Henkel CEO Sees Worsening Conditions in Euro Area This Year

Henkel AG, the German maker of Loctite glues and Persil detergent, reiterated its profitability forecast for 2013 even as it predicted the economy in the euro region may worsen this year.

“We do not expect the euro zone to undergo any tangible improvement in the current year,” Chief Executive Officer Kasper Rorsted told shareholders at the annual general meeting today in Dusseldorf, where the company is based. “Things are likely to get worse before they get better.” Emerging markets will return to “robust” growth during the year and there will be an “upturn” in North America, he predicted.

Emerging markets such as eastern Europe, Africa, Latin America and Asia accounted for 43 percent of sales last year, up from 42 percent in 2011. That helped reduce Henkel’s reliance on western Europe, where government austerity measures to counter the debt crisis deepened a recession.

The euro-area jobless rate rose to a record 12 percent in early 2013, a report showed this month. The euro-zone economy has contracted for five straight quarters and that trend is forecast to continue in the first three months of this year, a separate Bloomberg survey shows.

Henkel reiterated its forecast for sales growth of 3 percent to 5 percent this year. The company predicts earnings before interest and taxes as a proportion of revenue will widen to about 14.5 percent from 14.1 percent last year, and adjusted earnings per preferred share will rise by about 10 percent.

Henkel preferred shares fell as much as 1.3 percent to 72.11 euros and traded down 0.3 percent at 12:56 p.m. in Frankfurt trading.

‘Profitable Growth’

“We continue to believe that Henkel can generate long-term profitable growth but expect positive price effects to fade and a loss of growth momentum in the first half of 2013,” Thomas Maul, an analyst at DZ Bank AG in Frankfurt, wrote in a report to investors today. “We consider the risk-reward ratio to be unfavorable at the current valuation level.”

The CEO predicts growth in “major” industrial sectors will improve in the second half of the year after “weaker growth than expected” in the first months of the year. Asia will lead economic expansion in emerging markets, the company said.

Acquisition Strategy

The producer of Schwarzkopf shampoo plans to increase revenue to 20 billion euros ($26.1 billion) by the end of 2016 with half of the sales coming from emerging markets. Henkel expects average annual growth of 10 percent through the end of 2016 and will increase investments to about 2 billion euros by the end of 2016. The company will adjust growth and earnings targets for 2016 if it makes “major acquisitions,” it said.

Henkel has 3.5 billion euros to 4 billion euros available for acquisitions, Rorsted told shareholders today. The company is looking at opportunities in all business segments, he said.

Henkel has proposed a dividend of 95 euro cents per preferred share for 2012 compared with 80 cents in 2011, and a dividend per ordinary share of 93 cents, up from 78 cents in 2011.

Henkel is scheduled to report its first-quarter earnings on May 8.

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