letter from the Chairman 2018

Over this past year, we took many steps to ensure that Haniel will be able to continue creating value for future generations. However, we also met with strong headwinds. In addition, competition for new companies is growing ever more fierce. What was most disappointing for Haniel was the performance of our two financial investments, CECONOMY and METRO.

As a family-equity company, we take an active role in shaping our equity investments and intend to expand our portfolio by adding rapidly growing, future-facing companies. Our objective is to further significantly reduce cluster risks and dependencies on individual sectors. In light of the disappointing share price performances for METRO and CECONOMY, we were compelled to test the two financial investments for impairment. Ultimately, we were forced to adjust the value of our shares in the two financial investments by about one billion euros. This was a difficult, yet necessary, step which overshadowed our operating performance in 2018. Already by the end of spring, Haniel had decided to begin preparing to exit from its investment in METRO.

At the same time it was integrating Initial’s activities, which had been acquired in 2017, the CWS-boco division also implemented its own restructuring of the Hygiene Solutions and Textile Solutions divisions. With its management structures now streamlined, the focus of the plan to further optimise CWS-boco lies squarely on location and logistics structures, IT systems and economies of scale in the area of procurement. The growth initiatives are also aimed at new offerings and the digitalisation of the product portfolio – alongside measures intended to continually improve the division.

It takes bold thinking to step into uncharted territory – as we did when we acquired two companies in the mechanical engineering sector at the end of 2017. In 2018, we established bespoke leadership and governance models for ROVEMA, a recognised premium manufacturer of packaging machines and equipment, and for Optimar, a leading manufacturer of high-quality, automated fish handling systems for use on ships, on land and for aquaculture. External Chairmen advise the management teams as sparring partners. In this way, we have laid the foundations for further growth at Optimar and ROVEMA.

In recent years, we have placed ourselves on a solid financial footing that is much broader overall. Following the sale of the first tranche of its shares in Metro, Haniel has approximately EUR 1.4 billion in financial resources to continue to shape its portfolio for the future. When searching for new investments, we continue to take a structured approach, and are cautious in the increasingly competitive environment. We make no false compromises when it comes to our investment criteria. Business models are only fit for the future if sustainability is not a foreign concept to them and they already make a positive contribution to the environment and society through their sustainable actions, or will be able to do so in the future. As a reflection of this aspiration, we have been a member of the UN Global Compact since 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.

Our digital initiative is a vital element of the Haniel Group’s continued strategic development. Schacht One sets us apart from our competitors for new companies. All divisions are pursuing a large number of specific projects which are based on their own respective Digital Agendas. Many solutions are currently in the pilot phase or have already been launched on the market. Current examples include TAKKT’s büromöbelonline and Optimar’s Commander, a digital platform that enables customers to digitally monitor and manage their products. The digital transformation is also bringing about changes from an organisational standpoint. For instance, ELG has further developed EIE GmbH, its own digital unit. TAKKT now bundles all of its web-based enterprises under the newport Group, through which it networks their ranges of services.

Knowledge transfer and the exchange of ideas – both within and outside the Haniel Group – are an important aspect of the holistic approach to digitalisation. Seminars and management training sessions offered by the Haniel Academy, events at Schacht One and special trips to digital hotspots not only brought Haniel Group colleagues together, we also benefited from the network we have created through investing in six selected venture capital funds and the targeted investments in start-ups by our divisions. Our diverse network helps us to further strengthen the digital mindset within the Group so that we can remain fit for the future.

Our sound operating basis has also enabled us to continue to prepare our business for the future. The course of business in 2018 showed that we benefit from a diverse portfolio: revenue has grown organically. ELG benefited largely from higher average commodity prices, as well as from rising tonnages. Growth at CWS-boco was encouraging, both in the Textile Solutions and in the Hygiene Solutions divisions. At TAKKT, revenue also rose year on year. In 2018, we also significantly increased our operating profit: the increase in CWS-boco’s contribution was the main factor in the growth in profit. TAKKT’s operating profit was on par with that of the previous year. Both ELG and BekaertDeslee operated in a difficult market environment. As a result of that environment, both companies had operating profit that was down year on year, despite having initiated countermeasures.

The impairment losses on our financial investments in METRO and CECONOMY were the reason for our profit before and after taxes being down significantly in 2018.

Today we have a broadly diversified portfolio with six market-leading divisions. Our clear plan is to expand that portfolio to up to ten investments. We have positioned ourselves on the market as a successful and reliable investor.

Following the vital phase of financial restructuring and the subsequent realignment of the portfolio, the foundations were laid for the Group’s continued growth. Thus it is time to transfer chairmanship of the Haniel Management Board to my fellow Management Board member Thomas Schmidt, with effect from 30 June 2019. This is not the only reason I am confident that 2019 will be a year of positive momentum and change for Haniel. In light of a large number of economic, political and social issues, we are well advised to continue to have a clear vision for the future when taking action – in keeping with our objective of being “enkelfähig”. This is and will remain our goal. Portfolio development is a permanent learning process, which can be associated with setbacks and can cost us energy. In our network, at any rate, we unleash much positive energy. Together with my colleagues, I would like to thank the employees at all levels for their commitment in the past year! We would also like to thank the shareholder committees and the Supervisory Board for their constructive cooperation and assistance along the way.

Duisburg, 5 March 2019

Chairman of the Management Board