Henkel AG & Co. KGaA
Q4 2020 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Good morning, and welcome to the Henkel Full Year 2020 Results Conference Call. With us today are Carsten Knobel, CEO; Marco Swoboda, CFO; and the Investor Relations Team. For the duration of the call, you will be on listen-only. Please note that there will be a live webcast of today's conference call, including the Q&A session. In addition, a replay of the conference call and the Q&A session will be available on our website www.henkel.com/ir for a certain period of time. 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. Here, we will briefly mention your name and the company you are representing.

[Carsten Knobel:]

Dear Analysts and Investors, good morning from Dusseldorf, and a worm welcome to our conference call on the full year 2020. Thank you for joining us today. I hope that you and your loved ones are really doing well, and they stay safe and healthy. I'm joined today by Marco Swoboda, our CFO. Before we start, let me begin this call reminding everyone that this presentation, which contains the usual formal disclaimer to forward-looking statements within the meaning of relevant U.S. legislation, can be accessed via our website at henkel.com/ir. The presentation and discussion are conducted subject to this disclaimer. I will not read this disclaimer, but we take it as read into the record for the purpose of this conference call. Exactly one year ago, when I first talked to you as the newly appointed Chairman of the Management Board of Henkel, the world looked very different from today. Over the past 12-months, we have encountered fundamental changes to the way we live, work, and we do business. People around the world have gone through very challenging times, facing severe risk to the heath and the well-being of their loved ones. 2020 was far beyond anything we could have imagined when we as a management board developed our purposeful growth agenda for Henkel. And for sure, not what I expected my first year as CEO to be. But we were able to steer the company through this unprecedented crisis, doing everything possible to protect the health and safety of our employees, ensuring business continuity, serving our customers and consumers and supporting communities around the world. But 2020 has not only shown us the fragility of the world we live in. It has also made clear that the world is looking for new ideas, different approaches and the deeper meaning. Our aspiration for purposeful growth aims at providing new solutions to our customers and consumers, contributing to a more sustainable way of living, developing our people, and creating a sense of belonging for all of them. This will allow us to unlock the full potential of our company and enable us to be a force for good in this world. As I said before, every business transformation requires a cultural but also a personal transformation. And here, we really moved forward, accelerating our cultural journey with a clear growth mindset and the culture of collaboration and empowerment. You can continue to count on my personal commitment. We will carry on taking an unbiased, factual look at our performance and progress. And we will share this in a very transparent way with you. We take full ownership of our results, and we will further drive change, balancing business health and performance.

[Marco Swoboda:]

Yes. Thank you very much, Carsten. Good morning to everybody joining us today. Let's dive deeper into our financials, 2020, and the drivers of our overall robust business performance in this remarkable year. Starting with our top-line development and the performance of our business units. Organic sales development was slightly below the previous year at minus 0.7%, a very robust performance, given the challenging environment and in light of the strong headwinds especially in the first-half of the year. It was entirely driven by volume of minus 0.8% due to the external environment negatively impacting in particular, our Adhesive Technologies and Beauty Care businesses. Pricing overall was more or less flat at plus 0.1%. The net effect of our acquisitions and divestments supported sales with plus 0.3%. Currencies were a headwind in the full year at minus 3.9%. This was in particular driven by adverse development in the second-half of the year due to the weaker U.S. dollar and especially emerging market currencies. In total, Henkel recorded a decline of minus 4.3% in nominal sales to €19.3 billion. Moving on to our organic sales performance in the different regions. Overall, mature markets were negative with minus 3.2%, and in contrast our businesses in emerging markets achieved a strong organic performance of plus 3.0%. Both, North America and especially Western Europe were below prior year. This was largely due to the negative development in our Adhesive Technologies business, driven by pandemic-related double-digit declines in the automotive and general industry business segments. Beauty Care also recorded a negative organic development here, given the strong pandemic-related headwinds in the professional business. Laundry and Home Care in contrast achieved a positive organic sales performance in North America and Western Europe. Group performance in Asia Pacific was negative at minus 1.6%. Our businesses in China achieved positive organic sales growth however, this was over compensated by partially strong headwinds in many other countries of the region, in both our industrial and the Beauty Care businesses. The decline in Asia Pacific was more than offset by growth in the Middle East, Africa, and Eastern Europe regions. This was predominantly driven by our Laundry and Home Care business. Before we move to the business unit performance, let's briefly recap on the organic sales development in the course of 2020. The COVID-19 pandemic and its implications on the economies and societies affected our businesses especially in the first-half of 2020. In particular, our industrial and hair professional businesses were hit hard, with the greatest headwinds in the second quarter. Both, Adhesive Technologies and Beauty Care achieved a strong recovery in the third quarter which continued in the fourth quarter. Especially, Adhesive Technologies improved quarter after quarter towards the end. In our Beauty Care business unit however, the continued strong momentum in the retail business in the fourth quarter was partially offset by renewed pandemic-related restrictions and salon closures. Laundry and Home Care sustained an overall very strong performance throughout the year, driven by our impactful innovations and stronger marketing support, as well as benefiting from increased hygiene awareness and people staying more at home. In both, the third and the fourth quarter, each of Henkel's business units managed to grow organically. Let me now provide more detail on the performance of our business units, starting with Adhesive Technologies. Overall, under challenging business conditions, the business unit recorded an organic sales development of minus 4.2% in the full year, with a continued recovery in Q3 and Q4 across all business divisions and regions. Developments in the different business areas varied significantly. Automotive & Metals achieved very strong growth in the final quarter. However, close the full year, a low double-digit percent below prior year level. This was mainly due to significant declines in car production volumes in mature markets. And in contrast, our business in China continued a strong recovery, even reaching strong organic sales in the full year after difficult start into the year. Our Packaging and Consumer Goods business area showed a comparably resilient performance, yet it was also affected by the pandemic-related headwinds especially in the second quarter of 2020. And return to growth in both Q3 and Q4 and achieved positive organic sales growth in the full year. Electronics and Industrials, overall, remained below the prior year level, impacted by weak demand in the industrial business. Our Electronics business in contrast recorded significant sales growth. And in Craftsmen, Construction & Professional, sales organically remain below the prior year, despite a strong recovery in the second-half of the year, and achieving growth in each business segment in both Q3 and Q4. So in total, and as a consequence of the underlying demand trends, Adhesive Technologies recorded a volume decline of minus 4.8%. Pricing was largely positive at 0.6% in the full year. Gross margin of Adhesive Technologies was flat year-over-year, thanks to the slightly positive pricing and cost efficiency measures, combined with a roughly neutral direct materials impact, we were able to compensate headwinds from lower volumes and adverse currency movements. The adjusted EBIT margin nevertheless came in to a 90 basis points lower, closing the year at 15.2%. This was due to the lower sales volumes and corresponding negative fixed costs absorption. And wherein capital improved strongly by 230 basis points to very low level of 9.2%. Beauty Care recorded an organic sales development of minus 2.8% driven by lower volumes. Average prices were roughly flat. This development was driven by the hair professional business, which was significantly impacted by governmentally and forced salon closures. After difficult first quarter and the trough in April, we had recorded a stronger recovery in the third quarter. However, the renewed surge in infection rates once more triggered salon closures in the course of the fourth quarter in many of our key markets. And as a result, the hair professional business performance again turned more negative in Q4, and recorded an organic sales decline in the mid-teens percentage in the full year. Our retail business in contrast, returned to good organic sales growth in the full year. Following an almost flattish first-half, the business area recorded a very strong organic sales growth in the second-half of the year. Important parts of our business continued to be negatively affected by the pandemic and corresponding stay home effects, especially styling deodorants, as well as skincare. These headwinds were over compensated by double digit growth in hair coloration and significant growth in body care, fueled by our U.S. brand Dial that also benefited from strong consumer demand for hygiene products. The online and direct to consumer businesses remained a strong growth engine for Beauty Care, even accelerating in the course of the year. We achieved a strong increase in digital sales by more than 70%. The adjusted EBIT margin came in at 10%, 340 basis points lower year-over-year. The key driver of this development was the lower sales volume and related negative fixed costs absorption in professional hair. And in addition, Beauty Care increased its investments in marketing, advertising and digital to support strong retail product launches, especially in the second-half of the year. At the same time, the business units gross margin improved compared to previous year's level. Here, positive effects from savings and cost efficiency measures overcompensated headwinds from higher direct material prices and the negative sales mix from lower professional hair volumes. And wherein capital improved strongly by 240 basis points to a level of minus 0.5%. Closing the business unit overview with laundry and home care. The business unit sustained an overall very strong performance throughout 2020, closing the year with an organic sales growth of 5.6%. Also here the strongest increase since 2013. Growth was predominantly driven by higher volumes. We're glad to report that laundry and homecare achieved organic sales growth in each region, with even double digit growth rates in Asia-Pacific, Middle East, Africa and Eastern Europe. We were able to outgrow competition in these high growth markets. Performance in Europe overall, was especially impressive with market shares climbing to new record levels in 2020. These strong developments were contrasted, but still underperforming North American business. While we achieved good organic sales growth, the business nevertheless fell short of a much stronger market dynamic. From a category point of view, home care achieved double digit organic sales growth in 2020, and was the key driver of the business unit's very strong sales performance. Each of our core brands Pril, Bref and Somat recorded double digit growth. Laundry care recorded good organic sales growth. This was in particular driven by very strong performance and heavy-duty detergents and significant growth of our mega brand Persil, strongly supported by the continued rollout of our innovative Persil 4in1 DISCS, as well as launches of new brands and strong communication. Also in Laundry & Home Care business, we have been successfully expanding the e-commerce channel, benefiting from online trends triggered by the pandemic. The business unit increased digital sales by about 50%, further advancing the online share in overall sales. The business units, adjusted EBIT margin came in at 50%, 150 basis points below prior year. As announced in early 2020, we increased our investments in marketing advertising as well as digital and IT, supporting the launches of our impactful innovations throughout the year. The impact from higher marketing expenses was partially offset by an improvement of our gross margin. Here, we were able to overcompensate headwinds from high direct material prices and lower average pricing, in part due to high promotion intensity, with our continued focus on cost management. percent of sales improved strongly by 400 basis points to a level of minus 9.3%. Back to the Henkel Group now, taking a closer look at the adjusted income statement. Henkel recorded an adjusted EBIT margin of 13.4% in the full year 2020, minus 260 basis points year-over-year. While adjusted gross margin for the group improved by 40 basis points to a level of 46.7%. The key driver of the margin development were higher marketing, selling and distribution expenses was increased by 230 basis points to level of 26.2%. About half of this relative increase is due to the lower sales level. The other drivers were our plan step up of growth investments in marketing, digital and IT by about €200 million compared to 2019, as well as higher costs for logistics. R&D expenses in percent of sales remain stable and administrative expenses increased by 30 basis points, in relative terms as a result of the lower sales level. Looking at the detailed bridge from reported to adjusted EBIT. One-time expenses of €328 million mainly relate to non-cash impairments of €303 million on businesses to be sold or discontinued, which we incurred in the context of the execution of our active portfolio management. Restructuring charges amounted to €237 million, €57 million below the prior year level. The main focus was on optimizing our structures in production and sales. As a result reported EBIT declined by 30.4% to a level of €2 billion. Adjusted EBIT totaled €2.6 billion 20% below prior year. The financial results did not materially change year-over-year and came in at minus €94 million in 2020. Adjusted taxes on income amounted to €625 million, corresponding to an adjusted tax rate of 25.2%. As a result, adjusted net income after minorities amounted to €1.8 billion. This translates into adjusted earnings per preferred share of €4.26, which is 21.5% below the prior year level, or at constant exchange rates a minus of 17.9%. Let me continue with our cash flow performance and balance sheet. We recorded a free cash flow of €2.3 billion, almost on par with a record level achieved in 2019, and despite the strong earnings headwinds from the pandemic led declines in volumes and higher growth investments. This was to a large extent thanks to a favorable net working capital development. On group level the ratio of net working capital to sales reached 0.7%, 320 basis points below the prior year level. While this is for sure great result, let me provide also some more color. The strong improvement is in part driven by an unusual net working capital pattern and extraordinary quarterly business phasing throughout 2020, including elevated accounts payables at year-end, driven by higher seasonal spending levels in marketing, IT and CapEx. Effects which to a certain extent will reverse in 2021. In addition, the net working capital ratio was supported by currency effects of roughly 80 basis points impact. Finally, we paid out a total dividend of around €800 million following our AGM in June last year, corresponding to a stable dividend of €1.85 per preferred share. Despite the pandemic and a challenging market environment, we continue to invest into our businesses. In 2020, we spent a total of €750 million on CapEx. At 3.7% of net sales the CapEx ratio remained on a healthy level and even 40 basis points above prior year. The majority of these expenditures were channeled into growth and capacity expansion projects. Examples for key projects are the construction of our new Adhesive Technologies Innovation Center at our headquarters in Dusseldorf, and the new production facility built by laundry at home care for a new generation of detergents, an automatic dishwashing product in Serbia. The business unit also optimized the production in Bowling Green, USA. In addition, we spent about €500 million in acquisitions, adding around €200 million of annual sales on the pro rata basis. As a result of our strong free cash flow, our net financial position improved by almost €1.2 billion, and closed the year at minus €888 million. With a low debt levels, our strong A rating substantial flexibility in our short-term financing and strong cash generating capabilities, we have sufficient room to maneuver. At the same time, we continue to have fast access to capital markets at attractive conditions, as evidenced by the bonds successfully placed during 2020. A strong financial foundation which we can build on going forward, and which enables us to pay out an attractive dividend to our shareholders also in the current environment. At our annual general meeting in April, we will propose a stable dividend of €1.85 per preferred share, keeping the total payout amount on a record level despite the decline in net earnings. This equals a payout ratio of 43.7% and thus above the previous year's level of 34.2%, and above the higher end of our target payout range of 30% to 40%, considering the special nature of the earnings impact triggered by the COVID-19 pandemic. And the stable dividend is possible, not least thanks to our strong financial base and low net financial debt. Going forward, our dividend policy of a targeted payout range of 30% to 40% of adjusted net income after non-controlling interests remains in place. Onto the guidance for 2021, following the sharp decline in global economic growth in 2020 resulting from the COVID-19 pandemic, it is assumed that industrial demand will revive in 2021, and the demand for consumer goods will return to normal as the year progresses. At present, however, demand in some of the areas and regions of importance to Henkel is not expected to regain pre-crisis levels in 2021. In addition, there's a high level of uncertainty about the further course of infection rates, as well as the progress of vaccination activities, and thus the development of pandemic-related restrictions. Taking this into account, our guidance is based on the assumption that industrial demand in areas of the consumer goods businesses of relevance to Henkel in particular, our hair professional business will recover, in some cases significantly. Those consumer goods categories that were able to record increased demand throughout 2020 as a result of the pandemic, we do expect consumer demand to return to normal levels. We assume that the restrictions currently in place to contain the pandemic in our core regions will be lifted, as the first quarter progresses, and that unlike the second quarter of 2020 in particular, there will be no widespread closures of retail, industrial businesses and production facilities as the year progresses. Translation of sales in foreign currencies is expected to have a negative effect in the mid-single digit percentage range. And prices for direct materials are expected to increase by low to mid-single digit percentage compared to the previous year. It is important to note that our guidance does not reflect the effects of the intended divestments and discontinuation of business activities, brands and categories as part of our active portfolio management in 2021. It is not possible to reliably predict if and when these will actually occur. Taking all this into account, we expect group organic sales growth in the range between 2% and 5%. The wider guidance range is reflecting the high level of uncertainty about the further development of the pandemic and corresponding restrictions, and the potential impact in particular on Adhesive Technologies and Beauty Care. Adjusted EBIT margin is expected to advance to between 13.5% and 14.5%, versus the level of 13.4% in 2020. Finally, we expect an increase in adjusted earnings per preferred share with constant exchange rates of 5% to 15%. And with this, back to you, Carsten.

[Carsten Knobel:]

Thank you, Marco. So before we come to the Q&A, let me share how we will move ahead with our growth agenda in this year. Our strategic agenda for purposeful growth will continue to guide us. We will further drive momentum and set focus. We are committed to accelerating the transformation, delivering clear proof of progress and further improvement, focusing our efforts and initiatives, maintaining an honest and critical take on our own performance and taking full responsibility for our results. So let's take a closer look at our focused topics for 2021. We are fully committed to complete the plan divestment and discontinuations of identified brands and categories by the end of 2021. For those businesses in our turnaround cluster, we want to further accelerate their top-line dynamics. At the same time, M&A remains an integral part of our strategy supported by a strong balance sheet, as Marco indicated. We successfully implemented targeted operating model changes in 2020. At the same time, this effort never stops. We will further aim to strengthen our proximity to our customers and consumers, addressing changing demand trends in a fast and an agile way, also building on our new digital setup. For 2021, we will especially focus on two aspects of our purposeful growth agenda as they will be moving the needle. Creating clear competitive edge, means accelerating performance through innovation, sustainability and digitalization. And second, driving a culture of collaboration with empowered people, tangible for each and every employee at Henkel. Let me give you some more color on these two topics. In Adhesive Technology, we will accelerate growth in our attractive markets, leveraging our globally leading position across all markets and industries. We will capture high growth opportunities through closed collaboration with our 130,000 customers worldwide, our broad application knowhow and our technology leadership. We will drive sustainability across the entire value chain. We are systematically developing our portfolio and operations footprint towards its sustainability contribution. And at the same time, with our innovative solutions, we enable our customers to meet and even exceed their sustainability targets. We will constantly create new opportunities through digitalization by further digitizing the customer experience across all touchpoints. This goes along with a further expansion of data integration and by that leveraging the digital platform. Looking at Beauty Care. In beauty care, we want to win in professional. We will continue fully supporting our customers in those countries and regions, where the challenging environments that persist also in their comeback. And we will return to growth with strong premium innovations, such as our relaunch, with a trusted formula and a step change in sustainable packaging. We will also further advance with building a digital ecosystem, which includes the continued strong rollout of our innovative IoT device settlement. In our retail business, we came back to growth in 2020. Going forward, it is crucial that we build on this path with a focus on our core brand, especially in our hair powerhouse accelerating the color expansion across regions, leveraging the momentum in care and reigniting styling as the category leader. For a second black and body care, strong innovation capacity, expansions and communication support will drive continued growth of Dial in North America. Across all categories, we will continue to drive our portfolio transformation towards sustainability. And last but not least, we will build on the step change in digital sales in 2020, scaling up in B2C, leveraging our end-to-end ecosystem with international expansion, brand diversification and channel innovation. And we will further expand e-commerce through unique e-innovations and services, as well as strategic partnerships. Laundry and home care, we want to expand our innovation leadership. Here, we want to further win with caps, from detergent disks to automated dishwashing caps. We will also expand our hygiene portfolio through launches in the laundry and hard surface cleaner categories, and by strengthening regional excellence, we have local innovations, we will address local brands and trends. We will further step up in digitalization, expanding e-commerce only solutions, strengthening our pioneering role in industry 4.0, and leveraging consumer engagement across touchpoints. We also will further enhance our product portfolio in terms of sustainability with strong innovations based on the different sustainability profiles of consumers. This also means further advancing sustainable packaging solutions and strengthening our brands with purpose, such as with the No New Campaign, and of course, North America. Let me be clear also here. We are fully committed to turning the corner and we are taking decisive actions. A cultural transformation is underway with an enhanced organizational structure and the new management team. Our clear set of actions also includes a comprehensive portfolio management, which will enable shop and growth opportunities and priorities. And we are launching impactful innovation supported by strong media, including a relaunch of Persil, Pro Clean with visible and invisible dirt removal, as well as all with 99% allergens removal, to name just a few. To deliver purposeful growth, driving our cultural transformation is not an option. It is imperative to win. And I am convinced that empowering our people to drive accelerated business transformation is the key unlock. In 2021, our ambition is to fully live up to our leadership commitments in day-to-day work life. That means for us, acting as entrepreneurs, collaborating a strong team, developing people with passion and also owning our results. It's also about creating a real and a tangible shift in our ways of working with a focus on employee health and well-being, digital workplace and work space design, as well as sustainability. Strengthening our identity with the power of diverse teams and an inclusive culture across the entire organization with a strong diversity network linking our business units and our function. And accelerating our up-skilling initiative to shape the most competitive workforce, catering to individual needs, to equip our teams with those skills that make them successful for today and tomorrow. This is our aspiration, to accelerate momentum and drive the next level of performance. The implementation of our growth agenda supports us in the achievement of our mid to long-term financial industry, which is unchanged. We are aiming to achieve organic sales growth of 2% to 4%, aspiring the upper end of this range. For adjusted earnings per preferred share at constant exchange rate, we are targeting growth in the mid to high single digit percentage range, and we're aiming to further expand our free cash flow. At the same time, we also want to pursue compelling growth opportunities while maintaining our focus on strict cost discipline and margin development. Looking back at my first year as Chairman of the management board and my 25th year with Henkel, I'm proud of the progress we have made with the implementation of a strategic agenda, while addressing the global pandemic. I'm impressed by the resilience of our business, which has enabled us to achieve a robust business performance and to further strengthen our financial foundation. But most important is the feeling of gratitude and heartfelt respect for our employees at Henkel. The performance, collaboration and positive attitude they showed over the past year has touched and inspired me. I would like to thank all of them for their invaluable and valuable contributions in this truly exceptional year. Looking ahead, I'm more confident than ever that our global team has what it takes to shape our successful future, and to deliver on our purposeful growth agenda. Let's now come to the Q&A. Ladies and gentlemen, the floor is yours.

[Operator:]

The first question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead.

[Tom Sykes:]

Yes. Good morning, everybody. Firstly, just on the digitalization within adhesives, could you maybe just go through some of the benefits that's actually giving you at the moment in terms of planning inventories? Maybe some efficiencies for you? And particularly as some of the either supply base or distribution basis it's beginning to digitize more quickly there? And then perhaps, just coming on to the U.S. market share or North American market share, which is the U.S. market share. What signs can you give us? There are some signs of improvement there. When do you think the innovations that you're talking about will have some real improvement or tangible benefits to market share there, please? And maybe if you could flush out the comment that you made there on portfolio management as well, please?

[Carsten Knobel:]

So, Tom, good morning. To your first question regarding adhesives. So I think, first of all, what I mentioned I think is an important step that we crossed the €2 billion sales with our e-commerce platform. So we can see that roughly 25% of our total sales of adhesive are already being in the kind of digital sales. And with this digital B2B sales platform adhesive in that part is really well positioned to offer an advanced digital customer experience with 24x7 availability. In the fourth quarter and in the full year, digital sales, as I said, grew double-digit despite this environment in which we are in, and by that I already mentioned that the 25% is the part which we set up. So, I think, a clear point that, and I said that also, the data enabling parts and data points are important now going forward to capture that into further drive. Also, here, the digitalization of our industrial business specifically of our Adhesive Technology business. To your second question to a Laundry & Home Care in North America. The point is that, I think I was very clear in mentioning that we have been not been satisfied in the year with the market share situation, means with losing market shares in North America laundry. And what we are doing is a comprehensive set of measures. I've said it under the term of cultural transformation that means, we have enhanced our organizational structure. We have a new management team in place. Since the last quarter of last year, we have a new General Manager taking care of our Laundry & Home Care business in North America. And that is on top with priorities like looking at our portfolio, set up portfolio management, and change on that, which will enable us to sharpen our growth opportunities. Secondly, for sure, also what you mentioned, yes, we have innovations at hand, which are impactful ones, which we will bring on our core brands. I just mentioned, two of them in terms of the Persil, Pro Clean, but also all with its 90% set up. So I think we have enough innovations on that. We are supporting that also, as I mentioned before, with the relevant investments, and on top for sure, we also need and will also strengthen our operational and our supply chain excellent. So over the full year, as I said, not really a good development. In the last, I would say periods we have seen a slight improvement, but I think we need some time or you need to give us some time in order to see that the things are really changing in terms of or significantly change. I think that's for now. Hope that clarifies.

[Operator:]

The next question comes from the line of Christian Faitz from Kepler Cheuvreux. Please go ahead.

[Christian Faitz:]

Yes. Thank you for taking my two questions, please. Good morning, Carsten. Good morning everybody else on the line. First question is your adhesives business affected by the current semi shortage in the automotive industry? And is this fully compensated by higher sales into electronics for example? And then the second question would be how do you see your hair salon business evolving during 2021? Would you agree that even post-lockdown social distancing could keep that activity below pre-COVID normal level i.e., comparing that to 2019 for example? Thank you.

[Carsten Knobel:]

Good morning, Christian. Yes, two interesting questions. Starting with the adhesive one. So, I think the point is, let me start differently. For sure, there are always different dynamics, which we can see. But what it currently is that we had the really a very good start into the year adhesives overall, which is at the end, answering your question. Yes, we have always compensating effects things, which are not so good or better. But overall, the situation in adhesives is really a good one a really good start into the year 2021. To your hair salon question. Yes, not an easy question to answer. Because, we are all confronted with current changes in terms of how the pandemic is developing, but also measures which our governments are setting up. I would say in the course of the end of the year and beginning of the year, for example, roughly 40% of our professional business was impacted because of lockdowns, stated by or initiated by governments, up to end. This has been now in the last couple of weeks been improving, significantly improving. And therefore, I think we are confident that we are also as I mentioned it before, we'll see good growth rates in the hair salon business in the year 2021. And by that catching up, in terms of that. On a full year basis, a significant increase in demand in the hair salon business should take effect. That's our assumption, which continued growth is expected in our branded consumer business overall. So, I hope this gives you more clarity on that. Marco, anything to add?

[Marco Swoboda:]

I mean, maybe this last point for sure. I mean, the recovery, like Carsten said will come. But it is hard to say that we can already now achieve the 2019 level, if you see the beginning of the year. From that point of view, rather unlikely sort of we'll catch up to the 2019 level. We don't see at the moment. But of course, that will be reached over time again.

[Carsten Knobel:]

So overall, we're very confident in that business. We're talking about the long-term situation, and very difficult to predict when we reach which level. Most probably, not completely in 2021.

[Operator:]

The next question comes from the line of David Hayes from Societe Generale. Please go ahead.

[David Hayes:]

Thank you. Good morning. Also, two for me. The first one just on - I'm sorry if I've missed this, but just on plans for investment levels versus the €200 million that you've talked about for 2020. I wonder what that number looks like in '21. And then offsetting that obviously costs savings. And I guess higher costs, we've heard a lot of companies talk about ESG investments being accelerated. Just wonder whether you can talk about whether there's additional costs coming through in '21, as you continue to push forward with the sustainability elements that you mentioned. And then the second question, you referred to I think the normalized level was the word used in the hygiene categories in '21 being an offset or slowing the laundry, home care sales growth this year. Just want to understand whether you think that there's not a sustained demand due to COVID and hygiene obsession by the consumer. A lot of other companies saying, hey, this is going to be something that's prolonged for a long time, whereas your indication is that it's slowing back to more normalized levels, as of 2019. So just wondering whether you can define what you mean by normalized. Thank you.

[Carsten Knobel:]

Good. Thank you, David. Also, good morning. Thanks for your question. And good, especially the second one in terms of to clarify specific things. But let me start with the first one in terms of investments. So with the launch of our purposeful growth agenda, which we did in March 2020, we announced the increased spend in marketing advertising of digital and IT by €200 million versus 2019, or €350 million more in comparison to 2018. And we clearly said at this point, this is a consistent support on our innovations, achieving our purposeful growth, not a one-time shot, but it will continue also in the other years. And as I mentioned it before, we have exactly spent on that level overall on the company, with roughly one-third more in digitalization and IT, and two-third in the area investing into marketing and media and advertising. So I think that is on that part. Maybe Marco, you can, because the other part David on your part was more cost-related, how we are doing on cost. Marco, you would like to allude to that?

[Marco Swoboda:]

Yes, I think David your particular point was the example on the ESG investments, maybe done by many other companies. And for sure, ESG is very important theme and obviously we have integrated sustainability also in our strategic framework. And putting more focus and attention on ESG for sure other means now that we have cost increases in some of the areas and that is clear, when you look at the high use of social plastic or recycled plastic that for sure, has a price tag. But on the other hand, I think it is the responsibility and task of the management to see, to make that fit to the overall pricing of the product to integrate that into our strategic plans. And that's what we have to manage. At the end of the day, all that is baked into our guidance and outlook for 2021.

[Carsten Knobel:]

Thank you, Marco. And to your other question, David, it was related to the normalized what we described as the normalized level. I think to be very clear, at the beginning on that, and therefore, no different opinion what you've heard from other companies. It's definitely clear, we anticipate a high focus on hygiene-related product categories also to stay for longer. And the only thing what we have said is for sure, we have high comparables because definitely you have seen in 2020 some peaks in that part, which was the result of the pandemic and that is what we meant returning to normal levels. But for sure, as I mentioned before and very clear, hygiene-related focus of consumers will be there, and this will be there for the long-term. That's our assumption. So nothing different than what you hear from other. Hope that clarifies.

[Operator:]

The next question comes from the line of Olivier Nicolai from Goldman Sachs. Please go ahead.

[Olivier Nicolai:]

Hi, good morning. I've got two questions. Just first of all, a follow-up on the Beauty Care business. So, just wanted to know as salon obviously are still close in some markets like the UK. So could you perhaps give us an update on your key markets, essentially what's the percentage of hair salon close as we speak? And the second one on the cash flow. You have this year a very strong cash flow in 2020, likely to be net cash in 2021. How should we think about capital allocation? And a slight contrast M&A, what's your view on share buyback? Thank you.

[Carsten Knobel:]

Good morning, Olivier. Marco will take your second question regarding the cash flow. I come back to your Beauty care question especially to the hair salon. I just mentioned it before so the magnitude of the restrictions implemented varies really significantly from country to country, really reranging from full lockdowns affecting all areas of life, which also means hair salons are closed. But we also have other countries where hair salons remain opened. So, I think if you look at regional parts, the key regions such as Asia Pacific really don't experience at this point major lockdown situations. And so far, we have been experienced significant headwinds in that part with up to 40% of our hair salon footprint being in lockdown, and as I mentioned this has been going down to the levels of around 30 in these days what we are talking or mid-20s. But really that's something which is depending week by week. We're following for sure update on a week-by-week basis, but that's how we see it today. Marco?

[Marco Swoboda:]

So to your second question, I think you commented on the good free cash flow and at the end also how capital allocation will look like going forward. So, first of all, M&A remains an integral part of our strategy and we talked about it also in the context of our active portfolio management. And here at the end of the day, the approach doesn't change very much. We look for targets that are available, that have a good strategic fit, and at the end of the day also are financially attractive. And when you look in 2020, we closed, we think two very compelling acquisitions with a clear strategic fit, and also that helped our competitive edge. In Beauty care, we have increased our direct-to-consumer business and digital capabilities, and we have been broadening our position in North America, North American consumer ceilings market with the acquisition that we did in Adhesive Technology. So for sure, M&A will remain on our agenda. When it comes to share buyback, at the end of the day, we think we do adequately reflect our shareholders' interests. So when you look at the dividend proposal of €1.84, that is on the same level. So also, we basically kept the dividend on the prior year level, despite the earnings impact from in particular the COVID-19 pandemic. So with this, we keep a very strong track record over the long-term, that we keep our dividend at least stable over the years. So, at the moment, we against that background, we do not see a need for a fundamental change with our position regarding share buyback, which so far is not a firm plan for 2021.

[Operator:]

The next question comes from the line of Celine Pannuti from JPMorgan. Please go ahead.

[Celine Pannuti:]

Good morning, everyone. My first question is on your portfolio changes. You said that you have diversity at about €100 million of sales in 2020. Could you give us a bit more color on brands as well as divisions? And as far as the €400 million that remains equally, where should we expect this to come from? And I wonder whether is the U.S. doing as well, to see some thoughts for your changes . Because I do understand your point about innovation and new management is just that it seems like a prolonged turnaround that does not yet shown any indication of taking hold. And my second question is on your guide on margin. And related to that the raw materials guide. I see that there is not much improvement in margin expected or let's say, at the bottom end of the range for Adhesive Technologies, which is bit quite surprising, given how strong the margin has been in the second-half. So if that's related to raw materials. And can you give us the absolute format for Adhesive Technologies, as well as the pricing that you can get? Thank you.

[Carsten Knobel:]

So, good morning, Celine. Let me start shortly with your portfolio question overall, but Marco goes then more into the details. And also then second part, the margin question, especially with the focus on raw materials, Marco will take that. So, let me start again with the point view, despite the market uncertainties what we had we signed agreements and completed the sale of discontinued businesses with a total amount of €100 million. So, we continued preparing the structure divestment processes, as you can imagine that the time in which we are in is not the optimal one, in order to execute it. Nevertheless, what I said we are committed to execute the announced portfolio measures within the timeframe that means until the end of 2021. And I think which is also important is that also out of the part, which is not currently foreseen for divestment or discontinuation, we have made good progress in the so-called turnaround cluster, where we recorded the good progress means, around 60% of the revenue base of these brands and businesses have delivered and improved the top-line momentum. And before I hand over to Marco, yes, your assumption is right. There's also North America is included in that. The consumer business of North America is also included in that portfolio or in this active portfolio management. So, Marco, would you take it from there?

[Marco Swoboda:]

Yes, for sure. I mean, first part on the portfolio effects. So the €100 million that we referred to for 2020, that mostly resides in the Adhesive Technologies, simply due to the fact that the processes or some of the projects were already in a more advanced stage than for the other parts of our initiatives. And the remainder of the €400 million, as we said before, now should come predominantly out of the consumer product group, so Beauty Care and laundry, and home care. And part of that, of course, will also then affect North America. Then on your margin, and the raw material guidance basically referred to a margin at the bottom end and not so much up in particular for adhesive. I mean, yes, if you look at the margin guidance, we basically guide 15.5% to 16.5%. That is above 2020. And you also see that we give a quite wide range of our guidance also in respect of the top-line. And so also here we have to see how the year progresses and in particular the pandemic will progress. But the upper end of the 16.5% is significantly above the level we had in 2020. The headwind we do expect from the raw materials, that is pretty much like the average. We also communicated for the group. So we don't expect a completely different trend here in adhesives. And for sure, pricing action will be taken. So the assumption is also that at least the good share of that is also passed on.

[Operator:]

Our last question comes from the line of Guillaume Delmas from UBS. Please go ahead.

[Guillaume Delmas:]

Good morning, Carsten and Marco. Thanks for squeezing me in. So two questions for me, please. The first one is on e-commerce, particularly for your consumer product division. So it was 60% organic sales growth, but I am calculating, it's around 8.5% maybe 9% of yourself for your consumer products business. So that still looks below your peer group average, which I think was around low teens in 2020. So do you think there's still a lot of catch-up to be done there, as being underweight in e-com probably puts you at a competitive disadvantage? Or do you look at this number and you think it's simply reflective of your category country exposure? And then my second question is on the adhesives market. I was wondering whether you think the medium-term prospects for the adhesive markets have improved recently. Because we're consistently hearing that the COVID-19 pandemic has not only accelerated the digitalization trend, but also made sustainability even more top of the agenda for corporations and consumer. So I would assume that should provide a significant tailwind for the overall adhesive market. So too early days, or are you feeling more optimistic about the category and then your own organic sales growth for adhesives to make it to 2% to 4%, which was your multiyear organic sales growth target for adhesives, could become a 3% to 5%? Thank you.

[Carsten Knobel:]

So, Guillaume, good morning. And I think you are already in the morning a good mathematician person, because your calculation is, I would say - I would come to the same results. So that's first thing. And yes, I've clearly pointed out that we see significant improvement potential in the digitalization part, which also related also then to growing our business in that area. I think we have made good progress in 2020 in both divisions, in laundry and in beauty when it comes to the topic of digitalization and e-commerce business, with the acquisitions of eSalon, but also with our set up with the invincible brands in the Beauty Care business, and also delivering and preparing products. We like our new personal ones, which we would like to cater to that part also reflect in sustainability effect. So all of that, I think we are on the right way. Nevertheless, I think we have a way to go. When you compare our shares with the ones of competitors, I think we are on the fair development. For sure, there are ones which have higher numbers, but here I think it comes to your point, which you made by yourself, that's regional footprint also related and also category related, and these both items for sure impacting that. We are analyzing that in detail. So therefore, I think we are on the fair share when it comes to what you calculated around this 10 percentage wise in beauty and five percentage wise plus in laundry. But I think this is overall good and we made, as you said it, with the plus 60%, a significant a good step in 2020. Definitely more to come. That's for the first one. And the second one point to adhesives, with our four divisions within adhesives, we have a strong portfolio that is covering really more than 800 industries globally. And the megatrends, what we see and what everybody else sees mobility, connectivity, and sustainability, definitely have an impact on the vast majority of our customers. And we are here actively managing our portfolio and by that continuously adapting our tailor-made solutions in order to serve the customers in the best way possible to addressing these trends. And this will enable us and has also enabled us already to grow our business above the relevant market, introducing also margin accretive innovations. So therefore, I think that's what I would like to answer on your two questions. Hope that clarifies.

[Operator:]

Thank you, ladies and gentlemen. I will now hand over to Mr. Knobel, for his closing remarks.

[Carsten Knobel:]

Yes. So, dear investors and dear analysts, thank you very much for your questions. And let me close today's presentation, really with a summary on our key takeaways. So in a highly challenging business environment, I think Henkel delivered an overall robust performance in 2020, with growth across all business units in the second-half of the year. Our priority at any time during the pandemic was and remains on ensuring our employees safety, supplying our customers and consumers and supporting the communities, we live and we operate in. Due to our strong financial foundation and our low debt levels, we will propose a dividend on prior year level, sustaining Henkel's long-term track record on always paying out an increasing or a stable dividend since the IPO. We started the implementation of our purposeful growth agenda in '20, with clear and tangible progress, while we are continuing our journey with a clear aspiration and clear actions for 2021. And this will support delivering on our positive outlook for the fiscal year 2021. Therefore, thank you for joining us today and stay safe and also stay healthy. Thank you.