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On our way…
Analyst & Investor MeetingMunich, November 7, 2007
Alois Linder
Adhesives Technologies
2
This information contains forward-looking statements which are based on current estimates and assumptions made by the corporate management of Henkel KGaA. Statements with respect to the future are characterized by the use of words such as “expect”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, and similar terms. Such statements are not to be understood as in any way guaranteeing that those expectations will turn out to be accurate. Future performance and results actually achieved by Henkel KGaA and its affiliated companies depend on a number of risks and uncertainties and may therefore differ materially from the forward-looking statements. Many of these factors are outside Henkel's control and cannot be accurately estimated in advance, such as the future economic environment and the actions of competitors and others involved in the marketplace. Henkel neither plans nor undertakes to update any forward-looking statements.
Disclaimer
3On our way November 7, 2007 – Henkel Adhesives Technologies
On Our Way…
We are on our way to be recognized as the world‘s
leading and
most competentcompany for adhesives, sealants andsurface treatments.
Today we show you how we will accomplish this.
4
Agenda
1. Facts on Global Adhesives Market
2. Facts on Henkel Adhesives Technologies
3. Vision & Strategy
4. Update Internal Merger Adhesives Technologies
5. Acquisition of National Starch Businesses
6. Summary
5
€18bn
€23bn
€10bn
Craftsmen &Consumer
Industry
World Core Market 2006: €51bn
Source: Henkel estimations
1 Facts on Global Adhesives Market November 7, 2007 – Henkel Adhesives Technologies
World Market for Adhesives, Sealants and Surface Treatments
CAGR 2006-2010: 3.5 - 4% CAGR 2006-2010: 4 - 4.5%
BuildingAdhesives
CAGR 2006-2010: 3.5 - 4%
CAGR 2006-2010: 3.5 - 4%
6
1. Henkel
2. Sika
3. National Starch
4. Bostik
5. RPM
6. ITW
7. HB Fuller
8. 3M
9. Mapei
10. Rohm & Haas
Competitive Environment
Top 10 companies (Sales ranking 2006)
€5.5bn
Industrial
Craftsmen & Consumer/ Building Adhesives
1 Facts on Global Adhesives Market November 7, 2007 – Henkel Adhesives Technologies
7
Henkel at the top of consolidation trend
Very fragmented market1,500+ mostly local/regional players
Only 10 players with sales > €500m
Trend towards consolidationRaw material suppliers going downstream
Private equity activities
Portfolio adjustments of competitors
1 Facts on Global Adhesives Market November 7, 2007 – Henkel Adhesives Technologies
Very Fragmented Market –Trend towards Consolidation
8
Germany
5.05.5
6.5
FranceUSA
3.94.8
Japan UK Brazil
0.20.30.9
IndiaChina
[kg]
1 Facts on Global Adhesives Market November 7, 2007 – Henkel Adhesives Technologies
Adhesives use per capita (kg)
Source: Industrieverband Klebstoffe e.V.,Germany, 2006
Growth Potential inEmerging Markets
91 Facts on Global Adhesives Market November 7, 2007 – Henkel Adhesives Technologies
Growth Potential by SubstitutingCompeting Technologies
Global Fastening Market in Industrial Assembly (~ €55bn)
Structural adhesives can reach 20% share of the globalfastening market by 2015
Industrial Fasteners(Nailing, Screwing, Riveting)
Welding/Brazing
Laser4% 3%
Structural Adhesives
55%
18%10%
Source: ChemQuest, 2007
SolderingStaples & Tacks
10%
10
Industrialfasteners*,
staples & tacks
Welding,soldering,
brazing
Bonding,sealing
Join materials
* nailing, screwing, riveting
Bonding & Sealing Offering ClearAdvantages vs. Traditional Fastening
1 Facts on Global Adhesives Market November 7, 2007 – Henkel Adhesives Technologies
Value added
Reduce vibration and tension
No damage to material structure
( )Reduce volume & weight
( )Join thin materials
Even transfer of forces
Join different materials
Join heat-sensitive materials
11
Agenda
1. Facts on Global Adhesives Market
2. Facts on Henkel Adhesives Technologies
3. Vision & Strategy
4. Update Internal Merger Adhesives Technologies
5. Acquisition of National Starch Businesses
6. Summary
12
Industry(3.5 bn. €)
Craftsmen & Consumer
(1.5 bn. €)
65%9%
26%
Transportation
Packaging
Durable Goods
Maintenance,Repair & Overhaul
ElectronicsMetal
Craftsmen
Consumer
2 Facts on Henkel Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
Adhesives Technologies:Sales Split by SBU
Total sales 2006: €5.5bn
BuildingAdhesives
(0.5 bn. €)
13
1. USA
2. Germany
3. France
4. China
5. Italy
Adhesives Technologies:Country Ranking
Top 10 countries Adhesives Technologies (Sales ranking 2006)
2 Facts on Henkel Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
Sales Share Top 10: 70%
6. UK
7. Spain
8. Brazil
9. Russia
10. Mexico
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Financial Performance
Sales
EBIT
EBIT margin (%)
in mill. €
4,237
468
11.0
2005
5,008
530
10.6
5,510
579
10.5
11.5%
11.5%
---
2004 20062003
3,979
418
10.5
CAGR
~ €280m additional rawmaterial costs were absorbed by
countermeasures in 2 years
2 Facts on Henkel Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
152 Facts on Henkel Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
Organic sales growth: +6.8%Significantly outgrowing relevant markets (+3%)
Successful implementation of price increases(depending on product category & country)
Double digit sales growth in emerging markets
Gross margin improved vs. 1-9/2006
Adjusted EBIT growth >10%Adjusted for one-time items and restructuring charges
Highlights 1-9/2007
16
≥ 5.0% p.a.
≥ 10.0% p.a.
Financial Targets
Organic Sales growth
EBIT growth (adjusted for FX)
Financial Targets
2 Facts on Henkel Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
17
Steady GrowingAdhesives Technologies Business
Diversified portfolio:Operating in 9 different and independent market segments (Consumer, Craftsmen, Building, Automotive, Packaging, …)
Broad technology base for differentiated product/solution offer
Well-balanced regional portfolio with strong presence in emerging markets
Steady growth of relevant markets:Average growth of 3% of world core market over the last 10 years (between 2% and 4%)
Constantly outgrowing our markets:Due to our diversified portfolio (markets, technologies, regions) average organic growth rates over last 10 years around 200 bp above average market growth
Steadily & strongly growing business
2 Facts on Henkel Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
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Agenda
1. Facts on Global Adhesives Market
2. Facts on Henkel Adhesives Technologies
3. Vision & Strategy
4. Update Internal Merger Adhesives Technologies
5. Acquisition of National Starch Businesses
6. Summary
19
To be recognized as the world‘sleading and most competent
company for adhesives, sealantsand surface treatments.
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
Vision Adhesives Technologies
most competent
20
Realizesustainableprofitable
growth
Top-line drivers Bottom-line drivers
Strategic Objectives
Realize successful breakthrough innovations
Strengthen the power of our brands and leverage the umbrella brand Henkel
Drive growth in emerging regions
Increase sales force efficiency
Improve cost structure across the entire value chain in:
ProductionDistributionAdministration
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
21
Strengthen and leverage the umbrella brand Henkel
Further develop and implement a global branding strategy
Manage a portfolio of strong global and regional brands as well as well-known local brands („local heroes“)
Position brands as premium brands allowing price premiums
Support premium positioning with consistent stream of innovations
Strengthen the Power of Brands and Leverage Umbrella Brand Henkel
Strong brands as key differentiator
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
22
Top 10 brands: 53% of sales
AdhesivesTechnologies
Top 10 Brands
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
23
EmergingMarkets
Share of Emerging Markets increasing to 40%+ by 2010
Drive Growth in Emerging Regions
Sales Split by Region (Sales 2006)
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
Western Europe
North America
41%
33%
26%
24
Two ways to serve our customers better: More effective - Better leverage our broad product portfolioMore efficient - Better steering of our sales force
Training of sales force (products, applications, pricing)
Calculation of “pocket margins” for customer portfolio management and product mix optimization
Development of clear business guidelines
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
Increase Sales Force Efficiency
7,000+ sales reps interacting with 130,000+ customers
25
Improve Cost Structure Across the Entire Value Chain: Production
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
Continuous streamlining of production sites
26
Improve Cost Structure Across the Entire Value Chain: Production
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
Global siterationalization
Lean manufacturing initiatives in all major production sites
Focused production technology upgrades and automation
Positive processing cost development over the last 3 years
-14%
Processing costs
2004 2005 2006 1-9/07
27
Improve Cost Structure Across the Entire Value Chain: Distribution
Strong cost control in freight and warehousing
3 Vision & Strategy November 7, 2007 – Henkel Adhesives Technologies
Strong cost control in freight and warehousing
Optimization of distribution network: Warehouse consolidation activities
Strong consolidation of logistics service providers (25% reduction over last 2 years)
Continued streamlining of warehouse/ distribution activities
Example Europe
28
Agenda
1. Facts on Global Adhesives Market
2. Facts on Henkel Adhesives Technologies
3. Vision & Strategy
4. Update Internal Merger Adhesives Technologies
5. Acquisition of National Starch Businesses
6. Summary
29
>60 projects launched to exploit cross-selling potential
Additional projects in preparation
Strategic Rationaleof internal merger: Implemented Measures:
4 Update Internal Merger Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
Review of Strategic Rationale (1/2)
Supply chain organizations fully integrated
Two complementarybusinesses leading tobroad market / customercoverage
Accelerating growth worldwide
Combined marketpenetration in emergingmarkets
Use scale effects for furtherinvestments into marketing, distribution and innovation
30
Strategy alignment process to cascade strategy to SBUs, regions and main functions
IT system harmonization completed
R&D organizations fully integrated into technology platform structure
Strategic Rationaleof internal merger: Implemented Measures:
Update Internal Merger Adhesives Technologies November 7, 2007 – Henkel Adhesives Technologies
Review of Strategic Rationale (2/2)
Further steps put on hold in view of National Starch acquisition
4
Generate common strengthby transferring existingknowledge & best practices(e.g. IT systems)
Leverage the full scope of current & future technologiesand make them available to all customers
31
Agenda
1. Facts on Global Adhesives Market
2. Facts on Henkel Adhesives Technologies
3. Vision & Strategy
4. Update Internal Merger Adhesives Technologies
5. Acquisition of National Starch Businesses
6. Summary
32
National StarchBusinesses to be acquired
5 Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies
Electronic Materials(Sales 2006: €298m)
Adhesives(Sales 2006: €1,546m)
SpecialityStarchesSpecialityPolymers
38%52%
10%
FY 2006 sales, exchange rate £/€: 0.68
Businesses to be acquired
33
Side by Side Analysis:Regional Portfolio
National StarchBusinesses
Adhesives Technologies Combined
13%
54%
26%
AP19%
47%
AP7%
LA
NA27%
7%
LA
NA38%
27%
29%
6%AP
LA
NA
EMEA EMEA EMEA
Further strengthening Asia Pacific
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies5
34
By SBU
Scale Impact of Acquisition
By Region
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies
IndustrialAdhesives
Electronics
x 1.5
x 2
NorthAmerica
Asia/Pacific
x 2
Sales 2006 in bn €: Adh. Techn. National Starch Bus.
5
x 1.3
35
Scope Impact of Acquisition
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies5
Entering new markets, e.g. in:Non Wovens Hygiene
Adhesives used in baby diapers, adult incontinence products, feminine hygiene protection etc.
Athletic Footwear
Cleaners, primers, adhesives for sports shoes
36
~70%
~30%Electronics
Adhesives €170-180m
€70-80m
Revenue synergies
Costsynergies
Synergiesby type
Synergies by business
Synergy Overview
~ €240-260m~ €240-260m
Overhead/Admin.
~30-35%
Purchasing& Production
Sales/Service& R&D
Synergies by function
~30-35%
~30-35%
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies
Overview Expected Synergies
5
37
Synergy calculation based on bottom-up planning by experienced, cross-functional management team (internal view)
Experience from integration of Sovereign acquisition (2004)
Synergy figures well within the range of estimations by industry experts (external view)
Integration team incentivized related to integration milestones
Combined Henkel + National Starch business plan (incl. synergies) regular part of all managers’ yearly targets
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies
Cost & Revenue Synergies
5
38
Example Offensive Synergies (1/2)
Liofol flexible packaging business in Asia:Henkel’s flexible packaging business currently not present in Japan and Vietnam
National Starch with established local sales organizations, but without flexible packaging technology
Realize immediate market entry in Japan and Vietnam
Roll-out Liofol range via National Starch sales force
Leverage geographical coverage
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies5
39
Example Offensive Synergies (2/2)
Electronics business:Henkel with broad product portfolio, mainly serving mid-sized manufacturers
National Starch with focused product portfolio, with good relationships to big OEMs and contract manufacturers
Use National Starch customer relationships to offer Henkel’s broad product range
Leverage customer relationships
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies5
40
No Overlapin Top 5
Customers
Henkel National Starch*
Top CustomersElectronics Business
Texas Instruments
Kemet
Nokia
AVX Corp.
NXP
Amkor Electronics
ASE
Hewlett Packard
ChipPac
Siliconware
November 7, 2007 – Henkel Adhesives Technologies
* Source: ICI IR Seminar
Acquisition of National Starch Businesses5
41
Integration Process: 3 Phases
Implementation/Synergy capturingFirst 100 DaysPre-Day 1
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies
1 2 3
Aug. 13, 2007:
Take-over offerby Akzo Nobel for ICI
Back-to-back agreementAkzo Nobel – Henkel
Q2/2008:
Expected closing of Akzo Nobel/Henkel(Transfer of Nat. Starch businesses to Henkel)
State-of-the-art process to assure smooth integration & fullsynergy capturing; milestones of integration defined
5
42
Phase 1: Pre-Day 1
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies
Carve-OutAkzo Deal Execution
PreparatoryPeriod
1.1 1.2 1.3
November 05/06, 2007:EGM Akzo & ICI
January 02, 2008:Closing Akzo & ICI
Q2/2008:Closing Akzo & Henkel
Akzo merger control clearance
Henkel merger control clearanceCarve-out for National Starch businesses
Preparation for “Day 1“ well in plan
Day1
5
43
State-of-the art integration process with external support to assure smooth integration and full synergy capturing
Roles and responsibilities early on clearly defined
Integration plan & milestones in place before closing
Regular updates on integration status and realized synergies
Most competent managers and specialists to be selected to lead future businesses
High respect for culture, know-how, capabilities and competences of the acquired businesses
Guiding Principles of Integration
Acquisition of National Starch Businesses November 7, 2007 – Henkel Adhesives Technologies5
44
Agenda
1. Facts on Global Adhesives Market
2. Facts on Henkel Adhesives Technologies
3. Vision & Strategy
4. Update Internal Merger Adhesives Technologies
5. Acquisition of National Starch Businesses
6. Summary
45
Adhesives, Sealants and Surface Treatments market with further growth potential replacing traditional fastening methods
We have continuously outperformed the markets
Very strong portfolio of market segments, technology offer and regions as platform for future solid performance
New vision and strategy with strong focus on profitable growth
National Starch as transforming acquisition strengthening our electronics and Asian business and increasing our profitability
Summary: On Our Way…
Summary November 7, 2007 – Henkel Adhesives Technologies6