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09-05-2012 19:48:00

Henkel Joins Some European Peers In Lauding US Recovery

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By Sten Stovall and Simon Zekaria

Of DOW JONES NEWSWIRES

LONDON -(Dow Jones)- Henkel AG & Co. KGaA (HEN.XE), maker of laundry detergents, beauty products and consumer and industrial glues, Wednesday said it was experiencing a recovery in the U.S. market, echoing comments by some other European companies relying on overseas markets to compensate for the economic woes hitting sales back home.

The company, the world's biggest producer of glues used in everything from cell phones to autos, aircraft to refrigerators, as well as consumer products including Purex washing powder, Schwarzkopf hair products, and Right Guard deodorant, confirmed it is continuing to do well in China and emerging markets, but the U.S. has also re-emerged as a growth market.

"We've come back. We had almost 7% growth in the U.S. during the first quarter this year, a recovery that started in the middle of last year," Henkel Chief Executive Officer Kasper Rorsted told Dow Jones Newswires.

Europe's companies are relying on growth outside the continent to compensate for continued economic problems that are causing sales to continue falling in countries like Greece, Spain and Italy. The situation is somewhat better in Northern Europe, particularly Germany, but continued concerns about the eurozone as a whole means executives at companies including manufacturers, consumer goods companies and retailers expect a tough situation for years to come.

"You will have [for] a long time very low growth rates in Europe and over time you might have some states leaving the euro, Rorsted said.

But he doesn't believe the single currency will collapse, not least because such an event would prove disastrous for the continent." If the break up of the euro zone were to come tomorrow, you would have ten to twenty years of recession in Europe."

The return of growth in the U.S. is a definite plus for global companies like Henkel and it contributed to the company reporting a surge in first-quarter profits Wednesday.

"It's an election year there and I think it's important that you take that into consideration but the North American Economy is starting to pick up again," Mr Rorsted, 50, said in an interview.

He applauded the U.S. for taking much quicker corrective action after the 2008 financial crisis than Europe, although he warned the recovery there is still likely to be slow. He says he's optimistic for the medium term, but says growth is unlikely to reach single-digit levels any time soon.

Other European companies that have highlighted a US recovery include manufacturing giant Siemens AG, power and technology company ABB Ltd. (ABBN.VX), and carmakers Volkswagen AG (VOW.XE) and Daimler AG (DAI.XE). The experience isn't yet universal, with companies including chemicals giant BASF SE (BAS.XE) and truckmaker Volvo AB (VOLV-B.SK) among those still reporting weakness.

Henkel reported a 29.5% increase in net profit to EUR269 million in the first quarter, better than a 4.8% rise in sales to EUR4 billion because it reduced costs. Nearly all the growth was organic and the company, a rival to the likes of Procter & Gamble Co. (PG) and Unilever PLC (UN.LN) in the consumer market, said it wasn't expecting to make any significant acquisitions in the short-term. It said it managed to raise prices to overcome rising raw material costs.

Mr Rorsted, a Dane who has led the 135-year old German company for four years and was recently mandated by the board to run the company for a further five years at least, said he wasn't concerned by an apparent slowing of the phenomenal growth of China in recent years. The company has pushed hard into China, now its fourth biggest market, and expects to have opened the world's largest adhesives plant in Shanghai by the end of the year.

"If I look at the overall Chinese economic growth, it's now predicted to run at between 8% and 8.5% and last year it was between 9% and 9.5%. We think that overall it will continue to grow. You might see an overall slowdown in the next number of years from 15% to the high-single-digits but we still believe that there is still tremendous opportunity in China because what the Chinese government is doing is also trying to stimulate local consumption. Until now it's been very export-driven and they've been very focused on stimulating it, so I'm not concerned about it," Mr Rorsted said.

The picture across emerging markets is one of moderating growth in years to come, he added, with some countries like Brazil showing evidence of weakening faster than others.

Today, 41% of Henkel's revenues come from emerging markets, and that percentage is set to increase.

"Looking at the trajectory, last year we grew 5.9% [in emerging markets]. The year before was 6.5% and we're growing 4.7% in this quarter. We're growing consistently at almost twice the rate of GDP. In that context I'm very happy with the footprint that we have -- but I'm not satisfied. It's clear over time that we need to add one or two percentage points to emerging markets in the years that are coming, and we are on track for that."

Mr Rorsted's tenure so far has been marked by restructuring the company and focusing on brands it considers have the best growth potential. His strategy for the following years will include a continued focus on innovation, a key differentiator in both the consumer products market and for its technologically advanced glues.

Investors clearly believe in Henkel's growth plans. The company's shares ended up 2.4% at EUR46.04 Wednesday, not far off the all-time high of EUR47.44 hit Monday. The stock's 15.6% increase in 2012 so far is substantially outperforming a 4.5% rise in the value of the DAX, Germany's bluechip index.

-By Sten Stovall, Dow Jones Newswires; +44 207 842 9292; sten.stovall@dowjones.com

(END) Dow Jones Newswires

May 09, 2012 13:48 ET (17:48 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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