compliance.
The following describes the main features of the internal
control and risk management system in relation to our
accounting processes in accordance with Clause 289 (5)
and Clause 315 (2) no. 5 of the German Commercial Code
[HGB] as amended by the German Accounting Law Reform
Act [BilMoG].
In accordance with the definition of our Risk Manage-
ment System, the objective of our accounting processes
lies in the identification, evaluation and management of
all those risks that jeopardize the regulatorily compliant
preparation of our annual and consolidated financial state-
ments. Consequently, it is the task of the Internal Control
System implemented in order to combat such discrepancies,
to put in place corresponding principles, procedures and
controls that will ensure a regulatorily compliant process
for the preparation of such financial statements.
Within the organization of the Internal Control System,
the Management Board assumes overriding responsibility
at the Group level. The duly coordinated subsystems of the
Internal Control System lie within the spheres of responsi-
bility of the functions Risk Management, Compliance, Cor-
porate Accounting and Financial Operations. Within these
functions, there are a number of integrated monitoring and
control levels, ensuring multi-point stability of the internal
control and risk management system. This is further attested
by regular and comprehensive efficacy reviews performed
by our Internal Audit function.
Of the many and varied control processes incorporated
into the accounting regime, some are worthy of particu-
lar mention. The basis for all our accounting processes is
Risk report
Risk management system
The Risk Management System (RMS) at Henkel is an integral
component of the comprehensive planning, control and re-
porting regime practiced in the individual companies, in our
business sectors and at the corporate level. It encompasses
the systematic identification, evaluation, management,
intelligence and findings are taken into consideration as we
continuously further develop our guidelines and systems. At
Henkel, therefore, risk management is performed on a ho-
listic, integrative basis involving the systematic assessment
of risk exposure. We understand risk as the possibility of a
negative deviation from a financial target or KPI resulting
from an event or change in circumstances.
Our annual risk reporting process begins with iden-
tifying major risks using checklists based on predefined
operating risk categories (e.g. procurement and production)
and predefined functional risk categories (e.g. informa-
tion technology and human resources). We evaluate the
risks in a two-stage process according to occurrence like-
lihood and potential loss. The material limit applied is risk
of a potential loss upward of 1 million euros. We initially
determine the gross risk and then, in a second stage, the
net risk after taking into account our countermeasures.
Initially, risks are recorded on a decentralized basis by our
affiliated companies, coordinated by our regional officers.
The locally collated risks are then analyzed by the experts
in the business sectors and corporate functions, classified
in the appropriate management committees and finally
assigned to a segment-specific risk inventory. Corporate Con-
trolling is responsible for coordinating the overall process
and also the aggregation and analysis of the inventorized
risks. All the risk management processes are supported by
an intranet-resident database which ensures transparent
communication throughout the entire corporation. Within
the framework of its 2009 audit of the financial statements,
the auditor examined the structure and function of our risk
Risk Management System
Regional
officer 1
Adhesive
Tech-
nologies
Cosmetics/
Toiletries
Corporate
functions
(HR, IT ...)
Laundry &
Home Care
72 Annual Report 2009
Group management report » Risk report
ing pressure on prices and conditions, accompanied by an
increase in the market share attributable to own labels.
Our focus therefore is on achieving a steady increase in our
brand equity and developing further innovations. We see
innovative products as enabling us to differentiate ourselves
from the competition, a significant prerequisite for the
continued success of our company.
Procurement market risks: Following the stabilization
of the raw material markets in the course of the year un-
der review, we see further risks in the procurement mar-
kets arising from unplanned price increases with respect
to important raw materials and packaging materials. We
are combating such risks through the proactive manage-
ment of our vendor portfolio and utilization of our glob-
ally engaged, cross-divisional sourcing function. We en-
ter into strategic partnerships with vendors of important
and price-sensitive raw materials in order to minimize the
concomitant price risks. We are also working hard within
interdisciplinary teams (Research and Development, Sup-
ply Chain Management and Purchasing) in order to devise
alternative formulations and different forms of packaging
that will enable us to respond to unforeseen fluctuations
in raw material prices. Due to the risk of non-availability
of important raw materials, we operate a strict policy of
independence from individual vendors so as to better se-
cure the constant supply of the goods and services that
we require. The basis for our successful risk management
approach in this domain is a comprehensive procurement
information system that ensures permanent transparency
of our purchasing volumes.
Production risks: Risks in the field of production arise in
the Henkel case not only from low capacity utilization due
to volume decreases but also in the possibility of operational
interruptions, especially at our so-called single-source sites.
The negative effects of possible production outages can be
offset through flexible production control and appropriate
insurance policies where economically viable. Generally,
risks in the field of production are minimized by ensuring
a high level of employee qualification, establishing clearly
defined safety standards and carrying out regular plant
and equipment maintenance. Decisions relating to capital
expenditures on property, plant and equipment are taken
in accordance with defined, differentiated responsibility
matrices and approval procedures in order to mitigate con-
comitant risk. The procedures implemented incorporate
all the relevant specialist functions and are regulated in
provid
ed by our “Accounting” corporate standard, which
contains detailed accounting instructions covering all
activities and eventualities. It specifies, for example, the
procedure to be adopted in inventory valuation, and how
the transfer prices applicable for intra-group transactions
are to be determined. This corporate standard is binding on
the entire Group and is regularly reviewed and re-released
by the CFO. Further globally binding procedural instruc-
tions affecting our accounting practice are contained in
our corporate standards “Treasury” and “Investments.”
With appropriate organizational measures in conjunc-
tion with restrictive control of access to our information
systems, we ensure the effective separation of responsibili-
ties in our accounting systems between transaction entry
on the one hand and auditing and approval on the other.
Documentation relating to the operational accounting and
closure processes ensures that important tasks – such as
the reconciliation of receivables and payables on the basis
of balance statements and confirmations – are clearly as-
signed. Strict access authorizations also exist with respect
to the approval of contracts, credit notes and similar, and
we practice the double-check security principle right across
the board. This is also stipulated in our Group-wide corpo-
rate standards.
We consider the established systems to be fit for purpose
and functionally efficient. They are regularly reviewed in
order to determine their optimization and further devel-
opment potential. Once identified, such potential is duly
utilized.
Disclosure of major individual risks
The focus of this section is on the primary risks affecting our
operations. We describe the opportunities open to us in the
forecast section starting on page 76 and also in the indi-
vidual business sector summaries starting on page 58.
Economic and sector-specific risks: Given the persis-
tence of the current economic difficulties encountered in
our sales markets, we consider ourselves to still be exposed
to considerable economic risk. The fragile environment in
the industrial sector, and particularly in the automotive
manufacturing and components segments and the metal
processing industry, carries with it risks and may lead to
a decrease in sales volume. In the consumer goods sector,
there is the risk of flattening market growth in conjunction
with increasing competition. In this sector we are seeing
further consolidation in the retail segment with correspond-
73
Annual Report 2009
Group management report » Risk report
credit risks also arise in the case of financial investments
such as cash at bank and the positive fair value of deriva-
tives. However, such exposure is significantly limited by our
Corporate Treasury specialists through selection of banks
of good reputation with at least an A rating, and restriction
of the amounts allocated to individual investments. More
detailed information with respect to our credit risk can be
found in Note 42 starting on page 115.
Risks from pension obligations relate to changes in
interest rates, inflation rates, trends in wages and salaries,
and changes in the statistical life expectancies of pension
beneficiaries. Interest and inflation risks can be reduced by
fully funding the pension obligations with investments in
interest and inflation-sensitive fund assets that mirror the
maturity structure of the pension obligations. Risks relating
to trends in wages and salaries and life expectancies can be
mitigated by inclusion of a return-enhancing portfolio in
the financing mix expected to yield a surplus return over
and above the refinancing costs of the pension obligations.
In order to reduce and better manage risk, therefore, the
pension obligations in the main countries involved are fully
funded and managed on the basis of a twin-track portfolio
approach. The main portion of the portfolio is invested in
fund assets exhibiting the same maturity structure and
similar interest and inflation sensitivities as the pension
obligations (liability-driven investments), reducing the in-
terest rate and inflation risk. In order to cover the risks
arising from trends in wages, salaries and life expectancies,
and to close the potential deficit between fund assets and
pension obligations over the long term, additional invest-
ments are made in a return-enhancing portfolio as an add-on
instrument that contains assets such as equities, private
equity investments, hedge funds, real estate and commod-
ity investments.
The pension fund can be adversely affected in the event
of a downturn in the capital markets. We mitigate this risk
by investing in widely diversified classes of assets and differ-
ent instruments within each asset class. The risks inherent
in the pension fund assets are continuously monitored and
controlled on the basis of risk and return criteria. Risks in
this respect are quantified using sensitivity analyses. Major
pension funds are administered by external fund managers
in Germany, the USA, the UK, Ireland and the Netherlands.
All these countries follow the above-described standard
investment strategy and are centrally monitored. The funds
covering our pension obligations are invested on the basis of
an internal corporate guideline requiring that such invest-
ments be analyzed in advance on the basis of a detailed
risk appraisal. Further auditing and analytical procedures
accompanying projects at the appraisal and implementation
stage provide the basis for successful project management
and effective risk reduction.
Information technology risks: The risks associated with
our IT operations relate primarily to the potential for un-
authorized access and data loss. Appropriate approval pro-
cedures, authorization profiles and defensive technologies
are deployed in order to guard against such eventualities.
Daily data back-up runs are conducted to shadow all critical
databases, and the resultant files are transferred to another
site. We also carry out regular restore tests. External attacks
that took place in 2009 – for example in the form of hack-
ing, spamming or viruses – were successfully repelled by
the security measures implemented and therefore had no
disruptive effect on our business processes. Moreover, Henkel
has put in place a globally binding internal IT guideline to
which our external service-providers are also bound. Major
components of this code include measures for avoiding risk,
and descriptions of escalation processes and best-practice
technologies. Correct implementation is continuously moni-
tored by our globally active Internal Audit unit. In addition,
our safeguards are examined for their efficacy and efficiency
by external specialists.
Personnel risks: The future economic development of
Henkel is essentially dependent upon the commitment and
capabilities of our employees. We respond to the increasing
competition for well qualified technical and managerial staff
by maintaining close contacts with selected universities and
conducting special recruitment campaigns. We combat the
risk of failing to retain valuable employees over the long
term through specifically aligned personnel development
programs. The basis for these is provided by attractive quali-
fication and further training opportunities combined with
performance-related compensation arrangements.
Financial risks: Due to the still tense financial situation,
particularly in the automotive components sector and the
building industry, our credit risk is higher than in the
years prior to the crisis. We mitigate this exposure within
the framework of our global credit policy through standard-
ized procedures, a proactive credit management regime and
the use of guarantees and credit default insurance policies.
Aside from meticulous local vigilance, we also monitor our
key customer relationships at the global level. Default and
74 Annual Report 2009
Henkel of America, Inc. in US dollars has been converted
into fixed-interest instruments through the use of interest
rate swaps. When employing interest rate swaps in order to
fix an interest rate, the net results of the swap are taken to
equity (cash flow hedge accounting). Depending on interest
rate expectations, Henkel also protects itself against short-
term increases by negotiating additional interest rate caps
and concluding forward rate agreements. As a result, the
net interest item derives from a mixed fixed and floating
interest rate structure.
The liquidity risk describes the risk of a company failing
to meet its financial obligations at any given time. At Henkel,
this risk can be regarded as very low due to the fact that we
are able to call upon long-term financing instruments and
additional liquidity reserves in the form of permanently as-
sured credit lines. The basis of our currency, interest rate and
liquidity risk control capability is provided by the treasury
guidelines introduced by the Management Board, which
are binding on the entire corporation. Defined in these are
the targets, principles, accountability and competences of
Corporate Treasury. They describe the fields of responsibil-
ity and establish the distribution of these responsibilities
between the corporate level and our subsidiaries. The Man-
agement Board is regularly and comprehensively informed
of all major risks and of all relevant hedging transactions
and arrangements.
Additional information on risk management with re-
spect to financial instruments can be found in Note 42
on pages 112 to 118.
Legal risks: As a globally active corporation, we are also
exposed in the course of our ordinary business activities to
a range of risks relating to litigations and other proceed-
ings or actions, including those brought by governmental
agencies, in which we are currently involved or may be-
come involved in the future. These include, in particular,
risks arising from the fields of product liability, product
deficiency, laws relating to competition and monopolies,
the infringement of proprietary rights, patent law and tax
law, and environmental protection and land contamination
issues. The possibility cannot be discounted that the deci-
sions taken in some of these litigations and proceedings
will go against us.
We counteract legal risks by issuing corresponding bind-
ing guidelines and codes of conduct and by instituting ap-
propriate training measures. We address current actions and
potential litigation risk by maintaining constant contacts
asset-liability studies aligned to the expected cash flows aris-
ing from the country-specific pension obligations. Further
information on the development of our pension obligations
can be found in Note 28 on pages 103 to 107.
Given the global alignment of our businesses, we are
exposed to two types of currency risk. Transaction risks
arise from exchange rate fluctuations causing changes in
the value of future foreign currency cash flows. Transaction
risks arising from our operating business are avoided primar-
ily by the fact that we largely manufacture our products in
those countries where they are sold. Residual transaction
risks on the operating side are proactively managed by Cor-
porate Treasury. Its remit includes the ongoing assessment
of specific currency risk and the development of appropriate
hedging strategies. Because we strictly limit our potential
losses, any negative impact on profits is restricted. The trans-
action risks arising from major financial receivables and
financial liabilities are extensively hedged. The risks are
predominantly mitigated by forward exchange contracts
and currency swaps. Translation risks, on the other hand,
emanate from changes caused by foreign exchange fluctua-
tions to items on the balance sheet and income statement
of a subsidiary, and the effect these changes have on the
translation of individual company financial statements into
Group currency. The risks arising from the translation of
sales and profits of subsidiaries in foreign currencies and
from net investments in foreign entities are only hedged
in exceptional cases.
The interest rate risk encompasses those potentially
positive or negative influences on profits, shareholders’
equity or cash flow in current or future reporting periods
arising from changes in interest rates. The deployment
of interest-bearing financial instruments with the objec-
tive of optimizing the net interest result for the Henkel
Group constitutes an essential component of our financial
policy. The maturity structure is controlled both by choos-
ing appropriate fixed-interest periods for the underlying
financial assets and financial liabilities affecting liquidity,
and by using interest rate derivatives. The interest rates
on the euro-denominated bonds issued by Henkel have
been converted in full from fixed to floating using interest
rate swaps. As the bonds and interest rate swaps are in a
formally documented hedge accounting relationship, the
measurement of the bonds and the measurement of the
interest rate swaps match in practical terms (fair value hedge
accounting). A large proportion of the financing used for
Group management report » Risk report
75
Annual Report 2009
Group management report » Risk report
between the corporate legal department and local attorneys,
and also through our separate reporting system. For certain
legal risks, we have concluded insurance policies that are
standard for the industry and that we consider to be fit for
purpose. We form provisions for litigations to the extent that
it is likely in our estimation that obligations may arise which
are either excluded from or not fully covered by our insur-
ance policies and where a reasonably accurate estimate of
the potential loss is possible. However, predicting the results
of actions is beset with considerable difficulties, especially
in cases in which the claimant is seeking substantial or
unspecified damages. Given these imponderables, we are
unable to predict what obligations may arise from such
litigations. Consequently, major losses can arise from litiga-
tions and proceedings that are not covered by our insurance
policies or our provisions.
We do not currently foresee risks arising from litigations
or proceedings either pending or threatened that could have
a material influence on our net assets, financial position
or results of operations.
Overall risk
At the time of writing this report, there are no identifiable
risks relating to future developments that could endan-
ger the existence either of the parent company or of the
Group as a going concern. Our risk analysis indicates that
the net assets, financial position and results of operations
of the parent company and of the Group as a whole are
not currently endangered either by individual risks or by
the aggregated exposure arising from all risks combined.
Moreover, such aggregation only takes into account the
risk side of the equation without allowing for the positive
effect that opportunities may bring. The system of risk cat-
egorization undertaken by Henkel clearly indicates that the
most significant exposure currently relates to the impact of
economic uncertainty on sales volumes and revenues, and
the associated financial risks, to which we are responding
with the countermeasures described.
76 Annual Report 2009
Forecast
General economic development
Overview
The world economy is, in our view, likely to return to mod-
erate growth in 2010 compared to the previous year. How-
ever, we do not anticipate a sustained upturn or any major
growth dynamic.
There are still risks threatening economic development.
The Dubai crisis at the beginning of December 2009 has
shown how susceptible the financial markets are to the
threat of credit defaults. Growth could also be inhibited by
the expected slight increase in unemployment with corre-
sponding effects on consumer demand, the credit-granting
practice of the banks, already regarded as restrictive, and
cessation of the worldwide state-sponsored financial stimu-
lus programs. Moreover, it remains uncertain whether eco-
nomic policy will be geared to reducing debt and combating
potential inflation or to supporting economic strength with
a sustained, expansive monetary and fiscal policy.
Regions
We expect North America to grow faster than Western
Europe this year. Within Western Europe, export-oriented
countries such as Germany may develop somewhat more
dynamism than those states with more domestically aligned
economies. Growth in the majority of the emerging na-
tions is likely to outpace the increases experienced by the
developed countries. This applies particularly to Asia and
Latin America. The rate of expansion in Eastern Europe may
be somewhat lower. Nevertheless, Russia is set to return to
growth after a very weak 2009.
Raw material prices
In the event of further economic revival and expanding
demand, raw material prices are likely to rise further. We
expect the price of crude oil to increase versus prior year.
Currencies
We anticipate that the average exchange rate for the US dol-
lar will remain stable in terms of the year-on-year compari-
son. We also expect the European currencies to stabilize at
their present levels; and in the event of economic recovery in
Western Europe, we see opportunities for further apprecia-
tion of the Eastern European currencies versus the euro.
Inflation
In our estimate, prices are likely to rise slightly in the course
of 2010. Individual countries – such as Japan – will however
continue to be exposed to the risk of deflation.
Interest rate policy
We anticipate that the central banks will gradually increase
the currently very low short-term interest rates during the
second half of the year. Overall, however, we expect the
interest rate environment to remain benign.
Unemployment
In our view, unemployment is likely to increase slightly
worldwide, despite political attempts to ease the situation
such as the short-time working regulations introduced in
Germany.
Sector development
Consumption and the retail sector
We expect private consumption to undergo no more than
sluggish growth in 2010. The rate of increase is likely to be
hampered by a mix of growing unemployment, the gradual
discontinuation of governmental stimulus measures and the
slowly rising interest rates expected for the second half of
the year. With inflation rates somewhat higher, real incomes
will also only increase to a moderate degree.
Growth of the retail sector is expected to be below aver-
age. In view of the high level of competition that prevails,
there are likely to be persistent efforts on the part of retail-
ers to improve their own market position. The possibility of
further price-cutting campaigns cannot be excluded. Retail
companies will also be endeavoring to strengthen the posi-
tion of their own labels.
Industry
We expect that the incipient uptrend in the industrial sector
will generally be maintained. However, significant differ-
ences are likely to remain between the individual segments
and regions.
The automotive industry should record its first appre-
ciable growth since 2007. After two very weak years, however,
production levels are likely to remain low.
Structural problems will also continue to burden the
sector, leading to further consolidation activity.
Group management report » Forecast
