Henkel AG & Co. KGaA

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

Ladies and gentlemen welcome to today’s conference call. This morning we published our press release and quarterly report in respect to our business performance in the third quarter and over the first nine months of 2013.

So I would like to just briefly recap on the key aspects categorizing the quarter and then talk about our outlook for the current year. After that our CFO, Carsten Knobel and I will then be happy to take your questions.

Ladies and gentlemen, the world economic environment in of the third quarter remained very challenging. This was the case in Western Europe and above all in the countries of Southern Europe where a continued decline in economic output was registered.

The difficult economic situation negatively impacted both private consumption and certain industrial sectors. Outside of Europe the situation was also difficult.

Economic growth in the USA increased slightly but fiscal risk continued to burden the world’s largest economy. In Asia, the dynamism of the emerging markets declined slightly and in the Middle East the ongoing unrest also caused further market uncertainty.

Despite this increasingly challenging market environment we continued our strong performance in the third quarter and we were able to accelerate growth quarter-by-quarter in 2013. We significantly increased both earnings and profitability.

The detailed financials read as follows. In the third quarter Henkel generated sales of some 4.2 billion euros following 4.3 billion euros in the same period last year.

The decrease is due exclusively to a negative foreign exchange effect. The currency impact was even stronger in the third quarter than it had been in the first two quarters of 2013.

Overall the appreciation of the euro resulted in a negative impact on sales amounting to almost 7%. The biggest factor in this respect was the devaluation of the U.S.

dollar. However, the currencies of the emerging markets also contributed to this development.

Excluding the impact of foreign exchange and without acquisitions and divestments we achieved a solid organic growth of 4.2%. Laundry and Homecare recorded strong organic sales growth with a plus of 5.5%.

In Beauty Care, the increase amounted to a solid 3.1% and Adhesive Technologies also posted a solid growth of 4.2%. The organic sales growth was driven by all businesses and all regions.

In particular, our emerging markets again made an important contribution. Here, we recorded a very strong organic sales growth of 9.1%.

This is the strongest growth since 2011. In Africa, Middle East and Latin America we posted double digit improvements but the emerging Asian markets also contributed to the very strong growth with China once again being the strongest driver.

As a result, the share of sales in the emerging markets rose by 1% each point year-on-year to 4% to 5%. The emerging markets are very important to us, particularly with respect to achieving our strategic target for 2016.

This is also reflected by the opening of our new adhesive production facility in Shanghai, the largest of its kind in the world. With the new site we have further expanded our production capacity in one of our most important growth regions.

From this hub we can supply our growing numbers of clients in China and the Asian region more quickly with innovative adhesive technologies. The new factory offers a platform for further growth in our adhesive business.

We are thus expanding our global presence and we’ll be able to further increase our market shares in these regions. Our strong focus on the emerging markets does not however mean that we are neglecting the mature markets, quite the opposite.

In the third quarter we again achieved positive organic sales growth in the mature markets despite the recession in some countries of Southern Europe and once again our positive performance in Germany helped us here. Thus Germany is and will remain a major pillar of our success.

Aside from achieving solid organic sales growth we also succeeded in significantly increasing both our earnings and our profitability. After allowing for a one time effect and restructuring charges adjusted operating profit improved by 6.5% to 672 million euros, a 16.1% adjusted return on sales exceeded 16% for the first time.

Compared to the prior year period this represents an excellent increase of 1.4 percentage points. All our business sectors contributed to this improvement.

Adjusted earnings per preferred share increased by 11.1% to reach 1.10 euros, which was once again above our target growth rate of 10% for the full year. Our net financial position has also significantly improved.

As of the 30 September, 2013 Henkel was able to show a net cash position of 485 million euros. At the same time last year we still had a net debt of 612 million euros.

This development once again underlines our strong financial position. I would now like to come to our guidance for the current fiscal year.

We expect the global market environment to remain challenging. We do not anticipate any rapid improvement in the economic climate of Western and Southern Europe.

The situation in the Middle East is likely to remain unfavorable with future development difficult to predict. We also expect further headwinds from foreign exchange effect in the next few months.

Consequently we will continue to work on improving our competitiveness. We will be further adapting our processes and structures in order to simplify and accelerate them.

We are keeping all our options open so that we may respond quickly and flexibly to changing business developments. Overall we consider ourselves well prepared for the rest of the year.

We are confident of delivering our guidance for fiscal 2013 and are raising expectations with respect to the development of our EBIT margin. As previously stated we expect to generate an increase in organic sales of 3% to 5% for the full fiscal year.

We anticipate that each business sector will grow within this range. We are now expecting some 15% of adjusted return.

Previously we were working on the assumption of 14.5%. Here too we anticipate that all business sectors will achieve a margin improved versus the previous year.

Ladies and gentlemen around one year ago we presented our new strategy and financial targets for 2016. Since then we’ve consistently pursued our strategic priorities and have already made substantial progress in all four areas outperform, globalize, simplify and inspire.

We will be providing a detailed report on this in February 2014 at our annual results press conference. We have headlined our new financial target with the formula 2010 10 in reference to the key targets of 20 billion euros in total sales of which 10 billion euros to be generated in the emerging markets coupled with an average annual growth rate of 10% in adjusted earnings per preferred share.

We are convinced that with the new strategy we have laid the foundations for the ongoing successful development of our company and we are confident of achieving our 2016 financial targets. Ladies and gentlemen, thank you very much for your attention.

Carsten Knobel and I will now be ready to field your questions.

Good morning gentlemen, Herman from Reuters. I have a question, a year ago you announced a larger purchase.

Can you tell us what the current state of play is, whether you have already talked about this?

Well I have got to correct you, we didn’t announce any major acquisitions. We said that in the quarter the strategic communication was that we would continue to grow partly organically and also by acquisition as in the past.

But we did not talk about any specific larger acquisition. We said if there should be a big acquisition we would have to revise our financial targets, that’s what we said, a request on that.

But are you targeting anything or are there other priorities at the moment?

Well we can’t communicate that at the moment. And we’ll communicate this when things are further developed.

[inaudible].

Good morning I would like to know why the margin and the results in Asia have collapsed so much since you emphasized your growth in China and Asia specifically. And will you again try to launch the detergents in China and then the pension commitments they dropped in the balance sheet, which is unusual in view of the declining interest rates in other companies this has increased rather than decreased in the last quarter I would like to have an explanation of that?

Well first China question, at the moment we are happy with our business development in China, in Beauty Care and Adhesives and now Mr. Knobel.

Well first of all Asia in general the declining results as you know in the context of our strategy 2010 10 once focus is the expansion of our growth markets in direction of 10 billion euros and therefore consistently we invest in the emerging markets and there specifically in Asia in infrastructure, and on the other hand also in the markets. And the consequence of that will be that this year we are having a declining result in Asia.

On the other question the pension commitment you are right the interest of course is at a low level and is tending to go down and as far as that’s concerned in that comparison we are very conservative, that is to say we are working with a low interest rate which we don’t fix ourselves but this is defined by our auditors and the decline that you see in the quarter of 960 million euros as of 31st of December versus the figure that we are now reporting is due to profit of 100 million euros in actuarial times.

Where do these come from is the next question?

From the commitment that we’ve got is the answer. And to be precise in Q2 we had a pension rate of 3% and this has gone up to 3.1% now.

Now as far as decline in Asia is concerned let me ask for how long this investment in the infrastructure in the market will burden the result so when will this hiccup be overcome?

Well we are controlling our businesses globally and the more global functions we have in Asia for example we’ll have global purchasing in Asia. And that means the cost will be incurred in Asia.

And this is misleading and we do the same thing for our AMG. We consider that to be a global investment and therefore it is a global investment and if you were to ask what we’re doing now then this means we are carrying some infrastructure into the emerging countries and we will report that in detail in February.

So we are carryings structures into these countries and they will be taken away somewhere else.

Thank you.

Good morning I would like to follow Mrs. Anna’s question namely the net investment of 485 million euros.

I could imagine that at Henkel you could imagine something better to do with the money than the bank, so what are your plans? And Mr.

Rorsted in the video message you said you will considerably invest in IT next year can you give us an order of magnitude there?

Well we are going to roll out a global system which has already been launched in Asia. The order of magnitude is a 150 million euros and we will complete that in one or two years’ time.

And the entire digital setup will be revamped. So how we deal with customer and consumers digitally that is something where we are making lots of efforts at the moment, not only in terms of technology but also in terms of the underlying structures.

So internal procedures, the external procedures will be improved. Now the money invested of course we are happy that we have such a strong kind of situation and that we have a net debt position of more than 600 million euros to convert that into a net investment of 485 million euros.

I think in the current situation that we are in the overall economic situation this problem is a good one and of course we make every effort how to handle this properly and we’ve got a clear strategy which is not only geared to organic growth but also the integration of acquisitions in our strategy and we know exactly in what sort of areas we want to go. But as I said as far as our acquisitions are concerned it’s the availability of the strategy fit of these projects and that in terms of pricing they are attractive.

And if these criteria are met then we will use our cash and we will generate more cash in order to see the company more towards 2010.

Last year you talked about 4 billion euros in London so your war chests can be even higher. And then you talked you know exactly which areas we want to go in can you describe this more precisely?

Well in London we talked about 3 billion euros of financing leeway and because of our cash generation this has clearly improved. So that the figure you mentioned 4 billion euros, 4.5 billion euros currently represent our financing leeway.

Where do we want to go, we are clearly positioned here and we feel that all our three business sectors namely Adhesives, Detergents and Cosmetics are attractive fields where appropriate acquisitions can be made and we also see this regionally both in the emerging markets and then the mature markets we can still further develop.

Good morning. When you started Mr.

Rorsted you said that there are too many brands. Where do you stand there at the moment?

And you also said that promotions were difficult, is that difficult in the U.S. now where everybody uses promotions?

And another small question in Adhesives that’s about 50% of your sales, is that going to remain that way or are there going to be changes?

Well brands we started at 1,000 currently we have about 400 our target is to go down to 250 in 2016 in February. In February 2014 we’ll give you an update as to where we are in terms of the number of brands.

And we said we expect sales of 500 million euros next four years and that’s the streamlining of the portfolio and this is something that is permanently ongoing. When it comes to promotional activities got an increase in North America and also in Russia, these are very strongly affected by these activities.

Also Southern Europe driven by the recession we saw in Southern Europe. And the third was Adhesives where we want to have a balance.

We currently have 50-50, in the past it was 60-40. So we don’t want to have a balance for the sake of having a balance.

What is important for us the competitiveness of business sector. And what is important to us is that all three business sectors are competitive and that’s what you are seeing in our current figures.

We’ve been able to increase our earnings and our profitability that’s important not whether it’s 50-50 or 60-40.

Another question. Why are you launching certain things in Italy rather than in other countries because Italy is part of Southern Europe and you said Southern Europe was weak?

Well and the answer is we start with certain countries and this has to do with the current economic strength. In Italy we did this because we have a strong position there under the proviso that we assume that we can also launch this in other countries.

The [taps] for examples where first launched in North Europe we did a number of launches and this is not always Germany. It depends on the conditions in the various countries when we select these countries, it’s got to do with other considerations as well.

Good morning. Small question on the currencies, I’d like to know what sort of currencies these were at the third quarter in comparison with the Euro that were weaker and burdened you.

And particularly in which areas you feel this, particularly say in purchasing or in sales if you could clarify that?

Well the currency influences 6.7% influence on our reported sales, particularly the U.S. dollar contributed to that and different currencies in the emerging markets like the Russian Rouble, the Turkish lira.

And these influence sales by 6.7% and this is the translation effect.

But have you hedge these?

Well we hedge in the area of transactions but not in the area of translation. That is to say we are talking here early of our translation and there we haven’t got a hedging policy.

Ladies and gentlemen, thank you for your interest. Thank you for participating in the conference call.

In the current quarter Henkel has shown a strong development in a difficult market. We’ve given you an outlook for the current year.

We’ve slightly increased our margin target. As far as the results of 2013 are concerned we report in 2014 in our balance sheet press conference to which we’d like to invite you.

Then we’ll also report about the implementation of our strategy for 2016. I will be happy to then welcome you in this result.

Until then I wish you all the best. Thank you very much and good bye.