11/08/2006, Düsseldorf

 

Again strong organic sales growth

 

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Henkel reports strong third quarter

Sales increased by 3.8 percent to 3,260 million euros / Strong organic sales growth of 5.6 percent / Operating profit (EBIT) increased by 7.0 percent to 321 million euros / Net earnings for the quarter up 9.0 percent to 217 million euros

"I am delighted with our excellent third quarter, in which once again all our business sectors achieved encouraging organic sales growth, thus continuing their upward trend", said Ulrich Lehner, Chairman of the Management Board of Henkel KGaA. "This success is largely due to improved performance in Western Europe and the launch of further new and innovative products. We are also greatly encouraged by the continued strength in our growth regions. Given this positive development, we expect to achieve organic sales growth of around 5 percent for the full fiscal year. We expect operating profit to increase by around 10 percent."

Düsseldorf, Germany - In the third quarter of 2006, Henkel reported sales of 3,260 million euros, an increase above the prior-year quarter of 3.8 percent. Organic sales grew, i.e. growth adjusted for foreign exchange and acquisitions/divestments, 5.6 percent, once again clearly exceeding the target range of 3-4 percent for the full fiscal year.

Operating profit (EBIT) grew by 7.0 percent to 321 million euros. Without the gains reinvested in the Henkel Technologies business sector, growth in EBIT would have amounted to around 12 percent.

Return on sales (EBIT) increased by 0.3 percentage points to 9.8 percent. Return on capital employed (ROCE) rose by 0.9 percentage points to 14.4 percent. Income from participations fell to 13 million euros due to a decrease in value of our investment in the Lion Corporation in Japan. Net interest expense improved by 23 million euros to -36 million euros. This is mainly attributable to first-time earnings from the trust funds in which the company's German pension funds are administered. Overall, net financial items improved from -33 million euros to -23 million euros.

Against a tax rate of 27.2 percent, earnings for the quarter after minority interests rose above the comparable prior-year figure by 8.1 percent to 211 million euros. Earnings per preferred share increased by 7.9 percent to 1.47 euros. After adjusting for the gains reinvested by Henkel Technologies, the rise was approximately 14 percent.

Business Sector Performance

Organic sales growth of the Laundry & Home Care business sector was an encouraging 3.8 percent, even though the figure for the prior-year quarter had been increased by advance orders placed by our Dial customers. Sales were 1,050 million euros overall or 3.4 percent below the prior-year quarter, in which the latter still included sales from the now divested Dial foods business. Operating profit rose by 14.2 percent to 125 million euros. In the laundry segment, the biggest brands also accounted for the highest growth rates. Both Persil/Le Chat among the heavy-duty detergents, and Vernel/Silan of the fabric softeners posted substantial double-digit growth. Germany, Austria and Russia registered particularly encouraging increases in laundry sales. Special detergents profited from an international relaunch with improved color and fiber protection formulas and an attractive new packaging design.


In the home care segment, growth in dishwashing detergents was particularly dynamic. Especially in Eastern Europe and the Africa/Middle East regions, there were substantial increases in hand-dishwashing detergent sales, and in Germany the success of the machine dishwashing detergent Somat 5 further continued.

The Cosmetics/Toiletries business sector increased sales to 742 million euros or by 9.1 percent compared to the figure for the prior-year quarter, which had been increased by advance orders placed by our Dial customers. The successful integration of the former Gillette deodorant brands constituted a further contributory factor. Organic growth was 3.0 percent, with Eastern Europe and Latin America each delivering double-digit growth rates. Operating profit rose by 13.7 percent to 89 million euros. The hair cosmetics business saw a continuation of the positive developments experienced in the first two quarters of 2006. The colorants business performed particularly well, with strong growth from the brands Brillance, Palette and Natural & Easy. Market positions in Europe expanded in all categories. The body care business confirmed its upward performance trend. Once again, the growth drivers were the two major brands Fa and Dial. Fa further expanded its market position, setting a clear, positive course with new products such as Fa Speedster for Men. In addition, the relaunch of the deodorant line, realized in the second quarter, showed good initial results. Dial continued its successful brand development with new products, particularly for the Dial for Men line, and expanded its market position in the dynamically growing shower products segment. The skin care business profited from the launch of Diadermine Lift+ Re-Sculpture Cream. In the oral care business, the focus was on the launch of new products in the form of Theramed Dispenser Sensitive in Germany and Licor del Polo Titanium in Spain. In the hair salon business, which performed markedly well in Eastern Europe and North America, activities centered on relaunches of the styling brand OSiS and the permanent hair colorant VITON S.

The Consumer and Craftsmen Adhesives business sector increased sales by 11.4 percent to 536 million euros, as a result of both organic sales growth of 7.9 percent and the successfully integrated acquisitions. Operating profit amounted to 65 million euros, a highly encouraging 18.0 percent above the figure for the prior-year quarter.
The adhesives and adhesive tapes for home, school and office business continued to perform well. The globally strong growth generated by the instant adhesives marketed under the Loctite brand was supported by increased advertising and quality improvements. The adhesives and sealants for construction, DIY and craftsmen segment remained the primary growth driver of the business sector, again registering above-average growth rates. Particularly successful here was the expansion in organic sales in the building adhesives sector in Eastern Europe. Here we benefited from cooperations with local partners. A new generation of tile adhesive products for craftsmen and the DIY segment was successfully launched, offering a substantial reduction in dust occurring during usage.

The Henkel Technologies business sector increased sales by 4.9 percent to 872 million euros. Organic sales growth amounted to 9.3 percent. Operating profit was 74 million euros, 14.1 percent below the prior-year figure. Gains amounting to 41 million euros, generated in the second quarter from the disposal of the insulating glass sealant and rubber-to-metal bonding chemicals businesses, are to be reinvested into the market by the end of the year. After adjusting for the related expenditures arising during the third quarter, operating profit would have been around 5 percent above the prior-year quarter. In the transportation market segment, positive growth was achieved in our key accounts in all regions. Due to further rising aircraft output figures and the augmented use of composites instead of aluminum components, sales with the aerospace industry again increased. In the steel industry, Henkel also profited from significant expansion in the Asian market. In the electronics industry, the Henkel Technologies business sector benefited from a new EU directive promoting the use of lead-free soldering products. The business in the durable goods market segment continued to perform well, helped by innovative adhesives for the woodworking and furniture industries and growth in environmentally friendly production processes in the industrial metal pretreatment segment. The positive trend in the consumer goods and packaging products businesses continued. A new generation of instant adhesives for industrial maintenance, repair and overhaul applications supported the above-average growth achieved with Loctite adhesives.


Regional Performance

Sales in the Europe/Africa/Middle East region rose by 7.7 percent to 2,063 million euros. In Eastern Europe, sales once again increased double-digit, and there were also encouraging sales improvements in Western Europe and Germany. In North America, sales fell by 8.2 percent to 709 million euros due primarily to the strong prior-year quarter previously mentioned as well as the absence of sales from the divested Dial foods business. In Latin America, where the business sectors Cosmetics/Toiletries, Consumer and Craftsmen Adhesives and Henkel Technologies each posted double-digit growth rates, sales increased by 10.3 percent to 166 million euros. Sales in Asia-Pacific were 262 million euros, 8.7 percent above the prior-year quarter. Growth here was driven primarily 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 1,279 million US dollars in the third quarter of 2006, an increase of 9.8 percent compared to previous year. Net earnings for the quarter rose by 12.7 percent to 110.4 million US dollars. The market value of this participation as of September 30, 2006, amounted to around 2.5 billion euros.

Outlook

Henkel intends to once again grow faster than its markets. Due to positive business performance in 2006, Henkel expects organic sales growth to be around 5 percent.
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.