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ecolab Shareholders
1. Clearly
Ecolab TO OUR SHAREHOLDERS:
At Ecolab, we want our message to be
loud and clear. When it comes to
providing the most comprehensive
solutions and dedicated service to our
customers, we know there is only one
choice. And that choice is clearly
Ecolab.
It is clear that our people make the
difference. When we say our team of
22,000 associates is our most
important asset, we back it up by
investing in them, carefully selecting,
training and developing them so they
can make exciting and important
contributions to grow our business.
These investments not only drive the
strong performance and add to the
impressive results from our exceptional
team, but also deepen our commitment
and dedication to serving our customers
in every way possible.
We guide our business with a clear,
coherent, proven strategy. Our Circle
the Customer – Circle the Globe
strategy continues to provide a solid
strategic platform for exceeding our
customers’ expectations, and providing
solutions for every customer need,
everywhere our customers need it.
And we keep a clear eye on the Douglas M. Baker, President and CEO (left),
challenges to our business, whether Allan L. Schuman, Chairman of the Board (right)
it’s a tough rising raw material cost
solutions for our customers’ changing
environment or a change in our
requirements.
customers’ expectations of their
Above all, our ultimate goal is
business partners. This is especially
crystal clear – to fuel growth and
clear as we streamline our operations
success for our customers, our
to keep costs at a minimum while
associates and our shareholders. So we
protecting our investments in our
ask the questions. We do the research.
business, and as we create new turnkey
| Ecolab | Annual Report 2005
2
2. For example, we introduced our 360º of
Protection program for foodservice and
Only one company stands out as the hospitality customers, which provides a
customized plan for the full spectrum of
clear leader in providing premium cleaning and hygiene issues an
operation faces. The program includes
programs, technology and service new products, such as Oasis 146
for every aspect of “clean.” Multi-Quat Sanitizer, which provides a
broad sanitizing range that helps
simplify use and minimize the risk of
health code violations, with innovative
technologies such as our advanced
no-rinse enzyme-based floor cleaner
Wash ‘n Walk. A wide-ranging
We innovate. We build relationships. We $1.23 for 2005, up 13 percent from $1.09
combination of products, systems,
serve. We produce. We deliver. And by in 2004. Excluding a $0.01 per share
training aids and service combine to
doing these well, we grow. charge related to the repatriation of
make 360º of Protection the industry’s
We stay true to our mission, our foreign earnings under the American
most comprehensive solution for today’s
culture and ourselves. And because we Jobs Creation Act (AJCA), diluted
increasingly busy customers.
dedicate ourselves to all of these things, income per share from ongoing
For commercial laundries, we
only one company stands out as the operations increased 14 percent
unveiled full cycle solutions, designed
clear leader in providing premium from 2004.
specifically to meet laundry challenges
❙
programs, technology and service for Our return on beginning
and reduce total operating costs
every aspect of “clean.” That company shareholders’ equity was 20 percent in
through a combination of chemistry,
2005, the 14th consecutive year in which
is clearly Ecolab.
service, engineering, technology and
Read on for a clear picture of our the company achieved its long-term
water care solutions. This program
2005 accomplishments: financial objective of a 20 percent
allows customers to economize their
return on beginning shareholders’
operations in an incredibly competitive
CLEAR equity.
market environment.
❙
FINANCIAL PERFORMANCE Our share price rose 3 percent in
And we expanded our MarketGuard
❙ We adopted the new accounting 2005 – slightly outperforming the
program globally to give food retailers
standard for expensing stock options Standard & Poor’s 500. Our share
worldwide access to the best food
and restated our prior year financial performance has exceeded that of the
safety, pest elimination and floor care
statements in transitioning to the new S&P 500 in 12 of the past 15 years. In
solutions to achieve the highest
rules. All financial information in this addition, we increased our quarterly
standards of cleanliness and sanitation
dividend rate for the 14th consecutive
report reflects these restatements. See
in their operations. MarketGuard
the Notes to the Consolidated Financial year, as it rose 14 percent in December
represents the success both Ecolab and
Statements for more information. to an indicated annual rate of $0.40 per
our customers achieve when we employ
❙ We are proud to report that our net common share.
the best practices from our many areas
❙
sales rose to $4.5 billion in 2005, an We achieved record cash flow from
of expertise to create one customized
increase of 8 percent over 2004, fueled operating activities of $590 million, and
solution for our customers.
by double-digit growth from Kay, Pest our total debt to capitalization ratio
Check out more of our latest
Elimination, Healthcare, Vehicle Care remained unchanged from year-end
product, program and service offerings
and Latin America, along with strong 2004 at 31 percent. These results
in the “Review of Operations” section of
gains from Institutional, GCS Service allowed us to retain our debt rating
this report.
and Asia Pacific. within the “A” categories of the major
Because service to customers is our
❙ Operating income was $542 million rating agencies during 2005.
first priority and our ultimate customer
in 2005, up 11 percent from $490 million
solution, we continued to invest in our
CLEAR PRODUCT AND
in 2004, leveraging the strong sales
sales-and-service organization in 2005.
SERVICE DIFFERENTIATION
gain and effective cost-savings
We added more than 600 new
initiatives. Operating income increased In 2005, we committed to providing
associates to our global field
to 12.0 percent of net sales, compared customers with even more complete
organization, which is now nearly 13,000
to last year’s 1 1.7 percent. solutions and new programs to meet
strong. We also made significant
❙ Diluted net income per share was every need in their operations.
Ecolab | Annual Report 2005 | 3
3. IR Magazine. Recipients of this honor
investments in additional training and and his outstanding leadership abilities
tools for our associates in the field, and focus were great assets as he built are selected by means of an
including our portable 360º Advisor our international business, especially independent survey of more than 4,000
computers, so they can continue to do during his role leading the Ecolab investors. The increased emphasis on
what they do best – build long-lasting Europe business to create one global corporate governance makes this award
relationships with our valued customers. Ecolab. particularly meaningful to Ecolab, and is
❙ In August, Jochen Krautter retired a credit to the high standards of
CLEAR EXPANSION STRATEGY from Ecolab’s board of directors. Jochen conduct in which we hold ourselves in
We continue to execute a disciplined had served on Ecolab’s board since all areas of our work.
In addition, IndustryWeek named
acquisition strategy to ensure the 2002 as a member of the Finance
businesses we acquire are a sound Committee. We thank Jochen for his Ecolab to its “50 Best Manufacturing
strategic fit and meet our financial valued service on the board and to our Companies” report, which identifies the
criteria. company, and wish him well. top-performing manufacturers in the
❙ United States. IndustryWeek focuses on
In January 2005, we acquired Also in August, Ecolab’s board of
Kansas-based Midland Research directors appointed Kasper Rorstad to financial measures that pertain to
Laboratories, a $16 million provider of fill the vacancy created by Jochen operational efficiency and operating
water treatment products, process Krautter’s retirement. Kasper is success in order to determine the best
chemicals and services serving the executive vice president of Human manufacturing companies, which is
commercial, institutional, industrial, Resources, IT and Logistics & another great acknowledgement of our
food and sugar processing markets. We Purchasing for Henkel KGaA of company.
also acquired Kilco Chemicals Ltd., of Düsseldorf, Germany. We welcome him And paying tribute to our dedicated
salesforce, Selling Power magazine
Belfast, Northern Ireland, in April 2005. to the Ecolab board.
❙
With annual sales of $5 million, Kilco Finally, in February 2006, we again praised Ecolab as one of the best
offers products, systems and services regretfully accepted the resignation of companies in America to sell for. Our
for the food and beverage processing Steve Newlin. Steve served as the ongoing commitment to training,
industry, further expanding Ecolab’s president of our Industrial Sector for compensation and development of our
reach in this core market. We continue the past three years, and was a strong field sales-and-service team earned us
to be active in our acquisition efforts to and valued member of our management this notable recognition for the second
broaden our business, improve scale team. We appreciate Steve’s straight year.
and increase our capacity to better contributions to our business, and wish
OUTLOOK FOR 2006
serve our customer needs. him success in his new venture.
As we look ahead at the opportunities
CLEAR CLEAR and challenges we face, our vision
LEADERSHIP DEVELOPMENT ACHIEVEMENT & RECOGNITION remains as clear as ever. We will deliver
As detailed in the sidebar of this letter, For the sixth consecutive year, we were strong and sustainable growth.
Ecolab’s Chairman of the Board Al honored to be named one of the “100 We will continue our long tradition
Best Corporate Citizens” by Business
Schuman will retire in May 2006 after of growth in 2006 and beyond by
Ethics magazine. Ecolab is one of only
a remarkable 49 years of service to focusing on what we do best:
Ecolab. We thank him for his dedication 19 companies to receive this recognition surrounding our customers with an
and many contributions in building every year since its inception. Corporate expanding array of solutions, entering
Ecolab. The Ecolab board of directors integrity and good citizenship are new market segments where we can
has announced that it plans to elect essential pillars of our business, and clearly differentiate and add unique
Doug Baker to the post of chairman recognition like this reaffirms our value, and making the right strategic
upon Al’s retirement. Additional ongoing commitment to conducting our investments in our business to better
important leadership developments business the right way for our serve our many stakeholders.
include the following: customers, our shareholders and our To achieve this, we will leverage our
❙ In June, John Spooner retired associates. Circle the Customer strategy through
from Ecolab after 11 years of service. Ecolab was also recognized for cross-selling and cross-marketing of our
John held a number of significant “Best Corporate Governance” among many divisional services, as well as
management posts during his tenure, mid- to large-cap companies by introducing a new stable of
| Ecolab | Annual Report 2005
4
4. improvements and cost savings allow us
to strengthen our infrastructure and
create more robust solutions within our
supply chain, information technology,
and capital investments.
Saluting None of this is possible without
49 years of service the intense focus and exceptional
performance of our global workforce.
They clearly possess the drive and the
talent required to push us to greater
In an exceptional career that has spanned five decades, Al Schuman has achievements. They have done it year
been a key figure in molding the future of Ecolab. He began his remarkable after year, and we are confident they
journey with Ecolab in 1957 as a junior salesman in Queens, New York. will do it again in 2006, because we
After a decade of service in the field, he went on to create the very have a culture built squarely on service
successful national accounts structure that helped drive Ecolab’s success, execution and value-based results.
to work tirelessly as general manager of our largest businesses, and to Our expectations of our global
serve nine impressive years as chief executive officer, from 1995 to 2004. associate base are absolutely clear.
Our spirit, pride, determination,
commitment, passion and integrity are
In May 2006, after 49 years of service, performance, and aggressive
growth, Al will retire as Ecolab’s Chairman of the Board, a post in which he unparalleled. Ecolab associates embody
has served since 2000. Al has been a thoughtful, tenacious and devoted these traits by living this culture every
member of Ecolab’s board since 1991, and his wise counsel, enthusiasm day. We care deeply about our
and motivational approach will be missed. customers, our company and one
another. Clearly, that’s what being part
Al’s legacy at Ecolab will continue in many ways, from the company’s of the Ecolab family is all about.
strong commitment to service and customer relationships to its focus on There is no mystery to Ecolab.
training and development for associates. His steadfast commitment, deep We’re clear about the high expectations
industry knowledge, and unstoppable drive for success for our associates, we set for ourselves and our company,
our customers and our company has helped secure and solidify Ecolab’s our demanding performance standards,
place as the market leader in premium cleaning and sanitation products and our passion for serving our
and services worldwide. Thank you, Al, for sharing your unwavering customers and shareholders. So when
dedication and determination on behalf of our company and all of us our associates, customers and
in the Ecolab family. shareholders think of the company that
provides these better than any other,
the answer is clear.
Clearly Ecolab.
leading-edge product solutions. This will field headcount in the face of rising raw
be fueled by the strong global customer materials and other costs, we choose to
relationships already established by our invest in our people, their training and
core Institutional, Pest Elimination, Food field technology. We know there is no
& Beverage, and Kay businesses. more powerful driver for customer
Douglas M. Baker
Our continued investments in the satisfaction – and our success – than
President and Chief Executive Officer
strategic pillars of our organization will ensuring we have the best possible
also play a critical role in continued service force that executes effectively.
growth. We will make further Our strategy for reducing costs in
investments in our winning sales-and- this tough operating environment is
service force by adding more talented based on carefully reviewing and
people to our undisputed industry- streamlining our business processes to
leading field team. While some find ways to more efficiently and Allan L. Schuman
competitors have chosen to reduce their effectively serve our customers. These Chairman of the Board
Ecolab | Annual Report 2005 | 5