05/03/2005, Düsseldorf

 

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Henkel: off to a good start in 2005

In the first quarter of 2005, the Henkel Group achieved a significant increase both in sales and comparable operating profit. Net earnings and earnings per share for the quarter were also above the comparable level of the prior-year quarter.

"We have had a good start to the new fiscal year. Our acquisitions, which we are currently successfully integrating, are important contributors in this regard," said Ulrich Lehner, Chairman of the Management Board of Henkel KGaA. "Sales momentum emanating from the growth regions of Latin America, Asia and Eastern Europe, additional product innovations and the strengthening of our existing market positions will provide higher organic growth throughout the course of this year."
In the first quarter of 2005, the Henkel Group generated sales of 2,737 million euros. Despite an ongoing difficult economic environment in Western Europe, Henkel achieved an increase in sales of 18.1 percent after adjusting for foreign exchange. The companies acquired in 2004 made a substantial contribution to this achievement. Organic sales growth (after adjusting for foreign exchange and acquisitions/divestments) amounted to 1.5 percent and was achieved primarily in the Laundry & Home Care and Henkel Technologies business sectors.

Operating profit (EBIT) of 265 million euros, adjusted for foreign exchange, was 30.2 percent above the comparable figure for the previous year. Except for Consumer and Craftsmen Adhesives, all business sectors contributed to this result. The rise was predominantly due to the acquisitions made.

Return on sales (EBIT) increased compared with the prioryear quarter by 0.9 per-centage points to 9.7 percent. Return on capital employed (ROCE) fell by 3.5 per-centage points to 12.1 percent because of the increase in capital employed resulting from acquisitions. Income from participations fell from 37 million euros to 17 million euros due to the absence of earnings from our former Clorox investment, exchanged last year. Additional financing costs, due primarily to the Dial and Sovereign acquisitions, and the ab-sence of the interest income from the Cognis vendor note, led net interest expense to increase from - 26 million euros to - 56 million euros. As a result, financial items fell to -39 million euros.

With a slightly lower tax rate of 25.7 percent, net earnings for the quarter after minority interests amounted to 165 million euros, 5.1 percent above the comparable level of the previous year. Earnings per preferred share increased by 5.5 percent to 1.16 euros.

Developments by Business Sector

At 957 million euros, sales of the Laundry & Home Care business sector, after ad-justing for foreign exchange, were 28.9 percent above the prior-year quarter. Con-tributory factors were the businesses acquired from Dial and Clorox and an increase of 2.3 percent in organic growth. Operating profit adjusted for foreign exchange in-creased by 55.2 percent versus the comparable prior-year EBIT. Heavyduty detergents achieved gratifying sales growth with increases in Germany and some Southern European countries. The special detergents business experienced a further increase in demand in Eastern Europe. In the US, the fabric softeners launched under the Purex Soft brand enjoyed a positive start. Household cleaners continued to perform well, with the sustained success of the Bref Power Cleaner, now also available in China, again making a significant contribution.

Sales for the Cosmetics/Toiletries business sector, adjusted for foreign exchange, exceeded the prior-year quarter by 19.2 percent, reaching 594 million euros. The increase was primarily generated by the Dial, ARL and Indola acquisitions. Organic growth amounted to 0.4 percent. In the retail consumer products segment, the German operations performed very well, while the rest of the Western Europe business suffered from sagging demand. Operating profit adjusted for foreign exchange was 35.9 percent above the comparable figure for the previous year due mainly to the acquisitions made. The hair cosmetics business was further expanded as a result of regional product launches, including the colorant brand Brillance and the styling series got2b. The body care business remained difficult, although the launch of the innovative Fa shower gel with yogurt proteins had already provided an impetus. In the growing skin care business, the Diadermine brand again performed well. In the oral care segment, there was increased demand for tooth whitening and 2in1 products. The salon business profited from the integration of Indola and the expansion of the businesses in Eastern Europe.

The Consumer and Craftsmen Adhesives business sector increased sales, adjusted for foreign exchange, by 9.2 percent to 371 million euros. Organic sales, how-ever, stagnated. This was primarily due to market developments in the constructionindustry. While the total business sector performed well in Eastern Europe, the negative trend in Germany continued. Other important European markets also exhibited a weak level of development. Operating profit adjusted for foreign exchange was 0.9 percent slightly below the comparable level of the previous year. While sales for super glues in the market segment adhesives and adhesive tapes for home, school and office weakened, successful new product launches like adhesive sticks, allpurpose adhesives and roller products had a positive effect. In adhesives and sealants for DIY and craftsmen, growth was driven by the acquisition of the OSI brand as part of the Sovereign takeover. Henkel set new standards in this major market segment with the international launch of the firstever removable assembly adhesive.

In the Henkel Technologies business sector, sales adjusted for foreign exchange grew by 12.8 percent to 758 million euros. The acquisitions of Sovereign, Orbseal and Concorde and, particularly in Asia and Eastern Europe, organic growth of 2.8 percent contributed to this increase. Operating profit adjusted for foreign exchange was 10.3 percent above the comparable prior-year figure. Sales to the automotive industry profited from the fact that more and more prefabricated parts and foams are being used to improve vehicle acoustics. Sales to the steel industry were further expanded due to continuing high demand in this sector. The electronics business performed in line with expectations. In the market for consumer goods, business in market niches was strengthened. The positive business perform-ance continued in the industrial maintenance, repair and overhaul segment.

Regional Performance

In the Europe/Africa/Middle East region, sales adjusted for foreign exchange in-creased by 2.7 percent, and before adjustment by 3.0 percent to 1,783 million euros. There was a slight improvement in German sales thanks to growth in the Laundry & Home Care and Cosmetics/Toiletries business sectors. The businesses operating in Eastern Europe once again performed better than those in Western Europe. At 590 million euros, sales in North America more than doubled both before and after ad-justment for foreign exchange. The share of Group sales increased from 11 to 22 percent, due primarily to the Dial, ARL and Sovereign acquisitions. In Latin America, all business sectors increased sales. After adjusting for foreign exchange, sales rose by 17.8 percent, or before adjustment by 14.4 percent, and amounted to 117 million euros. In the Asia-Pacific region, sales adjusted for foreign exchange were 9.2 percent above the level of the prior-year quarter. Before adjustment, growth was 7.2 percent to 190 million euros. Factors contributing to this included the South Korean insecticide business taken over from Clorox, and strong growth in the Henkel Technologies business sector.

Major Participation

Ecolab Inc., St. Paul, Minnesota, USA, in which Henkel has a 28.5 percent stake, reported sales for the first quarter 2005 of 1,070 million US dollars, an increase over the prior-year quarter of more than 9 percent. This was accompanied by a disproportionate increase in quarterly net earnings of more than 13 percent to 74.6 million US dollars. The market value of this participation as of March 31, 2005 amounted to 1.8 billion euros.

Outlook

The Henkel Group confirms its sales and profit forecast for 2005. Henkel's intention is to grow more strongly than its respective markets. Henkel expects to achieve organic growth (after adjusting for foreign exchange and acquisitions/divestments) of 3 to 4 percent in 2005.

Henkel expects operating profit (EBIT) before exceptional items to undergo an increase in the high teens percentage range after adjusting for foreign exchange. Since fiscal year 2005, EBIT will generally increase due to the elimination of scheduled goodwill amortization. The comparable EBIT for 2004 is therefore 1,000 million euros.

With the absence of the income from the Clorox participation, Henkel expects earn-ings per preferred share (EPS) to remain at the high level of the previous year, assuming that the US dollar does not depreciate excessively. The basis for this forecast is earnings per preferred share before goodwill amortization and exceptional items, i.e. a comparable EPS of 5.21 euros.