Valuation Corporate Overview of Henkel AG

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Presentation transcript:

Valuation Corporate Overview of Henkel AG Professor David Wessels ©2010 The Wharton School of the University of Pennsylvania 3620 Locust Walk, Philadelphia PA 19104

Valuation, Measuring and Managing the Value of Companies 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. Operating profit (EBIT) , as defined by Henkel in their income statement. Valuation, Measuring and Managing the Value of Companies

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. Valuation, Measuring and Managing the Value of Companies

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. Valuation, Measuring and Managing the Value of Companies

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. Valuation, Measuring and Managing the Value of Companies

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. Valuation, Measuring and Managing the Value of Companies

Valuation, Measuring and Managing the Value of Companies 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. 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. Valuation, Measuring and Managing the Value of Companies

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. Valuation, Measuring and Managing the Value of Companies