Henkel in the First Half 1999: Stable Growth of Brand-name Products
11 August 1999
Henkel in the First Half 1999: Stable Growth of Brand-name Products; Upswing in Care Chemicals; Successes in the Automotive Industry
DUSSELDORF, Germany--August 10, 1999--Henkel KGaA today announced in the period January through June 1999, the Henkel Group generated sales of Euro 5.6 billion, an increase of 1.4 percent over the same period last year. Existing business declined by 1 percent after exchange rate adjustments, whereas acquisitions and divestments produced a net gain of 2.4 percent.Sales of German companies decreased by 3.4 percent, while sales by affiliates outside Germany rose by 3.3 percent. Due to the crisis in Brazil, sales in Latin America dropped by 13.8 percent. In North America, sales were up 3.5 percent. Favorable exchange rates had a positive impact in the Asia/Pacific region which recorded sales growth of 15.2 percent.
Regarding operating profit (EBIT), the second quarter 1999 developed very well, with an increase of 32 percent compared to the first quarter. All business sectors contributed to this marked improvement. While operating profit for the first quarter 1999 was still 13.9 percent below the level of the first quarter 1998, the figure for the first six months 1999 amounted to Euro 408 million, thus only 2.5 percent below the same period last year.
Climbing 26.6 percent to Euro 562 million, the Henkel Group's cash flow developed very favorably in the first six months of 1999. This increase was mainly due to lower expenditures for corporate taxes.
Earnings before tax amounted to Euro 340 million, up 3 percent from the figure for the prior year (Euro 331 million).
Net earnings before restructuring costs from Clorox for the first half of 1999 were Euro 199 million, up 5 percent over last year's net earnings for the first half.
Important Events
The carve-out of the Chemical Products business sector to form Cognis, a legally independent entity, has been successfully accomplished in Germany. Cognis Deutschland GmbH began operating in Germany on August 1, 1999. Outside Germany, the carve-out process is running according to plan. The carve-out structure in the individual countries has been finalized in operative, legal, fiscal and financial terms. The holding company for the management of the non-German Cognis companies will be based in the Netherlands.
Divestment of Loctite's automotive aftermarket business was successfully concluded on July 30. The gain from this sale amounts to USD 123 million.
During the second quarter of 1999, a joint venture was founded with Dial Corporation to develop and market top quality laundry detergents in the USA. Through cooperation with this strong partner and the high awareness level enjoyed by Dial's PUREX brand, Henkel now has access to the highly competitive American laundry detergents market.
In South Africa we have acquired the 50 percent share of the Chemserve joint venture previously owned by our partner, thus strengthening our position as supplier to the automotive industry in this regional market.
In Japan, Henkel signed an agreement in June to acquire a stake in Cemedine Co. Ltd. as a basis for cooperation.
Development of Business Sectors
Sales by the Chemical Products business sector amounted to Euro 1,259 million, down 3 percent from the first six months in 1998. Compared to the first quarter of this year, however, the sales figure for the second quarter represents a growth of 11 percent.
Continuing weakness in certain industrial markets for oleochemicals and temporary production problems in North America and Asia had an adverse effect on operating profit in the first half, which fell by 39.2 percent to Euro 66 million compared to the same period last year.
Only a slight improvement in sales volume of oleochemical base materials was recorded in the second quarter of 1999. Tougher competition, particularly in fatty acids and fatty alcohols, prevented an increase in revenues and margins.
Care Chemicals experienced an upturn in demand in the second quarter, with particularly good growth rates in North America, Latin America and the Asia/Pacific region. In the skin care sector, emulsion bases and facial masks achieved the highest growth.
Care surfactants also performed well in the second quarter. The development in alkyl polyglycosides (APG) for use in shampoos, bath gels and hand cleaning preparations was particularly encouraging.
Organic Specialty Chemicals experienced a slight upward trend in the second quarter. The paper auxiliary business improved on its first quarter performance. Mining and oilfield chemicals achieved distinctly positive results in a still difficult market environment.
At Euro 432 million, sales for the Surface Technologies business sector were slightly down by 2.5 percent. After adjustments for divestments, however, sales were 1.1 percent up from the prior year's figure. Operating profit rose 5.9 percent to Euro 37 million. Significant sales growth was achieved in Europe, Mexico and the Asia/Pacific region. After adjustments to account for divestments and exchange rate fluctuations, sales in North America achieved the same level as in the previous year.
The integration of newly acquired businesses is running according to plan. Following the purchase of a 10 percent stake in the Japanese company Cemedine, preparations are being made to establish a joint venture for adhesives and sealants to supply the automotive industry. For Henkel Surface Technologies this will provide direct access to the strategically important Japanese automotive industry.
Business with the automotive industry enjoyed continued growth overall and closed the period considerably above the previous year's figures. Industrial business also enjoyed an increase in sales in the second quarter, though the overall figure for the first half of 1999 remained below that for the previous year. This was mainly due to the situation in the crisis regions of South America and South Africa.
In the Adhesives business sector, sales grew by 2.5 percent to Euro 1.229 million compared to the first half year 1998. Good second quarter 1999 performance by all strategic business units generated positive results (6 percent growth in sales and 19 percent in profit versus the first quarter). However, due to the weak start in the first quarter, operating profit for the first half year (Euro 116 million) still lagged 5.2 percent behind the prior year's level.
Sales in Germany and North America were satisfactory. A marked increase was achieved by all countries in Asia.
Sales of Consumer and Craftsmen Adhesives equaled the prior year's figure. Business was encouraging in the craftsmen adhesives segment where the successful "No More Nails" product concept is being launched worldwide.
Industrial and Packaging Adhesives realized an increase in sales in the second quarter. The demand for packaging adhesives developed favorably. However, price pressure intensified due to rising quality demands and increasing customer concentration. Adhesives for the wood processing and furniture industry achieved double-digit sales growth. New, innovative adhesive systems for sole bonding were successfully presented to leading shoe manufacturers.
Sales of engineering adhesives (Loctite) improved in the second quarter, the growth being mainly attributable to the acquisitions Fel-Pro and KID.
In the Brand-name Products segment - Cosmetics/Toiletries and Detergents/Household Cleansers - sales rose by 4.3 percent to Euro 2,171 million, while operating profit climbed 8.5 percent to Euro 158 million.
The Cosmetics/Toiletries business sector recorded sales of Euro 893 million, an increase of 7 percent compared to the same period last year.
Sales of brand-name products developed particularly well in Benelux, France and North America, where the Fa line was successfully launched, as well as in Israel and Scandinavia. In Germany, sales reached a new high in June. In Russia, the demand for western consumer goods is rising once more. The trend was also positive in the Asia/Pacific region.
In hair cosmetics, the successful international expansion of colorations continued with the launch of the new Live Unlimited Colors and Vital Colors brands. Marketing activities mainly focused on southern Europe. Overall, we succeeded in further consolidating our Number 2 position in the European hair cosmetics market. In the USA, Fa was exceptionally well received by the trade and the brand achieved excellent sales in June.
The hair salon products business also developed very positively.
In the Detergents/Household Cleansers business sector sales rose by 2.6 percent to Euro 1,278 million.
While sales grew substantially in Europe, they declined elsewhere, mainly in Russia but also in China.
All major laundry detergent brands improved their sales performance once again in the period under review. This is reflected in a further increase in market shares in the European heavy duty detergents market. Business in the first six months of 1999 received a particular boost from the successful Euro-launch of detergent tablets. A distinct increase in sales was achieved through the introduction of appealing new fragrances in fabric softeners. Household cleansers generated higher sales in the first six months as well. The hand dishwashing detergent MIR Vinegar is now being marketed Europe-wide. Following the successful launch of the Somat Profi automatic dishwasher detergent in 1997, a world premiere is now being introduced: "Somat 2 in 1", a tablet with built-in rinse aid.
The Industrial and Institutional Hygiene business sector achieved a sales growth of 5.6 percent to Euro 418 million. At Euro 32 million, operating profit was 7.8 percent up from the same period last year.
The professional hygiene business recorded a substantial increase in sales due to an upswing in the German market and sound growth in the Darenas business (building cleaning sector) in Great Britain. Sales also received a substantial boost from the German Hospital Hygiene business. The Food & Beverage / P3-Hygiene business unit performed better than expected, while the Textile Hygiene business unit made a partial recovery from the sales losses in the first quarter.
Major Participations
Ecolab Inc., St. Paul, USA - in which Henkel holds a 21.6 percent interest - showed very positive results. In the first six months of 1999, Ecolab sales grew by 12 percent to USD 1,010 million. Net earnings for this period rose by 15 percent to USD 78 million. Information on the performance of The Clorox Company for fiscal 1998/99 was not yet available at the time this report was published. Disclosure of the financial data is scheduled for August 12, 1999. Henkel KGaA owns a 24.7 percent stake in Clorox.
Investor Relations/Capital Market
Following the announcement of the carve-out of the Chemical Products business sector and in view of the increasing focus of the corporate portfolio on consumer product activities, Henkel's preferred share has been reallocated to other market sectors in the DAX and the Dow Jones Stoxx indexes.
In the DAX 30 and the DAX 100 Henkel's preferred share is being reassigned from "Chemicals & Pharmaceuticals" to "Consumer & Retail". In the C-DAX, Henkel's preferred and ordinary shares are being transferred from "Chemicals" to "Retail". In the Dow Jones Stoxx and Euro Stoxx indexes, Henkel's preferred share is now listed under "Non-cyclical Goods & Services". Consequently, we expect different valuation criteria to be applied to Henkel shares, which may result in a higher valuation.
In the first six months of 1999, the prices for Henkel preferred and ordinary shares fell by 8.6 percent and 12.2 percent, respectively. As of June 30, 1999, Henkel's market capitalization amounted to some Euro 9.2 billion.
In May, the international rating agency Moody's confirmed the good credit ratings for the Henkel Group: P1 (short term) and A1 (long term).
Standard & Poor's had already confirmed the A1+ (short term) and AA- (long term) credit ratings in April 1999.
Capital Expenditures
In the first six months of 1999, capital expenditures totaled Euro 184 million, or 11 percent less compared to the same period last year. This reduction is due to more restrictive capital expenditures. The funds were spent mainly on projects in the Brand-Name Products, Adhesives and Chemical Products sectors, with the majority of these projects being realized in Europe.
Employees
On June 30, 1999, the Henkel Group employed 57,421 people. The number of employees within Germany decreased by 296 to 15,495. Of the total work force, 73 percent were employed outside Germany by the end of June 1999.
Employees Dec. 31, 98 June 30, 99 Change in %
Germany 15,791 15,495 - 1.9 Abroad 40,828 41,926 2.7 Total 56,619 57,421 1.4
Outlook
Based on the positive development in the second quarter and the good prospects for recovery in the crisis regions, we expect to achieve continued sales growth in all business sectors in the second half of 1999.
For the full fiscal year 1999 our aim is to attain Group sales of over Euro 11.2 billion. We are confident that we will again be able to achieve a marked profit improvement.
Henkel is a worldwide operating specialist in brand-name products, adhesives, chemical products and the systems business with affiliates in over 70 countries. With over 56,000 employees the Company generated sales of more than EUR 10.9 billion (DM 21 billion) in 1998. Henkel ranks among the leading manufacturers of detergents/household cleansers in Europe and realized sales of about EUR 2.6 billion (DM 5 billion) in this business sector in 1998.
For further information on the Henkel Group visit our website http://www.henkel.com or contact us via e-mail at corporate.communications@henkel.de.
Henkel KGaA preference and ordinary shares are listed on the Frankfurt Stock Exchange, as well as a number of other exchanges. Henkel is a component of the DAX, the index of 30 German blue chip companies. In the US, Henkel's ADRs, each equivalent to one Henkel ordinary share, trade over the counter under the symbol "HENKY" and ADRs, each equivalent to one Henkel preference share, trade over the counter under the symbol "HENOY".
Information on Henkel KGaA preference shares is available on Bloomberg under the symbol HEN3 GR, on Reuters under HNKG_p.F. and on Quotron under HEND.EU. Information on the Henkel ordinary shares is available on Bloomberg under the symbol HEN GR, on Reuters under HNKG.F and on Quotron under HNKD.EU.
Henkel Group Jan.-June 1998 Jan.-June 1999
Consolidated Statement of Income Euro million % Euro million %
Sales 5477 100% 5552 100.0%
Cost of sales 2987 54.5% 2996 54.0%
Gross profit 2490 45.5% 2556 46.0%
Marketing, selling and distribution
costs, administrative expenses incl.
operating income and charges 1984 36.3% 2041 36.8%
Amortization of goodwill and
restructuring costs 88 1.6% 107 1.9%
Operating profit (EBIT) 418 7.6% 408 7.3%
Financial items -87 -1.6% -68 -1.2%
Earnings before tax 331 6.0% 340 6.1%
Taxes on income -141 -2.5% -141 -2.5%
Net earnings before restructuring 190 3.5% 199 3.6%
costs from Clorox
One-time charges related to Clorox -20 -0.4%
Net earnings 190 3.5% 179 3.2%
Henkel Group Dec. 31, 1998 June 30, 1999
Consolidated Balance Sheet Euro million % Euro million %
Tangible and intangible assets 4629 50.7% 4834 49.2%
Financial assets 535 5.9% 697 7.1%
Fixed assets 5164 56.6% 5531 56.3%
Deferred tax assets 212 2.3% 209 2.1%
Inventories 1426 15.6% 1425 14.5%
Accounts receivable and 2201 24.1% 2531 25.7%
miscellaneous assets
Liquid funds/marketable securities 127 1.4% 134 1.4%
Current assets 3754 41.1% 4090 41.6%
Total assets 9130 100.0% 9830 100.0%
Equity exluding minority interests 2570 28.2% 2822 28.7%
Minority interests 259 2.8% 255 2.6%
Equity including minority interests 2829 31.0% 3077 31.3%
Provisions for pensions and 1773 19.4% 1830 18.6%
similar obligations
Other provisions 972 10.6% 1008 10.3%
Provisions 2745 30.0% 2838 28.9%
Provisions for deferred tax
liabilities 162 1.8% 160 1.6%
Borrowings 2163 23.7% 2258 23.0%
Trade accounts payable 803 8.8% 958 9.7%
Other liabilities 428 4.7% 539 5.5%
Liabilities 3394 37.2% 3755 38.2%
Total equity and liabilities 9130 100.0% 9830 100.0%
Henkel Group Sales
January - June 1999
Sales Jan.-June 1998 Jan.-June 1999 Change
by product sectors EUR million EUR million in percent
Chemical Products 1299 1259 -3.0
Surface Technologies 443 432 -2.5
Adhesives 1198 1229 2.5
Cosmetics/Toiletries 834 893 7.0
Detergents/
Household Cleaners 1247 1278 2.6
Industrial and
Institutional Hygiene 395 418 5.6
Other 61 43 -27.6
Total 5477 5552 1.4
Sales Jan.-Juni 1998 Jan.-Juni 1999 Veranderung
by regions M io. Euro M io Euro in %
Germany 1544 1491 -3.4
Rest of Europe 2378 2441 2.6
North America 889 920 3.5
Latin America 244 211 -13.8
Africa 54 65 20.4
Asia,Australia 368 424 15.2
Total 5477 5552 1.4
Henkel Group Sales
January - June 1999
Sales breakdown Jan.-June 1998 Jan.-June 1999
by product sector % %
Chemical Products 24% 23%
Surface Technologies 8% 8%
Adhesives 22% 22%
Cosmetics/Toiletries 15% 16%
Detergents/
Household Cleaners 23% 23%
Industrial and
Institutional Hygiene 7% 7%
Other 1% 1%
Total 100% 100%
Sales breakdown Jan.-June 1998 Jan.-June 1999
by region % %
Germany 28% 27%
Rest of Europe 43% 44%
North America 16% 16%
Latin America 5% 4%
Africa 1% 1%
Asia,Australia 7% 8%
Total 100% 100%
Henkel Group segment information
by business sector
Segment reporting January through June 1999
(in Euro million)
Chemical Surface Adhesives Brand-name Hygiene Other Henkel
Products Techno- Products Group
logies
Sales
Jan.-June
1999 1259 432 1229 2171 418 43 5552
Sales
Jan.-June
1998 1299 443 1198 2081 395 61 5477
Change in
percent -3.0 -2.5 2.5 4.3 5.6 -27.6 1.4
EBIT
Jan.-June 1999 66 37 116 158 32 -1 408
EBIT
Jan.-June 1998 109 35 122 145 30 -23 418
Change in
percent -39.2 5.9 -5.2 8.5 7.8 96.8 -2.5
Return
on Sales
Jan.-June 1999
(in %) 5.3 8.5 9.4 7.3 7.7 - 7.3
Return
on Sales
Jan.-June 1998
(in %) 8.4 7.8 10.2 7.0 7.5 - 7.6
Return on
Investment
Jan.-June 1999
(in %) 8.4 15.7 10.3 18.1 20.6 - 12.4
Return on
Investment
Jan.-June 1998
(in %) 13.8 15.9 11.0 17.7 21.3 - 13.4