Henkel AG & Co. KGaA

Kasper Rorsted - CEO Carsten Knobel - EVP, Finance and CFO

Gael Colcombet - MainFirst Iain Simpson - Barclays Harold Thompson - Deutsche Bank Christian Faitz - Macquarie Eddy Hargreaves - Canaccord Markus Mayer - Kepler Cheuvreux Chas Manso - Societe Generale

Good morning ladies and gentleman. Welcome to our Conference Call.

First I would like to focus on the key developments of the second quarter 2013. Then Carsten will provide you with the Q2 financials in greater detail and after that I will close my presentation with a summary for Q2 2013 and the outlook for the full year and finally we'll take your questions.

I would like to begin by reminding everyone that the presentation would contain the usual formal disclaimer to forward-looking statements within the meaning of relevant U.S. legislation that can be accessed via our website at henkel.com/ir.

The presentation discussions are conducted subject to this disclaimer. We will not read the disclaimer, but propose we take it as read into the records for the purpose of this conference call.

Now let's get started. Overall it was a strong second quarter for Henkel.

We saw revenue of EUR4.286 billion and adjusted EBIT margin of 15.54%, earnings per share of 107, net working capital of 5.2% and our net financial positions of minus 130 to overall what we perceive as a strong set of numbers. On the achievement, we saw solid organic growth driven by all our business sectors.

From a retail standpoint which is important, all our regions are growing and the American markets are very strong. The American market sales are now 45% of our total sales and this is not because the mature regions are negative as I said before.

All regions are growing so good progress in all regions. But also good progress on our position in the American regions.

We returned to solid growth for our adhesive business after slight negative growth in the first quarter, but also we returned to positive growth in North America and our adjusted EBIT margins were very strong; we saw growth driven by all our businesses. Now let me just speak a bit about what we as seeing some of the challenges in the environment that we’re in.

We see a continued weakness in Southern Europe which also impacts our business. We see further increased promotional pressure coming particularly in our HPC markets, and we'll speak about that in more detail later on.

Electronic adhesives are improving but we still see slight negative sales. The overall electronics market is decreasing.

As a reference point the PC market in the second quarter was down minus 11%, following a very negative first quarter also on the PC side. We continue to see strong headwind from FX and we see further geopolitical and social unrest particularly in the Middle East and despite that you will see very strong numbers for us in the Middle East, but we do see a very unstable environment in certain of our markets.

Let me start with laundry & home care. We saw in our laundry & home care strong organic sales growth.

Laundry was strong and home care was very strong. The American markets organic sales growth was double digit, while the mature markets remain flat.

We saw our adjusted EBIT margin showing very strong increases and will see further increase. We continue to focus on improving our innovation pipeline continuously to ensure that we can drive top line growth, but at the same time also bottom line improvement.

And you will see that throughout our call today that that is also being the case. We're spending a lot of our time and effort to ensure that we have the right innovations, particularly in the markets that will continue to grow in the future Eastern Europe and other American markets.

On our beauty care business we saw solid organic sales growth. Retail was solid and hair salon below previous year quarter, but solid retail growth.

All regions growing, American markets were strong organic sales growth. We also saw that our adjusted EBIT margin showing strong increases and also ROCE in this environment continued to increase.

As I spoke before on laundry & home care we see the same importance in our beauty care, particularly in an environment where we're seeing promotional activity. A way of fighting and battling that is having a strong innovation pipeline and we believe we continually improve with our innovation pipeline.

Now let me move to our last of our three business group, adhesive technologies. As I said following a slight negative first quarter we now see solid organic sales growth in American markets with very strong OSG, mature markets slightly below previous quarter and I would like to just clarify that.

America is back with Salvador (ph). What we do see is a slightly negative Western Europe and Japan.

On the returns, we see our adjusted EBIT margins showing excellent increases with an all-time high and we see ROCE further increased. Also here we’re spending a lot of time and effort and resources in not only bringing the right products to market but also integrated the excess we brought.

More than a year ago, we finalized the purchase of our high pressured sensitive adhesives from Sitech and I can tell you our integration is fully on track, and we’ve also optimized our footprint following the acquisition of Sitech. So how does it look to walk down paths for times for 2016?

We’re recording organic sales growth for the second quarter of 4%, where you can see a lot has been even by currency and Carsten will speak about that in greater details. The American markets showed very strong sales growth of almost 9% and we continue to have an EPS growth of more than 10%, more specifically 10.3%.

Now, I’d like to hand over to Carsten who will give you further details on the second quarter. Carsten?

Thank you very much, Kasper. Good morning, also from my side.

Let me now guide you through the financial details. And let me start with the overview of our key financials.

In the second quarter, we were able to increase our sales to a level of EUR4.286 billion and by debt growing organically 4.0%, driven by all our three business sectors. Our gross margin adjusted came in with 48.3% being up 70 basis points.

On the back of this, our adjusted EBIT margin increased by 90 basis points to the first time of Henkel’s 15.4%, also here supported by all three business sectors. Our adjusted EPS per preferred share reached a level of EUR1.07 and by that translating into a growth of 10.3%, and this is before adapting to IAS 19 revised.

The comparable figure for the quarter Q2 2012 would have been $0.96 instead of the $0.97 and that translating into an EPS growth of 11.5%. Moving now to our cash side, and first of all, we see again a very good development in net working capital in percent of sales.

We were able to improve again our net working capital by 180 basis points, supported by all our three business sectors, and now reaching a level of 5.2% in Q2 2013, compared to the 7.0% in the comparable quarter of last year. With an amount of EUR203 million of free cash flow, we decreased compared to the quarter two of 2012, which is mainly due to a lower cash flow from operating activities.

Here, the increased operating profit was offset by mainly two factors. Firstly, increasing our operating business resulted in higher outflows of trade accounts receivable; and secondly, the special incentive for reaching our 2012 target, were paid out and the payout as you might know has been earned over the period from 2008 until 2012.

Our net financial position came in as already pointed out by Kasper was minus EUR130 million in Q2 2013 and this has been an improvement of 1.1 billion of the comparable quarter of last year. Moving now to some more details and now starting first with our sales growth.

The sales growth on a nominal basis grew by 1.9% from EUR4.206 billion, now to a level of EUR4.286 billion. This implies an organic sales development of 4.0% and this is driven by price and volume.

The price effect amounted of 80 basis points while our volume was improved by 320 basis points, and also here both effects, price and volume, was supported by all our three business sectors. Kasper mentioned it before; we have been significantly impacted by FX.

The increased size of the FX impact in Q2 2013 amounted to minus 230 basis points and this was mainly impacted by Japan, U.S. and Russia.

The M&A effect came in with 20 basis points and all of that as I've mentioned before brought up to EUR4.286 billion of sales. Looking now into the regional development of our sales, and here our sales growth was again boosted by a particular performance in the American markets.

Despite the slower growth than before, in the American markets our sales increased by 8.9% organically and reached a level of EUR1.943 billion and with this we achieved the highest growth in organic net sales terms since Q3, 2011, and by that we also reached an American market share of our total sales of 45% being up 200 basis points compared to Q2 2012. But also our mature markets grew.

We reached a level of EUR 2.304 billion and by debt being organically growing 0.2%. Let’s now have a look on our regions individually.

And the first remark is, and you have heard it already by Kasper is that all our regions were growing in Q2 2013. Our Western European business, despite the effect that we have been impacted by the recessionary developments in Southern Europe came in with a level of 0.2% organic net sales growth.

Eastern Europe grew strongly and showed a strong performance with reaching 5.8% organic net sales growth and this is especially contributed by Russia and Turkey. In Africa, Middle East, we again reached a double digit development.

We increased size plus 18.3% and this was reached, besides the fact that we have been negatively impacted by certain social unrest and political unrest in some of the countries. In a highly competitive market in North America we grew our business organically by 1.1%.

Latin America came in with a strong development of 7.8%, mainly or particular driven by Brazil and Mexico, and finally our Asia Pacific business grew plus 6% in organic net sales growth by double digit growth within China and partly compensated by a negative development in Japan. With that I would like to move to the income statement adjusted and here sales to gross profit.

Our sales as mentioned before normally grow 1.9%, to a level of EUR4.286 billion. The cost of goods amounted to EUR2.2 billion and with that reaching a gross profit in absolute terms of EUR2.072 billion, over proportionally growing by 3.4% and by that relating to a rough margin of 48.3% being up 70 basis point despite a negative impact from cost of goods which was less than 50 basis points.

The disciplined execution of countermeasures supposed this development in Q2 2013. Moving now further in our income statement, adjusted and now gross profit to EBIT, as you will see, our profit lines between gross profit and EBIT in percent of sales remained almost flat in comparison to the previous year quarter.

In absolute terms we saw an increase in our marketing, selling and distribution expenses as well as in our administration expenses. The increase in the admin expansions is impacted by our investments we undertook in order to shift infrastructure to the American markets by further strengthening our regional humps.

Our adjusted EBIT came in with EUR660 million, and by that as I mentioned before, first time that we have been able to show an adjusted EBIT margin of 15.4% for the quarter. Coming now to adjusted EBIT, our reported EBIT came in, in the quarter of EUR607 million.

There were onetime gains in the amount of EUR10 million which are related to gains from the sale of enzyme technology to BSF, which we are closing in April this year. There are onetime charges of EUR36 million and the charges reflect our decision to fully exit from our uranium business.

We have booked an impairment of EUR35 million, which has been reported and our operating expenses in the P&L. The deconsolidation is expected to result an additional expenses.

In total we expect a loss of round EUR55 million. And finally restructuring charges, in order to continue our adaptation to our structures to the market we have spent EUR27 million of restructuring in Q2 2013, which is in line with our guidance for the full year of EUR125 million.

The development of our net financial position mentioned before, we have reached a level of minus EUR130 million and this is a very positive picture because it improved our position by EUR1.1 billion compared to Q2 2012. And another sign in that respect of our financial strength is also related, if you compared that to the end of the previous year December 31, 2012 where we had more or less the same amount, but taking into account that we had to pay dividend of EUR425 million in April this year in this quarter.

With that I would like to move to the financial detail of our three business sectors and starting with our laundry and homecare business. The second quarter showed a very good performance within our laundry and homecare business.

We had a strong organic net sales growth organically of 5.8% and this was driven by price and volume. Price was driven by 150 basis points while our volume was increased by 430 business points.

The development was supported by a strong increase in laundry and the very strong sales growth in our homecare business. Regionally speaking, the American markets showed a double digit growth impacted by a very positive development of Africa Middle East and Eastern Europe and despite very intensified promotional environment, especially in North America and the negative market condition in Southern Europe, we managed to achieve a stable performance in the matured markets.

If you look at our adjusted EBIT margin, we were able also here to show a very strong increase by 80 basis points, now to a level of 15.3% and this was impacted by an increase due to efficiency gains but also a strong cost discipline. I mentioned net working capital for the overall company as a very good development.

Also here laundry and homecare by an improvement of 150 basis points also supported this development, now reaching a level of minus 4.2%. Moving now to our beauty care business.

Also here we were able to achieve another quarter of profitable growth. We came in with a solid organic net sales growth of 2.8%.

Also here this was supported by price and volume. Price came in by a positive impact of 50 basis points while we increased our volume by 230 basis points.

Looking to our business sectors, within Beauty Care we saw our retail business continuing its growth parts with solid organic net sales growth. Our Hair Salon, as mentioned before by Kasper was negatively affected by a strong decline of the markets and by that also being negative in terms of organic net sales growth in Q2 2013.

Regional wise and here remarkable, all regions contributed to this positive organic net sales development. The American markets grew strongly with a double digit contribution from Africa Middle East but also Asia.

The market environment in matured markets as pointed out already was laundry and homecare remained difficult. Nevertheless we were able to increase our organic net sales growth compared to the previous year quarter in the matured markets, specially driven by North America and Western Europe.

Also in the EBIT margin, we were able to again increase our adjusted EBIT margin in percentage of sales now to a level of 14.9% and by that improving by 50 basis points and this was driven by improvement of gross margin and also here a strict cost discipline. Finally net working capital, also the Beauty Care business is supporting our overall net working capital development improving by 40 basis points now to a level of 2.4% in relation to sales.

Coming finally now to our adhesive technology business, and after a negative topline development in Q1 2013 with minus 1.2, adhesive returned to a solid organic net sales growth now reaching 3.6% in organic net sales growth, also here driven and supported by price and volume. Price effect was 50 basis points while the volume was increased by 310 basis points related to volume.

The American markets showed a very strong organic net sales growth, particularly driven by also Latin America, contributing double digit and here I would like to mention and we’ve mentioned that already in Q1 where we had the first signs of recovery which we reported and this continued the strengthening effect in Brazil also in the second quarter showing a double digit organic net sales growth for our adhesive business. Asia and Eastern Europe showed a very strong development compared to the prior year quarter.

Within the material market we were slightly below the previous year, but our North American business as pointed out like Kasper showed a solid development. The western European business and also Japan were impacted by a slightly negative organic net sales growth.

Coming now also here to the adjusted EBIT margin and here an excellent development within our adjusted EBIT margin improving by 120 basis points, now to a level of 16.9% for Q2 2013 and a similar development, sorry to say, not to forget, strong cost discipline and an improvement in gross margin supported that development of the 120 basis point improvement. And finally our net working capital numbers, also here, a significant improvement, 220 basis points improvement, now to a level of 12.2% of sales.

With that I would like to hand back to Kasper

Thank you very much, Carsten. Let me now summarize.

We had a strong second quarter with overall solid growth driven all business taking the topline to 4% growth. In a market which remains highly volatile and also with recessionary elements particularly in Europe, it was good to see that all regions were growing.

The American markets, as Carsten showed its highest growth rate over the last two years and came in with approximately 45% of our total business. Let me just pause here for a second and mention the following.

There has been a lot of discussion over the last quarters about the continued dynamics or lack of the same within the BRIC countries. Of the four big countries, Henkel had double digit growth; in Brazil, India and China, and remained strong in Russia, though the American markets, also with the Latin countries continues to be the growth engine behind Henkel's topline.

Our adjusted EBIT margin was very strong and the growth was driven by all businesses and our adjusted EPS growth was about 10%, overall a strong quarter and a continued challenging market environment. On the outlook; at the beginning of the year our statement was that we assumed that the global economy would recover in the second half.

Currently we see that it is not happening. We believe that the global economic environment remains difficult and will not change in the second half.

Thus a strong innovation pipeline to foster profitable growth is necessary despite higher competitive environment. We are also seeing FX headwinds persisting.

Despite the above I'd like to make certain that I'm very clear on this. We are confirming our guidance for FY 2013 despite the headwinds and despite the remaining difficult market environment which brings me to the guidance.

We are guiding around three factors or three elements. Organic sales growth which is a 3% to 5%; adjusted EBIT margin which is 14.5%, but our primary KPI which we outlined in our 2010 strategy in November as EPS.

So in contrast to the last four years where our primary guidance was 14%, out of the three the most important one to ensure that would deliver a key message and also value to our shareholders is EPS growth and we’re confirming our guidance around the 10% EPS for 2013. In this context, also because of the market environment we will continue to adapt our structures to the market.

You heard Carsten speak about that. You will continue to see us focus on ensuring that we have the right structures because of the fluctuating marketplace to ensure that we can deliver upon our 2010 targets.

What are the upcoming events? We have our third quarter numbers coming up in November 12 and in February 20, we’re done with the year and we will reporting the full year.

Now, we’re coming to the end of the presentation and Carsten and I would be happy to take your questions. Thank you very much.

My first question is on Laundry. It seems that the strong momentum we have seen over the past couple of quarters is continuing.

You hit 6% organic growth in Q2 after 8% in Q1, even if comps were a bit more difficult. So why do you think that Laundry organic growth will be below 5% for the full year, which seems to be implied by your guidance?

Secondly, on EBIT margin, I know it's not your primary KPI but you are running above 14.5% in Q1 and Q2. So why do you think that the margin progression might slow down in H2, also implied by your guidance?

And finally, on Beauty, it seems there was some deceleration sequentially after Q1, even if comps were easier. I think you mentioned that that market had been decelerating for Beauty.

Is there any other factor that might explain the sequentially slightly slower organic growth, such as phasing of your launches?

Let me start with Laundry, we did say at the beginning of the year we believed that we would see a slower growth coming throughout the year. What we are seeing, particularly in certain markets is we have a high competitive pressure and North America being one also Russia with a very high price decrease in promotional activity.

So our expectation is, as I said also in the second quarter, we will see a slowdown within the second part of the year. Not particularly we’re not completely certain that we’ll come into the three to five but we expect a slightly slower growth for Laundry in the second half in the first half.

On the EBIT margin as I said before our primary guidance is EPS. And this year we have had a very fluctuating environment.

We have had flat raw materials and we’ve had a lot of headwind on the currency. We want to make sure that we deliver the 10% EPS.

If we believe that the 14.5% is not the right margin guidance, we will look upon that and revise in the third quarter but our primary target is what we said is our EPS. On Beauty Care we’re just seeing a very difficult market at this stage.

We’re seeing in market that in many markets are becoming extremely negative. We are impacted by negative Japan and Russia we also see as a very challenging market.

So that’s the net of Beauty care. So what we are seeing, we are seeing a market where the underlying earnings across the board are very, very volatile.

Firstly, on financial items, you obviously repaid that bond at the end of June. Should we be expecting a decrease in financial items in the second half?

What sort of numbers should we be thinking of for the full year? And then going more operationally, you sound sort of happier with Adhesives in North America.

It would be interesting to hear, how far along recovery should we think of Adhesives in North America as being? Should we expect sequential improvement into the third quarter, as you sort of fully address those first quarter issues that you saw?

And then just lastly, in Laundry, I know that you haven't called out Western Europe as a region that seen a step-up in competitive intensity, despite one of your large competitors launching a very high profile products there. Any color you can give on the sort of trends within Western European Laundry would be great.

Iain, your first question regarding financial items, I think with EUR27 million we saw the significant improvement in our financial results in Q2 2013, compared to minus EUR44 million we had in the Q2 of the 2012. For sure the impact of repaying the senior bond will have an impact in the second half of the year but, we do not guide the financial results for the full year but you have seen that we have significantly improved over Q2 in this year and there will be no other changes expected also for the upcoming quarters in the year.

On the two other questions, we are seeing a slight pick-up of the overall U.S. economy is probably slower than anticipated.

In the first quarter, we stated that we are not happy about or satisfies probably more of the appropriate work of our performance in North America. That has changed in the second quarter.

What is impacted the reported numbers in North America is the sluggish electronics market. I’m saying market right now, where a lot of that is being recorded in North America.

So in the long term our expectation is that the North American economy will continue to pick up. Of course a lot of the electronics businesses is recorded from the reporting standpoint North American which has a reporting impact.

On the third one, Laundry, we are seeing increased competitive pressure from one our bigger American competitors, particularly when it comes to pricing and promotional activity and we are seeing that in Western Europe but we’re also seeing that in certain countries in Eastern Europe where market share positions have changed over the last couple of years. So I think that’s the appropriate way of saying that.

I've just got one question. Kasper, you keep saying that you're keen to keep adjusting structures and setups to continue delivering in the tough environment.

However, I also noticed that your restructuring charges are basically remaining fairly low and unchanged. So when you're talking about adapting things, does that mean there might be some extra measures to take which cost you a bit more on restructuring or is it just all internally financed and that's the way it will be?

What we did was we guided the year in the beginning of 125 and we ran to 127 for restructuring. Of course if we believe that the markets will fundamentally change, we will address that and if we were to do that we would do it quicker than later.

What we are concerned about, we are continuously concerned about the sluggish Europe where it’s very difficult to see a recovery coming up. So, the purpose of us always stating we want to adapt to our structures to the market is that we believe that the markets are extremely difficult to predict at this stage.

We came out and we thought that the GDP would be around 3 for the year. Right now fair projecting 2.1.

And we believe that this is an average number. We believe that should elements that would necessitate us to do something, we will do it upfront instead of later like we did in the 8/2/12 but I’m not saying that we’re going to have a big restructuring program, just saying that we are monitoring the changes in the market very carefully.

Okay. If I can just do one follow-up, you've also been fairly vocal on M&A and you've updated the markets about a target list if one would put it that way.

Is there anything else you can add to that, or not really?

Not really.

First of all, can you comment on the North American situation in Laundry and Home Care specifically where in your release you talk about an increasingly declining market? So not competitive pressure but declining market.

What's going on there? And then, second of all, in Adhesives in North America, which industries were the main drivers for the solid improvement?

I would believe predominantly automotive, but also construction. Is that right?

Regarding your question of Laundry and Home Care, North America, we saw after eight quarters of positive organic net sales, net sales development, a slight negative development in this quarter and this is on the one side due to the fact that the Laundry market is under extreme pressure and being negative and within this development we maintain our market shares and within Home Care there is the point that we are phasing in, especially in our Air Care topic a significant new product line, phasing in, phasing out and this is an impact which is a one time in that respect and that's the reason for the development on top and I think Kasper has already mentioned that in the question before, there was a significant improvement of promotional pressure within North America in total. And despite that, all SBUs in adhesives are growing organically despite our electronics business which we have mentioned at the beginning in the call and I see a smaller impact in that.

Kasper, a question for you, really, and forgive the slightly personal nature of it, but you've obviously been associated with the successful renaissance of Henkel over the last few years and that generally since having led the Company very successfully by most investors. Over the last quarter we've seen a number of media reports of you being associated with moves to other companies, which I'm sure will be disappointing to the majority of investors and myself.

Is there anything that you could say to reassure us that you're not going anywhere and reconfirm your commitment to Henkel?

You said its disappointing is because I'm staying or? Eddy, I've been on board since 2005.

It’s my sixth year as CEO. I believe we have a great team.

We have a new strategy. I'm completely committed to doing the next round also.

I think we got off to a good start which you can see, we're running at 10.3 in the first half, but we still have 3.5 years to go and I'm completely committed to taking this to the end. I'm very happy where I am and I'm having great fun and excitement doing what I do.

That the press writes I think is natural, sometimes that you have CEO changes in other companies but I can assure I'm extremely committed to this company. I think we have a great company and as I've said on ongoing course I think we're only halfway through our transformation.

We have a long way to go, which is the exciting part of being part of Henkel, and in contrast to 2008 to 10, today we have a very strong balance sheet where we actually can do much more from a balance sheet standpoint than only from a P&L standpoint. So I can assure you, whether it's disappointing for you or not, I'm planning to stay.

Yes. Two questions, if I may.

First of all, on the raw materials, you said that raw materials have been fairly stable this quarter. Can you split this up more in the different divisions?

I've seen the raw material cost piece has also been more or less flat, because I assume they're different. And then secondly, on the cash flow, this higher trade receivable, do you think this will then turn in the second half?

And what do you expect, what kind of net working capital inflow you do expect in the second half?

So regarding your raw material question we have the guidance which is still valid which is that we see a moderate increase for the full year. Yes it is true that we have stabilized within the first half of the year our raw material but you all know the ongoing political and economical unrest which we faced in this world, especially in Middle East and in that respect we still remain cautious and therefore we stay with our guidance regarding raw materials, but we do not disclose any detail regarding business sectors or any specific raw materials.

And regarding your question, regarding cash flow or better to say than later to net working capital, I think also here, I think we have shown over the last year that we’re driving net working capital quarter-over-quarter and we have not guidance specifically on net working capital. We have said that we would like to reach a net working capital onto 2016 in the level of 5% regarding net sales and this is still valid and all three business divisions will support on that as you have seen that over the last quarter.

My first question would be whether you could just go down your three divisions and update us on how you see market growth in the three divisions and your market share trends in those three divisions? Is the change in market share harder than it used to be?

Are you gaining less market share than historically? And the second question would be on the margin.

I know you're stressing EPS is your primary KPI, but your current guidance does imply a margin decline in the second half. Could you maybe help us with the moving parts that you anticipate?

Are you just keeping some flexibility to respond to competitive pressures, or are there any other cost levers that we ought to be aware of?

You’re asking very-very broad question. So you know the macro of it is in our business groups, in Laundry we are slightly growing our market share, in Beauty Care we reflect growing and in Adhesives we reflect.

On the competitive pressure, we are seeing increase in competitive pressure in both Laundry and Beauty Care. Particularly Laundry has further increased in North America and Eastern Europe in the last part.

Beauty Care is consistently high and Adhesive is very consistent. As you know on Adhesive side we are managing very much that portfolio.

We are not trying to get every deal we can on the price that has market share impact for us because we do not want to be in the commodity space. So in certain areas particularly in our packaging Adhesives we are foregoing certain business because we see our primary competitive environment is turning around technology impressions.

When it comes to the guidance, we don’t guide on currency, but and as I said we want to go back and say what we actually say in November 2012 when it comes to strategy and that was absolute ties to 20 billion. It was presence in the American market as a long term revenue driver of 10 billion and was EPS of 10% and that is strategically how we run the company.

Of course then when we go into a year, we actually run the company based on different KPIs and these are around OSG, Organic Sales Growth, margins and then EPS. OSG is of course is only good and valid.

T gives an indication of the health of our business in the local countries but OSG if you have a high volatility on currency actually can be misleading when it comes to the EPS side and that’s why OSG is important when it comes local presence and market share. Market is important for because it articulates our capability to generate value in the market but we want to optimize EPS to then say is currently leeway on the margin side.

If you do the mathematics with the current currency, yes. So we’re not trying to receive ourselves any right but we are trading on the higher element of it but we want to say we want to maintain market share, growth market share, we want to improve our position in the American markets, and we want to deliver the 10% EPS.

If that there implies a different margin then so would be and we will then re-guide in the third quarter. But because of the extreme volatility on currency we believe it is too early to do at this stage.

Just a couple, if I may. Looking at Adhesives, that improvement in net working capital over the last few years has been really quite dramatic.

And I wondered if you could give us any sense of, at a granular level, exactly how you're realizing those improvements, and also just how much there is left in the pipeline. You've previously said that structurally Adhesives will always have slightly higher net working capital requirements than HPC.

But it would be great if you can give any color as to how far out you feel you are along that journey. And secondly; a more operational question, looking at your HPC business, are there any particular sub-categories where you feel that you have what could be a very major innovation in the pipeline or whether you've had anything that you're particularly excited about that's launched recently?

I'm just trying to think in terms of the innovation phasing for the second half of this year.

Starting first with your question again to net working capital. Yes, you’re right.

We are improving in Adhesives significantly over the last years and this is something, we started definitely earlier in improvements in our HPC business and we take the learnings from all our divisions. We have since years across divisional net working capital council which is led by myself, my all three business divisions within, and here we’re getting the knowledge and impact of inventories, receivables and payables with the exchange and by that we are able to improve that.

For sure it is getting tougher and tougher day by day. Why, as you have heard before, we are moving more into the direction of American markets.

So changing our footprint. And one thing is for sure, within the American markets it’s definitely tougher to improve net working capital, or in other words, the level of net working capital in the American market is higher than in the mature markets which is an additional burden in order for our organization to move that but on the other side you see that we are doing that because I think we have the right topics and measures at hand in order to improve that into that direction.

And you’ve also seen at the beginning of the year in Q1 we changed the net working capital definition in that respect to further improve the basis by putting also the trade accounts and receivables into that with all customers in that respect. That’s I think the answer to your net working capital question.

And the second was regarding innovations. And I think also here if you see for example, Laundry & Home Care and what we are currently, since a while now doing especially in our Toiletry business with the driving of innovation with our rim blocks and rim boards, I think that’s the short answer, but this especially would help us to further drive that.

It's okay, I think I will press star one. Ladies and gentlemen, thank you very much for participating in our conference call today.

Overall Q2 was a strong quarter on the background of a difficult market environment which we assume continues to be difficult and intensified promotional pressure in the HPC. We have confirmed our guidance for 2013 around the 10% EPS and we are confident for the rest of the year.

I wish you all the best and we look forward to speaking to you at our Q3 earnings conference call on November 12. Thank you very much.