Morning Note: Market news and an update from Henkel.

Market News

US equity markets continued to push higher at the end of last week:  S&P 500 (+0.8%), Nasdaq (+1.1%). This week the focus is on Federal Reserve Chair Jerome Powell’s congressional testimony and China’s National People’s Congress. Premier Li Qiang won’t hold a briefing after the NPC close.

This morning in Asia, equities were broadly higher: Nikkei 225 (+0.5% to above the 40k mark); Hang Seng (+0.1%); Shanghai Composite (+0.4%). The FTSE 100 is currently trading 0.2% lower at 7,670.

US congressional negotiators have unveiled a bill to avert a government shutdown. The deal includes a provision that bars China from buying oil from the US’s emergency stockpiles.

The 10-year Treasury currently yields 4.21%. Gold is $2,085 an ounce and is holding on to the big gain it made at the end of last week on the back of a decline in the dollar and Treasury yields amid weakening US economic data. The S&P/ASX All Ordinaries Gold Index rose by 4.5%.

Jeremy Hunt announced new funding to support the UK’s manufacturing sector ahead of his budget Wednesday. The chancellor described the budget as prudent and responsible, as he aims to temper hopes for tax cuts. Sterling trades at $1.2669 and €1.1683.

Oil steadied near this year’s high after OPEC+ agreed to extend current supply curbs through June as expected. Russia promised to focus more on cuts to output than exports, while Iraq and Kuwait will prolong their voluntary reductions. Brent trades at $83.60 a barrel.

Source: Bloomberg

Company News

Henkel has this morning released its 2023 results which highlighted strong organic sales growth and significant earnings improvement. The company has also provided guidance for 2024 which is ahead of market expectations. The shares, which are part of the German DAX, have been marked up by 1% in early trading.

Henkel is a German multinational company which holds leading positions in both industrial and consumer businesses. The portfolio includes well-known hair care products (Schwarzkopf), laundry detergents (Persil), fabric softeners as well as adhesives (Loctite, Pritt), sealants, and functional coatings. 

The group has accelerated the implementation of its growth strategy and continued to offload non-core brands. It has merged two former consumer businesses, Laundry & Home Care and Beauty Care, to form a new Consumer Brands business unit, with progress faster than planned. In 2023, more than €200m of the 2024 targeted savings of €250m had already been achieved and the targeted total savings from phase 1 were increased to €275m.

In 2023, against a persistently challenging market environment, sales fell 3.5% to €21.5bn due to foreign exchange headwinds (-4.3%) and M&A (-3.9%, mainly due to the divestment of the business activities in Russia).

However, organic growth was 4.2%, driven by a price increase in the high single-digit percentage range, while volumes declined. In the second half of the year, however, there was a clear sequential improvement in the volume development.

By division, Adhesive Technologies generated sales of €10.8bn, up 3.2% in organic terms, driven Mobility & Electronics, as well as Craftsmen, Construction & Professional. The Consumer Brands unit generated sales of €10.6bn, up 6.1% in organic terms, driven particularly by the Laundry & Home Care and Hair business areas.

Operating profit grew by 10.2% to €2.6bn, with the margin up 150 basis points to 11.9%. Price increases, ongoing measures to reduce costs and enhance production and supply chain efficiency, and portfolio optimisation measures more than offset the negative impact from continued high prices for direct materials and logistics. EPS grew by 20% at constant exchange rates to €4.35.

Free cash flow hit a new high of €2.6bn helped by lower inventories. As a result, net debt fell from €1,267m to only €12m. The group has proposed maintaining its dividend at €1.83 per ordinary share, a 42% payout and a 3% yield.

Finally, the company has provided guidance for 2024. Organic sales growth of 2%-4% is expected, with both business units anticipated within this range. The margin is expected to increase to between 12.0% and 13.5%, while EPS growth of 5%-20% is forecast at constant currency.

Source: Bloomberg