Wella announces Q1 results, signs purchasing agreement with Procter & Gamble

- Last updated on GMT

Related tags: Wella, Procter & gamble

German hair and beauty product producer Wella has this week
announced both the most profitable first quarter in the company's
history and the signing of a purchasing agreement with Procter
& Gamble, writes Louise Sheridan.

Wella​'s sales grew a currency-adjusted 5.2 per cent over the first quarter, from January to March 2004, to €748 million compared with €732 million during the first quarter of 2003.

The company's professional products division accounted for almost half of sales with 49.6 per cent, as compared with 25.7 per cent and 24.7 per cent for the consumer and cosmetics & fragrances divisions respectively. Consumer products fared less well than in the same period last year, when they accounted for 28.7 per cent of sales.

Wella said: "Now that consumer business has been licensed to Procter & Gamble​, this division is passing through a period of transition and upheaval. Business did not remain unaffected during the period under review: at €192 million (Q1 2003: €210 million), sales after adjustment for exchange rate effects fell by 7.0 per cent as in the previous year. Despite this significant decline in sales, due to a reduction in distribution cost operating profit (EBIT) only fell to €2.7 million (Q1 2003: €6.9 million) in absolute terms. The EBIT margin shrunk from 3.3% in the previous year to 1.4 per cent."

The transfer of consumer business to Procter & Gamble will be completed at the beginning of 2005. The licensing agreement will be more beneficial, Wella claims, than continuing the business under its own management would have been.

Wella also announced this week that it has signed an agreement to establish Procter & Gamble as the purchasing agent for some of Wella's materials and services. The new arrangement, which comes into force on 1 July 2004, is expected to deliver some €300 million in synergies.

Procter & Gamble International Operations, a wholly owned subsidiary of The Procter & Gamble Company, will create a purchasing organisation comprised of resources from both companies to purchase raw materials, packaging materials and services for the two companies. The contract excludes the purchasing of selected materials and services for areas representing Wella's core competencies, which will continue to be performed by Wella from their Darmstadt headquarters.

This cooperation in the purchasing area will deliver synergies for both companies by leveraging economies of scale in the purchase of raw and packaging materials, goods and services enabling both companies to be more competitive with the marketplace. This agreement is consistent with Procter & Gamble's previously outlined business objectives and will contribute to the €300 million in synergies Procter & Gamble expects from collaboration efforts with Wella.

The savings Wella will receive from this agreement were included in the independent valuation confirmed for the domination and profit transfer agreement that the companies completed recently. Last week, Procter & Gamble's €72.86 per share buyout offer for Wella was confirmed by a court appointed independent auditor.

As a result of the agreement, which runs for an initial period of five years, parts of the central purchasing activities of the Wella group will be transferred to Procter & Gamble's global purchasing centres. Wella currently operates in more than 150 countries, while Procter & Gamble has operations in more than 80 countries. Nearly all affected Wella employees will be offered positions within Wella or Procter & Gamble.

In future, the intention is that the purchasing activities within the framework of the newly-created organisation will be expanded to include the regions of Asia, Australia and North and Latin America

Related topics: Business & Financial, Fragrance

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