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COMPANY REPORT

Henkel delivers strong performance in Q1 in challenging mkt environment
Monday, 15 May, 2017, 08 : 00 AM [IST]
Henkel delivered a strong performance in the first quarter of 2017 in a highly-challenging market environment. The consumer goods markets were characterised by intensifying promotional and pricing pressure.

Hans Van Bylen, the company’s chief executive officer, said, “We were able to significantly increase sales and earnings and to further grow adjusted return on sales.”

“For the first time, quarterly sales exceeded five billion euros. Adjusted operating profit also reached a new high. All three business units and all regions contributed to the successful development and the high quality of earnings,” he added.

“This strong performance was driven by our leading brands and innovations, our intensified focus on our customers and consumers, the acceleration of our digital activities and our highly committed global team,” Van Bylen said, adding, “We further strengthened our portfolio and signed two compelling acquisitions.”

Commenting on fiscal year 2017, Van Bylen said, “We expect the overall volatile and uncertain market environment to persist throughout the year. Currency fluctuations are likely to continue and the prices for commodities are expected to increase.”

“We also anticipate promotional and pricing pressure in the consumer good markets to further increase. Nevertheless, we are committed to continue our successful development,” he added.

In this challenging market environment, Henkel confirmed the outlook for the current fiscal year.

“We expect organic sales growth of two to four per cent. We expect our adjusted earnings before interest and taxes (EBIT) margin to increase to more than 17 per cent and adjusted earnings per preferred share to grow between 7 and 9 per cent,” said Van Bylen.

Sales and earnings performance in Q1 of 2017
At 5,064 million euros, sales in the first quarter of 2017 reached a new record level and grew nominally by 13.6 per cent compared to the prior-year quarter.

Positive foreign exchange effects accounted for 1.1 per cent of this growth. The contribution from acquisitions and divestments amounted to 8.5 per cent, mainly as a result of the acquisition of the Sun Products Corporation.

Organic sales, which exclude the impact of foreign exchange effects and acquisitions and divestments, showed a strong increase of four per cent.

Organic sales growth was driven by all business units. The Adhesive Technologies business unit reported a very strong increase in organic sales of 5.5 per cent.

The Beauty Care business unit posted good organic sales growth of 2.3 per cent. The Laundry and Home Care business unit recorded a strong increase in organic sales of three per cent.

The emerging markets again made an above-average contribution to the organic growth of the Group, with a very strong increase in organic sales of 6.7 per cent, while the mature markets registered good organic sales growth of 2.1 per cent.

Henkel reported organic sales growth across all regions. Sales in Western Europe grew by 1.8 per cent. Eastern Europe achieved growth of 4.4 per cent.

In Africa and the Middle East, sales grew by 2.2 per cent. Sales in the North America region increased by 2.9 per cent. Latin America achieved growth of 8.2 per cent and in the Asia-Pacific region, sales grew by 9.1 per cent.

Adjusted operating profit improved by 13.8 per cent to 854 million euros. All three business units contributed to this positive performance.

Adjusted return on sales rose by 0.1 percentage points to 16.9 per cent.

Adjusted earnings per preferred share grew by 11 per cent from 1.27 euros to 1.41 euros.

Net working capital as a percentage of sales improved by 0.5 percentage points to 4.9 per cent.

Effective March 31, 2017, Henkel’s net financial position showed a balance of -1,961 million euros. On December 31, 2016, it was -2,301 million euros. The change compared to the end of 2016 was mainly due to a positive free cash flow.

Business unit performance
The Adhesive Technologies business unit generated very strong organic sales growth of 5.5 per cent in the first quarter.

Nominally, sales increased by 7.1 per cent to 2,295 million euros. Adjusted operating profit grew by 10.5 per cent and reached 415 million euros. Adjusted return on sales recorded a very strong increase to 18.1 per cent.

The Beauty Care business unit registered good organic sales growth of 2.3 per cent in the first quarter.

In nominal terms, sales grew by 6.4 per cent to 1,011 million euros. Adjusted operating profit reached 169 million euros, an increase of 7.4 per cent compared to the prior-year quarter. Adjusted return on sales recorded a good increase and reached 16.7 per cent.

The Laundry and Home Care business unit generated strong organic sales growth of three per cent in the first quarter.

Nominally, sales increased by 29.5 per cent to 1,726 million euros compared to the prior-year quarter.

Adjusted operating profit grew by 22.8 per cent to 298 million euros, while adjusted return on sales was at 17.3 per cent.

The acquisition of the Sun Products Corporation contributed significantly to both sales and operating profit.

Compelling acquisitions further strengthening portfolio
Henkel signed an agreement to acquire the global Darex Packaging Technologies business from GCP Applied Technologies and an agreement to acquire the Mexican hair care company Nattura Laboratorios.

Outlook for 2017 confirmed
Henkel confirms the outlook for the fiscal year 2017. Henkel expects to generate organic sales growth of two to four per cent and anticipates that each business unit will generate organic sales growth within this range.

For adjusted return on sales, Henkel expects an increase versus the prior year to more than 17 per cent. Henkel expects an increase in adjusted earnings per preferred share of between 7 and 9 per cent.
 
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