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One. We chose this simple, elegant
word as the theme for our 2001 report because it so effectively summarizes
and celebrates the major strategic achievement that characterizes the
year and our future: the unification of Ecolab's global enterprise.
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Allan
L. Shuman |
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Chairman
of the Board, President and Chief Executive Officer |
To
Our Shareholders
Thanks to our
acquisition of the remaining 50 percent of our European joint venture,
Ecolab is now one seamless company worldwide. For the first time since
the former Henkel-Ecolab was established more than 10 years ago, we
are one Ecolab in Europe, North America and around the globe
– one company, sharing one culture of excellence and one destiny:
unlimited growth!
This transaction,
completed November 30, served as a stirring climax to what was a truly
unusual and extraordinary year.
In addition
to celebrating our global unity in 2001, we rallied together to face
extremely tough market conditions that were, in many ways, unlike
anything we’ve experienced during our almost 80 years in business.
The once robust U.S. economy, of course, had already begun to slow
when terrorists attacked the United States on September 11. This horrific
tragedy and the unprecedented events that occurred in its immediate
wake – such as the three-day shutdown of the stock market and the
grounding of all domestic air transportation – sent the economy plunging
even further into a recession. The travel and lodging industry, one
of our largest markets, was hit especially hard due to the climate
of public fear and uncertainty.
But in the aftermath
of the terrorist attacks, as we sent our thoughts and prayers to the
families of those who lost their lives, we also made a conscious decision
not to let these events defeat our Ecolab spirit. We are, after all,
a company that has risen to the occasion time and time again throughout
our remarkable history. From the Great Depression and various wars
to countless challenges from competitors, Ecolab has not only persevered,
but emerged even stronger than we were before.
As we look back
on our accomplishments in 2001, it’s clear that we have a lot to be
proud of. While our financial results may not have met the aggressive
standards we set for ourselves, it is important for us to keep in
mind that – during a year in which the earnings of the Standard &
Poor’s 500 declined more than 25 percent and the hospitality industry
faced a record drop-off in business – we still handily outperformed
the broad market. And, just as importantly, we took steps to further
solidify our position as an industry leader in the coming years.
Here’s a brief
overview of 2001’s highlights:
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pinnacle of performance
Sales from wholly
owned operations increased 4 percent to a record $2.4 billion. Investments
in our sales-and-service force, new products
and services, aggressive sales initiatives and strategic acquisitions
were key drivers of the gain as we fought the sliding economy. Due
to the timing of the acquisition’s closing
date, Henkel-Ecolab’s 2001 results have been accounted for as equity
income, consistent with prior years. In future
years, however, they will be fully consolidated in Ecolab’s operations.
When European sales are included, our global coverage will be more
than $3 billion.
Income
was $188 million, a decline of 5 percent from income before unusual
items of $198 million in 2000. Diluted earnings
per share eased 3 percent, to $1.45. Productivity gains and cost controls
partially offset the difficult economic climate
of 2001.
We outperformed the S&P 500 for the second consecutive year, and
we’ve now beaten the index nine years out
of the past 11. Our stock price opened 2001 at $43.19 and closed at
$40.25, off 7 percent. While this was our
first such annual decline since 1994, we still outperformed the 12
percent stock price decline of the S&P
500.
Return
on beginning shareholders’ equity was 25 percent, exceeding our corporate
goal of 20 percent for the 10th consecutive
year.
We raised our quarterly cash dividend in December by 4 percent to
13.5 cents per common share. This resulted
in a new indicated annual rate of 54 cents per share. It was our 10th
consecutive annual dividend rate increase.
Our strong financial position allowed us to complete the Henkel-Ecolab
transaction through a cash payment to Henkel
KGaA of Düsseldorf, Germany. Although debt rose as a result of the
transaction, our excellent cash flow should
enable us to pay this down soon. In fact, following this payment,
the major credit rating agencies upheld Ecolab’s
strong “A” category balance sheet and Prime-1 commercial paper rating.
In January 2002, we announced a global restructuring. Following several
years of acquisition activity and global expansion,
we needed to refine our organization to increase the long-term efficiency
and productivity of our worldwide operations.
In addition to forging an organization that will be more effective
and responsive for the long term, our efforts
will result in significant annual cost savings. Although these savings
will begin in 2002, their full impact won’t be realized until 2003.
Our actions will make us an even more effective
competitor in the marketplace.
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exceptional blend of products and service
The selection of cutting-edge products and solutions we introduced
in 2001 includes the Inspexx line of antimicrobial
surface treatments for red meat and poultry, which reduces potential
contamination from harmful bacteria during
processing. Independent restaurant customers now benefit from Soil-A-Way,
a comprehensive cleaning line tailored especially
to their needs. Solid Ovation, a new solid detergent system
for high-pressure automatic car washes, offers an easy-rinsing foam,
fast soil penetration and superior shine for
clear-coat finishes. Our Oxy-Sept 333 antimicrobial disinfectant
was approved to guard livestock producers
and owners from the threat of foot & mouth disease, which damaged
the agricultural industries of several European
and South American countries. And thanks to our S.W.AT. Fruit
Fly Service, we are helping our customers
eliminate these increasingly problematic pests from their commercial
kitchens.
You
can read more about our numerous other advances in new products
and technologies in the “Review of Operations”
section of this report.
The largest and best-trained sales-and-service organization in the
industry only got better in 2001. In addition
to more than 2,500 European associates added through the Henkel-Ecolab
acquisition, we added more than 300 new associates
to our field organization, which now totals more than 10,000 members.
Simply put, our global service coverage is unmatched by anyone, anywhere.
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company committed to growth
Of course,
as I mentioned earlier, our biggest acquisition ever became official
on November 30 when we acquired 100 percent ownership of our former
European joint venture. Again, this acquisition greatly strengthened
our global leadership position, and it positions us for improved
growth because we now have the ability to better serve our customers’
needs on a global basis and introduce new offerings worldwide. But
we also made a number of other notable acquisitions. They include:
We extended our Pest Elimination services to Brazil with the purchase
of Microbiotecnica in July. This
acquisition is part of our strategy to expand
our international pest elimination business, which in addition
to North America, spans select countries in
Asia Pacific and Latin America.
Our GCS Service Division in October acquired Commercial Parts &
Service, a provider of kitchen equipment repair
services and parts with branches in Indiana, Kentucky, Tennessee and
Mississippi. GCS now covers nearly every major
U.S. restaurant market, with the broadest national independent service
capability in the country.
In January 2002, we acquired Chicago-based Audits International –
a provider of food safety services since 1982
– and launched a new service: EcoSure Food Safety Management. A natural
extension of our growing service offerings,
EcoSure evaluates food safety procedures of restaurants, hotels, supermarkets,
and other foodservice and hospitality establishments.
Also in January 2002, we made our first acquisition in Europe since
closing the Henkel-Ecolab transaction by purchasing
certain operations of Kleencare Hygiene in the United Kingdom, France,
Switzerland and the Netherlands. Kleencare
expands our market share in key geographies, offering products,
systems and services for the food and beverage industry, and providing
customer support for the varied hygiene requirements
of each segment.
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incomparable level of leadership
We continued
to develop our management team, leveraging the depth of talent within
the Ecolab ranks.
In March 2002, we promoted four of our key leaders:
Doug Baker
was named president of our Institutional Sector and continues to
have responsibility for our Institutional, Textile Care and Kay
divisions.
Rick Marcantonio
is now president of our Industrial and Service sectors, which include
the Food & Beverage, Pest Elimination, Professional Products,
Water Care Services, Vehicle Care and GCS Service divisions.
John Spooner,
promoted to president of our International Sector, will continue
to concentrate on accelerating the growth and profitability of our
Europe, Asia Pacific, Latin America and Africa/Middle East/ Export
businesses.
Steve Fritze
was named senior vice president and chief financial officer. Formerly
our senior vice president – finance and controller, Steve will lead
our Accounting and Control, Treasury, Tax and Investor Relations
organizations.
In February 2001, our board of directors welcomed new members Ulrich
Lehner and Stefan Hamelmann. Ulrich is the
president and chief executive officer of Henkel KGaA of Düsseldorf,
Germany, a manufacturer of chemicals, household
and personal care products, and adhesives. Stefan is a member of
the Shareholders’ Committee of Henkel KGaA and owner of Franz Hamelmann
Baugesellschaft GmbH, a privately held construction
company.
In March 2002, Jochen Krautter, chief financial officer of Henkel
KGaA, joined the board.
We also bid
farewell to several members of our leadership team.
L. White Matthews III resigned as chief financial officer in August
2001. He also resigned from our board of directors
later in the year. We thank White for the strategic leadership he
provided our organization.
In March 2002, I regretfully accepted Bruno Deschamps’ resignation
as president and chief operating officer.
Bruno, who contributed to making Ecolab an even more successful and
global company, decided to pursue personal
interests. We wish him well in his future endeavors.
In February 2001, the board recognized the resignations of directors
Roland Schulz and Albrecht Woeste after eight
and 10 years of distinguished service, respectively. In May 2001,
the board acknowledged the retirement of Ruth
S. Block after 16 years of exemplary service.
Hugo Uyterhoeven retired as a member of our board in March 2002 following
10 years of dedicated service.
We thank each
of the above for their many contributions, counsel and leadership,
and for helping to develop the management talent that will lead
Ecolab’s growth.
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recognized standard of excellence
With the public’s heightened concern regarding corporate ethics, we
were very pleased to have been designated,
for the second year in a row, one of America’s “100 Best Corporate
Citizens” by Business Ethics magazine.
This honor reaffirms our continued efforts to act with the highest
level of integrity and responsibility in all
of our business dealings.
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one
unbreakable
spirit
There
is nothing more resilient than the human spirit.
For me, that’s the one certainty that emerged from the tragedy
and devastation that occurred in 2001. Through it all, our
unique capacity to pick ourselves up, dust ourselves off and
continue plowing ahead, even under the direst of circumstances,
remains constant. I believe people everywhere share this common
instinct. I certainly feel it – and it keeps me focused on
the incredible future I know is within our grasp.
So, despite the many challenges we faced last year, we will
march onward and upward. Inch by inch, step by step, we’ll
keep pursuing our goals, undauntedly surmounting any obstacles
we may encounter. Mark my words, we’re up to the task. At
Ecolab, we’ve always known that growth and success don’t come
easily. You have to work hard and be willing to take risks,
make sacrifices and create your own opportunities. As someone
once said, “If opportunity doesn’t knock, build a door.”
Like the human spirit, our Ecolab spirit can never be defeated.
Sure, we take our hits now and then, but we keep coming back
stronger than ever. And we will again this time. That’s ONE
thing you can count on.
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We
were the first recipient of the International Dairy Foods
Association Supplier Excellence Award, which
we received in October at the Worldwide
Food Expo in Chicago. Judged on superior service
to customers, product/service innovations that
assist customers, and demonstrated dedication to
the food industry, we were very pleased to be
recognized with this award.
Outlook
for 2002:
If the events
of 2001 have taught us anything, it’s that predicting the future
is a very tricky proposition. Nobody really knows what the coming
year might bring. What we can do, however, is make sure we’re
fully prepared to meet every challenge and seize every opportunity
that lay ahead. That is exactly what Ecolab has done.
Right now,
at this moment, we are unquestionably stronger than at any other
point in our history. We have a greater reach and more potential
for really big-time growth than ever before. And it’s our strength
that will help us weather the current economic climate, as well
as any new twists and turns that events may take in the coming months.
We’ve done it before, and we’ll do it again.
I’ve said it
many times before, but the fact is, everyone has to eat and everything
has to be cleaned – during the good times and the bad. That’s why
Ecolab’s leading-edge products, systems and services are always
in demand. And our customers need us the most during troubled economic
times, when they have to fight even harder to protect their brand
names and keep their customers coming back. We not only give them
the highest-quality cleaning and sanitation solutions, but we help
them achieve significant cost and labor savings – because every
penny counts.
When you put
this all together and look at the big picture, it’s easy to see
why I’m so confident that Ecolab will continue to outperform the
broad market and produce attractive results. We are a global leader,
and we already have the tools and people in place to achieve our
goals in 2002 and the years to come. But that doesn’t mean we’re
going to stop pursuing new avenues for growth. No way.
We have a roadmap
for growth that emphasizes new products, new accounts, deeper product
penetration, aggressive cross-selling, sales force increases and
profit margin improvement. It also stresses further expansion –
via global account growth, acquisitions, strategic alliances, and
by tapping into new and expanding markets – to help us even better
circle our customers and circle the globe.
Think about
it: Can anyone else deliver so much to both customers and investors
alike? The answer is clear.
There is only
ONE – Ecolab!
Allan L. Schuman
Chairman of the
Board, President
and Chief Executive Officer
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