Henkel is a German multinational company founded in 1876. It has three main business units: Laundry and Home Care, Beauty Care, and Adhesive Technologies. Henkel places strong emphasis on shareholder value and uses value-based management metrics like Economic Value Added (EVA) to measure performance. EVA is the preferred metric as it accounts for the full cost of capital unlike traditional measures like earnings. Henkel's strategic decisions and performance evaluations are heavily influenced by its shareholder value approach.
Henkel is a German multinational company founded in 1876. It has three main business units: Laundry and Home Care, Beauty Care, and Adhesive Technologies. Henkel places strong emphasis on shareholder value and uses value-based management metrics like Economic Value Added (EVA) to measure performance. EVA is the preferred metric as it accounts for the full cost of capital unlike traditional measures like earnings. Henkel's strategic decisions and performance evaluations are heavily influenced by its shareholder value approach.
Henkel is a German multinational company founded in 1876. It has three main business units: Laundry and Home Care, Beauty Care, and Adhesive Technologies. Henkel places strong emphasis on shareholder value and uses value-based management metrics like Economic Value Added (EVA) to measure performance. EVA is the preferred metric as it accounts for the full cost of capital unlike traditional measures like earnings. Henkel's strategic decisions and performance evaluations are heavily influenced by its shareholder value approach.
Henkel is a German multinational company founded in 1876. It has three main business units: Laundry and Home Care, Beauty Care, and Adhesive Technologies. Henkel places strong emphasis on shareholder value and uses value-based management metrics like Economic Value Added (EVA) to measure performance. EVA is the preferred metric as it accounts for the full cost of capital unlike traditional measures like earnings. Henkel's strategic decisions and performance evaluations are heavily influenced by its shareholder value approach.
(1848-1930) History In 1878, Henkel started In 1907, Persil was In 1995 and 1997, Hans to produce his new launched as world’s Schwarzkopf GmbH brandname product first self-acting and Loctite Corp. “Bleich Soda” . laundry detergent. were obtained. Employees
● 53,000 employees ● 120 different nationalities ● 78 different countries
Women account for
34.7 percent of the managers in the company. Business Units
Henkel
Laundry and Adhesive
Beauty Care Home Care Technologies Laundry and Home Care ● Products : laundry detergents, laundry additives, dishwashing ,hard surface cleaners, toilet care, air care, insect control products
● Strong competition in this field comes from
huge players like Procter&Gamble, Unilever or Reckitt Benckiser.
● This business area is characterised by a high
level of internationalisation.
● Large customers include German retail
companies like Edeka, Rewe or Metro as well as French Carrefour and US Walmart. Beauty Care ● The beauty care sector is divided into three sub fields: hair care, body,care and skin/oral.
● The strongest sector is hair care, which is responsible
for two-thirds of the quoted sales. This is thanks to the strong brand Schwarzkopf, one of the world’s leading suppliers of hair salon products thanks to its professional line.
● Other representative brands are Syoss, Dial and got2b.
● Major competitors in this field include L’Oréal,
Procter&Gamble, Unilever, Beiersdorf and KAO. Adhesive Technology
● Henkel is the world market leader in adhesives,
sealants and functional coatings.
● The adhesive technologies business unit supplies
different target groups like end-consumers, craftsmen and industrial business under various brands.
● Key competitors in the three customer groups of
industry, consumers and craftsmen are Bostik, Sika and BASF. International Control at Henkel ● Henkel, especially its controlling, is influenced by shareholder value. This is particularly reflected by its values, where the pursuit of sustainable financial performance is noted. Value Based Management The key elements of value-based management are the ● creation of shareholder value, ● the identification of value drivers, ● the connection of performance measurement, ● target setting and rewards for value creation or value drivers as well as the connection of decision making and action planning (strategic and operational) to value creation or value drivers Performance Metrics
● The key part of a value-based management system is a
performance metric which is able to measure a company’s value.
● Traditionally used metrics like earnings has limitations, so it is
necessary to use value-based metrics which draw on cash flows or earnings after the cost of equity. Economic Value Added
● Economic Value Added (EVA) has become an extremely popular
shareholder value method of measuring corporate and divisional performance and may be on its way to replacing ROI as the standard performance measure.
● EVA measures the difference between the prestrategy and post-strategy
values for the business. Simply put, EVA is after-tax operating income minus the total annual cost of capital. Video Elements of Economic Value Added ● Net Operating Profit After Taxes (NOPAT) ● Invested Capital ● Weighted Average Cost of Capital (WACC)
● EVA= (NOPAT) - Invested Capital * (WACC)
Return on capital employed Performance and Financial Key Figures for the Henkel Business Units Laundry & Home Care Beauty Care Adhesive Technologies
2013 2018 2013 2018 2013 2018
Sales 4580 6419 3510 3950 8117 9403 (in million EUR) EBIT 682 970 474 589 1271 1669 (in million EUR) Adjusted Return on Sales 15.6% 18.1% 15% 17.1% 16.9% 18.7% (EBIT) Capital Employed 2321 7381 2007 3983 6752 8637 (in million EUR) Weighted Average Cost of 7.5% 9% 7.5% 9% 10.5% 10.5% Capital (WACC) Return of Capital Employed 29.4% 13.1% 23.6% 14.8% 18.8% 19.3% (ROCE) Economic Value Added 507 306 323 230 562 762 (EVA; in million EUR) Question 1 Henkel heavily emphasises the shareholder value concept. Compare and discuss the shareholder value approach with the alternative concept known as the “stakeholder approach”. Question 2 The shareholder value is established in Henkel’s vision and values. Which other areas are affected by this approach? ● Henkel’s corporate governance is dedicated to achieving a long-term increase in shareholder value. Achieving sustainable EVA has a huge influence on all operating and strategic decisions like acquisitions or divestments. Questions 3 This case study highlights the usage of economic value added (EVA) as a measure in value-based management. Explain why traditional accounting measures like earnings or earnings growth are inappropriate value based management measures. Traditionally used measures like earnings do not suit the requirements of value-based management, because they do not show the shareholder wealth which has been created. Specifically, the following shortcomings describe why rewarding earnings or earnings growth may lead to value-reducing decisions inconsistent with shareholder interests: ● Earnings include non-cash items such as depreciation & amortization with no impact on shareholder value. ● Earnings are not necessarily comparable across firms, since accounting principles differ across countries and frequently entail some choice and scope. ● Earnings are not adjusted for the time value of money, ignoring anticipated inflation rates. ● A single year’s earnings level does not indicate volatility over periods due to external influences and the firm’s management decisions, thus, not reflecting the firm’s business risk and financial risk appropriately. ● Earnings account for the cost of debt and preferred stock, but omit opportunity costs for equity capital, thus, overstating value addition. Question 4
Which other value-oriented approaches except EVA
exist? List their advantages and disadvantages. ● The most common are:
● Residual income (RI) is excess income generated more than the minimum rate of return. RI is typically used to assess the performance of a capital investment, team, department, or business unit. ● Economic profit (EP)- type of "what if" analysis. If economic profit comes out to zero, the company is said to be in a state of "normal profit." ● Cash value added (CVA)- is cash flow that surpasses the Cash flow return on investment required by investors. The difference between CVA and EVA is that CVA focuses on the cash flow aspect of the firm. Advantage Disadvantage
RI Gives another view on project Difficult to compare across units (not
profitability percentage unit) Can encourage a short run orientation
EP Helps weigh all opportunities Difficult to estimate
Measures success Does not account for several important Measures efficiency financial aspects
CVA Not affected by accounting Hard to implement (predicting inflation
depreciation rates) Annette Holler, New Metrics for Value-Based Management, Additional ● 2009
Sources ● ● Henkel-Annual Report for 2018 https://www.henkel.com ● https://www.investopedia.com Thanks! Does anyone have any questions?
