Achieve our full business potential

For this, we have identified the following drivers:

1. Portfolio optimization
   
   Within the Laundry & Home Care business sector, we aim to increase our profitability in the mass categories such as heavy-duty detergents and hand-dishwashing products, and drive growth in the profitable specialty categories such as household cleaners and fabric softeners. In the Cosmetics/Toiletries business sector, we intend to further enhance profitability by strengthening our innovation leadership and expanding our top brands. Within the Adhesive Technologies business sector we want to improve our profitability in the automotive segment, drive growth in specialty applications and utilize our economies of scale with innovations in the industrial adhesives business. In addition, we intend to increase our investments in order to achieve disproportionate growth in the emerging markets. We also want to further increase our market shares in the mature markets.
   
   
2. Focus on our top brands
   
   Our focus is on fewer but stronger brands and further expansion of our strong regional and global brands. Brand awareness is to be further enhanced through extensive marketing investment and promotional activities. Our three top brands Schwarzkopf, Loctite and Persil already account for around 24 percent of our sales. Our objective is to grow organically faster with these and other top brands than Henkel overall, and therefore to further expand their share of total sales. At the same time, we are reducing the number of our brands by selling off or discontinuing the smaller and less important brands.
   
   
3. Innovation and innovation rates
   
   With innovation rates¹⁾ of 41 percent in the Laundry & Home Care business sector, 43 percent at Cosmetics/Toiletries and around 30 percent at Adhesive Technologies, we count among the strongest innovators in our fields of competence. We are helped in this respect by the proximity we have to our consumers and customers, actively incorporating both audiences in our product development activities where appropriate. We have also made it our principle only to launch a new product onto the market if it has a positive effect on gross margin and makes a contribution to sustainable development in at least one of our six focal areas in our annual report 2011.
   
   
4. Operational excellence
   
   In our purchasing activities, our aim is to create benefits through the further development of effective strategies. These include concentrating on fewer, more efficient suppliers and on procuring materials in lower-cost emerging countries. In production and our supply chain, our objective is to further optimize our production footprint. This will enable us to reduce the complexity of our structures and better utilize available capacities. We are also introducing improvements with respect to our administrative, selling and distribution expenses, by pooling within our shared service centers our standardized processes in the areas of finance, purchasing and human resources, plus certain activities from our business sectors, and by outsourcing non-core activities such as IT support. We expect such measures to yield further cost savings going forward.
   
   

Focus more on our customers

In order to place our customers right at the center of all we do, we have prioritized expanding our dialogue with them at the highest managerial level (top-to-top contacts), coupled with the further development of our customer partnership structures. Our aims are to establish a joint strategic approach to our markets, to expand services offering measurable added value for our customers, and to effectively leverage our own competences, such as our leadership in the field of sustainability.

Strengthen our global team
Our employees are our most important assets. With clear and unequivocal feedback, discernible rewards in recognition of individual performance, and tailored development plans, we ensure that our competent and motivated team can master the challenges with which they are confronted. We are keen to develop and promote our managers from within. At the same time, we are also aware of the need to bring in external talents, especially when their knowledge of their local markets
is better than that of the established managerial staff within the company. Already today, there are people from more than 120 nations working for Henkel; and the proportion of female managers is around 30 percent worldwide, with the trend clearly rising. The diversity of our global team gives us a competitive advantage, one that we intend to further extend.

Progress in fiscal 2011
We made further substantial progress in the pursuit of our three strategic priorities in fiscal 2011. The salient advancements were as follows:

Achieve our full business potential

• Despite major challenges and uncertainties in the economic environment, all three of our business sectors achieved very good results.
• We have further expanded our shared service centers in Bratislava (Slovakia) and Manila (Philippines), and have opened a third in Mexico City (Mexico). In addition to increasing the level of usage of these facilities for corporate functions such as Finance, Purchasing and HR, we have also transferred to them a number of activities from our business sectors, for example aspects of market research and certain control- ling functions.

Focus more on our customers

• We have further extended our partnerships with customers and regularly meet with their representatives at the highest management level in order to identify further possible joint projects.
• We have developed a new sustainability strategy with goals extending through to 2030.

Strengthen our global team

• Throughout Henkel, there have been numerous activities implemented in order to establish the new vision and values introduced in 2010. Together with their teams, all our line managers have examined the implementation of the measures agreed in 2010 as applicable to their spheres of responsibility, and are continuing to drive such activities forward.
• We have adapted our global short-term incentive on the basis of the globally standardized system developed in 2010 for differentiated assessment of the performance and development potential of our managerial staff.

¹⁾ Percentage share of sales accounted for by new products launched onto the market in the last three years (five years for Adhesive Technologies).