Bloomberg News

Henkel Sees Emereging Market Pushing 2013 Profit Growth

March 06, 2013

Henkel AG forecast sales growth of at least 3 percent and higher profitability this year as the German maker of Loctite glues and Persil detergent gains an increasing share of revenue from emerging markets.

Sales will rise as much as 5 percent in 2013, Dusseldorf- based Henkel said today. Earnings before interest and taxes as a proportion of revenue will widen to as much as 14.5 percent, topping the 14.1 percent margin reported today for 2012.

The guidance was “reasonably challenging, but still beatable,” Andrew Wood, an analyst at Sanford C. Bernstein, said in an e-mailed report. “If management delivers these results, we would expect continued positive stock momentum.”

Emerging markets such as eastern Europe, Africa, Latin America and Asia accounted for 43 percent of sales last year, up from 42 percent in 2011. That helped reduce Henkel’s reliance on western Europe, where government austerity measures taken to counter the debt crisis deepened a recession.

“Business performance was particularly successful in emerging markets, with Asia excluding Japan standing out through strong double-digit growth, thanks to substantial expansion of business in China” in 2012, the company said.

Henkel shares gained as much as 3.2 percent, the biggest intraday increase since Jan. 25. The stock traded 2.9 percent higher at 70.65 euros as of 11:56 a.m. in Frankfurt.

New Products

The 2013 targets helped offset fourth-quarter profit that missed estimates. Earnings before interest and taxes, adjusted for one-time items, rose 8.4 percent to 544 million euros ($710 million) in the quarter, Henkel said. That compared with the 555 million-euro average of nine analysts estimates in a Bloomberg survey. Adjusted net income gained 13 percent to 377 million euros, also missing analyst predictions.

“Margins came in below our expectations, and slightly below consensus,” Bernstein’s Wood said.

Revenue gained 5.3 percent to 4 billion euros, the company said. Like-for-like growth was 4 percent, exceeding the 3.2 percent average of six estimates compiled by Bloomberg.

On an organic basis, which excludes the effects of acquisitions, disposals and currency shifts, cosmetics revenue rose 2.1 percent and adhesives sales gained 4.6 percent. Organic growth in the laundry and home-care business, which sells products such as Silan Royal fabric softener, was 4.7 percent.

Innovation Pipeline

Henkel said today that 42 percent of 2012 sales were generated from products introduced in the last three years. Those included a Schwarzkopf hair colorant in a jar and a new pre-dosed liquid detergent under the Persil brand.

Henkel has a “very strong innovation pipeline” for 2013, Chief Executive Officer Kasper Rorsted told analysts today on a conference call.

The company is also “actively” managing its portfolio to exit some businesses, Chief Financial Officer Carsten Knobel told analysts. About 500 million euros in revenue comes from non-strategic products, he estimates. Henkel’s top 10 brands account for 44 percent of sales and it has cut the number of brands it sells to less than 400 from about 1,000 in 2008.

The market environment for professional hair-care, which includes products such as the Bonacure hair oil or Igora colorant for streaks, is “tough,” especially in western Europe, Rorsted said.

The electronics market, which Henkel supplies with adhesives, remains “very slow” and a “significant” recovery in the first half is not expected, he said. Henkel gets about half its revenue from adhesives.

Acquisitions

The company said today that net debt fell to 85 million euros from 1.39 billion euros at the end of 2011, while free cashflow doubled to a record 2.02 billion euros.

Acquisitions are “an integrated part of the company’s strategy,” Knobel said.

Between 2008 and 2012, non-core divestments and disposals amounted to 2 billion euros while additions and extensions to the existing portfolio reached 4 billion euros, Henkel said.

The company proposed a dividend of 95 euro cents per preferred share, a 19 percent increase from last year.

To contact the reporter on this story: Julie Cruz in Dusseldorf via jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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