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Henkel Reports Positive Q1 Results; Sales Up 7.8%
May 6, 2010 |Estimated reading time: 7 minutes
Earnings highlights:
- Sales increase by 7.8% to 3,512 million euros;
- Organic sales growth of 8.8%;
- Adjusted operating profit: plus 79.1% to 421 million euros;
- Adjusted EBIT margin: Plus 4.8 percentage points to 12%; and
- Adjusted earnings per preferred share (EPS): Plus 93.5%.
"Henkel has made a good start to the fiscal year, with all our business sectors contributing. Despite the persistently challenging environment, Laundry & Home Care and Cosmetics/Toiletries continued their successful development of recent quarters, while Adhesive Technologies also returned to robust rates of sales growth," said Kasper Rorsted, Chairman of the Henkel Management Board, adding, "Once again our strong brands made a further major contribution to Henkel's gratifying Q1 results. However, this very good performance is also down to our efforts in adapting our structures and reducing our costs, coupled with the good progress we have made in the implementation of our strategic priorities. Now we are looking forward to a noticeable improvement in our results of more than 15% for the full fiscal year versus 2009."
In the first quarter of 2010, Henkel generated sales of 3,512 million euros. In a recovering market environment, this constitutes an increase of 7.8% compared to the figure for the prior-year quarter. After adjusting for foreign exchange, sales rose by 7.5%. Organically, i.e. after adjusting for foreign exchange, acquisitions and divestments, the increase was a substantial 8.8%, representing the first significant rise against a prior-year period for four quarters. And it was a development to which all the company's business sectors contributed. Laundry & Home Care again turned in a very positive performance with organic growth at 3.6%. And having increased sales organically by 5.5%, the Cosmetics/Toiletries business sector outstripped both the high levels of growth achieved in recent quarters and the overall rate of market expansion. Against a prior-year quarter weakened by the impact of the crisis, Adhesive Technologies reported double-digit organic growth amounting to a highly encouraging 14.5%.
Due primarily to the substantial improvement posted by Adhesive Technologies, operating profit (EBIT) increased by 93.3%, from 218 million euros to 422 million euros. After allowing for restructuring charges (31 million euros) and one-time gains (32 million euros), adjusted operating profit improved by 79.1%, from 235 million euros to 421 million euros.
Return on sales (EBIT margin) increased significantly, from 6.7% to 12%. Adjusted return on sales rose from 7.2% to likewise 12%.
Financial result decreased slightly from -52 million euros to -54 million euros, with the positive effect of reducing net debt being more than canceled out by higher interest paid. At 27.7%, the tax rate was slightly above the level of the previous year.
Due to the increased EBIT, net income for the quarter rose by 119.8%, from 121 million euros to 266 million euros. After deducting non-controlling interests totaling 7 million euros, net income for the quarter amounted to 259 million euros (prior-year quarter: 117 million euros). Adjusted quarterly net income after non-controlling interests amounted to 258 million euros compared to 130 million euros in the prior-year quarter. Earnings per preferred share (EPS) increased from 0.28 euros to 0.60 euros. The adjusted figure was also 0.60 euros compared to 0.31 euros in the prior-year quarter.
Good progress was also made in the management of net working capital. Compared to the prior-year period, the ratio of net working capital to sales improved by 4.7 percentage points, to 8.5%.
Net debt versus prior-year quarter has undergone a substantial reduction of 1.4 billion euros to 2.7 billions euros.
Sales of the Adhesive Technologies business sector exceeded by 12.4% the level of the first quarter of 2009, rising to 1,651 million euros. And in organic terms, revenues increased by an even more respectable 14.5%, due in large part to substantial volume increases. All businesses and regions contributed to this exceptional expansion in sales: the growth regions of Asia-Pacific, Africa/Middle East, Latin America and Eastern Europe once again performed above average, and there were also substantial increases in sales in the mature markets Western Europe and North America. Operating profit likewise underwent a significant improvement--compared to the prior-year quarter it almost quadrupled, coming in at 185 million euros. The basis for this very strong increase was provided by measures introduced in the last financial year aligned to optimizing earnings. Return on sales rose by a substantial 8 percentage points to 11.2%. After adjusting for the disposal of the adhesive tapes business in North America, the Adhesives for Craftsmen, Consumers and Building business posted further growth, with all segments contributing. Substantial improvements versus the prior-year quarter were achieved in North America and Africa/Middle East especially. After considerable market-related declines in the previous year, the Transport and Metal business registered significant increases in sales in the quarter under review. Business with customers in the metals industry and, in particular, sales to the automotive sector were significantly higher than in the first quarter of 2009. The General Industry business also showed an improvement compared to the prior-year period, with the highest growth rates being achieved in North America, Asia-Pacific and Africa/Middle East. The Packaging, Consumer Goods and Construction Adhesives business likewise made gains, with sales in the regions of Asia-Pacific and Africa/Middle East substantially above the levels of the first quarter of 2009. However, the strongest growth rate was achieved by the Electronics business. Here, not only were sales in all the growth regions significantly above the levels of the prior-year quarter, the regions of Western Europe and North America also developed exceptionally well.
Regional Performance
In the Europe/Africa/Middle East region, sales improved organically by 6% compared to the first quarter of 2009, coming in at 2,139 million euros, with all three business sectors contributing. Africa/Middle East once again realized double-digit organic growth, while developments in Eastern Europe continued in the positive single-digit range. Western Europe including Germany returned to growth in the mid single-digit range after an organic decline in sales in the fourth quarter of 2009. The share of total Group sales attributable to the region as a whole remained unchanged at 61%. After a decrease in the fourth quarter of 2009, sales in the North America region improved organically by 7.9% compared to the prior-year quarter, closing at 645 million euros. Sales of the Laundry & Home Care and Adhesive Technologies business sectors developed exceptionally well. The region's share of Group sales declined, ending the period at 18%.Meanwhile, the successful development of the Latin America region continued unabated. Here, organic sales increased by 10.6% to 216 million euros, with all business sectors contributing. At 6%, the share of Group sales attributable to the region remained constant. Sales in the Asia-Pacific region continued to recover compared to the fourth quarter of 2009, growing organically by 27.6% versus the prior-year quarter and ending the period at 462 million euros. Strong sales increases in the Adhesive Technologies and Cosmetics/Toiletries business sectors contrasted with stagnation at Laundry & Home Care. The share of total sales accounted for by this region rose to 13%. In the growth regions of Eastern Europe, Africa/Middle East, Latin America and Asia (excluding Japan), sales increased by 17.2% to 1,339 million euros. Compared to the prior-year quarter, organic growth amounted to 14.2%, which was also an improvement over the figure for the fourth quarter of 2009. All our business sectors contributed to this achievement, particularly Adhesive Technologies and Cosmetics/Toiletries which each recorded double-digit organic growth rates. The share of sales of the growth regions increased from 35 to 38%.
Sales and Profits Forecast 2010
In Henkel's estimation, the overall mildly positive market conditions currently prevailing in the real economy and in the financial markets remain fragile. Based on the forecasts for the current year, Henkel expects the world economy to grow by around 3%, but without any anticipation of a sustained upturn.
Henkel is confident of again outperforming its relevant markets in terms of organic sales growth. A number of measures have already been introduced on the operational side, from which Henkel expects further positive momentum to develop. For example, it anticipates further contributions to profit arising both from the synergies created through the integration of the National Starch businesses and from a strictly disciplined cost management approach. All these factors will positively influence the development of adjusted operating profit (EBIT) and adjusted earnings per preferred share (EPS). Following the very successful start made to the new financial year, Henkel expects both these metrics to show a noticeable improvement of more than 15% compared to the figures for 2009.
About Henkel
Henkel has been committed to making people's lives easier, better and more beautiful for more than 130 years. A Fortune Global 500 and Germany's most admired company according to a recent Fortune survey, Henkel offers strong brands and technologies in three areas of competence: Home Care, Personal Care and Adhesive Technologies. Each day, about 50,000 employees worldwide are dedicated to fulfilling Henkel's claim "A Brand like a Friend." In fiscal 2009, Henkel generated sales of 13,573 million euros and adjusted operating profit of 1,364 million euros. For more information, visit www.henkel.com.