Economic slowdown and increased investments impact performance
mixed business performance in 2019
and gives 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,
- Free cash flow: 2,471 million euros (+554 million euros)
In 2019, Henkel delivered a mixed business performance. Both declining volumes and the increased growth investments impacted the earnings and the EBIT margin in 2019. The Adhesive Technologies business unit was impacted by a marked slowdown in key customer segments, especially automotive and electronics industries. At the same time, our consumer businesses, Laundry & Home Care and Beauty Care, faced intense competition in many markets.
Speaking on the results, CEO, Carsten Knobel said, “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. 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. 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.”
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.
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 emerging markets achieved an organic sales growth of 2.5 percent and thus were the main drivers of organic sales development. The mature markets reported a negative organic sales development of -1.6 percent.
Adjusted operating profit (EBIT) decreased by -7.9 percent from 3,496 million euros in the prior year to 3,220 million euros.
Adjusted return on sales (EBIT margin) was -1.6 percentage points down year-on-year at 16.0 percent. The profitability of the Group was negatively impacted by increased investments in brands, technologies, innovations and digitalization announced at the start of 2019.
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.
Adjusted net income after deducting non-controlling interests was 2,353 million euros compared to 2,603 million euros in fiscal 2018.
Adjusted earnings per preferred share (EPS) decreased by -9.7 percent from 6.01 euros in fiscal 2018 to 5.43 euros. At constant exchange rates, adjusted earnings per preferred share decreased by -10.1 percent.
Net working capital as a percentage of sales improved by -1.2 percentage points to 3.9 percent.
Free cash flow reached a new high with 2,471 million euros (previous year: 1,917 million euros).
The net financial
further improved and closed the year at
-2,045 million euros (December 31, 2018: -2,895 million euros).
Henkel published today its full year outlook for fiscal 2020, in line with the announcement in December 2019. For 2020, it expects to generate organic sales growth of 0 to 2 percent. It 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.
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.