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Stiff competition leads to restructuring for Kimberly-Clark

25-Jul-2005

Kimberly-Clark has announced a major restructuring programme that will see around 20 plants sold or shut down and the loss of 10 per cent of its workforce. The majority of the 6,000 job losses and plant closures are expected to happen in Europe, where market pressures have squeezed margins the most, reports Simon Pitman.

The restructuring, which is expected to cost between $675 million and $775 million (or up to $1.1 billion before tax) over a three and a half year period, aims to bring about a renewed focus on developing markets, as well as re-invigorating the companies relationships with retailers.

Thomas J. Falk, chairman and CEO, said: "The actions we are announcing today underscore our commitment to the key elements of the Global Business Plan - to instill financial discipline throughout the company, invest in businesses and opportunities with high-growth potential and support those businesses that already command strong positions in their markets. Going forward, we intend to meet or exceed our objectives while delivering improved returns to our shareholders."

The news comes as the company reported second quarter sales up 8 per cent, from $3.68 billion in the corresponding quarter of 2004, to $3.98 billion. However, reflecting the competitive nature of the international market at the moment, the manufacturer of Huggies nappies and a range of associated personal care products, reported that net income had fallen 7.2 per cent from $454.3 million in 2004, to reach $421.8 for the most recent quarter.

The main reason for the fall in net income was the fact that selling prices fell by 2 per cent overall, chiefly reflecting the competitive environment in both the US and Europe, where competitive discounting saw a fall in the value of sales. The company said that this performance was counterbalanced by improving prices in its developing and emerging markets.

Sales volumes were 8 per cent higher in the US market but the value of the sales only rose by 3 per cent. In Europe sales volume was up 4 per cent, whereas sales value rose only 1 per cent - reflecting the difficulties the company is having there.

The results highlight the company's need to become more competitive, something the restructuring programme will aim to address. The company introduced a global business plan in 2003, which focused on reinvestment and innovation.

The next stage will be the newly announced global restructuring initiative.

Kimberly-Clark says that this plan will focus on growing baby care, child care, adult care and family care on a global basis. In doing this it will increase its marketing spend by 60 per cent to reach $1 billion, while the budget for research and development will increase by over 50 per cent to reach $400 million.

Looking to the full financial year, the company said that it was narrowing its earnings guidance in view of the weak performance in the first six months of the year. Falk said he is now expecting growth in earnings in the range of 6 to 8 per cent for the 12 months.

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