COVID-19 Pandemic: Henkel's First-Quarter Sales Performance

Focusing on employee health and safety during COVID-19 pandemic, Henkel delivers strong first-quarter sales performance amid challenging market conditions ■ Group-wide sales were impacted by the COVID-19 pandemic: nominal sales declined 0.8%, while organic sales declined 0.9%. ■ Adhesive Technologies sales fell due to sharp decline in industrial business environment: nominal sales declined 4.3%, while organic sales declined 4.1%. ■ Beauty Care sales declined as hairdressing salon activities fell, impacting the Professional business unit: nominal sales declined 2.6%, while organic sales declined 3.9%. ■ Laundry and Home Care showed strong sales growth: nominal sales increased 5.3%, while organic sales increased 5.5%. ■ Divergent regional sales changes: emerging markets grew 2.2%, while developed markets declined 2.8%. Henkel's business performance in the first quarter of 2020 was affected by the COVID-19 pandemic. Group-wide sales declined nominally by 0.8% to EUR 4.9 billion. Despite the impact of COVID-19, organic sales declined only slightly from the same period last year, falling 0.9%. Henkel CEO Carsten Knobel said, "We currently face an extremely challenging situation. The COVID-19 pandemic has affected every aspect of life and has dealt a serious blow to the global economy. Despite this, we delivered strong sales performance in the first quarter.

The health and safety of our employees, customers and business partners are at the top of our priorities during this crisis. In the early stages of this process, we implemented comprehensive protective measures.

At the same time, we did everything possible to continue our operations and serve our customers despite these difficult conditions. Additionally, we launched a global solidarity program that includes product donations and financial support. Finally, we began implementation of our new strategic framework in the first quarter." Henkel delivered strong sales performance in the first quarter amid a challenging market environment. Adhesive Technologies was significantly affected by a notable decline in demand, particularly from the automotive sector. Beauty Care sales also declined year-over-year. The Professional business unit suffered considerably as hairdressing salons were forced to close in many countries. In contrast, organic sales growth in the Consumer Brands area remained at the same level as the same quarter last year. Thanks to strong demand for laundry detergents and home cleaning products, Laundry and Home Care demonstrated very strong organic sales growth. Knobel continued: "As the crisis evolves, we will continue to adapt and respond quickly and flexibly to market changes. With our globally committed team working dedicatedly, our new strategic framework focused on purposeful growth, and our strong balance sheet, we are well positioned to manage this difficult situation and emerge from this crisis even stronger."

Group-Wide Sales Performance

Group-wide sales in the first quarter of 2020 declined nominally by 0.8% to EUR 4.927 billion, compared to EUR 4.969 billion in the first quarter of 2019. Organically (adjusted for currency and acquisitions and divestitures), sales declined 0.9%. The group-level decline was price-driven, with price and volume changes varying across business units. Acquisitions and divestitures contributed 0.4 percentage points to sales growth. Currency effects reduced sales by 0.4 percentage points. Organic sales growth in emerging markets was 2.2%. Sales in developed markets declined 2.8%. Year-over-year, organic sales change in Western Europe was down 4.6%. Meanwhile, we managed to increase sales in Eastern Europe by 10.8%. In the Africa/Middle East region, we achieved organic sales growth of 6.8% in the first quarter of 2020. Sales in North America declined organically by 1.4%, while the change in Latin America was 2.0%. Organic sales growth in the Asia-Pacific region declined 5.7% compared to the same period last year.

Adhesive Technologies Sales Performance

In the first quarter of 2020, sales in the Adhesive Technologies business unit declined nominally by 4.3% to EUR 2.209 billion, compared to EUR 2.309 billion in the same quarter last year. Organically (adjusted for currency and acquisitions and divestitures), sales declined 4.1% on a volume basis. The notable decline in industrial production due to the COVID-19 pandemic marked first-quarter performance. Currency effects reduced sales by 0.3 percentage points. Acquisitions and divestitures did not impact sales performance. Organic sales changes in each business area were affected to varying degrees by the COVID-19 pandemic. Sales in Automotive and Metal declined significantly compared to the same period last year, largely due to production shutdowns in the automotive sector. Sales in Electronics and Industrial Products also experienced a significant decline due to production shutdowns in the aerospace and general industrial sectors. The overall decline in Craftsmen, Construction and Professional was partly offset by results from the construction sector. Packaging and Consumer Products business area showed unchanged organic sales performance. Business units in emerging markets generally showed organic sales declines. Sales declined year-over-year in Latin America and Africa/Middle East regions, as well as in emerging markets in Asia (excluding Japan). The COVID-19 pandemic had a particularly negative impact on our business units operating in China and India. On the other hand, sales in Eastern Europe increased significantly. The largest contributors to this growth were Packaging and Consumer Products and Craftsmen, Construction and Professional business areas operating in Russia. Developed markets also saw negative organic sales changes. Positive growth was observed in developed markets in the Asia-Pacific region, while sales in North America and Western Europe were below the same period last year. The most important reason for this was the slowdown in developments in Automotive and Metal as well as Electronics and Industrial Products business areas. This decline was partly offset in North America by strong growth in Packaging and Consumer Products business area, as well as significant growth in Craftsmen, Construction and Professional.

Beauty Care

Sales Performance Beauty Care business unit sales in the first quarter of 2020 declined nominally by 2.6% compared to the same quarter last year, equivalent to EUR 935 million (first quarter 2019: EUR 960 million). Organically (adjusted for currency and acquisitions and divestitures), sales declined 3.9%. This decline was largely volume-driven. Currency effects reduced sales by 0.9 percentage points. Acquisitions and divestitures contributed 2.3 percentage points to sales change. Sales in the Consumer Brands business area showed no change year-over-year, but demonstrated good performance especially in the Body Care category, notably the Dial brand. Sales in the Hair Cosmetics category generally declined slightly, while we achieved good organic growth with Hair Colorants. Meanwhile, Hair Care and Hair Styling showed declines year-over-year. The COVID-19 pandemic had a strong negative impact on our Beauty Care Professional business unit. During the first quarter, mandatory closures of hairdressing salons by governments in many countries caused double-digit percentage declines in sales. The decline resulting from the COVID-19 pandemic also manifested itself in regions. Performance in emerging markets was slightly negative. Asia (excluding Japan), Latin America and Africa/Middle East regions declined year-over-year. In contrast, Eastern Europe achieved strong organic sales growth thanks to the successful performance of our Consumer Brands business unit. In developed markets, sales generally declined. Western Europe and North America regions declined year-over-year. The Consumer Brands business unit in North America showed very strong growth in the Body Care category; however, this did not fully offset the decline seen in the Hairdressing Salon business unit in this region. Sales performance in developed markets in the Asia-Pacific region was slightly below the same quarter last year.

Laundry and Home Care Sales Performance

Sales in the Laundry and Home Care business unit in the first quarter of 2020 increased nominally by 5.3% to EUR 1.755 billion, compared to EUR 1.667 billion in the same quarter last year. Strong organic sales growth of 5.5% was volume-driven. Currency effects reduced sales by 0.2 percentage points. Acquisitions and divestitures had a generally neutral effect on sales performance. In Laundry Care, we experienced strong organic sales growth thanks to our leading brand Persil, which generated double-digit percentage sales increases largely as a result of our active innovation approach. Our largest brand in North America, all, similarly demonstrated very strong performance. Organic growth in Home Care was likewise double-digit, largely as a result of double-digit increases in the Pril, Bref and Somat brand families. Emerging markets, with double-digit percentage organic sales increases, were the main driver of very strong organic sales growth in this business unit. Henkel achieved double-digit percentage sales increases in the Africa/Middle East, Asia (excluding Japan) and Eastern Europe regions. Sales growth in Latin America was also very strong. Organic sales performance in developed markets was positive. Sales in Western Europe were slightly negative, while North America showed positive sales growth. Sales performance was particularly strong in the United States, an important market for Henkel. Growth in developed markets in the Asia-Pacific region was double-digit.

Group Net Assets and Financial Position

Compared to 31 December 2019, no material changes occurred in the Group's net assets or financial position during the period reviewed.

Outlook

On 7 April 2020, Henkel's Board of Management concluded that it is no longer possible to realize the forecasts for the 2020 financial year contained in the 2019 Annual Report. As the COVID-19 pandemic evolves dynamically and impacts the global economy, it is currently not possible to make a reliable and realistic assessment of Henkel's future business performance. Henkel will share its forecasts on business performance for the remainder of 2020 as soon as it is possible to make an assessment with sufficient reliability.