Annual Report 06

HEMPEL A/S
Annual Report 06

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HEMPEL
Annual
Report 06
 k ey f igures
Financial Results
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 mate-
rial cost continued to have a nega-
tive 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 produc-
tivity. This was achieved through a
combination of benefits from the
planned alignment within the organi-
sation and a careful control of devel-
opments in fixed expenses.
The most significant investment
included a new factory in Vietnam
and expansion of production facilities
in Portugal and China. The Group
A nnua l R eport 2 0 0 6

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. Over-
all, cash generated from operations
was below expectation mainly due to
the increase in trade account receiv-
ables.
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 sub-
segments, confirming Hempel’s lead-
ing position within these areas.
The container segment started
slow in 2006, but picked up in activ-
ity 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 had a strong year. Decora-
tive 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
In 2006, raw material prices contin-
ued to surge, as copper, zinc and
crude oil reached new highs. The
delay in implementing necessary fur-
ther 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 2004 2005 2006
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 2004 2005 2006
500,000
600,000
550,000 2002 2003 2004 2005 2006

250,000
500,000
2002 2003 2004 2005 2006
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
250,000
190,000
210,000
230,000
170,000
190,000
210,000
150,000
170,000
190,000 2002 2003 2004 2005 2006
150,000
170,000 2002 2003 2004 2005 2006
40,000
150,000
35,000
30,000 2002 2003 2004 2005 2006
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 2002 2003 2004 2005 2006
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 2002 2003 2004 2005 2006
5.000
15,000
2002 2003 2004 2005 2006
10,000
5.000
Employees
2002 2003 2004 2005 2006

3,500

3,400

3,300

3,200
k ey f igures

3,500
3,100
3,400
3,500
3,000
3,300
3,400 2002 2003 2004 2005 2006
3,500
3,200
3,300
3,400
3,100
3,200
3,300
3,000
3,100 
3,200 2002 2003 2004 2005 2006
 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 world-
wide, 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 Decora-
tive 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 smart-
er’. 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.
Proven ability to change
If 2005 was a year for accepting the
need for change, 2006 proved that
A nnua l R eport 2 0 0 6
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 materi-
als. To increase production capacity,
we opened a new factory in Viet-
nam, our first facility in that country.
We drafted a new strategy, known
as One Hempel – Everywhere. Involv-
ing more than 100 employees who
showed great insight and resource-
fulness, 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 acqui-
sition 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 person-
ally 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.
Realising our value
Our customers no longer view paint
as a mere commodity. They under-
stand complex changes in their
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 con-
sumption, for instance, or a compa-
ny’s record on environmental per-
formance.
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 resourceful-
ness 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 sup-
port and loyalty. Encouraged by our
achievements in 2006, we can all be
confident in the future of Hempel. I
Pierre-Yves Jullien
Group President & CEO
Highlights

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 double-
digit growth
I Continued productivity improvements offset
some effects of higher raw materials
this is hempe l

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



A nnua l R eport 2 0 0 6
container
Container

The increase in raw materials prices contin-

ued 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.
container


 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 through-
out 2006, with the price of zinc ris-
ing 318% in just 18 months. How-
ever, 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 mar-
ket recovered again in the autumn,
leading to strong sales towards the
end of the year.
Industry leaders
Hempel responded to challenging
market conditions by demonstrating
A nnua l R eport 2 0 0 6

clear, focused leadership. Our Sup-
ply Chain department implemented
a range of efficiency measures that
reduced costs significantly. We also
raised prices to distribute the bur-
den 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 Inter-
modal fair, held in Hamburg, Germa-
ny. Maintaining our high level of vis-
ibility, the Hempel stand served as a
meeting point for the entire contain-
er 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

are protected by Hempel products
A nnua l R eport 2 0 0 6

10
Hempel-Hai Hong helped bring
new life to this Nan Hai hotel in
Sheikou, China

decorative

Lisbon’s Casino used Hempel’s paints

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
museum focusing on electricity
A nnua l R eport 2 0 0 6

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
Large-scale success in China
Decorative performed extraordinarily
well in China during the year, as a
strategy targeting property develop-
ers began to pay off. The strategy in-
volved 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 prod-
ucts 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 our-
selves to take advantage of the
coming boom. The Hempel brand
remains strong in the segment’s big-
gest 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 coat-
ings enjoy a strong position. This rel-
atively small market remains impor-
tant 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 high-
value products and services will help
profits keep pace with the increase
in sales. I
decorative
13
14
A nnua l R eport 2 0 0 6
MARINE
Marine

MARINE

15
16
A nnua l R eport 2 0 0 6
MARINE
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
Economic growth drives
demand for transport
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 New-
buildings 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 prod-
ucts. 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 break-
through in 2006, using our silicone-
based HEMPASIL fouling-release sys-
tem to produce the industry’s first
ten-year dry-docking interval guaran-
tee. 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-dock-
ings. Hempel worked closely with
APL to achieve this breakthrough,
and while the specification is guaran-
teed 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 nano-
capsule technology. Offering an array
of high-value advantages, GLOBIC
NCT was promoted extensively at
the SMM trade fair in Hamburg, Ger-
many, 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 effi-
ciency in our supply chain, combined
with continued high growth in the
worldwide transport sector, will lead
MARINE
to better results for the segment in
2007. I
17
18
A nnua l R eport 2 0 0 6
PROTECTIVE

Protective
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 Rus-
sia 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 dedi-
cated local presence and increas-
ingly synchronised global opera-
tions.

Strong growth in China

The Protective segment showed yet
another year of strong performance
in China, fuelled by continued eco-
nomic growth and investment in the
country’s infrastructure. We were
involved in several bridge projects
during the year, and there are excel-
lent prospects for future success in
China’s infrastructure development,
which is expanding at a rapid pace.

Hempel expands in Europe

Hempel worked throughout the year
to prepare for the acquisition of
A nnua l R eport 2 0 0 6

Lacor, one of Germany’s leading sup-

pliers 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 accel-
erated growth in this key market.

20
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 Protec-
tive business, so we expect contin-
ued growth in the Hempel position
in the years.

Innovative products
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 proper-
ties – helping our customers to com-
ply with environmental legislation
using a product that also creates
added value for their business. As
technologically advanced high-value
products, these coatings demon-
strate Hempel’s commitment to lead-
ership in the Protective segment.
Hempel is deeply committed to
ensuring the continued strong
PrOTECTIVE

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

21
22
A nnua l R eport 2 0 0 6
YA C H T

Yacht
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 ment. The deal, struck with the during 2006, taking part in the IMS
It was full speed ahead for Hempel French sister company of our Ger- 600 world championships in Spain,
Yacht in 2006, led in large part by man distributor, was launched in the Rolex Sydney Hobart Yacht Race,
the successful introduction of two December at the Paris Boat Show. the Lord Howe Island Race, the
new high-end products in key mar- Volvo Ocean Race and the Velux 5
kets. Glide Speed and Glide Cruise Market analysis and visibility Oceans Race.
premium antifoulings featuring Tec- Hempel devoted considerable With continued economic growth
Cel™ technology were launched in resources to analysing its markets in in Europe, new product launches
Germany, Greece, Norway, Spain and 2006, working to determine where planned for 2007 and the opportuni-
the Middle East during the year. the greatest opportunities lie and to ties that our expansion into France
focus our efforts where they count has created, Hempel is optimistic
Complete package most. The segment also worked to about the Yacht segment’s near-
In Northern Europe, the segment improve the Hempel brand’s visibility term prospects. I
launched an innovative new packag-
ing concept, with application tools
bundled together with paint to provide
complete yacht paint solutions. Com-
bined with eye-catching new shop dis-
plays and targeted campaigns, this
helped our Northern Europe opera-
tions achieve a substantial increase
in sales for the year.

Growth in Greece
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
A nnua l R eport 2 0 0 6

segment increase its overall sales

for 2006.

Push into France

2006 saw a new distribution deal in
France, a market that holds consid-
erable potential for the Yacht seg-

24
Hempel’s entry in the
“XXV Copa del Rey”

YA C H T

25
 W O R K I N G AT H E M P E L

A nnua l R eport 2 0 0 6

26
 Working at Hempel

27
W O R K I N G AT H E M P E L
 W O R K I N G AT H E M P E L

A nnua l R eport 2 0 0 6

28
Hempel people
making a difference
Hempel’s Human Resources department works to
attract and keep the industry’s best employees
An attractive place to work
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 – Every-
where strategy, which was developed
in 2006, has been anything but a
one-way directive. Hempel employ-
ees 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 develop-
ment will help us reach our goals of
continuing to maintain and improve
upon the quality of products Hempel
is known for. We have already start-
ed 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 inte-
gration 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, com-
pared to 19 in 2005. Hempel par-
ticipants were up, and the number
of participants from outside the
company more than doubled. Hemp-
el Academy is expected to continue
growing in 2007 and beyond, ensur-
ing 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
29
 research & deve l opment

A nnua l R eport 2 0 0 6

30
 Research &
development

31
research & deve l opment
 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 rais-
ing the bar for performance, reliabil-
ity and environmental friendliness
within the coating industry.
Reducing emissions with low-
solvent coatings
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 legisla-
tive measures in order to meet
these concerns.
To meet this challenge, the R&D
group has been focussing on water-
borne and high-solid coatings in par-
A nnua l R eport 2 0 0 6
32
ticular. Hempel is preparing to switch
to water-borne paints for certain cus-
tomers 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 ground-
breaking products – HEMPADUR
FIBRE and GLOBIC NCT – and an
industry-leading milestone for HEMP-
ASIL, our silicon-based fouling
release system. Reinforced with syn-
thetic mineral fibres, HEMPADUR
FIBRE is a rugged, uniquely flexible
coating for ballast tanks that dra-
matically reduces the risk of crack-
ing. 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 HEMPA-
DUR FIBRE demonstrate the consid-
erable 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 legisla-
tion with the acronym, REACH (Regis-
tration, Evaluation and Authorisation
of Chemicals). The new legislation
enters into force on 1 June 2007.
HEMPEL is dedicated to comply-
ing with the rules and regulations
which cover its operations. Efforts
and commitment to work with cus-
tomers and suppliers will be made
to secure adequate and timely com-
pliance to REACH. I
33
research & deve l opment
34
A nnua l R eport 2 0 0 6
f inancia l resu l t
Financial
Results
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

f inancia l resu lt

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 unau-
dited 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 indi-
rectly has either a controlling influ-
ence (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 account-
ing principles as applied in prepara-
The Annual Report is adopted at the Annual General Assembly.
Kgs. Lyngby March 2007
Management of Hempel A/S Board of Directors of Hempel A/S
Pierre-Yves Jullien Claus Colliander Lars Aaen
A nnua l R eport 2 0 0 6
Group President & CEO Chairman Vice Chairman
36
tion of the Danish statutory consoli-
dated financial statements, apart
from the following:
I The total Hempel Group unaudited
proforma combined financial data
includes full line-by-line consolida-
tion of all subsidiaries and associ-
ated companies, i.e. the unaudit-
ed 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 intercom-
pany transactions, shareholdings,
balances and unrealised intercom-
pany 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 Selskabssty-
relsen www.eogs.dk).
Peder Holk Nielsen John Schwartzbach
Anders Pettersson Lennart Holm
Søren Nyborg Rasmussen Allan Katz
Employee Representative Employee Representative
The complete Annual Report has
been audited by Pricewaterhouse-
Coopers, Statsautoriseret Revision-
sinteressentskab.
Management’s Statement
on the Annual Report
The Board of Directors and Manage-
ment 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 Finan-
cial Statements Act. We consider
the applied accounting policies
appropriate and the estimates made
reasonable. Furthermore, we con-
sider the overall Annual Report pres-
entation 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 opera-
tions. I
Profit & Loss Account

Group Consolidated

EUR ‘000 2006 2005 2006 2005

NET SALES 779.726 654.549 500.831 427.634

Cost of goods sold, incl. production costs -524.584 -433.728 -318.566 -268.036

GROSS PROFIT 255.142 220.821 182.265 159.598

Sales and distribution expenses -135.338 -130.006 -99.081 -99.037

Administration expenses -59.064 -46.102 -42.833 -35.853

OPERATING PROFIT 60.740 44.713 40.351 24.708

Part of net profit in associated companies - - 6.411 2.345

PROFIT BEFORE FINANCIAL ITEMS 60.740 44.713 46.762 27.053

Financial items, net -5.200 -1.281 -2.604 -827

PROFIT BEFORE TAXES 55.540 43.432 44.158 26.226

Income taxes -18.628 -13.645 -15.199 -12.255

NET PROFIT FOR THE YEAR 36.912 29.787 28.959 13.971

External shareholders -8.458 -16.273 -505 -457

HEMPEL NET PROFIT FOR THE YEAR 28.454 13.514 28.454 13.514
f inancia l resu lt

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 93 130 93 130
Software 1.469 2.252 1.469 2.252
Software under development 67 449 67 449
1.629 2.831 1.629 2.831

Tangible fixed assets:

Land and buildings 53.967 68.259 30.245 32.705
Technical plant and machinery 19.976 21.595 11.387 13.389
Other tangible assets 13.671 15.603 7.507 7.875
87.614 105.457 49.139 53.969

Financial fixed assets:
Investments in associated companies - - 32.308 35.472
Investment in other companies - 46 - -
Deferred tax assets 2.889 4.079 2.379 2.936
Other receivables 9.976 10.787 5.939 1.313
12.865 14.912 40.626 39.721
TOTAL FIXED ASSETS 102.108 123.200 91.394 96.521

CURRENT ASSETS
Inventories:
Raw materials and consumables 43.942 38.651 23.809 19.400
Work in progress 1.060 959 1.040 959
Finished goods and commercial goods 76.742 66.641 54.039 45.711
121.744 106.251 78.888 66.070

Receivables:
Trade receivables 241.372 210.156 129.106 114.374
Receivables from associated companies - - 14.375 13.193
Tax receivable 5.416 1.803 4.612 1.269
Other receivables 25.326 16.690 11.593 6.397
A nnua l R eport 2 0 0 6

Prepayments 11.397 16.572 6.908 10.394

283.511 245.221 166.594 145.627

Bonds 2.541 11.324 2.541 11.324
Cash at bank and on hand 61.987 56.775 43.886 37.040
TOTAL CURRENT ASSETS 469.783 419.571 291.909 260.061
TOTAL ASSETS 571.891 542.771 383.303 356.582

38
Balance sheet as at 31/12
Liabilities and Shareholder’s Equity

Group Consolidated

EUR ‘000 2006 2005 2006 2005

SHAREHOLDER’S EQUITY
Share capital 15.423 15.414 15.423 15.414
Share premium - - - -
Retained earnings 166.338 144.151 166.338 144.151
TOTAL SHAREHOLDER’S EQUITY 181.761 159.565 181.761 159.565

EXTERNAL SHAREHOLDERS 74.073 87.426 1.845 1.814

PROVISIONS
Deferred taxes 217 204 217 204
Pension obligations 3.904 3.217 3.386 2.578
Other provisions 26.342 22.872 11.850 11.142
TOTAL PROVISIONS 30.463 26.293 15.453 13.924

LONG TERM LIABILITIES
Bank loans 38.885 42.090 34.329 38.394
Mortgage debt 28 38 28 38
Leasing commitments 1.058 188 - 188
Other loans - 1.196 - -
TOTAL LONG TERM LIABILITIES 39.971 43.512 34.357 38.620

CURRENT LIABILITIES
Bank loans 46.891 41.523 25.006 20.848
Short term part of mortgage and other loans 3.369 10.748 3.369 10.748
Trade payables 112.285 78.761 61.676 45.610
Payables to associated companies - - 3.580 1.943
Payables to related parties - 11.750 - 11.750
Tax payable 7.726 3.563 6.471 2.344
Other liabilities 75.352 79.630 49.786 49.416
TOTAL CURRENT LIABILITIES 245.623 225.975 149.888 142.659
TOTAL LIABILITIES AND PROVISIONS 316.057 295.780 199.698 195.203
TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 571.891 542.771 383.303 356.582

f inancia l resu lt

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
2002
2002 2003
2003 2004
2004 2005
2005 2006
2006

Protecting health, safety and the Total waste in kg per tonne paint manufactured
environment is an integral part of
Hempel’s business strategy, and pre-
44
44 100
venting accidents, reducing waste 100
and improving energy efficiency are 42
42 80
80
of vital importance.
40
40
Our associates are key to this 60
60
endeavour – and in 2006, all Hemp- 38
38
el production units submitted data 40
40
36
36
used to monitor and document our
34 20
20
key performance indicators (KPIs). 34
32
32 00
Waste 2002
2002 2003
2003 2004
2004 2005
2005 2006
2006 22
Worldwide in 2006, Hempel pro-
duced approximately 33 kg of waste
per tonne of paint produced, a Hazardous waste in Kg per tonne product manufactured
reduction of 1.5% compared to last
year. This is the result of our ongo- 20
20
20 20
ing focus on waste reduction.
Total waste comprises both haz-
15
15
ardous and ordinary waste. The 18
18
main ordinary waste streams at
10
10
Hempel sites are wood, paper and
plastic. Hazardous waste includes 16
16
all kinds of waste classified as haz- 55
ardous under the laws of the coun-
tries where the waste is produced. 14
14 00
Hazardous waste accounts for 2002
2002 2003
2003 2004
2004 2005
2005 2006
2006 22
approximately 47% of the total
waste produced, and the reduction
from 2005 to 2006 figures amount- Total energy in kWh per tonne product manufactured
ed to 5% less. This number is con-
sidered satisfactory especially given
200
that individual countries continue to
extend their lists of hazardous
wastes. In effect, volumes of hazard- 180

ous waste can increase just by iden-

A nnua l R eport 2 0 0 6

tification of new items as waste, 160

without changes in the actual waste
volumes produced at sites. Regard- 140
less of this development, all Hempel
companies will continue working to 120
further reduce the amount of waste 2002 2003 2004 2005 2006
produced, and to increase recycling.

40
44
 Health, Safet y and Environment Indicators 2006 Energy consumption
Energy consumption at Hempel
Total waste in kg* 33.23 decreased by 14% per tonne from
2005 to 2006. The main sources of
Hazardous waste in kg* 15.73
energy are electricity, gas and oil.
Total energy in kWh* 125.76 These are combined and converted
Index number of accidents 28 as a whole into kWh per tonne of
paint produced. The reduction in
Accidents per 1 million working hours 7.2 energy consumption shown is attrib-
*per tonne of product produced
uted to the improved economy of
scale achieved by the increases in
Hempel’s overall annual production.
2006
2006
Accidents
In 2006, the number of accidents
INDEX Number of accidents resulting in one or more days’
absence from work totalled 28
across the group. This figure is high-
100
100 er by one than the figure for 2005.
Our corporate LTI (Lost Time Inci-
80
80
dents) figure of 7.2 injuries per 1
60
60
million working hours will be chal-
lenging to improve on in future
40
40 years. Reducing accidents however
is a top priority for Hempel, and the
20
20 various companies will be enhancing
their training efforts to help our
00
2006
2006 2002
2002 2003
2003 2004
2004 2005
2005 2006
2006 employees protect their safety, fol-
low procedures and avoid hazardous
actions. It is possible – and neces-
Accidents per 1 million working hours sary – to further reduce the number
of accidents at Hempel. I
20
20

15
15

10
10
hse in detai l s

55

00
2006
2006 2002
2002 2003
2003 2004
2004 2005
2005 2006
2006

41
 Q & H S E - P roducts
Quality & Health, Safety
and Environment
Hempel Singapore Laboratory
achieves ISO 17025 certification
Thanks to a tremendous team effort,
Hempel Singapore achieved ISO
17025 certification on 16 August
2006. While all Hempel laboratories
A nnua l R eport 2 0 0 6
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 Sin-
gapore.
42
It was a proud Regional Quality and
HSE Products Manager who accept-
ed the award on behalf of Hempel
Singapore at the Singapore Accredi-
tation Council’s Annual Awards Pres-
entation on 19 October 2006.
Environmental certification for
Hempel in Indonesia, Germany,
the Netherlands and Belgium
Further strengthening our commit-
ment to minimising the environmen-
tal impact of our operations and
documenting our compliance with
international and local environmen-
tal 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 Bel-
gium, in addition to eight countries
previously ISO 14001 certified.
Several other Hempel companies
are ISO 14001 certified, which has
led to savings from recycling initia-
tives, waste reduction and resource
use minimisation, in addition to our
securing documentation of compli-
ance with environmental legislation.
REACH – New chemicals
legislation in Europe
On 18 December 2006, the Euro-
pean Council passed new chemicals
legislation known as REACH (Regis-
tration, Evaluation and Authorisation
of Chemicals). The new legislation
enters into force on 1 June 2007.
HEMPEL is dedicated to comply-
ing with the rules and regulations
covering our operations. We are fully
committed to working with our cus-
tomers and suppliers to secure ade-
quate 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 France Peru

sales@ar.hempel.com sales@fr.hempel.com omo@pe.hempel.com
+54 (11) 4816-3137 +33 (0) 344082890 +51 (1) 242 1683

Australia Germany Poland

smel@au.hempel.com sales_marine@de.hempel.com hempel_poland@pl.hempel.com
+61 (03) 93600933 +49 41 01 707 0 +48 (58) 5218900

Bahrain Greece Portugal

+973 17 728668 sales@gr.hempel.com sales@pt.hempel.com
+30 (210) 4143400 +351 212 352 326
Belgium
sales@be.hempel.com Hungary Qatar
+32 (03) 2206160 general.hu@hu.hempel.com hempelqa@qatar.net.qa
+36 (1) 411 1090 +974 4600881
Canada
hempel@us.hempel.com Iceland Romania
+1 (604) 273-3200 slippfelagid@slippfelagid.is office@rohema.net
+354 5888000 +40 788 000781
Chile
sales@cl.hempel.com India Russian Federation
+56 32 2 639006 hempel@vsnl.com moscow-office@ru.hempel.com
+91 (22) 25559910 +7 (495) 974 1448
China, People’s Republic Of
hhh@hk.hempel.com Indonesia Saudi Arabia
+852 28577663 hempel_indonesia@id.hempel.com hempelsa@sa.hempel.com
+62 21 884 3385 +966 (03) 8471616
Corporate site
hempel@dk.hempel.com Ireland Singapore
+45 4593 3800 sales@uk.hempel.com info@sg.hempel.com
+353 (1) 8261822 +65 67998383
Croatia
hempel-umag@email.htnet.hr Italy Slovakia
+385 (052) 741777 it_sales@it.hempel.com HEMPEL (Czech Republic) S.R.O., Branch
+39 (010)- 8356947 +421 455 400 290
Cuba
hempelcuba@hempel.co.cu Korea, Republic Of Spain
+53 (7) 8668128/8668144 sales@kr.hempel.com general@es.hempel.com
+82 (051) 647 5854 +34 937130000
Cyprus
sales@cy.hempel.com Kuwait Sweden
+357 (25) 385873 kw_sales@kw.hempel.com sales.se@se.hempel.com
+965 4813366 +46 (31) 695250
Czech Republic
general.cz@cz.hempel.com Latvia Syrian Arab Republic
+420 545 423 611 +371 (7) 336688 +963 11 2315402

Denmark Lithuania Taiwan, Province Of China

hempel.dk@dk.hempel.com +370 (5) 249 0567 info@tw.hempel.com
+45 45933800 +886 (2) 2706-5535
Malaysia
Ecuador info@my.hempel.com Thailand
sales@ec.hempel.com +60 3 7845 3037 info@th.hempel.com
+593 (4) 2111444 +66 (2) 260 3325/7
Malta
Egypt sales@mt.hempel.com Turkey
hempel@tedata.net.eg +356 21 822268 hempel.tr@tr.hempel.com
+20 2736 4638 +90 (216) 585 1010
Morocco
Emirates hempelmaroc@menara.ma United Kingdom
hempelae@eim.ae +212 22 355373 sales@uk.hempel.com
+971 (06) 5283307 +44 (01633) 874024
Netherlands
Estonia sales@nl.hempel.com United States Of America
A nnua l R eport 2 0 0 6

estonia-office@ee.hempel.com +31 (0)10 4454000 hempel@us.hempel.com

+372 6398793 +1 (936) 523 6000
Norway
Finland sales@no.hempel.com Vietnam
sales@fi.hempel.com +47 55958000 sales@vn.hempel.com
+358 (0) 207-590800 +84 (8) 910205

go to www. hempe l . com to see the f u l l l ist

44
 Annual Report 06
HEMPEL A/S
Annual Report 06

Design, production and print: Datagraf AS

Lundtoftevej 150
DK-2800 Kgs. Lyngby
Denmark
Tel: +45 45 93 38 00
Fax: +45 45 88 55 18
www.hempel.com

HEMPEL