Henkel achieves significant organic sales growth in the first quarter and updates full-year guidance for 2022
Mumbai 5th May 2022 – In the first quarter of 2022, Henkel increased Group sales to around 5.3 billion euros in a very challenging market environment. Organic sales grew significantly by +7.1 percent, driven primarily by a very strong pricing performance, with a slight decline in volume simultaneously occurring. In nominal terms, sales increased by +6.1 percent.
“This very good sales performance is a testament to our growth agenda as well as the huge dedication of our employees worldwide – and we want to express our gratitude for their great commitment,” said Henkel CEO Carsten Knobel. “However, the macroeconomic environment has continued to deteriorate dramatically since the beginning of the year. The impact of the global coronavirus crisis, accompanied by an extraordinarily tense situation in the raw material markets and global supply chains, has been drastically exacerbated by the war in Ukraine.”
Despite of these exceptionally difficult circumstances, we are pushing ahead with our clear strategy for purposeful growth. Our Adhesive Technologies business is a global leader in the market, offering innovative solutions in numerous key industries – with a clear focus on future trends such as mobility, connectivity, and sustainability. And by merging our consumer businesses Laundry & Home Care and Beauty Care to create Henkel Consumer Brands we are establishing a multi-category platform with around 10 billion euros in sales. We aim to have our future Consumer Brands business in place by early 2023 at the latest. It will offer a broader base to drive the optimization of our portfolio more consistently and advance the business to a higher growth and margin profile,” Carsten Knobel explained.
Sales growth in the first quarter was particularly driven by the Adhesive Technologies business unit, which generated a double-digit organic increase amounting to +10.7 percent, with all its business areas contributing.
Organic sales development in the Beauty Care business unit was slightly negative at -1.2 percent in the first quarter. The Professional business posted a double-digit rise. As expected, results at the Consumer business came in below the level of the previous year, due in particular to the implementation of the portfolio measures announced for 2022.
The Laundry & Home Care business unit generated very strong organic sales growth of +4.9 percent, driven by significant growth in Laundry Care. By contrast, organic sales development in our Home Care business was slightly negative in the first quarter.
From a regional perspective, Henkel’s significant sales performance was driven primarily by the emerging markets. However, the mature markets also posted strong organic sales growth.
Looking ahead to the rest of fiscal 2022, Carsten Knobel commented: “The uncertainty and volatility in our business environment have increased further in the wake of the war in Ukraine. Prices for raw materials and logistics services have once again increased significantly. Against the backdrop of developments of the war in Ukraine, we also decided in mid-April to exit our business operations in Russia. Furthermore, we have also announced to end our activities in Belarus. This affects total annual sales of around 1 billion euros and more than 2,500 employees. Given these developments, we now expect a significantly higher pressure on our earnings for the rest of the year than at the beginning of the year. Therefore, we updated our guidance for the year accordingly at the end of April.”
Henkel now expects organic sales growth at Group level of +3.5 to +5.5 percent in fiscal 2022. Adjusted return on sales (EBIT margin) is expected to be in the range of 9.0 to 11.0 percent. For adjusted earnings per preferred share (EPS) at constant exchange rates, Henkel now expects a decline in the range of -35 to -15 percent.
Group sales performance
Group sales increased nominally by +6.1 percent in the first quarter of 2022, from 4,968 million euros in the prior-year quarter to 5,271 million euros. Organically (i.e. adjusted for foreign exchange and acquisitions/divestments), sales increased by +7.1 percent. This significant growth in sales at Group level was driven by price. Acquisitions and divestments reduced sales by -1.1 percent. Foreign exchange effects had a slightly positive impact of +0.2 percent on sales.
Merger of consumer businesses to create new, integrated business unit Henkel Consumer Brands
On January 28, 2022, Henkel announced its plans to combine the Laundry & Home Care and Beauty Care business units into a new, integrated business unit, Henkel Consumer Brands – with a focus on two global categories, Laundry & Home Care and Hair Care. The further categories will be steered regionally.
“The creation of Henkel Consumer Brands is an important strategic step for us to shape a successful future for our company. We have attractive portfolios in both business units – Laundry & Home Care and Beauty Care – with strong brands and leading market and category positions worldwide. Shaping this new business unit as a multi-category platform, it is our clear ambition to raise the growth and margin profile of our consumer businesses,” said Henkel CEO Carsten Knobel.
“By combining our consumer businesses, we will achieve significant synergies in many areas, and we intend to leverage these to also strengthen our profitability. This is reflected in our mid- to long-term financial ambition: for Henkel Consumer Brands, we are aiming for organic sales growth of 3 to 4 percent and an adjusted EBIT margin in the mid-teen’s percent range. We will also reinvest part of the savings to increase the competitiveness of our businesses. In doing so, we will drive further progress in important areas such as innovation, sustainability, and digitalization. This will enable us to create positive growth momentum and take the implementation of our purposeful growth agenda to the next level.”
The integration into one business unit is expected to generate significant gross savings (before reinvestments) totaling around 500 million euros in the mid-term. These synergies will result primarily from the optimization of sales and administration structures, in the supply chain (production and logistics), and in advertising and marketing. Implementation will take place in two phases. In the first phase, measures to be introduced by the end of 2023 are expected to lead to net savings of around 250 million euros on an annualized basis. From today’s perspective, around 2,000 jobs will be affected worldwide, mainly in sales and administration. In the first phase, Henkel expects one-time expenses amounting to around 350 million euros. In a second phase, the focus will be on optimizing the supply chain of the new, integrated business unit.
As a multi-category platform for the entire consumer goods business with total sales of around 10 billion euros, Henkel Consumer Brands will also offer even better opportunities for active portfolio management. This includes the divestment or discontinuation of businesses, which do not meet our criteria in terms of growth and profitability. Businesses and brands accounting for total sales of up to 1 billion euros are currently under review. Targeted acquisitions – in existing core categories as well as in other, new consumer goods categories – are also intended to further expand the portfolio and accelerate the growth momentum of Henkel Consumer Brands.
Outlook for the Henkel Group
Based on the business development in the first three months of 2022 and the current assumptions regarding the business performance in the remainder of the year, particularly the significant increase in costs for raw materials and logistics services as well as effects in connection with the decision to exit business activities in Russia, the Management Board of Henkel AG & Co. KGaA updated its outlook for fiscal 2022 on April 29, 2022.
The extraordinarily tense situation on the raw material markets and in global supply chains has been worsened by the war in Ukraine. As a result, prices for direct materials and logistics services have once again increased significantly and stronger than previously anticipated. In addition to the announcement in mid-April to exit the business activities in Russia, Henkel has decided to discontinue its operations in Belarus as well. This affects total annual sales of around one billion euros.
With regard to material prices, Henkel now anticipates an increase in the mid-twenties percentage range for the full year compared to the average for 2021. Previously, an increase in the low-teen percentage range had been anticipated. Henkel now expects organic sales growth at Group level in fiscal 2022 of +3.5 to +5.5 percent (previously: +2.0 to +4.0 percent).
The overall stronger sales growth anticipated will be primarily driven by the Adhesive Technologies business unit, for which Henkel now expects organic sales growth in the range of +8.0 to +10.0 percent (previously: +5.0 to +7.0 percent), mainly due to passing on of higher raw material and logistics costs in the form of higher prices. Expectations for organic sales growth in the Beauty Care and Laundry & Home Care business units remain unchanged. For Beauty Care, organic sales are expected to develop by -5.0 to -3.0 percent. As announced, the decline is mainly due to measures already decided and being implemented to improve the portfolio, including the discontinuation of activities that will not be part of the future core business. For Laundry & Home Care, Henkel continues to expect organic sales growth in the range of +2.0 to +4.0 percent. In light of the decision to discontinue Henkel‘s businesses in Russia and Belarus, those countries will be excluded from Henkel’s organic sales growth figures from the second quarter onwards.
We expect the acquisitions and divestments made in 2021 and the effects of the exit from business activities in Russia and Belarus to have a negative impact in the low to mid single-digit percentage range on the nominal sales growth of the Henkel Group. Our guidance does not take into account the effects of additional divestments and discontinuations of business activities, brands and categories within the scope of our active portfolio management beyond those relating to the Beauty Care business unit which are already in implementation. The translation of sales in foreign currencies is expected to have a positive effect in the low single-digit percentage range (unchanged).
In addition to the effects of exiting business activities in Russia and Belarus, significantly rising prices for direct materials and logistics, which cannot be fully offset in this fiscal year, are having a greater impact on earnings than previously expected.
This new outlook is based on the assumption that the effects of the war in Ukraine will not worsen significantly and that there will be no new widespread business and production closures in industry and retail due to the COVID-19 pandemic.
In addition, the exit from business activities in Russia and Belarus may result in adjustable one-time expenses, most of which are non-cash. These are mainly dependent on the type, timing, and duration of implementation.