Henkel achieves strong organic sales growth of 5.9%

07 Aug '08

5 min read

“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 prioryear level. Earnings per preferred share decreased to 0.09 euros. The adjusted figure declined by 5.5 percent to 0.52 euros.

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