Outlook for fiscal 2006 confirmed
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Henkel reports successful start
"We have made a successful start to the new fiscal year. We are particularly pleased with our strong organic sales growth, to which all our business sectors have contributed," said Ulrich Lehner, Chairman of the Management Board of Henkel KGaA. "The launch of numerous innovative products supported by targeted advertising measures has been successful. In regional terms, the growth drivers were once again Eastern Europe, Latin America and Asia-Pacific."
In the first quarter of 2006, Henkel reported sales of 3.048 billion euros, an increase of 11.4 percent. Organic growth, i.e. growth adjusted for foreign exchange and acquisitions/divestments, was a very encouraging 5.9 percent. All business sectors contributed to this growth, with Consumer and Craftsmen Adhesives and also Henkel Technologies making an above-average contribution.
At 295 million euros, operating profit (EBIT) was 11.7 percent above the prior-year figure, with all business sectors contributing. At Laundry & Home Care, the sale of Dial's US foods business increased operating profit by 16 million euros, the major part of this having been re-invested in the market.
Return on sales (EBIT) was 9.7 percent, repeating the level of the previous year. Return on capital employed (ROCE) improved by 1.0 percentage point to 13.1 percent. Due to the decrease in value of Henkel's investment in the Lion Corporation of Japan, income from participations declined somewhat from 17 million euros to 13 million euros. Net interest expense improved from -56 million euros to -47 million euros, primarily due to the absence of payments of interests of the high-coupon bonds of Dial and Sovereign, which were present in the figures for the previous year, and the change in the recognition of actuarial losses. In all, financial items improved from -39 million euros to -34 million euros.
Due to the tax charge arising from the sale of Dial's foods business, the tax rate increased from 25.7 percent to 29.1 percent. Net earnings for the quarter after minority interests amounted to 181 million euros, 9.7 percent above the comparable prior-year figure. Earnings per preferred share likewise increased by 9.7 percent, to 1.27 euros.
Business Sector Performance
At 1,009 million euros, sales at the Laundry & Home Care business sector were 5.4 percent above the prior-year quarter. Organic growth was 2.6 percent. Operating profit increased by 6.1 percent to 114 million euros. Business developments were particularly good in North America, Latin America and Asia, with market share gains registered in each region. The focus in the laundry segment was on relaunch activities with respect to Persil ("Anti Grey") and Purex ("Whitening"), with a joint concept and technology development being implemented for both brands in the largest regions. For the first time, moreover, Purex was supported by television advertising for the US relaunch. The home care segment achieved disproportionate growth. The biggest contribution to this was provided by North America, and here in particular the air freshener business. In the Middle East, stronger market penetration with respect to hand dishwashing detergents resulted in significant market share gains.
In the Cosmetics/Toiletries business sector, sales exceeded the prior-year figure by 8.1 percent, increasing to 642 million euros. Organic growth was a robust 4.8 percent. Operating profit rose by 8.3 percent to 74 million euros. Performance in Western Europe was particularly encouraging, with above-average growth being achieved in Germany and also the Eastern Europe and Latin America regions. The hair cosmetics business performed very well and significantly expanded market share. In addition to the successful development of the innovations in the colorants segment, the focus in the styling segment was on the Taft relaunch introducing the Complete line. The body care business developed positively, with Fa Yogurt shower gels continuing their success and the launch of shower gels and deodorants of the Fa Asia Spa line. The body care product range in North America was also successfully expanded through the introduction of Dial for Men shower gel and soap. In the skin care business, an innovative anti-aging product line was introduced in the form of Diadermine Global Action 9. The oral care business was further boosted by the launch of Theramed SOS Sensitive. The hair salon business, in which the Igora Royal colorant line underwent a relaunch, developed above average.
Sales of the Consumer and Craftsmen Adhesives business sector increased by 20.8 percent to 448 million euros. This positive development was driven by strong organic growth of 7.8 percent, foreign exchange effects, and acquisitions successfully integrated in the course of the previous year. Operating profit rose by 8.7 percent to 44 million euros. Adhesives and adhesive tapes for home, school and office developed positively. The focus here was on a staged worldwide launch of a new range of superglues under the Loctite brand. The roll-out is to be supported by targeted advertising measures on a global scale during 2006. Adhesives and sealants for construction, DIY and craftsmen exhibited particularly dynamic expansion with operations concentrating on technologically sophisticated solutions. Also newly launched onto the market - primarily under the brands Pattex and Sista - was a range of sealants and assembly adhesives based on the innovative Flextec technology, offering excellent bonding and sealing performance, universal applicability and enhanced ease of use.
At Henkel Technologies, sales increased by 17.1 percent to 887 million euros due to encouragingly strong organic growth of 9.5 percent augmented by foreign exchange effects and acquisitions. Operating profit grew by 15.5 percent to 90 million euros. Business involving products for the aerospace industry expanded due to innovative composite adhesives. The automotive business was also very successful with, in particular, a substantial expansion in sales to Asian manufacturers producing in the North American region. We gained further market share in the electronics industry with our lead-free solder pastes, newly launched in the previous year. Business with the steel industry benefited from the trend toward more environmentally compatible surface treatment products, and there was also a noticeable increase in demand in the durable goods market. The business involving packaging products for consumer goods continued to develop well, with film laminating adhesives making a disproportionate contribution to growth. Demand for products for industrial maintenance, repair and overhaul remained very strong.
Sales in the Europe/Africa/Middle East region rose by 7.1 percent to 1,909 million euros, with all the business sectors contributing. Eastern Europe posted double-digit growth while Western Europe generated a smaller rise. Sales development in Germany was encouraging. In the North America region, sales increased by 15.8 percent to 684 million euros. All the business sectors reported significant improvements, with Laundry & Home Care, Consumer and Craftsmen Adhesives and Henkel Technologies posting double-digit growth rates. In Latin America, all the business sectors registered double-digit sales growth thanks to the continuing favorable economic situation prevailing in this region. Overall, sales increased by 33.2 percent to 156 million euros. In the Asia-Pacific region, sales were 25.1 percent above the prior-year quarter at 237 million euros. Here again, all the business sectors reported double-digit sales improvements.
Ecolab Inc., St. Paul, Minnesota, USA, in which Henkel has a 28.7 percent stake, reported sales of 1,120 million US dollars for the first quarter of 2006, an increase of 4.7 percent compared to the previous year. Net earnings for the quarter rose by 12.2 percent to 77.9 million US dollars. The market value of this participation on March 31, 2006 amounted to around 2.3 billion euros.
Henkel confirms its sales and profit forecast for 2006. Henkel continues to expect the underlying conditions to undergo a slight improvement and to grow stronger than its markets.
Henkel expects to achieve organic sales growth (adjusted for foreign exchange and acquisitions/divestments) of 3 to 4 percent in 2006. Henkel expects operating profit (EBIT) to grow by around 10 percent after adjusting for foreign exchange. Henkel likewise expects an increase of around 10 percent in earnings per preferred share (EPS).
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