DJ Henkel reports good organic growth
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Düsseldorf, August 6, 2008
National Starch acquisition and efficiency enhancement program characterize Q2
Henkel reports good organic growth
. Strong sales growth of 11.4 percent
. Organic sales growth: plus 6.1 percent
. Adjusted operating profit (EBIT): plus 7.8 percent
. Sales in growth regions: plus 19.5 percent
"We achieved highly encouraging second quarter organic sales growth, despite a
difficult economic environment still characterized by significantly increasing
raw material costs and a weak US dollar," said Henkel CEO Kasper Rorsted. "Our
organic growth was supported by all our business sectors. The improvements were
primarily from our growth regions, while development in Western Europe was
restrained. We were able to further increase adjusted operating profit. The
integration of the National Starch businesses, which brought us a significant
boost in sales, and the implementation of our efficiency enhancement program
aligned to achieving a sustainable improvement in our competitiveness, continue
on track with good progress being achieved. Despite the challenging
environment, we are confident regarding the development in the further course
of the year."
In its second quarter of 2008, Henkel increased sales by 11.4 percent to 3,668
million euros. This strong rise is due to good organic sales growth and the
first-time consolidation of the newly acquired National Starch businesses.
After adjusting for foreign exchange, sales rose by a substantial 17.7 percent.
Organic sales, or those adjusted for foreign exchange and
acquisitions/divestments, increased by 6.1 percent, with all business sectors
contributing.
Operating profit (EBIT) was heavily impacted by restructuring charges amounting
to 256 million euros for the quarter under review. This corresponds to around
one third of the restructuring charges previously announced for the year as a
whole, with the total expected to be about 770 to 780 million euros. The
charges relate primarily to a global program for efficiency enhancement and the
integration of the National Starch businesses. As a consequence, EBIT decreased
to 113 million euros. Conversely, operating profit, adjusted for restructuring
charges and one-time gains and charges ("adjusted EBIT"), rose by 7.8 percent
to 372 million euros.
EBIT margin amounted to 3.1 percent, while adjusted EBIT margin decreased from
10.5 percent to 10.1 percent. This decline is primarily attributable to the
heavy impact of raw material price increases on the Laundry & Home Care and the
Adhesive Technologies business sectors. Investment result, mainly attributable
to Henkel's participation in Ecolab, remained constant at 24 million euros,
despite the weaker US dollar. Net interest expense increased by 47 million
euros, from -37 million to -84 million euros, due primarily to the higher net
debt arising from payment of the purchase price for the National Starch
businesses but also to higher interest rates. There was a corresponding
increase in the negative financial result from -13 million euros to -60 million
euros. The tax rate fell from 26.7 percent to 20.8 percent.
Due to lower EBIT and the increase in the negative financial result, net
earnings for the quarter decreased to 42 million euros. After minority
interests totaling 4 million euros, net earnings for the quarter were 38
million euros. At 227 million euros, adjusted quarterly net earnings after
minority interests were 4.6 percent below the prior-year level. Earnings per
preferred share decreased to 0.09 euros. The adjusted figure declined by 5.5
percent to 0.52 euros.
Business Sector Performance
Organic sales for the Laundry & Home Care business sector increased by a good
3.9 percent. At 1,012 million euros, sales overall were 1.1 percent below the
previous year. Foreign exchange had a negative impact of 4.7 percent. Operating
profit decreased from 111 million euros to 96 million euros, reflecting in
particular the ongoing increase in raw material prices that lead to a
substantial rise in input costs. Despite the price increases implemented by
Henkel and measures taken to reduce costs and improve efficiency, the company
was not yet able to completely offset these additional expenses. Organic growth
in the Laundry segment was primarily due to results in Eastern Europe. Here,
both the company's heavy-duty detergents and its fabric softeners posted a
positive sales performance. The good sales growth in North America was due to
the high level of market acceptance of the change-over to ultra concentrates,
and to the successful launch of Purex Natural Elements. This innovation with
mainly natural ingredients is in line with consumers' growing environmental
awareness. Organic sales of the Home Care segment underwent a substantial
increase with the greatest impetus again coming from Eastern Europe. The main
contributors to this sales improvement were Henkel's dishwashing detergents and
WC cleaning and hygiene products. There was also an increase in air freshener
sales in North America, once again contributing to an overall positive
performance.
With strong organic sales growth of 5.9 percent, the Cosmetics/Toiletries
business sector was able to maintain the highly positive trend of the last few
quarters, with all regions contributing. In addition to an extremely positive
development in North America, the businesses in Eastern Europe and Latin
America also generated particularly strong growth. Compared to the prior-year
quarter, nominal sales rose by 1.2 percent to 779 million euros, with growth
after adjusting for foreign exchange rising to 5.8 percent. Despite rising
material costs, operating profit increased by 8.3 percent after adjusting for
foreign exchange, outstripping the rise in sales. Hence, the EBIT margin also
improved to 12.8 percent. The Hair Cosmetics segment continued to post strong
growth, further extending its market positions in all its categories -
Colorants, Care and Styling. Major contributions to this improvement came from
the international relaunch of the Schauma brand, the debut of the Taft Power
Gels Waterproof series and the rollout of Diadem Care Gloss. The Body Care
segment also continued to perform well. Developments in the deodorants business
were particularly encouraging with the launch of the Fa Rice Dry innovation,
the first Fa deodorant with natural rice extract. The Skin Care segment was
able to further expand its market position thanks to the high level of
performance turned in by its most important international brand, Diadermine,
with the focus this time on the launch of an innovative line of anti-oxidant
treatments. The Oral Care segment was also able to make further market share
gains thanks in particular to the launch of Theramed Titan Fresh and Pro Natur.
The Hair Salon segment continued to post very good organic growth. The
innovative strength of this business was again apparent with the launch of the
new OSiS Design Mix line and of Igora Royal Absolutes, the first anti-aging
coloration series.
Organic growth in the Adhesive Technologies business sector amounted to a
highly encouraging 7.9 percent. Nominal sales rose by 26.1 percent to 1,816
million euros, and by 34,6 percent after adjusting for foreign exchange, due
primarily to the acquisition of the Adhesives and Electronic Materials
businesses of National Starch. Operating profit increased by 21.1 percent to
195 million euros, and by 29.3 percent after adjusting for foreign exchange. In
the Craftsmen and Consumer segment, business was affected by the tough
conditions prevailing in North America and Western Europe. Major craftsmen
markets in Western Europe showed a decline, and the severe real estate downturn
in the USA continued unabated. By contrast, the Eastern European region
continued to develop successfully. There was again strong growth in the
Building Adhesives segment, supported in particular by very good results in
Eastern Europe and the North Africa/Middle East region. The Industry segment
benefited significantly from the acquisition of the National Starch businesses
while also performing well in organic terms. There was a further increase in
sales in Western Europe despite a difficult business environment. The products
for industrial maintenance, repair and overhaul under the Loctite brand again
generated positive results. Activities in the automotive and durable goods
segments were stepped up with the launch of TecTalis, an innovative metal pre-
treatment product. The performance of the National Starch businesses eased
slightly in the face of a slowdown in the semiconductor and electronic products
markets.
Regional Performance
Organic sales in the Europe/Africa/Middle East region increased by an
encouraging 6.2 percent, with all business sectors contributing. After
adjusting for foreign exchange, sales rose by 10.4 percent. At 2,283 million
euros, total sales were 8.2 percent above the level of the previous year.
Significant double-digit organic growth rates were achieved in Eastern Europe
and Africa/Middle East, while development in Western Europe including Germany
underwent a slight decline. Overall, the share of sales accounted for by the
(MORE TO FOLLOW) Dow Jones Newswires
August 06, 2008 01:30 ET (05:30 GMT)
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