Henkel Ag & Co Kgaa S/Adr

Good morning to everyone here on the call. A warm welcome to everyone joining Henkel's Q1 2025 results conference call today. I'm Leslie Iltgen, head of Henkel's Investor Relations. Today I'm joined by our CEO, Carsten Knobel, and our CFO, Markus Vorboda. Carsten will begin with an overview of the key developments and highlights in the first quarter. Markus will follow with a more detailed review of the financial performance. As always, following the presentation, we will open up the lines and Carson 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 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 great pleasure to hand over to our CEO, Carsten Knoebel. Carsten, please go ahead.

Thanks, Leslie, and a warm welcome also from my side to everyone joining our conference call today. And as always, we do appreciate your interest in our company and we look forward to answering your questions. After walking you through the key developments of the first quarter, we will elaborate on Ankle'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 quarter. Our first quarter top line came in softer in line what we had indicated in our full year call in March. On group level Henkel recorded a minus 1% organic net sales growth. Our consumer business reported minus 3.5% and thus came in within the expected range, also reflecting high prior year comparables due to strong innovation launches in the first half of 2024. Pricing continued to be positive. Volume development was in the negative territory, reflecting muted consumer sentiment, customer destocking, particular in the US, as well as supply chain challenges, which in the meantime, we have mainly solved. We also succeeded in closing the divestment of our retailer brands business in North America earlier than initially anticipated. And with that, we concluded our strategic portfolio optimization program, which we had announced early 2022. Adhesive technologies delivered organic net sales growth of plus 1.1% for the first quarter, despite the negative working day impact, which accounts for slightly more than one percentage point. So adjusted for this working day impact, organic sales growth would have been above 2%. Also, we saw a good balance between volumes and pricing, both being in positive territory. In addition, we also saw strong margins, both gross profit and EBIT, which is quite encouraging to see. And despite the fact that we are operating in an environment that has become significantly more challenging since the beginning of the year, our outlook for 2025 remains unchanged. We expect a top line acceleration in the course of the year and thus a stronger second half and bottom line well within our guidance range. And with that, Let us take a closer look at some of the highlights across the group. We started the year with strong gross and EBIT margins. In regard to capital allocation, we continue to build on M&A as an integral part of our strategy with a promising and a well-filled pipeline. And in addition, we are also just about to start our new share buyback of up to 1 billion euros, which we plan to conclude by Q1 2026. the latest in adhesive technologies our strong global footprint and leading market positions enhanced the continued strong performance particular in electronics and industrials in consumer brands we are keeping up with strong investments behind our brands and innovations while further expanding our global footprint for example by closing geographical white spots to fuel growth with particular focus on our top brands particular now As we have successfully closed the retailer brand's divestments earlier than initially expected, we can focus even more on the top branded products in North America supported by tech-driven innovations to enhance valorization. And as you can see, we are continuously driving our businesses along clear strategic priorities to fuel further profitable growth. Now taking a closer look at what the main growth drivers are currently electronics and industrials clearly stand out. And what is driving this? In electronics, which showed double-digit growth in the first quarter, we see a strong surge in demand for high-performing components fueling market growth and increasing the need for innovative solutions. A good example is the AI-driven PC market, which is expected to more than double in size by 2028 and which drives growth in the semiconductor packaging. Another good example are growth opportunities we see in the area of consumer devices such as smartphone cameras. By 2030, the number of smartphone cameras is expected to grow by more than 20%, unlocking new opportunities in bonding and in sealing. Looking at industrials, where we saw strong growth in Q1, we continue to outperform markets across different segments, building on the strong portfolio of customer-centric solutions we have. In aviation, for instance, we are currently expanding capacities in our certified production plant in Spain in light of high order backlog in the industry. The aviation market is expected to grow in the high single-digit percentage range in the next years. Another example, industrials, is data and telecoms. The market is anticipated to grow high single-digit over the next years, particularly driven by the continued expansion of data centers with advanced thermal requirements. Moving to the next slide, I would like to share one specific example from the steel industry as to how we create competitive advantage with innovative solutions in our industrial business. With our metal coil business, we are serving end markets like building construction and household appliances early on in the value chain. Here, hexavalent chromium was long seen as the only option to prevent corrosion on metal. However, it requires specialized safety measures resulting in higher operational effort. As the first to the market, we developed hexchrome-free technologies under our Bondurite brand that deliver best-in-class corrosion resistance while prioritizing worker safety and the environment. Building on our clear competitive edge, we are driving our customers' transition to new advanced technologies. Today, we are the global market leader for hexchrome-free technologies for the steel industry, underpinned by a portfolio of 13 granted patents to date. Our strong know-how and our close customer collaboration is reflected in our excellent performance. We have been outperforming the market and delivering a double-digit growth over the past four years with these innovative solutions. Now turning to our consumer brands. I would like to walk you through the excellent progress we have made thus far in transforming the business while significantly improving the quality of the business across multiple dimensions ever since we went live with the merger in early 2023. This is the largest transformation at Henkel over the past decades. We changed the organizational setup of the business, actively shaped our portfolio by executing the portfolio optimization program, which in the meantime has been successfully concluded, and we are currently working heavily to finalize the supply chain optimization measures. These measures already led to a much better mix, significantly efficiency gains and savings, which came in faster and are even higher than what we had originally anticipated. While at the same time, we are investing clearly more behind our brands, including marketing spend and R&D. And being even more specific and talking in numbers, we saw an average 4.5% organic sales growth over the last two years. Sales remained more or less stable in absolute numbers, despite the fact that we divested our business in Russia and executed the portfolio optimization program, which in total accounted for around 2 billion in sales. We were able to increase the gross margins of the business significantly by 1,100 basis points. We increased our investment in marketing and R&D significantly, and at the same time, we were able to increase the adjusted EBIT margin by 520 basis points. networking capital improvement or improved significantly by 200 basis points ever since we announced the merger. To be fair, we are still not satisfied with the volume development and thus top-line growth. However, with these steps, we have significantly improved the quality of the business and thus laid the foundation for solid, sustainable and profitable growth going forward towards our mid-term ambitions. With a more focused portfolio, particularly on branded products and tech-driven innovations, the continued valorization process and the optimized cost structures, we are getting closer and closer to our mid-term ambition. However, we had to work on getting better first and improve our portfolio and profitability overall, which now allows us to reinvest into the business even more and driving getting bigger and continue to grow the business going forward. But we want to achieve that in a sustainable, balanced, and in a healthy way without cutting back on investment behind our brand. We can now build on the achieved milestones and are clearly committed to our midterm ambition, calling for 3% to 4% organic sales growth and an adjusted EBIT margin in the mid-teens percentage range. Now turning to our top brands. We continue to see strong growth momentum among our top 10 brands in the portfolio, which in the meantime have increased to around 60% of our sales ever since we divested the retailer branded business in North America. These brands have been continuously outperforming organic sales growth of the business unit by around 400 basis points over the past two years. As in the past, we built on a strong innovation track record also in 2025 and expect more impactful launches in the quarters to come and beyond. Among others, our pipeline includes launches under our top brands such as All in North America, Persil, Brev, Somad in the second half of 2025. Of course, all our innovations aim to bring additional benefits to our consumers and to capture additional category growth. With these top brands and tech-driven innovations we are bringing to the market, we continue to drive the valorization of our portfolio. And to give you a clear feasible example, Pervol in the meantime is the number one brand in the fabric care market globally and a great example for successful brand development with more than 20% growth over the past three years. Under Pervol, we have different formulation and just recently we launched the first fabric care product for all light colors, including white colors, based on our innovative triple-renew technology. This superior technology removes grayness, smoothens fibers, and provides a premium long-lasting scent. We saw market share gains of more than 100 basis points year-to-date 2025 in fabric care. With new country rollouts, we fill geographical white spots and further expand our global footprint. Another feasible example in hair is our number one master brand Schwarzkopf. In the meantime, accounting for more than a billion euros of sales, it is an excellent example of how we successfully leverage our hair expertise across the consumer and the professional business that we have in our portfolio with tech-driven innovations. Within our master brand Schwarzkopf, the consumer part, comprising the categories color, care, and styling, recorded above 6% growth over the last three years. Let's take a closer look at an innovation we just recently launched. Cream Supreme. Cream Supreme is the first caring coloration with an innovative bonding technology referred to as bonding haptic system. This technology protects the hair from being damaged during the entire coloration process and ensures beautiful, luminous, and even color results at home. The launch was supported by a strong marketing campaign and hence contributed to strong organic net sales growth of Schwarzkopf in our hair consumer business in Q1. Now, turning to our 2025 outlook. Despite the fact that we are operating in an environment that has become significantly more challenging since the beginning of the year, our outlook for 2025 remains unchanged. Expecting 1.5 to 3.5% organic net sales growth, an adjusted EBIT margin, of 14 to 15.5% and a low to high single-digit percentage increase in our adjusted EPS at constant exchange rates. We also still expect a stronger second half of the year. Among the main drivers are the following. In adhesive technologies, we expect an acceleration of top-line performance supported by better mix and the partial reversal of the negative working-day impact in the second half. In consumer brands, we have a well-filled innovation pipeline with stronger top-line contributions expected in the second half of the year, while investments in marketing and R&D remain on elevated levels. Also, the supply chain-related topics have been mainly resolved already in the meantime. Furthermore, we see our more recent acquisitions contributing in both businesses, including first benefits from the early closing of the retailer brand's divestment in consumer brands. Beyond these drivers, we are well underway to achieve the given margin guidance range. And with that, let me hand over to Marco for some more details on our financial performance in the first quarter. So, Marco, please.

Yeah, thanks, Carsten, and good morning to everyone in the call, also from my side. So, building on what Carsten already shared, let me provide some more color on the drivers of the group sales performance in the first three months of fiscal 2025. Organic sales growth came in at minus 1% in the first quarter and thus reflected a softer start into the year in line with what we had indicated in our full year call in March. Group level pricing contributed with plus 1.4%. while volumes were below prior year. More on the business unit specifics, like always, in a minute. Acquisitions and investments increased sales by 1.1%, particularly driven by the recently closed acquisitions of C4 Life and Vidal Sassoon. However, for the full year, we still expect a low single-digit negative impact on sales mainly driven by the divestment of our retailer brands business in North America. FX effects were headwind of 1.4% in Q1, and given the recently weaker dollar, we expect the headwind to accelerate in the course of the year. In nominal terms, sales amounted to 5.2 billion euros, thus 1.4% below the prior year quarter. And now turning to the drivers in the respective regions in more detail. starting with Asia Pacific, where we achieved good organic sales growth of plus 3.6%. The adhesive technologies business contributed with a significant increase, which was particularly driven by the continued growth dynamics of our electronics business in China. In contrast, the consumer brands business was below prior year quarter, also reflecting supply chain challenges as communicated previously. India, Middle East, Africa grew by 4.6% with contributions from both business units. And in Latin America, we achieved growth of 1.5%. Consumer brands came in below prior year, mainly due to laundry and home care and the supply chain challenges, while hair recorded very strong growth. In adhesive technologies, we recorded very strong growth, mainly supported by double-digit increase in mobility and electronics. And moving on to Europe, where sales were below the prior year quarter in both business units. In adhesive technologies, this was mainly due to craftsmen, construction and professional. In consumer brands, laundry and home care was down year on year, while hair showed a good development. In North America, sales declined by 5.6% in an overall challenging environment. In adhesive technologies, this was primarily due to the negative development of mobility and electronics impacted by the overall development in the automotive market, also reflected in a negative light vehicle production index of minus 8% for the region, i.e. North America, in the first quarter, as well as packaging and consumer goods also impacting our sales in North America. And in line with expectations, the development of consumer brands reflected the subdued consumer sentiment, customer destocking, and the overall increased uncertainty in the region. Ultimately, the development in North America materially affected the overall performance of both business units. So now back to the global level and starting with adhesive technologies. We reached sales of 2.7 billion euros in the first quarter. Organic sales growth was 1.1% backed by a balanced price and volume mix. And this despite the negative working day impact, which accounted for slightly more than one percentage point in the first quarter. Overall, adhesive technologies showed a very robust development in a challenging market environment. Pricing remained robust, which clearly shows the strength of our market position and the portfolio. Volume development was also in the positive territory and adjusted for the pronounced impact of more than one percentage point, resulting from a lower number of working days in the first quarter, OSG would have been above 2%. As Carsten mentioned earlier, we expect top-line performance to accelerate in the course of the year, leading to a stronger second half, particularly driven by volumes while pricing is expected to remain flattish and thus robust. Let me now turn to the performance in the individual business areas where we saw different dynamics. Mobility and electronics was again the main growth driver with a plus of 3.1%. This increase was mainly driven by double-digit growth in electronics and strong growth in industrials. This could more than offset the muted performance of automotive. Packaging and consumer goods recorded a slightly negative development. Packaging was supported by an ongoing recovery in demand, while performance in consumer goods was slightly below prior year, also reflecting softer markets. Craftsmen, construction, and professional delivered organic sales growth of 0.4%. This was particularly driven by good development in consumers and craftsmen, as well as construction. Now moving to consumer brands. The business generated sales of 2.5 billion euros. Organic sales growth was minus 3.5% and thus within the expected range and reflecting high prior year comparables due to strong innovation launches in the first half of 2024. Please note that in 2025, top line contribution from innovation launches will be more skewed towards the second half. Pricing was positive at 2%. And as communicated previously, volume development was in the negative territory, reflecting muted consumer sentiment, customary stocking, and supply chain challenges. Continued positive pricing reflects the ongoing valorization of our portfolio with strong innovations and sustained elevated marketing investments. As mentioned, volume development reflects the subdued consumer sentiment and customary stocking, particularly in the US, as well as supply chain challenges, which, in the meantime, we have mainly solved. As you know, this includes issues in a production site in Mexico, the change of a warehouse provider in China in the course of the Vidal Sassoon integration, with which we had doubled our sales in the country. We expect the volume development to sequentially improve, in particular in the second half, supported by the fact that the supply chain challenges will have been resolved, and a high sales contribution from innovation launches in the second half. Last but not least, we will continue with our strong investments behind our brands to fuel further growth. And now, looking at the performance by business area. Laundry and home care reported organic sales growth of minus 4.1%. Laundry care was negative due to fabric cleaning, while fabric care continued to deliver very strong growth with strong contribution from our top fabric care brand, Pervol. Home care delivered good growth, driven by significant growth in the dishwashing category, with strong contributions from our key brands, Prill and Somat. Growth in hair, which comprises both the professional and the consumer business, remained below prior year levels. The professional business was impacted by the muted consumer sentiment and consequently less salon traffic, particularly in North America. In contrast, the hair consumer business delivered positive growth, mainly driven by coloration and styling with strong contribution from our mega-brand Schwarzkopf as well as Zyos. In other consumer businesses, the growth remained below prior years levels due to body care in North America and Europe. Now looking at macro expectations for fiscal 2025. In line with what we already told you in March, we see an increasingly volatile economic and geopolitical environment. As a result, several research institutes across the globe have lowered their growth expectations in regard to both industrial and also consumer markets. The global economy is expected to only grow at a more moderate pace in 2025. Amongst others, industrial production index and light vehicle production expectations have been lowered. Also, consumer spending is expected to be more muted versus the expectations at the beginning of the year, reflecting the generally subdued sentiment and the overall high uncertainty, in particular in North America. Inflation is expected to remain on elevated levels, and when it comes to currencies, we expect markets to remain highly volatile also as a result of the current tariff implementations. The same also holds true for raw material prices. While we consider the direct impact from tariffs as manageable due to the fact that we source and produce the vast majority domestically, and this holds true for both business units, the indirect impact on the overall economy remains uncertain. Looking at the US, for instance, this applies to around 90% of materials that we source and finished goods we produce. Besides the fact that we have already accounted for the high volatility with relatively wide guidance ranges, we are already implementing countermeasures in regard to sourcing and pricing to mitigate the impact. Of course, we will continue to monitor the situation closely. Closing this chapter with our outlook for fiscal 2025, which remains unchanged, Despite the fact that we are operating in an environment that has become significantly more challenging since the beginning of the year, we continue to expect organic sales growth of 1.5% to 3.5% for the group. For adhesive technologies, we guide 2% to 4%, and in consumer brands, we guide for 1% to 3%. In terms of phasing, we anticipated a slower start to 2025. However, we expect organic sales growth to accelerate in the course of the year, leading to a stronger second half of fiscal 2025 versus the first half. This holds true for both business units. For the adjusted EBIT margin, we continue to anticipate a level of 14 to 15.5% on group level, backed by already strong performance in the first quarter. For adhesive technologies, we expect 16 to 17.5%, and for consumer brands, 13.5 to 15%. And for adjusted EPS growth at constant currencies, we continue to expect an increase in the low to high single-digit percentage range. Our expectations regarding FX, A&D, direct material prices, restructuring expenses, and CapEx for fiscal 2025 remain unchanged. Although, as already mentioned earlier, we do see a high level of volatility, in particular when it comes to currencies. And here, we expect the headwind that we see in Q1 to accelerate in the course of the year. And with that, back to you, Carsten.