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German consumer group Henkel (HEN) has issued “its biggest profits warning in recent history” as it outlined plans to reinvest in its flagging brands.
The Persil and Schwarzkopf maker announced today in an unscheduled market update that it expects to post a “mid single digit” decline in earnings per share in 2019 due to the need to invest in its business.
The group said it expects 2019 to represent “a challenging market environment, characterized by high uncertainty and volatility, with mixed market dynamics and continued headwinds from currencies and commodities”.
Henkel anticipates “good” growth of industrial production, but warned that in consumer goods markets, it expects persisting difficult conditions and ongoing competitive and pricing pressures.
It predicted organic sales growth of between 2%-4% and an EBIT marging of 16%-17%, which is below consensus expectations of around 18%.
Pre-annoucning its 2018 results ahead of its planned February released, Henkel said sales in 2018 were down to €19.9bn from €20bn in the previous year.
Currencies negatively impacted reported sales by around €1.1bn, which negated organic sales growth of 2.4%.
Preliminary adjusted operating profit (EBIT) improved by 1% percent to around €3.5bn, while preliminary adjusted growth per preferred share was at 2.7%.
“This good performance in a highly challenging and volatile market environment is testament to the strong commitment and dedication of our global team,” said Hans Van Bylen, Henkel CEO.
The results accompanied the announcement that Henkel will step up investments by around €300m annually from 2019 onwards, with around two thirds of this invested in Henkel’s brands, technologies, innovations and key markets and one third will additionally fund digital transformation across the group.
Van Bylen commented: “We will step up our growth investments to build on our strengths and capture opportunities especially in our consumer goods businesses. We will strengthen our position by accelerating the launch of new brands and innovations, increasing our marketing investments and driving digitalization even further. At the same time, we will continue to maintain our high cost discipline, pursue further efficiency gains and continually adjust our structures.”
“We are committed to delivering sustainable profitable growth and attractive returns.”
Analysts at UBS called the profits warning the biggest in Henkel’s recent history, adding: “There is no guarantee that Henkel’s plans to revive its brands (through product launches) will work.
“We think it is too early to give management the benefit of the doubt on this, particularly considering the last few years’ performance. Asking investors to accept a sub-par staples performance while making up for historical underinvestment should come at a price; and we see no reason why Henkel should re-rate significantly in the near term.”
Broker Jefferies added: “This update does nothing to restore confidence in management, nor their command of the numbers and outlook… Management need urgently to demonstrate that they have a grip on the business and the numbers.”
The shares dropped 10% today back to a multi-year low of €87.36.
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