08/02/2006, Düsseldorf

 

Outlook for fiscal 2006 confirmed

 

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Henkel builds on success in second quarter

Sales grew 7.3 percent to 3,230 million euros / Further strong organic growth of 6.1 percent / Operating profit (EBIT): +21.2 percent to 359 million euros / Net earnings for the quarter: +23.4 percent to 248 million euros

"Following a good start to the year, we have enjoyed further success in the second quarter with all our business sectors contributing to a highly gratifying organic growth rate," said Ulrich Lehner, Chairman of the Management Board of Henkel KGaA.

"Our programs in this, our Year of Innovation, have already paid off with numerous new products making a major impact. And our growth regions once again developed very positively. I am therefore very confident we will achieve the targets we have set for ourselves for the full fiscal 2006." 

Düsseldorf, Germany - In the second quarter of 2006, Henkel reported sales of 3,230 million euros, an increase of 7.3 percent. Organic growth, i.e. growth adjusted for foreign exchange and acquisitions/divestments, was a very encouraging 6.1 percent. All business sectors contributed to this growth, with Consumer and Craftsmen Adhesives and Henkel Technologies returning above-average results.

Operating profit (EBIT) of 359 million euros was 21.2 percent above the prior-year figure, again with all the business sectors contributing. Gains from the sale of Henkel Technologies' insulating glass sealant and rubber-to-metal bonding chemicals businesses boosted earnings by 41 million euros. This amount will be reinvested in the market, with the plow-back process already having begun in the second quarter.

Return on sales (EBIT) of 11.1 percent, was 1.3 percentage points above the level of the previous year. Income from participations remained at 21 million euros, and at -48 million euros, net interest expense was also close to the figure for the prior-year quarter (-46 million euros). Overall, net financial items declined slightly from -25 million euros to -27 million euros.

The tax rate decreased from 25.8 percent to 25.3 percent. Net earnings for the quarter after minority interests amounted to 243 million euros, 23.8 percent above the comparable prior-year figure. Earnings per preferred share rose by 23.7 percent to 1.70 euros.

Business Sector Performance

Sales of the Laundry & Home Care business sector, which achieved organic growth of 5.4 percent, were 1,026 million euros, 1.5 percent above the previous year's quarter, with the absence of revenues from the divested Dial foods business having a noticeable effect. Operating profit increased by 5.9 percent to 108 million euros. Aside from encouraging developments in Eastern Europe and the Middle East, the increase in sales achieved in Western Europe was particularly gratifying. Growth of the laundry segment was significantly boosted by product launches initiated in the previous quarter. Major contributors were the premium heavy-duty detergents and fabric softeners introduced in Europe, the relaunch of Purex in North America and the launch of new products in Italy, Spain and Portugal. The marketing activities relating to Henkel's home care products were stepped up in Europe, particularly in relation to its machine dishwashing detergents. The successful Somat 5 Perfekt line was further developed. Other innovations launched included Der General as a universal spray cleaner in Germany, and Estrella Oxygeno Activo, a powerful household cleaner with active oxygen, in Spain and Portugal.

Sales of the Cosmetics/Toiletries business sector exceeded the prior-year figure by 9.0 percent, amounting to 746 million euros. Organic growth was 3.6 percent. Operating profit rose by 12.3 percent to 95 million euros. Developments in the regions of Eastern Europe, North America and Latin America were particularly positive. The hair cosmetics business continued its positive trend. In the hair colorants segment, the brands Brillance and Palette, the innovative Natural & Easy range and the roots retouching pen all developed very successfully. The emphasis in the styling segment was on the relaunch of the trend styling brand Taft Looks. The body care business, which had the successful deodorant brand Right Guard added to its portfolio in May, continued to perform well, with a major contribution coming from the Fa brand, which also gained further market share. In the skin care business, the Diadermine range generated further growth following the international launch of the new Global Action 9 line. The oral care business gained significant momentum from the new toothpaste Theramed 2in1 3D Clean. The hair salon business performed well within a highly competitive market. One of the focal points here was the relaunch of the permanent hair colorant Igora Royal.

The Consumer and Craftsmen Adhesives business sector increased sales by 16.6 percent to 498 million euros. This positive development was again driven by strong organic growth of 8.3 percent, positive foreign exchange effects and the acquisitions successfully integrated in the course of the previous year. Operating profit rose by 8.8 percent to 50 million euros. Adhesives and adhesive tapes for home, school and office performed well, particularly strong growth being generated by the instant adhesives marketed under the Loctite brand. This new range with its substantially improved bonding strength was launched worldwide, supported by advertising campaigns, and has since been well received across the board. The adhesives and sealants for construction, DIY and craftsmen business continued to generate disproportionately high growth. The acquisition of Alba Adesivos made Henkel the leading supplier in this segment in the attractive growth market of Brazil. The takeover has provided the company not only with a range of strong brands but also with distribution channels that it intends to utilize in the future for other Henkel products.

Sales of the Henkel Technologies business sector increased by 8.8 percent to 899 million euros, driven primarily by strong organic growth of 8.1 percent. Operating profit, boosted by gains amounting to 41 million euros from business disposals, grew by 50.0 percent to 137 million euros. The transportation market segment continued to develop very successfully. In the automotive business, the introduction of a new generation of engine and transmission unit sealants increased growth in all regions. The aerospace industry business was substantially expanded, aided by a general increase in aircraft output figures and the trend toward environmentally more friendly surface treatment products. The steel industry business also profited from this trend. Persistently high demand for electronic components accompanied by price increases contributed to growth in the business serving the electronics industry. Gratifying growth was also posted in the durable goods market segment. The consumer goods and packaging products businesses likewise continued to perform well, driven by a new generation of Liofol laminating adhesives. Demand for products for industrial maintenance, repair and overhaul remained strong.

Regional Performance

Sales in the Europe/Africa/Middle East region rose by 7.8 percent to 2,025 million euros, with all the business sectors contributing. Eastern Europe again posted double-digit growth. Sales also increased in Western Europe and Germany. In the North America region, sales rose by 4.2 percent to 700 million euros, with the Cosmetics/Toiletries and Henkel Technologies business sectors achieving double-digit growth rates. In the case of Laundry & Home Care, sales were affected by the absence of revenues from the recently sold foods business. In Latin America, Cosmetics/Toiletries, Consumer and Craftsmen Adhesives and also Henkel Technologies each registered a double-digit increase in sales. Overall, sales grew by 14.5 percent to 169 million euros. At 275 million euros, sales in the Asia-Pacific region were 10.0 percent above the prior-year quarter. This growth was primarily generated by the Consumer and Craftsmen Adhesives and Henkel Technologies business sectors.

Major Participation

Ecolab Inc., St. Paul, Minnesota, USA, in which Henkel has a 28.9 percent stake, reported sales of 1,226 million US dollars in the second quarter of 2006, an increase of 5.8 percent compared to the previous year. Net earnings for the quarter rose by 14.5 percent to 93.2 million US dollars. The market value of this participation as of June 30, 2006, amounted to about 2.3 billion euros.

Outlook

Henkel confirms its sales and profit forecast for 2006 and intends to once again grow faster than its markets.

Henkel expects to achieve organic sales growth (adjusted for foreign exchange and acquisitions/divestments) at the upper end of the 3 to 4 percent range. Henkel expects operating profit (EBIT) adjusted for foreign exchange to increase by around 10 percent. Henkel expects earnings per preferred share (EPS) to likewise rise by around 10 percent.