Hempel Annual Report 2006
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Annual Report 06 Design, production and print: Datagraf AS
HEMPEL A/S Lundtoftevej 150 DK-2800 Kgs. Lyngby Denmark Tel: +45 45 93 38 00 Fax: +45 45 88 55 18 www.hempel.com
Annual Report 06
HEMPEL
Annual Report 06
k ey f igures
Financial Results
A nnua l R eport 2 0 0 6
Hempel Group’s net sales rose by 19 per cent in 2006 to EUR 780 million, up from EUR 655 million in 2005. Operating profit was up 36 per cent to EUR 61 million from EUR 45 million. Net profit was EUR 37 million, up from EUR 30 million last year. Several key markets achieved healthy double-digit growth in net sales, which helped drive the high operating profit. Raises in raw material cost continued to have a negative effect on gross margin as we have not been able to fully pass on this additional cost to the market. Another important reason for the higher operating profit was a healthy improvement in the Group’s productivity. This was achieved through a combination of benefits from the planned alignment within the organisation and a careful control of developments in fixed expenses. The most significant investment included a new factory in Vietnam and expansion of production facilities in Portugal and China. The Group
experienced an increase of 18 per cent in working capital, mainly from higher trade account receivables. Efforts to optimise inventory holding have improved inventory turnover days by more than 10 per cent. Overall, cash generated from operations was below expectation mainly due to the increase in trade account receivables.
in 2006 had a strong year. Decorative continued the positioning and strengthening of our brand and the results were satisfactory. By the end of the year, Hempel managed to maintain the sales volumes of 2005. The Yacht segment saw a steady but limited growth also in 2006.
Cost of Sales Segment overview The Protective segment had another strong year in 2006, with a growth over 2005 of close to 30 per cent. The growth was especially strong within the Oil & Gas and Wind subsegments, confirming Hempel’s leading position within these areas. The container segment started slow in 2006, but picked up in activity in the second half of 2006. Hempel focussed on improving gross margins as they have been under strong pressure in the last few years. Marine Maintenance saw an unchanged volume over 2005, whereas Marine Newbuildings again
In 2006, raw material prices continued to surge, as copper, zinc and crude oil reached new highs. The delay in implementing necessary further price increases resulted in a decline in Hempel’s contribution margin by more than two percentage points compared to 2005.
Balance sheet The balance sheet has been further strengthened. Net interest bearing debt has been reduced from EUR 28 million in 2005 to EUR 26 million in 2006.
Key figures 800,000
750,000
700,000 650,000 600,000 800,000 550,000 750,000 800,000 External Sales in EUR ‘000 500,000 700,000 750,000 2002 2003 650,000 800,000 700,000 600,000 650,000 750,000 550,000 600,000 700,000 500,000 550,000 650,000 2002 2003 500,000 600,000 550,000
2004
2005
2006
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
250,000 500,000 230,000 210,000 190,000 External Sales in litres ‘000
250,000 170,000 230,000 250,000 150,000 210,000 230,000
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
250,000 190,000 210,000 230,000 170,000 190,000 210,000 150,000 170,000 190,000 150,000 170,000 40,000
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
150,000 35,000
30,000
Net Profit After Tax in EUR ‘000 25,000 20,000 15,000 40,000 10,000 35,000 40,000 5.000 30,000 35,000 25,000 30,000 40,000 20,000 25,000 35,000 15,000 20,000 30,000 10,000 15,000 25,000 5.000 10,000 20,000 5.000 15,000 10,000 5.000 Employees
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
3,500 3,400
3,200 3,500 3,100 3,400 3,500 3,000 3,300 3,400
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
3,500 3,200 3,300
k ey f igures
3,300
3,400 3,100 3,200 3,300 3,000 3,100 3,200
PRESIDENTS MESSAGE
“One Hempel – Everywhere” lays firm foundation for success in a changing world Market trends in 2006 continued along the same broad lines as in 2005, with sustained high levels of trade and construction activity worldwide, and unprecedented increases in the cost of raw materials. Hempel was able to take advantage of the worldwide growth, delivering a 19% increase in turnover and 9% higher volumes, which totalled 244 million litres for the year. Again in 2006, our Protective business showed very encouraging growth in all markets, while Hempel also performed well in the Marine market. Hempel Container segment performed very well and our Decorative and Yacht segments remained steady. The cost of raw materials rose sharply during the year – with the price of zinc more than tripling over an 18-month period. We managed to partly compensate the negative impact of this, primarily through an intensive drive to ‘do things smarter’. This meant improving efficiency in operations while still achieving significant growth. However, it has to be said that we have not been able to maintain product margins.
A nnua l R eport 2 0 0 6
Proven ability to change
If 2005 was a year for accepting the need for change, 2006 proved that Hempel is both willing and able to adapt quickly to changing market conditions. We did this on a number of fronts during the year. We increased sales and delivered better results, improving efficiency across the company to overcome
the challenge of costlier raw materials. To increase production capacity, we opened a new factory in Vietnam, our first facility in that country. We drafted a new strategy, known as One Hempel – Everywhere. Involving more than 100 employees who showed great insight and resourcefulness, this strategy provides a platform for Hempel’s growth for the next five years. I am confident that we can and will achieve the goals we have set. In a vote of confidence for all of Hempel, both our Boards of Directors approved One Hempel – Everywhere in May 2006. Showing further our ability to take decisive action in the face of new opportunities is our acquisition of Germany’s Lacor, a goal we worked towards throughout 2006. This acquisition is a result of One Hempel – Everywhere, and it shows clearly that Hempel will act boldly in order to meet the objectives. I would like to take this opportunity to personally welcome Lacor’s employees into the Hempel family. Going forward, we need to make the sense of urgency that Hempel employees have shown in the past two years a permanent part of our corporate culture. Only in this way can we ensure that Hempel will achieve the goals we have set and continue to serve as an industry leader.
industries and in the world and are making their choices and use of paint mean more. Today, coatings are a key parameter that determines performance in a range of industries – affecting container ship fuel consumption, for instance, or a company’s record on environmental performance. From our industry-leading research and development work to our coating advisors giving crucial advice in the field, Hempel delivers performance. We need to become better at communicating this to our customers – and better at ensuring that we are duly recognised for the considerable value we add when a customer chooses to work with Hempel.
A good year In many respects 2006 was a year of significant improvements for Hempel and the best for many years. We accomplished much and laid a firm foundation for more successes to come. I was impressed by the abilities, dedication and resourcefulness that Hempel employees around the world showed. I am truly grateful for their hard work throughout the year. I would also like to thank our customers, business partners and shareholders for their continued support and loyalty. Encouraged by our achievements in 2006, we can all be confident in the future of Hempel. I
Realising our value Our customers no longer view paint as a mere commodity. They understand complex changes in their
Pierre-Yves Jullien Group President & CEO
I In many respects, 2006 was a year of significant improvements for Hempel I New record sales revenue of EUR 780 million I Operating profit was up 36% over 2005 to EUR 61 million I Net profit was up 23% to EUR 37 million I Several key markets achieved healthy doubledigit growth I Continued productivity improvements offset some effects of higher raw materials I Approval of One Hempel-Everywhere strategy for starting in 2007 I Preparations were made for Lacor in Germany to join the group, and a factory in Vietnam was opened
this is hempe l
Highlights
A nnua l R eport 2 0 0 6 container
Container
The increase in raw materials prices continued throughout 2006, with the price of zinc rising 318% in just 18 months. However, the market picked up quickly in the spring, and Hempel was set to take advantage of
container
the upturn.
container
In uncertain times, Container Segment delivers strong results
Container comes out on top, despite an unpredictable market and higher costs for raw materials
Challenging market At the start of the year, there was some concern about the prospects for the Container segment in 2006. Demand had declined by 22% in late 2005, and raw materials costs were rising steeply. The increase in raw materials prices continued throughout 2006, with the price of zinc rising 318% in just 18 months. However, the market picked up quickly in the spring, and Hempel was set to take advantage of the upturn. After a slowdown in the summer, the market recovered again in the autumn, leading to strong sales towards the end of the year.
Industry leaders
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Hempel responded to challenging market conditions by demonstrating
clear, focused leadership. Our Supply Chain department implemented a range of efficiency measures that reduced costs significantly. We also raised prices to distribute the burden of higher raw materials costs more fairly. And we continued to apply our unique industry insight and R&D capabilities to add value for our customers.
A water-borne future We also demonstrated leadership in 2006 in the area of environmentally sound products. Work continued on bringing water-borne products to the container market, and with product testing well underway, Hempel expects to begin delivering solutions in 2007. We are convinced that water-borne is the way forward in the
container industry – and Hempel is committed to leading the way.
A meeting point for the industry Hempel again took part in the Intermodal fair, held in Hamburg, Germany. Maintaining our high level of visibility, the Hempel stand served as a meeting point for the entire container industry at this key marketing event. The Intermodal fair confirmed our sense that mood in the container industry is upbeat, as the world economy and global trade remain strong. We believe this means good prospects for the Container segment in 2007. I
container
decorative
Decorative
The Luneng Star City residential project in China was supplied more than 400,000 litres by Hempel-Hai Hong
Meliá Group’s hotels in Havana Cuba
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are protected by Hempel products
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Hempel-Hai Hong helped bring new life to this Nan Hai hotel in
Lisbon’s Casino used Hempel’s paints
decorative
Sheikou, China
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decorative
A bullfighting arena in Lisbon was restored and modernised with Hempel products
A power plant was renovated with Hempel coatings and converted into a science
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museum focusing on electricity
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Hempel’s Decorative segment turns heads by applying Hempel know-how in new areas A new strategy pays off in China, while Decorative is in position to gain from a construction boom in the Middle East
Decorative performed extraordinarily well in China during the year, as a strategy targeting property developers began to pay off. The strategy involved a refocusing of attention from general retail towards major property development projects, which can be very large in China. We are offering property developers a range of products and services that help them ensure the successful completion of large-scale projects – even providing on-site coating advisors, a novelty in Chinese residential development.
80,000 apartments One example of a successful project in China is Luneng Star City, an
80,000-apartment complex requiring 400,000 litres of Hempel paint to cover 300,000 square metres of exterior wall space. This and similar projects allowed Hempel to increase our share of the Chinese market considerably during 2007.
Ready for Middle East growth Construction has been picking up in the Middle East, and we worked throughout the year to position ourselves to take advantage of the coming boom. The Hempel brand remains strong in the segment’s biggest market, and a renewed focus on both large-scale projects and retail is helping us strengthen our business throughout the region.
Lucrative niche adds to the bottom line The Decorative segment continued to perform well in Southern Europe, where high-end niche products for facades, protection and floor coatings enjoy a strong position. This relatively small market remains important to the segment and to our range of high-value specialty products. With construction picking up speed in the Middle East and the boom in China expected to continue in 2007 and beyond, Hempel sees considerable potential for more growth. And greater focus on highvalue products and services will help profits keep pace with the increase in sales. I
decorative
Large-scale success in China
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A nnua l R eport 2 0 0 6 MARINE
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MARINE
Marine
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A nnua l R eport 2 0 0 6 MARINE
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Strong demand for global transport pushes Marine segment sales higher As the boom in global trade continued, Hempel’s Marine segment bolstered its business by delivering high-performance products
Hempel’s Marine segment benefited from continued high worldwide growth rates in 2006. Across many vessel segments there was considerable demand throughout the year, with order books full at yards across Asia and Europe. This led to continued strong business for both our Marine Maintenance and our Marine Newbuildings sub-segments.
Overcoming higher costs Our Marine business was negatively affected by considerable increases in the cost of raw materials in 2006 – especially the price of copper, a key component in our antifouling products. Nevertheless, Marine delivered higher turnover, with sales rising 12% compared to 2005. Good results were achieved by a combination of innovative, value-adding products, a group-wide efficiency drive and, where necessary, price increases
Ten years at sea Hempel achieved an important breakthrough in 2006, using our siliconebased HEMPASIL fouling-release system to produce the industry’s first ten-year dry-docking interval guarantee. The APL Jeddah, a medium-sized container ship owned by APL Co. Pte Ltd (American President Lines), has been certified by Det Norske Veritas
to sail ten years between dry-dockings. Hempel worked closely with APL to achieve this breakthrough, and while the specification is guaranteed for ten years, it has a potential lifetime of twenty years in total.
High-performance products In early 2006, Hempel launched GLOBIC NCT, an advanced antifouling product based on a unique nanocapsule technology. Offering an array of high-value advantages, GLOBIC NCT was promoted extensively at the SMM trade fair in Hamburg, Germany, during global presentations for customers, and at training sessions for Hempel’s sales and technical staff. In September, Hempel launched HEMPADUR FIBRE, an innovative coating for a ship’s highly vulnerable ballast tanks. HEMPADUR FIBRE uses synthetic mineral fibres to provide a more flexible coating that extends the service life of ships by reducing crack formation. Initial reactions to both these products have been very positive. Hempel is confident that a strong programme of innovative products and ongoing focus on improving efficiency in our supply chain, combined with continued high growth in the worldwide transport sector, will lead to better results for the segment in 2007. I
MARINE
Economic growth drives demand for transport
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A nnua l R eport 2 0 0 6 PROTECTIVE
Protective
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PROTECTIVE
PROTECTIVE
Hempel’s Protective segment delivers strong growth on all fronts worldwide In the Protective segment, Hempel seized new opportunities in Asia, Europe and the Americas, with a new focus on combining Hempel’s strong local presence with our global reach Local presence around the globe 2006 was an exciting year for Hempel’s Protective segment. From infrastructure projects in China and complex pipe-coating deals in Russia to expansion in Germany and continued success in the USA, this segment delivered strong results – with very satisfying growth for the second year running. The key to our success in this segment is our dedicated local presence and increasingly synchronised global operations.
Strong growth in China The Protective segment showed yet another year of strong performance in China, fuelled by continued economic growth and investment in the country’s infrastructure. We were involved in several bridge projects during the year, and there are excellent prospects for future success in China’s infrastructure development, which is expanding at a rapid pace.
A nnua l R eport 2 0 0 6
Hempel expands in Europe
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Hempel worked throughout the year to prepare for the acquisition of Lacor, one of Germany’s leading suppliers of protective coatings. An excellent fit with Hempel’s strategy in Germany and Central Europe, the acquisition will bolster our coverage significantly, paving the way for accelerated growth in this key market.
American offshore success Our growth in the United States was driven again by success in the oil and gas sector, with several major jack-up rig projects completed during the year. We also achieved growth in the rail-car market in the US. The vast North American market holds tremendous potential for our Protective business, so we expect continued growth in the Hempel position in the years.
2006 saw considerable success for HEMPAXANE 55000, our innovative polysiloxane-based topcoat that was used in several key projects during the year. We launched HEMPATHANE HS 55610 in selected markets in Europe. This new topcoat offers an attractive combination of low VOC levels and superb application properties – helping our customers to comply with environmental legislation using a product that also creates added value for their business. As technologically advanced high-value products, these coatings demonstrate Hempel’s commitment to leadership in the Protective segment. Hempel is deeply committed to ensuring the continued strong growth of our Protective segment in all regions. We feel there is vast potential for new business in this segment in 2007 and beyond. I
PrOTECTIVE
Innovative products
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A nnua l R eport 2 0 0 6 YA C H T
Yacht
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YA C H T
YA C H T
Hempel Yacht holds the line with new products, marketing initiatives and expansion Innovative products and packaging, growth in Greece and a new deal in France keep turnover for Hempel’s Yacht segment moving upwards
High-end products It was full speed ahead for Hempel Yacht in 2006, led in large part by the successful introduction of two new high-end products in key markets. Glide Speed and Glide Cruise premium antifoulings featuring TecCel™ technology were launched in Germany, Greece, Norway, Spain and the Middle East during the year.
Complete package In Northern Europe, the segment launched an innovative new packaging concept, with application tools bundled together with paint to provide complete yacht paint solutions. Combined with eye-catching new shop displays and targeted campaigns, this helped our Northern Europe operations achieve a substantial increase in sales for the year.
A nnua l R eport 2 0 0 6
Growth in Greece
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Yacht worked closely with our Greek agent in 2006 to boost sales through increased shop exposure and dealer training. Delivering a twenty per cent increase in sales for the year, our efforts in Greece helped the Yacht segment increase its overall sales for 2006.
Push into France 2006 saw a new distribution deal in France, a market that holds considerable potential for the Yacht seg-
ment. The deal, struck with the French sister company of our German distributor, was launched in December at the Paris Boat Show.
Market analysis and visibility Hempel devoted considerable resources to analysing its markets in 2006, working to determine where the greatest opportunities lie and to focus our efforts where they count most. The segment also worked to improve the Hempel brand’s visibility
during 2006, taking part in the IMS 600 world championships in Spain, the Rolex Sydney Hobart Yacht Race, the Lord Howe Island Race, the Volvo Ocean Race and the Velux 5 Oceans Race. With continued economic growth in Europe, new product launches planned for 2007 and the opportunities that our expansion into France has created, Hempel is optimistic about the Yacht segment’s nearterm prospects. I
Hempel’s entry in the
YA C H T
“XXV Copa del Rey”
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A nnua l R eport 2 0 0 6
W O R K I N G AT H E M P E L
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W O R K I N G AT H E M P E L
Working at Hempel
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A nnua l R eport 2 0 0 6
W O R K I N G AT H E M P E L
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Hempel people making a difference
Hempel’s Human Resources department works to attract and keep the industry’s best employees
Our Human Resources department spent much of 2006 ensuring that Hempel remains an appealing place to work – everywhere we operate. The development of Hempel’s new strategy involved crucial input from employees, and we established a group-wide Code of Conduct. We also worked to help our employees gain new skills and expertise, most notably via our successful Hempel Academy training programmes.
One Hempel – Everywhere Hempel’s new One Hempel – Everywhere strategy, which was developed in 2006, has been anything but a one-way directive. Hempel employees around the globe were involved in the process, contributing valuable insight and ideas right from the start. The strategy will have a signifi-
cant impact on all of us at Hempel. The call for competency development will help us reach our goals of continuing to maintain and improve upon the quality of products Hempel is known for. We have already started identifying the skills we need, and a comprehensive programme of employee training will ensure that we acquire these skills. One way Hempel will achieve our goal of greater alignment across departments and regions is via our new Code of Conduct, also adopted during 2006. The Code of Conduct helps to define what it means to be a Hempel employee, and it will prove invaluable as Hempel continues to grow worldwide. An early test of both our One Hempel – Everywhere strategy and our new Code of Conduct will be the acquisition in 2007 of the German
company Lacor. The successful integration of Lacor’s dedicated staff into the Hempel family will be a key goal for 2007.
Career development at Hempel Academy Transferred to Human Resources in 2005, Hempel Academy was a great success again in 2006. We offered 27 courses during the year, compared to 19 in 2005. Hempel participants were up, and the number of participants from outside the company more than doubled. Hempel Academy is expected to continue growing in 2007 and beyond, ensuring that Hempel has the skills we need, and providing our employees and customers with crucial training and opportunities for advancing their careers. I
W O R K I N G AT H E M P E L
An attractive place to work
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A nnua l R eport 2 0 0 6
research & deve l opment
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research & deve l opment
Research & development
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research & deve l opment
Innovative thinking helps R&D in developing better and more environmentally friendly products R&D’s 2006 goals to improve technical and environmental performance were met by new product launches to match market and customer demands, and by looking forward at legislated requirements. Leading the way Being a leader involves delivering first-rate performance also in local markets around the world. Likewise it entails a serious commitment to the future together with continuous investment in technologies of the future. Throughout 2006 Hempel’s R&D group has worked towards raising the bar for performance, reliability and environmental friendliness within the coating industry.
Reducing emissions with lowsolvent coatings
A nnua l R eport 2 0 0 6
Public concern about environmental issues saw an increase in 2006, and resulted in a greater demand for products with a reduced content of organic solvents. Governments responded by adopting new legislative measures in order to meet these concerns. To meet this challenge, the R&D group has been focussing on waterborne and high-solid coatings in par-
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ticular. Hempel is preparing to switch to water-borne paints for certain customers in the Container segment, and has invested heavily in high-solid coatings, especially in the USA and Europe. The need and interest in low-solvent coatings is also arising in China and APAC
Hi-tech products push performance 2006 saw the launch of two groundbreaking products – HEMPADUR FIBRE and GLOBIC NCT – and an industry-leading milestone for HEMPASIL, our silicon-based fouling release system. Reinforced with synthetic mineral fibres, HEMPADUR FIBRE is a rugged, uniquely flexible coating for ballast tanks that dramatically reduces the risk of cracking. GLOBIC NCT is an antifouling solution that uses nano-capsule technology to help operators ‘tune’ the coating to different conditions. Our advanced, non-stick HEMPASIL
fouling release system won a huge vote of confidence in 2006, when a vessel treated with HEMPASIL was granted the industry’s first ten-year dry-docking interval guarantee. HEMPASIL, GLOBIC NCT and HEMPADUR FIBRE demonstrate the considerable scale of Hempel’s investment in research and development.
REACH – New European Chemicals legislation December 18, 2006 marked the date the European Council passed the new European Chemicals legislation with the acronym, REACH (Registration, Evaluation and Authorisation of Chemicals). The new legislation enters into force on 1 June 2007. HEMPEL is dedicated to complying with the rules and regulations which cover its operations. Efforts and commitment to work with customers and suppliers will be made to secure adequate and timely compliance to REACH. I
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research & deve l opment
A nnua l R eport 2 0 0 6 f inancia l resu l t
34
Financial Results
f inancia l resu lt
The following pages show a condensed version of the Danish statutory consolidated financial statements of Hempel A/S for the year ended 31 December 2006
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f inancia l resu l t
Introduction to the Annual Report Financials The following financial data shows a condensed release of the Danish statutory consolidated financial statements of Hempel A/S for the year ended 31 December 2006. To give a more comprehensive and complete picture of the Hempel activities the following condensed financial data also includes unaudited proforma combined financial data (i.e. combined profit and loss account and balance sheet) for the total Hempel Group. The unaudited proforma combined financial data includes the financial statements of Hempel A/S and all the companies in which Hempel A/S directly or indirectly has either a controlling influence (subsidiaries) or a significant influence on the operational and financial management (associated companies). The unaudited proforma combined financial data of the total Hempel Group is based on similar accounting principles as applied in prepara-
tion of the Danish statutory consolidated financial statements, apart from the following: I The total Hempel Group unaudited proforma combined financial data includes full line-by-line consolidation of all subsidiaries and associated companies, i.e. the unaudited proforma combined financial data is based on the financial statements of Hempel A/S and of the subsidiaries and associated companies and is prepared by combining items of a uniform nature and eliminating intercompany transactions, shareholdings, balances and unrealised intercompany profits and losses. The complete Annual Report with details of the accounting standards used can be downloaded from the Danish Commerce and Companies Agency (Erhvervs- og Selskabsstyrelsen www.eogs.dk).
The complete Annual Report has been audited by PricewaterhouseCoopers, Statsautoriseret Revisionsinteressentskab.
Management’s Statement on the Annual Report The Board of Directors and Management have considered and adopted the Annual Report of Hempel A/S for the financial year 2006. The Annual Report is prepared in accordance with the Danish Financial Statements Act. We consider the applied accounting policies appropriate and the estimates made reasonable. Furthermore, we consider the overall Annual Report presentation true and fair. Therefore, in our opinion the Annual Report gives a true and fair view of the financial position of the Group and the Parent Company, and of the results of the Group and Parent Company operations. I
A nnua l R eport 2 0 0 6
The Annual Report is adopted at the Annual General Assembly. Kgs. Lyngby March 2007
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Management of Hempel A/S
Board of Directors of Hempel A/S
Pierre-Yves Jullien Group President & CEO
Claus Colliander Lars Aaen Chairman Vice Chairman
Peder Holk Nielsen
John Schwartzbach Anders Pettersson Lennart Holm Søren Nyborg Rasmussen Employee Representative
Allan Katz Employee Representative
Profit & Loss Account
Group Consolidated EUR ‘000 2006 2005 2006 2005
779.726
654.549
500.831
Cost of goods sold, incl. production costs -524.584 -433.728 -318.566 GROSS PROFIT 255.142 220.821 182.265 Sales and distribution expenses -135.338 -130.006 -99.081 Administration expenses -59.064 -46.102 -42.833 OPERATING PROFIT 60.740 44.713 40.351 Part of net profit in associated companies - - 6.411 PROFIT BEFORE FINANCIAL ITEMS 60.740 44.713 46.762 Financial items, net -5.200 -1.281 -2.604 PROFIT BEFORE TAXES 55.540 43.432 44.158 Income taxes -18.628 -13.645 -15.199 NET PROFIT FOR THE YEAR 36.912 29.787 28.959 External shareholders -8.458 -16.273 -505 HEMPEL NET PROFIT FOR THE YEAR 28.454 13.514 28.454
427.634 -268.036 159.598 -99.037 -35.853 24.708 2.345 27.053 -827 26.226 -12.255 13.971 -457 13.514
f inancia l resu lt
NET SALES
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f inancia l resu l t
Balance sheet as at 31/12 Assets
Group Consolidated EUR ‘000 2006 2005 2006 2005
FIXED ASSETS Intangible fixed assets: Goodwill Software Software under development
93 1.469 67 1.629
130 2.252 449 2.831
93 1.469 67 1.629
A nnua l R eport 2 0 0 6
Tangible fixed assets: Land and buildings 53.967 68.259 30.245 Technical plant and machinery 19.976 21.595 11.387 Other tangible assets 13.671 15.603 7.507 87.614 105.457 49.139 Financial fixed assets: Investments in associated companies - - 32.308 Investment in other companies - 46 - Deferred tax assets 2.889 4.079 2.379 Other receivables 9.976 10.787 5.939 12.865 14.912 40.626 TOTAL FIXED ASSETS 102.108 123.200 91.394 CURRENT ASSETS Inventories: Raw materials and consumables 43.942 38.651 23.809 Work in progress 1.060 959 1.040 Finished goods and commercial goods 76.742 66.641 54.039 121.744 106.251 78.888
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Receivables: Trade receivables 241.372 210.156 129.106 Receivables from associated companies - - 14.375 Tax receivable 5.416 1.803 4.612 Other receivables 25.326 16.690 11.593 Prepayments 11.397 16.572 6.908 283.511 245.221 166.594 Bonds 2.541 11.324 2.541 Cash at bank and on hand 61.987 56.775 43.886 TOTAL CURRENT ASSETS 469.783 419.571 291.909 TOTAL ASSETS 571.891 542.771 383.303
130 2.252 449 2.831
32.705 13.389 7.875 53.969
35.472 2.936 1.313 39.721 96.521
19.400 959 45.711 66.070
114.374 13.193 1.269 6.397 10.394 145.627 11.324 37.040 260.061 356.582
Balance sheet as at 31/12 Liabilities and Shareholder’s Equity
Group Consolidated EUR ‘000 2006 2005 2006 2005
SHAREHOLDER’S EQUITY 15.414 144.151 159.565 1.814
204 2.578 11.142 13.924
38.394 38 188 38.620
20.848 10.748 45.610 1.943 11.750 2.344 49.416 142.659 195.203 356.582
f inancia l resu lt
Share capital 15.423 15.414 15.423 Share premium - - - Retained earnings 166.338 144.151 166.338 TOTAL SHAREHOLDER’S EQUITY 181.761 159.565 181.761 EXTERNAL SHAREHOLDERS 74.073 87.426 1.845 PROVISIONS Deferred taxes 217 204 217 Pension obligations 3.904 3.217 3.386 Other provisions 26.342 22.872 11.850 TOTAL PROVISIONS 30.463 26.293 15.453 LONG TERM LIABILITIES Bank loans 38.885 42.090 34.329 Mortgage debt 28 38 28 Leasing commitments 1.058 188 - Other loans - 1.196 - TOTAL LONG TERM LIABILITIES 39.971 43.512 34.357 CURRENT LIABILITIES Bank loans 46.891 41.523 25.006 Short term part of mortgage and other loans 3.369 10.748 3.369 Trade payables 112.285 78.761 61.676 Payables to associated companies - - 3.580 Payables to related parties - 11.750 - Tax payable 7.726 3.563 6.471 Other liabilities 75.352 79.630 49.786 TOTAL CURRENT LIABILITIES 245.623 225.975 149.888 TOTAL LIABILITIES AND PROVISIONS 316.057 295.780 199.698 TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 571.891 542.771 383.303
39
H E A lT H , S A F E T Y & E N V I R O N M E N T
200 200
Environmental report 2006 180 180 160 160 140 140 120 120
Protecting health, safety and the environment is an integral part of Hempel’s business strategy, and preventing accidents, reducing waste and improving energy efficiency are of vital importance. Our associates are key to this endeavour – and in 2006, all Hempel production units submitted data used to monitor and document our key performance indicators (KPIs).
A nnua l R eport 2 0 0 6
Waste Worldwide in 2006, Hempel produced approximately 33 kg of waste per tonne of paint produced, a reduction of 1.5% compared to last year. This is the result of our ongoing focus on waste reduction. Total waste comprises both hazardous and ordinary waste. The main ordinary waste streams at Hempel sites are wood, paper and plastic. Hazardous waste includes all kinds of waste classified as hazardous under the laws of the countries where the waste is produced. Hazardous waste accounts for approximately 47% of the total waste produced, and the reduction from 2005 to 2006 figures amounted to 5% less. This number is considered satisfactory especially given that individual countries continue to extend their lists of hazardous wastes. In effect, volumes of hazardous waste can increase just by identification of new items as waste, without changes in the actual waste volumes produced at sites. Regardless of this development, all Hempel companies will continue working to further reduce the amount of waste produced, and to increase recycling.
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
Total waste in kg per tonne paint manufactured
44 44
100 100
42 42
80 80
40 40
60 60
38 38
40 40
36 36
20 20
34 34 32 32
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
00
22
Hazardous waste in Kg per tonne product manufactured
20 20
20 20
15 15
18 18
10 10 16 16
14 14
55
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
Total energy in kWh per tonne product manufactured
200 180 160 140 120
40
44
2002
2003
2004
2005
2006
00
22
Energy consumption
Health, Safet y and Environment Indicators 2006
Total waste in kg*
33.23
Hazardous waste in kg*
15.73
Total energy in kWh*
125.76
Index number of accidents
28
Accidents per 1 million working hours
7.2
*per tonne of product produced
2006 2006
2006 2006
Accidents INDEX Number of accidents
100 100 80 80 60 60 40 40 20 20 00
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
2005 2005
2006 2006
Accidents per 1 million working hours
In 2006, the number of accidents resulting in one or more days’ absence from work totalled 28 across the group. This figure is higher by one than the figure for 2005. Our corporate LTI (Lost Time Incidents) figure of 7.2 injuries per 1 million working hours will be challenging to improve on in future years. Reducing accidents however is a top priority for Hempel, and the various companies will be enhancing their training efforts to help our employees protect their safety, follow procedures and avoid hazardous actions. It is possible – and necessary – to further reduce the number of accidents at Hempel. I
20 20 15 15 10 10 55 00
2002 2002
2003 2003
2004 2004
hse in detai l s
2006 2006
Energy consumption at Hempel decreased by 14% per tonne from 2005 to 2006. The main sources of energy are electricity, gas and oil. These are combined and converted as a whole into kWh per tonne of paint produced. The reduction in energy consumption shown is attributed to the improved economy of scale achieved by the increases in Hempel’s overall annual production.
41
Q & H S E - P roducts
Quality & Health, Safety and Environment
documenting our compliance with international and local environmental regulations, Hempel Indonesia achieved ISO 14001 certification. Indonesia now joins Singapore and Malaysia as countries covered by our multi-site certificate in Asia Pacific. In Northern Europe, Hempel’s multi-site certificate also now covers Germany, the Netherlands and Belgium, in addition to eight countries previously ISO 14001 certified. Several other Hempel companies are ISO 14001 certified, which has led to savings from recycling initiatives, waste reduction and resource use minimisation, in addition to our securing documentation of compliance with environmental legislation.
REACH – New chemicals legislation in Europe
A nnua l R eport 2 0 0 6
Hempel Singapore Laboratory achieves ISO 17025 certification
42
Thanks to a tremendous team effort, Hempel Singapore achieved ISO 17025 certification on 16 August 2006. While all Hempel laboratories follow our internal standards – as well as ISO 9001 requirements for calibration and documentation – the ISO 17025 certification was a specific requirement from Australia, which is supplied from Hempel Singapore.
It was a proud Regional Quality and HSE Products Manager who accepted the award on behalf of Hempel Singapore at the Singapore Accreditation Council’s Annual Awards Presentation on 19 October 2006.
Environmental certification for Hempel in Indonesia, Germany, the Netherlands and Belgium Further strengthening our commitment to minimising the environmental impact of our operations and
On 18 December 2006, the European Council passed new chemicals legislation known as REACH (Registration, Evaluation and Authorisation of Chemicals). The new legislation enters into force on 1 June 2007. HEMPEL is dedicated to complying with the rules and regulations covering our operations. We are fully committed to working with our customers and suppliers to secure adequate and timely compliance with REACH. I
43
input to A nnua l R eport 2 0 0 6
H E M P E L’ s M A I N S A L E S O FF I C E S
Argentina [email protected] +54 (11) 4816-3137
France [email protected] +33 (0) 344082890
Peru [email protected] +51 (1) 242 1683
Australia [email protected] +61 (03) 93600933
Germany [email protected] +49 41 01 707 0
Poland [email protected] +48 (58) 5218900
Bahrain +973 17 728668
Greece [email protected] +30 (210) 4143400
Portugal [email protected] +351 212 352 326
Hungary [email protected] +36 (1) 411 1090
Qatar [email protected] +974 4600881
Iceland [email protected] +354 5888000
Romania [email protected] +40 788 000781
India [email protected] +91 (22) 25559910
Russian Federation [email protected] +7 (495) 974 1448
Indonesia [email protected] +62 21 884 3385
Saudi Arabia [email protected] +966 (03) 8471616
Ireland [email protected] +353 (1) 8261822
Singapore [email protected] +65 67998383
Italy [email protected] +39 (010)- 8356947
Slovakia HEMPEL (Czech Republic) S.R.O., Branch +421 455 400 290
Korea, Republic Of [email protected] +82 (051) 647 5854
Spain [email protected] +34 937130000
Kuwait [email protected] +965 4813366
Sweden [email protected] +46 (31) 695250
Latvia +371 (7) 336688
Syrian Arab Republic +963 11 2315402
Lithuania +370 (5) 249 0567
Taiwan, Province Of China [email protected] +886 (2) 2706-5535
Belgium [email protected] +32 (03) 2206160 Canada [email protected] +1 (604) 273-3200 Chile [email protected] +56 32 2 639006 China, People’s Republic Of [email protected] +852 28577663 Corporate site [email protected] +45 4593 3800 Croatia [email protected] +385 (052) 741777 Cuba [email protected] +53 (7) 8668128/8668144 Cyprus [email protected] +357 (25) 385873 Czech Republic [email protected] +420 545 423 611 Denmark [email protected] +45 45933800 Ecuador [email protected] +593 (4) 2111444 Egypt [email protected] +20 2736 4638
A nnua l R eport 2 0 0 6
Emirates [email protected] +971 (06) 5283307
44
Estonia [email protected] +372 6398793 Finland [email protected] +358 (0) 207-590800
Malaysia [email protected] +60 3 7845 3037 Malta [email protected] +356 21 822268 Morocco [email protected] +212 22 355373 Netherlands [email protected] +31 (0)10 4454000 Norway [email protected] +47 55958000
go to www. hempe l . com to see the f u l l l ist
Thailand [email protected] +66 (2) 260 3325/7 Turkey [email protected] +90 (216) 585 1010 United Kingdom [email protected] +44 (01633) 874024 United States Of America [email protected] +1 (936) 523 6000 Vietnam [email protected] +84 (8) 910205
Annual Report 06 Design, production and print: Datagraf AS
HEMPEL A/S Lundtoftevej 150 DK-2800 Kgs. Lyngby Denmark Tel: +45 45 93 38 00 Fax: +45 45 88 55 18 www.hempel.com
Annual Report 06
HEMPEL
HEMPEL A/S Lundtoftevej 150 DK-2800 Kgs. Lyngby Denmark Tel: +45 45 93 38 00 Fax: +45 45 88 55 18 www.hempel.com
Annual Report 06
HEMPEL
Annual Report 06
k ey f igures
Financial Results
A nnua l R eport 2 0 0 6
Hempel Group’s net sales rose by 19 per cent in 2006 to EUR 780 million, up from EUR 655 million in 2005. Operating profit was up 36 per cent to EUR 61 million from EUR 45 million. Net profit was EUR 37 million, up from EUR 30 million last year. Several key markets achieved healthy double-digit growth in net sales, which helped drive the high operating profit. Raises in raw material cost continued to have a negative effect on gross margin as we have not been able to fully pass on this additional cost to the market. Another important reason for the higher operating profit was a healthy improvement in the Group’s productivity. This was achieved through a combination of benefits from the planned alignment within the organisation and a careful control of developments in fixed expenses. The most significant investment included a new factory in Vietnam and expansion of production facilities in Portugal and China. The Group
experienced an increase of 18 per cent in working capital, mainly from higher trade account receivables. Efforts to optimise inventory holding have improved inventory turnover days by more than 10 per cent. Overall, cash generated from operations was below expectation mainly due to the increase in trade account receivables.
in 2006 had a strong year. Decorative continued the positioning and strengthening of our brand and the results were satisfactory. By the end of the year, Hempel managed to maintain the sales volumes of 2005. The Yacht segment saw a steady but limited growth also in 2006.
Cost of Sales Segment overview The Protective segment had another strong year in 2006, with a growth over 2005 of close to 30 per cent. The growth was especially strong within the Oil & Gas and Wind subsegments, confirming Hempel’s leading position within these areas. The container segment started slow in 2006, but picked up in activity in the second half of 2006. Hempel focussed on improving gross margins as they have been under strong pressure in the last few years. Marine Maintenance saw an unchanged volume over 2005, whereas Marine Newbuildings again
In 2006, raw material prices continued to surge, as copper, zinc and crude oil reached new highs. The delay in implementing necessary further price increases resulted in a decline in Hempel’s contribution margin by more than two percentage points compared to 2005.
Balance sheet The balance sheet has been further strengthened. Net interest bearing debt has been reduced from EUR 28 million in 2005 to EUR 26 million in 2006.
Key figures 800,000
750,000
700,000 650,000 600,000 800,000 550,000 750,000 800,000 External Sales in EUR ‘000 500,000 700,000 750,000 2002 2003 650,000 800,000 700,000 600,000 650,000 750,000 550,000 600,000 700,000 500,000 550,000 650,000 2002 2003 500,000 600,000 550,000
2004
2005
2006
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
250,000 500,000 230,000 210,000 190,000 External Sales in litres ‘000
250,000 170,000 230,000 250,000 150,000 210,000 230,000
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
250,000 190,000 210,000 230,000 170,000 190,000 210,000 150,000 170,000 190,000 150,000 170,000 40,000
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
150,000 35,000
30,000
Net Profit After Tax in EUR ‘000 25,000 20,000 15,000 40,000 10,000 35,000 40,000 5.000 30,000 35,000 25,000 30,000 40,000 20,000 25,000 35,000 15,000 20,000 30,000 10,000 15,000 25,000 5.000 10,000 20,000 5.000 15,000 10,000 5.000 Employees
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
3,500 3,400
3,200 3,500 3,100 3,400 3,500 3,000 3,300 3,400
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
3,500 3,200 3,300
k ey f igures
3,300
3,400 3,100 3,200 3,300 3,000 3,100 3,200
PRESIDENTS MESSAGE
“One Hempel – Everywhere” lays firm foundation for success in a changing world Market trends in 2006 continued along the same broad lines as in 2005, with sustained high levels of trade and construction activity worldwide, and unprecedented increases in the cost of raw materials. Hempel was able to take advantage of the worldwide growth, delivering a 19% increase in turnover and 9% higher volumes, which totalled 244 million litres for the year. Again in 2006, our Protective business showed very encouraging growth in all markets, while Hempel also performed well in the Marine market. Hempel Container segment performed very well and our Decorative and Yacht segments remained steady. The cost of raw materials rose sharply during the year – with the price of zinc more than tripling over an 18-month period. We managed to partly compensate the negative impact of this, primarily through an intensive drive to ‘do things smarter’. This meant improving efficiency in operations while still achieving significant growth. However, it has to be said that we have not been able to maintain product margins.
A nnua l R eport 2 0 0 6
Proven ability to change
If 2005 was a year for accepting the need for change, 2006 proved that Hempel is both willing and able to adapt quickly to changing market conditions. We did this on a number of fronts during the year. We increased sales and delivered better results, improving efficiency across the company to overcome
the challenge of costlier raw materials. To increase production capacity, we opened a new factory in Vietnam, our first facility in that country. We drafted a new strategy, known as One Hempel – Everywhere. Involving more than 100 employees who showed great insight and resourcefulness, this strategy provides a platform for Hempel’s growth for the next five years. I am confident that we can and will achieve the goals we have set. In a vote of confidence for all of Hempel, both our Boards of Directors approved One Hempel – Everywhere in May 2006. Showing further our ability to take decisive action in the face of new opportunities is our acquisition of Germany’s Lacor, a goal we worked towards throughout 2006. This acquisition is a result of One Hempel – Everywhere, and it shows clearly that Hempel will act boldly in order to meet the objectives. I would like to take this opportunity to personally welcome Lacor’s employees into the Hempel family. Going forward, we need to make the sense of urgency that Hempel employees have shown in the past two years a permanent part of our corporate culture. Only in this way can we ensure that Hempel will achieve the goals we have set and continue to serve as an industry leader.
industries and in the world and are making their choices and use of paint mean more. Today, coatings are a key parameter that determines performance in a range of industries – affecting container ship fuel consumption, for instance, or a company’s record on environmental performance. From our industry-leading research and development work to our coating advisors giving crucial advice in the field, Hempel delivers performance. We need to become better at communicating this to our customers – and better at ensuring that we are duly recognised for the considerable value we add when a customer chooses to work with Hempel.
A good year In many respects 2006 was a year of significant improvements for Hempel and the best for many years. We accomplished much and laid a firm foundation for more successes to come. I was impressed by the abilities, dedication and resourcefulness that Hempel employees around the world showed. I am truly grateful for their hard work throughout the year. I would also like to thank our customers, business partners and shareholders for their continued support and loyalty. Encouraged by our achievements in 2006, we can all be confident in the future of Hempel. I
Realising our value Our customers no longer view paint as a mere commodity. They understand complex changes in their
Pierre-Yves Jullien Group President & CEO
I In many respects, 2006 was a year of significant improvements for Hempel I New record sales revenue of EUR 780 million I Operating profit was up 36% over 2005 to EUR 61 million I Net profit was up 23% to EUR 37 million I Several key markets achieved healthy doubledigit growth I Continued productivity improvements offset some effects of higher raw materials I Approval of One Hempel-Everywhere strategy for starting in 2007 I Preparations were made for Lacor in Germany to join the group, and a factory in Vietnam was opened
this is hempe l
Highlights
A nnua l R eport 2 0 0 6 container
Container
The increase in raw materials prices continued throughout 2006, with the price of zinc rising 318% in just 18 months. However, the market picked up quickly in the spring, and Hempel was set to take advantage of
container
the upturn.
container
In uncertain times, Container Segment delivers strong results
Container comes out on top, despite an unpredictable market and higher costs for raw materials
Challenging market At the start of the year, there was some concern about the prospects for the Container segment in 2006. Demand had declined by 22% in late 2005, and raw materials costs were rising steeply. The increase in raw materials prices continued throughout 2006, with the price of zinc rising 318% in just 18 months. However, the market picked up quickly in the spring, and Hempel was set to take advantage of the upturn. After a slowdown in the summer, the market recovered again in the autumn, leading to strong sales towards the end of the year.
Industry leaders
A nnua l R eport 2 0 0 6
Hempel responded to challenging market conditions by demonstrating
clear, focused leadership. Our Supply Chain department implemented a range of efficiency measures that reduced costs significantly. We also raised prices to distribute the burden of higher raw materials costs more fairly. And we continued to apply our unique industry insight and R&D capabilities to add value for our customers.
A water-borne future We also demonstrated leadership in 2006 in the area of environmentally sound products. Work continued on bringing water-borne products to the container market, and with product testing well underway, Hempel expects to begin delivering solutions in 2007. We are convinced that water-borne is the way forward in the
container industry – and Hempel is committed to leading the way.
A meeting point for the industry Hempel again took part in the Intermodal fair, held in Hamburg, Germany. Maintaining our high level of visibility, the Hempel stand served as a meeting point for the entire container industry at this key marketing event. The Intermodal fair confirmed our sense that mood in the container industry is upbeat, as the world economy and global trade remain strong. We believe this means good prospects for the Container segment in 2007. I
container
decorative
Decorative
The Luneng Star City residential project in China was supplied more than 400,000 litres by Hempel-Hai Hong
Meliá Group’s hotels in Havana Cuba
A nnua l R eport 2 0 0 6
are protected by Hempel products
10
Hempel-Hai Hong helped bring new life to this Nan Hai hotel in
Lisbon’s Casino used Hempel’s paints
decorative
Sheikou, China
11
decorative
A bullfighting arena in Lisbon was restored and modernised with Hempel products
A power plant was renovated with Hempel coatings and converted into a science
A nnua l R eport 2 0 0 6
museum focusing on electricity
12
Hempel’s Decorative segment turns heads by applying Hempel know-how in new areas A new strategy pays off in China, while Decorative is in position to gain from a construction boom in the Middle East
Decorative performed extraordinarily well in China during the year, as a strategy targeting property developers began to pay off. The strategy involved a refocusing of attention from general retail towards major property development projects, which can be very large in China. We are offering property developers a range of products and services that help them ensure the successful completion of large-scale projects – even providing on-site coating advisors, a novelty in Chinese residential development.
80,000 apartments One example of a successful project in China is Luneng Star City, an
80,000-apartment complex requiring 400,000 litres of Hempel paint to cover 300,000 square metres of exterior wall space. This and similar projects allowed Hempel to increase our share of the Chinese market considerably during 2007.
Ready for Middle East growth Construction has been picking up in the Middle East, and we worked throughout the year to position ourselves to take advantage of the coming boom. The Hempel brand remains strong in the segment’s biggest market, and a renewed focus on both large-scale projects and retail is helping us strengthen our business throughout the region.
Lucrative niche adds to the bottom line The Decorative segment continued to perform well in Southern Europe, where high-end niche products for facades, protection and floor coatings enjoy a strong position. This relatively small market remains important to the segment and to our range of high-value specialty products. With construction picking up speed in the Middle East and the boom in China expected to continue in 2007 and beyond, Hempel sees considerable potential for more growth. And greater focus on highvalue products and services will help profits keep pace with the increase in sales. I
decorative
Large-scale success in China
13
A nnua l R eport 2 0 0 6 MARINE
14
MARINE
Marine
15
A nnua l R eport 2 0 0 6 MARINE
16
Strong demand for global transport pushes Marine segment sales higher As the boom in global trade continued, Hempel’s Marine segment bolstered its business by delivering high-performance products
Hempel’s Marine segment benefited from continued high worldwide growth rates in 2006. Across many vessel segments there was considerable demand throughout the year, with order books full at yards across Asia and Europe. This led to continued strong business for both our Marine Maintenance and our Marine Newbuildings sub-segments.
Overcoming higher costs Our Marine business was negatively affected by considerable increases in the cost of raw materials in 2006 – especially the price of copper, a key component in our antifouling products. Nevertheless, Marine delivered higher turnover, with sales rising 12% compared to 2005. Good results were achieved by a combination of innovative, value-adding products, a group-wide efficiency drive and, where necessary, price increases
Ten years at sea Hempel achieved an important breakthrough in 2006, using our siliconebased HEMPASIL fouling-release system to produce the industry’s first ten-year dry-docking interval guarantee. The APL Jeddah, a medium-sized container ship owned by APL Co. Pte Ltd (American President Lines), has been certified by Det Norske Veritas
to sail ten years between dry-dockings. Hempel worked closely with APL to achieve this breakthrough, and while the specification is guaranteed for ten years, it has a potential lifetime of twenty years in total.
High-performance products In early 2006, Hempel launched GLOBIC NCT, an advanced antifouling product based on a unique nanocapsule technology. Offering an array of high-value advantages, GLOBIC NCT was promoted extensively at the SMM trade fair in Hamburg, Germany, during global presentations for customers, and at training sessions for Hempel’s sales and technical staff. In September, Hempel launched HEMPADUR FIBRE, an innovative coating for a ship’s highly vulnerable ballast tanks. HEMPADUR FIBRE uses synthetic mineral fibres to provide a more flexible coating that extends the service life of ships by reducing crack formation. Initial reactions to both these products have been very positive. Hempel is confident that a strong programme of innovative products and ongoing focus on improving efficiency in our supply chain, combined with continued high growth in the worldwide transport sector, will lead to better results for the segment in 2007. I
MARINE
Economic growth drives demand for transport
17
A nnua l R eport 2 0 0 6 PROTECTIVE
Protective
18
19
PROTECTIVE
PROTECTIVE
Hempel’s Protective segment delivers strong growth on all fronts worldwide In the Protective segment, Hempel seized new opportunities in Asia, Europe and the Americas, with a new focus on combining Hempel’s strong local presence with our global reach Local presence around the globe 2006 was an exciting year for Hempel’s Protective segment. From infrastructure projects in China and complex pipe-coating deals in Russia to expansion in Germany and continued success in the USA, this segment delivered strong results – with very satisfying growth for the second year running. The key to our success in this segment is our dedicated local presence and increasingly synchronised global operations.
Strong growth in China The Protective segment showed yet another year of strong performance in China, fuelled by continued economic growth and investment in the country’s infrastructure. We were involved in several bridge projects during the year, and there are excellent prospects for future success in China’s infrastructure development, which is expanding at a rapid pace.
A nnua l R eport 2 0 0 6
Hempel expands in Europe
20
Hempel worked throughout the year to prepare for the acquisition of Lacor, one of Germany’s leading suppliers of protective coatings. An excellent fit with Hempel’s strategy in Germany and Central Europe, the acquisition will bolster our coverage significantly, paving the way for accelerated growth in this key market.
American offshore success Our growth in the United States was driven again by success in the oil and gas sector, with several major jack-up rig projects completed during the year. We also achieved growth in the rail-car market in the US. The vast North American market holds tremendous potential for our Protective business, so we expect continued growth in the Hempel position in the years.
2006 saw considerable success for HEMPAXANE 55000, our innovative polysiloxane-based topcoat that was used in several key projects during the year. We launched HEMPATHANE HS 55610 in selected markets in Europe. This new topcoat offers an attractive combination of low VOC levels and superb application properties – helping our customers to comply with environmental legislation using a product that also creates added value for their business. As technologically advanced high-value products, these coatings demonstrate Hempel’s commitment to leadership in the Protective segment. Hempel is deeply committed to ensuring the continued strong growth of our Protective segment in all regions. We feel there is vast potential for new business in this segment in 2007 and beyond. I
PrOTECTIVE
Innovative products
21
A nnua l R eport 2 0 0 6 YA C H T
Yacht
22
23
YA C H T
YA C H T
Hempel Yacht holds the line with new products, marketing initiatives and expansion Innovative products and packaging, growth in Greece and a new deal in France keep turnover for Hempel’s Yacht segment moving upwards
High-end products It was full speed ahead for Hempel Yacht in 2006, led in large part by the successful introduction of two new high-end products in key markets. Glide Speed and Glide Cruise premium antifoulings featuring TecCel™ technology were launched in Germany, Greece, Norway, Spain and the Middle East during the year.
Complete package In Northern Europe, the segment launched an innovative new packaging concept, with application tools bundled together with paint to provide complete yacht paint solutions. Combined with eye-catching new shop displays and targeted campaigns, this helped our Northern Europe operations achieve a substantial increase in sales for the year.
A nnua l R eport 2 0 0 6
Growth in Greece
24
Yacht worked closely with our Greek agent in 2006 to boost sales through increased shop exposure and dealer training. Delivering a twenty per cent increase in sales for the year, our efforts in Greece helped the Yacht segment increase its overall sales for 2006.
Push into France 2006 saw a new distribution deal in France, a market that holds considerable potential for the Yacht seg-
ment. The deal, struck with the French sister company of our German distributor, was launched in December at the Paris Boat Show.
Market analysis and visibility Hempel devoted considerable resources to analysing its markets in 2006, working to determine where the greatest opportunities lie and to focus our efforts where they count most. The segment also worked to improve the Hempel brand’s visibility
during 2006, taking part in the IMS 600 world championships in Spain, the Rolex Sydney Hobart Yacht Race, the Lord Howe Island Race, the Volvo Ocean Race and the Velux 5 Oceans Race. With continued economic growth in Europe, new product launches planned for 2007 and the opportunities that our expansion into France has created, Hempel is optimistic about the Yacht segment’s nearterm prospects. I
Hempel’s entry in the
YA C H T
“XXV Copa del Rey”
25
A nnua l R eport 2 0 0 6
W O R K I N G AT H E M P E L
26
W O R K I N G AT H E M P E L
Working at Hempel
27
A nnua l R eport 2 0 0 6
W O R K I N G AT H E M P E L
28
Hempel people making a difference
Hempel’s Human Resources department works to attract and keep the industry’s best employees
Our Human Resources department spent much of 2006 ensuring that Hempel remains an appealing place to work – everywhere we operate. The development of Hempel’s new strategy involved crucial input from employees, and we established a group-wide Code of Conduct. We also worked to help our employees gain new skills and expertise, most notably via our successful Hempel Academy training programmes.
One Hempel – Everywhere Hempel’s new One Hempel – Everywhere strategy, which was developed in 2006, has been anything but a one-way directive. Hempel employees around the globe were involved in the process, contributing valuable insight and ideas right from the start. The strategy will have a signifi-
cant impact on all of us at Hempel. The call for competency development will help us reach our goals of continuing to maintain and improve upon the quality of products Hempel is known for. We have already started identifying the skills we need, and a comprehensive programme of employee training will ensure that we acquire these skills. One way Hempel will achieve our goal of greater alignment across departments and regions is via our new Code of Conduct, also adopted during 2006. The Code of Conduct helps to define what it means to be a Hempel employee, and it will prove invaluable as Hempel continues to grow worldwide. An early test of both our One Hempel – Everywhere strategy and our new Code of Conduct will be the acquisition in 2007 of the German
company Lacor. The successful integration of Lacor’s dedicated staff into the Hempel family will be a key goal for 2007.
Career development at Hempel Academy Transferred to Human Resources in 2005, Hempel Academy was a great success again in 2006. We offered 27 courses during the year, compared to 19 in 2005. Hempel participants were up, and the number of participants from outside the company more than doubled. Hempel Academy is expected to continue growing in 2007 and beyond, ensuring that Hempel has the skills we need, and providing our employees and customers with crucial training and opportunities for advancing their careers. I
W O R K I N G AT H E M P E L
An attractive place to work
29
A nnua l R eport 2 0 0 6
research & deve l opment
30
research & deve l opment
Research & development
31
research & deve l opment
Innovative thinking helps R&D in developing better and more environmentally friendly products R&D’s 2006 goals to improve technical and environmental performance were met by new product launches to match market and customer demands, and by looking forward at legislated requirements. Leading the way Being a leader involves delivering first-rate performance also in local markets around the world. Likewise it entails a serious commitment to the future together with continuous investment in technologies of the future. Throughout 2006 Hempel’s R&D group has worked towards raising the bar for performance, reliability and environmental friendliness within the coating industry.
Reducing emissions with lowsolvent coatings
A nnua l R eport 2 0 0 6
Public concern about environmental issues saw an increase in 2006, and resulted in a greater demand for products with a reduced content of organic solvents. Governments responded by adopting new legislative measures in order to meet these concerns. To meet this challenge, the R&D group has been focussing on waterborne and high-solid coatings in par-
32
ticular. Hempel is preparing to switch to water-borne paints for certain customers in the Container segment, and has invested heavily in high-solid coatings, especially in the USA and Europe. The need and interest in low-solvent coatings is also arising in China and APAC
Hi-tech products push performance 2006 saw the launch of two groundbreaking products – HEMPADUR FIBRE and GLOBIC NCT – and an industry-leading milestone for HEMPASIL, our silicon-based fouling release system. Reinforced with synthetic mineral fibres, HEMPADUR FIBRE is a rugged, uniquely flexible coating for ballast tanks that dramatically reduces the risk of cracking. GLOBIC NCT is an antifouling solution that uses nano-capsule technology to help operators ‘tune’ the coating to different conditions. Our advanced, non-stick HEMPASIL
fouling release system won a huge vote of confidence in 2006, when a vessel treated with HEMPASIL was granted the industry’s first ten-year dry-docking interval guarantee. HEMPASIL, GLOBIC NCT and HEMPADUR FIBRE demonstrate the considerable scale of Hempel’s investment in research and development.
REACH – New European Chemicals legislation December 18, 2006 marked the date the European Council passed the new European Chemicals legislation with the acronym, REACH (Registration, Evaluation and Authorisation of Chemicals). The new legislation enters into force on 1 June 2007. HEMPEL is dedicated to complying with the rules and regulations which cover its operations. Efforts and commitment to work with customers and suppliers will be made to secure adequate and timely compliance to REACH. I
33
research & deve l opment
A nnua l R eport 2 0 0 6 f inancia l resu l t
34
Financial Results
f inancia l resu lt
The following pages show a condensed version of the Danish statutory consolidated financial statements of Hempel A/S for the year ended 31 December 2006
35
f inancia l resu l t
Introduction to the Annual Report Financials The following financial data shows a condensed release of the Danish statutory consolidated financial statements of Hempel A/S for the year ended 31 December 2006. To give a more comprehensive and complete picture of the Hempel activities the following condensed financial data also includes unaudited proforma combined financial data (i.e. combined profit and loss account and balance sheet) for the total Hempel Group. The unaudited proforma combined financial data includes the financial statements of Hempel A/S and all the companies in which Hempel A/S directly or indirectly has either a controlling influence (subsidiaries) or a significant influence on the operational and financial management (associated companies). The unaudited proforma combined financial data of the total Hempel Group is based on similar accounting principles as applied in prepara-
tion of the Danish statutory consolidated financial statements, apart from the following: I The total Hempel Group unaudited proforma combined financial data includes full line-by-line consolidation of all subsidiaries and associated companies, i.e. the unaudited proforma combined financial data is based on the financial statements of Hempel A/S and of the subsidiaries and associated companies and is prepared by combining items of a uniform nature and eliminating intercompany transactions, shareholdings, balances and unrealised intercompany profits and losses. The complete Annual Report with details of the accounting standards used can be downloaded from the Danish Commerce and Companies Agency (Erhvervs- og Selskabsstyrelsen www.eogs.dk).
The complete Annual Report has been audited by PricewaterhouseCoopers, Statsautoriseret Revisionsinteressentskab.
Management’s Statement on the Annual Report The Board of Directors and Management have considered and adopted the Annual Report of Hempel A/S for the financial year 2006. The Annual Report is prepared in accordance with the Danish Financial Statements Act. We consider the applied accounting policies appropriate and the estimates made reasonable. Furthermore, we consider the overall Annual Report presentation true and fair. Therefore, in our opinion the Annual Report gives a true and fair view of the financial position of the Group and the Parent Company, and of the results of the Group and Parent Company operations. I
A nnua l R eport 2 0 0 6
The Annual Report is adopted at the Annual General Assembly. Kgs. Lyngby March 2007
36
Management of Hempel A/S
Board of Directors of Hempel A/S
Pierre-Yves Jullien Group President & CEO
Claus Colliander Lars Aaen Chairman Vice Chairman
Peder Holk Nielsen
John Schwartzbach Anders Pettersson Lennart Holm Søren Nyborg Rasmussen Employee Representative
Allan Katz Employee Representative
Profit & Loss Account
Group Consolidated EUR ‘000 2006 2005 2006 2005
779.726
654.549
500.831
Cost of goods sold, incl. production costs -524.584 -433.728 -318.566 GROSS PROFIT 255.142 220.821 182.265 Sales and distribution expenses -135.338 -130.006 -99.081 Administration expenses -59.064 -46.102 -42.833 OPERATING PROFIT 60.740 44.713 40.351 Part of net profit in associated companies - - 6.411 PROFIT BEFORE FINANCIAL ITEMS 60.740 44.713 46.762 Financial items, net -5.200 -1.281 -2.604 PROFIT BEFORE TAXES 55.540 43.432 44.158 Income taxes -18.628 -13.645 -15.199 NET PROFIT FOR THE YEAR 36.912 29.787 28.959 External shareholders -8.458 -16.273 -505 HEMPEL NET PROFIT FOR THE YEAR 28.454 13.514 28.454
427.634 -268.036 159.598 -99.037 -35.853 24.708 2.345 27.053 -827 26.226 -12.255 13.971 -457 13.514
f inancia l resu lt
NET SALES
37
f inancia l resu l t
Balance sheet as at 31/12 Assets
Group Consolidated EUR ‘000 2006 2005 2006 2005
FIXED ASSETS Intangible fixed assets: Goodwill Software Software under development
93 1.469 67 1.629
130 2.252 449 2.831
93 1.469 67 1.629
A nnua l R eport 2 0 0 6
Tangible fixed assets: Land and buildings 53.967 68.259 30.245 Technical plant and machinery 19.976 21.595 11.387 Other tangible assets 13.671 15.603 7.507 87.614 105.457 49.139 Financial fixed assets: Investments in associated companies - - 32.308 Investment in other companies - 46 - Deferred tax assets 2.889 4.079 2.379 Other receivables 9.976 10.787 5.939 12.865 14.912 40.626 TOTAL FIXED ASSETS 102.108 123.200 91.394 CURRENT ASSETS Inventories: Raw materials and consumables 43.942 38.651 23.809 Work in progress 1.060 959 1.040 Finished goods and commercial goods 76.742 66.641 54.039 121.744 106.251 78.888
38
Receivables: Trade receivables 241.372 210.156 129.106 Receivables from associated companies - - 14.375 Tax receivable 5.416 1.803 4.612 Other receivables 25.326 16.690 11.593 Prepayments 11.397 16.572 6.908 283.511 245.221 166.594 Bonds 2.541 11.324 2.541 Cash at bank and on hand 61.987 56.775 43.886 TOTAL CURRENT ASSETS 469.783 419.571 291.909 TOTAL ASSETS 571.891 542.771 383.303
130 2.252 449 2.831
32.705 13.389 7.875 53.969
35.472 2.936 1.313 39.721 96.521
19.400 959 45.711 66.070
114.374 13.193 1.269 6.397 10.394 145.627 11.324 37.040 260.061 356.582
Balance sheet as at 31/12 Liabilities and Shareholder’s Equity
Group Consolidated EUR ‘000 2006 2005 2006 2005
SHAREHOLDER’S EQUITY 15.414 144.151 159.565 1.814
204 2.578 11.142 13.924
38.394 38 188 38.620
20.848 10.748 45.610 1.943 11.750 2.344 49.416 142.659 195.203 356.582
f inancia l resu lt
Share capital 15.423 15.414 15.423 Share premium - - - Retained earnings 166.338 144.151 166.338 TOTAL SHAREHOLDER’S EQUITY 181.761 159.565 181.761 EXTERNAL SHAREHOLDERS 74.073 87.426 1.845 PROVISIONS Deferred taxes 217 204 217 Pension obligations 3.904 3.217 3.386 Other provisions 26.342 22.872 11.850 TOTAL PROVISIONS 30.463 26.293 15.453 LONG TERM LIABILITIES Bank loans 38.885 42.090 34.329 Mortgage debt 28 38 28 Leasing commitments 1.058 188 - Other loans - 1.196 - TOTAL LONG TERM LIABILITIES 39.971 43.512 34.357 CURRENT LIABILITIES Bank loans 46.891 41.523 25.006 Short term part of mortgage and other loans 3.369 10.748 3.369 Trade payables 112.285 78.761 61.676 Payables to associated companies - - 3.580 Payables to related parties - 11.750 - Tax payable 7.726 3.563 6.471 Other liabilities 75.352 79.630 49.786 TOTAL CURRENT LIABILITIES 245.623 225.975 149.888 TOTAL LIABILITIES AND PROVISIONS 316.057 295.780 199.698 TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 571.891 542.771 383.303
39
H E A lT H , S A F E T Y & E N V I R O N M E N T
200 200
Environmental report 2006 180 180 160 160 140 140 120 120
Protecting health, safety and the environment is an integral part of Hempel’s business strategy, and preventing accidents, reducing waste and improving energy efficiency are of vital importance. Our associates are key to this endeavour – and in 2006, all Hempel production units submitted data used to monitor and document our key performance indicators (KPIs).
A nnua l R eport 2 0 0 6
Waste Worldwide in 2006, Hempel produced approximately 33 kg of waste per tonne of paint produced, a reduction of 1.5% compared to last year. This is the result of our ongoing focus on waste reduction. Total waste comprises both hazardous and ordinary waste. The main ordinary waste streams at Hempel sites are wood, paper and plastic. Hazardous waste includes all kinds of waste classified as hazardous under the laws of the countries where the waste is produced. Hazardous waste accounts for approximately 47% of the total waste produced, and the reduction from 2005 to 2006 figures amounted to 5% less. This number is considered satisfactory especially given that individual countries continue to extend their lists of hazardous wastes. In effect, volumes of hazardous waste can increase just by identification of new items as waste, without changes in the actual waste volumes produced at sites. Regardless of this development, all Hempel companies will continue working to further reduce the amount of waste produced, and to increase recycling.
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
Total waste in kg per tonne paint manufactured
44 44
100 100
42 42
80 80
40 40
60 60
38 38
40 40
36 36
20 20
34 34 32 32
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
00
22
Hazardous waste in Kg per tonne product manufactured
20 20
20 20
15 15
18 18
10 10 16 16
14 14
55
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
Total energy in kWh per tonne product manufactured
200 180 160 140 120
40
44
2002
2003
2004
2005
2006
00
22
Energy consumption
Health, Safet y and Environment Indicators 2006
Total waste in kg*
33.23
Hazardous waste in kg*
15.73
Total energy in kWh*
125.76
Index number of accidents
28
Accidents per 1 million working hours
7.2
*per tonne of product produced
2006 2006
2006 2006
Accidents INDEX Number of accidents
100 100 80 80 60 60 40 40 20 20 00
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
2005 2005
2006 2006
Accidents per 1 million working hours
In 2006, the number of accidents resulting in one or more days’ absence from work totalled 28 across the group. This figure is higher by one than the figure for 2005. Our corporate LTI (Lost Time Incidents) figure of 7.2 injuries per 1 million working hours will be challenging to improve on in future years. Reducing accidents however is a top priority for Hempel, and the various companies will be enhancing their training efforts to help our employees protect their safety, follow procedures and avoid hazardous actions. It is possible – and necessary – to further reduce the number of accidents at Hempel. I
20 20 15 15 10 10 55 00
2002 2002
2003 2003
2004 2004
hse in detai l s
2006 2006
Energy consumption at Hempel decreased by 14% per tonne from 2005 to 2006. The main sources of energy are electricity, gas and oil. These are combined and converted as a whole into kWh per tonne of paint produced. The reduction in energy consumption shown is attributed to the improved economy of scale achieved by the increases in Hempel’s overall annual production.
41
Q & H S E - P roducts
Quality & Health, Safety and Environment
documenting our compliance with international and local environmental regulations, Hempel Indonesia achieved ISO 14001 certification. Indonesia now joins Singapore and Malaysia as countries covered by our multi-site certificate in Asia Pacific. In Northern Europe, Hempel’s multi-site certificate also now covers Germany, the Netherlands and Belgium, in addition to eight countries previously ISO 14001 certified. Several other Hempel companies are ISO 14001 certified, which has led to savings from recycling initiatives, waste reduction and resource use minimisation, in addition to our securing documentation of compliance with environmental legislation.
REACH – New chemicals legislation in Europe
A nnua l R eport 2 0 0 6
Hempel Singapore Laboratory achieves ISO 17025 certification
42
Thanks to a tremendous team effort, Hempel Singapore achieved ISO 17025 certification on 16 August 2006. While all Hempel laboratories follow our internal standards – as well as ISO 9001 requirements for calibration and documentation – the ISO 17025 certification was a specific requirement from Australia, which is supplied from Hempel Singapore.
It was a proud Regional Quality and HSE Products Manager who accepted the award on behalf of Hempel Singapore at the Singapore Accreditation Council’s Annual Awards Presentation on 19 October 2006.
Environmental certification for Hempel in Indonesia, Germany, the Netherlands and Belgium Further strengthening our commitment to minimising the environmental impact of our operations and
On 18 December 2006, the European Council passed new chemicals legislation known as REACH (Registration, Evaluation and Authorisation of Chemicals). The new legislation enters into force on 1 June 2007. HEMPEL is dedicated to complying with the rules and regulations covering our operations. We are fully committed to working with our customers and suppliers to secure adequate and timely compliance with REACH. I
43
input to A nnua l R eport 2 0 0 6
H E M P E L’ s M A I N S A L E S O FF I C E S
Argentina [email protected] +54 (11) 4816-3137
France [email protected] +33 (0) 344082890
Peru [email protected] +51 (1) 242 1683
Australia [email protected] +61 (03) 93600933
Germany [email protected] +49 41 01 707 0
Poland [email protected] +48 (58) 5218900
Bahrain +973 17 728668
Greece [email protected] +30 (210) 4143400
Portugal [email protected] +351 212 352 326
Hungary [email protected] +36 (1) 411 1090
Qatar [email protected] +974 4600881
Iceland [email protected] +354 5888000
Romania [email protected] +40 788 000781
India [email protected] +91 (22) 25559910
Russian Federation [email protected] +7 (495) 974 1448
Indonesia [email protected] +62 21 884 3385
Saudi Arabia [email protected] +966 (03) 8471616
Ireland [email protected] +353 (1) 8261822
Singapore [email protected] +65 67998383
Italy [email protected] +39 (010)- 8356947
Slovakia HEMPEL (Czech Republic) S.R.O., Branch +421 455 400 290
Korea, Republic Of [email protected] +82 (051) 647 5854
Spain [email protected] +34 937130000
Kuwait [email protected] +965 4813366
Sweden [email protected] +46 (31) 695250
Latvia +371 (7) 336688
Syrian Arab Republic +963 11 2315402
Lithuania +370 (5) 249 0567
Taiwan, Province Of China [email protected] +886 (2) 2706-5535
Belgium [email protected] +32 (03) 2206160 Canada [email protected] +1 (604) 273-3200 Chile [email protected] +56 32 2 639006 China, People’s Republic Of [email protected] +852 28577663 Corporate site [email protected] +45 4593 3800 Croatia [email protected] +385 (052) 741777 Cuba [email protected] +53 (7) 8668128/8668144 Cyprus [email protected] +357 (25) 385873 Czech Republic [email protected] +420 545 423 611 Denmark [email protected] +45 45933800 Ecuador [email protected] +593 (4) 2111444 Egypt [email protected] +20 2736 4638
A nnua l R eport 2 0 0 6
Emirates [email protected] +971 (06) 5283307
44
Estonia [email protected] +372 6398793 Finland [email protected] +358 (0) 207-590800
Malaysia [email protected] +60 3 7845 3037 Malta [email protected] +356 21 822268 Morocco [email protected] +212 22 355373 Netherlands [email protected] +31 (0)10 4454000 Norway [email protected] +47 55958000
go to www. hempe l . com to see the f u l l l ist
Thailand [email protected] +66 (2) 260 3325/7 Turkey [email protected] +90 (216) 585 1010 United Kingdom [email protected] +44 (01633) 874024 United States Of America [email protected] +1 (936) 523 6000 Vietnam [email protected] +84 (8) 910205
Annual Report 06 Design, production and print: Datagraf AS
HEMPEL A/S Lundtoftevej 150 DK-2800 Kgs. Lyngby Denmark Tel: +45 45 93 38 00 Fax: +45 45 88 55 18 www.hempel.com
Annual Report 06
HEMPEL
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