Henkel (FRA:HEN)

• Ecolab (ECL)
• Procter & Gamble Company (PG)

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Corinne Tu

Henkel International (FRA:HEN) operates businesses in the areas of laundry & home cleaning products, products for bath and oral hygiene, and adhesive technologies.^[1] Adhesives^[2] are materials that join surfaces, and sealants are substances that seal surfaces closed. In the industry of industrial adhesive technologies, Henkel ranks first in the world.

In each business segment, sales have grown from 2005 to 2008 and have decreased from 2008 to 2009. Henkel's main competitors include Unilever, Procter and Gamble, and Bostik, a chemical and adhesive subsidiary of Total S.A. (TOT).

The expanding market in adhesives and sealants is the most relevant force for Henkel, which generates almost half its sales from adhesive technologies. In the long-term, the market size for sealants and adhesives is growing annually by about 3% to 5%.^[3] Another factor favorable to Henkel's future sales is growing emerging markets in not-yet industrialized countries (such as in Central and Eastern Europe), which account for 41% of Henkel Adhesive Technologies’ sales.^[4]

Company Overview

Henkel is an international corporation, headquartered in Düsseldorf, Germany, that sells products in over 125 countries. Henkel is listed in Fortune's Global 500, which ranks international companies by revenue.^[5]

Business and Financial Metrics

In 2009, Henkel's sales totaled €13,573 million and profit totaled €1,364 million, with adhesive technologies generating the most sales.^[6] In each of its three business segments, sales have grown from 2005 to 2008 and have decreased from 2008 to 2009.

Sales in 2009 by Segment^[7]

Sales in 2009 by Region^[8]

Key Financial Figures, where EBIT is Earnings Before Interest and Taxes, and Adj. = adjusted^[9]

Business Segments

Henkel International operates three global business sectors.^[10] The adhesive technologies division generated half of Henkel's revenue in 2009 (46%), while the remaining revenue was approximately equally generated by the other two segments. All of Henkel's business segments operate in Europe, Asia, and the Americas.

Sales Trends in Business Segments^[11]

Adhesive Technologies (46% of revenue in 2009)

• Adhesives^[12] are materials applied to surfaces to permanently join them, whereas sealants are substances that seal a surface to prevent passage of liquid or gas. Henkel produces adhesives and sealants for industrial applications such as the completion of aircraft valves, the repair of damaged industrial equipment, the coating and lubrication of electronics, the packaging of products, and the construction of buildings. Loctite is an example of a brand of adhesive technology by Henkel; it is well-known among individual consumers for adhesives like Super Glue, but its products are largely purchased by industrial customers.^[13]

• In the industry of adhesive technologies, Henkel ranks first in the world. Operating on a larger scale generates logistical advantages purchasing and manufacturing. Adhesive technologies is Henkel's largest business segment; in 2009, it generated 46% of Henkel's €13.573 billion in revenue. From 2005 to 2008, the revenue in this segment increased by an annual average of 10.33%; from 2008 to 2009, the revenue decreased by 7.1%.

Laundry and Home Care (30% of revenue in 2009)

• Henkel produces heavy-duty detergents, dishwashing products, all-purpose cleaners, floor and carpet care products, air fresheners, and insecticides. These products are sold in over 40 countries.^[14] In 2009, this division generated 30% of Henkel's revenue. From 2005 to 2008, the revenue in this segment increased by an annual average of 0.68%; from 2008 to 2009, the revenue decreased by 1.0%.

• Henkel was the largest shareholder of Ecolab since 1989, when Henkel and Ecolab formed a European joint venture to combine their commercial cleaning and sanitation operations.^[15] To reduce debt, Henkel sold its holding in 2008 for $30.50 a share, or a total value of $2.2 billion.^[16]

• Henkel was named in the 2008 Dow Jones Sustainability World Index^[17] and in March 2010, the Ethisphere Institute named Henkel as one of the world's most ethical companies.^[18] Henkel considers sustainability to be both a core part of company ethic as well as a competitive market advantage. For example, Henkel's Purex Natural Elements brand laundry detergent was one of the first brands to be included in the "Design for the Environment" Program spearheaded by the U.S. Environmental Protection Agency.^[19] With both strong laundry power and high environmental quality, Purex is the number 1 selling laundry detergent in the United States.^[20] With the growing importance of global climate conditions, company performance will be increasingly affected by the added value of sustainable products.

Cosmetics and Toiletries (22% of revenue in 2009)

• Henkel produces shampoos, conditioners, hair salon products, soaps, deodorants, and other products for bath, skin care, and oral hygiene. These products are sold in over 150 countries.^[21] One of its brands, Schwarzkopf Professional, is among the world´s leading suppliers of hair salon products. In 2009, the cosmetics and toiletries division generated 22% of Henkel's revenue. From 2005 to 2008, the revenue in this segment increased by an annual average of 4.73%; from 2008 to 2009, the revenue decreased by 0.199%.

Key Trends and Forces

Increasing Replacement of Traditional Welding Techniques by Structural Bonding

The size of the 2007 total world market for adhesives and sealants was estimated at £26 billion, or approximately $US 41 billion.^[22] Sealants represent nearly 12% of this demand and generally are growing at a rate greater than the combined adhesive and sealant total. Consumption of adhesives and sealants in industrialized countries represent 63% of the adhesive and sealant demand.

The expanding market in adhesives and sealants is the most relevant force for Henkel, which generates almost half its sales from adhesive technologies. In the long-term, the market size for sealants and adhesives is growing annually by about 3% to 5%.^[23]

Steadily Growing Adhesives Consumption in Emerging Markets

Another factor favorable to Henkel's future sales is growing emerging markets in not-yet industrialized countries (such as in Central and Eastern Europe), which account for 41% of Henkel Adhesive Technologies’ sales.^[24] Ever since 2005, there has been a high growth of the markets in newly industrialized economies and a taking of market share from the industrialized countries. Increasing consumer demand in the markets of India and China, with their massive consumer populations, will have a positive impact on sales of adhesives.

Growing Market Demand Share by Emerging Markets^[25]

Competitors

• Unilever is one of Henkel's main competitors in the cleaning, cosmetics, and beauty divisions. It owns several brands in the home and personal care division that achieve more than €1 billion^[26] in annual sales. For example, the brand Dove is sold in over 35 countries^[27] and it offers personal care products for both men and women. Lux, a prevalent brand of soap, is sold in over 100 countries and it is heavily advertised through Bollywood stars as a luxury good in India.^[28]

• Procter and Gamble is another main competitor of Henkel in the cleaning, cosmetics, and beauty divisions. Procter and Gamble manufactures 23 brands that rake in more than €1 billion^[29] in annual sales, including Crest, CoverGirl, Gilette, Head and Shoulders, Olay, and Pantene. These products compete directly with the personal care products offered by Henkel. Procter and Gamble also has a favorable reputation; it ranked sixth^[30] in Fortune's 2010 list of the world's most admired companies, which ranks companies according to criteria such as investment value and social responsibility.

• In the chemical and adhesive division, Henkel's main competitor is Bostik, an international subsidiary of Total S.A. (TOT). With a revenue^[31] of €1.2 billion, Bostik led the sales of global adhesives and sealants in 2009.

References

1. ↑ Henkel International. About Henkel. Retrieved on 27 Sept, 2010.
2. ↑ Sina Ebnesajjad. Adhesives Technology Handbook 1-2. Retrieved on 29 Sept, 2010.
3. ↑ Henkel International (25 March, 2010). Invisible, but nearly always indispensable. Retrieved on 28 Sept, 2010.
4. ↑ Henkel International (25 March, 2010). Invisible, but nearly always indispensable. Retrieved on 28 Sept, 2010.
5. ↑ CNN Money. Fortune Global 500. Retrieved on 28 Sept, 2010.
6. ↑ Henkel International. Fact Sheet. Retrieved on 28 Sept, 2010.
7. ↑ Henkel International. Key Financial Figures. Retrieved on 28 Sept, 2010.
8. ↑ Henkel International. Key Financial Figures. Retrieved on 28 Sept, 2010.
9. ↑ Henkel International. Fact Sheet. Retrieved on 28 Sept, 2010.
10. ↑ About Henkel. Retrieved on 28 Sept, 2010.
11. ↑ Henkel International. Business Sectors. Retrieved on 28 Sept, 2010.
12. ↑ Sina Ebnesajjad. Adhesives Technology Handbook 1-2. Retrieved on 29 Sept, 2010.
13. ↑ Butterworth, Kenneth W.. The Loctite Story. Retrieved on 29 Sept, 2010.
14. ↑ Henkel International. Laundry & Home Care. Retrieved on 28 Sept, 2010.
15. ↑ Paul C. Judge of The New York Times (13 Sept, 1990). Company News; Ecolab and Henkel In European Venture. Retrieved on 28 Sept, 2010.
16. ↑ Ruthie Ackerman of Forbes (14 Nov, 2008). Henkel Lets Go of Ecolab. Retrieved on 28 Sept, 2010.
17. ↑ Dow Jones Sustainability Index. Retrieved on 28 Sept, 2010.
18. ↑ ETHISPHERE. World's Most Ethical Companies Testimonials. Retrieved on 28 Sept, 2010.
19. ↑ United States Environmental Protection Agency. Labeled Products and Our Partners. Retrieved on 28 Sept, 2010.
20. ↑ Purex. Purex Saves Green. Retrieved on 28 Sept, 2010.
21. ↑ Henkel International. Cosmetics and Toiletries. Retrieved on 28 Sept, 2010.
22. ↑ The Adhesive and Sealant Council, Inc. 2007-2010 North American Market Study 5. Retrieved on 29 Sept, 2010.
23. ↑ Henkel International (25 March, 2010). Invisible, but nearly always indispensable. Retrieved on 28 Sept, 2010.
24. ↑ Henkel International (25 March, 2010). Invisible, but nearly always indispensable. Retrieved on 28 Sept, 2010.
25. ↑ The Adhesive and Sealant Council, Inc. 2007-2010 North American Market Study 5. Retrieved on 29 Sept, 2010.
26. ↑ Unilever. Annual Report and Accounts 2009. Retrieved on 28 Sept, 2010.
27. ↑ Dove. Retrieved on 28 Sept, 2010.
28. ↑ Business Line, HINDU Publications (3 Jun, 2008). Lux launches 2 variants in TN. Retrieved on 28 Sept, 2010.
29. ↑ Procter and Gamble. P&G 2010 AR Financials Overview. Retrieved on 28 Sept, 2010.
30. ↑ CNN Money. World's Most Admired Companies. Retrieved on 28 Sept, 2010.
31. ↑ Bostik Corporation. Key Figures. Retrieved on 28 Sept, 2010.