Henkel AG & Co KGaA HEN
Q4 2012 Earnings Call Transcript
Transcript Call Date 03/06/2013

Operator: Good morning, and welcome to Henkel's Conference Call. With us today are Kasper Rorsted, CEO; Carsten Knobel, CFO; and Investor Relations team.

For the duration of the call, you will be on listen-only. Today’s conference call is being recorded and the webcast is available at www.henkel.com/ir.

At this time, I'd like to turn the call over to Mr. Kasper Rorsted. Please go ahead sir.

Kasper Rorsted - CEO: Good morning, ladies and gentlemen, and welcome to our conference call. First, I'd like to focus on the key developments of the fiscal year 2012, then Carsten Knobel, our CFO will provide to you with the fourth quarter and the fiscal year 2012 financials in greater detail. After that, I will briefly comment on the key achievements for the period '08 to '12. I will close my presentation with the financial targets for the horizon 2016 and the outlook for fiscal year 2013, and finally we'll take your questions.

I'd like to begin by reminding everyone that the 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 discussions are conducted subject to the disclaimer. We will not read the disclaimer, but propose we take it as read into the records for the purpose of this conference call.

Our strategy for the last four years is well-known to you, it's based on our business potential customers and team and we've now come to the end of our last four-year period. We also went through what the strategy for the next four years would look like, build and outperform, globalize, simplify and inspire, and I'll take you briefly through some of those details at the end of this presentation.

Let me now take you through the key developments of 2012. For the year 2012 our guidance was 3% to 5%, we came in at 3.8%. Our adjusted EBIT margin target for fiscal year 2012 was 14%, we came in at 14.1% and our adjusted EPS growth guidance that we changed in the summer time from 10% to 15%, came in 17.8%, meaning that we hit or overachieved all our KPIs for the fiscal year 2012.

When I look upon the achievements, we saw a solid organic growth driven by all businesses. We saw a substantially enhanced profitability and Carsten will take you through the details. We continue to optimize our portfolio and we’ll continue to do so also in the future. That is part of the value creation within our organization.

We (expand) our level of shared services should become faster and quicker but also more efficient. We have greatly enhanced our cash generation which you'll also see in greater details for Carsten and last but at least we continue to strengthen our global team and also use our performance culture as a driver for overall Company performance.

On the downside, we continue to see weakness in Southern European with Southern European being negative and overall Western Europe being slightly negative or at a stable level. We see Latin America will reduce growth dynamics and we’ve also seen continuity of political unrest, particularly in the Middle East that overall did not greatly impact our business, but did disrupt our business within quarters. We expect this volatility to continue.

On previous calls, we have said that part of the slowdown in Latin America were due to internal fact that we have not been happy with the way our consumer adhesives has come out in 2012. We are taking management changes and other decisions to readdress the situation and we expect a turnaround in our business throughout 2013. So some of our business in Latin America were impacted by growth dynamics, ‘political’ situations and some were impacted by internal the performance related criteria. I think we’ve been very transparent about this throughout the year.

How does our numbers look like? 5.8% reported, 3.8% organic, we’ve taken the number to EUR16,510 million, the adjusted gross margin up year-over-year by 130 basis points, the adjusted EBIT margin – and adjusted EBIT grew by 15 1%. The margin went from 13% to 14.1%, very similar to the guidance we gave following the third quarter that we were very focused on delivering our 14% EBIT margin that we have put out in front of us for the last four years.

Our adjusted earnings per share grew almost 18% more, precisely 17.8%. Net working capital at an all-time low at 5.2%, down 210 basis points, (mainly) taking our free cash flow up to above EUR2 billion for the first time ever. So in essence, it was the most successful year we’ve ever had with significant progress in all key financial items.

With this, I'd like to handle over to Carsten who will take you through more detail the fourth quarter and the full fiscal. Carsten, please.

Carsten Knobel - EVP, Finance (CFO) & Purchasing: Thank you, Kasper. Good morning to everybody and as Kasper have just said it after he has given the first insight I will now briefly recap on the Q4 and then give you some more details on our full year 2012.

Looking first on our key financials for the Q4, we have seen a very positive solid top line growth combined with further margin improvements in gross margin and in EBIT margin and very strong cash generation.

To go into the details, the sales came in with EUR4,002 million, highest Q4 quarter ever for Henkel, which is a nominal growth of 5.3% and an organic growth of 4.0%. Our adjusted gross margin showed 46.4% number for the Q4 being 140 basis points up compared to the Q4 2011.

The adjusted EBIT was up by 8.4% delivering an adjusted EBIT absolute of EUR544 million and the adjusted EBIT margin for the quarter reached 13.6%, again 40 basis points up compared to the previous year quarter.

Our adjusted EPS EUR0.87 being up 13% and the free cash flow reached EUR685 million, so tripling the number compared to the Q4 2011, which came in with EUR226 million.

Let me now move to the sales growth and the EBIT margin by business sector. Our Laundry & Home Care business came in with 4.7% organic net sales growth. This was supported by our emerging markets and also by our mature markets and our adjusted EBIT margin again could be increased by 70 basis points to a level of 14.3%.

Our Beauty Care business continued their profitable growth path. We realized an organic growth of 2.1%, especially driven by our performance in the emerging markets being more precise with the double-digit development, and our performance in the mature market was impacted by the development of the Southern European countries in that respect because of their weak performance. At the same time, we continued to increase our adjusted EBIT margin now to a level of 14.6%, which is 10 basis points up compared to Q4 2011.

Moving now to Adhesive Technologies business, after the Q3 where we had an organic growth of 1%, we could come in, into Q4 with a 4.6% organic net sales development here, driven by strong performance in the emerging markets, but also from North America.

Also, the adjusted EBIT margin could be increased to a level of 14.1%, which is 30 basis points up.

In total, Henkel, as I said before, a 4.0% in terms of organic sales growth, we had certain positive influences of the FX effects, mainly the U.S. dollar, China's renminbi and the Russian ruble for the Q4 and the margin in total, as I said before, 13.6% being up 40 basis points to our development.

With that, I would like to move now to the full year 2012. First, starting with Henkel in total. The nominal growth, reported growth is 5.8%. We have positive FX effect of 270 basis points, mainly coming from the U.S. dollar, the China's renminbi and the Japanese yen, which delivers an EBIT adjusted growth of 3.1%. We have A&D effect of 70 basis points, which brings us to organic growth of 3.8%.

All the three divisions as you can see are supporting this development and let me start now with our Laundry & Home Care business. Laundry & Home Care came in with a 4.7% organic net sales growth thereof a price component of 3.4% and a volume of 1.3%.

All other regions contributed to this development. We had a strong performance in the emerging markets even the double-digit in Africa Middle East and the very strong development in Eastern Europe.

Looking at our businesses, Laundry with a strong growth, while Home Care came in with a solid performance.

Moving now to our Beauty Care business. Our Beauty Care business came in with a solid organic net sales growth of 3.1%, a balanced mix of price and volume with 1.8% price and 1.3% of volume. Especially the emerging markets with a double-digit development, we performed in that respect, being with the North American solid performance and Western Europe on previous year level, specially impacted by our Southern European development, which made it only on the previous year level.

Looking at our businesses. Our retail business with a solid growth, our hair salon business because of a tough and declining market came in with a rather stable development in, as I said before, a declining market.

Moving now to our Adhesives Technologies business. The organic growth came in with 3.6%, 3.5% of that is price and 0.1% is volume. Please be reminded, as I have reported that also the quarters before that we are actively doing portfolio shifts and by that exiting certain businesses and the effects of these exciting businesses are shown 100% in our volume development and this is around 100 basis points impact as I've also reported that in the previous year quarters.

The growth of the 3.6% was mainly coming again here from our emerging markets, but also from North America. Western Europe fell short of the previous year level, mainly due to the weakness of our Southern European businesses and in that respect, affecting all business areas within our adhesive sector.

Looking at the businesses in total, transport metal with a very strong development, general industry came in solid and electronics on previous year level, you know that in the first half we had a negative development in our electronics business, but we could compensate that in the second half of the year and, as I said before, slightly above the previous year level.

With that, proceeding now to Henkel in total by looking on our regions; our emerging markets came in with an all-time high share of 43%, slightly below the 45%, which we had targeted in 2008 for the end of 2012. The emerging markets showed an organic net sales growth of 7.8%. As you can see from the chart, driven by a strong Eastern European business with plus 6%, a double digit from Africa, Middle East, and also very strong development in Asia 7.4%, and here highlighting, especially China with a double-digit contribution to our development.

Our Latin American business, as already indicated in the quarters before, had a mix development, a very strong, being precise, the double-digit growth in Mexico, while our Brazilian business, especially due to our adhesive situation came in below the previous year. Two factors here; one, the slower market development in Brazil than in the years before, but also own challenges, which we had to face especially in our adhesives consumer business.

Western Europe, as you can see, slightly below the previous year due to the weakness in Southern Europe and the very solid development 4.8% in the other part of our mature markets in North America.

With that I would like to move to the adjusted EBIT by business sector, and starting again with our Landry & Home Care business. 14.5% is the adjusted EBIT margin we reached for the full year 2012 and this is 130 basis points up compared to the year before.

Also, in our Beauty Care business, once again we could increase our adjusted EBIT margin by 30 basis point, also to a level of 14.5%.

Our Adhesive Technologies business could increase the margin by 120 basis points, first time in history crossing the 15%, being precise 15.1% and in that respect, we have to state that this is also due to the portfolio shift, which we have executed and the benefits we're getting out of that.

In total, with that, Henkel came in with 14.1%, so above the target of 14%, which had been announced in 2008 for the end of 2012 and this is an increase of 110 basis points reaching a level of EUR2.335 billion, or being up 15.1% in percent compared to the year 2011.

Moving now to our income statement adjusted, and here first looking on our sales to gross profit development. Also here with 47.1 we could once again increased our gross margin as we have shown it in every quarter by around 130 basis points and this was easily possible by a negative impact of about 200 basis points of cost of goods sold for the full year which we could compensate by a disciplined execution of countermeasures, price increases and also innovative products we brought to the markets.

Further in the income statement adjusted now sales to adjusted EBIT, here I would like to point on two highlights, first the marketing, selling and distribution expenses. They have been decreased by 30 basis points. Here, we have to differentiate our selling and distribution expenses were significantly down in that respect, while our marketing expenses being more precise, our media investments could be increased overall businesses with the mid-single-digit growth. Our admin expenses, administrative expenses, a further reduction of again 10 basis points to a level of 4.4% reduction.

With that, I would like to move to the reported to adjusted EBIT. Looking at that, I would like to start with the briefly commenting on the restatement of our 2011 EBIT reported. In December 2011, we receipt a fine by the French Antitrust Authorities of around EUR92 million. The amount was fully paid, but we filed an action against the decision. This claim against the authorities of paying back the fine was recognized within the full year 2011 under other financial assets.

In 2012, a review of this recognition revealed that the recognition criteria of an assets were not present in 2011. Thus, our full year 2011 figures were restated in our consolidated financial statements of 2012.

The EUR92 million are now fully recognized as other operating expenses for 2011. The adjusted EBIT 2011 remains unchanged and also unchanged remains our legal position. There are no changes to our evaluation of the situation.

Having said that, let me shortly and briefly explain you how we transfer it. We’re having our reported EBIT of EUR2.199 billion. There are one-time charges in 2012 of EUR12 million and restructuring level of EUR124 million fully in line with our guidance which we updated you in the Q3, 2012.

With that, we reached as I pointed it out before a level of adjusted EBIT of EUR2.335 billion.

Let me now move to another highlight and Carsten has already explained to that in short. Our networking capital, we could reduce again by 200 basis points now to a level of 5.2%, all our three businesses as you can see from the chart are contributing to this favorable development, Laundry & Home Care with minus 3.6%, our Beauty Care business with 2.1 and our Adhesive Technology business 11.9%.

With these figures, all our three divisions reached an all-time low level within the history and by that we have really made another step forward in terms of generating cash within our company and we are also looking forward over the next years to continuously improve that.

The good operational development, but also our ability to improve our net working capital have also helped us in further reducing our net debt development. Over the last four years, we could reduce our net debt by EUR3.7 billion, now to a level of EUR85 million and also compared to the previous year, another improvement of EUR1.3 billion now to a level of EUR85 million in total.

With that, I would like to move to another highlight within our full year 2012 which is our cash flow generation. Our cash flow from operating activities came in with EUR2.634 billion, being up EUR1.072 billion compared to the year 2011. As already indicated for the Q4, our free cash flow is also a record level for the full year reaching now first time in history, a number above EUR2 billion being precise, EUR2.023 billion and by that more or less doubling the number compared to the year 2011.

Lastly, I would like to take a glance at the historic development of our dividends and also the proposal for 2012. As you can see, we have managed always to raise or at least to keep the level of the previous year when it comes to our dividend. For the year 2012, we would like to propose a dividend of EUR0.95 per preferred share to our shareholders at our AGM 2013, and with that, we would increase the dividend by EUR0.15 or respectively plus 19%.

With that, I would like to come to my summary. We achieved all financial targets or even over-delivered on that. We showed a solid organic net sales growth of 3.8% in 2012. We delivered an all-time high in terms of our adjusted EBIT margin with 14.1%. Our net working capital contributed by all businesses reached an all-time low with 5.2%. Our net debt has been significantly reduced to a level of EUR85 million and our free cash flow as already indicated doubled the number compared to 2011. So, for Henkel, the most successful year characterized by a high-quality of our earnings, a very strong balance sheet and a great cash generation.

With this, I would like to conclude and give back to Kasper.

Kasper Rorsted - CEO: Thank you, Carsten. Before we go to the outlook, let me just spend a couple of minutes on '08 to '12. Going back and looking upon the guidance, we guided between 3% and 5%, for the period we came in at 3.3. We guided 14% for the period, we came in at 14.1% and we guided an EPS growth average of 10% and we came in 14%. So over the last four years, we achieved all the financial targets that we set ourselves.

One target that we didn't achieve was the share of our emerging market businesses that was targeted at 45, we came in at 43. What we did do and I'll spend just a couple of minutes and that we did (annual) structural changes to the Company, but I think most importantly, we've taken enormous step forward in changing the culture and becoming a much more performance-oriented company. At the same time also, leaving this room that we are not at the end of the road where we want to take the Company, neither structurally nor culturally.

On the financial performance side, we've taken our profitability up by 380 basis points over the period from 10.3% to 14.1%, which leads to the EPS CAGR of 14%. We are taking our net working capital from 11.7% to 5.2%, so more than half taking down by 650 basis points. We are taking, as Carsten illustrated, our debt down by EUR3.7 billion, so not only on the P&L have we made progress, also on the balance sheet.

On the structures, we have set up a four strong shared service centers, in Manila, Bratislava, Mexico and in India, we have, as we speak, 1,500 people in shared services, we have concrete plans to take that to 2,000. Our target for 2016 is 3,000 and we are confident that we'll get there.

On the process standardization, we've made substantial progress not only to make us much leaner and faster, but also to make us more cost-efficient. We are taking initially our business process from approximately 20,000 to 2,200. Also as we've presented, we believe that we can take the 2,200 standard business processes down to approximately 800; that is a project that we set out for the next three years and which we'll execute.

We've also moved our manufacturing footprint to the emerging markets. We have a net reduction of plants of more than 60, but we have today fewer plants, larger plants and most importantly the plants where the future demand be.

When it comes to brand and innovation, a dramatic increase in quality of innovation help us drive right bottom line and top line. This we'll continue to focus on. On the brand consolidation, we're taking our brands and reduce them from 1000 to less than 400. We'll continue that reduction and our top 10 brands now accounts for 44% of our business.

Carsten just spoke about our increase in media spend, but we are also allowing that now to take place is because we have fewer brands, we are overly proportionately spending on the stronger brands and spending less on the weaker brands. So, while we're increasing our media spend with mid-single digits, we are doing more so, we are spending more on our top brands.

We've also continued to optimize our portfolio. We invested more than EUR4 billion in our portfolio over the last four years and we divested more than EUR2 billion over that period of time.

On sustainability, we had a sustainability target set for 2012. We hit those targets in '10. We have defined a new sustainability strategy build around what we call Factor 3. On our customer focus, we have a much more intimate customer relationship today. We know personally all our large customers and we build very close collaboration with a number of partners, particularly industry partners where our global presence is a significant competitive advantage for us.

On the consumer side, we have done a very large global shopper study that allows us to much better understand consumer behavior and thus making certain that our sales position is becoming better than it was in the past.

When it comes to values, performance and diversity, we introduced a very clear vision and value set in 2010. We're much more streamlined when it comes to who we want to be and how we want to operate. So our corporate culture is today very clearly defined. We have a very expensive performance culture which comes out and is being very clear in the way we evaluate our people with our forced distribution and also how we promote and pay our people. Today, we do pay our people very, very competitively when performance is delivered; reversely, when performance is not delivered over time, we take equal steps to change the management structures. (Carsten gave his input of that of) our business in Latin America where when we don't perform over a period of time, we will take the necessary steps.

On diversity not only have we increased the share of women in our management structure from 27% to 31%, we now have more than 90 nationalities in our management worldwide and have, what I would characterize, as a true global management structure.

All these measures has had a fundamental impact on our market cap. When we introduced the triangle on 6th of November in 2008, our market cap was EUR8.7 billion, as of last night it was EUR27 billion. So those of you who have been with us throughout the entire life has had an increase in your earnings or your value of 209%. So tremendous increase, EUR19 billion in our market over the last four years. Dividend per share has increased sequentially by 79% during that period of time. So the steps we’re taking on the P&L and the balance sheet and on our (strategic priorities), you can see in our market cap.

That brings me to our financial targets and outlook for 2013. From 2008 to 2012, we greatly improved the structures and the cost of our Company. Now, we’re aiming at executing our vision to become a global leader in brands technology. Today we have a clear strategy where we're going to outperform our competition as a globalized company with simplified operations and a highly inspired team that translate into targets for 2016 of 20-10-10 and let me just (delve) for this in a second, because we’ve discussed it with many of you many times. If you do the guerilla math, that will give us margin of approximately 16% in 2016 depending on how high the top line goes. It might swing up a bit or down a bit depending on where we end on the plus and the minus side of the EUR20 billion.

From an operational improvement, this equates to effect the same operational improvements as we had between '08 and '12. The only delta is the National Starch acquisition, so what we're saying here, very pleased with the market, we aim on continuing to improve our operations with a same level of speed and ambition as we did between '08 and '12. Should we do a large 'National Starch' acquisition? We will do adjustments to the targets, but I am just giving a very clear target here. Our aim is to continue operational improvement with the same speed as we've done over the last four years; which brings me to the guidance for 2013. Organic sales growth of 3% to 5%, adjusted EBIT margin of 14.5% and the most important measure for us is our adjusted EPS growth of 10% which is what we're guiding also for the next four years.

Let me also be very clear on the following points. We will continue to adapt our structures to the market. We do not believe we have the end of the story. We have done so in the last four years, we'll continue to do so also in the next four years to ensure that we'll pursue not only the full year targets but also the annual target with the same visions.

What are the upcoming events? We have AGM on the 15 of April; we have May 8, we'll have our Q1 numbers; June 18 we'll have Investor Day and (I'd only) encourage you to come to Dusseldorf. The topic of the day will be our Adhesive business; August 8, our second quarter and November 12, Q3 and then the year is almost over.

With this, I'd like to thank you for dialing in today and now Carsten and I will be happy to take your questions for the year and for the quarter. Thank you.

Transcript Call Date 03/06/2013

Operator: Martin Rodiger, Cheuvreux.

Martin Rodiger - Cheuvreux: Thanks for taking my two questions. First, on the cash use in future after you have net debt of EUR85 million and probably net cash next – or this year 2013, what are you going to plan with the cash use? Do you plan major acquisitions or increase in payout ratio? Second question is, could you remind us about the war chest that you have for acquisitions and your financial criteria when it comes to acquisitions?

Carsten Knobel - EVP, Finance (CFO) & Purchasing: You’re right, with EUR85 million, we are near to coming net debt free. This is also a plan for 2013 and we have shown it during our strategy going forward what our priorities. Our priorities are growing our business and growing our business in two-folds on the one side for sure our organic development and, also secondly, as we pointed it out, acquisitions are an integral part of our strategy and depending on that, we will use our cash in these two dimensions. As I said, priority is growing in terms of organic and M&A. As you have seen just recently in Poland with PZ Cussons we could acquire their Laundry & Home Care business, and this is one of the first steps and we will continue to update you whenever these things occur.

Martin Rodiger - Cheuvreux: And the question of war chest and furnished exterior?

Carsten Knobel - EVP, Finance (CFO) & Purchasing: The answer is, as I pointed it also out slightly on this Strategy Meeting in November, we have a financial headroom above EUR3 billion at this point of time, which is based for sure on our cash generation ability which we have shown over the last year and then the quarter for sure growing and by that also this room will grow.

Operator: Gael Colcombet, MainFirst.

Gael Colcombet - MainFirst: Well done on the successful conclusion upon your 2012 targets. My first question would be on Beauty. It's been a couple of quarters now that we see an organic development, which is a bit below markets. I was just wondering how you see the future development of this business and what needs to be done to bring this division to its (former) very successful organic growth development. Secondly, on Adhesives, I was just wondering you mentioned there had been 100 basis points negative impact on the organic growth of Adhesives in Q3. Was that the same impact in Q4? Lastly, actually, my question was partially answered on M&A. I know you have quite a significant list of potential targets and I was just curious to hear from you how you go about it in your screening and if you could address us on that as well.

Kasper Rorsted - CEO: Let me start with the question on Adhesives – no, on our Beauty Care business. We’ve had 27 quarters of profitable growth in our Adhesive business. We’ve had last year two quarters with slightly slower growth. We believe that is partially due to our geographical footprint. What we have seen is, we've seen a slowdown, particularly in the Professional side, so the hairdressers business. But as you can see, we've consistently been able to improve top line and bottom line over the last 27 quarters in the Beauty Care business. If you take our outlook, we are saying that we will grow by 3% to 5% and we're saying also that each of our business groups will be in that range. So what we are indicating is that our Beauty Care business will be back in that range 3% to 5% points. I do want to say just give you a clear view is that, while we had two quarters of slower growth in 2012, we continue to see very strong market share positions, gains in our Beauty Care business and the slowdown has predominantly been due to our professional business or salon business so to speak. Carsten?

Carsten Knobel - EVP, Finance (CFO) & Purchasing: Your question regarding Adhesives, the impact of the business exits. As I pointed about in the quarter, it's quite consistently on the same level. It's around 100 basis points of impact, which is fully related to our volume part.

Kasper Rorsted - CEO: On the Q&A on the M&A, I think we've already answered it.

Operator: Iain Simpson, Barclays.

Iain Simpson - Barclays: Just a few questions if I may. Firstly, when it comes to laundry and cosmetics, over the last few years there seems to be sort of situation where – when one of them is doing very well, the other is doing less well. So at the moment obviously laundry is doing brilliantly and cosmetics less so and 18 months ago that position would have been reversed. Is that just coincidence or does it reflects the fact that you are sort of moving management teams around internally to sort of fix whatever division is having problems at the moment. Then just, in terms of how you think about running Adhesives. Could you give us an insight into how the management team in that business is sort of incentivized and told to operate? Is it the case that in Adhesives you care more about the overall operation profit growth than actually sales growth in that business and perhaps we shouldn't be looking at organic growth in Adhesives as closely as we would in your HPC businesses?

Kasper Rorsted - CEO: Let me just start with the consumer question. I would argue that the difference in performance in the last two years is coincidence than more than anything else. But frankly, nobody project that we had a strong crisis in some of the countries that have a bigger footprint for Cosmetics business vis-a-vis our Professional – our Salon business. What you are seeing though is that you are seeing a very consistent way of operating both businesses, so the head of our Laundry & Home Care came from our Cosmetics business or Beauty Care business. He is running that business very similar to the way we have been running our Beauty Care business over the last two years. So I would not over interpret that. I think what you are seeing is, you are simply seeing some coincidence of market development, so I would not over interpret at that, what you are seeing though is a very consistent way of running both businesses, which is also why we are guiding within the same range. Sometimes there might be market dynamics that might change. Growth rates for one of the other, but as I said, I would not over interpret anything in those two numbers. When it comes to the Adhesive business, what we have said consistently is that, we are doing a very active portfolio management of that business. So, what we are trying to do is, to manage to what higher margin business is, where the technology differentiation is higher. That means also that over time we actually forego topline growth opportunities, if we don't believe that margin is appropriate. That you can see in the past development of us that we have done that over the last three years and been very selective in which automotive-related businesses we are in, we’ve been able to grow that business very strongly because we have (setting out), we have separated ourselves from a number of lower end businesses. So you should see over time, you should look upon the top line, but within a quarter I would caution you to do that. Of course, we strive to over time consistently grow our businesses, but we also said in London that we would divest businesses to the tune of EUR500 million where most of that revenue is coming from our Adhesive business. So, our target is to continue to increase top line and bottom line. I think just closing on it, we hit 15.1% EBIT margin in our Adhesive business. Four years ago, it was depending on you looked upon it, as high or – medium or high single-digit, that is because we do active portfolio management. We do not want to be in commodity-like businesses. We want to be in technology-driven businesses, where the predominant customers have a global footprint.

Operator: Robert Waldschmidt, Merrill Lynch.

Robert Waldschmidt - Merrill Lynch: Two questions, if I may. One, back on Adhesives again. If we examine the fourth quarter margin improvement, it's materially below the level we saw through the first three quarters of the year and in light of what you've just said about looking to maximize margin over time, is this a timing issue? Have you banked some of the upside, so to speak, to deploy in supporting the next year's targets? Or can you shed some more light on that? Then to more on working capital, I mean just how far can we go? We've seen very good improvement here on Adhesives. In addition, this year we should be seeing, hopefully, certainly better raw material environment, any color there would be appreciated as well.

Kasper Rorsted - CEO: If you look upon our Adhesive business, we actually had a – we’d say on the top line we grew 4.6% quarter-over-quarter and we increased our (rest) to 14.1%. So we felt that we had a solid fourth quarter of our Adhesive business. What we are somewhat dependent on our fourth quarter is our industrial customers when they close down and depending on how the year is. So, overall, fourth quarter tends to be the weakest quarter, and you can go back and look upon that in the last, I don’t know, how many years for Henkel when it comes to Adhesive business. So we were actually quite happy with the quarter. We took the growth up to more than 4% from 1.5% in the third quarter. So it was actually on the top line a very strong quarter. So I am not very concerned about the performance on Adhesive in the fourth quarter besides saying we are quite happy with it. We didn't bank anything. We think we do the business in the appropriate way, but we also manage our businesses in the long-term and 2008 through ’12 is history now. Now, it’s ’12 to ’16 and that’s how we manage the business, but we didn’t bank anything one way or the other.

Carsten Knobel - EVP, Finance (CFO) & Purchasing: Regarding your net working capital question, I think I have shown that all three businesses showed best-in-class numbers for the full year 2012. Also especially Adhesives with 11.9%, a historical lower number (opt) for material increases in the next year we have made the guidance on that, that we see moderate increases when it comes to direct materials and in that respect and I also told that we don't think that we are at the end in our networking capital development. On the other hand, it is getting also tougher because you know that we're moving in the direction of more presence in the emerging markets and, in general, dependency is that in emerging markets the situation regarding net working capital, they've done different setups, it’s more difficult than in the mature markets, but nevertheless we are positive and we are confident that we will also further improve that over the years coming.

Operator: (indiscernible), Societe Generale.

Unidentified Analyst - Societe Generale: My few questions, on Adhesives, this (indiscernible) that you're doing, could you give some color on how much potential there is there, I man what percentage of your Adhesive business is to commoditize for your liking and perhaps give some color on how you see the Adhesive trends in terms of end demand by major industry. The second question is a geographic question, you talked about the weakness in LatAm, also southern Europe both seem to get weaker in Q4. Could you tell us what your view is in those two geographies for 2013 and what corrected actions you've taken in Brazil.

Kasper Rorsted - CEO: I will start with the first one, on the Adhesives, I think we've given very specific guidance that right now we see approximately EUR500 million being in that 'area' which we define as commodity on non-strategic. This is an ongoing evolution and I don't think we will ever get to the end point of it, but at this stage we see approximately EUR500 million with businesses that either are non-strategic or are highly dilutive. By default you will have dilutive businesses, that's the consequence of having an average, so we'll continue to do a portfolio management and at this stage, the size of that is EUR500 million. Then a question is of course how dilutive are they. We don’t disclose that, but we believe there is substantial continued upside of managing our portfolio with a predominant focus on technology, because it gives us the biggest pricing volume in the marketplace.

Carsten Knobel - EVP, Finance (CFO) & Purchasing: Regarding your geographical question, I think we pointed out Southern Europe is for sure something which is impacting our businesses. We do not see short-term change in that situation. Latin America, we have already indicated in Q3 that we saw from a market point of view in Brazil a short -- that the market is coming back, but here I mentioned it before that it is also mainly an internal challenge we have to face which we and also Kasper said that we have already changed management on that, but for sure we'll take a certain time in order to get back where we would like to be. For the rest of the world, I think we have seen a good development in North America and we will also see that for '13 that this could continue and the rest is unchanged compared to what we have indicated already in November.

Operator: Markus Mayer, Kepler.

Markus Mayer - Kepler: Few questions from me. First of all, on your Adhesives business, was there a seasonal effect of the relative (form winter) in Europe and North America and this business is…

Kasper Rorsted - CEO: Can you repeat the question? I didn’t really understand it.

Markus Mayer - Kepler: On adhesives in the first quarter, was there a seasonal effect on the relative form winter Europe and North America, you saw a positive effect in this sense. Then second question on your electronic adhesives business, you said there was still growth in 2012, when do you expect electronics end market in particular than the market for the Adhesives business to recover in 2013, are there already signs of recovery? Then the last question on your CapEx guidance for 2013, if you could just give us some flavor on this as well?

Kasper Rorsted - CEO: First question, answer, no. Second question, on Adhesives, as Carsten said, we saw a slight pickup, but we still see a very, very slow electronics market and we do not see any substantial recovery in the electronics market at least in the first half of 2013. Of course, there is a number of end markets that have impact on this. But overall, one of the expectations or one of the (tendencies) is the impact of Microsoft Windows on the (tax) and to which extent that will pick up, that has had a slower pickup than we had originally anticipated (which you’ve also referred in the paper). So right now it is, similar to what Carsten said, negative development in the first half of '12 around EUR2 billion of CapEx and the guidance for 2013 is that this number will be around EUR500 million. The number of 2012 was EUR393 million, so you see what we proposed in terms of increase is already happening in the first year so a significant decrease to EUR400 million versus EUR500 million already for 2013.

Operator: William Houston, Redburn Partners.

William Houston - Redburn Partners: Two questions for me please. The first is on Adhesives. In Q4 of 2011 you experienced an inventory reduction in China specifically, which harm your growth in the quarter. Do you think that's benefited you in Q4, 2012? Then a second question is, on North America where you had an extremely good growth in Q4 of 6.3%. I'm just wondering about HBC in particular, how you feel the competition has developed in that market during Q4 and into 2013 please?

Carsten Knobel - EVP, Finance (CFO) & Purchasing: I can start with the first quarter with the Adhesive, on a like-for-like, of course, if you see when we had a slow growth in one-year and a stronger growth in the next year then you have a easier like-for-like comparison, but what we did see was an overall increase of the business environment in the second half in China, but of course you had a easier comparison, that's the name of the number, that's the outcome of the numbers. However, I still feel and so does the rest of the company, bullish on China, we had double-digit growth in China, so we are quite bullish on it, despite whether the fourth quarter was weaker in the 2011 time. On the North American side, the market has somewhat stabilized. We continue to see very highly competitive environment, you can see that from the number of (P&G), promotion activities has stabilized, but not substantially changed. Our position is that with the management turnaround or business turnaround that we undertook in 2010, we continue to see improvement quarter-by-quarter that is also our expectations set for the future. So our expectation is that, our professional and consumer goods business will continue to improve in the future along with the improvement of our management capability in North America that has greatly improved over the last 2.5 years.

Operator: Christian Weiz, Baader Bank.

Christian Weiz - Baader Bank: First of all, I'd like to know what's going on in the professional Hair Care business. I mean this business is pretty important for you given that it represents about 15% of your Beauty Care business overall, first. Second, what's going on in the current quarter in North America, we had that target complaint about weak environment, especially in the Laundry Detergents business. Wal-Mart also stated about a week ago that business was pretty poor and given your legacy, due to the Dial acquisition, this might have an impact on you, can you give us some flavor on the first quarter in 2013?

Kasper Rorsted - CEO: On the first quarter guidance, of course we cannot give you anything that would be inappropriate. So I can't comment on it. That's just as easy or as difficult as that is. Carsten will go more in detail in the professional market.

Carsten Knobel - EVP, Finance (CFO) & Purchasing: Yes, regarding the professional market, I slightly also commented on that. We saw a very declining and tough market environment and this is something which is also for sure impacting our business. On top the point is, that we have an over proportional part of our sales in Southern Europe and by that for sure this is impacting also our business over proportionally and also on top of that is that we are also quite strong in Japan, which is also a mature market, which is also under tough conditions and that is currently what we see as an impact. On top, I pointed about the currency in Japan also plays a role in that. So these are the major points, but there is nothing to do with the structural set up of our professional business. As you know, it is also on the umbrella of (indiscernible) and this one of our major keystones and key brands within our portfolio.

Christian Weiz - Baader Bank: Can you maybe just give a brief comment on the competitive environment in this business?

Carsten Knobel - EVP, Finance (CFO) & Purchasing: I think the situation is that we have a tough market situation as relevant for everybody, maybe I forgot to say within this market and why weren't we still increasing market shares and you can also see from other companies who are relevant in that segment were also commenting that they are facing a tough market situation and being impacted on that.

Operator: Iain Simpson, Barclays.

Iain Simpson - Barclays: Firstly, if you could just give us some indication as to how excited you are about innovation through 2013. We've clearly over the last couple of years seen a few really big banks from (indiscernible) Purex 3-in-1 that have moved the needle a little bit. Have you got anything in the pipeline for 2013 that you're (very) excited about? Then just a couple of very boring housekeeping questions, if I may. Just checking that 10% earnings growth for 2013, that is after the impact of IAS 19, so it would be – so you don't have IAS 19 in '12, you do in '13 and it's still 10% earnings growth. Just secondly, current provisions (look to) sort of gone out by about EUR400 million in the year. Is there anything interesting going on there or should we not pay any attention to it?

Kasper Rorsted - CEO: I will start with the first question and Carsten will take the last ones. On innovation we believe we have dramatically improved our capability to bring successful innovation to the marketplace. However, the issue around innovation is, you do not know whether it's successful before you brought into the marketplace. So while we like to have a second thought, we actually don't know before we've go into the marketplace. But as I said, we believe we have a very strong innovation pipeline that is helping driving top and bottom line. Frankly, the only way, particularly in our fast moving consumer goods that we can drive pricing through is through innovation. If you look upon our innovation rates, so it means how much of our business is coming from products that has been in the market less than three years. For our fast moving consumer goods businesses, it's between 42% and 45%. So you continue to see a very strong push on innovation. But end of the day, the consumer decides and we'll know if innovation is successful when the consumer votes with his or her money and we don't know that before we have the products in the market, but we are quite confident that we have a good innovation pipeline. Carsten, on the other half?

Carsten Knobel - EVP, Finance (CFO) & Purchasing: Yes, to the other two questions from your side regarding IAS 19 and the EPS, I think it's clear that our 10% growth which we expect is including the IAS 19 changes. So nothing to be added on that. Regarding your provisions, it is the case that in these provisions we have included additional sales related provisions, but also it’s partly also related to our special incentives and I think that should also answer the question.

Iain Simpson - Barclays: Sorry, just a clarification. If I thought you’ve already more or less fully provisioned your special incentive by the end of ’11, I am looking through your (indiscernible) it's says – it's only like sort of EUR16 million increase, or if I got that wrong?

Carsten Knobel - EVP, Finance (CFO) & Purchasing: Yeah, the EUR16 million is related to our people within (mc3) and the level of our leading people and on top there is the (non-mc) part.

Operator: Thank you. Ladies and gentlemen, that was the last question. I will now hand over to Mr. Rorsted for closing remarks. Please go ahead.

Kasper Rorsted - CEO: So thank you very much for participating in our conference call. 2012 was a milestone year for Henkel because we hit our targets for that we set ourselves out in ‘08 to do in ’12, and in a very competitive and volatile market environment, we were able to deliver and achieve all the goals we set ourselves. We are now, I believe, a much better and a stronger Company. I can tell you we are very, very motivated to do exactly for the next – exactly the same for the next four years. As I said, we strive to continue to deliver the same operational improvements over the next four years as in the last four years. So we are very excited about it. We think we have a good starting point. We are very committed to deliver. We are early on in the cycle and everything from '08 to '12 is now history. We’re completely focused on the next four years and we assume that we’ll take the right decisions and we’ll, of course, also make the right correction should we not do so in the next four years, but I can tell you we have a management team that is very, very committed to its 20-10-10 and of course, the first step is to deliver a good and stellar 2013 and I believe a guidance of 10% EPS in a very difficult marketing environment is challenging and ambitious, but also what we believe as a realistic target. With this, I'd like to thank you for being here today. I wish you all the best and look forward to speaking to you at our first quarter conference call on May 8, 2013, and again, I'd like to remind you to save the date for Adhesive Technologies Investor & Analyst Day which will take place on June 18,, 2013 in Dusseldorf. Thank you very much and good bye.

Operator: Thank you for joining today's conference call. You may now replace your handsets.