January Questions

The Future What do you foresee happening in electronics applications? I think we'll see a continued proliferation of electronics across many different applications as well as the addition of some new applications, which certainly makes for a very bright future for electronics. Products that historically haven't had a high electronic content will begin to incorporate electronics as a larger portion of their composition. Take the automotive market, for example: Currently less than 7% of automotive content is electronic but within the next 10 years, over 20% of the material composition will be electronic. As a major materials supplier to the automotive industry, this bodes very well for Henkel's business - we are very optimistic about the future of electronics applications. Which electronics end-user markets represent the greatest opportunities for growth? Henkel is focused on several markets that we view as high growth areas. We are extremely well entrenched in the computer and telecom markets, which together account for nearly 60% of electronic production and where our Hysol® ,Loctite® and Multicore® brands are delivering next-generation materials solutions for the latest wireless products. The automotive market is another segment where Henkel sees high growth potential and where we're investing significant resources in a market we see as very dynamic. Will offshoring production continue to be a popular option? Yes, we do believe there will be a continuation in production offshoring. China is clearly still the largest market and, as a supplier to customers in China, Henkel is committed to supporting that market with local resources. The electronics group of Henkel already has one production facility in China and we're in the process of building a second facility to support and supply the local market. China has been the hottest global market for our products for the past 10 years and we don't envision that changing in the near-term. As far as other regions are concerned, the market in Mexico has realized substantial manufacturing growth over the last 6 to 12 months and Central Eastern Europe has also had a fairly high level of activity. Henkel's business in both of these regions is very solid. Industry Consolidation/M&As Does the consolidation/merger and acquisition activity affect your business? Consolidation among our customer base will continue as manufacturers try to expand their global footprint. From Henkel's perspective, this consolidation is very positive, as we have a strong position in all three major markets and are well equipped to provide superior customer support on a global scale. In terms of Henkel's business model, growth by acquisition has been very successful for us. Our core Hysol®, Loctite® and Multicore® brands were all acquisitions and are now working beautifully together to provide complete, across the board materials solutions for the semiconductor and printed circuit board markets. Henkel is always interested in opportunities that would improve our global position or further enhance our product range. Price Increases How are raw material price increases affecting your business and product development? The biggest challenge facing Henkel -- and all materials suppliers for that matter -- is raw material price increases and we believe that this challenge will continue into 2005, though not at 2004 levels. Henkel will build a certain percentage of the increases into our material end product pricing, but we do not plan to pass on all of that to our customers. So, as we see it, there are two ways to address the issue and still maintain historical margins. First, Henkel is developing superior materials technology that sets us apart from the competition and provides a level of innovation for which customers are willing to pay a premium. And, second, we are running more efficient, streamlined manufacturing operations. Henkel is confident that the procedures we have put in place will enable our core Hysol®, Loctite® and Multicore® brand products to maintain their leading market positions and remain highly competitive. Patrick Trippel, President Electronics Group of Henkel