Letter from the Chairman

Dear Sir or Madam,

In this past year, Haniel has demonstrated that we do not merely proclaim that we are “enkelfähig” – instead, we highlighted our commitment to sustainable entrepreneurship by taking a series of steps to lead our Company into the future. We accomplished this in 2015 with the successful acquisition and integration of Bekaert Textiles. In addition, Haniel set the stage for the Group’s advancement in matters of digitalisation.

Haniel launches digital initiative
Focus on digital transformation around the world – this was done in response to two developments: firstly, the rising necessity of digitalising processes within existing business models. This is a crucial step for any company which hopes to still be successful in the market in five years’ time. We would have had to take on this challenge even without the second development: disruptive change. Triggered by radical innovations which create their own markets, typical examples include the taxi company Uber and the streaming on-demand service Netflix.

While we are continuing to monitor these disruptive developments, we do not consider them to be significant to our business models – so far. At the moment, our value chains are focussing on digitalisation. In order to achieve results quickly in this area, we have embarked on a completely new path for Haniel: going forward, our digital projects will be realised by an independent operating unit. You can read more about that in the "The four phases of the industrial revolution" section. To be clear: this is not about the digital revolution; this is about how we want to work with the divisions to develop specific ways in which digitalisation can be profitably implemented.

Improved portfolio balance
We are continuing our efforts to provide new balance to our portfolio. The acquisition of Bekaert Textiles in June 2015 represented one milestone along this journey. The globally leading specialist for the development and manufacturing of woven and knitted mattress textiles benefits from global mega-trends such as population growth, a growing health consciousness and rising prosperity in emerging markets. This promising market offers excellent growth opportunities – not least through acquisitions. This was evident in the acquisition of DesleeClama at the end of February 2016, which was carried out to provide additional support for Bekaert Textiles’ business.

In keeping with this buy-and-build approach, we also completed two significant acquisitions in the TAKKT division: in March 2015, we signed the purchase agreement for the US conglomerate, Post-Up Stand – a leading specialist for customised printed marketing material. And in July, TAKKT acquired the British online retailer BiGDUG.

In order to further improve the balance of our portfolio, we successfully reduced our interest in our METRO GROUP investment to 25 per cent in May – still remaining the company’s largest shareholder. At the same time, we successfully placed an exchangeable bond linked to Metro shares with a term until 2020. The proceeds generated from this will be used to acquire further divisions. Haniel currently has more than EUR 1 billion at its disposal to achieve this.

We did not acquire any divisions last year other than Bekaert Textiles primarily because many companies did not meet our standards. This is aggravated by the fact that the market environment for mergers and acquisitions is characterised by a large pool of prospective buyers and high valuations. Nevertheless, we will intensify our disciplined search for new, attractive investments and will support our divisions in the search for complementary acquisition opportunities.

Implementation of strategic initiatives continues
The existing divisions continued to implement their strategic initiatives in the past year and their operating businesses performed well. Only ELG suffered due to weak commodity markets, thus reporting significantly lower profit than in the previous year. Notwithstanding this, the company continued to invest in the relatively young business areas of superalloys and carbon fibre.

Bekaert Textiles has been a part of Haniel since June 2015. The integration was successful. Moreover, the company reported excellent economic development. CWS-boco made progress with its sales initiative, with the division making key investments for the future, such as in a new inventory management system and the further optimisation of its laundry network.

TAKKT remains on track towards aligning its business activities to a greater degree with multi-channel sales in order to enable it to continue growing in the future, particularly with respect to the digitalisation of trade. The METRO GROUP also continued with its strategic realignment and pushed forward with the expansion of its multi-channel business in 2015. In addition, Metro Cash & Carry in Vietnam and Galeria Kaufhof were also sold.

New brand image underscores transformation
From important steps towards restructuring its portfolio to its digital initiative through to strategic initiatives within the divisions: Haniel is undergoing change. And so is our position on the market: As a family-equity company, Haniel combines the best of both worlds. We merge the traditions and long-term orientation of a family- owned business with the professionalism of a private equity investor. We have refined our brand image as a reflection of the transformation we are undergoing. In this annual report, we present our revamped logo to the public for the first time: it stands for Haniel’s willingness to change and at the same time represents the protective roof under which our divisions can continue to grow.

No matter how eager we are to evolve, one thing will never change: as a family-equity company, our actions will be responsible and deliberated. Before we strike out on a new path, we reflect on the consequences of our decisions and weigh the benefits of investing against the costs – including those for the common good. We place great value on finding a balance between social, ecological and economic objectives in all of our entrepreneurial decisions.

In the countries in which we operate, we follow the principles of fair competition and respect the laws as well as the social values. In keeping with Haniel’s objective of being “enkelfähig”, the only investments for us are companies which already make a positive contribution to the environment and society through their sustainable actions, or which will be able to do so in the future. As a reflection of this aspiration, we joined the UN Global Compact in 2014. We support the principles of the UN Global Compact such as human rights, labour standards, environmental protection and the fight against corruption, and ensure that they are proclaimed loud and wide.

Gratitude for outstanding work and support
Haniel’s successful transformation has been the result not only of business decisions. A major factor in this success has been our staff, who are prepared to question the past and provide momentum for transformation within the Group. In that spirit, I would like to thank all of our employees – also in the name of my colleague Dr Funck – for their hard work and support in this past year. We would also like to thank the shareholder committees and the Supervisory Board for their constructive cooperation. Together, we are poised to lead our Company into a successful future.

Duisburg, 4 March 2016

Stephan Gemkow
Chairman of the Management Board