Henkel's Adhesive Technologies Delivers Strong Performance in 2019

In the third quarter of 2019, Henkel's business development was affected by a continuously challenging market environment. While sales increased nominally, organic growth fell slightly short of the same quarter of the previous year. The EBIT margin, EBIT and earnings per preferred share (EPS) fell below the level of the same quarter of the previous year, largely due to the effects of investments in consumer business units and digitalization that were announced at the beginning of the year. Henkel CEO Hans Van Bylen stated in his comments: "In the third quarter, our business units showed divergent performance. Our Adhesive Technologies business unit continued to feel the effects of significantly declining demand in important sectors. On the other hand, this business unit demonstrated strong performance and the EBIT margin was again observed at a very high level," and added: "Despite the positive effects initially observed and from the additional investments we made in brands and innovations, the development of our Beauty Care business unit fell short of the level of the same quarter of the previous year. The Professional Hair Care business unit continued its positive development, while our retail unit was affected as expected by slow-moving recovery in Western Europe and ongoing inventory reduction activities in China. In the Laundry and Home Care business unit, the successful implementation of innovations contributed to positive development." Henkel confirmed its guidance for the 2019 fiscal 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 organic sales development between -2 and 0 percent 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 in the range of 16 to 17 percent. In terms of earnings per preferred share (EPS), Henkel maintains its expectation at the mid to upper levels of single-digit percentages on a constant currency basis, below the level of the previous year.

In the third quarter of 2019, sales increased nominally by 0.8 percent to EUR 5.077 billion. Organic sales, adjusted for the effects of currency changes, acquisitions and disposals, showed a slight decline of -0.3 percent. The contribution from acquisitions and disposals amounted to 0.4 percent. The positive effect of currency changes on sales growth was 0.7 percent. The Adhesive Technologies business unit showed a negative organic change in sales of -2.4 percent. In the Beauty Care business unit, sales were organically 2.2 percent below the level of 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 a negative organic sales change of -2.3 percent. Sales in Western Europe recorded a negative organic decline 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 a negative change of -3.1 percent. Organic sales in Latin America declined negatively by -3.4 percent, while the Asia-Pacific region showed a change of -5.7 percent. Adjusted operating profit (EBIT) fell by -8.2 percent to EUR 850 million compared to EUR 926 million in the third quarter of 2018. Adjusted sales gains (EBIT) were 0.3 percentage points below the level achieved in the same quarter of the previous year at 16.7 percent. Earnings per preferred share declined by -9.5 percent to EUR 1.43 compared to EUR 1.58 in the third quarter of 2018. On a constant currency basis, earnings per preferred share fell by -10.8 percent. Net working capital as a percentage of sales amounted to 5.7 percent (third quarter 2018: 6.6 percent). In the third quarter of 2019, free cash flow amounted to EUR 823 million, significantly higher than the same period of the previous year (EUR 484 million). This development is evidence of the company's strong cash 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 of the previous year.

In an increasingly weakening industrial production environment, particularly in the automotive sector, organic sales showed a negative change of -2.4 percent. Adjusted operating profit fell by -1.7 percent to EUR 458 million compared to the same quarter of the previous year. Adjusted sales gains fell below the level of the third quarter 2018 at 19.1 percent. In the Beauty Care business unit, sales showed an organic change of -2.2 percent in the third quarter of 2019. This business unit continued to be affected by slow-moving recovery in Western Europe's competitive market environment and, as expected, by ongoing inventory reduction activities in the retail business unit in China. Beauty Care demonstrated positive development in North America. Nominally, sales fell 2.3 percent short of the level of the same quarter of the previous year, reaching EUR 970 million. Adjusted operating profit fell by -21.2 percent to EUR 144 million compared to the third quarter of 2018. Adjusted sales gains similarly fell below the same quarter of the previous year, and reached 14.8 percent with the effect of additional growth investments. 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 increases in emerging markets. On the other hand, the laundry care unit in North America continued to come under pressure. Nominally, sales increased by 2.5 percent from EUR 1.641 billion in the same quarter of the previous year to EUR 1.682 billion. Adjusted operating profit showed a decline of -9.0 percent compared to the same quarter of the previous year, amounting to EUR 267 million. Adjusted sales gains of 15.9 percent fell short of the level of the third quarter 2018, largely due to the effects of large-scale 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 achieved sales of EUR 15.2 billion, an increase of 1.0 percent. Organic sales adjusted for currency changes and acquisitions and disposals were exactly at the level observed in the same period of the previous year. Currency effects contributed 0.5 percent to sales growth. Adjusted operating profit declined by -7.5 percent, falling from EUR 2.694 billion to EUR 2.491 billion. Adjusted sales gains fell to 16.4 percent from 17.9 percent in the first nine months of 2018. Earnings per preferred share showed a negative change of -8.5 percent, declining from EUR 4.59 to EUR 4.20. On a constant currency basis, earnings per preferred share fell by -8.9 percent. In the first nine months of 2019, the Adhesive Technologies business unit showed a negative organic sales change of -1.5 percent. Adjusted sales gains were at 18.5 percent (previous year: 18.9 percent). The Beauty Care business unit showed a negative organic sales change of -2.3 percent while adjusted sales gains amounted to 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 gains reached 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, amounting to EUR 1.813 billion with an increase of EUR 690 million. Henkel's net financial position increased by approximately one billion euros compared to the same period of the previous year. As of 30 September 2019, the net financial position stood at -EUR 2.256 billion (30 September 2018: -EUR 3.248 billion).