Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Valuation
Corporate Overview of Henkel AG
Professor David Wessels ©2010
The Wharton School of the University of Pennsylvania
3620 Locust Walk, Philadelphia PA 19104
Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Henkel AG Overview
•
Henkel AG is an international consumer products firm headquartered in Düsseldorf, Germany, and its
three major segments are Adhesives, Cosmetics, and Laundry.
•
After a few years of stable growth, the company suffered a severe setback in profitability for 2008 and
was only able to slightly recover in 2009. From a revenue standpoint, the company has experienced
fairly healthy growth; however, revenues dropped in 2009.
Revenues
CAGR
3.2%
in million euros, 2005-2009
16,000
14,131
11,974
12,740
13,074
Operating Profit (EBIT)
in million euros, 2005-2009
1,600
13,573
1,296
12,000
1,200
8,000
800
4,000
400
0
0
2005
2006
2007
2008
CAGR
-1.8%
2009
1,344
1,162
1,080
779
2005
2006
2007
2008
2009
Operating profit (EBIT) , as defined by Henkel in their income statement.
Valuation, Measuring and Managing the Value of Companies
2
Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Revenue Distribution by Segment
•
Henkel divides its worldwide operations into three major divisions: Laundry & Home Care,
Cosmetics & Toiletries, and Adhesives.
•
The three different sectors vary greatly in terms of their proportional impacts on EBIT. For example:
although Adhesives compose the largest segment of revenue, the sector currently produces the least
profit.
•
Laundry & Home Care includes consumer
products in detergents, cleaning products, air
fresheners and insecticides. Major Brands include
Persil, Purex, Pril, Somat, and Dixan.
•
Cosmetics & Toiletries includes consumer
goods in hair cosmetics, body care, skin care, and
oral care, and in the professional hair salon
segment. Major Brands include Schwarzkopf,
Dial, Fa, and Taft.
•
Adhesives include the production of adhesives,
sealants and surface treatment products to mostly
industrial clients. Major Brands include Locitte,
Teroson, and Ceresit.
Financial Performance by Sector
2009
290
6,224
Adhesives
387
Cosmetics
3,010
Laundry
530
4,129
Revenue
Adjusted operating
profit (EBIT)
Valuation, Measuring and Managing the Value of Companies
3
Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Revenue Distribution by Geography
•
Approximately 2/3 of the Henkel’s revenues are generated in Europe. The company’s
focus on high growth markets, specifically Latin America and Asia-Pacific, has tilted the
proportion of revenues towards those markets. For instance, Asia-Pacific has grown
from 8.8% of revenues in 2005 to 12.4% in 2009.
AsiaPacific,
Latin
America, 8.8%
5.5%
Geographic Revenues
in million euros (2009)
Geographic Revenues
in million euros (2005)
AsiaPacific,
12.4%
Latin
America,
6.2%
North
America,
21.8%
Europe,
Africa,
Middle
East, 63.9%
North
America,
19.1%
Valuation, Measuring and Managing the Value of Companies
Europe,
Africa,
Middle
East, 62.4%
4
Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Sector: Laundry & Home Care
•
The Laundry & Home Care segment is globally
active in the marketing, selling, and distribution of
branded products for the laundry and home care
markets.
–
–
•
The Laundry segment includes not only heavy-duty
and specialty detergents but also fabric softeners,
laundry performance enhancers, and laundry care
products.
The Home Care segment encompasses cleaners for
bath and WC applications together with household,
glass, and specialty cleaners.
The company expects a slight decline in growth in
2010. In North America and Western Europe
particularly, the company anticipates that market
expansion will be no more than minor, while
competition is expected to remain intense. The
anticipated rise in sales will therefore be generated
by growth regions, including Eastern Europe, Russia,
Africa, and the Middle East.
Laundry Revenues
CAGR
0.2%
in million euros, 2005-2009
4,500
4,088
4,117
4,148
4,172
4,129
2005
2006
2007
2008
2009
10.6%
10.9%
11.1%
10.5%
12.1%
3,000
1,500
0
Margin
Valuation, Measuring and Managing the Value of Companies
5
Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Sector: Cosmetics & Toiletries
•
The Cosmetics & Toiletries business sector is active
both in the branded consumer goods segments of hair
cosmetics, body care, skin care, and oral care, in the
professional hair salon business.
–
–
•
•
The Consumer Goods segment is planned to be
expanded in Eastern Europe and the Middle East and to
be strengthened in Western Europe and North America.
The Hair Salon segment is carrying a globalization
strategy, targeting growth particularly in Asia-Pacific,
Latin America, and the Middle East.
Systematic cost reduction measures, selective price
increases and a further reduction in complexity has
led to an improvement in cost structures, and thus
record-level margins.
The firm expects a slowdown in growth in the North
America and Western Europe markets, with growth
emanating in the growth regions of Eastern Europe,
Latin America, Africa/Middle East.
Cosmetics Revenues
CAGR
3.4%
in million euros, 2005-2009
4,000
3,000
2,864
2,972
3,016
3,010
2005
2006
2007
2008
2009
12.2%
12.5%
12.5%
2,629
2,000
1,000
0
Margin
Valuation, Measuring and Managing the Value of Companies
12.5%
12.9%
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Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Sector: Adhesives
•
•
•
The Adhesives Market consists of five strategic
business units: Adhesives for Craftsmen and
Building, Transport and Metal, General Industry,
Packaging Consumer Goods and Construction and
Electronics.
Adhesives Revenues
CAGR
5.6%
in million euros, 2005-2009
8,000
Increasing consumption in high growth areas of
China and India, as well as Latin America, are the
focus of expansion efforts in the adhesives segment.
While the economic crisis forced a contraction in the
steel, automotive, construction, and electronics
industries and the capital goods sector, the diversity
of the Adhesives product portfolio provided an
essential advantage during the economic downturn,
as a number of the products’ growth remained stable.
Additionally the acquisition of National Starch gives
the firm a leading market position globally.
6,700
6,000
5,510
5,711
2005
2006
2007
10.6%
10.5%
10.9%
5,008
6,224
4,000
2,000
0
Margin
Valuation, Measuring and Managing the Value of Companies
2008
2009
9.8%
4.7%
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Integrative Case: Henkel AG
Corporate Overview of Henkel AG
Market Capitalization & Capital Structure
•
•
•
The company’s strategy for capital management
includes optimizing its capital structure, managing
its dividend policy, taking equity measures, and
making acquisitions and divestments, while
reducing debt.
Liquidity risk is very low because of the use of
long-term financing instruments and the
availability of additional liquidity reserves in the
form of pledged credit lines of 2.1 billion euros
and bilateral loans of 0.5 billion euros for each
subsidiary group.
“Cash and marketable securities” of 1.1 billion
euros far exceeded short-term borrowings for
2009. And the increase in “short-term borrowings
from bonds” is a result of the recent issuance of a
floating rate note by the firm.
(€ millions)
Short-term Borrowings
Liabilities from bonds
Commercial papers
Bank loans and overdrafts
Other
Subtotal
Long-term Borrowings
Bank Loans and Overdrafts
Bonds
4.250% (until 2013) Bond
4.625% (until 2014) Bond
(Hybrid)
5.375% (until 2015) Bond
Other
Subtotal
Debt-to-Equity
Total debt (exc. debt equivalents)
Market capitalization (year-end)
Gross enterprise value
Valuation, Measuring and Managing the Value of Companies
2008
2009
31.0
175.0
1,099.0
512.0
1,817.0
300.0
71.0
288.0
1.0
660.0
33.0
15.0
1,024.0
0.0
1,331.0
6.0
2,394.0
1,045.0
994.0
1,368.0
3.0
3,425.0
4,211.0
8,895.9
13,106.9
4,085.0
14,583.1
18,668.1
8