Germany-based multinational Henkel plans to merge its Laundry & Home Care and Beauty Care division to create one business unit named Henkel Consumer Brands. Plans for the integration process will begin immediately, and the new organization should be in place by 2023 at the latest. The result will be one multi-category platform for growth with significant synergies and efficiency. The business will continue optimizing its consumer portfolio and expects to divest or discontinue non-core brands, with a clear focus on brands with attractive growth and margin potential, creating a stronger basis for M&A across the consumer space.
"We will join forces in our consumer goods businesses to create one strong, integrated business unit as a foundation for future profitable growth. The integrated Consumer Brands business will bring significant benefits to Henkel, our shareholders, customers and teams and will be well-positioned to actively shape its future in a highly dynamic industry," said Carsten Knobel, CEO of Henkel.
“We are creating a multi-category platform with around 10 billion euros in sales. This will provide a broader basis to further optimize and shape our portfolio towards a higher growth and margin profile. We will also capture significant synergies and efficiency gains, allowing us to free up resources which will be used in part for targeted investments in our strategic priorities, such as innovation, sustainability, and digitalization. We will become an even more attractive employer of choice, offering bigger roles and growth opportunities in an exciting industry. In summary: I am convinced that this merger will take our Purposeful Growth Agenda to the next level.”
The merger is designed to drive growth and profitability for the consumer business and the company, which is reflected in Henkel's new mid- to long-term financial ambition:
Wolfgang König, currently Executive Vice President for Henkel's Beauty Care business, will lead the integration process and the new combined unit. As Executive Vice President, Bruno Piacenza, who leads Henkel's Laundry and Home Care business, will continue steering that activity and work closely with König on the transition process. Piacenza will remain at Henkel until the end of this year, at the latest.
The new business unit will be organized around customer and channel centricity with an integrated approach for retailers, trade, or channel partners across all consumer categories. Under one leadership, the combined team will advance the entire consumer business with leaner structures and faster decision-making. Henkel will offer bigger roles and opportunities in the combined business, becoming an even more attractive employer for teams, leaders, talents, and new hires.
Henkel is also launching a share buyback program with a total volume of up to 1 billion euros that will begin in February and run through March 2023 at the latest. The company's management board can acquire treasury shares of up to 10% of the capital stock. The group said it intends to hold the repurchased shares initially as treasury shares and reserves the right to cancel them and reduce the capital stock.
"With this program, we are creating value for our shareholders and are underpinning our confidence in our financial strength and future potential of our businesses. Given our strong balance sheet and low debt levels as well as our strong cash flow generation, this will not impact our ability to pursue strategic acquisitions—in both our Consumer Brands and our Adhesive Technologies business units," said Knobel.
Based on preliminary figures, Henkel achieved an overall good performance in fiscal 2021 with sales of 20,066 million euros representing organic sales growth of 7.8%. This development was in particular driven by double-digit growth in its Adhesive Technologies business unit, while the continued effects of the COVID-19 pandemic impacted profitability, especially due to the sharp increases in raw material prices and strained supply chains.
For Henkel, adjusted return on sales (EBIT margin) was 13.4%. The Adhesive Technologies business unit achieved an adjusted return on sales of 16.2%. The Beauty Care business unit delivered an adjusted return on sales of 9.5%, while the adjusted return on sales of the Laundry & Home Care business unit was 13.7%.
"Despite a very challenging business environment with unprecedented disruptions in global supply chains, shortage of raw materials and significantly surging prices, we achieved an overall good performance with significant organic growth supported by all business units, a stable margin and a very strong increase in earnings per share. This is the achievement of the global Henkel team which again went above and beyond to keep our businesses up and running to serve our customers and consumers around the world," said Knobel.
Taking into account the current assessment of the market environment, in particular the continuing tense situation in the markets for raw materials, supply chains, and related further increases in direct material cost, Henkel expects organic sales growth for the group in the range of 2% to 4% in 2022. Adjusted return on sales (EBIT margin) for the group is expected to be between 11.5% and 13.5%.
With its new multi-category platform and a joint consumer goods team, Henkel will drive growth and profitability for the consumer business and the group. As part of its new mid- to long-term financial ambition, Henkel aims for its Consumer Brands business to improve the growth and margin profile sustainably and to achieve 3% to 4% organic sales growth and an adjusted EBIT margin in the mid-teens percentage. For its Adhesive Technologies business unit, Henkel's ambition is to achieve organic sales growth in the range of 3% to 5% and an adjusted EBIT margin in the high-teens percentage.
Based on this, Henkel pursues a mid- to long-term ambition for the Group of 3% to 4% percent organic sales growth, an adjusted EBIT margin of around 16%, and an increase of the adjusted earnings per preferred share by a mid- to high-single-digit percentage. At the same time, Henkel will place a continued focus on expanding the free cash flow.
