08/03/2005, Düsseldorf

 

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Henkel stays the course with second-quarter results

In the second quarter of 2005, the Henkel Group was once again able to report significant increases in both sales and operating profit. Net earnings for the quarter and earnings per share were also above the prior-year level.

"The positive development of the first quarter has continued in the second quarter. We have markedly increased organic growth thanks to a number of successful product innovations," said Ulrich Lehner, Chairman of the Man-agement Board of Henkel KGaA. "Aside from the good developments ongoing in our growth regions, the positive trend in Europe - including Germany - has also continued. Both this and our strengthened market positions make me confident that we will meet our targets for 2005."
In the second quarter of 2005, the Henkel Group generated sales of 3,009 million euros. This represents a 10.0 percent increase above the prior year, after adjusting for foreign exchange. Organic growth (adjusted for foreign exchange and acquisitions/divestments) amounted to 3.3 percent this quarter, following the 1.5 percent achieved in the first quarter. All business sectors contributed to this positive development.

At 296 million euros, operating profit (EBIT), adjusted for foreign exchange, was 14.0 percent above the comparable prior-year figure, again with all business sectors contributing.

Return on sales (EBIT) rose by 0.3 percentage points to 9.8 percent compared with the previous year. Return on capital employed (ROCE) increased by 2.0 percentage points to 13.8 percent, due particularly to the improvement in operating profit and a slight decrease in capital employed. Income from participations fell from 56 million euros to 21 million euros due to the absence of earnings from the former Clorox investment. Net interest expense improved slightly from -49 million euros to -46 million euros. Overall, financial items fell from 7 million euros to -25 million euros.

With a tax rate of 25.8 percent, net earnings for the quarter after minority interests amounted to 196 million euros, 0.5 percent above the comparable prior-year figure. Earnings per preferred share increased by 0.7 percent to 1.38 euros.

Developments by Business Sector

Sales of the Laundry & Home Care business sector, after adjusting for foreign exchange, rose by 8.9 percent, before adjustment by 7.9 percent above the prior-year quarter to 1,012 million euros. Both the businesses acquired from Clorox and organic sales growth increased to 2.5 percent contributed to this. Operating profit, adjusted for foreign exchange, rose by 17.1 percent versus the comparable prior-year figure. The heavy-duty detergents business continued to perform well, with particularly good results coming from Eastern Europe and Latin America. The special detergents business encountered difficulties in Western Europe and the USA. By contrast, business performance was again very positive in Eastern Europe, and also in Latin America where the Mas brand - acquired in Mexico in 2004 - made a major contribution to the upward trend. With the pan-European rollout of Somat 5 and the expansion of the Bref Power Cleaner range, the household cleaners business was again the primary growth driver.

Sales of the Cosmetics/Toiletries business sector exceeded the prior-year figure by 4.1 percent after adjusting for foreign exchange. Before adjustment it rose by 3,4 percent to 684 million euros. This was primarily due to organic sales growth increased to 3.1 percent, with Germany, Eastern Europe and the Middle East the primary contributors. Operating profit, adjusted for foreign exchange, rose by 3.4 percent versus the comparable prior-year figure. In Europe, the hair cosmetics business portfolio was complemented through the introduction of the innovative colorant Poly Color Revital. In the body care business, the re-launch of the Fa care series showed a positive development. With new products, the skin care business under the Diadermine brand once again exhibited strong growth. In the oral care business, Theramed benefited from the launch of the Perfect Whitening Pen. The hair salon business was further expanded thanks to the overall positive development in Europe and a revamp of the Indola brand.

Sales of the Consumer and Craftsmen Adhesives business sector increased by 17.2 percent after adjusting for foreign exchange. Before adjustment sales rose by 17.0 percent to 427 million euros, with organic growth amounting to 4.5 percent. Operating profit adjusted for foreign exchange was 12.4 percent above the comparable prior-year figure. In the adhesives and adhesive tapes for home, school and office segment, the cyanoacrylates business generated positive impetus in Eastern Europe. Work also started on the international launch of a new range of adhesive tapes, with the initial focus on Europe. In the adhesives and sealants for DIY and craftsmen segment, higher growth rates achieved outside Europe offset the market weakness encountered in Western Europe. In North America, the acquired Sovereign businesses were major contributors to the generally positive performance. The building adhesives business developed very well, with the highest growth rates recorded in Eastern Europe.

Sales of the Henkel Technologies business sector adjusted for foreign exchange rose by 14.5 percent and by 13.5 percent to 825 million euros before adjustment, driven both by acquisitions and a 4.4 percent organic growth. Operating profit adjusted for foreign exchange was 8.9 percent above the comparable prior-year figure. The automotive business was further expanded. Adhesives and sealants especially developed for the aerospace industry passed the test of the inaugural flight of the Airbus A380. Lead-free soldering pastes for the electronics industry continued to enjoy success. Major customers operating on a worldwide scale have now issued the appropriate approvals for their production. The introduction of innovative surface protective products attracted new customers in the European and American steel industry. Henkel's activities in the durable goods market developed well due to the revival of Europe's furniture industry. Business with film laminating adhesives for consumer goods packaging continued to perform very positively. In the industrial maintenance, repair and overhaul segment, Henkel expanded its market share through the introduction of new products.

Regional Performance

Sales in the Europe/Africa/Middle East region, after adjusting for foreign exchange, increased by 5.5 percent, and by 5.6 percent to 1,879 million euros before adjustment. Aside from further double-digit growth in Eastern Europe, Western Europe also improved sales, supported by positive sales dynamics in Germany. In the North America region, sales increased by 18.7 percent after adjusting for foreign exchange, and by 14.2 percent to 672 million euros before adjustment. The rise is primarily due to the acquisitions of Sovereign and the Clorox businesses. Consequently, the Laundry & Home Care, Consumer and Craftsmen Adhesives and Henkel Technologies business sectors each reported substantial improvements. With ongoing economic revival in Latin America, all business sectors reported a double-digit percentage growth rate in sales. Regional sales after adjusting for foreign exchange rose by 17.2 percent, and by 19.4 percent before adjustment, amounting to 148 million euros. In the Asia-Pacific region, sales after adjusting for foreign exchange were 24.0 percent above the prior-year quarter. At 249 million euros, the increase before adjustment was 24.5 percent. All business sectors contributed to this growth, particularly Laundry & Home Care, which profited from the insecticide business in South Korea, acquired from Clorox.

Major Participation

Ecolab Inc., St. Paul, Minnesota, USA, in which Henkel holds a participating interest of 28.4 percent, realized sales of 1,159 million US dollars in the second quarter of 2005. This corresponds to an increase of 11.1 percent compared with the prior year. Net earnings for the quarter rose by 10.6 percent to 86.6 million US dollars. The market value of this participation as of June 30, 2005, translated to around 1.9 billion euros.

Outlook

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

Before exceptional items, Henkel expects operating profit (EBIT) to undergo an increase in the high teens percentage range after adjusting for foreign exchange. It should be noted here that, since January 1, 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 earnings per preferred share (EPS) to remain at the high level of the previous year. 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.

This document contains forward-looking statements which are based on the current estimates and assumptions made by the corporate management of Henkel KGaA. Forward-looking statements are characterized by the use of words such as expect, intend, plan, predict, assume, believe, estimate, anticipate and similar formulations. Such statements are not to be understood as in any way guaranteeing that those expectations will turn out to be accurate. Future performance and the results actually achieved by Henkel KGaA and its affiliated companies depend on a number of risks and uncertainties and may therefore differ materially from the forward-looking statements. Many of these factors are outside Henkel's control and cannot be accurately estimated in advance, such as the future economic environment and the actions of competitors and others involved in the marketplace. Henkel neither plans nor undertakes to update any forward-looking statements.