Henkel Ag & Co Kgaa S/Adr

Good morning and welcome to the Henkel Conference Call. For the duration of the call, you will be on listen only. If you would like to ask a question during the Q&A session, please press star 1 on your telephone keypad. If at any time you need assistance, please press star 0 and you will be connected to an operator. I will now hand over to Leslie Ilken, Head of Investor Relations. Please go ahead.

Thank you and good morning to everyone. A warm welcome to everyone joining Henkel's full year 2023 results conference call today. I'm Leslie Ultgen, Head of Henkels Investor Relations. Today, I'm joined by our CEO, Carsten Knobel, and our CFO, Markus Voboda. Carsten will begin with an overview of 2023, including key achievements and highlights, and a first glance at the guidance for full year 2024. Markus will follow with a review of the full year 2023 financial results in more detail, and also elaborate on the key assumptions around the 2024 guidance. As always, following the presentation, We will open up the lines and Carsten and Marco will be happy to take your questions. Before handing over to Carsten, please let me remind you that this call will be recorded and a replay will be made available on our Investor Relations website shortly after this call. By asking a question during the Q&A session, you agree to both the live broadcasting as well as the recording of your question, including salutation, to be published on our website. Also, please be reminded that this presentation contains the usual formal disclaimer in regard to forward-looking statements within the meaning of relevant U.S. legislation. It can also be accessed via our website at Henkel.com. As always, the presentation and discussion are conducted subject to this disclaimer. With this, it is my pleasure to hand over to our CEO, Carsten Knobel. Carsten, please go ahead.

Thank you, Leslie, and a warm welcome also from my side to everyone joining our call today. After highlighting the key developments of the full year, we will walk you through our business performance and the outlook for the full year 2024 in more detail. And of course, we are looking forward to taking your questions. So let's get started with the major topics and achievements in 2023. In 2023, Henkel delivered a strong top and bottom line growth. And that includes a Q4, where we saw a continued strong performance and a further sequential volume development improvement. We clearly overachieved the financial targets we had set ourselves at the beginning of last year. Both business units contributed to this excellent performance. On group level, Henkel recorded very strong organic sales growth of 4.2%. Adhesive Technologies delivered 3.2% OSG, which is clearly above the peer average. Our consumer brands business clearly stood out with 6.1% OSG, certainly driven to a large part by strong pricing, but also supported by a sequentially improved volume development. Turning to the margins. With focus and discipline, we made significant progress in restoring our profitability, both in terms of adjusted gross profit, where we saw an increase of 340 basis points versus the prior year, as well as in regard to the adjusted EBIT margin, which reached 11.9% on group level, a plus of 150 basis points versus the prior year. This significant increase was supported by strong pricing to further compensate for the still elevated input costs, ongoing measures to reduce cost and enhance production and supply chain efficiency, but also by accelerating savings from the consumer-brands merger and the continued portfolio optimization measures behind. At the same time, we are putting strong emphasis on investing in growth. We have been stepping up our marketing investments in the consumer space to further strengthen brand equity and to continue fostering innovations in both business units. Also bear in mind that all of this was achieved despite the fact that we divested our business in Russia, which was overproportionately profitable. This excellent performance also resulted in an adjusted EPS growth of plus 20% at constant exchange rates for the full year. And on top, we also significantly improved our free cash flow. We reached a new all-time high of €2.6 billion, backed by the strong financial position we propose, a stable dividend of €1.85, which represents a payout ratio of 42.4%, thus slightly above the targeted payout range of 30-40%, So all in all, a very strong set of results. Looking to 2024, we had a strong start to the year in both months, in January and in February, and we are poised for further top and bottom line growth. We're highly confident that we have the right strategy, portfolio and capabilities to deliver on our targets, not just in the year 2024, but also when it comes to our mid to long term financial ambitions. Besides driving financial performance, we are also strengthening our competitiveness. In this context, investing in our innovation capabilities is key, for example, into new R&D and customer centers. A great example is the new Battery Engineering Center for Adhesive Technologies, which is quite unique in the industry. Unveiling the first Battery Engineering Center here at our headquarters in Germany solidifies our role as a premier design and innovation partner for automotive OEMs and a battery test center. It follows us to create a digital twin of any battery and simulate the performance of our solutions under various conditions. These can be validated through real-life stress tests ensuring both the reliability of our data and the efficacy of our solutions. Another highlight is our new R&D center for consumer brands in Shanghai which we opened just recently. With a floor space of over 2,500 square meters, the center is our largest for consumer brands in the Asia-Pacific region. It will focus on both core categories here as well as laundry and home care. And it's aiming to attract the best scientific minds and enhance our regional capabilities. For us, this is more than just an R&D facility. It is a hub to foster agile product innovation tailored to the needs and the habits of consumers across 11 diverse markets in Asia. In parallel, we are also leveraging digitalization across our businesses, leading to further organic growth in digital sales, as in consumer brands where we saw a double-digit increase. In adhesive technologies, AI, for instance, plays an increasing role when it comes to the optimization of formulation properties. Sustainability is yet another important contributor to drive Henkel's competitive edge. Also here, we made significant progress. We reduced emissions from operations by 61% compared to the base year 2010. We increased the share of recycled plastic in consumer packaging to now 19%. And last but not least, we brought the share of women in management to around 40%. Thus, we are not only delivering on our financial targets, but also continue to focus on these important strategic pillars, always backed by a strong company culture and the great people which we have on board at Henkel around the globe. Let me now turn to adhesive technologies and the megatrends that clearly serve as catalysts for growth. With the portfolio we have in place already today, we act as an enabler for our customers, offering innovative solutions which support them in their needs and in achieving their respective goals. With the solutions we offer, we foster circularity and recyclability across industries and thus clearly contribute to driving sustainability globally. Mobility is another theme which plays into our cards. Reliable thermal management and functional coating solutions contribute to more safety in cars and allow large-scale production. Thinking of connectivity and the need to extend mobility around the globe, being able to offer high-performance solutions for 5G connectivity is absolutely key. Another megatrend is for sure our digitalization. Automizing and digitalization global labs clearly increases the speed and also the impact of innovations. And last but not least, when it comes to urbanization, there is, for instance, a high need for sustainable engineered wood solutions which allowed the construction of multi-story buildings unimaginable until just a few years ago. 2023, we continue to strengthen our portfolio with innovative solutions providing added value to customers and consumers while shaping the relevant megatrends I just referred to. For example, we launched a new solution for bonding camera lenses in driver assistance systems, which combines production efficiency and performance capability enabling fast and reliable production of cameras for the automotive industry. We further developed our packaging adhesives, making it easier for manufacturers to switch to a more sustainable solvent-free alternative while maintaining quality and a sophisticated appearance. And at the same time, a high standard of food safety is guaranteed. It sounds like a simple solution, however, It is technologically demanding. Just think about coffee, for example, which requires sophisticated packaging solutions to maintain its unique properties. To further support the construction industry while pivoting towards sustainable practices, we launched our first bio-based polyurethane adhesives for load-bearing timber construction aimed at significantly reducing the CO2 equivalent emissions compared to their fossil-based alternatives. Part of our strategic growth agenda, compelling acquisitions play a key role in actively shaping our portfolio. The maintenance, repair, and overall business is highly attractive, delivering above-average organic sales growth in the high single-digit territory. With the two recent acquisitions, we are expanding our MRO platform by adding competencies in the area of repair and overhaul to our existing portfolio. Critical Infrastructure is a specialized supplier for innovative composite repair and reinforcement solutions, which will add around 100 million euros in sales and is growing at a fast pace. With Seal for Life Industries, we acquired a specialized supplier of protective coating and sealing solutions for infrastructure markets. Once the transaction is closed, It will add approximately a further 250 million euros in sales. With these transactions, we are expanding into sustainability-driven, future-oriented, growing and profitable markets. Turning now to our consumer business and major trends that drive growth as we are addressing consumer needs with products that feature superior technologies. Washing at lower temperatures, for sure, is a trend that many of us already follow today. We are all keen on saving energy and costs. However, at the same time, we don't want to give up on good cleaning performance. The same applies to hygienic cleanliness. We don't want to be confronted with bad orders coming from washing machines and ending up in our laundry. There is, and this is, where innovative solutions are required and where we already have products in the portfolio we can offer customers today. I'll come to specific examples just in a minute. When thinking of consumer trends in hair for sure one major trend is that of gentle hair coloration in order to avoid hair breakage. Healthy hair including strengthened hair structure is another trend we see amongst consumers driving demand for products and treatments in this area. Our innovative haptic bonding system which we are introducing to our formulations protects and strengthens the natural bonds in hair fibers thus repairing the hair giving it strength and resilience and protecting it against future damage. Amongst our fast-growing billionaire brands, Schwarzkopf and Purcell, you will find impactful product innovations which address exactly these trends already today. And we are continuously investing in value-adding innovations to drive future growth as we speak. And in the meantime, Most of you may already know the deep clean formulation of Persil. Its unique enzyme-based formula not only cleans your laundry, but also removes deposits creating bad orders of laundry on laundry and in the washing machine itself. With this new innovative product, we generated double-digit organic sales growth in 2023. In our category here, we recently launched a completely new treatment product called Glycinate Exolix Alexeer. This product, which contributed to significant organic sales growth of Gliscor last year, is quite unique. We were the first company to launch this kind of product, creating a new subcategory, and we are planning to roll it out in more countries in 2024. The advanced formula with the haptic bonding system combines both inner and outer hair repair while sleeping, supporting the hair to regenerate overnight. In the professional area, Schwarzkopf Blondie contributed with double-digit organic sales growth in 2023, addressing the need for general coloration and bleaching solutions with our innovative dual bond technology, which minimizes hair breakage even with high-level bleaching. There are just a few selected examples which showcase the technology expertise we have at Henkel and the vast opportunities which exist to further drive organic growth going forward. I would now like to turn to our global category here in more detail. In this category, we are already more advanced with the portfolio optimization measures versus laundry and home care. And we see the measures clearly bearing fruit. The numbers speak for themselves. We saw significant organic sales growth of around 9% in 2023, with a strong contribution from our top branch, Schwarzkopf. Volumes showed a positive development and we recorded market share gains, for instance, in styling with plus 30 basis points year over year. For 2024, we expect volumes in hair to remain in the positive territory, of course based on the current macroeconomic and market assumptions we have for 2024. Besides driving organic sales growth, we are also looking for attractive opportunities to grow our global key categories via M&A, while at the same time strengthening our regional footprint in attractive markets such as the APEC regions. The integration of Chiseido Professional and APEC, which we acquired in 2022, is well on track, with our R&D expertise now pooled in a new innovation hub in Japan. And just a few weeks ago, we acquired the selling-inspired Vidal Sassoon brand and the related hair care business in Greater China, thus addressing a white spot in the premium retail segment, which is shampoos and conditioners plus product around styling and treatments. The business holds a strong position in the Chinese market and generated sales of more than 200 million euros in fiscal year 2022-2023. The brand holds a strong presence within China's consumer hair care market and exhibits well-established brand fundamentals with significant opportunities to further harness the brand equity in the market. With a strong and successful hair business globally, including Asia, we have developed an in-depth understanding of the intersection between the professional and the retail space. Given this authority in hair, Henkel is well positioned to capture the full potential of the Vidal Sassoon brand. Alongside a clear strategy to invest into the brand, we have many exciting ideas which we aim to implement to ensure the acquisition is a success, including product relaunches, new innovations to broaden the product portfolio, and renewed marketing measures. And we have a strong regional team in both professional and consumer hair care with additional expertise from the successful integration of Shiseido Professional. I would now like to give you an update as to where we stand in terms of the merger of the two consumer businesses and the integration process. As you all well know, we had defined two phases. Phase 1, with a clear focus on optimizing the organizational setup and the portfolio, and Phase 2, focusing on the optimization of our supply chain. In the meantime, we have stringently worked on the numerous initiatives and are clearly ahead of the plan, which now also leads to higher net savings. While we initially had expected to achieve a total of around 400 million euros in net savings by 2026, we now expect to achieve approximately 525 million euros. And I will elaborate in more detail on the progress we have made within the two phases in just a minute. And at the same time, we are also driving investments to accelerate growth. Very important. Looking into more detail into the progress we made in phase one. As already referred to in earlier quarterly calls, we are very well advanced in optimizing the entire organizational setup. This also includes the reduction of headcounts by more than 2,000 positions for which we were able to conclude agreements by the end of last year. Overall, the successful and swift execution will lead to an increase in net savings from initially around 250 million euros to now around 275 million euros by the end of 2024. Thereof, more than 200 million euros have been already achieved by the end of last year, means 2023. As you all know, Wolfgang and his teams are also stringently working on optimizing the portfolio. In the meantime, around 650 million euros in sales have either been divested or discontinued. The number of SQs, was reduced by a double digit percentage rate already. While we are clearly more advanced in the hair category, where we already started to see a positive volume development in 2023, as I pointed it out a minute ago, there is still some more work to do, particularly in the laundry and home care category, which is why also for 2024, you should still expect some impact deriving from the still ongoing portfolio measures. But be assured, we are striving to finalize the portfolio optimization process by the end of this year, means end of 2024. And as promised in our Q3 call, I would like to take and provide you a deep dive now on phase two. Focus of the initiated measures is the optimization of our supply chain network, the commercial integration, and operational excellence. And to give you further perspective here, we are talking about more than 800 projects which have been launched. We are targeting an average complexity reduction of 25% and have already initiated a reduction by 15% in the first step. So far, for example, we already reduced the number of production lines by around 45 and also the number of contract manufacturers and co-packers by around 100. In addition, we also reduced headcount by around 800 FTEs by the end of 2023 Commercial integration is also progressing as planned, and in the meantime, our 1-1-1 approach, meaning one order, one shipment, one invoice, is live in seven countries. Together, this already led to first net savings deriving from Phase 2 initiatives in 2023 in the magnitude of approximately 80 million euros. And based on the progress we have made so far already and what we expect from the launched measures still to materialize, we are able to increase our expectations in regard to net savings, which we want to achieve now in full swing by 2026 from initially 150 million to now 250 million euros. And to give you some more color, we added an overview here, including some selected examples. So when referring to commercial integration, We specifically mean the global rollout of our 1-1-1 approach. So far, we have implemented this approach in seven countries, and the plan is to continue the rollout country by country and have the process completed by end or within 2025. As a prerequisite, this of course requires the harmonization of systems and logistical processes, which is well on track. Second part, in order to optimize our supply chain network, we kicked off a large number of large-scale projects in order to respond to the portfolio shifts, accelerate capacity consolidation and leverage synergies from the merger. To give some examples, so far we consolidated the logistic footprint in North America and optimized our production footprint in various regions such as Europe, North America and Latin America as well as EMEA. This also includes the insourcing of contract manufacturing activities for hair in North America and establishing Latin America as a coloration hub for the Americas. Driving operational excellence, the third part, means fostering operational efficiency in all production and logistic processes. Here, savings are ahead of our initial ambition due to strong results we achieved with our pilot programs in our larger production sites in the US and in Germany. We were also able to reduce logistic costs, improve productivity and line utilization in numerous sites, and also roll out flagship models in order to further increase efficiency in various sites. It goes without saying that this is a huge task for the entire team, but the progress we have already made so far, the fact that we are ahead of plan, plus the positive outcome already reflected in our financials, are altogether strong proof points that the strategy is clearly bearing fruit and we are not at the end of this road yet. So, wrapping it up, we can state that we are successfully executing on our strategic initiatives and consistently delivering the targeted top and bottom line growth. Besides fostering organic growth, we are also increasingly taking advantage of attractive M&A opportunities, which are adding a total of more than 0.5 billion euros to group sales when considering Vidal Sassoon critical infrastructure and the most recent acquisition of Seal for Life. Over the past six months, we thus spent more than 1.5 billion euros to strengthen our businesses. The consumer brand integration is already well advanced and we now expect to achieve higher net savings than originally expected, why would we keep up with the elevated levels of investments into our brand equity and innovations to drive further growth? While the overall macroeconomic environment remains challenging, we are confident to see continued growth and the further uplift of margins versus the prior year, reflecting the progress deriving from the measures we implemented as well as the strength of our portfolio and leading market positions globally. This confidence is also backed by the good start we saw when entering into January and February of 2024. To be more specific, for 2024, we expect organic sales growth of plus 2 to plus 4% and an adjusted EBIT margin of 12 to 13.5% on group level. For Henkel's adjusted earnings per preferred share, we expect an increase in the range of plus 5 to plus 20% at constant currencies. And with this, Let me hand over now to Marco. He will give you some more details on our financial performance of 2023. Marco.