During his first visit to the editorial offices at Handelsblatt headquarters in Düsseldorf, Henkel CEO Hans Van Bylen takes a tour of the newsroom, where one topic dominates: Donald Trump. Like many European CEOs, Mr. Van Bylen is paying special attention to U.S. trade policy. Perhaps more than ever before, his company's success depends on it.
The 55-year-old Belgian has headed the German consumer goods company since May, succeeding Kasper Rorsted, who went to Adidas. Mr. Van Bylen has spent almost his entire career at Henkel, where he previously headed the beauty care division, including the Schwarzkopf brand.
Henkel's adhesive technologies division, which makes Pritt glue sticks and industrial adhesives, currently accounts for half of the company's total revenues of €20 billion, or $21.5 billion. The laundry and home care division, with brands like Persil, Spee and Pril, make up the remainder of revenues, along with the beauty care division.
Below, Mr. Van Bylen discusses the need for openness towards Donald Trump and why new opportunities opening up in the Asian market also have Henkel looking East. You can also read a summary of the interview.
Trade barriers would have little direct impact on our business, however, as the production of consumer goods and adhesives is very localized. Hans Van Bylen, CEO, Henkel
Handelsblatt: Mr. Van Bylen, the United States is more important to Henkel than for most other German companies. What are your thoughts following the new U.S. president's first executive orders?
Mr. Van Bylen: So much has been said and written about President Trump by now that I can hardly add anything to it. The United States is enormously important to us as a company. Last summer, we acquired U.S. laundry detergent maker Sun Products for €3.2 billion. Since then, the United States has accounted for a quarter of our consolidated sales.
So what will ultimately prevail: the positive impulses from tax cuts and infrastructure investments or risks from growing trade restrictions?
I hope that the new government will provide the right incentives for growth. Trade barriers would have little direct impact on our business, however, as the production of consumer goods and adhesives is very localized. We have about 50 locations with approximately 8,000 employees in the United States. However, protectionist measures would be damaging to global trade, because free trade is the basis for growth prosperity after all – also in the United States.
The initial reactions from companies such as Ford and Toyota to Trump's attacks, including those on Twitter, has been to make concessions. Should companies show more backbone?
Managers should always show backbone and self-confidence. But you also have to adjust to realities. Stubbornness and defiance are not helpful.
Couldn't Henkel be targeted by the U.S. president because the company is consolidating its headquarters in the United States?
No, because we have a clear growth strategy in the United States, especially since the Sun takeover. We now play in a different league there, and we have become much more interesting as a retail partner. Yes, we are in the process of consolidating in the U.S. and are moving our headquarters for the consumer goods business to the East Coast. We have already leased the new building near New York.
What could be the economic consequences of Mr. Trump's "America First" policy?
I don't know if you can truly make that sort of prediction today. World trade and relationships among trading partners will probably find a new balance. Given our global presence, we are in a good position to face these challenges.
In this new reality, will Asia become a focus of investment for you?
Asia is already a focus of investment for us today. With about 8,000 employees in more than 100 locations, our presence in this region is just as strong as it is in the United States. China is growing more slowly now, but the 6.6 percent economic growth in the country saw last year is still respectable. Moving forward, I still see enormous potential in China. However, we are set up a little differently in Asia than in other regions of the world. The industrial business accounts for about 80 percent of our sales in Asia. For instance, our adhesive is used in smartphones and tablets from the Far East, as well as in Japanese cars. We see additional growth opportunities and continue to invest in Asia. We already have the world's largest adhesives factory in China, and we are now building the second-largest one in India.
There will be several elections in Europe in 2017, including the Netherlands, France and Germany. And there is also Brexit. What are your thoughts on political developments in Europe?
I think Brexit is regrettable. It would have been better for all sides if Great Britain had remained in the European Union. But it hardly affects Henkel economically, because we only generate about 3 percent of our sales in Great Britain. I hope that the various global challenges will give new strength to Europe, especially now that the European economy has recovered somewhat. In 2016, we saw significant growth in our businesses in southern Europe, particularly in Spain.
You will soon be presenting your first annual results as CEO of Henkel. Are you proud of your accomplishments thus far?
I am very satisfied with what we have accomplished, both in the executive board and together with all employees. We now have a good impression of how the new strategic priorities and ambitions we announced last November have been received. All board members traveled around the world and personally conveyed the message to about 25,000 employees. Our sense is that the resonance was very positive.
Henkel had actually planned to have surpassed €20 billion in revenues long ago. Why has the company not yet succeeded?
When we defined absolute revenue in euros at the group level in 2012, as well as growth markets up through 2016, we couldn't have imagined how strongly we would be influenced by external factors. Negative exchange rate effects have been especially burdensome for us in recent years. That's why we are now focusing on organic growth – that is, growth adjusted for exchange rate influences or major acquisitions. We expect organic revenue growth to average 2 to 4 percent until 2020, and adjusted earnings per share to increase by 7 to 9 percent.
Why don't you issue a profitability target for this period?
Of course, we want to continue increasing our profitability. But we don't want to establish a concrete margin target because acquisitions, among other things, can influence the margin. Look at Sun for example: The acquisition strengthens us strategically, increasing revenue and profit. But the margin – that is, the relationship between revenue and profit – is still lower at Sun than at Henkel. This puts a strain on our profit margin in the short term. We are now working on bringing Sun up to our level of profitability. In general, we don’t want to achieve growth at the expense of profitability. On the contrary.
Your goal in the last four years was 10 percent annual earnings growth. But now it's only 7 to 9. Are you slowing down?
No. If you look at the uncertain and volatile market environment, these are very ambitious goals, especially looking that far into the future. We want to achieve a 7 to 9 percent increase in earnings per share. In today's environment, there aren’t too many companies shooting for that kind of earnings growth in the next four years.
You plan to increase revenue from the digital business to €4 billion by 2020. Is that realistic?
Yes, it is realistic. We already have €2 billion in digital revenues today. We earn more than €1 billion through a portal for our industrial customers in the adhesives business. This portal enables us to offer the industry a lot more service, as well as providing additional information about our adhesives. We're also making tremendous progress with consumers. In China, for example, we have seen strong growth with our Schwarzkopf and Syoss haircare brands, because we were on China's Alibaba ecommerce platform very early in the game. Today we achieve about half of our revenues online in our beauty care business, and 60 percent with laundry detergent in Korea. But it's also clear that not everyone migrates to the web.
Asia is already a focus of investment for us today. Hans Van Bylen, Henkel CEO
The in-store shopping experience is important in a few categories, such as fragrances. In others, ecommerce has a leg up. But in the end, in both instances, it's all about the customer experience. The separation between online and offline is becoming increasingly blurred, which is why we also want to eliminate the boundaries internally – in marketing, for example.
You have announced plans to double annual investments to €3 billion by 2020, which not all analysts have welcomed. Has Henkel invested too little lately?
On the contrary. During our investor meetings in the United States at the beginning of the year, I gained the impression that this was welcome news for most observers. You need to invest to grow. We are talking about digitization, expanding capacity for growth and innovation. With adhesives, for example, we want to bring them together in innovation centers in Düsseldorf and other places. The good news is that we can afford this, because we generate high cash flows.
Do you plan any other acquisitions after the Sun takeover?
Acquisitions remain part of our strategy. And we still have more latitude for that, as evidenced by the attractive financing we obtained for the Sun acquisition. We were the first publicly traded company in Germany to achieve a negative interest rate on a bond. Given our profitability, we have many possibilities. But an acquisition always has to be right strategically and in terms of price.
You have hardly made any changes to the strategy of your predecessor, Kasper Rorsted's. Do you really want to do everything to remain the same?
It isn't a matter of simply doing something differently, but rather of taking the right approach to existing challenges. We must constantly question ourselves and adjust to changes in markets. The question is: How long can we remain successful in a constantly changing environment?
Mr. Van Bylen, thank you for the interview.