Henkel To Jettison Underperforming Brands

Henkel, the consumer goods group which operates across the Adhesive Technologies, Beauty Care and Laundry & Home Care industries, has confirmed plans to reduce its portfolio of brands.

In a webcast, Carsten Knobel, the former CFO of the business who took over the CEO role in January after a run of poor results, said that “active portfolio management” was to be a key part of the new corporate strategy.  He advised that the group would sell or discontinue some brands, mainly in its consumer division, explaining that around 50% of brands and categories, with a total sales volume of more than EUR 1bn, have been earmarked for divestment or discontinuation by 2021.

Henkel is the leading solution provider for adhesives, sealants and functional coatings worldwide and offers products under the Loctite, Unibond and Pritt brands, among many others.

The Group reported mixed business performance in 2019 and gave its outlook for 2020:

• 2019 results, impacted by slowing economic growth and increased investments in consumer businesses and digitalization across the company:
  • Sales rise by 1.1% to 20,114 million euros, organic sales stable
  • Adjusted* EBIT margin at 16.0% (-1.6 pp)
  • Adjusted* earnings per preferred share (EPS) reach 5.43 euros, nominal -9.7%, at constant exchange rates -10.1%
  • Free cash flow: 2,471 million euros (+554 million euros)
  • Dividend** on prior-year level: 1.85 euro per preferred share
• Outlook for 2020: further step-up in growth investments in an uncertain industrial market environment
  • Organic sales growth: 0 – 2%
  • Adjusted* EBIT margin: around 15%
  • Adjusted* EPS: decrease in the mid- to high single-digit percentage range at constant exchange rates

“In 2019, our business performance was overall mixed. Our Adhesive Technologies business unit was impacted by a marked slowdown in key customer segments, in particular in the automotive and electronics industry. At the same time, our consumer businesses, Laundry & Home Care and Beauty Care, faced intense competition in many markets,” said Henkel CEO.

“At the beginning of 2019, we announced our plan to increase growth investments by around 300 million euros annually from 2019 onward to strengthen our brands, technologies and innovations as well as to accelerate the digital transformation of Henkel,” Carsten Knobel further explained.

In the course of the year, Henkel gradually ramped up these growth investments across the company, but the additional funding was not fully utilized. Both declining volumes and the increased growth investments impacted the earnings and the EBIT margin in 2019.
“Thanks to our continued focus on cost management, higher efficiency of our processes and the adaptation of structures, we were able to partially mitigate these effects,” said Carsten Knobel. “We also continued to invest in the expansion and upgrading of manufacturing sites and innovation centers. In addition, we strengthened our different businesses through targeted acquisitions and partnerships with a total volume of almost 600 million euros.”

“However, we are not satisfied with the results that we have achieved. We had higher ambitions for Henkel and, consequently, will take decisive action to fully leverage our potential for growth and improving financial performance in the future,” Knobel summarized the business development in 2019.

Outlook 2020

Henkel published today its full year outlook for fiscal 2020, in line with the announcement in December 2019. For 2020, Henkel expects to generate organic sales growth of 0 to 2 percent. Henkel expects an adverse effect on its earnings performance in 2020, given the uncertainty prevailing in the industrial environment and the year-on-year higher growth investments in marketing and advertising, as well as in digitalization and IT to sustainably strengthen its businesses. The adjusted EBIT margin is expected to reach around 15 percent. Adjusted earnings per preferred share (EPS) are expected to decrease in the mid- to high single-digit percentage range at constant exchange rates.

Sales and earnings performance in fiscal 2019

Sales in fiscal 2019 rose nominally by 1.1 percent to 20,114 million euros. Currency effects had a positive impact of 0.6 percent on sales growth. Adjusted for these currency effects, sales grew by 0.5 percent. The contribution from acquisitions and divestments amounted to 0.5 percent. Organic sales growth, which excludes the impact of currency effects and acquisitions/divestments, was flat at 0.0 percent.

The Adhesive Technologies business unit reported an organic sales development of -1.5 percent. In the Beauty Care business unit, sales were organically -2.1 percent below the prior-year level. The Laundry & Home Care business unit achieved an organic sales growth of 3.7 percent. 

The financial result decreased from -65 million euros in 2018 to -88 million euros in the reporting year. This was mainly due to interest expenses from lease commitments following the first-time application of IFRS 16.

New strategic framework: Winning the 20s through purposeful growth

“Going forward, we have defined a new strategic framework for purposeful growth to ensure Henkel´s successful development in the future. Building on a strong foundation and driven by our common purpose to create sustainable value, the main elements of this framework are a winning portfolio, competitive edge in the areas of innovation, sustainability and digital as well as future-ready operating models, underpinned by a strong foundation of a collaborative culture and empowered people,” said Carsten Knobel.

Source : Insight DIY Team

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