Henkel lifts bet on emerging markets as Europe slows

LONDON Fri Nov 16, 2012 4:53am EST

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LONDON (Reuters) - German consumer goods group Henkel (HNKG_p.DE) is ramping up investment in emerging markets in a bid to lift sales over a quarter by 2016 and counter deteriorating markets in Europe.

The German maker of Persil washing powder and Schwarzkopf hair products said on Friday it was aiming for 20 billion euros ($25.6 billion) of sales by 2016, up from 15.6 billion in 2011.

It will hike investment by 40 percent to 2 billion euros over the next four years, setting up seven new research and development centers in markets such as Russia, Africa, Asia and Latin America with a goal of generating 50 percent of its sales in emerging markets, compared with around 44 percent now.

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 so it can develop products specifically for customers in those markets, and demand from markets like China has also helped Unilever (ULVR.L) (UNc.AS).

Henkel said the market environment had become more difficult in the third quarter, with its adhesive technologies business in particular suffering from weakness in southern Europe.

Some analysts were also disappointed that, while forecasting earnings per share to grow by an average of 10 percent a year until 2016, the group did not give any margin targets.

"Henkel did not provide an EBIT (earnings before interest and tax) margin target which may disappoint some investors. Together with the weak adhesives volumes reported today this might cause pressure on the stock," DZ Bank analyst Thomas Maul said.

At 0835 GMT, Henkel shares were down 4.1 percent at 48.145 euros, after rising 37 percent this year.

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

VOLATILITY AND UNCERTAINTY

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

Sales at its adhesive unit, which makes up around half of group sales and supplies both industry and consumers, grew by just 1 percent in the three-month period, with price increases helping to make up for a drop in the volume of products sold.

That compared with growth of 3.6 percent in the previous quarter.

"We expect that the volatility and uncertainties in our markets will persist," said Rorsted in a statement.

Henkel posted a 17 percent rise in overall third-quarter adjusted EBIT to 631 million euros ($807 million), just 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.

Henkel said it expected restructuring costs of 125 million euros in 2012, compared with 100 million previously. It also said investments in property, plant and equipment would be slightly lower than forecast at less than 400 million.

(Editing by Mark Potter)

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