Will Haniel do anything that offers a profit?

Author: Stephan Gemkow
Chairman of the Management Board Stephan Gemkow explains the criteria governing Haniel’s investments and how the company ensures long-term growth while maintaining a focus on social peace

As a family equity company, we are not just responsible for enabling the Haniel family to make appropriate ongoing returns. It is equally important that the company should continue to exist through the generations. This is what we understand by “enkelfähig”. Franz Haniel internalised this back in his day: he invested with foresight in future-oriented business areas, while also understanding how to combine business sense with community spirit. Here, too, he embodied the “honourable businessman”. Undoubtedly, the company has changed considerably again and again over the course of more than 260 years. Amid all this dynamism, we have firmly-enshrined principles that ensure we maintain the correct balance.

Our portfolio should ideally consist of ten small-to-medium-sized, non-synergetic companies. The purpose of this is to optimise our company’s risk position. When I joined Haniel six years ago, we had only four business areas. We have achieved rather a lot since then: we have integrated three new business areas in the form of BekaertDeslee, a manufacturer of mattress fabrics, ROVEMA, the packaging-machinery producer, and Optimar, which produces automated fish-handling systems. It is most likely that new stakes at holding-company level will come from other sectors.

Keeping an eye on the right balance for our portfolio

The size and maturity of companies also play a part in the diversification of our portfolio. To achieve greater dynamism, we have – with ROVEMA and Optimar – invested in substantially smaller companies that have great growth potential. In this process, we have learned that they require more support from the holding company than our large business areas. For this reason, since the acquisition of these two small companies we have reached a point where, for resource reasons, we are again looking primarily for companies with turnover in the region of 300 to 400 million euros. However, our intention is that even such companies in our portfolio should benefit from a long-term trend, be capable of growing over a long period in a manner that adds value and thus have a long future ahead of them. Here, we have to find a balance between fast-growing companies and larger business areas that bring us stability and are able, as it were, to co-finance the inorganic growth of the smaller companies with a continuous revenue stream.

We shall not acquire any companies that do not match our fundamental investment criteria, even if this makes our task more difficult. This means no capital-intensive large facilities, no large chemical companies, no pure B2C businesses and no companies that are unsuitable in terms of sustainability or governance. One example of this was a company that possessed only virtual assets. No management meetings were held, and the address given for the company was that of the secretary’s home. We also gave a decisive rejection to a producer of survival systems which, alongside civilian applications, made a small but growing range of highly innovative products for the military, which had an integrated interface with weapons systems. We do not invest in armament. We also value a successful management that is prepared to continue working with us – a criterion that has already led to rejections on our part. With regard to the stability and sustainability of a business model, no questions can remain unanswered. We shall not make any false compromises in this respect.

Stephan Gemkow

"We aim to achieve our economic goals in harmony with environmental and social aspects."

Stephan Gemkow

We aim to achieve our economic goals in harmony with environmental and social aspects. This approach applies throughout the value chain, from the investment stage to the management of stakes and temporary financial assets to divestment. Accordingly, we also observe social and environmental criteria when examining potential acquisitions. We also expect this from our business areas in their ongoing activities. For this reason, Haniel has principles of conduct for business activities at all levels. In this code, Haniel commits itself, inter alia, to treating the environment responsibly, standing up for fair and safe working conditions, combating corruption and respecting internationally recognised human rights.

Standing up for our social market economy

For some time, we have observed with concern trends towards a polarisation of society, even though we, in Germany, are currently experiencing a long period of economic growth. It is natural that gains in wealth are distributed unevenly, purely in mathematical terms and even if they benefit everybody, due to the different starting points. Statistically, too, our relative concept of poverty means that such a development produces more and more people who are “poor” or threatened by poverty, without their situation having become absolutely detrimental. This leaves people behind and puts them at a disadvantage – or at least conveys that feeling. This, in turn, fuels an atmosphere that plays into the hands of frauds and swindlers. That then leads to the spread of radicalism, protectionism and nationalism and a hunt for people to blame. The tone becomes harsher and arguments and objectivity no longer count but polemics and seemingly simple solutions gain the upper hand. We have to resist this. Perhaps we do too little explaining, perhaps we need again to talk more to each other than about each other and to highlight the advantages and achievements of democracy and our social market economy. It is also helpful to compare ourselves with other countries: this will put our fortunate position into perspective. Following the disaster of the Second World War, which produced only losers, our ancestors created something truly marvellous in the shape of this democratic socioeconomic system.

"We aim to grow sustainably and, of course, to earn profits."

Stephan Gemkow

Unlike private equity investors, we keep companies in our portfolio for a long period. We aim to develop them on a long-term basis. Therefore, at the time of purchase there must be nothing that might adversely affect the holding period from the outset. Market developments and underlying megatrends must show that the company is capable of growing sustainably over a long period. This is one side of the matter. The other is that we will, of course, manage the portfolio actively. We examine every one of our investments regularly to ensure they make sense. There are no taboos here. If we reach the conclusion that a different owner could make a better contribution to a company’s development, we shall pull out. This is why, for example, we sold the pharmaceutical distributor Celesio three years ago and have continuously reduced our financial investment in METRO. However, we do this not because we occasionally experience headwinds or things may not be going quite so well at a particular time, but only as a result of thorough analysis. At the end of the day, what matters is that positive and negative developments, taken together, should overlap so that value is created overall.

We aim to grow sustainably and, of course, to earn profits – but also to make our contribution to a broad-minded, democratic and sustainable society. This is the only way for us to not only support our business areas in their future development but also continue our social commitment with its emphasis on educational support, responsibility for the locations where we operate and employee commitment.

Are we perfect? Are we doing everything right? Definitely not. But we are willing to learn, to share experience and to tackle new challenges. This is what we have done for 260 years, entirely in the spirit intended by our founder.