ecolab ShareholderLetter


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ecolab ShareholderLetter

  1. 1. WE’RE INSPIRING CONFIDENCE EVERY DAY – WITH THE BEST PRODUCTS, PROGRAMS AND PEOPLE ON THE PLANET TO OUR SHAREHOLDERS: Our formula is straightforward. We take Every day, we work to build our care of our people, help our customers customers’ confidence in our ability prosper and grow, maintain a disciplined to protect and serve them better than financial approach – and we succeed. anyone else. How? By providing effective and innovative solutions. By offering Looking for additional inspiration? comprehensive and superior protection. Read on for our 2006 accomplishments: And most importantly, by delivering the DOUGLAS M. BAKER, JR. industry’s broadest and best personal FINANCIAL PERFORMANCE service – anytime, anywhere. Chairman of the Board, We are proud to report that our net President and Chief Executive Officer sales rose 8% to $4.9 billion in 2006, We have a strong bias for action – and fueled by double-digit growth in the for results. When our customers have a U.S. and Latin America, and solid need, we solve it. When we say we’ll do growth in the rest of the regions. something, we do it. Ecolab is made up Operating income was $612 million in of a diverse group of talented, dedicated 2006, up 13% from $542 million in associates who thrive on making 2005. Operating income increased to customers happy – and winning. It’s our 12.5% of net sales, compared to last team that makes us successful and the year’s 12.0%, driven by strong sales leader in our industry. gains and effective productivity initiatives. This team has enabled us to develop the Diluted net income per share was $1.43 most innovative, advanced product and for 2006, up 16% from $1.23 in 2005. program solutions to assist our Our return on beginning shareholders’ customers and exceed their expectations. equity rose to 22% in 2006, the 15th We invest millions in research and consecutive year in which the development to make sure we’re creating company achieved its long-term the best solutions for our customers at financial objective of a 20% return on the best value, which allows them to turn beginning shareholders’ equity. their focus to other areas of their We achieved record cash flow from businesses. operating activities of $628 million, and our total debt to capitalization But even companies with great people ratio was 39%. These results enabled and great products can only go so far us to retain our debt rating within the without a great growth strategy. “A” categories of the major rating Fortunately, at Ecolab, we have a proven agencies during 2006. strategy that has helped us achieve We increased our quarterly dividend strong, steady growth in the past, and rate for the 15th consecutive year, as continues to generate new opportunities it rose 15% in December to an for the future. Our Circle the Customer – indicated annual rate of $0.46 per Circle the Globe strategy charts a clear common share. course for our future as we work to help Our share price rose 25% in 2006 – customers achieve the highest levels of widely outperforming the Standard safety and sanitation throughout their & Poor’s 500 14% increase. Our share operations. performance has exceeded that of the S&P 500 in 13 of the past 16 years. 4 ANNUAL REPORT 2006
  2. 2. NEW PRODUCTS AND SERVICES LEADERSHIP DEVELOPMENT In 2006, we continued our tradition of These examples are just a few of the As previously announced, I was elected excellence in new product innovation to many launched last year. You can find to the additional post of Chairman provide superior cleaning, food safety more of our latest product, program and of the Board in May 2006 upon and health protection. For example, we service offerings in the “Review of Al Schuman’s retirement from the Ecolab built upon our strong antimicrobial Operations” section of this report. board of directors. On behalf of the platform with the introduction of entire Ecolab family, I want to thank Al Octa-Gone®, the protein (meat and Of course, beyond products and again for his 49 years of inspired service poultry) industry’s only fatty-acid based programs, our legendary customer and many contributions to Ecolab. I’m antimicrobial treatment that reduces service is Ecolab’s key differentiator and honored that the board selected me for microbial contamination on ready-to-eat No. 1 priority. In 2006, we continued to this additional responsibility, and I’m meat and poultry products, making them invest in our sales-and-service excited to lead Ecolab as we continue to safer and contributing to a longer shelf organization, adding more than 500 grow and leverage our many life. In addition, we further bolstered our new associates to our global field opportunities. food safety portfolio when Tsunami® 100 organization, which is now more than became the first EPA-registered 13,000 strong and by far the industry’s Additional important leadership antimicrobial product that reduces best and largest. This commitment to developments include: pathogens in fruit and vegetable process personal service continues to inspire water, thereby helping to reduce the risk confidence among our customers that In February, Jim Howard retired from of foodborne illness. Ecolab is a dedicated partner in the Ecolab’s board of directors. Jim had ongoing success of their businesses. served on Ecolab’s board for 15 years, In addition, we built upon our proven providing strong leadership and wise solutions and systems that maximize ACQUISITIONS counsel. We thank Jim for his performance while minimizing total We continued to make targeted outstanding service to Ecolab, and environmental impact. We expanded our acquisitions, following our disciplined wish him all the best. highly successful 360º of Protection™ approach to ensure strong strategic and In May, John Zillmer was elected to program into the long-term care market, business fit, as well as attractive the Ecolab board of directors. John creating a customized product and economics. is the chairman of the board and chief service offering that saves time, labor, executive officer of Allied Waste energy and water to increase operational In June, we acquired Shield Medicare Industries, Inc., a solid waste efficiencies. By combining a wide-range Ltd., based in Farnham, UK. With management company. In addition, of products, systems, training and annual sales of $19 million, Shield is a John has extensive experience in the service, the 360º of Protection™ leading provider of contamination managed services industry, an program represents the industry’s most control products for pharmaceutical, important Ecolab market. We welcome comprehensive solution for foodservice, medical device and hospital John to our board. hospitality and long-term care clean rooms. In November, we regretfully accepted customers. In September, we purchased Powles the resignation of Luciano Iannuzzi. Hunt & Sons International Ltd’s UK Luciano had served as executive vice We also added PERformance™, a commercial laundry business, with president of the Ecolab Europe/Middle low-temperature, proprietary oxygen $5 million in annual sales, from the East/Africa organization for the past bleach that reduces energy consumption Quill International Group. This four years. We thank him for his and increases textile life, to our acquisition will bolster our textile care dedicated service and wish him the successful full cycle solutions™ suite for business in the UK, adding scale to best in his future endeavors. laundry customers. This addition is the business. In February 2007, Ulrich Lehner retired another way to help commercial Also in September, we acquired from the Ecolab board of directors. laundries reduce total operating and DuChem Industries, Inc., a Ulrich had served on Ecolab’s board environmental costs through a manufacturer and marketer of since 2001 as a member of the Finance combination of chemistry, service, cleaning and sanitizing products for Committee. We thank him for his engineering, technology and water the food and beverage processing valued service to our company, and care solutions. market based in Newnan, Ga. wish him well. DuChem’s core focus is the protein Also in February 2007, Ecolab’s board Continuing our efforts to customize (meat and poultry) market segment, of directors appointed Hans Van Bylen solutions to meet specific customer with annual sales of $10 million. to fill the vacancy left by Ulrich needs, we created a unique pest Lehner’s retirement. Hans is executive elimination program for limited-service vice president of Cosmetics/Toiletries hotels. It has seen significant customer of Henkel KGaA of Düsseldorf, success and is helping to drive Germany. We welcome Hans to continued strong growth in our the board. Pest Elimination business. ANNUAL REPORT 2006 5
  3. 3. ACHIEVEMENT & RECOGNITION OUTLOOK FOR 2007 For the seventh consecutive year, We expect 2007 to be another year of Finally, our strategy. Our investments in Ecolab was honored to be named one growth and achievement for Ecolab and our people and our products fuel our of the “100 Best Corporate Citizens” our associates. Our major end markets in Circle the Customer – Circle the Globe by Business Ethics magazine. Ecolab is foodservice, hospitality and healthcare strategy. But ultimately, Circle the one of only 16 companies to receive appear to be in solid shape as we enter Customer – Circle the Globe is successful this recognition every year since the 2007, and the ongoing need for improved because it’s driven by our customers. list’s inception. We are committed to and more effective cleaning and They tell us what they want and need to operating under the highest standards sanitation solutions in the global food improve their operations, and we listen of corporate behavior, and this award supply and foodservice system continues and deliver. Whether it’s food safety, is a terrific acknowledgement of to present new opportunities for us to employee safety, operating efficiency or our work. better serve our customers. training, we provide best practices and Ecolab also earned seventh place on programs to help them succeed. And we “America’s Best Big Companies Honor In 2007, we’ll leverage these trends and back it all up with personal service that Roll.” The honor roll recognizes 29 continue to inspire confidence in Ecolab has allowed us to deliver results to our companies that have consistently by doing the same things that have made customers, unit by unit, around the appeared on Forbes magazine’s annual us successful for the past eight decades. world. list of the 400 best big companies in This includes investing in our people, our America – also known as the Forbes product portfolio, and our Circle the We work hard to help all of our Platinum 400. This recognition Customer – Circle the Globe strategy. stakeholders succeed. We work hard so underscores our focus on consistently our customers have the best solutions achieving strong financial results in First, our people. We start here because for all of their needs. We work hard to the right way. it’s our people that set us apart. They provide our associates meaningful work In recognition of our global bring the spirit, pride, determination, opportunities that promote personal commitment to innovation and food commitment, passion and integrity of our development and reward exceptional safety, the International Association Ecolab Culture to life. We invest in our performance. And we work hard to for Food Protection selected Ecolab as people by giving them the right tools, provide our shareholders with long-term the 2006 recipient of the Black Pearl technology and training they need to get superior value. Because for Ecolab, this is Award of Corporate Excellence in Food their jobs done more quickly and what inspiring confidence is all about. Safety and Quality. This prestigious efficiently. This ranges from wireless honor is given annually to one handheld technology for our field company for its efforts in advancing representatives to robust IT systems for food safety and quality through administrative functions to streamlined consumer programs, employee processes for our supply chain Douglas M. Baker, Jr. relations, educational activities, operations to online and face-to-face Chairman of the Board, adherence to standards, and support training programs. It also includes President and Chief Executive Officer of the goals and objectives of the IAFP. fostering a workplace defined by We are honored to be chosen for this opportunities for personal growth and important recognition. professional advancement, and training Finally, Ecolab was again named to to support that growth. Selling Power’s list of “The 50 Best Companies to Sell For” among the Next, our products. We create solutions largest sales forces in the United that really work for our customers – by States. Ecolab was ranked third on the focusing on ways to lower their use of list, which uses key metrics including natural resources and drive costs out of compensation, training and career their operations. Because it’s not just the mobility. At Ecolab, we believe that safety and effectiveness of the product our sales force is at the heart of our that’s important, it’s also the ease of use success, and we believe the best way and the ability to enhance their operational to serve our customers is to have the efficiency by providing solutions to best people serving them. We’re proud better manage time, labor, water and that Selling Power has again utility costs. Every year, we introduce acknowledged our investments in exciting advancements to help our our incredible team. customers achieve even better results and promote safer workplaces for our customers and their employees. And 2007 will bring our customers effective new solutions to help them meet their challenges. 6 ANNUAL REPORT 2006