leading for performance - s3. · pdf filethis strategy set henkel apart from its chief...

Leading for Performance: Ulrich Lehner at Henkel

07/2010-5707

This case was written by Morten T. Hansen, Professor at INSEAD and the University of California at Berkeley, Herminia Ibarra, Professor of Organisational Behaviour and Cora Chaired Professor of Leadership and Learning at INSEAD, and Research Associate Nana von Bernuth. It relies on public sources only and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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From 2000 to 2008, under its new leader Ulrich Lehner, Henkel had embarked on a transformation programme aimed at growing sales and profits, especially outside Europe. Over the past decade, the Germany-based company had operated in three main businesses: cosmetics for consumers, cleaning products for the home and adhesives for consumer and industrial markets. It competed against some formidable global names, including Procter & Gamble, Unilever, L’Oréal and Reckitt Benckiser. The aim of Lehner’s turn-of-the-century transformation was to close the profitability gap with some of these companies.

By 2008, however, Henkel’s profitability, although respectable, was still lagging behind. While sales had increased by 11% from 2000 to 2008 and profitability had risen from 7.4% to 10.3%1 some competitors had surged ahead. For example, during the same period UK-based Reckitt Benckiser had increased sales by 109% and profitability from 14.4% to 23.4%.

Henkel’s results in the decade beginning in 2000 were good but hardly great. Reckitt Benckiser’s performance, in contrast, was exceptional. The consequences for shareholders were significant: while a euro invested in Henkel in 2000 would become €1.54 by 2008, the same euro invested in Reckitt Benckiser would turn into a whopping €5.17 over the same time period.2 What had Henkel done under Lehner’s leadership to turn in a solid performance while falling short of the outstanding results of its rival?

The Situation in 2000

When in May 2000 Ulrich Lehner took over as CEO at Henkel, one of the largest companies in the German stock index DAX 30, it was going to be no easy task to beat the record of his predecessor. Under Hans-Dietrich Winkhaus, Henkel’s sales had increased by nearly 58% to €11.4 billion between 1992 and 1999, mostly through acquisitions. As a keen sportsman, Lehner regarded this high standard as an incentive rather than a drawback: “I want to continue the winning streak,”3 he said.

Lehner had spent his entire career since 1981 (apart from a break of three years) with Henkel, holding various positions including Finance Director and Executive Vice President of Finance & Logistics (See Exhibit 1 for a detailed biography). Henkel, whose first product was a washing powder, was founded in 1876 by Fritz Henkel and is still controlled by his heirs. Today, 52.6% of Henkel voting shares4 are controlled by members of the Henkel family, which, according to Managing Director of Henkel South Africa, Michael Zipp, “secures a

1 Adjusted for one-time gains/charges of €18 million, restructuring charges of €663 million and before

amortisation of intangible assets of €35 million arising from the acquisition of National Starch businesses. Unadjusted operating profit was 5.5%.

2 Total Shareholder Return (retrieved from Datastream) calculated over the time period May 8, 2000 to April 14, 2008. Total Shareholder Return represents the change in capital value of a share over a period of time, plus dividends paid, expressed as a plus or minus percentage of the initial share price.

3 Weber, Stefan, “Marathon-Läufer bei Henkel”, Süddeutsche Zeitung, May 17, 2000. Some quotes in this case have been translated from German to English.

4 The remaining 47.4% of ordinary shares are free float. Henkel’s share capital is divided into 259.8 million ordinary shares with voting rights and 178.2 million preference shares with no voting rights but a higher dividend as compensation.


conservative long-term view, and is not driven by private equity firms’ often unsustainable, short-term goals.”5

Lehner described himself as “objective in style, with a healthy dose of self-criticism and humour.”6 He had a sailing licence and was an avid hiker and long-distance runner. A highly analytical numbers person, he also loved sport and music. At a farewell party for a board colleague, Jochen Krauter, he picked up his clarinet and gave a serenade in front of 400 guests. Despite his heavy workload as CEO, stress was not a big issue for him. “It’s all a matter of organisation,”7 said Lehner. He did things that most of his DAX colleagues would not even dream of: in 2006, the CEO was photographed hanging upside down to demonstrate the strength of a new Henkel glue.

Lehner described the company’s close ties to the Henkel family as “very comfortable”. In his view, it enabled quick decision making. That the stock market saw things differently – and did not always find Henkel shares very sexy – did not bother him. Similarly, he ignored the criticism of many analysts who wished to see more vision from the Henkel leader at times. Grand announcements were never a Lehner thing. In 2005, shareholder representatives nominated him “Master of Understatement of the Year” owing to his cautious financial forecasts.

When Lehner took over in 2000, Henkel had a strong regional focus on Europe, in particular on Germany, and resembled a mini conglomerate. The company was organised into the following five business units:

1) Cosmetics/Toiletries

In 1999, Henkel generated around 60% of its Cosmetics/Toiletries sales with hair care products, 25% with body care and 15% with skin and oral care. The company’s main cosmetics brands were Schwarzkopf (hair care) and Fa (body wash and deodorant) along with Diadermine and AOK (both skin care). However, Henkel was relatively small in the personal care industry and had only very small operations in the US through its 1998 acquisition of the hair care company DEP Corporation (See Exhibit 2a for Henkel’s position in the global personal care sector). “Our cosmetics business ranks only eleventh in global market share. We want to strengthen this area to become one of the top five leading companies in this industry. We can make this jump only by a series of acquisitions,”8 stated Lehner.

2) Laundry & Home Care

As can be seen in Exhibit 3, detergents initially shaped the company’s development. Henkel built the Persil brand and successfully developed a range of products around it. Today, Persil9

5 Tzoneva, Desislava, “Adhesives research used for photovoltaic modules”, Engineering News, March 21,

2008. 6 Mehringer, Martin, “Was macht eigentlich…”, Lebensmittel Zeitung, November 27, 2009. 7 Schuster, Jochen, “Der Langstreckler”, Focus, September 11, 2006. 8 Weber, Stefan, “Eine Mehrheitsbeteiligung an Cognis ist kein Dogma”, Süddeutsche Zeitung, September

11, 2000. 9 Today, the Persil brand is shared with Unilever, following a split in the licencing agreement at the turn of

the last century. Henkel controls the brand in Continental Europe and the Middle East, while Unilever has control in other regions.


is sold not only in the traditional powder form but also in liquid and tablet form, while Henkel has several other major laundry brands: Dixan (Italy), Spee (Germany) and Wipp (Spain). This strategy set Henkel apart from its chief competitor, Procter & Gamble, which had only one umbrella brand on the European markets (Ariel).

Although detergents had made Henkel a major force in branded consumer goods, by 2000 the company lagged behind the international leaders (See Exhibit 2b for Henkel’s position in the household cleaning products sector). Henkel was clearly positioned as the third global force in laundry detergents behind Unilever and Procter & Gamble, but this was a tough category, given the intense price-driven competition between the big global players, commoditisation driven by increased private label penetration, and low underlying growth in established markets.

In addition to the general laundry detergents business, Henkel also played a leading role in developing speciality detergents with Perwoll and Vernell, among others. It was also the first company to offer a machine dishwashing detergent in the 1960s, but in 1995 Benckiser ousted it from the top spot in the German automatic dishwashing market with the introduction of dishwashing tablets instead of powder.

3) Adhesives

Henkel’s adhesives business consisted of the following product groups:

• Consumer and Craftsmen Adhesives,

• Industrial Adhesives and Sealants,

• Engineering Adhesives.

Adhesives were Henkel’s most profitable business, with an operating margin of 9.5% in 1999. Henkel had long been a leader in Europe and became a global player in 1997, when it bought the US company Loctite.

4) Industrial and Institutional Hygiene/Surface Technologies

The Industrial and Institutional Hygiene business was operated in Europe as a joint venture, Henkel-Ecolab, in collaboration with Ecolab Inc. of the US, while Henkel’s Surface Technologies included products and application systems for the chemical surface treatment of metals and metal substitutes for the automotive and other industries.

5) Chemical Products

In 1999, Henkel had carved out its chemical activities into a new entity called Cognis, comprising the following product groups: Oleochemicals, Care Chemicals, Organic Speciality Chemicals, and Inorganic Products.

Henkel’s major challenge in 2000 was the fact that its two main consumer businesses were weak outside Europe and faced direct competition from the global leaders. Furthermore, in both personal and household care Henkel was primarily present in highly competitive or commoditised categories, such as hair care and heavy-duty detergents. This made the company highly dependent on less profitable markets. Lehner was aware of the problem:


“The focus is on improving profitability. In this area we have a considerable backlog compared to many competitors.”10 Just one day after taking over from Hans-Dietrich Winkhaus, he explained at the Düsseldorf executive offices: “To globalise our businesses is our top priority.”11

Transformation 2001-2008

In 2001, the company’s 125th anniversary motto was “focus:future”, which heralded a strategic redirection of the business.

1) Focus: Brands and Technologies

At the outset, Lehner attempted to refocus the business. Rather than concentrating only on its strong consumer brands, he decided to pursue a two-pronged approach:

“Henkel will now be concentrating fully on its strong brands and advanced technologies.”12

To implement this strategy, he first disposed of businesses that no longer fitted. He sold Cognis, Henkel’s chemical products division, and also relinquished operating control of its stake in the Henkel-Ecolab industrial cleaning joint venture (Henkel maintained a financial stake in Ecolab Inc., which increased from 22% to 28%).

These actions brought more focus to Henkel, although competitors such as Reckitt Benckiser, L’Oréal and Procter & Gamble already had an almost exclusive focus on branded consumer goods. Lehner meanwhile retained the adhesives business, with its focus on industrial customers.

2) Reorganisation into Four Business Sectors

As part of the strategic realignment, the company structured its portfolio into four business sectors:

• Laundry & Home Care,

• Cosmetics/Toiletries,

• Consumer & Craftsmen Adhesives,

• Henkel Technologies.

The last of these combined the company’s industrial adhesives, engineering adhesives and surface technologies and was created to focus on industrial customers.

10 Weber, September 2000. 11 Minard, Laurence, “A man on the move”, Forbes, December 11, 2000. 12 “Henkel: Good performance and clear prospects”, PR Newswire, March 5, 2002.


3) Cost-Reduction Programme

In order to boost profitability, in 2001 Lehner launched a restructuring plan called “Strong for the Future”, which was extended in 2003 with further restructuring projects. It was essentially about reducing costs and labour and involved laying off 3,000 people. In 2004, Henkel launched “Advanced Restructuring” measures, which encompassed detailed individual projects affecting all business sectors and led to a further 3,000 redundancies worldwide.

4) Revised and Communicated Culture: One Vision and Ten Values

During the years of transformation, the company also revised its cultural values. In September 2002, the principles and objectives of the Henkel Group were realigned to a single “vision” and ten “values” (See Exhibit 4 for details).13 Lehner and his management team articulated the following vision: “Henkel is a leader with brands and technologies that make people’s lives easier, better and more beautiful.”14

In order to identify vulnerable areas and to link company culture to performance measures, Henkel applied the Denison Organizational Culture Survey (DOCS)15 worldwide. The DOCS aimed to make culture accessible to managers and to frame it in terms of dimensions that were relevant to business performance. The survey, conducted in 2003, showed a general lack of knowledge of the Henkel strategy. Henkel managers were not sufficiently aware of the vision and values of the Henkel Group, while strategies were not communicated clearly and seamlessly to the lower ranks. Moreover, strategies were occasionally so complex that it was not easy to communicate or recall them at all. In addition, corporate culture was not known for quick decisions and different ideas were often discussed and aligned over a period of many months.

After the survey, all strategies were reworked, not necessarily in terms of content but at least in terms of communication. It had become clear that intensive dissemination of management thinking to all employees was necessary for people to gain a clearer picture of where Henkel was heading.

5) Changes in the Top Management Team

The fact that the conservative Henkel was slowly becoming more open-minded and international could also be seen in the composition of the company’s management. The entire management team included more outsiders than before: Thomas Geitner, head of Adhesives Technologies, came from Vodafone; the new The Dial Corporation CEO, Brad Casper, appointed in mid-2005 (after the acquisition of the US household care company by Henkel in 2004), came from Church & Dwight; and the Procter & Gamble veteran Norbert Koll joined Henkel in 2005 as Senior Vice President. However, analysts from Bernstein Research commented in 2006 that the quality and reputation of Henkel management still fell well below that of rival Reckitt Benckiser.

13 Denison, Daniel and Schlue, Rolf, “Managing Corporate Culture at Henkel”, Bertelsmann Stiftung, 2007. 14 http://www.henkel.com/about-henkel/vision-and-values-11781.htm, accessed on April 12, 2010. 15 The Denison Organizational Culture Survey was developed by Professor Daniel Denison, currently

Professor of Management & Organisation at the International Institute for Management Development in Lausanne.


6) Acquisitions

Lehner sought growth mainly through acquisitions, especially in the cosmetics market, which had higher profit margins and fewer large competitors. The global cosmetics market also proved to be fast-growing and fairly recession-proof over the decade, with worldwide growth outpacing that of global GDP each year since 1996.

In 2001, Henkel lost out in a bid for Clairol, the hair care business, to rival Procter & Gamble. But Lehner was still optimistic: “There are plenty more fish in the sea.”16 However, in 2003 he was again left empty-handed. For three years the Henkel CEO had negotiated with the Wella heirs; three times he had tried to take control of the hair care company. Lehner was even willing to pay €75 per share, a 30% premium on the price at the time, but even this offer proved too low for the four family owners. Procter & Gamble finally made the deal for €92.25 per share. Lehner shrugged it off:

“Wella was not a must-have for us. The [cosmetics] market is still big enough for us to strengthen our position and make acquisitions. We are still very interested in building up this division further.”17

But Henkel was obviously under pressure in the cosmetics business because, in addition to the failed acquisitions, the company was having a bad time promoting its own brands. Fa, for example, totally tanked when launched in the US.

The Dial Corporation

In 2004, Henkel finally managed to make the big acquisition that had eluded it for several years. The company bought The Dial Corporation, the sixth largest US household care company, for $2.9 billion. The Dial Corporation manufactured and marketed, among others, Dial soaps, Purex laundry detergents and Renuzit air fresheners. “In the US we have been underrepresented,” said Ulrich Lehner. “We are going to change this with the help of The Dial Corporation.”18 Analysts pointed out that this deal would not help Henkel to grow in high-quality cosmetics. Brands such as Wella and Clairol, which had slipped through its fingers, were generally more lucrative than washing powders and soaps.

Advanced Research Laboratories

In the same year as it acquired The Dial Corporation, Henkel bought the American hair care company Advanced Research Laboratories, which had developed and marketed innovative, high-quality hair care products for over 20 years.

Other Acquisitions

Other significant acquisitions in 2004 were the US manufacturer of sound abatement products and automotive body sealants, Orbseal LLC, and the US adhesives company, Sovereign 16 Weber, Stefan, “Kosmetik bringt Glanz in Henkel-Bilanz”, Süddeutsche Zeitung, May 7, 2002. 17 Hoskins, Paul and Inverardi, Matthias, “Henkel CEO holds targets despite strong euro”, Reuters News,

June 25, 2003. 18 Fischer, Oliver, “Deutscher Markenhersteller greift mit der Übernahme von Dial für rund 3 Mrd. Dollar den

Erzrivalen auf dessen Heimatmarkt an”, Financial Times Deutschland, December 16, 2003.


Specialty Chemicals. With the completion of all acquisitions made in 2004, Henkel’s North American sales increased from 12% of the global total to 23%, while Germany, which had represented well over 25% of the group’s total sales, now accounted for less than 18%. Lehner commented:

“Abroad, we’ve grown more through acquisition than through the introduction of existing brands. Some of our competitors prefer to roll out their brands to other countries… You can, of course, try to push brands in a market if you have a lot of money.”19

Following the “local preferences” strategy (local brands for local markets), in 2006 Henkel bought deodorants Right Guard, Soft & Dri and Dry Idea from Procter & Gamble for $420 million in order to gain a foothold in the US market.

Henkel’s acquisition strategy had been to position itself in higher-growth geographical locations and sectors (See Exhibit 5 for an overview of all major acquisitions). The number one priority was to be a recognised category leader in a particular market. Unfortunately for Henkel, however, it happened to be strong in Europe, a slow-growing geographical market.

7) Local, Not Global, Brands

In 2008, Henkel had around 750 brands, of which the main revenue contributors were the hair care brand Schwarzkopf, the adhesives brand Loctite, and the laundry brand Persil. Its top three brands accounted for 25% of the company’s sales while the top ten brands generated around 40% of sales (See Exhibit 6 for estimates of sales by brand).

Lehner chose to keep brands local in an attempt to capitalise on their strong regional positions. This went very much against the grain in an industry where consolidation around a limited number of global brands was the strategy pursued by most of the global players. “But truly global products such as Loctite, the Big Mac or the Apple iPod are rare one-size-fits-all triumphs,”20 countered Lehner. Consumer preferences varied locally – even McDonald’s adapted products and marketing activities to suit local tastes. According to Lehner, “You have to balance between local insight and centralised economies of scale.”21

Nevertheless, Henkel tried to group some brands so as to provide a level of coherence. It bundled brands and products into “brand families” that guaranteed a degree of cost-efficiency through scale, either in sales and marketing or manufacturing – or a bit of both. These brand families comprised different regional brands. For example, Persil in Germany and Dixan in Italy belong to the same premium brand family. These products are identical as far as ingredients, positioning and marketing campaigns are concerned.

However, the dispersed portfolio made it difficult for Henkel to achieve the economies of scale enjoyed by other companies with more focused product ranges. The emphasis on acquiring regional brands with strong local market positions posed an obvious risk: should a brand slow down in terms of its growth in a certain region or category, the company would have to spend disproportionately on reviving it. This could create a situation similar to that of 19 Wiesmann, Gerrit, “Brands that stop at the border”, Financial Times, October 6, 2006. 20 Wiesmann, 2006. 21 Ibid.


Unilever before its “Path to Growth”, when the company’s brand portfolio had been stretched over such a wide range that performance was impaired. On the other hand, Henkel’s product portfolio was broadly spread and as a result not exposed to any one sector.

8) 2006: “Year of Innovation”

“Off we go” was the subject line of Lehner’s e-mail announcing 2006 as the “Year of Innovation”. This was a late move, considering that competitors such as Procter & Gamble had refocused their innovation efforts in similar ways as early as 2000. Lehner’s desire was that new products or product improvements should no longer be developed by men in white coats hidden away in laboratories. Instead, everybody should help to fill the innovation pipeline. All 52,000 Henkel employees were encouraged to come up with two new ideas. Lehner provided the following guidelines: “Every innovation must have the goal to make life easier, better and more beautiful.”22

Henkel’s previous product development process was more inward-looking and technically focused than consumer oriented. Improvements in the innovation process were badly needed by a company that, at the beginning of the decade, invested around 2.5% of sales in R&D. In 2001, when Henkel employee Shabbir Attarwala had developed the waxy red substance for the “Threadlocker” line that made Loctite a world-famous industrial adhesives business, Henkel’s innovation processes in other parts of the company were still very complicated and slow. A US daily newspaper, the Hartford Courant, commented: “The idea is to push innovation and entrepreneurship within a corporate structure so complex it makes a J.S. Bach fugue look like a nursery rhyme.”23

“We empathise with people who buy our products, so that we innovate from their perspective, and not primarily from the perspective of the company or in an unrelated technological orbit,”24 stated Head of Market Research, Hans-Willi Schroiff, describing Henkel’s new innovation approach, dubbed “Guided Creativity”. The company significantly strengthened the focus on the consumer. Employees started to accompany people while they did their shopping: they watched the way they paced the aisles, which offers they stopped to look at, and what ended up in the cart.

Lehner himself regularly visited some of the 800 or so households where Henkel gathered its product information, and whenever he saw Uhu (Bolton Group) instead of Pritt (Henkel) in a friend’s office or discovered Nivea (Beiersdorf) in the bathroom instead of Fa (Henkel), the Henkel boss dug deeper: “Of course I’m interested why there are none of our products.”25

Since Henkel had begun to put a greater emphasis on innovation, it was able to increase its innovation rate26 substantially – from 25% in 2006 to more than 30% in 2008.

22 Trenz, Tanja, “Ulrich Lehner – Henkel”, Lebensmittel Zeitung Spezial, November 10, 2006. 23 Haar, Dan, “Since takeover, Henkel has fostered Loctite culture”, The Hartfort Courant, December 11,

2005. 24 Düthmann, Christiane, “Ausflug in den Alltag: Henkel bindet den Kunden aktiv in seinen

Innovationsprozess ein”, Lebensmittel Zeitung, October 9, 2009. 25 Schuster, 2006. 26 Defined as the percentage of sales from new products launched over the past three years.


9) New Reorganisation in 2007

The streamlining continued into 2007. April of that year saw the birth of a new business division: Adhesives Technologies, created by the merger of Consumer & Craftsmen Adhesives with Henkel Technologies. Today, Henkel is organised into just three business sectors (See Exhibit 7):

• Laundry & Home Care,

• Cosmetics/Toiletries (Personal Care),

• Adhesives Technologies.

With the acquisition of National Starch’s adhesives technology and electronic material business in 2008, Henkel strengthened the position of its newly created business sector, Adhesives Technologies, particularly in its Asian markets.

Henkel 2008 versus Henkel 2000

In 2008, Henkel was a very different company from the one that Ulrich Lehner took over in 2000. Thanks to intensive acquisition, significant restructuring and major streamlining, the company from which he retired in 2008 held stronger positions in fewer activities than the Henkel of 2000.

However, Henkel maintained a large industrial and consumer adhesives business that made it less focused than competitors such as Procter & Gamble and Reckitt Benckiser, which focused exclusively on global consumer brands. Henkel’s myriad regionally-focused brands also set it apart from the rest. In addition, Henkel had been a latecomer to the trend for user-oriented product innovation. Furthermore, some companies, notably Reckitt Benckiser, put greater emphasis on hiring dynamic people and fostering a strong culture centred on speed, execution and results.

Although Henkel’s results between 2000 and 2008 were respectable, its competitors were doing much better. For example, Henkel’s annual organic sales growth of 3.9% for the period 2000 to 2008 was a far cry from Reckitt Benckiser’s 7.6% (See Exhibit 8). Furthermore, the company’s operating margin (10.3% in 2008) was still well below Reckitt Benckiser’s 23.4%, Procter & Gamble’s 20.4% and L’Oréal’s 15.5%.

Had Henkel’s industry peers, notably Reckitt Benckiser, pursued a different transformation process that created not just respectable but exceptional performance?


Exhibit 1 Biography of Ulrich Lehner

Ulrich Lehner

Chief Executive Officer (May 8, 2000 – April 14, 2008) Nationality: German

2000–2008 Chief Executive Officer, Henkel KGaA, Düsseldorf

1995–2000 Executive Vice President Finance/Logistics, Henkel KGaA, Düsseldorf

1991–1995 President and CEO Asia Pacific, Henkel Asia Pacific, Hong Kong

1987–1991 Member of the Management Committee, Vice President Finance/Controlling, Henkel KGaA, Düsseldorf

1986–1987 Head of Central Department Controlling/Accounting/Taxes, Henkel KGaA, Düsseldorf

1983–1986 Controlling Department Fried. Krupp GmbH, Essen

1981–1983 Central Department Accounting/Taxes, Henkel KGaA, Düsseldorf

1975–1981 Auditor at KMPG Deutsche Treuhand-Gesellschaft AG, Düsseldorf

Source: Company webpage, case writer analysis.


Exhibit 2a Henkel’s Position in the Global Personal Care Sector (2000)

Regional

Company Hair Skin Make Up Oral Bath Deodorant strengthsP&G 2 4 2 4 2 4 GlobalUnilever 3 3 2 1 1 GlobalL’Oréal 1 2 1 GlobalE. Lauder 3 North America, EuropeWella 4 Europe, Latin AmericaClairol 5 North AmericaHenkel 6 6 6 Europe

Source: Adapted from HSBC, “Henkel: Value in an expensive sector”, Analyst Report, January 19, 2001.

Exhibit 2b Henkel’s Position in the Global Household Cleaning Products Sector (2000)

Other Tex. Dish- Air Toilet Regional

Company Detergent Surface Wash. washing Care Care strengthsP&G 1 3 2 1 GlobalUnilever 2 4 3 2 4 GlobalR. Benckiser 5 1 1 3 2 2 GlobalSC Johnson 2 1 1 GlobalColgate P. 4 5 5 4 GlobalHenkel 3 4 5 Europe

Source: Adapted from HSBC, “Henkel: Value in an expensive sector”, Analyst Report, January 19, 2001.


Exhibit 3 Henkel’s History

Early history:

1876 The 28-year-old Fritz Henkel and his two partners founded the company Henkel & Cie in Aachen on September 26, 1876. Its first product was a washing powder.

1995 Henkel acquired the German cosmetics company, Hans Schwarzkopf GmbH.

1997 Henkel acquired all the shares of the US adhesive company Loctite Corporation. With the integration of Loctite, Henkel became the undisputed world market leader in adhesives.

1998 Henkel acquired DEP Corporation in Los Angeles, California, and entered the American hair care market.

1999 Henkel’s Chemical Products business sector was carved out and became a legally independent entity under the company name Cognis.

Ulrich Lehner’s tenure (2000-2008):

2000 Ulrich Lehner took over from Hans-Dietrich Winkhaus as President and CEO of Henkel KGaA.

2001 In the Company’s 125th year, the anniversary motto was: “focus:future”. Henkel realigned its global businesses along two lines: Brands and Technologies.

Cognis, the former Chemical Products business sector, was sold to a consortium of private equity firms. The European joint venture Henkel-Ecolab was dissolved (Henkel kept a financial stake).

Restructuring programme “Strong for the Future” was launched.

2004 The purchase of The Dial Corporation, Scottsdale, Arizona, was the biggest acquisition in the history of the company to date. Henkel also acquired the American hair care company Advanced Research Laboratories.

Further significant acquisitions were the US manufacturer of sound abatement products and automotive body sealants, Orbseal LLC, and the US adhesives company Sovereign Specialty Chemicals.

“Advanced Restructuring” measures were launched.

2006 Henkel acquired leading US deodorant brands, Right Guard, Soft Dri and Dry Idea from Procter & Gamble.

2008 Another efficiency programme named “Global Excellence” was launched.

Having reached the internally agreed age of retirement, Ulrich Lehner was succeeded as CEO by the Dane, Kasper Rorsted.

Henkel took over Akzo Nobel, the Adhesives and Electronic Materials businesses previously owned by National Starch.

Source: http://www.henkel.com/about-henkel/company-history-11789.htm accessed April 2, 2010, newspaper articles.


Exhibit 4 Henkel’s Vision and Values

One Vision:

Henkel is a leader with brands and technologies that make people’s lives easier, better and more beautiful.

Ten Values:

1. We are customer driven

2. We develop superior brands and technologies

3. We aspire to excellence in quality

4. We strive for innovation

5. We embrace change

6. We are successful because of our people

7. We are committed to shareholder value

8. We are dedicated to sustainability and corporate social responsibility

9. We communicate openly and actively

10. We preserve the tradition of an open family company

Source: http://www.henkel.com/about-henkel/vision-and-values-11781.htm accessed April 15, 2010.


Exhibit 5 Acquisition Summary

Year Company Business Sector Region

1995 Schwarzkopf Cosmetics/Toiletries Europe

1997 Loctite Corporation Adhesive Technologies US

1998 Manco Adhesive Technologies USDEP Corporation Cosmetics/Toiletries US

2000 Multicore Industries Adhesive Technologies UKHispano Quimica Chemicals SpainYamahatsu Sangyo Cosmetics/Toiletries JapanSalgado Laundry & Home Care MexicoDexter's speciality polymers business Adhesive Technologies USOAO Plastik Adhesive Technologies RussiaColgate-Palmolive's heavy duty detergents Laundry & Home Care MexicoPemos Laundry & Home Care Russia

2001 Atofina Surface Treatment business Adhesive Technologies USVagnone & Boeri's automotive operations Adhesive Technologies Italy

2002 Chelghoum Laid's detergents business Laundry & Home Care AlgeriaSellotape Adhesive Technologies UKCemedine Adhesive Technologies USSolyplast Adhesive Technologies SpainMerima Laundry & Home Care Serbia

2003 Makroflex Adhesive Technologies FinlandLa Luz Laundry & Home Care GuatemalaLucky Silicone Adhesive Technologies South KoreaDESC Group's adhesives business Adhesive Technologies Mexico

2004 The Dial Corporation Laundry & Home Care, USCosmetics/Toiletries

Advanced Research Laboratories Cosmetics/Toiletries USMaster Product's MAS brands Laundry & Home Care MexicoIndola Cosmetics Cosmetics/Toiletries NetherlandsSovereign Specialty Chemicals Adhesive Technologies USOrbseal Adhesive Technologies US

2005 Polybit Industries Adhesive Technologies UAEHuawei Electronics Co. Adhesive Technologies China

2006 Alba Adhesivos Adhesive Technologies BrazilRight Guard, Soft & Dri, Dry Idea from P&G Cosmetics/Toiletries US

2008 National Starch businesses Adhesive Technologies UK Note: Classification based on the three business sectors Laundry & Home Care, Cosmetics/Toiletries and Adhesive Technologies created in 2007.

Source: http://www.henkel.com/about-henkel/acquisitions-divestments-11903.htm accessed April 28, 2010, case writer analysis.


Exhibit 6 2008 Sales by Top Brand

No. Brand Sales

(€m)Business Sector

1 Schwarzkopf 1,700 Cosmetics/Toiletries2 Loctite 780 Adhesive Technologies3 Persil 760 Laundry & Home Care4 Teroson 470 Adhesive Technologies5 Ceresit 440 Adhesive Technologies6 Purex 340 Laundry & Home Care7 Liofol 320 Adhesive Technologies8 Dial 270 Cosmetics/Toiletries9 Fa 250 Cosmetics/Toiletries10 Dixan 230 Laundry & Home Care

Top Ten Brands 5,560

Henkel Total Sales 14,131

Top Ten Brands as % 39%

Note: The Persil brand is shared with Unilever, following a split in the licencing agreement at the turn of the century. Henkel controls the brand in Continental Europe and the Middle East, while Unilever has control in other regions.

Source: Henkel Investor Factbook 2009 (see http://www.henkel.com/investor-relations/investor-factbook-11967.htm accessed April 2, 2010), case writer analysis.


Exhibit 7 New Reorganisation 2007

Source: http://www.henkel.com/com/content_data/91371_2008.09.24Prsentation_Henkel_Lothar_Steinebach.pdf, accessed March 22, 2010.


Exhibit 8 Organic Growth27

Sales 2000-2008Henkel vs. Reckitt Benckiser

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

€m

Reckitt Benckiser Henkel

Henkel: 1.3% CAGR*

RB: 9.7% CAGR*

* CAGR 00-08 computet in local currency

Organic Sales Growth 2000-2008Henkel vs. Reckitt Benckiser

0%

2%

4%

6%

8%

10%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008

annu

al sa

les g

row

th

Reckitt Benckiser Henkel

Henkel 8 year avg 3.9%

Note: excluding currency effects

RB 8 year avg 7.6%

Source: Company data, case writer analysis.

27 Organic growth: growth in own business vs. growth through acquisitions.


Exhibit 9 Henkel’s Financials

in €m 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Sales 11,361 12,779 9,410 9,656 9,436 10,592 11,974 12,740 13,074 14,131

Operating Profit 857 950 602 666 706 996 1,162 1,298 1,344 779Operating Margin 7.5% 7.4% 6.4% 6.9% 7.5% 9.4% 9.7% 10.2% 10.3% 5.5% *

Net Income 404 505 476 431 530 748 770 871 941 1,233

EPS - preferred share (basic)** 0.84 1.06 1.17 1.02 1.22 1.75 1.77 1.99 2.14 2.83

* 10.3% adjusted for one-time gains/charges of €18 million, restructuring charges of €663 million and before amortisation of intangible assets of €35 million arising from the acquisition of National Starch businesses.** basis: share split (1:3) of June 18, 2007Note: Henkel reports since 2004 under IFRS

Sales by Region 2008

North America19%

Latin America6%

Corporate*2%

Europe, Africa, Middle East 62%

Asia-Pacific11%

* Sales that cannot be allocated to individual business sectors or regions.

Source: Henkel annual reports.


Exhibit 10 Henkel’s Sales by Business Sector

Sales by Business Sector 2000-2008

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2002 2003 2004 2005 2006 2007 2008

€m

Laundry & Home Care Cosmetics / Toiletries Adhesive TechnologiesNote: excluding Corporate

Note: Prior to 2007, Adhesive Technologies comprises the business sectors, Consumer & Craftsmen Adhesives and Henkel Technologies.

Sales by Business Sector 2008

Laundry & Home Care30%

Cosmetics / Toiletries21%

Adhesive Technologies47%

Corporate*2%

* Sales that cannot be allocated to individual business sectors or regions.

Source: Henkel annual reports, case writer analysis.


Exhibit 11a Henkel’s Shareholder Return Performance

Total Shareholder Return (TSR) represents the change in capital value of a share over a period of time, plus dividends paid, expressed as a plus or minus percentage of the initial share price.

Henkel's TSR Performance from 8 May 2000 to 14 April 2008

0.0

0.5

1.0

1.5

2.0

2.5

5/8/2000 5/8/2001 5/8/2002 5/8/2003 5/8/2004 5/8/2005 5/8/2006 5/8/2007

Cum

ulat

ive

Shar

ehol

der R

etur

ns

Henkel DAX 30

Ratio Henkel to DAX 30 from 8 May 2000 to 14 April 2008

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

5/8/2000 5/8/2001 5/8/2002 5/8/2003 5/8/2004 5/8/2005 5/8/2006 5/8/2007

Cum

ulat

ive

Shar

ehol

der R

etur

ns R

elat

ive

to M

arke

t

Ratio Henkel to DAX 30

Source: Datastream.


Exhibit 11b Competitors’ Shareholder Return Performance

Competitor's TSR Performance from 8 May 2000 to 14 April 2008

0.0

1.0

2.0

3.0

4.0

5.0

5/8/2000 5/8/2001 5/8/2002 5/8/2003 5/8/2004 5/8/2005 5/8/2006 5/8/2007

Cum

ulat

ive

Shar

ehol

der R

etur

ns

Henkel Procter & Gamble Unilever Reckitt Benckiser L’Oréal

Reckitt Benckiser

Procter & Gamble

Henkel

L’Oréal

Unilever

Source: Datastream.


Exhibit 12 Competitor Benchmarks: Sales and Operating Margins 2000-2008

Sales 2000-2008

0

50

100

150

200

2000 2001 2002 2003 2004 2005 2006 2007 2008

in %

(200

8 =

100

%)

Procter & Gamble Unilever Reckitt Benckiser Henkel L’Oréal

RB: 9.7% CAGR

P&G: 9.9% CAGR

Henkel: 1.3% CAGR

Unilever: -2.1 % CAGR

L’Oréal: 4.1 % CAGR

Operating Margins 2000-2008

0%

5%

10%

15%

20%

25%

2000 2001 2002 2003 2004 2005 2006 2007 2008

% o

f sal

es

Procter & Gamble Unilever Reckitt Benckiser Henkel L’Oréal

Source: Company data, case writer analysis.


Exhibit 13 Henkel’s Main Brands

Laundry & Home Care

Cosmetics/Toiletries

Adhesive Technologies

Laundry & Home Care

Cosmetics/Toiletries

Adhesive Technologies

Source: Company website

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