Dusseldorf After two years of declining profits, the consumer goods manufacturer Henkel has increased its earnings again for the first time. In 2021, the manufacturer of Persil, Schauma and Pritt achieved earnings before interest and taxes (EBIT) of a good 2.2 billion euros – an increase of 9.6 percent compared to the crisis year 2020. Henkel announced this on Wednesday. However, the value is still below the pre-pandemic level: in 2019 the profit was 2.9 billion euros.
The group’s problem child is still the cosmetics division with brands such as Fa, Schauma and Schwarzkopf. Although the hair care business recovered, sales of the body care products are still below plan. The segment achieved at least slight organic growth for the first time since 2018. However, the adjusted EBIT in this area is only 351 million euros – seven percent less than in 2020.
CEO Carsten Knobel explained this with “higher investments in marketing and advertising and increased raw material prices”. He expects raw material costs to be more than ten percent higher this year as well.
But the problem with Henkel’s cosmetics division’s weak profitability is more fundamental: The adjusted EBIT margin fell by half a percentage point to 9.5 percent. Competitors such as Beiersdorf (Nivea), Unilever (Axe) or L’Oréal, who are struggling with similar price increases, achieve higher values here.
Top jobs of the day
Find the best jobs now and
be notified by email.
An explanation: Henkel primarily offers mass-produced goods, but significantly higher margins can be achieved with luxury products or high-quality skin creams. Knobel is responding by selling or discontinuing particularly low-growth brands and businesses with a sales volume of around 500 million euros by the end of 2021.
>> Read here: Henkel loses touch with the competition
The business with detergents and cleaning agents such as Persil and Pril grew organically by almost four percent, but adjusted EBIT was ten percent below the previous year’s figure at EUR 904 million. Henkel continues to have problems in the important sales market of North America. Sales there fell by almost three percent compared to the previous year, while Henkel was able to increase its sales in all other regions.
“We cannot be satisfied with the detergents and cleaning agents business in North America in particular,” Knobel admitted that the turnaround has not yet been achieved. The group has been struggling with delivery problems in North America for years and against major competitors such as Procter & Gamble. Knobel expects improvements this year.
Industrial adhesive as growth driver
The group’s growth driver is the adhesives business, particularly with applications for industry. In this division, Henkel achieved earnings before interest and taxes of almost 1.6 billion euros – an increase of 18 percent. Knobel explained this with the “significant recovery in industrial demand”. The sale of adhesives is significantly more profitable than the business with shampoos or creams: The adjusted EBIT margin in the adhesives area was 16.2 percent.
Henkel is a global leader in industrial adhesives. The traditional company should benefit from the fact that adhesives will be used more frequently in the future and will replace other fastening methods, especially in the growth area of electromobility. The adhesives business accounts for 48 percent of sales but accounted for almost 71 percent of adjusted profit in 2021.
For 2022, Henkel is sticking to its lowered targets at the end of January: Knobel expects organic sales growth of between two and four percent. “The unchanged outlook gives hope,” says Jella Benner-Heinacher, who observes Henkel for the German Association for the Protection of Securities (DSW). Many investors also saw it that way: Henkel shares were among the daily winners in the Dax with a plus of up to four percent.
Knobel wants to make Henkel more powerful in the long term by restructuring the company. The ailing cosmetics division will be merged with the detergents and cleaning agents division and will operate under the name “Consumer Brands” from 2023.
First of all, Henkel is planning job cuts – how many, the group wants to announce when presenting the quarterly figures at the beginning of May. According to Knobel, “constructive talks” have already been held with the employee representatives. The organizational structure of the new division and the first management level below the board of directors have already been determined.
The British competitor Unilever is also currently reorganizing its structure, but is making five out of three divisions. Knobel rejected criticism that the new Henkel construct was too cumbersome. The group is more flexible and can handle larger acquisitions better with the new structure.
The proportion of women in management should increase
Knobel announced that Henkel wants to fill every second management position with a woman by 2025. The proportion is currently just under 38 percent. However, there is not a quota for every hierarchical level, this should apply across the group. For example, the board does not have to consist of 50 percent female managers.
Henkel keeps the dividend stable, investors should receive 1.85 euros per preferred share and 1.83 euros per common share. The Düsseldorf-based company was one of the few German companies not to cut its distributions despite the corona crisis.
More: Undervalued and low-risk: Why investing in Henkel shares could now be worthwhile.