Henkel AG & Co KGaA

XETRA:HEN3

Earnings Call Analysis

Henkel Raises 2023 Full-Year Outlook

Guided by strong performance and an encouraging start to Q4, Henkel raised its 2023 outlook, with organic sales growth now expected to be 3.5% to 4.5%. The improved forecast is fueled by advancements in both the Adhesive Technologies and HCB segments. Alongside, gross profit and EBIT margins have also seen improvements, hinting at material growth in free cash flow. With these positive trends, Henkel anticipates an adjusted EBIT margin between 11.5% and 12.5%, and growth in adjusted EPS by 15% to 25% for the year.

Market Share Gains and Guidance Update

In the competitive fabric cleaning category, Henkel stands out with its U.S. brand ALL, which saw a 50 basis points increase, contributing to a 30 basis points overall market share gain. Primarily driving this push in market share are strong innovations from flagship brands Taft and got2b in the Hairstyling segment, which experienced double-digit organic sales growth in Q3, significantly fortifying Henkel's leading position in Europe with a 60 basis point increase. The company fully expects to unveil more exciting product innovations moving forward. These accomplishments underpin an updated 2023 guidance, with organic sales growth expectations revised to 3.5%-4.5%, an adjusted EBIT margin in the range of 11.5%-12.5%, and an adjusted EPS growth forecast of 15%-25%.

Segment-Specific Outlook

For Adhesive Technologies, Henkel has honed its 2023 organic sales growth estimation to 2.5%-3.5%. Conversely, Consumer Brands' outlook has improved, with expectations raised to 5%-6% from a former 3%-5% prediction. The adjustments have been made anticipating sequential margin improvements from strategic initiatives execution. The Group's adjusted EBIT margin is now anticipated at 11.5%-12.5%, with Adhesive Technologies and Consumer Brands expecting 14%-15% and 10%-11% respectively. Factoring in restructuring charges estimated at approximately EUR 300 million and a reduction in capital expenditure to EUR 650 million, the company has set a confident tone for continued growth and improved earnings over the previous year.

Sustained Organic Sales and Market Positioning

Spanning the previous four quarters of 2022 and entering the third quarter of 2023, Henkel exhibits persistent organic sales, with brands such as Dial, Persil, Purex, and ALL contributing high single-digit organic sales growth. Supply chain improvements have echoed through the enterprise, culminating in higher service levels that are satisfactory both internally and for customers. These advancements are a clear signal that Henkel is effectively navigating through a challenging economic environment, steadily pushing upward on its market share across various segments.

Focus on Investment Over Cash Returns

Addressing capital allocation, Henkel has firmly stated that the current priority is investing back into the business. This includes acquisitions aimed at bolstering the business's robust growth trajectory. Notably, the recent quarter saw a significant advancement in cash generation, which underscores the company's capacity to fuel future expansions while potentially considering shareholder returns as a secondary objective.

European Market and Portfolio Adjustments

In Europe, Henkel's organic sales growth (OSG) reached approximately 1 percentage point, propelled by strategic pricing despite a drop in volumes compared to the previous year. A major contributor to these figures is the Consumer Brands sector. However, Laundry & Home Care witnessed a contrasting impact due to higher material price inflations and a more pronounced effect from private labels. To counter this, the company is recalibrating its portfolio with a focus on higher-margin products, aiming for more sustainable long-term growth in the European market.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and welcome to the Henkel conference call. [Operator Instructions]I will now hand over to Leslie Iltgen, Head of Investor Relations. Please go ahead.

[Leslie Iltgen, executive]

Thank you, and good morning, everyone, and a warm welcome to Henkel's Q3 conference call. Here with me today are CEO, Carsten Knobel; and our CFO, Marco Swoboda. Following the presentation, as always, Carsten and Marco are happy to take your questions.Before handing over, please let me remind you that this call will be recorded and a replay will be made available on the Investor Relations website shortly after this call. 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.Also, please be reminded that this presentation contains the usual formal disclaimer in regard to forward-looking statements within the meaning of relevant U.S. legislation. It can also be accessed by our website at henkel.com. The presentation and discussion are conducted subject to this disclaimer.With this, it is my pleasure to hand over to our CEO, Carsten Knobel. Carsten, please go ahead.

[Carsten Knobel, executive]

Thank you, Leslie, and a warm welcome to our conference call and to all participants today and [ definitely ] [ then ] in the past.Marco, you also want to say something?

[Marco Swoboda, executive]

Yes, good morning also from my side.

[Carsten Knobel, executive]

So that was the torture test, and I hope you understand if you hear that voice that this time, I take over Marco's part and Marco will spare his voice in order to be fit for the Q&A. So let's get started. As always, we appreciate your interest in our company. And after walking you through the key developments of the third quarter, we will take a closer look at our business performance and also our expectations for the full year and afterwards. As I said, Marco and myself are looking forward to take your questions.So let's turn straight to the key highlights of Q3. We are pleased to report a continued organic sales growth of 2.8%, for sure driven by strong pricing, but also as expected and also as promised by a sequential improvement in volume development in both businesses, despite the fact that the overall macroeconomic environment continues to be highly challenging and volatile. Both Adhesive Technologies and Consumer Brands contributed to this growth, with the consumer business clearly standing out by delivering 6.2% organic growth and showing double-digit pricing.In Q3, we also successfully expanded our Adhesive Technologies portfolio in a highly attractive adjacent business with the acquisition of Critica Infrastructure, and I will elaborate on this transaction in a little bit more details in just a few minutes.Turning to our consumer business. We are highly pleased with the progress we have been making in merging and transforming the business. We are clearly ahead of plan, and we will generate the vast majority of the targeted Phase 1 net savings already by the end of this year. Also here, I will give some more color on that. In this context, let me also underline that we have made significant progress in our overall strategic approach in stringently focusing our portfolio on high-growth and high-margin businesses. It goes without saying that this doesn't come without a certain impact on volumes.However, this is a deliberate choice, and we will [ do it ] temporarily in [ nature ] while still working on shaping a winning portfolio. In the meantime, we have already achieved a significant step up in gross profit, which allows us to increase and reinvest into the businesses and drive profitable growth going forward.In our Hair business, where we started the transformation a bit earlier than in Laundry & Home Care, volume development already reached positive territory in Q3, clear proof that our strategy is paying off. And in regard to the prospects for the remainder of the year, considering the sustained strong performance and an encouraging start into Q4, and in expectation of a further sequentially improvement of our volumes in both businesses in Q4 versus Q3, we raised our guidance for 2023 with an adjusted EPS expected to significantly increase by 15% to 25%.Let me now give some more color around the most recent M&A transaction in our Adhesive Technologies business. I'm really excited that we have succeeded in acquiring Critica Infrastructure, a specialized supplier for innovative composite repair and reinforcement solutions. Critica is a great strategic fit. It allows us to create a new platform and significantly expand our existing maintenance, repair and overhaul portfolio by a highly attractive adjacent business, and it is thus strengthening our leading position in a sustainability-driven, fast-growing, and what is more in a highly profitable market.Critica gives us access to more than 3,000 leading maintenance service providers and contractors and certified technologies for critical infrastructure. The portfolio comprises composite wrap and reinforcement solution, as well as insertion valves for oil and gas transmission, refining, chemical, and water supply systems. Thus, we are adding new services and have the opportunity to bring existing solutions to the new customer base.The acquired business will add annual sales of approximately EUR 100 million and shows above market growth of more than 10% when considering the CAGR over the past 3 years.Going forward, the new platform will allow us to add further adjacent business to it. And with this acquisition, we clearly underpin our M&A growth journey in the Adhesive Technologies business under the new leadership of Mark Dorn. The acquisition will further enhance our General Manufacturing & Maintenance business, which is one of the 2 attractive market segments within our Adhesive Technology business I would like to highlight today.In our General Manufacturing & Maintenance business, we serve our customers with a broad range of applications across various industries. Our solutions provide value by extending asset lifetime, increasing process efficiency and enabling sustainability. Building on what I said 1 minute ago, we continue to strengthen our portfolio in the highly fragmented MRO market with success. Year-to-date, we have achieved high single-digit growth in this business which is clearly above the market levels.Innovations here in that segment are key. And I would like to point out a special one, which is a great example of how we are developing new digitally enabled business models. The team is currently scaling our new Internet of Things solution, LOCTITE Pulse. Thanks to smart monitoring, it enables predictive maintenance and prevents critical equipment failures, such as leakages.Another area which continues to stand out is our successful Automotive business. As you know, our solutions can be found in 140 out of 150 cars which are being produced every minute worldwide. And we are a globally recognized partner of all major OEMs.In attractive segments, such as surface treatment and engineering solutions, we are significantly outgrowing the market with double-digit growth, and we continue to win attractive customer projects.We are also setting industry standards with our solutions for more sustainable mobility. For example, our thin-film pre-treatment solutions enable substantial reductions in energy and water consumption while emphasizing responsible chemical solutions. These are just 2 examples illustrating that we are well positioned in highly attractive and appealing markets. And they also clearly show the potential of our business, shaping growth opportunities by supporting our customers and providing more sustainable solutions and by leveraging our unique technology know-how.So let's now turn to our Consumer Brands business. As already mentioned at the beginning of my presentation, we are more than pleased with the dynamic process made in transforming and also shaping the business along our roadmap so far, while really focusing on 2 global categories, which is Hair and Laundry & Home Care.The implementation of the merger is already ahead of plan, and we will have realized more than 80% of the targeted Phase 1 net savings of around EUR 250 million already by year-end. We are able to find agreements for the targeted 2,000 positions by the end of Q3 and thus further optimize the organizational setup. And beyond that, we are also making good progress with the supply chain measures we had initiated at the beginning of the year, which are the clear focus area of the second phase of the integration.We already see the benefits of our portfolio optimization program kicking in, which includes the discontinuation of low-growth and low-margin businesses. To date, we have either discontinued or divested parts of the portfolio that account for sales of around EUR 0.6 billion out of the EUR 1 billion we had put under review last year. We are now stringently redirecting resources towards high-growth and high-margin products and brands, and we keep up with our increased marketing investments.All of these measures are already bearing fruit and translate into an improved gross profit profile, allowing us to reinvest more into the business and thus sustainably fuel profitable growth on healthy and solid grounds. However, this journey is by no means already at its end. We will continue to work on shaping a winning portfolio, investing into the brand equity and innovations, and working on our supply chain in the upcoming quarters.We are highly confident that this will lead us to an even more profitable and faster growing business going forward, and that we are well on track in bringing this business back to mid-teens margin levels in the next years. You can expect a more detailed status update on this Consumer Brands merger with our full year call in March 2024.So let me also turn to 2 specific business segments which have been showing sustained growth momentum in the quarter. Starting with our Laundry & Home Care business in North America. In the meantime, we have now seen the seventh consecutive quarter of organic sales growth. The implemented measures are bearing fruit and we are pleased to see that top detergent brands like ALL or Persil are contributing with double-digit organic sales growth in Q3 to our performance in the region. And also, Henkel continues to gain market share in the important fabric cleaning category. Year-to-date, we gained 30 basis points with our U.S. brand ALL, clearly standing out, gaining here in that context 50 basis points.Moving to Europe and by that to Hairstyling. Hairstyling clearly stood out with double-digit organic sales growth in Q3. We have been further expanding Henkel's market leading position in this region with market share gains of 60 basis points year-to-date and got2b here over proportionally gaining 90 basis points.Last but not least, let me also emphasize the importance of innovations to fuel growth. In this particular case, strong innovations from our top brands, Taft and got2b, were clear growth drivers. Bringing our innovation engine fully to bear and launching new exciting products to the market is also something you should expect to see more going forward.This brings me now to our 2023 guidance and the prospects for the remainder of the year, which we updated this morning. Considering the sustained strong performance year-to-date, the encouraging start of Q4 for both top and bottom line, also for both businesses, Adhesive Technologies and HCB, and as well as a further sequential improvement of volume development in both businesses. By that, we raise the guidance for the year 2023.While the third quarter trading update does not include margin or earnings information, I would like to confirm that we have seen further improvement in our gross profit and EBIT margins supported by both businesses and that we also saw material improvement when it comes to free cash flow generation. We expect these trends to continue throughout the remainder of the year and we now expect organic sales growth in the range of 3.5% to 4.5% and an adjusted EBIT margin between 11.5% and 12.5%. Adjusted EPS is expected to grow between 15% and 25%.So let me briefly summarize. I believe it is fair to say we continue to make good progress across the Board in both businesses and we continue to deliver on our priorities and also on our commitments. So now -- that would be now the turning part to Marco, and let's see if I can also bring that to life. So going a little bit more into the details now.Let me start by sharing some more details around the drivers of our sales performance for both the Group and our 2 business units in the quarter 3. Organic sales growth reached 2.8%, which was driven by continued strong pricing in both business units. While volumes were below prior year, their development sequentially improved, as I mentioned it before, in Q3 versus Q2, also in line with our expectations. And I will get back to the individual development in Adhesive Technologies, but also on the Consumer Brands in more detail in just a minute.Sales came in at around EUR 5.4 billion. In nominal terms, they were 9% below the prior year level. 2 factors contributing to that, that is M&A and foreign exchange. M&A had a negative impact on sales mainly related to the divestment of our business in Russia, as you all know. Foreign exchange were a headwind too, mainly due to the appreciation of the euro versus our basket of currencies, particular versus the U.S. dollar.Turning to the distribution of growth in the different regions. As you can see here on the chart, we delivered organic sales growth across all regions, with the exception of Asia-Pacific, where we still saw softer demand in China, however, showing first signs of stabilizations in the -- to the end of the quarter, and also, I have to say, starting into Q4.Let me move on with the performance of our 2 business units, starting with Adhesive Technologies. The business showed organic sales growth of 0.8%, reaching EUR 2.7 billion in the third quarter. For sure, we can state that the business has proven to be comparably resilient over the past quarters, despite the continued softer demand in relevant end markets and taking into account that we had higher prior year comparables.In Q3, pricing was moderating but still remaining at strong level with 4.9%, reflecting the strength of our portfolio and our leading market positions globally. The expected sequential slowdown was mainly due to the pricing carryover effects fading out. Volume development was still negative with 4.1%, however, showing a sequential improvement versus Q2, also in line with our expectations. We observe easing stock adjustments along the value chain. And important now, we are confident that this positive trend will continue moving into Q4 with volume development to sequentially improve to flat territory for the whole quarter of Q4.Let me now turn to the performance in the individual business areas of Adhesive Technologies where we saw different dynamics in 3 business areas within our Adhesives business. Mobility & Electronics again was the main growth driver with a plus of 4.6%. This increase was first and foremost driven by the Automotive and Industrial businesses, while the Electronic business continued to trend below prior year levels, reflecting the still subdued market environment, particularly in China, but I mentioned positive signs at the end of the quarter and beginning of this quarter in that specific segment.Packaging & Consumer Goods showed a decline of 5% in quarter 3 on the back of the overall softer demand, but also high prior year comparables which had been driven by an inflated demand in relation to the COVID pandemic at this time.Craftsmen, Construction & Professional delivered growth of 2.8%, driven in particular by Consumers and Craftsmen and Construction, despite persisting weak markets, General Manufacturing & Maintenance was slightly negative due to the softer demand. And overall, a very robust performance of Adhesive Technologies in comparison to our relevant markets and considering the overall still volatile and challenging macroenvironment clearly reflecting the strength of our business.So now turning to Consumer business and to our Consumer Brands. The business generated organic sales growth, I mentioned it before, of 6.2%, which was to a large part still driven by strong pricing, which accounted for nearly 12%. Volumes decreased by 5.7%, showing a clear sequential improvement versus Q2, which I would like to elaborate on in more detail on the next part.I already referred to the very strong organic sales growth which we saw in the consumer business, which was first and foremost driven by strong double-digit pricing. Volumes, still negative, being down 5.7% in Q3 standalone, however, as just mentioned, showing a clear sequential improvement as we had anticipated that in our H1 call.Portfolio measures and trade negotiations together made up for around 4% of the total volume decline in the third quarter, while about 2.5%, deriving from ongoing portfolio optimization, approximately 1.5% relate to the trade negotiations. Although the vast majority of the trade negotiations, particular in Western Europe, were resolved by the end of Q2, there is always a certain time delay when it comes to retailers restocking.Moving into Q4, we would expect the negative impact to become even less relevant. When it comes to portfolio measures, as you know, we are still in the process of shaping the portfolio, eliminating low growth and low margin business, and by that refocusing on the faster and more profitable paths. We already see that these measures are bearing fruit, particular when looking at the Hair category. I mentioned that before when I was talking about the overall Hair segment where we are more advanced versus Laundry & Home Care and where volume development already reached a positive territory in Q3. And this is a strong proof point that the strategy we are focusing on is really paying off.Entering in Q4, you should continue to expect an impact on volumes in a similar magnitude as in the past quarters, while we currently focus our activities more pronouncedly on the Laundry & Home Care category. If you strip portfolio and trade effects out, volume decline would have been only less than 2% in quarter 3. Overall, however, we expect to see a sequential improvement in volume development, and to be more specific, really trending towards a flat level by the end of the year. And at the same time, we will continue to price where needed to compensate for still elevated input costs.In addition, we are taking additional pricing steps in the process of valorizing our portfolio with the strong brands we have. And in parallel, we keep up with a strong level of investment in marketing and advertising to strengthen the brand equity, also now in half year 2, and for sure then also in Q4.Now turning to the performance by business area with focus on our 2 global categories, Laundry & Home Care and Hair. Laundry & Home Care delivered very strong organic sales growth of nearly 6% to which both Laundry Care and Home Care contributed nicely and with particular strong growth in specialty detergents and toiletry care clearly.The Hair business area which comprises both the professional and the consumer business, grew by almost 9%. And within the Hair business area, the Consumer Hair business clearly stood out with particular strong growth in the Styling and Care categories. Again, another proof point that what we are doing with our focus on higher margin and higher growth categories and segments is really the right way.The other consumer businesses showed an overall slightly muted development. While North America showed continued strong growth, Europe saw a decline due to the ongoing portfolio optimization measures. And wrapping it up here, Henkel delivered a very strong top line performance in both Adhesive Technologies and Consumer Brands in the third quarter. And I have to say Wolfgang and -- Wolfgang Konig and the team are really doing a fantastic job on that.So we talked already about the guidance, but let's get a little bit more into the details. We now expect organic sales growth of 3.5% to 4.5% on group level. Before we had anticipated 2.5% to 4.5%. For Adhesive Technologies, we now guide 2.5% to 3.5%, whilst our prior top-line range called for 2% to 4%. For Consumer Brands, we are lifting up our organic sales growth expectations now to 5% to 6% from the 3% to 5% level we had before.Our margins also continued to improve sequentially, supported by further contributions from the successful execution of our strategic initiatives, and we remain very confident that this trend will continue throughout the remainder of the year, which is why we also adjusted our margin expectations accordingly. For this Group, or for our Group, this translates into an adjusted EBIT margin expectation in the range between 11.5% to 12.5%. For Adhesive Technologies, we now expect 14% to 15%. The Consumer business margin expectation now ranges between 10% and 11%.Breaking it down to our adjusted EPS expectations at constant currencies, as always, we are lifting our former guidance range now significantly from previously 5% to 20%, now to a range from 15% to 25%. And with regard to FX, we continue to see a mid-single-digit negative impact on sales.Restructuring charges are expected to amount to roughly EUR 300 million. Thus, we expect to end up at the lower end of our previous forecast range. CapEx is now expected to reach roughly EUR 650 million instead of the EUR 650 million to EUR 750 million we had before. Even though we don't report a Q3 free cash flow number, I would like to share -- I would have assumed Marco would have even been more happy to state that that we have really seen here a significant progress and that we expect this trend to continue also in Q4. And we will end up very clearly above the prior year level in that sense. Very good news.So overall, we are confident to continue on our growth path and we deliver a clear improvement in earnings compared to the prior year.So let me summarize today's key takeaways. Henkel showed sustained growth momentum in both businesses with the encouraging start into Q4, both top and bottom line, as well when it comes to volume development. We are also very confident for the remainder of the year, which is why we raised the guidance for 2023 this morning. We are pushing ahead with our strategic priorities and commitments. We are pushing for further growth, not just organically, but also via attractive M&A opportunities, as just shown in our Adhesives business, while we are implementing a platform which will also allow us to add further adjacent businesses going forward.Our journey in transforming the Consumer businesses was clearly picked up in speed and we are highly confident that we will successfully shape the business to become a sustainably strong growing and profitable business with a winning portfolio comprising global leading brands backed by attractive innovations and flanked by ongoing investments in our brand equity going forward.So wrapping it up, we have set the stage for further profitable growth going forward. And with this, let us move to our Q&A. Marco, I hope I did well also on your part.

[Marco Swoboda, executive]

Absolutely. Well done, Carsten.

[Carsten Knobel, executive]

Good. So Marco is back here in the [ pod ]. So whatever you have in questions, we are happy, both of us, to take your questions. And, yes, let's go.

[Operator]

[Operator Instructions] Our first question comes from the line of Guillaume Delmas with UBS.

[Guillaume Gerard Delmas, analyst]

2 questions from me, please. The first one is on pricing. So wondering if you could shed some additional light on your pricing development in the quarter? Because Consumer Brands, it looks like you took additional pricing actions in the quarter. So curious to hear if it was only in emerging markets, particularly where you're seeing some hyperinflationary economies, or if it's more broad-based? And ultimately, do you see that having an impact on demand? In Adhesives, by contrast, it seems pricing is much more stable sequentially on an absolute terms basis. So here, are you starting to see some pressure to roll back some of your pricing in some regions or some categories?And then my second question is on the margins for Consumer Brands. Savings are clearly coming through ahead of plan, yet you haven't changed the upper end of your margin guidance for the division. So it's still standing at 11%. So my question is, what negative factors are becoming more challenging in recent months and are offsetting this stronger than anticipated savings delivery? Or maybe you've decided to reinvest more of the savings than initially planned?

[Carsten Knobel, executive]

Let me directly start with your second question in terms of margins. So the short answer -- because you ask, are there any negatives, the clear and short answer is no. When you're saying we have not gone above the upper end, so first of all, we have changed the midpoint of the margin guidance for HCB, means that what we are seeing, the better coming in margins in that in terms of savings and which also makes us confident that we can reach that. And I can even say under the expectations -- well, with certain assumptions we have taken, you can even expect that we are at the upper end or the -- above the midpoint of that margin guidance. That's the first thing, for sure.And I mentioned that during my presentation, we are investing sequentially and on specific parts of this business more than originally planned because we are believing we are creating a momentum. I was very much also giving you some examples in the Hair area where we have been accelerating because we started earlier with the portfolio adjustments and by that we have identified the categories or the country category combinations where we can invest more, and by that getting also better OSG and also better getting GP1 levels and all of that pays in. So there is no negative sentiment what we see for the Q4.And it's really -- we want also -- and I think that's the other part, that we are keeping up the investments also as a clear part of our valorization strategy. It's not only about pricing increase because of the material parts, but really bringing our branch level to a higher price level and by that, attracting consumers with better innovations. And -- so therefore, taking everything into account, I would like to underline that the margin performance is even stronger than we originally anticipated. So that's for the margin.The other part of your question was to pricing for both businesses. Maybe I start with Adhesive Technologies. First of all, I think if you look at Q3, we continued to see and we have recorded a strong price increase of 4.9%. While the carryover was clearly less pronounced versus Q2, there was still a considerable amount of carryover within our pricing in Q3, and I think that demonstrates our strong positioning globally within our Adhesives situation with our diversified portfolio and having leading impact solutions on the one side. But on the other side, we also made no major price concessions when it comes to our Adhesives business overall. That's the first part.Second part was your question on Consumer. Here, as pointed out, we saw a strong double-digit pricing of 11.9%. While here the carryover was less pronounced versus Q2, there was still a considerable amount of carryover also here within our pricing. We also implemented incremental price increases in selective areas. You had been asking emerging markets overall, more predominantly in Middle East and in APAC. Going forward, we will focus here a shift from input cost driven pricing to strategic pricing. As I mentioned it already before in the topic of the margin situation, to more valorizing portfolio parts and by that repositioning our brands globally. Guillaume, that answers your questions?

[Operator]

The next question comes from the line of Iain Simpson with Barclays.

[Iain Simpson, analyst]

A couple of questions from me, if I may. Firstly, just thinking about the balance between price and volume for your business and how that's evolving. Could you please remind us where you report mix? I think mix is in different places in Consumer and in Adhesives, but it'd be great if you could just remind us and give us an idea as to how mix is trending as well, given that you have a focus on premiumization in both Consumer and Adhesives? That would be my first question.And then my second question is, I wondered if you could give any idea as to how we should start thinking about, I suppose, cost pressures and the overall macro landscape into 2024? Firstly, macro, and how you expect Adhesive demand to trend, as that's clearly been quite volatile this year?And then secondly, I suppose we focused a lot on input costs, thinking about the margin from a raw mat's perspective, but anything about labor costs and how we should think about labor costs feeding into 2024 and potential consequences for the pricing landscape would be very helpful as well.

[Carsten Knobel, executive]

Yes. Marco, you want to start?

[Marco Swoboda, executive]

Ian, if you can't get it, then Carsten has to take over. The question on balance, price, volume, your question on where is mix reported. On the Adhesive Technologies business, we do report the mix in the volume component, and for HCB, the mix would be part of the price component. So you're right, we have a bit of a slightly different approach because of certain specifics of the businesses. Then I understood you said you want to get a few where mix is trending. So at the end, we don't report obviously separately on it, but in HCB, I would see mix a bit supportive to the numbers. And in HAT, I would see it a bit slightly having a negative impact due to the portfolio composition we have.The other part, maybe -- when we talk about volume, maybe that's important to also note when you look at the volume we report for Henkel as a whole, but also then for the 2 business units, you will see that the Henkel as a whole is not the average of the 2 business units. That is because we also have a negative mix impact -- negative volume impact in our corporate segment that stems from certain energy deliveries we provide, in particular in our German site, to third-parties. So that is not an operating impact, I would say, from the 2 businesses. I think that's important because we got here and there already a question on that. So the volume we do report for the individual businesses is a bit more indicative where we really trend.

[Carsten Knobel, executive]

So I take the second question. Okay, Marco could also take the second question, but I give him a short break. So Ian, your second question was related to cost pressures in 2024, macro demand labor. I don't want to disappoint you, but today is not the day to give guidance on 2024. But for sure, I can give you some insights what we see. And nevertheless -- first of all, for sure, very early days in that, but maybe to give you something what we see today.Today we see that volumes are weakening in the industry combined -- with combined destocking initiatives at customers. And the growth recovery, especially in China, is still muted, but I said during my presentation that we see, especially in the Electronics business, the things, yes, positively developing in September, but also starting and continuing to do that in October. And by that, I think that's the first important factor.Second, if you look at the same time in the industrial production index, currently the forecast has been coming down from month-to-month within this year and reaching now, or is currently forecast with a level of 0.8% for the year. At the same time, we have for 2024 industrial production to be expected growing in the range of 1.7%. So that's definitely what we need to see or what we need to take into account.On the other side, we have shown a resilient volume development in Q3, thanks to our strong and our well diversified portfolio in Adhesives, where we have seen a high share of customized solutions and globally with our leading market position helping us in comparing also to our relevant markets.And when it comes to the potential pricing pressure, I think it's very clear, and I think we have seen that our products, our solutions are -- typically only represent a very minor part of the total bill of materials on our customers. Thus, we are not -- so their first priority when it comes to price discussions, and therefore in that part we are quite resilient. So -- And they are looking at Q4 and I have been -- and that's the only thing what I can tell you. I was very outspoken on that, that we expect a volume development in Q4 in Adhesive Technologies in the dimension of a flat territory.And If I would now turn a little bit to HCB, for sure your question was more on macro labor. I mentioned it also, we are also very positive in the development when it comes to HCB. We had the significant improvement of volume improvement in the negative field from the level of double-digit minus now to minus 5.7%. Out of that, I told you 4% [ bid points ] are related to trade/portfolio measures. So pure volume in Q3 is minus 1.7%. And as I also mentioned, we expect now the volume in Q4 also improving sequentially, really moving to positive territory or flat territory, I said, to the end of the year. If you would adjust for the portfolio measures, 2.5 percentage points, which we also commented through the whole year. Then you can make up yourself the point, if I'm saying towards flat in the end of the quarter, plus this 2.5 percentage points, that means the base business is then on positive territory. Hope that helps a little bit.

[Operator]

The next question comes from the line of Christian Faitz with Kepler Cheuvreux.

[Christian Faitz, analyst]

And Marco, I hope for a speedy recovery. 2 questions, please. First of all, I'm pleased to see the success of Persil and ALL in the U.S. How is the performance on Liquid portfolio performing in the U.S. at this point? And then the second question is, I'm afraid one for Marco. You're raising your bottom-line guidance, i.e. EPS more than sales or EBIT where you moved to the upper end of the previous range. Have you identified items below the EBIT line that are performing a bit better than previously anticipated, such as finance costs or taxes?

[Carsten Knobel, executive]

Marco, you take the bottom line. Christian wants to challenge you.

[Marco Swoboda, executive]

No, I think he got it fully right. I mean, on the one hand, below EBIT we have some improvements in predominantly financial results because also -- and Carsten indicated that also cash flow came in quite strong. So also, net debt wise we run a bit better than assumed before, and some also incremental benefit from the tech side. But what you also have to see from the overall guidance change, we significantly raised the midpoints also on the EBIT margin so that contributes. And when we determine the upper and lower end, there's also judgment and a bit of rounding included what we think we can achieve. So it's a mix of different factors at the end, clearly indicating that we are much more confident now to a higher EBS range than what we had before.

[Carsten Knobel, executive]

So Christian, so my challenge was not to [ meant ] Marco on the topic, it was more the challenge on the voice -- on your voice. So to your first question, in terms of North America, maybe Christian, to put it in perspective, I mentioned it, 7 consecutive quarters with organic sales growth. We recorded 4 quarters of organic sales in 2022, and now 3 quarters in the year 2023. Year-to-date, Dial, the brand, as well as our top detergents, Persil, Purex, and ALL, contributed with high single-digit organic sales growth in that context. And I mentioned it also before, in that challenging environment we were able to gain the market shares when you look at fabric cleaning, by 30 basis points and we also saw clear improvements and I think that's important again in supply chain with service levels further improving and that -- by that reaching really now a satisfactory level, not only by ourselves but in the context of our customers.On the very detailed Liquid question, I hope you understand that I'm not going into that level, but looking at laundry detergents, looking at laundry additives, we see improvements -- market share improvements. So really, yes, I would say continuing that journey where we have really good performance factors. Hope that helps both.

[Operator]

The next question comes from the line of Rashad Kawan with Morgan Stanley.

[Rashad Kawan, analyst]

Marco, [indiscernible] hope you feel better. One from me on the consumer integration. How does the accelerated net savings that you've announced today play into your A&P spend in the second half? I know in the first half, you noted you're accelerating A&P spend, and you touched on that in your opening remarks, Marco, but did that continue to accelerate into the second half, and would you expect to bring forward Phase 2 of the integration given how quickly you're getting through the first phase?[Audio Gap]

[Operator]

Ladies and gentlemen, please hold the line. The conference will resume shortly. Thank you.

[Carsten Knobel, executive]

Anybody hear me?

[Operator]

We can hear you now.

[Carsten Knobel, executive]

Can you hear me?

[Operator]

We can hear you, sir. You may resume.

[Carsten Knobel, executive]

Good. So, that's good. After the technical problem, Rashad, can you hear me?

[Rashad Kawan, analyst]

Yes, I can hear you, Carsten.

[Carsten Knobel, executive]

That's good. Can you please do me a favor and repeat your question again? Sorry for that.

[Rashad Kawan, analyst]

Yes, no worries. I was asking on the consumer integration, how does the accelerated net savings play into your A&P spend in the second half? I was saying, in the first half, I think you talked about accelerating A&P spend, and you touched on that in your remarks, but did that spend continue to accelerate in the second half? And would you expect to bring forward Phase 2 of the integration plan, given just how quickly you're getting through the first phase of it?

[Carsten Knobel, executive]

Very clear your question. So first of all, yes, as I mentioned, Phase 1, the EUR 250 million, what we expect to get, we're accelerating that and we see the majority until the end of the year with 80% reaching that and -- that's the first part.What are we doing with that accelerated savings? One part, we're putting it to the bottom line. As you see, that we have changed our guidance from the margin. We changed the midpoint, but also what I stated before, seeing that under the assumptions we're having more to the -- above the midpoint. That's the first thing.Other than that, for sure, we're investing because we also want to valorize our portfolio further. That means we have also continued what we have seen in first half. We will also see in second half an acceleration, or in continuation of our acceleration of our A&P spend in that context. And that's the first thing.Second, we will give a detailed update on Phase 1, but also on Phase 2 with the full year results in March of next year. But to be also clear, Phase 1 and Phase 2 are really a little bit also separated. Phase 1 was concentrating of administration, marketing, organizational set up, while the Phase 2 is concentrating on supply chain, production and purchasing and all related things on that which are one -- another basket. But also here we're doing good, good in terms of, we have done our analytical work, we know where to move.On the other side, if you have these kinds of things, you need to have in that part also a very clear view because the decisions what you'll make have a quite significant impact on your footprint on delivering on our customers. So therefore, we take that as planned, and we're moving really ahead, have promising points on that, and we are concentrating that. We also report during half year on topics like NGP, new planning -- New Generation Planning, but also one-one-one with our approach of going to our customers, one bill, one delivery, and -- in that part. Hope that helps a little bit, Rashad, on that part.

[Operator]

We will now take our last question from Victoria Nice, Societe Generale.

[Victoria Nice, analyst]

So I just wondered if you could go into some of the moving parts on the performance in Europe in the quarter, which was perhaps not as strong as some were hoping. So keen to understand the different dynamics that play here in a bit more detail. Perhaps also within that some focus on what happened in Laundry Care would be helpful. And then I think I also wanted to ask on capital allocation and how you're thinking about cash returns with the material improvement in cash generation seen to date please?

[Carsten Knobel, executive]

So Victoria, if I understand it right, I could not understand everything. Your first part was on Europe. So in Europe, the OSG was at roughly 1 percentage point, driven by strong pricing, while volumes were previous -- below prior year. And in that part, the OSG was driven by good growth in Consumer Brands. While the growth in Adhesives was slightly negative in the 9 months, OSG was at 1.9%, so influenced by significant pricing and the OSG was driven by strong growth in Adhesives.In Laundry, we are doing more work in terms of portfolio measures. I mentioned it before, while in the Hair area we started earlier with our portfolio measures in terms of focusing on higher margin, cleaning the portfolio, and by that focusing on high growth setups. We see that, or we have started with that with the merger in Laundry & Home Care, so a [ tick ] later. You know that we only changed the organization with Q3 of last year, means September when Wolfgang took over both businesses which we merged. And by that, you also see when it comes to market shares, when you come to -- when it comes to the development also in Europe, we see currently more impact in Laundry & Home Care but that's an interim period because we are changing the portfolio measures, or with the portfolio measures.And on top you know that in Laundry & Home Care the private label situation and the material price increases and the consequences out of prices have been a higher impact than in Hair categories. And already in Q3, we saw a positive volume development, as I mentioned it before in Hair. Hope that answers that part.And then I think you still have some of cash return. And I think, Marco, your voice is…

[Marco Swoboda, executive]

I’m not sure how exactly -- where you want to hit. And it's sort of into capital allocation. And obviously, we finished our first share buyback in the first half. So that was what we've done particularly over the last year to this year. And going forward at the moment, our priority is investing into our businesses, as Carsten also had alluded to. And when you look at it, that we report also on the acquisition we did. That is a substantial part also, how we now deploy the cash we generated and we are committed to further grow the business, and that is for the time being the clear priority.

[Carsten Knobel, executive]

So I think we're coming to an end, but let me still say one word related to the quarter 4. We really had a good start into the quarter 4, and I think that's really promising what we have seen in both businesses and important across the P&L means. Good top line start, good bottom line development, and which is for sure in these days also very important, the volume development in both businesses. And I think that's very clear for us setting now here the stage for further profitable growth.And with this, let me close with the overview of the upcoming financial reporting dates. We are really looking forward to connecting with you again in March, as I mentioned before, where we also go more into the detail of the status of our merger. And when we will also publish for sure in that context our financial report for the full year.And with this, I would like to thank you for joining our call today. Thank you, Marco, that your voice was also supporting me in that part. Have a good day. Take care of yourselves and see you soon. Goodbye.

[Marco Swoboda, executive]

Bye.

[Operator]

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.