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Solid Volume Rise, but Raw Material Costs Reduce Net Profits for Hempel

Published on 2005-04-13. Author : SpecialChem

Key figures

  • Group turnover up 9% to €583.7m from €535.7m in 2003
  • Total paint volumes 214m litres versus 191m litres in 2003
  • Operating profit down 23% to €42.7m from €55.7m in 2003
  • Pre-tax profit down 18% to €43.2m from €52.6m in 2003
  • Net profit down 26% to €12.2m from €16.5m in 2003
  • Earnings affected by weak dollar, raw material price rises
  • Claus Colliander takes over as Chairman of the Board of Hempel A/S

Comment on business development

Hempel seized the opportunities presented by an expanding market during 2004 to increase the volume of paints and coatings sold to 214m litres. This is the highest volume ever sold by the Hempel Group.

Turnover grew by 9%, despite the fall of the US dollar, with the growth coming from both Asia and Europe.

"Rapid Asian growth had a significant impact on our sales results, not only in marine coatings, but also in coatings for bridges, cranes and containers. European shipyards benefited from the full order books in Asia and picked up extra business," says Hempel President and CEO Pierre-Yves Jullien.

"Hempel was able to capture this business with our strong worldwide network. We were able to generate business in one part of the world and deliver in another, in response to growing globalisation among our customers," he adds.

However, the financial result was disappointing relative to the growth of the business. Operating profit fell by 23% to €42.7m, from €55.7m in 2003. Net profit fell by 26% to €12.2m from €16.5m.

Raw material prices have risen sharply in 2004, mainly spurred by higher oil prices and strong demand for various metals. Hempel's earnings for 2004 clearly reflect this.

A one-off depreciation of properties in the US and Poland has further reduced bottom-line profits.

In 2004, Hempel introduced further measures to improve efficiency. This will continue throughout the organisation, from procurement to after-sales service.

"We have made significant savings, but they do not balance the increase in raw material costs over the last year," Pierre-Yves Jullien adds. "We increased sales prices last year to reflect a portion of the raw material price increases and we will do the same again in 2005."

Development by segment

Hempel's Container business had record sales in 2004. The growth in world trade and the resulting demand for new containers pushed new building activity to the highest level in a decade.

Raw material costs rose significantly during the year, putting heavy pressure on earnings for the segment. In the coming years, we expect the capacity of container ships on order and on delivery to double, which should keep the market strong.

Our Middle East and Southern Europe Decorative businesses have grown by focusing on a clearly defined range of branded products.

In Southern Europe, the unification of the Decorative range sold in Spain and Portugal was completed. Supported by a new image, penetration into the retail segment increased substantially in Portugal.

Hempel's Marine business has seen growth in 2004, with high activity levels in new building and maintenance segments. However, increasing raw material prices and the growing cost of product registration have taken some of the shine off a record year as our customers in shipyards in Korea and China reported full order books.

However, 2004 also saw European yards strengthen as ship owners looked for spare capacity outside Asia, contributing further to the general health of the new building segment.

High freight rates for the bulk and tanker sector were influenced by the Chinese demand for raw materials - especially steel and oil. This had a positive spillover effect on the Maintenance segment.

During the year, the cost of most raw materials rose by more than 20%. Hempel's first reaction to increasing costs was to rationalise and find productivity increases. When this was no longer possible, we decided to increase our prices. A price increase was achieved in some regions and more increases will follow in 2005.

Hempel's Protective business grew by around 10%, more than double the market rate. Forecasts show the market continuing to grow at its current rate.

Growth in China has come from contracts to paint bridges and cranes. Hempel-Hai Hong in China won and signed contracts for 15 bridges. The biggest project signed in 2004 was the Nanjing No.3 Yangtze Bridge, which is 4,744 metres long with a main span of 648 metres.

European business was also strong during the year, with important contracts in infrastructure. Coatings for wind turbines - another key segment - performed well in 2004 and Hempel remains the leading supplier.

Hempel's Yacht business had a solid year in a good market. There has been growth in the superyacht segment, and Hempel's yacht products were launched in Australia during the year.

Hempel's Yacht business is a strong player in the European market for yacht and superyacht products. Although it represents a small part of Hempel's turnover, it holds number one or number two positions in most of its major markets. The yacht market in general remains buoyant, although with variations from region to region. The market tends to follow the economic cycle closely.

Changes to management of Hempel A/S

Pierre-Yves Jullien was appointed President and CEO on February 3, 2005 following the resignation of Ditlev Engel in November 2004. Pierre-Yves Jullien started his career in Hempel as Finance Director for Hempel's French subsidiary and later became managing director in the same company. Over a 10-year period he developed Hempel France into one of the most profitable companies in the Group.

In 1994, he moved to Copenhagen as executive board member and since then has been responsible for a variety of business areas including finance, sales and marketing, and research and development.

Kjeld Ranum informed the board at the annual general meeting on April 8 that he will resign as Chairman of the Board. The J.C. Hempel Foundation has elected Claus Colliander as Chairman of the Board of Hempel A/S with effect from the same date. Claus Colliander will also continue as Chairman of The J.C. Hempel Foundation. At the same time, Torkild R. Funder resigned as a board member of Hempel A/S after reaching the statutory retirement age of 70. Anders Pettersson, Chief Executive Officer of Thule Group, Sweden, has replaced him. The rest of the Hempel A/S board continues unchanged.

The boards of The J.C. Hempel Foundation and Hempel A/S would like to thank Kjeld Ranum and Torkild R. Funder for their work on the board of Hempel A/S. Kjeld Ranum has served on the board for eight years, the last two financial years as Chairman.

Source: Hempel Group

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