Catherine Diamond, Associate Editor11.07.14
The economic downturn of 2008 was notoriously rough on the automotive and construction industries. Plunging sales figures and frightening projections were well documented (often). What was less known to the general public, however, was the intrinsic link between these markets and the adhesives and sealants markets. Adhesive and sealant manufacturers suffered alongside Ford and Chrysler, and as such, they are now enjoying a well-deserved, healthy resurgence.
According to Dr. Uwe Bankwitz, Head Corporate Target Market Sealing & Bonding at Swiss company Sika AG, the market for adhesives and sealants grew about 2-4 percent, depending on location.
“Mature markets in North America and Europe grew about 2 percent,” he said. “It grew about 3 to 4 percent in Latin America and about 5 percent in Asia Pacific. Medium-term, a global growth of about 3 to 4 percent is expected.”
Bankwitz said that there are two markets that offer the most opportunity for growth: transportation and construction. “For Sika, transportation (including automotive) and building/construction (new construction, refurbishment, infrastructure improvements) offer the most opportunities for growth, especially after moderate recovery of these markets in North America and Europe. Participation in the stronger growth in emerging markets in Asia and Latin America are of key importance to Sika and are reflected by investments in new factories.”
Henkel, a global provider of adhesives, has also felt the effects of the economic recovery. As such, its Adhesive Technologies business unit posted solid organic sales growth in the second quarter and a very strong increase in adjusted return on sales to 17.5 percent.
“Organically (i.e. adjusted for foreign exchange and acquisitions/divestments), we increased sales by 3.7 percent compared to the prior-year quarter. This was achieved through increases in both volume and price,” the company said.
“Adjusted operating profit (EBIT) remained at the level of the prior-year quarter. Adjusted return on sales (EBIT) grew very strongly, by 0.6 percentage points to 17.5 percent. Increasing prices for direct materials adversely impacted gross margin; this was partially offset by the strict implementation of our measures to optimize the portfolio and improve production and supply chain efficiency.”
Overall, for the first half of the year, Henkel’s organic sales in the Adhesive Technologies business unit grew between January and June 2014 by 3.9 percent, outpacing the global economy.
“In our report for fiscal 2013, we published guidance for fiscal 2014 indicating that we expect to achieve organic sales growth of between 3 and 5 percent. In line with our 2016 strategy, we furthermore expect a slight increase in the share of sales from our emerging markets,” said Lisa Kretzberg, spokeswoman for Henkel Adhesive Technologies.
“For the adjusted return on sales (EBIT), we forecasted an increase to around 15.5 percent, and for adjusted earnings per preferred share, we anticipate a rise in the high single-digits (2013: €4.07). We confirm our guidance for fiscal 2014,” she added.
Henkel said it achieved its largest increase in sales in the General Industry business. The Vehicle Repair and Maintenance and General Manufacturing steering units significantly contributed with double-digit growth. The Adhesives for Consumers, Craftsmen and Building business also posted positive sales growth. Despite the difficult political situation in parts of Eastern Europe, sales to the building industry were solid overall, Kretzberg said.
Increasing Costs, Regulations
Despite tremendous gains in both the global and local economies, the adhesives and sealants market is still largely at the mercy of raw material costs, which seem to be climbing ever higher, and government regulations, which are plentiful in an international market.
Bankwitz said that Sika has dealt with rising raw material and energy costs by simply going back to the drawing board.
“Although the cost/performance ratio of adhesives and sealants has always been a key aspect for Sika,” he said, “raw material scarcity and higher prices triggered new thinking and innovations in product development and manufacturing processes.”
He added that VOC and environmental regulations are major drivers for product adaptations. “Sika recognizes stronger regulations as an opportunity and always tries to stay ahead of the market or even driving it by introducing new adhesives and sealants that have, for example, a much lower monomer content than previous generations of products and before any regulations are imposed.”
Kretzberg said that Henkel has adapted a multi-pronged approach to offsetting the increase in raw material costs. “Through selective price increases, continued strict cost discipline and efficiency improvements in production and supply chain, we were able to largely offset the effects on gross margin of substantially higher promotion activities and the slightly higher prices of direct materials.”
New Products and Areas of Focus
In highly competitive markets such as automotive and construction, suppliers are constantly asking themselves what they can do to differentiate themselves from their competitors. Bankwitz said that Sika has introduced several new products to the market in order to do just that.
Its new series of construction sealants, SikaHyflex, is designed to meet the increased requirements high performance sealants have to fulfill today.
“They adhere to all kinds of substrates and have an extremely high movement capability of up to +100/-50% in order to absorb large movements,” he said.
“SikaHyflex sealants exhibit an exceptional durability due to their outstanding UV and weathering resistance. Sika strives for sustainable building construction and therefore focuses on long-lasting solutions. SikaHyflex sealants ensure tight building envelopes permanently and thus contribute significantly to the reduction of heating and cooling energy of buildings.”
Bankwitz said Sika focuses on its customers’ processes in order to determine its focus.
“Our focus is always to create value for our customers with adhesives and sealants that enable them to improve their processes, save time, allowing new ways of construction (e. g. light weight designs in the automotive industry) and the use of new construction materials,” he said. “The focus in developing new construction sealants and adhesives lies specifically on durability, improved indoor air quality, wider application windows (e. g. lower/higher temperatures), improved adhesion without pre-treatment, compatibility with other typically used materials or better resistance to various chemicals.”
For its part, Henkel has launched several new products through its Adhesive Technologies business unit. Kretzberg said that these “tailor-made solutions are based on comprehensive expertise in products and technologies, Henkel’s global presence, and close partnerships with customers.”
Loctite 4090 is a hybrid adhesive that combines the key features of structural and instant adhesives: bond strength and speed. “This powerful combination provides high impact resistance, high strength bonding on a variety of substrates, and high temperature resistance, making it versatile enough to solve a wide range of design and assembly challenges,” the company said.
Loctite TAF is designed to improve design flexibility and performance of electronic devices while enhancing user comfort. The flexible heat-absorbing film from the Loctite TAF series lowers the processor and housing temperature of mobile devices by more than 3 degrees Celsius.
Loctite Threadlocker Sticks as formulated as wax-like, semi-solid adhesives packaged in a self-feeding stick applicator. Loctite 248 and Loctite 268 Threadlocker Sticks are designed to provide robust cure even on oil-contaminated or inactive metals like stainless steel.
“Only Henkel offers these convenient stick threadlockers for use in different maintenance, repair and overhaul applications,” the company said.
Working in conjunction with Ford Motor Company, Henkel developed Loctite 5189, an anaerobic gasketing sealant for highly stressed engine joints. With exceptional flexibility, the company said Loctite 5189 meets the requirements of the on line blow-out test and thus eliminating the cost of extensive manual rework and offering robust sealing for high volume engine manufacturing.
Kretzberg added that research and development is a huge focus for Henkel’s Adhesive Technologies business unit. “In the first six months of the fiscal year, research and development expenditures amounted to €207 million (adjusted for restructuring charges: €206 million),” she said. “Sixty percent of the R&D expenditures account for the Adhesive Technologies business unit.”
Relative to sales, Henkel’s research and development expenditures increased slightly versus the same period in the previous year. The ratio was 2.6 percent (adjusted: 2.6 percent).
“A substantial part of our research and development activity takes place in the areas of polymer and interface chemistry, biotechnology, materials science, surface treatment, process technology and new packaging. These activities are important for all Henkel business units,” Kretzberg said. “The development of innovative products is of key importance to our business model. The research and development strategy described in our Annual Report 2013 has remained unchanged.”
Global Growth Strategies
Both Sika and Henkel have recently acquired companies to further strengthen their global product offerings and services.
In 2013, Sika acquired Everbuild - UK’s largest independent manufacturer of sealants, adhesives and construction chemicals - as well as Akzo Nobel’s Building Adhesive business.
“While the first acquisition especially provided good access to the distribution market in UK,” he said, “the latter improved Sika’s position in interior finishing with floor and wall covering solutions and tile adhesives.”
Recently, Henkel acquired The Bergquist Company (see box), and also signed a joint-development agreement with U.S.-based Vitriflex, Inc. in May.
Founded in San Jose, California in 2010, Vitriflex has developed a unique ultra-barrier film technology that utilizes a proprietary roll-to-roll technique to deliver high-performance barrier films in an easy-to-integrate form factor. Barrier films protect electronic components against moisture and oxygen ingress. This invention offers the first time ever cost competitive flexible barrier film technology for the display market. Under the terms of its agreement with Henkel, the ultra-barrier film innovator will work with Henkel technology experts to develop customized, integrated barrier film products for flexible displays.
According to Henkel, the agreement was the result of a comprehensive scouting process which began in 2012 to anticipate future market needs and applications. “Since then,” the company said, “the systematic and strategic evaluation of new business opportunities has become a critical element in driving the companies´ global innovation leadership.”
According to Dr. Uwe Bankwitz, Head Corporate Target Market Sealing & Bonding at Swiss company Sika AG, the market for adhesives and sealants grew about 2-4 percent, depending on location.
“Mature markets in North America and Europe grew about 2 percent,” he said. “It grew about 3 to 4 percent in Latin America and about 5 percent in Asia Pacific. Medium-term, a global growth of about 3 to 4 percent is expected.”
Bankwitz said that there are two markets that offer the most opportunity for growth: transportation and construction. “For Sika, transportation (including automotive) and building/construction (new construction, refurbishment, infrastructure improvements) offer the most opportunities for growth, especially after moderate recovery of these markets in North America and Europe. Participation in the stronger growth in emerging markets in Asia and Latin America are of key importance to Sika and are reflected by investments in new factories.”
Henkel, a global provider of adhesives, has also felt the effects of the economic recovery. As such, its Adhesive Technologies business unit posted solid organic sales growth in the second quarter and a very strong increase in adjusted return on sales to 17.5 percent.
“Organically (i.e. adjusted for foreign exchange and acquisitions/divestments), we increased sales by 3.7 percent compared to the prior-year quarter. This was achieved through increases in both volume and price,” the company said.
“Adjusted operating profit (EBIT) remained at the level of the prior-year quarter. Adjusted return on sales (EBIT) grew very strongly, by 0.6 percentage points to 17.5 percent. Increasing prices for direct materials adversely impacted gross margin; this was partially offset by the strict implementation of our measures to optimize the portfolio and improve production and supply chain efficiency.”
Overall, for the first half of the year, Henkel’s organic sales in the Adhesive Technologies business unit grew between January and June 2014 by 3.9 percent, outpacing the global economy.
“In our report for fiscal 2013, we published guidance for fiscal 2014 indicating that we expect to achieve organic sales growth of between 3 and 5 percent. In line with our 2016 strategy, we furthermore expect a slight increase in the share of sales from our emerging markets,” said Lisa Kretzberg, spokeswoman for Henkel Adhesive Technologies.
“For the adjusted return on sales (EBIT), we forecasted an increase to around 15.5 percent, and for adjusted earnings per preferred share, we anticipate a rise in the high single-digits (2013: €4.07). We confirm our guidance for fiscal 2014,” she added.
Henkel said it achieved its largest increase in sales in the General Industry business. The Vehicle Repair and Maintenance and General Manufacturing steering units significantly contributed with double-digit growth. The Adhesives for Consumers, Craftsmen and Building business also posted positive sales growth. Despite the difficult political situation in parts of Eastern Europe, sales to the building industry were solid overall, Kretzberg said.
Increasing Costs, Regulations
Despite tremendous gains in both the global and local economies, the adhesives and sealants market is still largely at the mercy of raw material costs, which seem to be climbing ever higher, and government regulations, which are plentiful in an international market.
Bankwitz said that Sika has dealt with rising raw material and energy costs by simply going back to the drawing board.
“Although the cost/performance ratio of adhesives and sealants has always been a key aspect for Sika,” he said, “raw material scarcity and higher prices triggered new thinking and innovations in product development and manufacturing processes.”
He added that VOC and environmental regulations are major drivers for product adaptations. “Sika recognizes stronger regulations as an opportunity and always tries to stay ahead of the market or even driving it by introducing new adhesives and sealants that have, for example, a much lower monomer content than previous generations of products and before any regulations are imposed.”
Kretzberg said that Henkel has adapted a multi-pronged approach to offsetting the increase in raw material costs. “Through selective price increases, continued strict cost discipline and efficiency improvements in production and supply chain, we were able to largely offset the effects on gross margin of substantially higher promotion activities and the slightly higher prices of direct materials.”
New Products and Areas of Focus
In highly competitive markets such as automotive and construction, suppliers are constantly asking themselves what they can do to differentiate themselves from their competitors. Bankwitz said that Sika has introduced several new products to the market in order to do just that.
Its new series of construction sealants, SikaHyflex, is designed to meet the increased requirements high performance sealants have to fulfill today.
“They adhere to all kinds of substrates and have an extremely high movement capability of up to +100/-50% in order to absorb large movements,” he said.
“SikaHyflex sealants exhibit an exceptional durability due to their outstanding UV and weathering resistance. Sika strives for sustainable building construction and therefore focuses on long-lasting solutions. SikaHyflex sealants ensure tight building envelopes permanently and thus contribute significantly to the reduction of heating and cooling energy of buildings.”
Bankwitz said Sika focuses on its customers’ processes in order to determine its focus.
“Our focus is always to create value for our customers with adhesives and sealants that enable them to improve their processes, save time, allowing new ways of construction (e. g. light weight designs in the automotive industry) and the use of new construction materials,” he said. “The focus in developing new construction sealants and adhesives lies specifically on durability, improved indoor air quality, wider application windows (e. g. lower/higher temperatures), improved adhesion without pre-treatment, compatibility with other typically used materials or better resistance to various chemicals.”
For its part, Henkel has launched several new products through its Adhesive Technologies business unit. Kretzberg said that these “tailor-made solutions are based on comprehensive expertise in products and technologies, Henkel’s global presence, and close partnerships with customers.”
Loctite 4090 is a hybrid adhesive that combines the key features of structural and instant adhesives: bond strength and speed. “This powerful combination provides high impact resistance, high strength bonding on a variety of substrates, and high temperature resistance, making it versatile enough to solve a wide range of design and assembly challenges,” the company said.
Loctite TAF is designed to improve design flexibility and performance of electronic devices while enhancing user comfort. The flexible heat-absorbing film from the Loctite TAF series lowers the processor and housing temperature of mobile devices by more than 3 degrees Celsius.
Loctite Threadlocker Sticks as formulated as wax-like, semi-solid adhesives packaged in a self-feeding stick applicator. Loctite 248 and Loctite 268 Threadlocker Sticks are designed to provide robust cure even on oil-contaminated or inactive metals like stainless steel.
“Only Henkel offers these convenient stick threadlockers for use in different maintenance, repair and overhaul applications,” the company said.
Working in conjunction with Ford Motor Company, Henkel developed Loctite 5189, an anaerobic gasketing sealant for highly stressed engine joints. With exceptional flexibility, the company said Loctite 5189 meets the requirements of the on line blow-out test and thus eliminating the cost of extensive manual rework and offering robust sealing for high volume engine manufacturing.
Kretzberg added that research and development is a huge focus for Henkel’s Adhesive Technologies business unit. “In the first six months of the fiscal year, research and development expenditures amounted to €207 million (adjusted for restructuring charges: €206 million),” she said. “Sixty percent of the R&D expenditures account for the Adhesive Technologies business unit.”
Relative to sales, Henkel’s research and development expenditures increased slightly versus the same period in the previous year. The ratio was 2.6 percent (adjusted: 2.6 percent).
“A substantial part of our research and development activity takes place in the areas of polymer and interface chemistry, biotechnology, materials science, surface treatment, process technology and new packaging. These activities are important for all Henkel business units,” Kretzberg said. “The development of innovative products is of key importance to our business model. The research and development strategy described in our Annual Report 2013 has remained unchanged.”
Global Growth Strategies
Both Sika and Henkel have recently acquired companies to further strengthen their global product offerings and services.
In 2013, Sika acquired Everbuild - UK’s largest independent manufacturer of sealants, adhesives and construction chemicals - as well as Akzo Nobel’s Building Adhesive business.
“While the first acquisition especially provided good access to the distribution market in UK,” he said, “the latter improved Sika’s position in interior finishing with floor and wall covering solutions and tile adhesives.”
Recently, Henkel acquired The Bergquist Company (see box), and also signed a joint-development agreement with U.S.-based Vitriflex, Inc. in May.
Founded in San Jose, California in 2010, Vitriflex has developed a unique ultra-barrier film technology that utilizes a proprietary roll-to-roll technique to deliver high-performance barrier films in an easy-to-integrate form factor. Barrier films protect electronic components against moisture and oxygen ingress. This invention offers the first time ever cost competitive flexible barrier film technology for the display market. Under the terms of its agreement with Henkel, the ultra-barrier film innovator will work with Henkel technology experts to develop customized, integrated barrier film products for flexible displays.
According to Henkel, the agreement was the result of a comprehensive scouting process which began in 2012 to anticipate future market needs and applications. “Since then,” the company said, “the systematic and strategic evaluation of new business opportunities has become a critical element in driving the companies´ global innovation leadership.”
