Good morning. My name is Carsten Tillger. I'm the Global Head of Corporate Communications And Public Affairs for Henkel. Together with our Head of Investor Relations, Lars Corinnt, I would like to welcome you to our joint investor, analyst and media webcast. Before I hand over to Lars.
Let me outline briefly our agenda for this morning. We have distributed today 2 news releases. One relating to our financial results for 2019 and our outlook for 2020. The other one relating our new strategic framework. In addition, we have published our annual report and sustainability report online on henkel.com.
After this brief intro, Carsten Knobel, Chief Executive Officer for Henkel, and Marcos Swoboda, Chief Financial Officer for Henkel will present to you our financial results, our outlook and strategic framework and ambitions for the future. This will be then followed by a Q And A session. Now let me hand over to you, Lars,
Thank you, Carsten. Good morning, and warm welcome to everyone joining us via the webcast also my side. Thank you very much for your interest in Henkel. I would like to remind you on our disclaimer regarding forward looking statements can see on the chart. As always, we will not read it aloud.
But please note that today's presentation and discussion are conducted subject this disclaimer. And with this, let me hand over to Carsten. Carsten, stage is yours. Last question. Thank you.
Good morning, everybody. I'm excited to open this year's investor a media conference. Unfortunately, we were not able to hold our conference in London due to the recent developments of the coronavirus but it is also our responsibility to help preventing and controlling it. Thanks for joining us, we are the webcast. Let me start by introducing Marco, our new CFO.
Marco joined our management board at the beginning of the year. He's a highly esteemed colleague and has been an important change driver for our company. Ful honored and privileged to lead Henkel together with our management team into the next chapter of our rich history. It's now 25 years ago that I started in this company, leading in many roles and functions. I feel proud to be a part of a company with such a strong tradition: a unique set of values and a committed team of more 50,000 people across the world.
To me, ankle feels like home. I have led through many ups and downs, through tough times, and times of great success, and it is clear to me: I'm taking the helm of Henkel. At an inflection point. I'm fully convinced performance as we have in recent years. We need a new game plan.
In my 1st 60 days as CEO, spent a lot of time listening, listening to customers and consumers, listening to business partners and employees. And listening to investors and shareholders including many of you. And here is what I've heard. I've heard acknowledgement of our strengths. Yes.
We're a financially healthy company with a strong balance sheet generating more than 1,000,000,000 of profit. Yes. We have high quality brands, innovations and technologies, holding leading market positions across the world with long standing customer relationships. And yes, I have a strong track record in sustainability. And finally, we have a loyal, passionate and highly committed teams around the world.
At the same time, I hear the strong voice of skepticism. I hear concerns about our performance slowing down in the last 2 to 3 years, even to the point of 3 profit warnings last year. I hear criticism of top management sugarcoating results in the past. I hear doubts whether we are agile and dynamic enough to turn the corner. And I hear questions whether I am the right person for leading Henkel's transformation.
And I took this at heart. Over the past decade, I have been part of the management team during the performance acceleration as well as the recent slowdown. Yes, the business context was challenging, and yes, in hindsight, we made mistakes. As Henkel feels like my home, I am deeply passionate to put our company back on a track towards purposeful growth. Purposeful growth goes far beyond financials.
To me, this is about truly exciting our customers and consumers, inspiring and growing our people having positive impact on our society and the planet and ultimately outperforming the market. Now the context is tough for all of us. We have great assets. What ultimately will make the difference is having the right strategy, the right team and the right culture. With passionate, dedicated people around the world, we will put Henkel back on a purposeful growth track.
I strongly believe that the personal commitment is vital that I believe are critical to transform Henkel. Transparency We will take an unbiased factual look at our performance and progress, and we will share this transparently to regain trust. Ownership of our results. We will deliver and take full ownership meaning. Explanations, yes, Excuses no.
I stand for pace, and I will enable the entire organization to speed up. And third, driving real change. Driving our performance in a more sustainable way and evolving our culture mindful to support the change journey. Therefore, I'd like to set today's scene with a new level of transparency and our aspiration for new momentum in mind. So what expect from today.
First, I will start with a brief overview of our results, 2019. I will then hand over to Michael who will provide more specifics and background on 'nineteen and will finish with our outlook 2020. After this, will share with you the Henkel Group Review giving you the perspective of the management team regarding both our foundations and the areas of change. That leads to our future direction where MARCO and I will elaborate on our purposeful growth agenda. We will then open up for questions and close with a brief summary.
2019 wasn't an easy year for us. And we delivered a mixed performance. Overall, we fell short on expectations. 1st, We did not were at the lower end of our expectations. Nevertheless, we managed successfully to build on our strong foundation, We grew normally to more than 1,000,000,000, and we generated a strong 1,000,000,000 of profit.
We achieved a high free cash flow, all time high, and despite our mixed results, we propose a stable dividend of per preferred share. Throughout 2019, we faced an environment with both significant headwinds and some tailwinds. On the other hand, our industrial business was affected by a slowdown in key sectors such as Automotive. The expected recovery in industrial demand did not materialize. The consumer markets we play in the other hand, showed a good growth dynamics, yet being very competitive.
And it is fair to say that we didn't leverage the full pulp market potential in 'nineteen. Again, our business was impacted by geopolitical tensions Across the Globe. However, benefited from currency tailwinds and the Thank you,
Carsten. So good morning to everyone also from my side, and thank you very much, Carsten, for the kind introduction. I'm excited to have the opportunity to present to you today, and I look very much forward to meet you and speak to you in person in the future. On to our 2019 financials now, starting with our top sure not what we had expected in the beginning of 2019 as Carsten also elaborated. Volume was negative at -1.8%.
Mainly due to weaker development in adhesive technologies as well as in Beauty Care. This was compensated by positive pricing, in the same magnitude, thanks to our efforts in our industrial business, but also strongly supported by Lardley And Home Care. The net effect of our acquisitions and divestments had a positive impact on sales of 0.5%. Currencies were also slightly positive with plus 0.6%. We had support from a stronger U.
S. Dollar while some emerging market currencies had a counteracting impact. As a result, Engel recorded an increase of 1.1 percent in nominal sales, totaling 1,000,000,000. Moving on now to the organic sales performance by region. Overall, mature markets were negative with minus 1.6% in organic sales growth.
And while our businesses in emerging markets increased organically by 2.5%, This is far below the levels we achieved historically. Let us dig a bit deeper now. As you can see both Western Europe and North America were below prior year. To a large extent, this was due to negative organic sales development in our adhesive Technologies business due to the weakness in industry demand, which even accelerated in the second half. Beauty Care also recorded a negative performance.
And Laundry And Home Care was flat, respectively, negative in Western Europe And North America. However, in both consumer businesses we saw an improving trend over the second half of the year. The performance in emerging markets was heavily impacted by Asia Pacific, which recorded a negative organic sales growth of minus 6.5%. This is particularly due to weaker volumes of adhesive technologies, mainly in China. Here, the negative trend is over the course of the year.
Partly due to easier comparables. Asia Pacific was to a smaller extent also impacted by the destocking in our Chinese beauty retail business. On the other hand, we achieved double digit organic sales growth in the Middle East Africa region, which is of high importance, especially for Laundry And Home Care. And in Eastern Europe, we recorded very strong growth. And while pricing was a key driver, also volumes grew very strongly in both regions.
Let's have a look at the performance of our business units. The business unit posted an OST of -1.5 percent. As a result of the weak industrial demand, volumes were down by 3.3%. We have been securing positive pricing throughout the year, and it remained positive also in the 4th quarter, but on a lower level. By business area, we faced significant headwinds in transport and metal and electronics, which both experienced declining organic sales.
A key drag was a continued weakness of global light vehicle production, which declined by close to 6% in the full year, with declines across all regions. General Industry also came in below prior year. The business area was affected by destocking in its distribution channels, which was due to lower demand. In contrast, consumer, craftsmen and building achieved positive organic sales growth, The rather non cyclical packaging and consumer goods business was flat. Let's now also have look at the other financial KPIs of Adhesive Technologies.
Thanks to the continued implementation of price increases and cost efficiency measures. Combined with the neutral direct materials impact, we were able to increase our gross margin. Nevertheless, the adjusted EBIT margin came in 60 basis points lower year on year, closing the year at a competitive level of 18.1%. This was mainly due to the impact from lower sales as well as mix effects. Net working capital in percent of sales improved slightly.
Summing up, I believe it is fair to say that adhesive technologies delivered a robust performance in a very challenging environment. Result of our strong and sales development of minus 2.1%. Performance clearly below our expectations and our ambition. Both pricing and volume were negative. The development was driven by the performance of our beauty retail business, which was significantly impacted by the destocking in the Chinese retail distribution channels.
Adjusted for this effect, organic sales growth of total Beauty Care would have been slightly positive in the full year. Market shares Of Beauty Retail was slightly down in Western Europe. The market was characterized by low growth dynamics and intense price pressure. North America remains lightly negative in terms of organic sales in the full year. However, thanks to successful innovation initiatives, we'll return to growth in the 3rd fourth quarter.
In hair coloration and styling, Beauty Care continued to increase market shares globally, driven by strong product launches. Have Professional achieved another year with strong growth. Both our base business as well as the brands we acquired in the past few years contributed to this development. The adjusted EBIT margin of Beauty Care came in at 13.4%, 370 basis points below the previous year level. This was to a large extent due to negative sales growth as well as regional mix effects.
In addition, direct material prices continued to be a headwind, which could not be compensated with pricing. As a result, Beauty Care recorded a declining gross margin. Increased marketing investments into our innovation and growth initiatives also lowered the EBIT margin. Net working capital in percent of sales improved strongly to a level of 1.9% 280 basis points lower compared to year end 2018. Good development largely driven by the Chinese retail business.
Over to Laundry And Home Care. The business unit achieved an overall strong organic sales growth of 3.7%. Predominantly driven by pricing while volume growth was also positive. From a category point of view, Laundry Care recorded good organic sales growth. During the year, the fourth quarter was by far the strongest quarter in terms of organic sales performance.
This was to a large extent due to our Mega brand, Brazil, which had an extraordinary year with double digit organic sales growth. Home Care achieved a very strong organic sales growth. Thanks to successful product launches, and rollouts in toilet care and hand dish washing. Our business in the largest laundry market in North America continued to be an attention point. Sales remained below the prior year due to negative volumes and declining market shares.
Organic sales growth in our Western European business was flat. While the emerging markets grew double digit, equally driven by price and volume gains. Laundry And Home Care recorded an adjusted EBIT margin of 16.5 percent, 160 basis points below prior year. Our gross margin was stable, here positive pricing as well as our continued focus on cost management compensated for the persisting headwinds from higher direct material prices. The main driver behind the decline in the margin with the high investments in marketing, supporting the continued launch rollout of important innovations.
Networking capital in percent of sales improved by 100 and 40 basis points to a level of minus 5.3%, a strong performance. Let us move back to the Hecker Group taking a closer look at adjusted income statement. Henkel achieved an adjusted EBIT margin of 16%. -160 basis points versus prior year. Group adjusted gross margin at 46.3% was almost flat compared to the prior year.
The driver of the decline in the adjusted EBIT margin was hence an increase in marketing, selling and distribution channels, expenses, both in absolute and relative terms. In percent of sales, they increased 130 basis points to a level of 20 Let's have a closer look at these growth investments. Beginning of 2019, we announced the plan to step up growth investments in our brands, technologies, innovation, digitalization by 1,000,000 per annum. Until the end of the corded with these investments. In Laundry And Home Care, we achieved double digit growth with our premium mega brand Persil in 2019.
Strong results with our caps and liquid innovations contributed to this performance, especially our unique 4 chamber, 4 in 1 discs, showed a very good performance in Europe and North America. Our core brand breadth generated high single digit organic sales growth through successful innovations and premiumization in toilet care with breath deluxe and Sensewitch launches. Here we are achieving higher average price points with positive effects on profitability and new records and market shares in many countries. Biodicare strongly supported innovations under our Millennial Brand Gut2B and in collaboration resulting in strong share gains. Due to the further rollout of NatureBox, our Nature Brands achieved organic sales growth in the high double digits.
And in Hair Professional, growth was strongly supported by the launches of the high-tech collaboration, IGORA Vibrance and new premium brands. 1 of the main projects in digital was to further hold out of our Adhesive Technologies e shop. Meanwhile, we are generating close to 1,000,000,000 in sales via this platform. So why didn't we spend the full million in 2019 already. Firstly, key initiatives started step by step only from the end of the first quarter.
We've not been able to catch up this backlog in the remainder of the year. Secondly, we also had to compensate for unexpected developments. For example, in our Chinese beauty retail business and the continued deterioration of industrial demand, which other than expected, did not recover in the second Adjusted EBIT totaled 1,000,000,000, a decrease of minus 7.9% compared to the prior year figure. The financial result amounted to minus 1,000,000 in the reporting year versus minus 1,000,000 in fiscal 2018. The decrease mainly due to interest expenses from lease commitments of 1,000,000 following the first time application of IFRS 16.
Adjusted taxes on income amounted to minus million. This corresponds to an adjusted tax rate of 20 0.3%, an increase for 0.8 percentage points year on year. As a result, adjusted net income after minorities amounted to 1,000,000,000. This translates into adjusted earnings per preferred share of down 9.7% year over year, or at constant exchange rates minus 10.1 percent. Let's look at working capital, free cash flow, the net financial position.
On group level, the ratio of net working capital to sales reached 3.9%. An improvement of 120 basis points compared to year end 2018. We recorded a free cash flow of 1,000,000,000, a strong increase of about 1,000,000 compared to the previous year. While this result underlines our strong cash generation capabilities, The increase was to a large extent due to an extraordinary reduction in net working capital. Resulting from the slow growth, and improvement measures, for example, in our China beauty retail business.
Adjusted for those effects, free cash flow would have been close to 1,000,000,000 still a compelling number. As a result of our strong cash flow, our net financial position improved by 1,000,000 ending the year at minus 1,000,000,000. In 2019, we spent a total of 1,000,000 on CapEx. At 3.3% of net sales, the CapEx ratio was on a healthy level. Around 2 thirds of these expenditures were channeled into expansion projects, innovations and streamlining measures.
One key project is a construction of our adhesive technologies innovation center at the headquarters Yantusilov, which we expect to open end of th/is year. In Laundry And Home Care, for example, we expanded our innovative detergent capsule production in the S and Hungary. In addition, we spent almost 1,000,000 on acquisitions adding around 1,000,000 of annual sales. Now, closing the review 2019 with dividends. Despite the decline in net earnings, we kept our dividend proposal for the AGM in April stable at a high level of per preferred chair, almost twice the payout version 8 years ago.
The payout ratio increased year over year by 3.3 percentage points to 34.2%. Let me conclude with the guidance a continuously challenging market environment that is difficult to predict, particularly with regard to industrial demand. In the consumer goods markets, good growth continues to be mainly driven by emerging markets. The competitive intensity and ongoing price and promo pressure, especially in key mature markets are expected to persist. At the same time, we are stepping up our growth investments in advertising, digital and IT to 1,000,000 in 2020 compared to the base The translation of sales in foreign currencies is expected to have a negative effect in the low to mid single digit percentage range.
And prices for direct materials are expected to increase by a low single digit percentage compared to the previous year. Taking all this into account, we expect group organic sales growth to reach 0% to 2% and an adjusted EBIT margin of around 15%. Compared to prior year, we expect a decrease in adjusted earnings per preferred share at constant exchange rates in the mid high single digit percentage range. Clearly, there are additional pressures and uncertainties related to the COVID-nineteen outbreak. Let me briefly comment on this.
We are monitoring the development very closely Our first priority is the health of our employees and their families, and we have taken respective measures. Let me take the opportunity Challenges do exist, especially in logistics and customer demand, both in the industrial and consumer businesses. Because of this, we expect significant impacts from the coronavirus outbreak on our financial performance in the first quarter of 2020. Based on our current assumptions, we estimate the negative impact on our first quarter sales to mount to circa 1000000. Please note, there's a very rough number.
The situation overall is highly uncertain and unpredictable. And we ask for your understanding that we cannot be more precise at this point in time. The final number can be higher but also can be lower than the 1,000,000 I just mentioned. With this, back to Carsten.
Thanks, Marco. In summary, we faced a difficult year 'nineteen. Ending up below our expectations. But despite the challenging business environment and some operational setbacks, we have started to step up investments in our brands, technologies, innovations and digitalization, and we generated a strong cash improvement and a significant improvement of our financial position. Our dividend payment for 2019 will be stable on a high level.
After careful consideration, we expect 2020 to be another transition year. With the coronavirus adding an element of uncertainty and unpredictability. As I mentioned in my introduction We believe we are at an inflection point. We are convinced, yet we need to open up new avenues for growth and performance. In the spirit of transparency, I'd like to share the outcomes of a group review we conducted as a management board.
I'll start with our foundation, provide our perspective on our financial performance, and I will end with an overview of the key areas of change ships and high quality brands, innovations and technologies across all business units. We are a global leader in Adhesive Technologies, two and a half times bigger than the number 2, a clear worldwide number 3 with Laundry And Home Care and globally positioned as a number 3 with our Beauty Care Professional Business. Our dedicated, passionate and loyal teams drive impressive initiatives across the globe. All fifty two thousand people are committed, sustainability ambassadors to anchor sustainability, in everything we do. The execution power of our global shared service center landscape is second to none, driving efficiency to automation and artificial intelligence in 7 shared service centers across the world.
M and A has been an important driver of our growth agenda for decades. We spent more than 1,000,000,000, and we integrated 73 deals in the period between 2082019. Our strong foundation is a great opportunity and an obligation at the same time, an obligation to leverage it, and to safeguard our long term success. So why do we believe we need a new growth agenda? Let's deep dive into the fundamental analysis of Henkel's long term performance over the last decade, including where we stand today.
We come from a period it at the beginning of the presentation, our current approach to drive performance is no longer sustainable. Instead of continuing our long term growth story, we experienced a slowdown recently. We evaluated mainly 3 underlying courses. First, we suffered from execution setbacks, especially in our consumer businesses in the U. S.
And in China. Our consumer businesses missed growth opportunities due to a lack of impactful innovations, especially true for our Beauty Care business, on the one hand, and we under invested in brands on the other hand. Finally, Our industrial business was exposed to the challenging industrial environment over the last 15 months, especially in the segments of Automotive And Electronics. Also here at the cost of growth. The results are not satisfying and a clear call for action.
Despite our long term profitability improvement, we had to face a notable decline recently. Over the years, We improved our margin over the long term, thanks to a combined combination of strong cost management, mixed effects and efficiency gains. Our gross margin at the point did not contribute to this development. Our recent profitability, however, declined. So what are the drivers behind?
We suffered from margin pressure or gross margin decreased by roughly 80 basis points. At the same time, we decided and declining volumes also left their marks as well. Despite some these. We managed to continuously improve our balance sheet and our strong cash position in the long and the short term. Which is indeed an excellent result, especially based on our efficient networked capital management, which is also a clear door opener.
With our cash generating capabilities and our low debt levels, we have the optionality, and we are committed to reinvest in growth and performance. Our conclusion is that our approach to performance is not sustainable. And therefore, we have identified new avenues to drive performance and growth. And the following, I will take a step back to our plant the key areas for change and the must win battles to reunite growth. Let's start outside in.
I'm not telling you anything new now when I say that we live in a volatile, unpredictable and a challenging world. I already illustrated some of the environmental headwinds we face. But every challenge comes also with an opportunity. Growth of emerging markets, new digital business models, diverse customer requirements and collaboration as a new imperative new ways to innovate and exile our consumers to know to name only just a few. And there is a new era When it comes to sustainability, a key competitive advantage in the future and a topic every single one of us is responsible for.
None of these opportunities are completely new for us, but we need to accelerate. Let's look at our businesses in that context. Beauty Care, true beauty with the key competence in hemp. An industry, beauty is one of the biggest FMCG markets in absolute terms and a very attractive growth market. Our strong professional business and our powerhouse in EHA and our deep category expertise with a really strong foundation.
Schratzkopf, our iconic brand, creates 2,000,000,000 of a turnover in a year. Yet our Beauty Care portfolio is currently not lined up good enough against the industry growth opportunities. It includes too many diluting subscale brands. And we're even losing market shares in some of our key categories. To unlock our full potential in beauty, we finally have to fundamentally review our portfolio, act on underperforming invest more in innovation and marketing and find ways, new ways to drive growth.
Be it online, we are new data based business models, or we are advanced analytics. Laundry And Homecare, creating clean living based on an impressive research and development expertise. Thanks to our trusted brands and strong innovations. We are the Global Number 3, with more than 70 number one positions in an attractive growth market. For generations, our consumers trust in our brands like Priscilla, and we are winning in a very attractive segment the heavy duty detergents, but also in terms of, like, toilet care.
Yet we have not delivered on our aspiration to win in North America and to close some white spots in emerging markets. And also here, we have created a long tail of subscale brands. We did not support our strong brands sufficiently, and we see the results of inconsistent marketing investments. Despite our strong innovation pipeline, we don't leverage our full potential driving high impact solutions in adhesives, in sealants and functional coatings worldwide. We have a very robust and balanced portfolio second to none.
We excite our customers with innovative, high impact solutions, and we own the broadest technology footprint in our industry. Yet also here, we have to adapt to capture new opportunities in new technologies and in adjacent businesses. We have a clear strategy to transform the business into that leverages growth trends, such as mobility, connectivity and sustainability. And especially on sustainability. We have only begun to fully size our opportunities.
Sustainability. Sustainability is not just the core value. It's a part of our DNA. For more than 140 years, we have been taking a visionary approach to supporting an environmental and social progress. We recognize the potential impact we can have by developing sustainable because our products and technologies are used millions of times around the world every day.
For example, We've integrated environmental and social criteria into our innovation process so that every new product or formulation we launch contributes to sustainability. However, despite our great initiatives, we did not catch the momentum to position sustainability as a competitive edge. Despite our expertise, our sustainable approaches are not fully tangible for our consumers yet. And for big potential in digital. We have a good foundation.
We can build on our ERP harmonization. We have a state of the art shared service organization, as I mentioned before, and we have strong progress made in industry 4.0 activities. However, our digital function is not lined up to be a real strategic differentiator We have to opening up new growth opportunities, we have to drive a holistic approach with adequate digital in house expertise to respond to new market realities and we have to seek new digital business models. Finally, we have to increase efficiency We cannot create impactful change without engaged people. While we have a strong foundation with our loyal and committed people at the core and our new leadership commitment launched last year, We see and empowerment and to strengthen the sense of belonging.
We have to create a culture for entrepreneurial minds and start with our leaders. Who must live up to our leadership commitments. Change is key to win the war for talents. Increase diversity and meet the fast changing expectations of tomorrow's workforce. The need for change is crystal clear.
Our approach to drive growth and performance has been over relying on efficiency and cost reductions in the recent years. We must build on our strong foundation and revive our unique DNA. And we have to start prioritizing and acting on our area for change to open up the new avenues for growth and performance. And we have to carefully design a new growth agenda in thoughtful steps. This is our aspiration.
To win the 20s through purposeful growth. Purposeful growth means that we commit to growth to a growth aspiration that goes well beyond financials, which in all transparency has been our primary focus in the recent years. We aspire to outgrow our markets through superior customer and consumer value. We aspire to differentiate ourselves. Through positive impact on the planet as a leader in sustainability and to develop our people and give them a sense of belonging.
This is a bold aspiration, which we feel very excited about. And at the same time, this aspiration reflects our commitment to continue Henkel's long term success as a family owned company in a sustainable way. To win the 20s, we have to tackle 6 strategic focus topics: 1st: We will rigorously optimize and shape our portfolio. Our aspiration is very clear. A winning portfolio with a particular focus We will accelerate with impactful innovations to shape the markets with increased investments we strive for a competitive edge.
3rd, we will double down on sustainability and turn it into a true competitive differentiator. 4th, we will transform digital into a customer and consumer value creator. And 5th, we will reshape our operating models to be lean, fast, simple in every single operation across the me. And 6, we really believe culture is not an enabler. It's the ultimate competitive advantage It starts with leaders who make others priorities into our strategic framework, which will reshape how we drive performance and deliver on our aspiration on purposeful growth.
Both in the short and in the long term. This framework is an important frame and of course, the pillars and the strategy behind will evolve over time. But we want to provide you a bit more color on each of the 6 imperatives in terms of their aspiration, what will be different as well as the early steps we have taken. Regularly shaping a vending portfolio implies shifting from protecting what we have to plan to win. This requires a very different Sbre and rigor, both in terms of divestments, as well as M And A, to build a winning portfolio across all business units.
So, Marco. So we will decide into the first steps towards the winning portfolio.
We see 3 key levers to shape a winning portfolio and in the following, I will elaborate on them. Active portfolio management. Active portfolio management has a strong track record of impact in adhesives for more than 8 years. Now we wanted to have a specific focus also on the brands and categories in our consumer businesses. We have taken criteria like market attractiveness, ability to win organic sales growth, gross margin into account in order to analyze the portfolio and have categorized our portfolio measures into areas of turnaround continue divestment and exit.
And we have reviewed our consumer portfolio in detail. Based on this approach, we have reviewed our consumer portfolio. And based on that first analysis, we have identified identified so far more than EUR 1,000,000,000 of sales volume predominantly in consumer. The sequence more than 10% of our consumer of the identified sales volume is But portfolio management alone will not be enough to create a winning portfolio. That's why we see high impact M and A as an integral part of our portfolio strategy.
Let's not forget that we have invested 1,000,000,000 in M and A since 2008. 100% of which was through our strong cash flow and finance budget. Thanks to our strong free cash flow generation, we could deliver the company typically over a short period of time. We subsequently integrated around 70 deals successfully. We utilize our strong balance sheet to pursue high impact acquisitions, for example, to expand technology leadership in adhesives or build winning positions in our consumer businesses.
With that, I hand over
achieve are our 3 must win battles. Let's first understand how we can accelerate innovation into a true competitive differentiator. We will accelerate impactful innovations shifting from playing to safe, to shaping the market. This will require acceleration of new innovation approaches, both impactful and focused innovation pipelines and increased investments in order to turn innovation into a competitive edge. Turning innovation into a true competitive edge will require us to renew our approach with significantly better consumer and customer insights to move decision making closer to the mark and to intensify co creation, open innovations and also idea crowdsourcing.
We will scale our agile approaches and in best in incubators And Innovation Centers. Our new Adhesives Technology Center Innovation Center is a first example and will be completed by theendofthisyear. None of this is new to Henkel, and we have great pockets of excellence. But the reality is that we need to significantly step upscaling these innovation models and approaches. And we will Let me spend a couple of minutes on the topic of innovation.
Innovation was a strong driver of our performance in the past and will be key for our success in the future. Therefore, I'd like to share some exciting examples from our innovation pipeline Accelerating innovation will be a bolder impact with bolder impactful innovations to shape categories instead of driving only incremental inner ones. We will shape our innovation strategy further in the coming months. In Adhesive Technologies, We are a front runner in innovative solutions, leveraging the megatrends I mentioned before with mobility, connectivity, and sustainability. We aspire to accelerate the automotive industry transformation.
The value of Hankel Solutions in future cars will more than double vessels to value in a conventional car. We built on our broad technology know how to develop innovative and high impact solutions that really will shape the car of the future. Our adhesive expert will further drive applications emerging from the megatrend of connectivity. Internet of Things And Mobile Communication drives double digit growth rates of 5 GB Wises. We are well positioned as material solution provider for the connected future.
We co create innovations with our customer to provide high impact solutions, for example, used in the 5G mobile devices antennas and the 5G base stations. In Beauty Care, we aspire to grow our hair powerhouse with impactful innovations. We revolutionized the Hair Salon business by stepping into Leading Edge Hair And IoT Science. We just started to offer our customers and consumers a unique experience. Our smart, cell and lab hair analyzer enables us to support consumers in a complete journey from salon to home.
In the salon, the hair structure is scanned delivers insights for customer for customized solutions. The fiber clinics customized hair repair. It's Schwarzkopf, professional is most advanced in repair technology. An impactful innovation that shows how we will sustain our strong growth momentum in Professional, and we will continue to build on that. But we also capture future trends with innovations like our NatureBox, shampoo box.
It is a great example of how we capture trends, here the strongly growing nature trend. We aspire to address new target group with a NatureBox clear sustainability proposition. Launched at the end of last year, the product already became the best selling SKU in Nature Brox brand's hair portfolio above the liquids. Just 4 weeks on shelf, Naturebox shampoo bar became the number one solid shampoo manufacturer's brand in Germany. So going forward, we will further premiumize our hair portfolio by building on the strong proposition of NatureBox.
In Laundry And Home Care, we leverage our iconic brands to win fast growing segments. Let me share 2 lighthouse examples that illustrate how we accelerate innovations to advance technologies. In the U. S, we are currently launching Persil ProClean4 in 1 disc and Liquids plus Oxy, combining the innovative 4 in 1 disc with a unique and boostless enzyme mix significantly improving the performance. Oxy, is amongst the fastest growing segments in the U S with double digit growth rates.
We are very excited about this impactful launch. Another laundry care innovation are our Persil 4 in-four in 1 Meladore disks. They come with new, patented, or door neutralization technology. Malador control is a highly relevant consumer benefit. The rollout is planned for Europe and North America in this year to leverage the potential of the strategic caps segment.
We will further leverage state of the art technologies to improve our value proposition on that. We also have a strong innovation pipeline in home care. Focusing again on improved performance and enhanced consumer benefits. PREAL5 plus is the new high performing dishwashing detergent with a self de greasing technology that works up up to 5 times faster in the in listing degrees, thanks to an innovative surfactant systems. The rollout of the pre power and Pearl Sierra is a compelling example of how we continuously improve meeting consumer needs with impactful innovations.
The mineral pearls are made of a new sustainability technology, using 99% natural origin ingredients without compromising performance. However, reality is that we need to accelerate on such market shaping innovations and cut the tail of incremental projects. An important driver of our new innovation strategy is to consistently support our innovations and our brands with targeted investments in core categories and regions. We have compromised in recent years on innovation support, and we started to turn the corner in 2019. And we are committed to further step up growth investments in advertising in digital and in IT.
Compared to the base year 2018, we will increase growth investments by 1,000,000 to drive impactful innovation support it with sharp communication of brand purpose to radiate our aspiration. Compared to 2019, This represents a further increase 3rd, we will boost and double down on sustainability as a competitive edge. Over the years, we built an amazing foundation to build on what we have highlighted before, our social engagement for our corporate citizenship has always been an integral part of our sense of responsibility as a company. But we need to shift from being the silent, modest, best student hiding behind his report card, to claim the space to raise the bar and to monetize the assets for Henkel. While we are working with the determination to deliver on the targets we defined for 2020, We are today stepping up our goals for the future with new milestones to actively contribute to climate protection, To Circular Economy And Social Progress.
We aspire to anchor sustainability in all we do. Therefore, we raised the bar and we are committed to becoming a climate positive company by 2040. And we strive to accelerate or our sustainability mission towards 2025. By continuously improving energy efficiency and by using electricity from renewable sources. In addition, We want to leverage our brands and technologies to help customers, consumers, and suppliers to save 100,000,000 tons of CO2 also until 2025.
We can build on great progress and activities in sustainable packaging However, we want to go a step further and even being more ambitious with targets until 2025. We will promote Circular EconomyBuy. Using 100 percent recyclable or reusable plastic packaging, 2nd, by reducing the amount of virgin plastics from fossil sources in our consumer product by 50%, and third, helping to prevent waste from being disposed in the environment, 0 plastic waste into nature. As a multinational we have a role model function. We decided to raise the bar to further enhance our positive social impact.
2025, we aim at 100 percent responsible sourcing. We maintain intense and maintain an intense dialogue with our supplier to promote sustainable practices and to respect for human rights along our value chain. We also completed our sustainability ambassador program. After having trained more than 50,000 Henkel employees, now it's time to kick off the sustainability Ambassador program 2.0. And we just started to plan a next wave of initiatives.
We support social engagement activities of our employees across the world to improve the lives of 20 million people. Let's go into the business. We want to firmly anchor sustainability in all our activities We will leverage our deep understanding of key sustainability trends as a central pillar in our innovation strategies. And we will strengthen the sustainability positioning and the purpose of our brands. With our rethink fashion campaign, for example, Perval is motivating people to rethink their fashion consumption.
At the same time, our Perval new detergent helps their closes last longer, a fantastic example of a purposeful brand. Packaging also plays a key role making our commitment to sustainability, to make sustainability tangible. We are moving to packaging made of 100% recycled plastic up to is a key priority. We will leverage the potential of our products and technologies, enable breakthrough industry solutions and set industry standards. Let's give you one example.
Together with key players from e commerce, we have developed a fully recyclable mailer to replace bubble rep mailers. Finally, to grow and evolve at the same time, today's business world, we must digitally transform in both new and incremental ways. We will transform digital into a customer Here, we need to catch up to some extent and shift from digital as a function to digital as an integral business driver. And to this end, we are completely overhauling our digital setup. Our key priorities to leverage digital to boost revenue streams, to drive end to end customer centric digitalization in industrial, to generate new business and to continuously drive efficiency and speed.
We can only outgrow the markets. If we boost 1 to 1 engagement and digital sales in Consumer. 1st, We have to scale up our IoT projects and step up direct to consumer channels. We acquire the majority stake in a personalized hair color D2C platform called Isalong, which gives us great insights on portfolio and media. Only one of potential digital use cases second, in the light of rapidly changing consumer needs and demands, engagement is key.
Schwatskopf CRM allows us to engage with our consumers build relationship and provide tailored content and hair solutions. Through consumer data, we are gaining deep insight which we will translate into the most productive innovations. And finally, the importance of digital sales growth increased drastically not just as of today. We started here to step up unique E innovations and recently launched a pilot with our Persil Power Bars sold via online marketplace. The dedicated agility team launched the super compact product with a new plastic packaging solution in less than 6 months from IDR to shelf.
End to end customer centric digitalization industrial will further enhance our customer value creation strategy. We aspire to digitize our customer experience across all touch points. We started the rollout of a fully integrated CRM with a new user friendly web presence in more than 50 countries and launched data driven marketplaces for specific verticals. For instance, the maintenance, repair and overhaul business that resonated extremely well. We will further pursue our end to end data integration.
This will enable us, for instance, to create artificial intelligence driven innovative and especially customized solutions and significantly strengthened our competitive advantage. And finally, we will invest in digital talent, especially data scientists and engineers with future capabilities and deep technological industry expertise. As mentioned, we are completely overhauling our digital called Digital Business, which will allow us to deliver on our strategic aspirations. To stay laser focused in the execution of our growth agenda, we have established a new CDIO position at the end of the last year. Which will now combine the digital and the IT teams across Henkel and they will directly report to me.
The new unit digital business is built on 2 pillars: 1st, business Technology. Our vehicle to drive efficiency across our value chain, so continuously optimizing our business processes and IT systems. 2nd, Henkel Digital. Our new dedicated unit for market orientation oriented incubation and innovation, leveraging digital ecosystem. We will accelerate through hubs in Berlin Silicon Valley and Asia, digital innovation hotspots with the access to digital talent foods.
Digital will be a strategic core competence with strengthened internal capabilities in software, in data and in analytics. Dedicated efforts into new business building are for additional revenue streams. A digital ecosystem with strategic partnerships on top. Digital business will be a key lever to create value for Henkel. We are also reshaping our operating models to be lean, fast, simple, future ready organizations.
We aspire to intensify our efforts, to enable new business models, to step up customer and consumer proximity with faster decision making mechanisms, and to continuously increase efficiency
For purposeful growth, the decision making mechanisms and to continuously increase efficiency by constantly reshaping our operating models. We are already implementing operating model changes across our businesses that are delivering first impact. Let me illustrate these, but bear in mind that there's an ongoing effort. In Adhesive Technologies, we decided In 2012, to further verticalize our business, to focus on most attractive customers and markets. Since then we are consistently executing an active portfolio management.
From the former 2016 year units, we now moved to 11 strategic business units, organized in 4 divisions. These are aligned with megatrends, like Carsten pointed out earlier, especially mobility, connectivity and sustainability. The new 11 strategic business units have an end to end responsibility that enables fast customer responsiveness. At the same time, it From 2020 onwards, we will report Adhesive Technologies as one segment within our group segment reporting will comment on the development of the 4 divisions. Let's move on to Beauty Care.
In Beauty Care, we launched our transformation program designed to support our growth ambition. First, we empower the frontline. We implement new regional structures, increasing focus on must win strongholds and key growth markets. We rebalance our global versus regional organizations for faster decision making and to better serve our customers and consumers. 2nd, we design and develop the empty site more in the region for the region.
Marketing R And D supply organizations are reorganized to mirror the regional clustering a new product development shifted from global level to regional strategic market units. 3rd, we reinvest in growth capabilities while a new growth office, a dedicated growth unit to identify buckets of future growth across customers, consumers and channels. And 4th, we increase organizational agility by streamline structures and reduce complexity. Also for our laundry and home care business, we are stepping up customer proximity and increasing efficiency. We drive enhanced regional focus for more synergies and empowerment of our frontline.
The focus is on the following 3 high growth regions, Europe and North America. Further, we have a new digital and game changer unit in place, focusing on future growth fields. And finally new process and agile methods for more agility and customer and consumer proximity will enhance our innovation power. This includes project management methods such as scrum, cooperation co creation with external partners and fast trend detection and testing. With this, back to you, Carsten.
Good, Marco. Thank you. So Finally, our aspiration of a collaborative culture and empowered people are at the heart of our strategic framework and will be a key enabler of purposeful growth. Without our people, we cannot win the 20s. Thus, it is imperative to accelerate our cultural journey, putting our leadership commitment at the center of everything what we do.
We will strengthen a culture of empowerment and collaboration to enable our people to drive new ways of performance and We believe that leadership is everyone's business therefore We decided to introduce our 4 leadership commitments at the beginning of 2019 that articulate our high expectation when it comes to leadership, agility and collaboration. What's new is that our leadership commitments are the guiding principle for everybody at Henkel. Everybody in the company, not just our leaders. It's responsible to define how we work together and therefore, must be committed to act as entrepreneurs, collaborate as strong teams, develop people with passion and own our results. We will be measured against our behavior and are asked to actively shape our culture by bringing them to life.
Our people are key. We are in the middle of designing and launching a comprehensive multiyear cultural transformation starting at the top starting with me and my management team. We decided to start with a new level of transparent and we decided on the first very important step. We want to engage with more than 10,000 people employees in a cultural health survey to create a baseline on our culture. You have heard about many new performance and growth drivers, new business model, agile innovation, database service proposition, new customer consumer insight generation, open source partnerships, cultural change.
To enable all these, we need to significantly invest in upscaling our workforce. To this end, we have already launched a cloud based learning platform, digital upscaling and started to step up our digital workforce transformation. Every day, since 25 years, I am impressed and I'm inspired by the diversity of our employees: their backgrounds, experiences, their talents, their knowledge, and their creativity. HANCO is a place for those who stand up, and we will continuously build on new opportunities to collaborate, to stay curious, to rule the change and to make a difference. Looking at our 6 strategic pillars, Our new strategic framework, I am convinced that we have found the right answers for purposeful growth.
We will outgrow the markets: creating a winning portfolio, regaining competitive edge through impactful innovation sustainability and digitalization with future ready, future ready operating models, with mindful leaders, empowered people, and a collaborative culture. We already identified a first set of key actions along the strategic framework. First, we will shape our portfolio. We have more than a billion of sales, 50% of that is marked for divest or exit by endof2021. 2nd, We will step up the investments in 2020 by 350,000,000 more versus 2018 to succeed with impactful innovations.
3rd, and move to 100% recyclable and reusable plastics by 2025, and we will immediately start. 4th, we will implement our new digital business setup starting in 2020. We will complete the execution The rollout of our leadership commitments we began last year. We will execute this distinct set of actions to gain momentum and credibility, but only as a first step. At the same time, we will use the next month to underpin our aspiration with further actions to further evolve our growth agenda and continue the open dialogue with our customers, consumers, our employees and with you.
Therefore, I am convinced expiring even the higher end of our corridor that we will deliver mid to high single digit adjusted EPS growth at constant currencies. And that we will which is a muscle we have trained very well over the last decade with clear and real results. Also going forward, I would like to continue improving is our ambition to foster a more open and transparent communication and increase the FaceTime to me as CEO. Effects, which have been criticized by investors we have been talking to. And I hear you.
We used the new momentum and decided to focus on top line developments in our 1st and third quarter reporting from now on. That means we focus on organic sales growth, a crucial KPI for capital markets to measure our performance. At the same time, we will ensure that we provide a deep understanding of quarterly top line drivers. And as you are well aware of that, this is in line with the approaches used by most of our European peers. This step will help us to foster a more long term and the less short term orientation to focus on the topics that matter most, both in our businesses and in Capital Market Communication.
Of course, we will continue the detailed presentation of full year results in the more meaningful 6 months and full year periods. Ladies and gentlemen, I would like now to open up for the Q and
questions.
Thank you. Our first question comes from the line of Christian Faitz. Please go ahead. Everybody can hear me. There's lots of background noise, sir.
Hello?
Excuse me. We can't hear you currently.
Hello? Hello?
Yes.
That was better.
Alright.
Hi, Christian here. I'm sorry. I hope you can hear me a lot of card noise in the line. Anyway, two questions, please. I know this is difficult to try but aside from Corona, so leaving Corona aside, how would you assess the current demand situation in adhesives and key customer industries obviously predominant the automotive and electro electronics?
And then second question, can you please elucidate measures that to an improved working capital at the end of the year and obviously also in Q4 and how sustainable are those mesh forward looking at free cash flow. Thank you.
Christian, the second question of net working capital, we clearly got, but can you do me a favor repeat what you said to the first question because you were not really we could not really understand you completely.
Okay. I a very best time almost in the mic at the moment. So I know this is difficult to touch, but aside from core owner, how would you assess the current demand situation and adhesives in key customer industries?
Yes. Marco, you take it?
Yes. So what we assumed in our, our outlook for 2020 was that we have a very gradual improvement of key markets over the course of 2020. So quarter by quarter, we assumed an improvement in line with we had for industrial markets. For the year, as a whole, we assumed an IPX development of plus 1%. But as I said, starting from a lower level and then gradually moving up.
And we have to now wait and see how that will further be updated once the corona impact is more clear, but that is basically the assumption was whether how much that is sustainable or not what the measures were. We have improved by a couple of efficiency improvement measures. And we have made improvement as I elaborated in the business unit section, for example, in the beauty retail China business where we could really drive efficiencies for all the measures we have implemented. And also we have seen improvement, especially in the U. S.
In our consumer business. And from that point of view, it is my expectation that that level is sustainable. That is not a one time development that we have seen.
Christian, to build on that, I think we have I had reporting on that over the last, I would say, 4 to 6 quarters. And, also here, we have implemented measures in all the divisions in order to improve, and we are getting the fruits and nothing more than to commend what Marco said. What we did is sustainable we also expect that going forward.
Okay. Do you still have on that? Do you still have a work capital issue in America in non tree, because there's still going to be obviously some problems, I guess, including inventory.
No. In the laundry and home care business in North America, we do not face issues related to networking capital. If you may refer to our logistical issues. Everything of that has been solved already within 2018. So network otherwise no issues.
Our next
question comes from the line of Ian Simpson.
Thank you for your honesty and outlining the scale of the challenge. It's much appreciated. Quick question from me, I guess, which is your guidance is unchanged from December 2019, but the macro outlook for this year has changed quite a lot in the last 3 months given the impact of COVID-nineteen industrial demand, especially in China, but increasingly globally. And now you're setting out a strategy that sounds like it will require further incremental investment to address the challenges you've identified. So how should we think about this unchanged guide in the context of weaker end markets and the need for more investment?
And just sticking with that investment with that guidance theme, you talk about your midterm financial ambition of 2% to 4 percent organic sales growth and mid single digit to high single digit EPS growth that something you hope to start delivering in 2021 or will 2021 also be a sort of transitional investment year? And this is more of term aspiration? Thank you very much.
Thank you, Ethan, for the question. So, the guidance, what we have given today, as you said, is in line, with what we have called out in December. And, we have called 2020 as a transition year. And within that transition year, all what we said today, what we want to execute it in terms of measures. The first actions is integrated in that.
What Marco alluded to is, for sure, the corona versus the virus is not integrated in that, in that guidance. So the situation is very highly uncertain and unpredictable. So Marco alluded to that roughly 100,000,000 what we currently see for the quarter plus minus, but, so far, what we see with this level of uncertainty and unpredictability, we are confirming also with that the guy we just launched today for 2020. The second part of your question, when it comes to what I also said, with the activities, with the change with the new strategic framework, we are doing we our clear point is that with that, we will, in the midterm, confirm what we set already last year, the 2% to 4% in organic sales growth, even to the higher end of the corridor, the mid to high single digit EPS and the improvement of our cash flow situation, free cash flow situation. And we will go into that, but we will not, Ian, I hope you understand, give a guidance today for the year 2021.
We have a guidance for the year 2020.
On
Our next question comes from the line of Richard Kayla from Morgan Stanley. Please go ahead.
I suppose I want to speak a little step back and just understand a little bit more about your strategic thinking about the business as a whole. Does the, how did the discussion go in terms of, when he started with a blank sheet of paper and do the 2 businesses, consumer and adhesives fit together and why do they fit together? So that's my question, please. So Richard,
we believe, that the group has an attractive and a balanced portfolio with strong brands and technologies. We have several leading positions in the different categories, in the markets worldwide where we are operating, and we offer attractive growth potentials within that. To repeat it, you know, in adhesives, the global number 1 in laundry and home care, the global number 3, even in the active in number 2 and in professional retail and beauty sorry, in professional appear number 3 and stronger positions in color and styling be it number 2 or number 3. So that's the part you have seen within the framework. We are focusing on one pillar which is portfolio, portfolio measures and the portfolio measures announced today.
And based the ongoing active portfolio management, we will undertake we will improve the risk
acting bigger picture, it seems like the business as a whole has got a hangover from pushing Mark in this hangover period, we're having to try and make investments get rid of the headache. But the investments, particularly in consumer, there's not a great deal of evidence that they're working, whether or not that's on M And A or the investments, particularly in the U. S. Behind the brass. So I'm just trying to understand what you think more investment is going to get a better result than the investment that has been put in in the past?
Richard, we have developed and presented today a strategic framework, is the right framework to further build on our businesses and further develop our businesses. And there are these 3 these 6 pillars, which I outlined together with MARCO before. The changes in portfolio we're undertaking, we need to become a competitive edge in the areas on that, what we want to do. We are reshaping the operating models or have already reshaped them. And based on everything is culture below the collaborative culture and the empowered people.
And with these pillars and with these measures, we clearly believe that we can't get that can unlock the potential, which is related to adhesives, beauty, and laundry within the markets and to overcome the situation. What I also described before, that we overstretched the cost and the margin situation in contrast to the growth agenda, which we today have outlined.
Okay. And then just maybe one last one.
Is this, but can you just give us a sense in the adhesives business, which has obviously been a strength? Are you actually losing market share in adhesives, please? Of questions. Thank you.
To be very short on that, we are not losing market shares. As outlined before, we have a very clear a robust portfolio in all the segments, which we are in, we are leading in these segments. We are leading in the regions, what we're having. And with that, there are no market share losses
from the line of James Edward Jones from RBC. Please go ahead.
2 for me, please. First, what sort of buy have you had from the Henkel family? I mean, it's clearly quite radical what you're planning to do. What indications of support that you had from your larger shareholder? And secondly, on remuneration, it looks like there have been changes to the of variable remuneration.
What behaviors is this to encourage? So James,
to your first question, related, to the Henkel family. So, our shareholders committee, as well as our supervisory board which also consists, out of members of the Henkel family share pooling agreement. They are very supportive of the presented strategic framework. Otherwise, I wouldn't, together with Mark who'll be here today. And and all the changes, which we have envisaged, which we believe are the necessary step make Henkel fit for the future and to deliver on the full aspiration for purposeful growth are supported and committed.
And, related to your compensation question. Can you repeat it again? I didn't hear everything well enough.
Is very simple, really. It looks like you've changed the variable sort of driving, your variable compensation What behaviors is that meant to encourage and what previous behaviors is that meant to discourage?
I don't, see that this changing behavior, but what we have done, we have put ROCE within the LTI part, especially of the compensation, for the, for the board members. And, by that, we want to drive the long term, value creation, and we believe that ROCE is a very good indicator to have that. So
helpful. If you're just indulging for 1 more as well, you talked about greater focus on cash flow. How big the opportunity there? Your cash conversion has been lower than many others in the sector. And what specifically, how will you go about this?
Good. Marco, I think that's a question for you.
So we have been driving cash flow, quite successfully in the past, and we will continue to do so. So one key driver besides EBITDA that we generate is of course a net working capital performance. And you have seen that we are at very competitive levels here. And that will remain. So we will also take opportunity, wherever we have that in that area, but we feel that the level we have now reached, if you look at 2019 numbers, is already on a very competitive level.
So that a band, 2% to 3% to 4% that also we find is a very good one. Apart from that, please do understand that we do not guide on free cash flow per se. We have a midterm addition out and that's basically what we can comment on that.
Thank you very
Our next question comes from the line of Namita Santini from Bank of America.
I've got two questions, please. The first one, given Church and Dwight's comments in their 4th quarter earnings call of wanting to be the number 2 supplier of laundry detergent in the U. S. At some point. What can you highlight within your plans which ensure HENkel will not be knocked off the number 2 spot?
And my second question is, there seems to be a big drop in organic sales further color on this and in particular, which divisions contributed to the slowdown? Thank you.
So I'll take the first one, Namima, and, Marco will elaborate on the quarter performance or the quarter 4 performance in the markets you mentioned. So Coming to your question of North America And Laundry And Home Care. We are not satisfied with the current situation. As I explained, during the presentation. We have done a detailed review.
We identified, the areas, for change And in mainly asking for what we are changing, in two areas, the first part is strong innovations, have given some examples on that, the best OXY in the U. S. Market with the, Persil 4 in one disc, and really also behind that to support these innovations with consistent, investments. That's the one part. And the other part, as outlined by Marco, in more detail, the review of our portfolio, which is the 1,000,000,000, which he mentioned with roughly 50% being, marked for exit or discontinuation.
And, you kind of one third of the business of Laundry And Home Care is coming out of North America. So also here, that region that business has been integrated in that portfolio review, but please understand that I, based on more details, will not give that today in order not to harm the businesses, which we're having on that.
Especially in the fourth quarter understood that you have seen overall Laundry And Home Care for the year achieved double digit organic sales growth in Middle East Africa region in 2019. This was driven by both pricing and volume gains, and we were are able to increase market shares in main categories and markets. Towards the end of the year, the pricing component was not as strong as at the beginning. So that also led to a different picture that we had towards the end of the year, but overall, the year was is very strongly. Our
next question comes
from of David Hayes from SG. Please go ahead.
Thank you.
Good morning, all. I'll let you proceed with 3 as well, if I can. Just on the the innovation, obviously, you're talking about the decentralization and the empowerment of the region in the markets. We saw you under your Unilever go down this route, over the last few years, and they talked recently about that was leading to too much fragmentation of that the center wasn't really providing enough support to meet them differentiated them. So the question is, how are you ensuring that same issue that you end up with very fragmented innovation that isn't really benefiting from the scale of the business?
The second question, I guess, is for Carsten today if I can. You talked a lot the underinvestment in the last few years. So that's what you're catching up on, but I guess you were at the table for those discussions over the few years. Can you talk about whether during that time you knew and felt that a lot of the decisions were leading to this under investment and getting behind in competitiveness or whether this is something that's changed as market's changed so much that it's a retrospective realization at And finally, very quickly, just in terms of the medium term guidance of 2 to 4, you talked about getting towards the top end. If you were about 4% growth.
Can you talk about how that would look to you in your budgets or your planning? Is that kind of the thesis doing fix and consumer 2 or would it be that both units are doing around the 4% in the medium term?
Thank you, David. So starting, with your innovation question. So there is not a one fits all innovation approach, which costs consistently produces the desired results, so we will apply and combine various approaches. So firstly, as pointed out, we are enhancing a faster decision making and the empowerment of local, activities in the region for the region. Marco pointed that out when he was talking about the future ready operating business models, especially in Laundry And Home Care, to have it more in the region for the region and localize that.
This is for us an important element of the described changes, and, the operating models in our computer businesses. And, secondly, we're increasing leverage digital tools and the huge amount of data we collect. So we apply agile approach that in open innovation and idea crowdsourcing that we will also have here opportunities going forward, and we will continue We have large R And D And Innovation Centers at our hand in all three divisions, not only in Dusseldorf, but also in the regions that we focus here on these parts. And we're still reassuring efficiency, despite the regional innovations. So that was your first question.
The second one was, related to the underinvestment. And, you know, I'm here to present you and what we presented to you is the framework going forward. And I clearly pointed out that by analyzing, the areas of change, what we undertook, we have, we came to the conclusion and we analyzed that we did not invest properly enough especially in laundry and home care in the last couple of years? Yes. And I was at the table, as you're pointing out, but, let things are there to be implemented to the future.
And that's the reason why we have, defined the framework, the strategic framework we just presented. And with that, we will overcome the topics, we will maybe pass in, in the past. And then your question was, I think the final one was, how does the composition between, percent, well, respectively, to the higher end of the targets are. We believe that, with the 2% to 4%, 1st of all, we have ambitious targets out. I pointed out that we are even having a striving to the higher end of that in the midterm.
And we are not disclosing today the details between the divisions. On the other hand, if you look at the markets where we are currently the markets are between 2% to 3% in terms of growth independent if you look at industry or consumer. And as we define the that is the long term average of that growth part. And, when we define and when we define the purposeful growth, One element is to outgrow, and that is relevant for all the 3 divisions we are in.
Our next question comes from the line of Andrew Knowles from Bloomberg. Please go ahead.
Hi, good morning. 2 please. If you could elaborate first on so you've earmarked 1,000,000,000 euros of, products and categories that I get they need attention because you've only stated that 500 will be divested or discontinued. So I'm just wondering, what are the options for the other 100 in that 1,000,000,000 figure. And if it's possible to get a little bit if it's possible to get a little bit of on what those businesses that you are discontinuing or selling are.
And just a second in your introductory comments, you did you yourself brought up the theme that there might be a bit of skepticism about appointing an insider to the CEO role. And I just wondered, what was the feedback from investors in terms of what they looking for an external appointment or, or, you know, what kind
of,
what kind of requests were they taking on the investor side on that front? And does that add to pressure if they were looking for an external appointment Thank you.
Marco, you start with the portfolio question. So on the portfolio question, you again also elaborated on the 1,000,000,000 that we had identified in our portfolio analysis. And we said that out of that 1,000,000,000, roughly 50% is what we marked for portfolio actions in terms of divestment or exit. The other portfolio categories are the for, positions that we put into the turnaround category or into the milk category businesses, we not intend or cannot sell because they're closely related, for example, to larger brands that we have, but on the piece where it is about divestment or exit, that's roughly the 50%. And as I also said, I mean, we are working through that over time we will then also of that as we said is situated in the consumer part of our business.
And while we move on, we will give you more color to that. But at the moment, is what basically we can share.
So your question regarding, how did investors a talk or a gay feedback, three topics, I've heard. Do not more of the same, be honest, be transparent and have more FaceTime, to the CEO in terms of, discussions. And, what we presented today is from my point exactly what you what I listened and what we do. We have a strategic framework. We have a clear point where we are not doing more of the same we're significantly changing, be it on portfolio, be it on how we treat innovation, sustainability, digitalization, different set of operating models, and on the base, to change the culture, end the people to empower the people and to have a collaborative culture behind.
That's why I clearly believe that this is the right strategy or the strategic framework in order to drive the company to the next level. So therefore, what investors said, I believe, is in core rated in that, what you have heard today. It's not of years. It is a journey. That's the first step.
We have also seen at the end of my presentation also first actions to be executed, and we will continue the on strategic topics to be continued and worked out.
And just on the billion, is that the result of a sort of a first look through the portfolio? Or will there be a wider bottom slicing approach over the next few years if that's what we can
We analyzed our portfolio in different categories basically and looked at our ability to win at attractiveness of markets and basically concentrating on the consumer portfolio applying the active portfolio management that we So successfully applied in adhesive technologies. And of course, that is something that we also intend on an ongoing basis, not something that has a hard start and a hard stop. That is something that we think we have to do on an ongoing basis to also develop the business healthy for longer period of time.
And please keep in mind. Thanks
very much.
But please keep in mind portfolio, active portfolio management does not only mean divest or analyze, we also have highlighted that we have, M and A as an integral part in our strategy that, as Marco alluded to that, a great balance sheet with really firepower that also use to support our 3 businesses, laundry beauty adhesives going forward. It's a combination of both.
Thank you
Thank you.
Our next question comes from the line of James Targett from Berenberg. Please go ahead.
Good morning. Yeah, actually, Karsten, you just your last comment was my first question actually in terms of you mentioned M and A being a critical part of your strategy going forward and the strong balance sheet. So maybe you could elaborate a little bit on the scale of that you would like to do? And particularly if you're ruling out moving into new segments in particular in the consumer business. My second question is on digitalization or digital strategy.
I think this was a material part of your kind of last strategic period when you increased CapEx by 50% to 1,000,000,000 in large part of that was 1 digital spend. I'm just trying to understand, was that spend just too low? What was the on the wrong fittings or was there problems with execution? Just to understand, what happened to all those since you were making digital sort of over the last 3 or 4 years? And actually if I can ask one final one just on restructuring, you flag in 250 to 300 this year.
I wondered if you could comment where you see restructuring charges being as part of your midterm guidance?
James, thanks for your questions. And, good that at least, one question, I anticipated. So regarding, M and A, the situation is not significantly changing compared to that. What you have heard us, talking, in the past. So M and A is an integral strategy, yes.
We differentiate when it comes to Adhesives Technology, It's more about technological oriented, M and A. And when it comes to our consumer businesses, it's strengthening the category, country expertise we are having because this is where we clearly believe you can make the difference. And most probably white spot where we are not currently in the businesses. So that's the overall part. The criteria, which we are evaluating when it comes to M and A has not changed.
It is about the attractiveness, it is about financial attractiveness, it is about the availability, and it is about the strategic fit. So that's, how we see the situation on M and A. CapEx, Marco, you want to do?
So on CapEx question was that we or you commented that we increased by 50% much on digital. I would like to clarify, I mean, the increase in CapEx that we have seen over the last few years, that was bidding to a lot of investments we did into the business and that was not entirely just on digital projects. What we have done in terms of digital also that to CapEx was our ERP harmonization project that we have run over the last couple of years. And here also we have seen CapEx coming through that. And as you have seen in presentation of Carsten in the digital part.
And we are very proud on our digital backbone that we have here, that will enable us all to then run the business in a much more digital way in the future. So we worked on that backbone and we are almost complete on that one. And that also had a CapEx impact. For the full year 'twenty, we expect to spend 1,000,000 to 1,000,000 of CapEx and also in the medium long term. We anticipate the rate of CapEx to stay roughly between the 3% 4% what you also basically have seen.
On the restart that was the other part of your question. And you basically also referred to the 2020 guidance and we have given that guidance that we come out that year for between 1000000 to 1000000. We will continue to adapt our structures and you have seen a couple of initiatives We basically anticipated, in the presentation that we had given today. So that's a range that we see for 2020. In the mid term, we do not guide on that number, I can't on your understanding, but for sure also we will adopt structures wherever we see the need coming from changing market environments or where we see opportunities.
And James, maybe to allude again, a little bit on the digital question, what I presented when we set one of the key pillars within that strategic framework is also the change within digital. There are 2 areas. The one area is really to support the digital activities with investments, with new products to be closer to our consumers and customers using the daters, the analytics, and in these kind of areas. And second, to rebuild and reorganize also the way we do digital in terms of bringing together all our, departments, all our people in terms of digital working in a new way together, which we will, as you have seen from the first steps, which we will do within 2020 as a first step also so from the base in order to set up these IT and digital parts to support the businesses better and to be closer to our customers and consumers at the
have a question from the line of Rika Dawa from Dow Jones. Please go ahead.
Yes, thank you. Good morning. You've had a goal of efficiency gains of more than 500,000,000 from 2020. That still exists or has it been postponed under the new plans? And the second one also about the portfolio restructuring, can you give an example of what brand might be might not be surviving under the review?
Thank you.
So I take, Ulricha, I take the second question which is related to, again, portfolio. But I please, please understand, that, at that time, it is difficult for us to mention concrete examples because, you know, the businesses are operative are running and bringing us top line and bottom line, and we don't want to interfere into that. As we said, we have done a thorough analysis We have made, decisions already for parts of that, and we will then start the processes to get these, parts of the businesses either the best it or exit it, but, I need to ask for your understanding. So the first
was on the efficiency gains that we had targeted in our last strategic cycle to roughly 1,000,000,000 of efficiency gains and that continues to execute efficiently. And we are on that ballpark of number. So we also reached it and they are well on track. So all the measures we had laid out I think beginning of 2016 basically that is what we also executed.
From this year onward, 1,000,000 lower, our efficiency gain annually that's in place?
I didn't fully get it. Can you repeat?
Because the target was with all the measures to finally come up with a number of 500,000,000 annual efficiency gains as of this year. Does it You see that, right?
Yes. Well, like, looking back, I'm, together with new management team. We are in 60 days. You also need to give us a little bit time, and therefore, we can quantify that, at this point.
Our next question comes from the line of Celine from JP Morgan. Please go ahead.
Yes, good morning. Two questions for me. They can into beauty and it seems that this is where you have seen maybe probably some of the you want to dispose or discontinue, but excluding those, what kind of growth rate do you see in your beauty because it seems to me that you have seen a slowdown in some of the haircare category, hair coloring, even professional has not really picked up market. So where are we going in terms of what is the fundamental opportunity that you see in the beauty psychiatric And my second question is I would like to come back on the outlook for the year. So, you are getting for a margin of about 15% which seems to encompass the million step up in cost that you are guiding to for 2020.
At the same time last year, your margin excluding the step up in cost was a very down. So, what it's this year the margin excluding the step up will be flat? And could you as well, I'm not so sure I understood. So is COVID-nineteen impact included or not in your guidance? The 1,000,000, is it included in your guidance?
And what should we expect on the margin front or the EBIT front in terms of impact? Thank you.
So Celine, I take your first question and Marco will come that will then come back to the second one. So regarding beauty, our performance in beauty is clear below the expectations We are not satisfied, and we have clearly pointed that out, and we need to change that. We have defined the purposeful growth agenda and, this also relates, also for our Beauty Care business. And by that, let me give you some examples on that. So the portfolio part is the first part.
We have parts in our portfolio where we had operational issues, such as in the haptic in the China retail part last which we have solved. There are parts of the business where we have not been growing, also not growing for a long time. This is what we addressed by reshaping our portfolio and by in continuation is also related to Beauty Care. The second part is that our innovations have not been strong enough in all meals, and we will change that with more impactful innovations and with the increased support we have mentioned today. And I have also shown examples, especially when it comes to sustainability and also digital, where we see clear opportunities to participate in trends, but also in changes of the market in order it in numbers.
So for the full year 2020, the guidance is, out and it is clear. It's 1% to 3%. OSG organic sales growth. And for the mid to long term, it's the 2% to 4% and the 2% to 4 percent when I said to the higher end is valid for all three businesses.
Why does the margin not go up again after taking out the 1,000,000,000 investments? What we have in the year 2019, we have started to stepping up growth investments and basically that is what is going to persist and we want to step that up by further 1,000,000 and we need to keep supporting our innovations and brands. And we want to do that also in the year 2020. So from that viewpoint, we did also not guide on a lower margin, stripping out the 20. And if you look at the market environment, then also you will see that the industrial environment is highly uncertain.
So the moment we feel very well positioned with that guidance.
Yes. Sorry, that wasn't my question. The question was last year in 2019 excluding the growth investment, your margin went down. So this year, you are guiding X the gross investment at flat margin. My question is why would margin would even be flat?
Why they will not continue to go down We
have seen certain developments last year like also rising transportation costs or distribution warehouse costs that we are not assuming yet to go further. So all the effects we had basically eroding the margin last year, we do not assume that will continue. And for sure, have also seen that we have a clear program in place. Now what we want to do in 2020 to also improve the business And with that, we came to the guidance, basically you have seen. Then the other third question was basically you were not clear on in how far the coronavirus effects were now included in the guidance we have put out for the full year.
And I've elaborated on what we currently see in very, very rough numbers in the first quarter. And that's basically the best knowledge we have that point in time. And at the moment, nobody knows how long that price is, let's call it, continues to persist, what the magnitude will be, what the impacts outside of China only will be. And with the ranges that we also have set up for 2020 in terms of guidance, we do not see the need at that point in time to also revise the guidance we have defined.
Reflects the best knowledge we have at this point.
Our next question comes from the line of Faheembeck from Credit Suisse.
Just a question around the broader use of cash. Clearly, you mentioned that M and A will be integral going forward, but you'll be focused on high growth markets, high growth categories, etcetera, where there will be a competition for those asset and therefore, the valuation multiple for the asset might not be favorable. So in light of that way, do you hand? And also with other uses of cash with regards to potentially increasing the payout ratio, which is probably at the lower end of consumer companies and share buybacks, where would you stand on those 3 potentials.
So Marco will take that.
So on the first one, in terms of M and A, we have very clear principles in place that we deploy for M And A projects. There has to be a very clear strategic fit the targets have to be available for sure. And thirdly, they need to be financially attractive. And a high multiple is not something that doesn't make a target unattractive from a financial perspective. It really depends on the potential the target has.
And what that means for the financial figures. And we have a very clear process in place and, basically, we respect that, and that's how we select the targets. Won't change to what we have done in the past. We haven't changed our position to that. We think we have sufficient opportunities to basically invest in the company and we already elaborated on M And A as one driver of that.
And we have not changed our position, so share buyback at that point in time. Is not an option for us. Dividends ratio and if you see the long term trend we have increased the ratio also over time. The absolute number has grown substantially and the current core door that we have is that we have a dividend payout between 30% 40%. And as you have seen in 2019, we have also moved up in that range.
But the range continues to be applied.
Thank you. Our next question
comes from the line of Olaf Schorbeck from the Financial
Yes.
Yes. I have two questions, if I may. One is regard to it's linked to the 500,000,000 of brand, you earmarked as problematic, but want to keep. I'm not, it's not quite clear to me what you're to go through this with them. So you said you're going to restructure all milk then what does this milking?
You basically running them off over time. Could you please elaborate on that? And my second question is related to the $300,000,000 investment program here last year. In the press release, it says only half of the money was actually spent, in 2019. Could you please delivery by why you failed to fully implement this program and what does this mean for, for this year and where you increased the funds for the investments.
Thanks.
So for the first question, again, the 1,000,000,000 we have, which we, came from is the analysis out of the portfolio analysis.
We
aim with that to rigorously shape the portfolio with a focus on optimizing predominantly our consumer business. Of the around 1,000,000 mark for divestment of discontinuation, the vast majority out of that is with our consumer businesses, which, has a split between beauty and laundry. And in general, The other million are currently seen as the turnaround in terms of that we need to change them in order to be in line with our strategic framework by supporting our growth agenda. If that doesn't change over time, then they could also become a divest or this continue part. And to explain the milk, part, it's a definition out of portfolio management.
So milk means on the one side, we can't or we don't want to divest that business, but we it stays in the portfolio but maybe not with the same investments, patterns as before. And by that, we take profits out of that until the part of the brand is within the portfolio. All up. That's, for your first, question, and the second one, Marco will take over.
So why didn't we spend the full amount of the million that we basically announced a year ago? Firstly, Key initiatives started only step by step from the end of the first quarter, and we have not been able to catch up this in the and the environment. And also, for example, in our Chinese beauty retail business, that we faced over the year and in that respect, in total, we didn't realize the full amount of the 300, but basically that is still on our agenda, as explained earlier, and we will continue, of course, support the brands in line with the strategy, we just basically outlook.
Thank you.
Thank you.
The next question we have is from Jan Marco Wero from MainFirst. Please go ahead.
Yes, thank you. Good morning, everybody. Three questions from my side, please. So the first one also on the portfolio management on the consumer disposal side. So that's just a question in relation to the dependency between different categories, is this dependency really sizable or meaningful or can you then also imagine to also dispose whole beauty categories, for example, like skincare or Orla Care, for example?
Then the second question is just in relation to Beauty Care in general. How is the negotiation with retailers in and Europe going on and meaning that you have now solved the China issue? Do you expect no more destocking therefore in 2020? And then just the third question is for the midterm. We got a precise organic sales growth guidance and also an EPS guidance, but can you also give us just some sense of in what direction your adjusted EBIT margin could go in the midterm?
You.
So I take, your second and your first question, Marco will then come back, to the portfolio part. So your question was related to beauty care, retailer negotiations and and China. The situation is, you're asking for a beauty care, but the situation between beauty and laundry when it comes to a retail is, not very different. We have, on the one side, what we have, seen over the last couple of years is a quite significant concentration, also on the retailer side, and the consequence out of that is that it is getting tougher in terms negotiations and more difficult, to, to do the business. To your China question, the China retail business, continue to be dilutive also in the fourth quarter as we talked about and expected negatively impacted also by the continued destocking.
On the full year basis, we pointed that out, that it has a margin decline of roughly 3 or not the 70 basis points. And, that these developments, and to measure our China retail business will also be, continued. So the go to market approach we have changed and we will expect the already positive effects, on the start and the quality of the business in this year. The, destocking part is, I would say, to 90% over. That was sorry, that was the beauty.
And then, you had the question to mid and long term our guidance for the midterm is very clear. We have a 2% to 4% OSG. We have the high, the mid to high term, mid to high single digit growth expectations when it comes to the EPS and the free cash flow expansion, but we are not guiding on the adjusted EBIT margin on the midterm. We are doing that on a yearly basis. So therefore, I have, please understand that we will not give you a mid to long term financial ambition on margin side.
Michael?
So on portfolio management, we basically communicated at that point in time. The levels that we see for certain portfolio measures. All brands, regions or categories are basically included in that review And there is no limitation at that point in time, but also please understand, we cannot be more specific at that moment.
Thank you.
Our next question comes from Molly Willemzak from Jefferies. Please go ahead.
Hi, Carson. Hi, Marco. You've outlined significant change for the business this morning, you're changing operating models, pushing more responsibilities into the regions, and certainly under the portfolio review, you're going to have some Hinko employees out there wondering if they have a place in the future Hinkle portfolio. So how are you supporting your people to focus on execution? Why all of this change is is going on around them and and within the organization.
I mean, there's a lot of change that we want to drive for sure, but also, we stand for open communication We basically have a clear plan that we'll outline and I think the plan is very compelling. And as Carsten pointed out earlier, we also to tackle a cultural transformation. And with that and the strong team that we have, we are pretty confident we will get that crossed.
So you are specifically Marcos, so therefore, I'll let Marco first answer, but the answer is very clear. In order to have these two topics combined execution and, also concentrating, on the current business, it is the leader commit leadership commit at the core of our heart when it comes to culture and people development and with leaders who are able to execute then we will be able also to have these things in parallel, done. And that's the cultural journey, which we are starting, which we have started already year because the leadership commitments have been in the heart in 2019, but we need to roll them out. That was also one of the measures we have put in terms of what are the first activities we are doing. So culture, collaboration, empowerment, and strong execution, and it starts at the top with Marco, with me and the board colleagues in order to bring that into our organization.
And that's what we are standing for.
Thank you. For his closing remarks. Thank you.
So first of all, thank you, for participating. So I strongly believe In Henkel, and I'm totally committed and engaged to shape Henkel's future together with the management team and our employees at Henkel. Today, I've outlined a 2 Horizon approach towards our mid- to long term ambition and purposeful growth. So first, 2020 is a transition year to change the way we drive performance, reinvest in the businesses and increased trust. And there is no long term without a short term.
2nd, We strive for purposeful growth with our new strategic framework. With our 6 strategic pillars, we sustainability and digitalization, with future ready operating models, committed leaders and empowered people. These are the first steps of our purposeful growth agenda. We kick start our journey and I highlighted our first concrete actions. Of course, we will come back to you within the next steps of our journey in due time.
But let me summarize by emphasizing once more. Purpose to growth is not just a noble goal It is an opportunity for us to outgrow the markets and an obligation to create customer and consumer value to reinforce our leadership in sustainability and to shape a culture that enables our people to grow with the sense of belonging. So we are a great company with fantastic products and a successful huge So thanks for joining us. See you soon.