Henkel significantly increases sales, drives strategic agenda and raises sales guidance for 2022

Group sales in the first half of 2022 grew organically by +8.9 percent to around
10.9 billion euros (nominal +9.9 percent), driven by all business units and regions

• Earnings impacted, as expected, by drastic input cost headwinds:

–     Operating profit (EBIT)* reaches 1,166 million euros (-18.5%)

–     EBIT margin* at 10.7% (-370 basis points)

–     Earnings per preferred share (EPS)* at 1.95 euros, -20.8% at constant exchange rates

• Good progress in implementing the purposeful growth agenda and in merging the consumer businesses into Henkel Consumer Brands
• Outlook for fiscal 2022 updated:

–     Organic sales growth: increased to +4.5 to +6.5 percent

–     EBIT margin*: unchanged at 9.0 to 11.0 percent

–     Earnings per preferred share (EPS)* at constant exchange rates: unchanged a decline in the range of -35 to -15 percent

In the first half of 2022, Henkel increased Group sales to around 10.9 billion euros. This corresponds to significant organic sales growth of +8.9 percent. This positive development was driven by all business units and regions. As expected, the earnings in the first half of the year were impacted by the drastic rise in material and logistics prices. Despite significant price increases, strict cost management and further efficiency improvements these effects could not fully be compensated.

“In a very challenging environment, sales performance in the first six months exceeded the previous expectations for the full year, while earnings developed in line with our Group guidance for fiscal 2022. In view of this development, we have raised our full-year guidance for organic sales

growth for the Group and confirmed our guidance for the EBIT margin and earnings per preferred share”, said Henkel CEO Carsten Knobel.

“We are consistently advancing our strategy for purposeful growth and made good progress in implementation in the first half of 2022 – thanks above all to the strong commitment of our employees worldwide. With our Adhesive Technologies business, we are a global leader in providing innovative solutions, focusing on future trends such as mobility, connectivity and sustainability. By combining the Laundry & Home Care and Beauty Care consumer businesses, we are now creating a multicategory platform with sales of around 10 billion euros. We are well on track and aim to have our future Consumer Brands business established latest by the beginning of 2023. The combined unit will offer a broader base to optimize our portfolio more consistently and will advance the business to a higher growth and margin profile.”

Outlook for fiscal 2022 updated

Henkel now expects organic sales growth of +4.5 to +6.5 percent in fiscal 2022 (previously: +3.5 to +5.5 percent). Organic sales growth of +8.0 to +10.0 percent is still expected for the Adhesive Technologies business unit. For Beauty Care, Henkel now anticipates organic sales growth of -3.0 to -1.0 percent (previously: -5.0 to -3.0 percent). For the Laundry & Home Care business unit, Henkel now expects organic sales growth of +4.0 to +6.0 percent (previously: +2.0 to +4.0 percent). Adjusted EBIT margin at Group level is expected to remain unchanged in the range of 9.0 to 11.0 percent. For the development of adjusted earnings per preferred share (EPS) at constant exchange rates, Henkel continues to expect a decline in the range of -35 to -15 percent.

Exit of operations in Russia and Belarus in execution

In April 2022, Henkel decided to exit its business activities in Russia and Belarus. Henkel is thoroughly assessing all options and intends to have completed the process by the end of the year.

Group sales and earnings performance in the first half of 2022

At 10,913 million euros, Group sales in the first half of 2022 were +9.9 percent above the prior-year level (Q2: 5,642 million euros, +13.8 percent). Organic sales, which exclude the impact of currency effects and acquisitions/divestments, showed significant growth of +8.9 percent (Q2: +10.9 percent). Acquisitions and divestments had a negative impact of -1.4 percent on sales (Q2: -1.8 percent). Since the beginning of Q2, this includes the effects of the announced exit of operations in Russia and Belarus. Foreign exchange effects increased sales by +2.4 percent (Q2: +4.7 percent). These also include the effects from the application of IAS 29 (Financial Reporting in Hyperinflationary Economies) required for Turkey since the beginning of the reporting period.

Sales growth in the first half of the year was mainly driven by the Adhesive Technologies business unit, which achieved a double-digit organic increase of +12.2 percent. Here, all business areas achieved organic sales growth. The Beauty Care business unit recorded organic sales growth of +0.4 percent in the first half of the year. The Hair Salon business achieved double-digit organic sales growth. By contrast, the consumer business was below the level of the previous year, mainly as a result of the measures announced to improve the portfolio. The Laundry & Home Care business unit achieved a significant organic sales increase of
+7.4 percent, driven in particular by double-digit growth in the Laundry business. The Home Care business recorded positive organic sales development in the first half of the year.

In the emerging markets, organic sales grew at a double-digit rate of +12.9 percent (Q2: +14.6 percent). Business in the mature markets showed a very strong organic sales performance of +5.5 percent (Q2: +7.8 percent).

Adjusted operating profit (adjusted EBIT) was 1,166 million euros in the first half of the year, compared to 1,430 million euros in the prior-year period. The decline was mainly due to significantly higher prices for direct materials.

Adjusted return on sales (adjusted EBIT margin) decreased from 14.4 percent to
10.7 percent due to significantly higher prices for direct materials.

Adjusted earnings per preferred share were at 1.95 euros in the first half of 2022. At constant exchange rates, this represents a decline of -20.8 percent compared to the prior-year period. The development was also mainly driven by the significant increase in prices for direct materials.

Net working capital increased by 1.6 percentage points to 5.2 percent of sales (prior-year period: 3.6 percent), also impacted by the sharp rise in raw material prices. Free cash flow of 46 million euros was lower than in the first half of 2021 (471 million euros) due to lower cash flow from operating activities as a result of the lower operating profit and higher net working capital.

As of June 30, 2022, the net financial position amounted to -1,441 million euros (December 31, 2021: -292 million euros). This development also includes expenses of around 430 million euros in the share buyback program launched in February 2022 as well as dividend payments of around 800 million euros in the second quarter.

Business unit performance in the first half of 2022

In the first half of 2022, sales of the Adhesive Technologies business unit increased nominally by +15.0 percent to 5,467 million euros (Q2: 2,836 million euros, +18.5 percent). Organic sales increased by +12.2 percent (Q2: +13.7 percent). This development was driven by all business units and regions. Adjusted operating profit in the first half of 2022 reached 743 million euros, compared to 820 million euros in the prior-year period. At 13.6 percent, adjusted return on sales was 3.7 percentage points below the figure for the first half of 2021, with earnings figures impacted by the significant rise in prices for direct materials.

In the Beauty Care business unit, sales increased organically by +0.4 percent (Q2: +2.1 percent) in the first six months of 2022. In nominal terms, sales rose by +0.2 percent and reached 1,842 million euros (Q2: 950 million euros, +3.9 percent). This growth was primarily driven by the strong performance of the Hair Salon business, which was able to build on its strong performance in the previous year. Consumer business, on the other hand, was below the level of the previous year, mainly due to the implementation of the portfolio improvement measures announced for 2022. Adjusted operating profit reached 169 million euros in the first half of 2022, compared to 183 million euros in the first half of 2021. Adjusted return on sales was 0.8 percentage points below the prior-year level at 9.2 percent, also impacted by higher prices for direct materials.

The Laundry & Home Care business unit achieved a significant organic sales increase of
+7.4 percent in the first half of 2022 (Q2: +10.1 percent). Growth was driven in particular by a double-digit increase in sales in the Laundry business. In nominal terms, sales rose by +6.7 percent to 3,494 million euros (Q2: 1,802 million euros, +11.3 percent). Adjusted operating profit was 313 million euros, compared to 490 million euros in the prior-year period. Adjusted return on sales was 9.0 percent, also below the level of the first half of 2021, particularly due to the significant increase in prices for direct materials.

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