Henkel bets on emerging markets and M&A as Europe flags

LONDON Fri Nov 16, 2012 2:00pm GMT

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LONDON (Reuters) - German consumer goods group Henkel (HNKG_p.DE) is ramping up investment in developing countries and hunting for acquisitions in a bid to lift sales over a quarter by 2016 and counter weakening markets in Europe.

The maker of Persil washing powder and Schwarzkopf hair products said on Friday it would invest 2 billion euros over the next four years, up 40 percent on 2008-12, and set up seven new research and development centres in countries like Brazil, South Africa and South Korea to develop products for local consumers.

"We will go out and actively acquire companies over the next four years," Chief Executive Kasper Rorsted added, talking relatively openly about acquisitions for the first time in several years in a strategy presentation to analysts.

Europe's consumer companies are stepping up their bets in emerging economies amid signs a sovereign debt crisis and austerity measures will keep their home markets weak for years.

German rival Beiersdorf (BEIG.DE) is also setting up more R&D and production facilities in places like China and Mexico, while demand from emerging markets has helped Anglo-Dutch group Unilever as well (ULVR.L).

Henkel said the market environment had become more difficult in the third quarter, with its adhesive technologies business in particular suffering from weakness in crisis-hit southern Europe. That business contributes around half of group sales.

Commerzbank analyst Andreas Riemann, who saw the new growth targets as in line with expectations, said that was a worry.

"Lower growth in Adhesives could be a burden in the coming quarters," he said.

At 1320 GMT, Henkel shares were down 4.8 percent at 58.34 euros, the biggest fall by a European blue-chip stock .FTEU3, after rising 37 percent this year.

FIREPOWER FOR DEALS

Henkel said it was aiming for 20 billion euros of sales by 2016, up from 15.6 billion in 2011, with about 50 percent coming from emerging markets compared with 44 percent now.

The group's last big acquisition was National Starch in early 2008 at a cost of 3.7 billion euros. In May this year, it bought the self-adhesive business of Cytec for $105 million in cash, which it classifies as a small, routine deal.

"Three years ago, we didn't have a balance sheet to allow (acquisitions)," Rorsted said, noting the group's net debt had fallen to 612 million euros from 4 billion euros four years ago.

"But on the other hand, we will not spend money because it's burning a hole in our pocket," he added.

The group's new targets would change if it completed an acquisition on a similar scale to National Starch, Rorsted said, declining to comment on potential bid targets.

Henkel said it was on course to reach an operating margin of 14 percent this year, a target many investors viewed sceptically when it was announced by Rorsted after he took over in 2008.

The group aims to grow earnings per share by an average 10 percent a year until 2016, which Rorsted said equated to an operating margin of 15.7-16.3 percent in four years, depending on one-off items.

Beiersdorf has set a medium-term margin target of 16 percent for its biggest division Consumer, home to Nivea face creams, though it has declined to specify a time frame.

Henkel posted a 17 percent rise in third-quarter adjusted earnings before interest and tax to 631 million euros, above a forecast of 622 million euros in a Reuters poll.

Quarterly sales gained 2.5 percent on an organic basis, which strips out acquisitions, to 4.29 billion euros, slightly below the 4.32 billion expected by analysts.

Sales at the adhesive unit grew just 1 percent, with price increases offsetting a drop in the volume of goods sold. That compared with growth of 3.6 percent in the second quarter.

Explaining the fall, Rorsted said Henkel had decided to exit lower margin business in the adhesives market. The unit achieved a margin of 16 percent for the first time in the quarter.

($1 = 0.7817 euros)

(Additional reporting by Mattias Inverardi in Germany; Editing by Mark Potter)

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