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Corporate Reporting 2015

Henkel Corporate Reporting 2015

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Annual Report 2015

Report of the Supervisory Board

Dr. Simone Bagel-Trah, Chairwoman of the Shareholders’ Committee and the Supervisory Board

Dear Shareholders and Friends of the Company,

Fiscal 2015 was very successful for Henkel. We are well equipped for the challenges of the future and look toward the continued development of the corporation with confidence.

Dr. Simone Bagel-Trah Chairwoman of the Shareholders’ Committee and the Supervisory Board

In a difficult business environment characterized by weaker growth in Asia, stagnating economies in Latin America and Eastern Europe, and moderate private consumption overall, fiscal 2015 was very successful for Henkel. All of our business units recorded organic sales growth and a further increase in earnings.

On behalf of the Supervisory Board, I would like to thank all of our employees for their exceptional commitment this past year. My thanks are equally due to the members of the Management Board who have steered the company successfully through these challenging market conditions. I would also like to thank our employee representatives and Works Councils for their constructive support in moving Henkel forward.

To you, our shareholders, I extend my special thanks for your continued confidence in our company, its management and employees, and our brands and technologies over this past fiscal year.

Ongoing dialog with the Management Board

Again in fiscal 2015, the Supervisory Board diligently discharged its duties in accordance with the legal statutes, Articles of Association and rules of procedure governing our actions. In particular, we consistently monitored the work of the Management Board, advising and supporting it in its stewardship, in the strategic further development of the corporation, and in decisions relating to matters of major importance.

In the course of 2015, the Management Board and the Supervisory Board continued to cooperate through extensive dialog founded on mutual trust and confidence. The Management Board kept us regularly and extensively informed of all major issues affecting the corporation’s business and our Group companies with prompt written and oral reports. Specifically, the Management Board reported on the business situation, operational development, business policy, profitability issues, our short-term and long-term corporate, financial and personnel plans, as well as capital expenditures and organizational measures.

Quarterly reports focused on the sales and profits of Henkel Group as a whole, with further analysis by business unit and region. All members of the Supervisory Board consistently had sufficient opportunity to critically review and address the issues raised by each of these reports and to provide their individual guidance.

The Chairman of the Audit Committee and I, as Chairwoman of the Supervisory Board, remained in regular contact with the Chairman of the Management Board outside of Supervisory Board meetings. This procedure ensured that we were constantly aware of current business developments and significant events. The other members were informed of major issues no later than by the next Supervisory Board or committee meeting.

The Supervisory Board and the Audit Committee each held four regular meetings in the reporting year. Attendance at the Supervisory Board and committee meetings was around 91 percent and 96 percent respectively. Béatrice Guillaume-Grabisch attended two meetings of the Supervisory Board.

There were no indications of conflicts of interest involving Management Board or Supervisory Board members that required immediate disclosure to the Supervisory Board and reporting to the Annual General Meeting.

Major issues discussed at Supervisory Board meetings

In each of our meetings, we discussed the reports submitted by the Management Board, conferring with it on the development of the corporation and on strategic issues. We also discussed the overall economic situation and Henkel’s business performance.

In our meeting on March 2, 2015, we focused on approving the annual and consolidated financial statements for 2014, including the risk report and corporate governance report, the 2015 Declaration of Compliance, and our proposals for resolution by the 2015 Annual General Meeting. A detailed report of this was included in our last Annual Report. We also discussed the concept of Laundry & Home Care’s Global Experience Center in Düsseldorf, where we present our innovations to our customers through interactive experiences.

In addition to the general business performance in the first months of the fiscal year, the focus of our meeting on April 13, 2015 was on the challenges facing our corporation from an increasingly digitalized environment. We extensively discussed the priorities for our digital strategy and the corresponding steps being taken in our business units. These include the increased use of digital applications by our employees, innovative solutions and technologies for analyzing data, reaching our customers through digital media, and the expansion of our eCommerce operations.

In our meeting on September 18, 2015, we extensively discussed business and market developments in North America. In the consumer businesses, where the market is characterized by intense competition, the introduction of Persil ProClean and of hair care and styling products in retail channels under the Schwarzkopf brand generated positive results. The Adhesive Technologies business unit also performed positively in North America. We reviewed the structural measures that had been taken, mainly in light of weakening growth in Asia. Likewise addressed at this meeting were the continued development of the leadership team and the recruitment of management talent in emerging markets.

Our meeting on December 11, 2015 focused on the expected figures for 2015 and on our assets and financial planning for fiscal 2016. We also discussed the associated budgets of our business units in detail based on comprehensive documentation.

Supervisory Board committees

In order to enable us to efficiently comply with the duties incumbent upon us according to legal statute and our Articles of Association, we have established an Audit Committee and a Nominations Committee. The Audit Committee was chaired in the year under review by Prof. Dr. Theo Siegert, who complies with the statutory requirements of impartiality and expertise in the fields of accounting or auditing and brings experience in the application of accounting principles and internal control procedures. For more details on the responsibilities and composition of these committees, please refer to the corporate governance report and the membership lists.

Committee activities

Pursuant to its appointment by the 2015 Annual General Meeting, the Audit Committee mandated the external auditor to audit the annual financial statements and the consolidated financial statements, and to review the interim financial reports for 2015. The audit fee and focus areas of the audit were also established. The Audit Committee obtained the necessary validation of auditor independence for the performance of these tasks. The auditor has informed the Audit Committee that there are no circumstances that might give rise to a conflict of interest in the execution of its duties.

The Audit Committee met four times in the year under review. The Chairman of the Audit Committee also remained in regular contact with the auditor outside of the meetings. The meetings and resolutions were prepared through the provision of reports and other information by the Management Board. The Chair of the Committee reported promptly and in full to the plenary Supervisory Board on the content and results of each of the Committee meetings.

All Audit Committee meetings focused on the company and Group accounts, including the interim (quarterly and half-year) financial reports, with all matters arising being duly discussed with the Management Board. The three meetings at which we discussed and approved the interim financial reports were attended by the auditor. The latter reported on the results of the reviews and on the main issues and occurrences relevant to the work of the Audit Committee. There were no objections raised in response to these reports.

The Audit Committee also reviewed the accounting process and the efficacy and further development of the internal Group-wide control and risk management system. One of its tasks was to review the efficiency of the risk management system, based on the risk reports of previous years. In addition, the Audit Committee received the report of the General Counsel & Chief Compliance Officer regarding major litigations and compliance within the Group, as well as the status report of the Head of Internal Audit. It approved the audit plan put forward by Internal Audit, which extends to examining the functional efficiency and efficacy of the internal control system and our compliance organization. Discussion also centered on treasury risks and their management and on the current reform in statutory auditing including its impact on the work of the Audit Committee.

At its meeting on February 22, 2016, attended by the auditor, the Audit Committee discussed the annual and consolidated financial statements for fiscal 2015, including the audit reports, the associated proposal for appropriation of profits, and the risk report. It also prepared the corresponding resolutions of the Supervisory Board. The Committee also made its recommendation to the Supervisory Board regarding the latter’s proposal for resolution by the Annual General Meeting relating to the appointment of the external auditor for fiscal 2016. A declaration from the auditor asserting its independence was again duly received, accompanied by details pertaining to non-audit services rendered in fiscal 2015 and those envisioned for fiscal 2016. There was no evidence of any bias or partiality on the part of the auditor. As in previous years, other members of the Supervisory Board took part as guests in this specifically accounting-related meeting of the Audit Committee.

The Nominations Committee prepared the resolutions of the Supervisory Board to be presented to the 2016 Annual General Meeting for the upcoming new election of shareholder representatives. In addition to the qualifications of the individual candidates, the Nominations Committee also takes into account when selecting candidates the recommendations of the German Corporate Governance Code [DCGK] and the targets set by the Supervisory Board for its future composition. All of the candidates confirmed their ability to devote the time needed to perform Supervisory Board duties.

Efficiency audit

The Supervisory Board and Audit Committee regularly review the efficiency with which they perform their duties, based on a comprehensive, companyspecific checklist distributed to all members. The checklist covers important aspects such as meeting preparation and procedure, the scope and content of documents and information – particularly with respect to financial reports, compliance and audits – as well as financial control and risk management. Such a survey took place in the reporting year. The results and assessments were examined in detail in the meeting of the Audit Committee on February 22, 2016 and the meeting of the Supervisory Board on February 23, 2016, where issues of corporate governance and opportunities for improvement were also discussed. The efficiency with which the Supervisory Board and Audit Committee carry out their duties and the required independence of their membership were duly confirmed.

Corporate governance and declaration of compliance

The Supervisory Board again dealt with questions of corporate governance in the reporting year. Specifically, in our meeting on September 18, 2015, we reviewed and updated our targets for the composition of the Supervisory Board, taking into account new legislation concerning the composition of supervisory boards for co-determined and listed companies and the relevant provisions of the German Corporate Governance Code. Details of these changes and on Henkel’s corporate governance can be found in the management report on corporate governance report, with which we fully acquiesce.

At our meeting on February 23, 2016, we discussed and approved the joint Declaration of Compliance of the Management Board, the Shareholders’ Committee and the Supervisory Board with respect to the German Corporate Governance Code [DCGK] for 2016. The full wording of the current and previous declarations of compliance can be found on the company website.

Annual and consolidated financial statements / Audit

The auditor appointed for 2015 by the Annual General Meeting – KPMG – has examined the annual financial statements prepared by the Management Board in accordance with the provisions of the German Commercial Code [HGB], and the consolidated financial statements along with the consolidated management report, which has been combined with the management report for Henkel AG & Co. KGaA for 2015. The auditor issued an unqualified opinion for each report. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU), and in accordance with the supplementary German statutory provisions pursuant to Section 315a (1) HGB. The consolidated financial statements in their present form exempt us from the requirement to prepare consolidated financial statements in accordance with German law.

KPMG conducted the audit in accordance with Section 317 HGB and the German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany), and in supplementary compliance with International Standards on Auditing (ISA).

The annual financial statements, consolidated financial statements and combined management report, the audit reports of KPMG and the recommendations by the Management Board for the appropriation of the profit made by Henkel AG & Co. KGaA were presented in good time to all members of the Supervisory Board. We examined these documents and discussed them at our meeting of February 23, 2016. This was attended by the auditor, which reported on its main audit findings. We received the audit reports and declared our acquiescence therewith. The Chair of the Audit Committee provided the plenary session of the Supervisory Board with a detailed account of the treatment of the annual financial statements and the consolidated financial statements by the Audit Committee. Having received the final results of the review conducted by the Audit Committee and concluded our own examination, we see no reason for objection to the aforementioned documents. We have agreed to the results of the audit. The assessment by the Management Board of the position of the company and the Group coincides with our own appraisal. At our meeting of February 23, 2016, we concurred with the recommendations of the Audit Committee and therefore approved the annual financial statements, the consolidated financial statements and the combined management report as prepared by the Management Board.

Additionally, we discussed and approved the proposal by the Management Board to pay out of the unappropriated profit of Henkel AG & Co. KGaA a dividend of 1.45 euros per ordinary share and of 1.47 euros per preferred share, and to carry the remainder and the amount attributable to the treasury shares held by the company at the time of the Annual General Meeting forward to the following year. This proposal takes into account the financial and earnings position of the corporation, its medium-term financial and investment planning, and the interests of our shareholders.

In our meeting on February 23, 2016, we also ratified our proposal for resolution by the Annual General Meeting relating to the appointment of the external auditor for the next fiscal year, based on the recommendations of the Audit Committee.

Risk management

Risk management issues were examined not only by the Audit Committee but also the plenary Supervisory Board, with emphasis on the risk management system in place at Henkel and any major individual risks of which we needed to be notified. There were no identifiable risks that might jeopardize the continued existence of the corporation as a going concern. The structure and function of the risk early warning system were also integral to the audit performed by KPMG, which found no cause for reservation. It is also our considered opinion that the risk management system corresponds to the statutory requirements and is fit for the purpose of early identification of developments that could endanger the continuation of the corporation as a going concern.

Changes in the Supervisory Board and Management Board

There were no changes in the Supervisory Board in the year under review.

As announced in mid-January 2016, Kasper Rorsted will leave the company at his own request as of April 30, 2016. Hans Van Bylen, who is currently Executive Vice President with lead responsibility for the Beauty Care business unit, has been appointed as the new Chairman of the Management Board effective May 1, 2016. Pascal Houdayer has been appointed to the Management Board effective March 1, 2016, and will take over as Executive Vice President with lead responsibility for the Beauty Care business unit as of May 1, 2016.

Kasper Rorsted achieved a lot for Henkel during his 11 years as a member of the Management Board, 8 of which he served as Chairman of the Management Board. Under his leadership since 2008, the company has delivered successful performance in a challenging market environment. Sales, profitability and market capitalization have increased significantly and our top brands have been strengthened. For this, I would like to sincerely thank Kasper Rorsted on behalf of all governance committees, employees and shareholders of Henkel.

Hans Van Bylen has long-standing, international experience at Henkel – both in managing brands and markets, and on the Management Board. He started his successful career at Henkel back in 1984. In the more than 31 years since then, he has occupied various management posts involving extensive regional responsibility in both the Laundry & Home Care and Beauty Care business units. Hans Van Bylen was appointed to the Management Board in 2005 with responsibility for the Beauty Care business.

Pascal Houdayer was appointed Corporate Senior Vice President at the Laundry & Home Care business unit in 2011. Since that time he has been responsible for International Marketing within the Home Care business area, the digital activities of the business unit, and also its operations in the Asia-Pacific region. Prior to this, he worked from 1993 for another globally active corporation, occupying a number of positions of international responsibility in the laundry detergent / household cleaner and toiletry segments.

We wish Hans Van Bylen and Pascal Houdayer every success in their new roles. We are delighted to have two experienced leaders from within Henkel moving into these positions on the Management Board.

The year ahead will once again present challenges to all of our employees and our management. Many of the issues and changes encountered and tackled in 2015 will remain important for us in 2016. Henkel is well equipped for these challenges and we look toward the continued development of our corporation with confidence.

We thank you for your ongoing trust and support.

Düsseldorf, February 23, 2016

On behalf of the Supervisory Board

Dr. Simone Bagel-Trah
(Chairwoman)