Dear investors and analysts. Good morning from Dusseldorf, and welcome to our conference call following our announcement this morning. You very much for making yourself available on short notice. Today, Carsten and myself would like to talk to you about Henkel's sustainable profitable growth path to 2020 and beyond. Also, good morning to everyone from my side as well.
As usual, I would like to remind everyone of the formal disclaimer to forward looking statements within the meaning of relevant US legislation, today's presentation and discussion are conducted subject to the disclaimer. As always, we will not read the disclaimer, but suppose we take it as a into the records for the purpose of this call. At Henkel, we have a strong foundation based on a well balanced portfolio with leading positions in key markets and categories. We have made strong progress in executing our strategy Henkel 2020 plus and in the implementation of our strategic priorities. This resulted in a good business performance in 2017 2018 despite significant headwinds from currencies and direct material prices.
Looking ahead, we see attractive opportunities which we want to capture to reinforce our growth momentum We will achieve this by stepping up our investments as of 2019 in our leading brands and technologies in innovation and in digitization. This is also impacting our 2019 guidance. Today, we confirm our commitment to long term sustainable value creation and attractive returns, which is also reflected in our mid to long term financial ambition. In today's call, we will first present to you our progress in executing our strategic HANGO 20 plus After that, we will talk about the opportunities we want to realize strengthening our growth going forward. Lastly, we will present the outlook for 2019 our mid to long term ambition before summarizing and moving on to the Q and Henkel's success is based on a strong foundation and a consistent long term performance on both top and bottom line.
We have achieved a step change in sales and profitability adding EUR 5,000,000,000 to the top line and increasing the margin by 500 basis points since 2010. We have achieved this with our attractive portfolio of 3 business units and a strong operating performance complemented by compelling acquisitions. Nethesives Technologies, we are the global market leader with scale and breadth. In Beauty Care, we have a focused portfolio with our core competence in Hair Retail And Professions. In Laundry And Home Care, we occupy leading positions with strong Global and local brands.
Building on the strong foundation, we are successfully executing our strategy Henkel 2020 plus We generate profitable growth and attractive returns. We continuously become more customer focused, more innovative and more agile, We strive to lead digital transformation in all our business activities. Moreover, we promote sustainability across the entire value chain and last but not least, we continuously advance our portfolio with value adding acquisitions. To deliver on our ambitions, we are in full execution of our 4 strategic priorities: drive growth, accelerate digitization, increase agility and fund growth. We are making substantial progress in implementing these priorities with strong initiatives, which we will have and will continue to report in our quarterly calls.
Now, hand over to Karsten.
Thank you, Hans. I would like to take the opportunity of today's calls to provide you with the preliminary results for 2018. We have achieved a good development despite significant headwinds from currencies and direct material price. Overall, sales amounted to 1,000,000,000, nominally 0.6% below prior year, throughout 2018, we faced extraordinary strong FX headwinds amounting to around 1,000,000,000 and by that impacting our top line by about minus 5%. The good organic sales growth at 2.4% was driven by the strong performance Adhesives Technologies with a 4% organic sales growth.
In Beauty Care, we closed the year with slightly negative organic sales growth of minus 0.7% and a good organic sales growth of 1.9% in Laundry And Home Care. As you know, both business unit were negatively affected by the delivery difficulties in North America in the beginning of the year, but accelerated their top line performance towards year end and compared also to previous quarters. Our adjusted EBIT came in at 1,000,000,000. We continued on our profitable growth path, increasing the adjusted EBIT margin now to a level of 17.6% being up 30 basis points. This was supported by our strong cost management focus, our fund growth initiatives and as well of our synergies from the acquisition we realized.
We grew the adjusted earnings preferred share by The bottom line was negatively affected by the aforementioned FX headwinds as well as increased direct material prices. Excluding FX, we delivered a strong operational EPS performance of around 7%. We will provide the full set of final and audited results and financial details with the publication of our annual report on the 21st February. Let me now illustrate 18. We achieved 2.7 percent organic sales growth on average, with growth being driven by the strong momentum in Adhesive Technologies.
Our Consumer business has also contributed, however, at a lower growth momentum. Our adjusted EPS growth was adversely impacted by substantial headwinds from key currencies. Here, the magnitude of the impact was much As a result, we achieved a CAGR of 5.9% in the 1st 2 years in nominal terms. Adjusted for FX we continued to deliver a very strong performance with a CAGR of around 9%. This is also reflected in the continuous increase of the adjusted EBIT margin by 40 basis points in 2017 and by additional 30 points in the year of 2018.
We continued our strong focus on free cash flow expansion and based on the preliminary figures we have achieved an increase to at least 1,000,000,000 in 2018. So summing up, we are proud of the progress we made towards our ambition, especially in the of the higher than anticipated currency headwinds in the 1st 2 years strongly affecting our adjusted EPS performance.
Thank you, Carsten. Let us now look ahead and illustrate how we want to realize opportunities and strengthen our top line growth going forward In order to realize attractive opportunities we see across our businesses, we have decided to step up our P and L investments as of 2019, capturing opportunities and strengthening our top line growth. We will increase investments in our brands and innovations, strengthening our marketing investments and driving digitalization even further. With this, we want to continue to outperform in Adhesive Technologies leveraging the scale and breadth of our portfolio. We will accelerate growth in our Beauty Care Retail Business and continue our growth momentum in Professional.
In Laundry And Home Care, we focus on winning market share and execute our innovation strategy. And lastly, we will advance to the next level in digitization Today, we want to explain to you in detail how we will achieve this. In Adhesive Technologies, Henkel is the global market leader and well positioned for further growth, thanks to its unparalleled breadth of technologies, its global reach, and a broad customer base across wide range of industries. We have a proven track record to adapt our resources to capture the best opportunities in changing market environments. Our attractive solution oriented business model offers high impact solutions, delivering superior value to our customers.
Our high touch business is driven by customer insights and our deep technology and application expertise. We will create value through our transformative solutions, leveraging megatrends such as connectivity, e mobility, and sustainability. And we will use our unique scalable platform to expand into new segments. Going forward, we will leverage growth opportunities, expanding our positions in for example in lightweight and electrification. We will continue to strengthen our portfolio through bolt on acquisitions of selected new technologies to complement our portfolio.
We have a clear focus on capturing the full innovation potential by co creating innovations with market leading, in the industries we serve, building on our strong know how and expertise from external partners. For this, we will also leverage our state of the art innovation center we're currently building. In order to create unique digital customer experiences, Adhesive Technologies is working with companies like Palantir to develop an integrated data foundation to better service its customers, with sales of more than 1,000,000,000 through digital channels already today, we will expand our customer base through digital demand generation and its conversion. Summing up, we are well positioned to outperform with Adhesive Technologies in an increasingly challenging environment. Moving on to Beauty Care.
We see good growth opportunities for both businesses, retail and professional. We have a strong brand portfolio with a key competence in hair. Our compelling portfolio of global and local brands deliver structurally high gross margins. In retail, we show a strong performance expanding our market shares in both coloration and styling. Our professional business keeps on demonstrating a strong growth momentum.
On the other side, we faced challenges in other Beauty Care retail categories. The volume driven hair care category is especially affected by intense price and promotion pressure. Our North American retail business, in particular, body care, has not yet regained the market share losses following the meanwhile solve delivery difficulties beginning of 2018. We see attractive growth opportunities and will accelerate growth by exploiting megatrends like naturality and increase our focus on consumer groups like men millennials. We will complement this with an intensified focus on the e commerce channel, which is already today growing double digits.
To drive superior growth in hair retail going forward, we have developed a holistic innovation plan across segments. We will relaunch the entire haircare portfolio. This will include new formulations of successful brands such as Trauma, Cyrus, and Bliss, addressing the nature trends. To accelerate the strong growth momentum in hair coloration, we will build on strong innovations both under the Schweatscope and Palette brands. In hair styling, we occupy leading market positions in Europe and want to boost the success with our flagship brand Tuft, In addition, the fast growing brand Go2B will be relaunched and expanded with targeted innovations, for example, for men.
In North America, we have care with new formulations addressing the trend of healthier skin, for example, with new silk moisture variants. Henkel will also expand its product in the attractive hair coloration category, exploiting the fashion trend with the premium color of the team brand and the new Cara team color variants addressing specific airtime. We will further accelerate the success of Got2B by expanding our trend hair color offerings and extending our hair care line targeting men. In Professional, our initiatives aim at sustaining our strong growth momentum outperforming markets. We will expand some of our successfully new reacquired brands in North America to new geographies.
We will also advance in digitization of our business, launching a new state of the interactive B2B E platform to drive sales and provide superior customer service. Growth will be supported by an innovation of in all categories, including high potential color and care initiatives and by expanding our stone Bonacour and Joko haircare offerings. Looking at our Laundry And Home Care business, we occupy with our global and local brands more than 17 number one positions and have a unique market coverage. Our strength is the attractive combination of global mega brands like PERCIL and local jewels which are well known and have a strong brand equity. Overall, our business shows good growth dynamics, even though at a slightly lower pace than in the past.
We have a strong momentum with our premium detergents, toilet care and auto dishwashing. Our North American business, however, showed negative organic sales growth and lower market share levels. In this environment, we see attractive growth opportunities. We want to strengthen our position in the fast growing single unit dose segments. Further, we want to capitalize on trends such as naturality, convenience and the growing importance of e Commerce.
And lastly, we see potential to expand our high margin home care business by utilizing our strong brand portfolio and innovations. Let's now take a closer look how we want to realize these opportunities. In 2019, we plan the biggest innovation offensive for our top detergent brand Persil and will launch both new premium technologies and formulations. For instance, our all new deep clean formula. This is complemented by the expansion of our e commerce business with highly concentrated formulas and fully e commerce ready packaging.
With the new premium technologies, we will provide superior consumer experience and convenience. We will introduce the first to market 4 chamber disc in the fast growing CAP segment and new breakthrough variants with our mail order fighting technology. To upgrade our value for Money Brands, we will relaunch our complete brand portfolio globally, introducing our unique plus 50 percent freshness formula and extend our product line with exclusive Perfume Technologies. With the U. S.
Being our single biggest market, North America is crucial to our success. Our clear focus is there to turn around North America, relaunching our entire portfolio and introducing strong innovations for new growth momentum. We will reinvent our brand all, relaunching the product portfolio across categories with improved formulas, leveraging our global technology expertise. To win in the growing CAP segment, we will launch the Innovative Persil ProClean disc concept in North America expand our value for MoneyCAPS portfolio of POX-four in 1. With a leading fabric fishfinisher brand snuggle, we will enter the premium fragment segments, introducing the new Sense Shakes product range, offering consumers an unparalleled scent experience.
In the Home Care segment, we aim to strengthen growth and expand market shares by leveraging our blockbuster brand Somat Brill, Bref, and Siderlin, and key consumer trends. We will relaunch the entire somat range in 2019, including new taps and gel generations. Our new innovative Pills improved the cleaning performance in offerings in the toilet care segment will be expanded, introducing new deluxe scents complemented with premium colors and designs. In addition, we will fully capture the health and sustainable heat trends by launching broad nature products with new eco certified formulas and sustainable packaging. The digital transformation of Henkel will be further accelerated by significant expansion of investments in digital businesses, analytics and infrastructure.
We will strengthen the digital businesses with the development of the it. Investments into new analytic tools, E Syrem, systems and e Shop of category management applications are also planned. We will further rollout industry 4.0 solutions, including advanced automation and robotic solutions. The company's digital infrastructure will be strengthened with new digital workspaces, investments in cyber security and an upgrade of network capacities and site infrastructure. Summing up, we see plenty of growth opportunities, which we aim to realize.
With sustainably higher growth investments of around 1,000,000 in leading brands and technologies in innovation and key markets and digitization, we are reinforcing our commitment to sustainable, profitable growth. Our clear target is to accelerate our top line growth with focus on our consumer goods businesses. We will use about this amount to step up investments in digitization advancing to the next level.
Thank you, Hans. Let us now continue with the outlook 2019 and our mid to long term ambition. We continued to operate in a challenging environment characterized by high uncertainty and volatility with mixed market dynamics and headwinds from currencies and commodities. The momentum of industrial production growth has been slowing in the course of but overall reduced industrial and economic growth momentum. The consumer goods market remain mix and growth continues to be mainly driven by emerging markets.
The high competitive intensity and the ongoing price and promotion pressure especially in key markets of mature markets will persist. While we overall expect lower currency effects in 2019 compared to the previous year, they will remain a headwind on our top and our bottom line. And lastly, we expect the high volatility and the uncertainty on commodity markets and the ongoing input cost pressure to prevail. Prices for direct materials are expected to increase by a low single digit percentage. Based on the key strength of our businesses, the opportunities we see in the markets and our increased investments to accelerate our growth momentum, we have set clear business priorities for 2019.
We want to continue our momentum of Adhesives Technologies in the lower growth environment, leveraging our key competencies as well as the scale and the breadth of our portfolio. We will execute on our At the same time, we will continue our We will put a strong finally, we will enhance the value proposition of our portfolio organically, but also via acquisitions. With that, looking at the guidance for 2019. The outlook takes this environment into account and reflects the increased investments in brands And Technologies and in Innovation And Digitalization. While we expect to realize first benefits from our initiatives on the top line already in 2019, both the adjusted EBIT as well as the adjusted EPS will be affected by the increased spending levels.
Considering the high volatility in the currency markets, going forward we will focus on our operating performance guiding for adjusted EPS at constant currencies. For 2019, our guidance is as follows: We aim to generate organic sales growth of between 2% 4%. We expect an adjusted EBIT margin between 16% 17%, and we expect the adjusted EPS a mid single digit percentage below prior year in constant currency.
Thank you, Carsten. We have strongly committed to continue executing our strategy hangled 2020 plus and to deliver on our ambitions, thus generating sustainable, profitable growth and attractive returns. This is also reflected in our expanded mid to long term financial ambition for 2020 and beyond. We target an organic sales growth of between 2% 4%. We aim to deliver mid to high single digit adjusted EPS growth at constant currencies.
We'll continue to focus on a further expansion flow. This is complemented by our ambition to pursue compelling growth opportunities with superior execution. At the same time, we remain strongly focused on margin and on keeping our rigorous cost discipline. Based on our strong balance sheet, and our strong free cash flow generation, we will continue to strengthen our businesses with comprehensive CapEx investments. Acquisitions will remain an integral part of our growth strategy.
At the same time, we will continue to focus on offering our shareholders attractive returns and then and will increase the target dividend payout ratio from currently 25% to 35% to 30% to 40% from fiscal year 2019 onwards. Let me now summarize before we move on to the Q We are well underway with the implementation of our strategy Henkel 2020 plus. We have reached and achieved a good performance in 2018 despite significant headwinds. We are sustainably stepping up our investments in brands and Technologies innovation and digitalization by around 1,000,000. Our outlook for 2019 is reflecting the higher growth investments while the same time, we will maintain our high cost discipline.
Our mid to long term financial ambition for 2020 and beyond is reinforcing our commitment dividend payout range, we are committed to deliver attractive returns to our shareholders. Let's now move on to the Q And A. Thank
you. We will take questions in the order received and we'll take as many as time permits. And the first question comes from the line of Alan Oberhuber from MainFirst. Please go ahead.
Good morning Hans and Carson. Alain Oberhuber MainFirst. I have two questions. You give us a little bit a timeframe regarding top line and bottom line in improvement in 2019. So as I understood is that we will see already immediately a good and then there should be an improvement in 2 on EBIT, is that a fair assumption?
My second question is regarding acquisition. Where does Henkel see its highest priority for acquisition in which categories?
Many thanks, Alan, for both questions. Your first question, I think in this one, it's clear that investments and we have has commented a strong launch plans with a lot of innovations and the assumption on which you can start this clearly that it will be more front loaded. So that investments start pretty immediate and that indeed we support our full innovation planned as we have presented it. And for sure, I mean, I think you will understand we will give no exact quarterly guidance, but I think the the front loaded versus end loaded statements I think makes this balance. Also in acquisitions, of course, I mean, parties that acquisition, as we stated, will remain a substantial part of our growth strategy going forward.
Strategically, nothing has changed there in a way that we differentiate between the different business units in a way that Athesive Technologies, we focus a lot on the technologies, which then we so called can plug in in our global reach and in our customer base on which as you know, we are being a global market leader, but we have quite successful also experience with that and we'll continue this strategy going forward. And in beauty and both laundry, our thinking is clearly in both category country positions and we will always look at opportunities in which we can indeed achieve to reach leading positions, be it in a category, be it in a country and by doing so expanding both our growth momentum and our profitability structure.
And maybe to add on Alan, it is also the point that the criteria has not changed It is a strategic fit to the 3 businesses, as Hans has pointed out, is unchanged. It is the financial attractiveness. You know, we are not doing acquisitions for the sake of the acquisition. And I think the path shows that our track record is very good on that. And the third one is the availability and you have heard by the preliminary numbers that we have reached very good free cash flow in the year 2018 continuously also doing on that at least at 1,000,000,000 And by that, also, financial availability is there in order to support the 3 businesses with acquisitions.
You're welcome.
The next question comes from the line of Christian Faitz from Kepler. Please go ahead.
Yes. Good morning, Hans. Good morning, Carsten. Christian Price here from Kepler Cheuvreux. Two questions, if I may.
First of all, on the AT Can you talk about, current demand trends in some of your key industries such as automotive, construction and electronics And then second of all, on your remarks that you see the raw material baskets increasing. I mean, if I look at for example, polyurethane prices, but also lots of other plastics prices, which are also important for you. I actually see them going down year on year versus 2018. Can you comment on
will answer the question at TSYS and then Carsten will give more light on your question concerning both impacts. Concerning Adhesives, I think it's clear that we see some volatility increasing if we see the total year 2018, we reported at a very good year with 4% growth, whereas in Q4, we saw in certain segments some weakening. I think no surprise that this was both electronics and transportation and in transportation, especially automobile. Electronics, you saw, and I think we all witnessed a warnings out of the smartphone technology sector. And of course, this is an important customer base for us.
On the other end, I mean, we saw quite strong developments in our packaging business. So it means also, as we see in other also general industry was quite good in the year end, very strong even. So it's somewhere I mean, as we indicated going forward, we have a quite breath portfolio. And we also assume that in general, industrial production, if we take the IPEX index, we expect some slowing down there. The other hand, I mean, within our portfolio, we will focus also on those segments where we see further growth opportunities.
Good, Christian, to your question of raw materials. For sure, that's not an easy question because of the volatility and the uncertainty, what we currently see. But what we see is that for sure you have named specific raw materials, but there are a lot. So therefore, we see there is still an ongoing price pressure, which will also continue in 2019 and we factor in prices from the direct materials to increase in the low single digit range compared to the previous year and with that also providing a further headwind. But for sure, as you know, oil price has changed significantly over the last couple of weeks up and down, but that's our general assumption of a low single digit increase.
Okay. Many thanks.
The next question comes from the line of James Targett from Berenberg. Please go ahead.
Good morning, everyone. A couple of questions from me. Just on the coming back to the investments phasing and margin guidance. Could you, I take a comment that it was, it's front end loaded, but are you still expecting a return to in terms of the and then maybe on a divisional level, where we should look at the margin movements within the to 17% guidance for 2019? And then secondly, just on the portfolio, I mean, suppose as part of the update of 2020 plus and guidance, you did a thorough portfolio review And I'm just wondering whether you have sort of concluded that you're happy with the current Henkel portfolio as it stands.
The 3 business areas, and the subcategories within that? Thanks.
Thank you very much, James, for your, both questions. Concerning portfolio, Indeed, I mean, for sure, I mean, we continuously, of course, assess our strengths and also our potential challenges And we are indeed convinced that the setup of Encore with our 3 different business units is structure of which we see a lot of opportunity for sustainable growth, meaning that we see, our position in the 3 businesses both the TD Technologies and both consumer businesses as a competitive and as having a traction for future profitable growth. In adhesives, clearly, I mean, there we have, we have our global markets leading position. And as we presented today with a strong breath, and also looking at the economic situation, I mean, enough potential to outweigh certain risks and other opportunities. In Beauty Care, as we are very targeted on our hair portfolio, there, as you know, in consumer, we always look at regional country positions and categories.
And there we feel well positioned and professional, as you know, with our acquisition strategy. We now have a 1,000,000,000 business there, which has a fantastic growth momentum. And in retail, as Whitney Scrouch, we're doing well in shares also in Color tiring in hair care, we want to catch up and step change, but we have some good leading positions there, especially in Europe, West and Eastern Europe. And Laundry And Home Care is a market in which our conviction is also, we have to be a number 1 or 2 in the regions to generate profitable growth. In the regions and countries where we are, we have debt, and that's why we want also to further expand there.
And as commented also in the question before on acquisitions, if we see acquisition, potentials which can strengthen country category positions. Of course, these are at arms and we will, of course, investigate to further strengthen. But your question, I mean, of course, was very to the point we have been doing this analysis and our conviction as we are well positioned with the 3 business units.
James, regarding your question, back to investments. So first of all, the from Hans mentioned the million additional investments, 2 thirds of that going into more marketing investments, especially in the consumer business and the 1 third of more dedicated to digitalization, important to note that it is a sustainable level of investment. So it's not a one One timer, we will continue to have this higher investment level, also beyond that. For sure, it is it's a little bit of, yeah, front loaded in terms of starting immediately starting now, but as I said, sustainable throughout the year. And by that, for sure, we want to see also the first impact from a top line perspective in 2019 and for sure also ongoing then into the next years, to be more specific, you know, that we said from a margin perspective, in 2019.
For the total company, we expect the margin between 16% 17%. And for the 3 business divisions, that will mean, for Adhesive Technology, a margin between 18% 19% for Beauty Care between 15% 16% and for Laundry And Home Care, the margin between 16.5% 17.5%. And maybe to round the picture or to make the picture around. As you know, we have guided for 2019 and EPS of mid single digit negative. We expect for 2020 to that EPS will be back in positive territory And from that on from the next year then on 2021, we will enter into the corridor, what we have mentioned as our midterm ambition from mid to high single digit EPS growth at constant currencies.
I hope that gives you more clarity.
That's very helpful. Thank you.
Welcome.
The next question comes from the line of Richard Taylor from Morgan Stanley. Please go ahead.
Good morning. 2 quick ones from me and then a more strategic one. For the adhesives business, can you give the split of pricing and volumes for the Q4 please? And then secondly, I think in the past, pointed to the IPX index, which was growing around 3.5% at the middle of last year. And I think you just said it was slowing down.
So maybe you could tell us whereabouts it is now? And are you comfortable with the current 2019 consensus for adhesives? Of 3.3%. And then lastly, last year we discussed perhaps you might need to reinvest significantly in the laundry and beauty businesses to get them to grow or whether or not than in those businesses today. But is there also a bigger scale issue in those businesses that you need to address?
Or is it a more fundamental reissue.
Thank you very much, Richard. I'll just take your last question and then Carsten will answer your questions on Adhesives and the IPX forecast. I mean, it's not a matter of scale. As we indicated, in both laundry and beauty. Global market positions are more global statistics to be competitive and to be able to generate sustainable growth, profitable growth.
Our conviction, it's about having regional and even more country positions where you have in categories leading positions. And that why for us to date was important to give you also more details in where we want to invest. And I hope you could witness that our investments will be very well focused and the investments be focused exactly on regions or on categories, in which we see our growth opportunities. If you take Laundry, for example, we have a full investment program on top brand Persil with a full relaunch North America we see a nice investments opportunity and hold gear there. I mean, to as it is a high margin business also to have more category expansion in certain countries.
In beauty, it's about hair and their color styling where we strong momentum, but especially healthcare in Europe to catch up. And then also of course North America and together with professional to keep the momentum. So It is clear about investing in priorities and it's about regions and categories. And the scale topic has positioned before we feel well positioned with both businesses.
Richard, you have 2 quick ones, starting with the ITX question. For 2018, we see a number of 3.1 percent for IPX growth And for 2019, the forecasts are going into the direction or we are calculating with around 2.5%. And your question for Q2 for Q4 regarding pricing, let me state one you know that we are quite early in the year and we are still in preliminary mode what the details of our P and L are related to. So we will provide you with all the details in our call on the 21st of February. Nevertheless, to give you a little bit more insight in Q3, we had the pricing in adhesives of 3.6%.
And what I currently see is that this number will not be, the Q4 number will not be lower.
Okay, very clear. Thank you.
The next question comes from the line of Guillaume Delma from Bank of America Merrill Lynch. Please go ahead.
Good morning Hans, good morning, Carsten. Two questions for me. The first one is on your additional investments in digital infrastructures. Maybe could you help us understand what prompted this sudden need for an incremental EUR 100,000,000 because I'm slightly surprised in November 2016 when you unveiled your new 4 year plan, You did put digitalization at the heart of your strategy, and I'm assuming you were already budgeting some significant investments. So why a need for more all of a sudden?
And the second question, I mean, it's more generally about the incremental EUR 300,000,000 I mean, is it your way to acknowledge that the cost of doing business in consumer goods is rapidly increasing And therefore, my question would be what kind of visibility do you have on the returns you will get on this incremental EUR 300,000,000 And then if you can maybe help us reconcile the fact that this morning, you're announcing more investments, but at the same time, lowering your long term EPS growth from 7% to 9% to roughly 4% to 9% for 2020 and beyond. So while lowering the bottom end of the range, are you effectively signaling that EUR 300,000,000 might not be enough in the long run and that you might have to increase further your brand support and digital efforts plus 2020. Thank you.
Guillaume, thanks for your 3 questions. Starting with your first question, additional investments in digitalization, we think this has to do, as you know, and you pointed it out, I mean, Accelerate Digital is one of our top priorities in our strategy 2020 plus and we are making a quite significant progress in the way that we also have a quite strong momentum in our digitalization. We see also doing that a lot of opportunities, I mean, the market acceleration in digital and the technological opportunities, which it is offering, I mean, is expanding day by day. We have, for example, I mean, I pointed that out in my presentation. If you look at the T.
J. Technologies, I mean, we have found a fantastic partner in Palantir, to exploit all the data, potential. If we look at today already, we have quite strong base in an e commerce platform. If we combine all that data with our supply chain, I mean, this is substantial potential. And that is one example.
I mean, the same we see also with ECRM programs in consumers and we want to capture a moment, the by far bigger opportunities we see now, as we also feel well equipped for that. So that's on digitalization. Then your second question was on the the own visibility of the returns
on the On the $300,000,000, additional investments?
So on that one, for sure, I mean, for the different initiatives, which we have been presenting, the first ambition is to accelerate growth. And of course, I mean, our conviction is that, top line and the organic top line performance will, in the long term and mid term, drive also EPS. I mean, a stronger organic top line will also be a driver for at the end of absolute better bottom line and so driving EPS. And you can show that for project which we presented, we also have defined targets both in top line, both in market share, but also in returns. And that's why I'm in the focus program and we try to present to you the top priorities within that program.
You can be sure also that internal all of these projects, we have defined clear KPIs and we will monitor in detail how these investments turn into also performance.
But on top, I think Hans also the point of Guillaume is right that the cost of doing business has also increased in a way taking the classical business, but also the online business into a So the mix of all of that is definitely a point which has been over the last couple of years been increasing and is also reflected a little bit besides the things what you have heard before also in that 1,000,000 or the twothree of that, which is going into the market investments especially in the consumer businesses.
Then your last question was on the EPS target on the long term, which I mean has changed a way that, we go to currency adjusted, but this, of course, can go in, both directions, both positive and negative We now have defined as a mid to high single digit and the timeframe of course also has expanded. I mean, these are changes, but they all if we put that in a competitive framework. I mean, these are competitive ambitious targets, which we see as a good of our ambition to continue to generate attractive returns and profitable growth. Please. The
next question comes from the line of James Edwards Jones from RBC. Please go ahead.
We have a disconnect James James.
If you please bear with
Hello?
Apologies for the delay. Please stand by for the next question.
Who wants to have
experiencing a couple of technical issues here. Apologies for the delay there. So The next question comes from the line of Phillips Ry from Farberg Research. Please go ahead.
Hello, gentlemen. Just with all these measures that you have announced in Consumer Goods and the launches, can you comment a bit on what impact do you expect on your general average selling prices? And would you say that this is going to generally increase the average selling prices of your portfolio and, just some comments on, do you expect, continue to expect all innovation to be a gross margin accretive? And secondly, can you give us a split of the additional EUR 300,000,000 in terms of marketing investments and R&D investments,
Thank you very much, Philip, on for both questions. Indeed, I mean, the innovation power we put in the market has the ambition also for our top brands, of course, to try to generate higher gross margins by creating better value propositions. I mean, this is, in a market, as we all know, consumer markets where, pricing is quite a big challenge. I mean, the level to increase prices has to be the persuasive innovations and that's of course in our program also what we try to implement with a strong focus also on the gross margin improvement. I mean concerning the splits of an first
of all, important is, and I only make it for clarification that the today's announcement will not have an impact on our CapEx investments. So the 300,000,000 investments are related to the market or to digitalization. And as you have seen from our guidance for CapEx, 750 to 850 that's continuously on a high, level also in line with what we have communicated before. Regarding the marketing spend, we assume a double digit percentage increase in 2019 versus the prior year. The R and D spending will likely be stable in relation to the sales development and the other third will be used to step up P and L investments in digitalization advancing that to the next level as we have pointed that out before.
Hope that helps.
The next question comes from the line of James Edward Jones from RBC.
Hello, can you hear me this time?
We can hear you. Yes. Very well.
Thank you.
So two questions, please. I understand stand that the primary motivation for the $300,000,000 investment is to increase, accelerate growth. But why is your guidance for sales growth after 2020 not increasing on that basis? And second, is the need to reinvest a function of Henkel having been over earning historically? Or is it really a more competitive market outlook, which means you have to invest more to deliver similar growth going forward?
Thanks for your questions, Sedan. Your first question, the range 2 to 4. I mean, we saw, so in 2018 and at the moment we're more positioned at the lower end of that range and the ambition is clearly to move our performance within that range up and clearly supported by an acceleration, which we pointed out by both consumer goods divisions. The background of the investments, I mean, as we have been commenting, it's clear that both we see the opportunities, but of course, also previous questions pointed out, I mean, there is a more competitive outlook and growth is more challenging to capture and reflecting that indeed. I mean, it's a combination of those drivers, which makes us convinced that this at the moment is the right strategy to implement.
Got it. Thank you.
The next question comes from the line of Robert Volkmann from Liberum. Please go ahead.
Good morning. Just three questions, if I may. In terms of Beauty Care, it seems that that took the brunt of the margin in the fourth quarter. I'm looking at something maybe around 75 basis points on my quick numbers. How do we think about that?
What's the reason in particular? And is there any particular markets you can call out? And related to that, my second question, how much of the concerns that you have about lower growth or North America centered, particularly since you called out that you have not recovered your market shares from the issues in terms of execution there. And also, I guess, somewhat related to that as well as in terms of PNG and promotions, is PNG leading the issue? Is it a wider issue?
And how do you think about that? In terms of the context of launching more premium innovations, etcetera. Is that really the way out? Or are you going to have to fight share battles across all of the price points going forward? Thank you.
First, your question on Beauty Care. Mean, Q4 visibility, we will give this in more detail, 21st fab. I think and Yeah. Nevertheless, at first we can give
some Nevertheless, your estimate is not, so far away, what we currently see but there is not a particular reason, the specific one, it's across the portfolio. Okay.
But more and more light for sure to come, middle step. But as Catherine says, that's, at the moment, what we see with the preliminary results Your second question concerning North America, it is for as we presented for both businesses after last year where we had a bad year start with our supply topics. And to the whole year alone, I mean, the technical problems, I mean, are solved. We are at the moment at fantastic service levels, but indeed the catching up with the mispromotional slots, I mean, has been a challenge. And now we start here, both by, of course, being extremely focused on catching up and of course also by strengthening all the different parts of our portfolio.
Of course, I mean, your question was we fight on all levels. I mean, we also have if you take in Laundry, we're in all price segments. And of course, there where it's needed, we're also aggressive in the segment where we need to be on the other hand. We are convinced that with the initiative we take, we also create value and we also like doing so strengthening our gross margin, enabling also if that's even to invest also more and strengthening our brands.
We have no
further questions
coming through, so I'll hand the call back to Mr. Van Bylen for his concluding remarks.
Many thanks to all participants, all investors and analysts. And let me indeed summarize the key points which you heard from us today. We have a strong foundation based on a well balanced portfolio with leading positions in key markets and categories. We have made strong progress in executing our strategy Henkel 2020 plus and in the implementation of our strategic priorities. This results in a good business performance in 20178 18, despite significant headwinds from currencies and direct material prices.
And looking ahead, we see attractive opportunities we want to capture to reinforce our top line growth momentum. We will achieve this by stepping up 18 in our leading brands and technologies in innovation and digitalization. We have reflected this in our 2019 guidance. With our expanded mid to long term ambition, we confirm our commitment to long term sustainable value creation and attractive returns. Thank you again for listening your flexibility, and goodbye.