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 and a warm welcome to everyone joining our call on Henkel's half-year performance. I'm Leslie Oetken, head of Henkel's Investor Relations. Today, I'm joined by our CEO, Carsten Knoebel, and our CFO, Marco Svoboda. Carsten will begin with an overview of the key developments and highlights in the first half. Marco will then follow with a more detailed review of the financial performance. 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 Carson, 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 US legislation. It can also be accessed via our website at hankel.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 Knoebel. Carsten, please go ahead.

Thank you, Lesley. And a warm welcome also from my side to everyone here joining our conference call today. And as always, We do appreciate your interest in our company and we look forward to answering your questions. And after walking you through the key developments in the first half of 2024, we will elaborate on Henkel's business performance and the full year outlook in more detail. So let me move straight to the key topics and the highlights of the first half. Our half year results demonstrate the strong performance we achieved in both businesses. On group level, Henkel recorded 2.9% organic sales growth, with our consumer brands business clearly standing out, delivering 4.3%. Adhesive technologies achieved a growth of 2.0%, very much driven by the strong performance in automotive and a continued recovery in electronics, and overall, a strong performance both versus the relevant markets. Pricing also continued to contribute positively. Volumes again improved sequentially versus Q1 2024 in adhesives. Volume picked up versus Q1 despite an overall demanding environment in our consumer business. We also reached positive levels when considering the impact from portfolio measures. We also recorded a significant margin increase and an EPS increase. This development was supported by benefits from the ongoing portfolio optimization, valorization, and savings in consumer brands, a positive mixed impact in adhesive technologies as well as supply chain efficiencies in both business units, while advancing the level of investments to fuel growth. Backed by the very strong business performance in the first half of 2024, and our expectations for the remainder of the year, we raised our earnings guidance in July for the full year 2024. So looking ahead, we are also highly confident to reach the targets we had set for our mid to long-term financial ambition now already mid-term. With that, I would like to turn to some of the highlights in our two business units starting with adhesive technologies where growth continues to be driven largely by customer centric solutions we offer to our customers. Our automotive business was yet again a growth engine in the first half and the market recovery of the electronic business which continued throughout Q2 also contributed to the sequential volume improvement. Beyond driving our financial performance, we are also seeking opportunities to add attractive businesses via value-enhancing M&A to accelerate growth. The acquisition of Seal for Life, which forms an integral pillar in building a growth platform for the maintenance, repair, and overall business, and the acquisition of the attractive Vidal Sassoon brand in China are two good examples. Both transactions were closed in the first half of this year and thus earlier than originally expected and both acquisitions are already contributing to the overall strong performance. Execution excellence is key for the success we are now seeing shining through more and more in the consumer brands business. It is key in getting back to more growth and higher profitability levels. The team is doing an amazing job. The ongoing valorization of our portfolio supported by relevant innovations and investing behind our strong brands plays a decisive role. Looking at our hair category, we can clearly see that the measures we have implemented are bearing fruit. Hair delivered a high single-digit organic sales growth including positive volume growth as well as global market share gains in styling and color. We continue to invest behind our brands, particularly the leading top 10 consumer brands, which provide attractive growth opportunities also going forward. The benefit from gross profit margin improvement also enables us to increase investments behind the growth. And all in all, we are well on track and delivering on what we said we would. Turning to adhesive technologies in more detail. As you know, We are a know-how driven business. Our strength and the key USP lies in customer-centric innovations. We are working together with our customers to co-develop solutions for their specific challenges. This co-innovation is a key factor across industry. And most importantly, it is the main reason why we continue to grow and win projects in the automotive business for instance. For example, We are designing platform-specific lightweight structural inserts, developing sustainable surface treatment and cleaner solutions adapted to OEM-specific automotive production processes and requirements. This makes us the partner of choice for our customers and drives the market shares. We will look at one very specific example here in a minute. Turning to sustainability, one of our key differentiators, deeply rooted in our DNA, As leader in the sustainability transformation, we are leveraging our unique value chain position for meaningful collaborations in order to create lasting impact across industries. Looking at the specific example from packaging in the consumer goods market, in cooperation with two leading players in the chemical industry, Creighton and Dow, we have achieved a 25% cradle-to-gate carbon footprint reduction compared to legacy products. for two of our North American flagship products for end-of-line packaging under the Technomelt brand. We are pioneering superior bonding, sealing, and coating solutions in many industries. Another example would be our work with leading electronic key accounts to continuously advance consumer devices and semiconductor packaging. We will add details here in the following minutes, but before that, I would like to wrap up in highlighting the core enabler of all our activities. It is safe to say that customer centricity and co-innovation would not be possible without our strong customer-facing team around the globe. We are a know-how driven company leveraging the knowledge of more than 6,500 customer-facing experts. Coming to the examples. One of the big topics during our business is the future of mobility. We observe several trends that shape the industry. One I would like to highlight is the shift from individual to integrated automotive components that is driven by the ever-growing computing power in cars. An emerging field here is the integration of electronic control unit. What is special about this? Integrating electronic components come with high benefit for cars irrespective of the powertrain, but at the same time, It is a highly complex field with very specific requirements regarding thermal management. We are one of only few players who recognized the trend early on and collaborated with leading OEMs and key tier suppliers in developing innovative solutions. This puts us in a very unique market position and unlocks new value potential of our business. On the one hand, The total value per component is increasing and on the other hand, the market is consolidating and we are part of driving this consolidation. I mentioned the consumer electronics industry in the beginning already. Now taking a closer look. In this field, we see many developments that again have special requirements regarding adhesive solutions. This is of course playing to our strengths of co-innovating with leading players here to bring their visions to life. As most likely all of us have already observed in past years in our phones, it is the trend around ever-increasing camera performance. Higher performance in this case requires module miniaturization, ensuring components fit the phone body. Our innovative solutions enable this miniaturization, especially when looking at critical precision in manufacturing processes and solution applications. Our strong leverage in this field driven by close customer collaboration is also reflected in our performance. We have been outperforming the market in the past years with double-digit growth. Closing our deep dives here, I would like to circle back to the topic of sustainability. As I mentioned earlier, we have unique collaborations spanning the value chain in consumer packaging. But with our broad portfolio of innovative solutions, we drive sustainability in a large range of industries. Looking at a completely different industry, construction, we see another area where we are driving critical sustainable impact in terms of reducing CO2 emissions with our cementious adhesives. We are looking at an industry with great potential for innovation. The building industry accounts for around 40% of global CO2 emissions. Cement plays a key role with more than 350,000 tons CO2 per year. We took on the challenge and are transforming our portfolio of innovative low CO2 footprint cementious adhesives. With this, we significantly contribute to the decarbonization in this industry. Already with the first wave of portfolio transformation, completed in core countries, we created tangible impact by enabling CO2 savings of more than 20k tons, CO2 per annum, really a great achievement. Turning to our consumer brands. As referred To a couple of minutes ago, we are driving the valorization process of our consumer brands portfolio with relevant innovations and by significantly investing behind our strong top brands to further improve the mix and fuel profitable growth. Over the past quarters, we presented a couple of highlight innovations which we rolled out to the market and which you can already find in the shelves, such as our Percil with a new unique enzyme technology, the Fabrica product per wall, which renews the color of the fabric, or our innovative Somat caps. However, it's not just about bringing a high number of new products to the market. All these products and innovation address clear consumer demand. and offer an added value to our customers. So, it's about focusing on the most promising brands, categories and markets, both in terms of growth and gross margins, and you will see more of that in just a minute. At the same time, we continue to invest behind our brands, particularly the bleeding top 10 brands, which provide attractive growth opportunities going forward. While we have already increased our investment by a double-digit percentage number in 2023, we are further raising our marketing spend significantly also in the second half of this year versus the first half in order to support our innovations and to strengthen the brand equity. It is encouraging to see that these innovations are already contributing to a significant sales momentum, particularly of our top brands. we saw high single-digit organic sales growth of our top 10 brands, which accounted for more than 50% of sales in the first half of 2024. We have a well-filled pipeline of innovations and you will see more of them following into the market in the coming quarters. While there is still work to be done and our portfolio optimization measures are ongoing, as we speak, we are clearly delivering what we promised and are thus also confident about the mid to long term. Looking at our hair category, we can clearly see that the measures we have implemented are bearing fruit. Hair delivered 7% organic sales growth in the first half. This is for sure an excellent performance. But what is even more, we saw the fourth consecutive quarter of positive volume development. In styling and in color, we have gained market shares on a global scale, adding 40 basis points each in half year one. This very strong growth is also supported by both consumer and professional. Our umbrella branch, Schwarzkopf, clearly stood out delivering very strong growth in the first half. Also in here, we brought new products to the market, which significantly contributed to the overall strong top line performance. Bliss is a good example, where we recorded double digit organic sales growth in the first half, following a relaunch with new hair strengthening formulas. In North America, we saw very strong organic sales growth in professionals, supported by our recently launched 360-degree campaign with well-known celebrities such as Sofia Vergara and Chris Appleton. Turning to laundry and home care, where we achieved 3% organic sales growth in the first half. Also here, we saw above-average organic sales increases of leading core brands, such as Pervol and BREF, where we recently rolled out innovations to the market. Our leading fabric care brand, Pervol, delivered double-digit organic sales growth in H1, fueling a plus of 120 basis points in market shares year-to-date in fabric care in our key market in Western Europe. This new formula, which renews the color of the fabric, is a success and for sure underpins Henkel's technology leadership. BREF? is our leading toilet care brand and we recently upgraded the brilliant gel range on all-in-one technology with which we pioneered the market. It now comes with both an improved formulation increasing customer experience with 35% more fragrance per flush and a sustainable packaging with 98% recycled plastics. BREF also delivered double-digit organic sales growth in H1, driving global market share gains of 50 bps in toilet care year-to-date. In parallel, we have been working stringently towards creating a bidding portfolio and driving supply chain optimization along our integration roadmap. The portfolio measures are well on track as of today. I can confirm that all targeted discontinuations have already been either initiated or executed. And while we are already more or less done in our hair category, where we clearly see the positive development I mentioned before, the focus is currently on laundry and home care. From a regional perspective, the majority of the current portfolio measures are allocated to North America. To give a few examples, we have discontinued sun-branded products in the US and are discontinuing our branded dishwashing products in Canada. Please note that this is leading to some distortions in volume and market share numbers. But we do expect to have concluded the portfolio measures, particularly when it comes to discontinuation by the end of this year. While enhancing our consumer brands portfolio, we are also driving the second integration phase, which is focusing on the optimization of the production and supply chain with full focus. In the meantime, we have successfully implemented the so-called 1-1-1 approach in 28 countries, and the further rollout continues as we speak. We also further optimized and consolidated our production and logistics network. Worth mentioning are planned consolidations in the U.S. and in Eastern European countries in laundry and home care. Overall, we further reduced complexity by around 16%, This was achieved, for instance, by reducing the number of production lines and warehouses by another 5% versus end of 2023. All in all, we are well on track and have achieved further efficiency gains and savings. We are more than confident that we will get to the targeted total savings in the amount of 525 million euros by 2026. So, we did not only achieve a strong financial performance, but also have been driving our strategic initiatives in full force. And this brings me to our outlook for the full year. Let me share some more color on the drivers behind our recent guidance raise from July 17. We saw an overall very strong business performance in the first half of 2024, supported by both business units, with consumer brands clearly standing out. The particularly strong performance in consumer brands was supported by benefits from the ongoing portfolio measures and better mix, driving strong gross margins, and in addition, the ongoing valorization of the portfolio and the generation of savings is increasingly bearing fruit. And at the same time, we are investing in marketing to support core brands and innovations to fuel further profitable growth going forward. For the full year 2024, we expect group organic sales growth to reach 2.5% to 4.5%. The adjusted EBIT margin is expected to be in the range of 13.5% to 14.5% for the group. And for adjusted EPS, we expect an increase of between 20% to 30% at constant currency. So in short, our strategy is working and Henkel is on a successful and a consistent profitable growth path. We are also highly confident to reach our mid- to long-term financial ambition that we had set ourselves in 2022, now already mid-term. For the group, we expect organic sales growth of 3% to 4%. We expect organic sales growth in adhesive technologies to reach 3% to 5% and 3% to 4% in consumer brands. In regard to adjusted EBIT margin, our mid-term ambition calls for 16% for the group a high teens percentage number for our adhesive business and a mid-teens percentage number for our consumer business. Adjusted EPS growth is expected in the mid- to high single-digit percentage territory, always at constant exchange rates, including M&A. We also will continue to focus on free cash flow expansion. And to wrap it up, we did not only show a strong performance year-to-date, but also are confident for the full year, as well as in regards to Henkel's mid-term growth and profitability profile. And with this, I would like to hand over to Marco, who will lead you through the financials of the first half in more detail.