Annual Report 2010 Our strategic priorities At At a glance We continue to focus our efforts on the pursuit of our strategic priorities, formulated in 2008 in order to secure Henkel's success over the long Achieve our full term. And in fiscal 2010 we again made great business potential progress toward their achievement. Central to our approach is a strong, unique corporate ethos: a winning culture characterized by a clear commitment to excellent performance and being the best in a highly competitive Winning environment. And helping us to constantly raise our game we have our long-term vision and five Culture shared values to guide our decisions and our actions. Focus Strengthen more on our our customers global team Our top brands Our strong brands are the basis of our economic success. Going forward, we will be keeping our fo- cus on our major, widely recognized brands: With Schwarzkopf, Loctite and Persil – our three biggest brands – we generate 23 percent of total sales. And our ten biggest brands contribute 41 percent to total sales. The Laundry & Home Care business sector real- izes 32 percent of its sales with its three strongest brands Persil, Purex (in North America) and Dixan. Cosmetics/Toiletries achieves 71 percent of its sales with its three biggest brands Schwarzkopf, Dial (in North America) and Fa. And the Adhesive Technologies business sector makes 26 percent of its sales with its three biggest brands Loctite, Teroson and Technomelt. How Henkel developed in 2010 Sales by business sector Key financials in million euros 2009 2010 +/– Sales 13,573 15,092 11.2 % Operating profit (EBIT) 1,080 1,723 59.5 % Adjusted1) operating profit (EBIT) 1,364 1,862 36.5 % Return on sales (EBIT) in % 8.0 11.4 3.4 pp Adjusted1) return on sales (EBIT) in % 10.0 12.3 2.3 pp Net income 628 1,143 82.0 % 29 % Laundry & Home Care – Attributable to non­controlling interests 26 25 –3.8 % 22 % Cosmetics/Toiletries 48 % Adhesive Technologies – Attributable to shareholders of Henkel AG & Co. KGaA 602 1,118 87.5 % 1 % Corporate Earnings per preferred share in euros 1.40 2.59 85.0 % Adjusted1) earnings per preferred share in euros 1.91 2.82 47.6 % Corporate = sales and services Return on capital employed (ROCE) in % 9.8 14.9 5.1 pp not assignable to the individual business sectors. Capital expenditures on property, plant and equipment 344 240 –30.2 % Research and development expenses 396 391 –1.3 % Number of employees (annual average) 51,361 48,141 – 6.3 % Dividend per ordinary share in euros 0.51 0.702) 37.3 % Dividend per preferred share in euros 0.53 0.722) 35.8 % 1) Adjusted for one­time charges/gains and restructuring charges. pp = percentage points 2) Proposed. Henkel at a glance Global supplier of brands and technologies Competence in three business sectors: • 134 years of brand success • Laundry & Home Care • Around 48,000 employees • Cosmetics / Toiletries • Adhesive Technologies Sales by region 41 % Growth regions1) 36 % Western Europe 18 % North America 4 % Japan/Australia/ New Zealand 1 % Corporate 1) Eastern Europe, Africa/Middle East, Latin America, Asia (excluding Japan). At At a glance Laundry & Home Care Leading market positions worldwide. Key financials + 1.5 % in million euros 2009 2010 +/– organic sales growth Achieving profitable growth through innovation, Sales 4,129 4,319 4.6 % Sales strong brands and good, solid customer relation- Operating profit (EBIT) 501 542 8.2 % in million euros ships. 1) Adjusted operating profit (EBIT) 530 562 6.2 % 2006 4,117 Return on sales (EBIT) 12.1 % 12.6 % 0.5 pp 2007 4,148 Expanding our strong market position in Europe Adjusted1) return on sales (EBIT) 12.8 % 13.0 % 0.2 pp and further extending our presence in North pp = percentage points 2008 4,172 America and the growth regions. 1) Adjusted for one­time charges/gains and restructuring charges. 2009 4,129 2010 4,319 Cosmetics / Toiletries Leading market positions worldwide. Key financials + 4.8 % in million euros 2009 2010 +/– organic sales growth Achieving profitable growth with appealing in- Sales 3,010 3,269 8.6 % Sales novations under strong brands, aligned to exacting Operating profit (EBIT) 387 411 6.1 % in million euros customer demands. Adjusted1) operating profit (EBIT) 387 436 12.4 % 2006 2,864 Return on sales (EBIT) 12.9 % 12.6 % –0.3 pp 2007 2,972 Expanding our strong market position in Europe Adjusted1) return on sales (EBIT) 12.9 % 13.3 % 0.4 pp and extending our presence in North America and pp = percentage points 2008 3,016 – selectively – in the growth regions. 1) Adjusted for one­time charges/gains and restructuring charges. 2009 3,010 2010 3,269 Adhesive Technologies Leading our markets worldwide. Key financials + 11.8 % in million euros 2009 2010 +/– organic sales growth Achieving profitable growth through innovations Sales 6,224 7,306 17.4 % Sales under strong brands, efficient processes and a firm Operating profit (EBIT) 290 878 >100 % in million euros focus on our customers. Adjusted1) operating profit (EBIT) 506 938 85.5 % 2006 5,510 Return on sales (EBIT) 4.7 % 12.0 % 7.3 pp 2007 5,711 Developing new applications and growth potential Adjusted1) return on sales (EBIT) 8.1 % 12.8 % 4.7 pp in all regions of the world. pp = percentage points 2008 6,700 1) Adjusted for one­time charges/gains and restructuring charges. 2009 6,224 2010 7,306 Contents The Company 2 Foreword 5 Report of the Supervisory Board 10 Management Board 11 Vision and values 12 Our values 22 Shares and bonds Group management report 25 Group management report subindex 26 Corporate governance 40 Operational activities 40 Strategy and financial targets for 2012 43 Value­based management and control system 45 Business performance 52 Assets and financial analysis 55 Employees 57 Procurement 58 Production 59 Research and development 61 Marketing and distribution 62 Sustainability 66 Business sectors 78 Risk report 83 Forecast 86 Subsequent events Consolidated financial statements 87 Consolidated financial statements subindex 88 Consolidated balance sheet 90 Consolidated statement of income 91 Statement of comprehensive income 91 Statement of changes in shareholders’ equity 92 Consolidated cash flow statement 93 Notes to the consolidated financial statements 135 Independent auditor’s report 136 Responsibility statement by the Personally Liable Partner 137 Corporate management of Henkel AG & Co. KGaA 142 Further information 143 Quarterly breakdown of key financials 144 Multi­year summary Credits / Financial calendar The cover photo shows members of the management team responsible for Cosmetics / Toiletries Asia-Pacific attending their Vision and Values Workshop in Shang- hai, China. From left to right: Vijay Manickavasagam, Antje Chu, Rungaroon Koohasaneh and Paul Khol. For more, go to page 14. Our Vision A global leader in brands and technologies. Our Values We put our customers at the center of what we do. We value, challenge and reward our people. Further information We drive excellent sustainable ­ You will notice a number of cross- references within this Annual Report. financial performance. We also indicate the availability of supplementary information relat- ing to specific subject areas in our We are committed to leadership Sustainability Report and on the in sustainability. internet. Annual Report We build our future on our Sustainability Report family business foundation. Internet 2 Foreword Henkel Annual Report 2010 Kasper Rorsted Chairman of the Management Board. 2010 was an excellent year for Henkel. For the The outstanding results achieved in 2010 prove 12.3 % first time in our corporate history, we concluded a that we have made the appropriate decisions in the adjusted1) return on sales. financial year with adjusted1) return on sales above past. Having adjusted to the decline in global eco- 12 percent. Organic sales increased by 7 percent nomic growth at an early stage, we have emerged while adjusted1) earnings per preferred share rose from this crisis stronger than ever. With more + 7 % by 47.6 percent. With these strong results, we are efficient structures and improved processes, we organic sales growth. well on our way to achieving our financial targets have been able to benefit from the recovery of the for 2012. world economy, gaining strength and momentum with advancing globalization. We have further improved the market positions + 47.6 % of all our business sectors relative to our competi- Growth in all sectors and regions 1) adjusted earnings tors, have strengthened our top brands and have While growth in the US economy was slow, the per preferred share. deepened our business relationships with our emerging economies once again exhibited the customers. We have been able to further expand highest rate of expansion. Following a substan- our positions in the emerging markets, particularly tial decline in the recession year of 2009, global in Asia and the Middle East. We have also initiated industrial production again grew strongly in 2010. a comprehensive change process throughout the The recovery was particularly pronounced in Asia, company, aimed at strengthening the “Winning especially in China, South Korea and Taiwan. Ger- Culture” at Henkel aligned to a clear, long-term many took a leading role among the industrialized vision: A global leader in brands and technologies. nations, registering a double-digit growth rate in industrial output and taking the lead as Europe’s growth engine. 1) Adjusted for one-time charges/gains and restructuring charges. Henkel Annual Report 2010 Foreword 3 An analysis of the individual sectors shows that Our strong brands are equally important for our Sales from top ten brands manufacturing – after substantial declines in the business success. In 2010, we further strength- in % previous year – became a growth driver, with the ened our top brands and continued to optimize Laundry & Home Care automotive, metals and electronics industries our brand portfolio.