Henkel's Adhesive Technologies Delivered Strong Performance in 2019

In the third quarter of 2019, Henkel's business development was affected by the continuously challenging market environment. While sales increased nominally, organic growth remained slightly below the same quarter of the previous year.

The EBIT margin, EBIT and earnings per preferred share (EPS) were below the levels of the same quarter in the previous year, largely due to the effects of additional growth investments in consumer business units and digitalization announced at the beginning of the year. Henkel CEO Hans Van Bylen stated in his comments, "In the third quarter, our business units delivered mixed performance. The development of our Adhesive Technologies business unit continued to feel the effects of a significant decline in demand in important sectors. In contrast, this business unit showed strong performance and the EBIT margin remained at a very high level," and added, "Despite positive effects observed initially and stemming from our additional investments in brands and innovation, the development of the Beauty Care business unit remained below the level of the same quarter in the previous year.

The Professional Hair Care unit continued its positive development, while our Retail unit was affected as expected by slow recovery in Western Europe and ongoing inventory clearance activities in China. In the Laundry and Home Care business unit, successful implementation of innovations contributed to positive development.

Henkel confirmed its outlook for the 2019 financial year. Henkel continues to expect organic sales growth for the Group between 0 and 2 percent. Henkel expects organic sales growth between -1 and 1 percent for Adhesive Technologies and development between -2 and 0 percent in organic sales for Beauty Care, while continuing to expect organic growth between 2 and 4 percent for Laundry and Home Care. Henkel continues to expect adjusted sales gains at Group level between 16 and 17 percent. In terms of earnings per preferred share (EPS), Henkel maintains its expectations at the mid to upper range of single-digit percentage rates below the previous year's level at constant exchange rates. In the third quarter of 2019, sales increased nominally by 0.8 percent to EUR 5.077 billion. Organic sales, adjusted for currency fluctuations and the effects of acquisitions and disposals, showed a slight decline of 0.3 percent.

The contribution of acquisitions and disposals amounted to 0.4 percent. The positive effect of currency fluctuations on sales growth was realized at 0.7 percent.

The Adhesive Technologies business unit showed negative organic sales change of -2.4 percent. In the Beauty Care business unit, sales were organically 2.2 percent below the same quarter of the previous year. The Laundry and Home Care business unit experienced strong organic sales growth of 4.0 percent. Emerging markets achieved good organic sales growth of 2.7 percent. Developed markets showed negative organic sales change of -2.3 percent. Sales in Western Europe recorded negative organic growth of -2.1 percent. Eastern Europe achieved organic growth of 7.7 percent. Africa/Middle East experienced organic sales growth of 19.1 percent. Organic sales in North America showed negative change of -3.1 percent. Organic sales in Latin America experienced negative change of -3.4 percent, while Asia-Pacific changed by -5.7 percent.

Adjusted operating profit (EBIT) declined 8.2 percent compared to EUR 926 million in the third quarter of 2018, reaching EUR 850 million. Adjusted sales gain (EBIT) was 1.7 percent below the level achieved in the same quarter of the previous year, at 16.7 percent.

Earnings per preferred share declined 9.5 percent compared to EUR 1.58 in the third quarter of 2018, reaching EUR 1.43. At constant exchange rates, earnings per preferred share declined 10.8 percent. Net working capital as a percentage of sales was realized at 5.7 percent (third quarter 2018: 6.6 percent). Free cash flow in the third quarter of 2019 reached EUR 823 million, significantly higher compared to the same period of the previous year (EUR 484 million). This development is evidence of the company's strong cash flow generation capability. In the third quarter of 2019, sales in the Adhesive Technologies business unit reached EUR 2.395 billion, 0.9 percent above the level of the same quarter in the previous year.

In an increasingly weakened industrial production environment, particularly in the automotive sector, organic sales showed negative change of -2.4 percent.

Adjusted operating profit declined 1.7 percent compared to the same quarter of the previous year, reaching EUR 458 million. Adjusted sales gain remained below the level of the third quarter 2018, at 16.7 percent. In the Beauty Care business unit, sales in the third quarter of 2019 showed organic change of -2.2 percent. This business unit continued to be affected by slow recovery in the competitive market environment of Western Europe and, as expected, by ongoing inventory clearance activities in the Retail unit in China. Beauty Care showed positive development in North America. Nominal sales reached EUR 970 million, 2.3 percent below the level of the same quarter in the previous year. Adjusted operating profit declined 21.2 percent compared to the third quarter 2018, reaching EUR 144 million. Adjusted sales gain similarly remained below the same quarter of the previous year and, with the effect of additional growth investments, reached 14.8 percent.

The Laundry and Home Care business unit achieved strong organic sales growth of 4.0 percent in the third quarter of 2019, thanks to double-digit growth in emerging markets. On the other hand, the laundry care unit in North America remained under pressure.

Nominal sales, which were EUR 1.641 billion in the same quarter of the previous year, increased 2.5 percent to EUR 1.682 billion. Adjusted operating profit showed a decline of 9.0 percent compared to the same quarter of the previous year, reaching EUR 267 million. Adjusted sales gain realized at 15.9 percent remained below the level of the third quarter 2018, largely due to the effects of high-level growth investments announced at the beginning of the year.

Outlook for the First Nine Months of 2019

In the first nine months of 2019, Henkel realized sales of EUR 15.2 billion with an increase of 1.0 percent. Organic sales, adjusted for currency fluctuations and the effects of acquisitions and disposals, were realized exactly at the level observed in the same quarter of the previous year. Currency effects contributed 0.5 percent to sales growth. Adjusted operating profit declined 7.5 percent, falling from EUR 2.694 billion to EUR 2.491 billion. Adjusted sales gain was realized at 16.4 percent, following the 17.9 percent level in the first nine months of 2018. Earnings per preferred share showed negative change of -8.5 percent, declining from EUR 4.59 to EUR 4.20. At constant exchange rates, earnings per preferred share declined 8.9 percent. In the first nine months of 2019, the Adhesive Technologies business unit showed negative organic sales change of -1.5 percent. Adjusted sales gain was at 18.5 percent (previous year: 18.9 percent). The Beauty Care business unit showed negative organic sales change of -2.3 percent while adjusted sales gain was realized at 14.0 percent (previous year: 17.7 percent). The Laundry and Home Care business unit achieved strong organic sales growth of 3.5 percent. Adjusted sales gain was realized at 16.6 percent (previous year: 18.1 percent). Thanks to strong cash management and improvements in net working capital, free cash flow reached a new record level in the first nine months of 2019 and was realized at EUR 1.813 billion with an increase of EUR 690 million. Henkel's net financial position showed an increase of approximately one billion euros compared to the same quarter of the previous year. As of 30 September 2019, net financial position was realized at -EUR 2.256 billion (30 September 2018: -EUR 3.248 billion).