Executives: Hans Van Bylen - Chief Executive Officer Carsten Knobel - Chief Financial

Officer
Analysts: Hermine de Bentzmann - Raymond James Christian Faitz - Kepler Cheuvreux Celine Pannuti - JPMorgan Fulvio Cazzol - Goldman Sachs James Targett - Berenberg Guillaume Delmas - Merrill Lynch Iain Simpson - Societe

Generale
Operator: Good morning and welcome to the Hankel Conference Call. With us today are Hans Van Bylen, CEO; Carsten Knobel, CFO; and Investor Relations Team. For the duration of the call, you will be on listen only. [Operator Instructions] Today's conference call is being recorded. And the webcast is available at www.henkel.com/ir.

At this, I would like to turn the call over to Mr. Van Bylen. Please go ahead. Hans

Van Bylen: Dear investors and analysts, good morning from Dusseldorf, and welcome to our earnings call for the First Quarter in the Fiscal Year 2017. Today I am going to lead you firstly through our achievements in Q2 2017 and highlight the key developments.

Carsten will then comment the detailed financials and give you some more highlights on our first quarter developments. After that I will close my presentation with a brief summary and the guidance for fiscal year 2017. And finally, Carsten and I will take your questions. I would like to begin by reminding everyone that the presentation, which contains the usual formal disclaimers to forward-looking statements within the meaning of relevant U.S. legislation, can be accessed via our website at Henkel.com/ir.

The presentation and discussion are conducted subject to the disclaimer. We will not read the disclaimer, but propose we take it as read into the records for the purpose of this conference call. Let's start with the key developments in the first quarter. In the first quarter of 2017, Hankel delivered a strong performance in spite of a challenging environment. All business units and the regions contributed to these results.

For the first time, quarterly sales exceeded EUR5 billion, increasing by 13.6% to EUR5.64 billion. We delivered a strong organic sales growth of 4.0% with both mature and immerging market contributing. We increased the adjusted operating profit double digit by 13.8% to new all-time high EUR854 million and we continued to increase the adjusted EBIT margin to a level of 16.9%. We delivered an excellent adjusted EPS growth of 11.0% and also net working capital improved and came in at 4.9%. Our profitable growth in the quarter was driven by the strong performance of all business units and all regions.

Mature markets showed a good organic growth of 2.1% with North America and Western Europe growing. Immerging markets continued with a very strong organic sales growth of 6.7% driven by the development in Asia and Latin America. Our profitable growth path continued in Q1 with an all-time in adjusted EBIT and an increase of the margin. Adjusted earnings per preferred share grew 11.0%. We are also progressing well on the integration of The Sun Products Corporation and Carsten give you some more insight later on.

Moreover, since the beginning of the year, we announced two acquisitions and closed one divestment. We delivered this strong set of results in a continued challenging and uncertain environment capitalized by persisting geopolitical pension and political and macroeconomic uncertainties in some country. Global GDP growth remained on a moderate platform. In our consumer businesses, promotional activities and pricing pressure are intensified. FX landscape is very heterogeneous and volatile with the appreciation of the U.S.

dollar and the Russian ruble, but at the same time devaluation of some immerging market currencies such as Egyptian pound, the Turkish lira and the Mexican peso. On the raw material market, spot prices in Q1 were on the rise. Let me now give you some color on the performance of our business units, starting with Adhesive Technologies. The business unit posted EUR2.3 billion in sales and nominal increase of 7.1% driven by a very strong organic sales growth of 5.5% and all business areas contributing. The adjusted EBIT grew by 10.5% from EUR415 million and the adjusted EBIT margin reached 18.1%, 60 basis points higher than the previous year quarter.

I would like to highlight some examples among the initiatives that contributed to the Q1 performance of Adhesive Technologies. In the consumer electronics business, we achieved double digit growth by applications for smart phones and tables. With our mega brand LOCTITE, we offer innovative solutions enabling our customers to develop functionalities and designs with these products. In General Industry, we achieved significant growth with our high performance LOCTITE product. Growth was driven by Asia with customer wins across the various segments.

In the Automotive industry, we continued to successfully develop our business with OEMs. The very strong growth was driven by our high impact solutions for lightweight and process efficiency under our leading brands for incidence TEROSON. Let's now move on to Beauty Care. Beauty Care delivered EUR1 billion in sales growing nominally by 6.4% and showing a good organic growth of 2.3%. The retail showed a good organic growth, hair professional contributed with strong organic sales growth.

The adjusted EBIT posted a strong growth of 7.4% to EUR169 million. Beauty Care delivered a 20 basis point adjusted EBIT margin to a level of 16.7%. With this Beauty Care continued on its path of profitable growth. Let me give you some highlights on our initiatives in Beauty Care. The business unit showed a very strong development in U.S.

with a nationwide launch of Gliss, the global expert in hair repair. We further expanding our megabrand Schwarzkopf into new categories in the U.S. retail market. In body care, we continued the successful sale development and achieved very strong growth in Q1 2017. The performance was driven by our powerful innovations and the Fa in Europe, and Dial in the U.S.

Also the hair salon business showed a good start into 2017 and continued its growth momentum for the eighth consecutive quarter, powerful innovations such as Schwarzkopf BlondMe contributed to this performance. Let me finalize the business unit overview with Laundry & Home Care. The business unit achieved EUR1.7 billion in sales growing nominally by 29.5% driven by our acquisitions at the strong organic sales performance of 3.0%. Organic growth in laundry was good, in home care very strong. In Laundry & Home Care, the adjusted EBIT grew by 22.8% to EUR298 million an all-time high in a quarter.

Due to the impact of acquisitions, the adjusted EBIT margin came in 70.3% below the level of prior year. Carsten will give you the details here. Overall a strong set of numbers driven by focused execution on our existing business and fast integration of a big acquisition. Let me share with you the highlights of Laundry & Home Care for this quarter. In the U.S.

the integration of The Sun Products Corporation is well on track. In the biggest detergent market worldwide, the acquisition is a step change in scale for our laundry business. Also Persil ProClean continues its strong momentum further boosted by successful Super Bowl campaign. In the Toilet Care segment, we delivered an excellent performance in the rim block segment. Success of Bref Power Activ, the global number one toilet rim block is driven by the launch of new variance in more than 60 countries worldwide.

And fabric finishers had a strong start into 2017. The ongoing growth of our fabric finishers is driven by the international premium innovation Vernel Supreme which already launched in 20 countries. And with this, I now hand over to Carsten.

Carsten Knobel: Thank you very much, Hans, and good morning to everyone. Let us now have a look at the financials for the first quarter 2017 in more detail.

Let's start and have a look on our key KPI. In the first quarter of 2017, our sales amounted to EUR5.64 billion. In nominal terms this represented an increase of plus 13.6%. Organically we delivered a strong sales growth of 4%, The Sun Products acquisition contributed with EUR353 million of additional sales. The adjusted gross margin reached 47.9% which compared to 48.8% in the prior year.

So in this respect 90 basis points below. Excluding the impact of the acquisitions we did in 2016 and the effect is 130 basis points, the adjusted gross margin would have been 40 basis points higher. And I will give you also here some more detailed as we are used on the gross margin development later on. The adjusted EBIT margin showed a continued increase of 10 basis points compared to the prior year level. Excluding also here the effect of the acquisitions mainly Sun was roughly 30 basis points.

Profitability would have increased to a level of 17.2%, which means 40 basis points more than the prior year. Looking at our adjusted earnings per preferred share, the double digit performance was largely driven by our organic and inorganic performance. The FX impact was slightly favorable which the tax rate was slightly unfavorable by the same magnitude. The adjusted tax rate was above the level of 25% that we normally encourage you to use as a rule of thumb for the full year. But also here there is no change compared to that what I said before so we will remain on a year level of about roughly on that level of 25%.

In total, by that adjusted EPS increased by 11% to EUR1.41. So overall a high quality P&L in the ongoing difficult market environment Hans has already alluded to. Now have a look on our cash KPIs starting with network capital. So once again, we delivered a quarter of a disciplined net working capital management and by that as a consequence of a strong cash generation. The ratio of net working capital of sales improved to 4.9%.

This is an improvement of 50 basis points compared to the prior year quarter and this was driven by operating improvement. Moreover in that context, excluding also here the acquisition, the ratio would have an addition 20% better and would have improved to 4.7%. Our net working capital management contributed in that respect to the strong free cash flow which reached EUR300 million in the first quarter of 2017. Free cash flow was up 3.4% compared to the already good level of the prior year quarter. And finally, our net financial position came in at minus EUR1.961 billion.

Also here I will provide you with some more details on the development later on. With that let us have a closer look to our sales development and here the sales group, the sales pitch on our group level. Organic plus inorganic growth amounted to 12.5%, a double digit increase. Organically has already pointed out, we delivered a strong growth of 4.0% with all business units contributing to this result. Growth was driven by 3.9% in volume and 0.1% in price.

The net effect of our acquisitions and divestment had a positive impact on the sales of 8.5% and here Sun being the main component representing 7.6 percentage points out of the 8.5% I just mentioned. In Q1, we saw a very heterogeneous development topic. Overall, we have a positive impact from FX of 1.1%, due to the positive development especially from the Russian ruble and the U.S. dollar. Still we are observing FX headwinds in other key immerging market currency and Hans has already pointed out the major ones which are the Egyptian pound, the Turkish lira and the Mexican peso.

So summing up, we close the quarter with a EUR5.64 in nominal terms which represent the 13.6% increase compared to last year. Let's have a look now on the region, first starting with a look on the mature and the immerging market. So our sales developments in the immerging market show the nominal growth of 9.5% to a level of EUR2.11 billion. Organically the immerging market contributed with a very strong organic sales growth of 6.7%, acquisitions contributed 2.4%, FX 0.4%. Looking at the same development in the mature market, we have seen a nominal growth of 16.6% to an absolute number of EUR3.20 billion.

The organic growth - the good organic growth of 2.1% accelerated compared to previous year product, in addition here acquisitions contributed with 12.8% to the growth and currency effect were positive and added 1.7% to the growth, thanks especially to the U.S. dollar. So overall an organic growth which was if you see in the next chart broad based across the regions. And I will lead you know through the individual region. Starting with Western Europe, here we saw an organic growth of 1.8% and this development was driven especially by Germany, Spain and Benelux, while in France, we've seen a negative development.

Moving to Eastern Europe, here we recorded a very strong organic sales growth of 4.4% especially driven by Turkey. Russia remained slightly below the level of the prior year. Africa, Middle East showed a good organic sales growth of 2.2%, despite the ongoing difficult market environment. In North America, we recorded a good increase of 2.9% organically and this was supported by a very strong growth in beauty and laundry care, while in the adhesive division, we have seen a positive development of organic growth. Latin America recorded a significant organic sales growth of 8.2%, here again driven by a double digit growth in Mexico.

Asia Pacific showed also a significant increase in organic terms of 9.1%, China, South Korea with a double digit development, India contributed with a significant growth. With that let me now move to our three divisions, starting with Adhesive Technologies business. The business unit posted a very strong sales growth of 5.5% driven by 5.8% in volume; price remained with minus 0.3%, slightly below the prior year level. Divestments had a negative effect of minus 0.6% on the growth. Here we close the divestment of our professional Western European building material business which we have signed in Q3 last year.

Adhesive Technology was positive impacted by currency effect, they amounted to 2.2% sales, while the nominal sales increased by 7.1%. Looking at the individual business units within Adhesive Technologies, this was driven by a double digit increase of our electronics business, a significant growth in general industry, transport and metal delivered a very strong growth, packaging adhesive and the consumer and craftsman business was a good growth in Q1 of 2017. From a regional perspective, Adhesive Technology recorded a significant organic sales growth in the immerging market. Latin America contributed double digit, especially driven by Mexico. Eastern Europe posted significant sales growth, organic sales growth driven a double digit development in Turkey.

Asia excluding Japan, double digit performance was in China and South Korea, India was a significant growth. Looking at the mature market within Adhesive Technology, the organic sales performance was good. The mature markets of Asia remained on the level of prior year. Western Europe with a strong increase and especially here driven by Germany. And North America showed a positive development.

So overall a strong performance, thanks to our differentiated portfolio covering all regions and wide range of different market segment. Moving to the profit situation in Adhesive, the adjusted EBIT margin progressed once again now to 18.1% and this represents a very strong improvement of 60 basis points increase over the prior year. Also net working capital sales another good quarter. We improved the net working capital by 150 basis points now reaching a level of 11.5%. Let's move now to Beauty Care.

Also Beauty Care delivered another quarter of profitable growth. Sales grew organically by 2.3%, driven by 0.5% in volume and 180 basis points in price. In addition, 2% of the growth was coming from acquisition. Current effects for the division were 2.1 here as I alluded on the group level, thanks to the positive development of the Russian ruble and the U.S. dollar.

So that's nominal terms, sales increased by 6.4%. Looking at the two segments, retail and professional, the growth in retail was good, while in hair salon, we have seen a strong organic net sales growth in Q1. Regional-wise, emerging markets posted a strong growth driven by a significant increase in Middle East Africa. Eastern Europe was good with Turkey growing also here double digit, Latin America came in positive. China was positive, driven especially by the online sales segment.

Mature market posted a positive development, while the organic sales in West Europe remained flat. Due to an ongoing high competitive intensity and pricing pressure, North America recorded very strong organic sales in quarter one. Looking also here on the adjusted EBIT margin development, here we are posting in Beauty Care a good increase in the adjusted EBIT margin with an improvement of 20 basis points now to a level of 16.7%. Net working capital was also a good number with 3.4% of sales slightly apart the prior year where we recorded 3.2%. With that, let me finally move to our Laundry & Home Care division.

The business unit delivered again a strong organic sales growth development of 3.0%, here driven by 3.6% in volume, while price was at minus 0.6%. In addition, 27% of the growth came from acquisitions, especially from Sun. I have already told you EUR353 million of sales was that the number in quarter one and besides from smaller acquisitions which you also did in Africa, Middle East of last year. Negative currency effect for the division amounted to minus 1, due to the expectance especially in the countries of Egypt and Turkey, so that in total the nominal growth came in at plus 29.5%. The two segments in Laundry & Home Care has showed; in laundry, a good increase in organic terms, while home care delivered a very strong growth.

Emerging markets reported a strong organic sales growth in more detail here; Asia delivered a double digit organic growth, Latin America showed a very strong growth. Africa, Middle East, Eastern Europe contributed in organic terms as a good development. Mature market overall were good in terms of always the main driver was a very strong performance of North America. Western Europe reported a positive organic growth. In the mature market of Asia which we entered with the acquisition of - in Australia and New Zealand in 2015, we achieved a double digit performance in terms of OSG.

Coming also here now to the profitability and looking at the adjusted EBIT margin in present, we've reported a number of 17.3% which compares to the 18.2% in the prior year. This is as I alluded to also in the last two quarters in Q3 and Q4, a temporary dilutive effect executing the Sun effect impact of 130 basis points, the profitability would have increased to 18.6 which means plus 40 basis points compared to the Q1 of 2016. From the cash perspective, the net working capital ratio was again at a very low level of minus 2.4% and also here again excluding the acquisition especially Sun, it would have improved to a level of minus 5.2%, so 90 basis point improvement compared to the prior year. With that now, let me come back to the Henkel Group and in particular to our adjusted income statement. You are already aware that our nominal sales increased by 13.6% to an absolute level of EUR5.64 billion.

The gross profit came in at EUR2.425 billion, which is up 11.6% compared to the prior year quarter. The adjusted gross margin was 47.9% compared to the 48.8% in the prior year quarter. As mentioned before, without the M&A effect, the gross margins would have been 40 basis points higher compared to the prior year quarter. As our indication in February 2017, we see input costs increasing compared to the prior year. Due to the time delay of the raw material price increases on our P&L, impact in Q1 remained on the low level or as I mentioned before, if we exclude the acquisition, we have an increasing GP1 margin of - gross margin of 40 basis points.

Nevertheless, you see the development of spot prices which will lead to headwinds in the coming quarters. Therefore, we reiterate our guidance for a moderate increase of our direct material which we have already disclosed to you in February 2017, when we were disclosing the guidance for the year. If you now look at the bridge, adjusted gross profit to the adjusted EBIT. Our marketing selling and distribution expenses decrease by 50 basis points to a level of 23.9% of sales compared to the prior year. The impact is related to the Sun integration.

The absolute marketing expense and the absolute R&D expenses increased compared to the level of the prior year. Looking at our administration expenses in percentage of sales, they remained with 4.7% on the level of the prior year. At plus EUR1 million, the balance of our operating income and expenses remained as you have seen that also in the prior year quarters at the very low level. Overall, our adjusted EBIT came in at EUR854 million and the adjusted EBIT margin continued to increase by 10 basis points now to the level of 16.9%. Let me now share the detailed bridge from reported to adjusted EBIT, as you're used to.

The reported EBIT came in at EUR823 million. We had one time gains in the quarter of EUR19 million and they are related to the divestment of our professional Western European building material business, which I alluded to when I was describing the performance in Adhesive which I referred to. This is a part of our active portfolio management we are undergoing now since a couple of years. We incurred EUR39 million in onetime charges, which mainly relate to our one global supply chain project and the integration costs of the Sun acquisition. Moving to the restructuring charges, they amounted in the quarter to EUR11 million and they are mostly related to the adaptation of our structures to the market environment.

Last but not least, let's have a look on our net financial position in Q1. It came in with a number of minus EUR1.961 billion. Comparing that to the end of 2016, this is a sequential improvement of EUR340 million and this is mainly driven by our strong free cash flow generation in the first quarter of EUR300 million, which I reported already. With that, I thank you for your attention and hand over back to Hans. Hans

Van Bylen: Thank you very much, Carsten.

Let me now summarize before we look at our guidance for the full year and then move on to the Q&A. In a challenging environment, we delivered a strong set of results in Q1 2017. This successful performance across all business units and regions was driven by our highly committed global team. We achieved record sales and for the first time past EUR5 billion, driven by the strong organic growth and acquisitions. Both the mature markets as well as the emerging markets contributed.

Also we continued our path of adjusted EBIT margin increase. Adjusted earnings prefer share grew double digit. Moreover, since the beginning of the year, we announced two acquisitions and closed to one divestment and we are well on track with the integration of Sun. Looking at the full year 2017, we expect that the environment will continue to be challenging. GDP growth will remain on a moderate level and geopolitical tensions and political and macroeconomic uncertainties persist.

Consumer markets are characterized by acceleration of promotion activity and pricing pressure. I think developments will remain unpredictable and heterogeneous. Despite these challenges, our priorities are very clear. We focus on growth with strong innovations, leading brands and intensified customer focus. We increase the agility of our organization by constantly adapting structures to the market.

We fund our growth with a continuous and rigorous cost focus. Looking at the full year 2017, we had a strong first quarter but the environment will be increasingly challenging. We have a clear strategy and our strong team is fully focused on execution. Therefore, we are confident to confirm our guidance for 2017. We expect the Henkel Group to generate organic sales growth of 2% to 4% with all business units within this range.

We expect an improvement of the adjusted EBIT margin to a level above 17%. And finally, we expect our adjusted earnings per preferred share to grow between 7% and 9%. I would like to come to the close and the upcoming events. At our next event, Carsten Knobel and Pascal Houdayer will be pleased to meet you at Investor and Analyst Day for Beauty Care in Hamburg on June 1st. Please conduct Investor Relations in case you have not registered yet.

And I'm looking forward to the next earnings call for Q2 in August and Q3 in November. Let's now open to the Q&A.

Operator: Thank you, Mr. Van Bylen. [Operator Instructions] The first question comes from the line of Hermine de Bentzmann from Raymond James.

Please go ahead. Hermine

de Bentzmann: Hi. Good morning. So two questions from me. The first one is on the Laundry & Home Care division which is accelerated compared to this in previous years, I was wondering where that changed by region regarding the trends, but which regions also there is more negative pricing? And then on the Adhesive Technologies your acceleration you're not the only player first thing that we balance, whether it's changing and then they're lying trends of the market and whether can we expect in the full year? Thanks.

Hans

Van Bylen: Can you repeat your second question; it was very difficult to acoustically understand you?
Hermine

de Bentzmann: Oh, sorry. On Adhesive Technologies, so you sharply accelerating in Q1, this the organic sales growth and you were not the only players as I am mistaken, so I was wondering whether it's changed in the underlying market for Adhesive to drives such acceleration?
Hans

Van Bylen: So let me take the second question of Adhesive technologies. As we indicated, so the - all business have been contributed but of course as commented by Carsten, different by the segments. I mean our electronic business had quite a good start as indicated double digit. General industries equal automotive.

So it's a mixed picture and what we - as I indicated also what we do see is still quite a volatile environment. So I think would be too early to talk about any trend change and we do see within the different business fields still high volatility in how markets are developing. In the laundry question?

Carsten Knobel: Yeah, Hermine, the question regarding laundry, we are very satisfied with our development of the OSG in laundry in Q1. If you also reflect the market environment and I think you have also seen the peers reporting on OSG in this. If you relate that I think nothing to add then that we are satisfied across regions as I pointed out the very strong developments in emerging markets regions, but also a very good development in mature.

So we don't see that. Yeah for sure the growth is a little bit lower than what you have seen in the past. But as I said before, look at the market environment look at peers and in this respect that's a strong performance. Hermine

de Bentzmann: Okay. Thank you.

Operator: The next question comes from the line of Christian Faitz from Kepler Cheuvreux. Please go ahead.

Christian Faitz: Yes. Good morning. Thanks for taking my two questions.

First of all, coming back to laundry, it looks like the Sun Products acquisition is saluting your margins quite a bit. From your elucidation during the call, I would conclude that Sun at present is running around about for 4.5% EBIT margin. Correct me if I'm wrong, if my math is wrong, which would be some 230 points below the laundry would have been without Sun. Would you see any upside potential in terms of margin development for the Sun product range i.e. we have better pricing points? And then second of all, how is Persil Pro developing in the U.S.

can you give us any indication there? Thanks. Hans

Van Bylen: Christian, thank you for your two questions, I suggest Carsten goes in more detail on Sun and I'll take your Persil ProClean question.

Carsten Knobel: So let me start with the Sun, your question with Sun. First of all, your mathematics and your brain is very good, because you are well in terms of how you calculated current margin in terms of what you say Sun. On the other side you know that more and more we have also reported on that we are moving the business together.

We decided to put that all together in one headquarter of consumer goods in Stamford and for sure, the later, the more we go into the year, the more difficult it will be to differentiate these performance. On the other side, you know if you look back on the full year but also related to Q4 what I told you to all of you is that we see the synergies will come in at more than 10% of sales related to the Sun sales that and we also said that it will take roughly 24 months until we see the full swing. And already you see in Q4 when you recall the numbers, we had a high single digit margin of Sun now we are already in base on your calculation are on the level of about 12% and that's an ongoing development what we are doing. We are exactly on plan delivering on the synergies what we have incorporated in our business plan. So therefore we are well in track and for sure the dilution and I said I think also during my call, it's a temporary dilution will go away quarter-by-quarter.

And as I said, we are expecting after two years that this is done. Hans

Van Bylen: Let me continue in the U.S. on Sun. As we indicate also in our comments on the quarter, I mean we're happy that also our organic development in the U.S. is very strong in the first quarter.

And this is very much supported by Persil ProClean which is developing quite well and we see to two aspects of a supporting growth. The one is the further distribution built up. We now will be we see the latest numbers at 75% distribution which I mean after an exclusive launch in Wal-Mart I mean makes now the product nationally available. And we are happy we can convince retailers indeed to list the product. And why do they list the product, because indeed they see that sell out is quite encouraging.

And there where we are, we are now getting to market shares approximately 3.5% also supported by good complaints, so quite happy that we are establish indeed in the premium price segment Persil in a consistent and also quite encouraging way. Hermine

de Bentzmann: Very helpful, thank you very much. Hans

Van Bylen: Thank you.

Operator: The next question comes from the line of Celine Pannuti from JPMorgan. Please go ahead.

Celine Pannuti: Yes. Good morning. I would like to follow-up on what you just said. My first question is on the North American market. In your comments, you mentioned that both Beauty and Laundry did very well, so I'm presuming one part of the equation is where she said a better distribution in Sun, but could you flash if there is any other reason behind that growth especially at a time where some of your U.S.

peers have mentioned a very, very tough market? And also when I look at Nielsen market share, the numbers seem to be quite different. So if you could comment on that? And my second question would be understanding your outlook of using the environment will only increase in terms of competitive pressure, price and promote. Could you explain where you see that happening and whether we should then legitimately expect pricing component to decrease further? Thank you. Hans

Van Bylen: Thank you, Celine, for both questions. I suggest I continue also on the U.S.

as I was commenting on that. So indeed what we see is having a good quarter, but as you say I mean the market in U.S. is quite challenging. And what we do to see in our share development overall if we take Beauty and Laundry, our shares are stable slightly up, but as always I mean mixed per category, but in general I mean slightly positive. And of course what helps is as we said distribution enlargement of Persil, we also in beauty are strongly supported by the launch of Gliss, as I commented also when I talked on beauty.

And also here we get a quite strongly distribution. Also here we get into distribution levels above 60%. That's also working very well for us is our hair professional business with its as you know some acquisitions two years ago, we bought a different brands and we are now a strong number three in the U.S. in professional. And then what we also seen you is challenger getting mixed you see channels like Ulta, where you see professional also getting more to consumer exposure.

And in this field, we are doing very well. So profession U.S. is one also of our growth drivers there. I hope this helps on the U.S. to get some more insights.

Coming to the outlook, I mean starting with the U.S. already as you describe, I mean you also have been analyzing most probably even more in-depth how we do our competitors. As you see the results in our markets in consumer goods, markets are indeed extremely challenging that we do see at the moment as I also commented that promotional intensity is interesting as this price pressure this across all regions, starting from if you look at Asia, if you look at the China market, we're a brick-and-mortar and e-commerce business are in a huge transformation. If you see West Europe were I mean take countries like France, Germany, promotion intensities on quite significant high levels, Russia and then U.S. as we commented.

So it's a global phenomenon.

Celine Pannuti: All right, so does it mean that it will be difficult to recover some of the raw material price increases that you were flagging?

Carsten Knobel: No, Celine. That's the definitely not the case. Hans was referring to the pricing and promo pressure. And I think if you look back on our guidance for the year, we clearly pointed out that already when we were planning for 2017, we anticipated that raw material prices would increase and that what the reason maybe at that point for some people not 100% clear why we reiterated or why we disclose a moderate increase in raw materials.

And we have a very clear understanding of the real raw material development. And we in this respect ahead of curve and that's the reason why we are concerning the direct material guidance for the full year. And on our cost structure, the other items are perfectly under console. And on top though, we can assure you that as in adhesive we would benefit also like in the fast moving consumer goods division also from our fund growth initiatives, which we are implementing now especially our project which we call One Due [ph] which is the value creating resource allocation. We already here finished our value targeting phase and we are going already now into an execution phase and tackling cost categories.

And we are well prepared and that's relevant to all three divisions, but for sure especially when it comes to the raw material for adhesive's part.

Celine Pannuti: All right, that's helpful. Thank you.

Operator: The next question comes from the line of Fulvio Cazzol from Goldman Sachs. Please go ahead.

Fulvio Cazzol: Yes. Good morning. Thank you for taking my questions. My first one is just to clarify that I understood this correctly that the gross margin impact from the Sun acquisition was roughly 130 basis points in Q1, which if I did understand that correctly compares to 80 basis points in the fourth quarter. So I was just wondering what some of the moving parts that they made a more diluted in Q1 versus Q4? And my second question is a follow-on some of the previous ones on input cost.

When do you expect to see the impacts from rising raw materials starting to impact on your gross margins? Thank you. Hans

Van Bylen: Fulvio, thanks for your question. I think both questions, Carsten would be delighted to answer.

Carsten Knobel: Hans, I'm delighted. Yes.

Hans

Van Bylen: So, Fulvio, thanks. Maybe I was not clear enough and therefore thanks for your question in terms of clarification. So when I mentioned the gross margin impact on 130 basis points that was related to all acquisitions. We did not only Sun in the last year, but as I mentioned then as we mentioned also before, we did an acquisition in Nigeria, in Iran. So that is all impacting the gross margin in quarter one by 130 basis points.

Out of that 130 basis points, 90 basis points are related to the Sun acquisition and so that roughly at the same level as we have pointed out in the quarter before. I hope that clarifies and helps.

Carsten Knobel: It does, thank you.

Carsten Knobel: And to your other question related to the input cost in general. As - I think as I mentioned before once the Celine was asking, we've remained very confident in that what we have planned for the year.

And as I said we were anticipating raw material increases for the year 2017 because we saw first signs in already in Q4 2016. And you know it takes roughly three to six months until that brings effects into our P&L. And that's the reason why you don't see in Q1 of the year not a big effect as I said if you did the one 130 basis points or make a like-for-like comparison, our gross margin would have increased 40 basis points without the acquisition. So for sure, there is an impact which we will start to see more in Q2, but we planned for that and we have anticipated that and that's a part of our guidance, which we have disclosed in February and Hans confirmed just some minutes ago.

Carsten Knobel: Perfect.

Thank you very much.

Operator: The next question comes from the line of James Targett from Berenberg. Please go ahead.

James Targett: Good morning gentlemen. Two questions from me.

Firstly, just coming back on the professional of the salon business, you flagged a strong growth which seems sort of arose to one of your peers have been reporting in the quarter. You mentioned that the U.S. was strong in professional, I was wondered that was really the driver of the growth in that unit or whether there was strong growth across your hair salon portfolio? And then secondly, just I wonder on the Darex acquisition, if you give any color on opportunities there and what's level of accretion you expect from that? Thank you. Hans

Van Bylen: Thank you, James. So first question professional indeed, I mean we're quite happy with this performance.

And as I said it's now the eighth consecutive quarter that we see this business coming back to good growth and Q1 effect was very good. So - and if you see where growth comes from, U.S. is one driver, but also we're establishing Schwarzkopf quite strongly in Latin America which supports us and also Eastern Europe, also is at the moment doing very well. So it's in fact I mean U.S. of course is a big business for absolute numbers, but Latin America as we building up there, but also getting too quite some good size and Eastern Europe decide the growth that in the last quarter.

Concerning Darex, so there I think as you know when we announced that we were signing with let go to do some procedures especially in France which now is being closed, so that's now why we have a signing also Darex. Darex, I mean for us, as we commented also when we announced the deal is quite an exceptional opportunity to strengthen our metal packaging business, because it's an extremely complementary business. So it's all about sealants and coatings for metal packaging in the business in which we are. But this is also technology-wise extremely complimentary and will help us in serving our global customers even better. And now, I mean we see that we will not come and we have to get all the procedures about antitrust or let's see that in the coming months we come to sign and then to close the deal.

Signing has been done to close the deal. Also as we indicate that I mean and still important for you to know what's also interacting about this business is that's it's a high margin business. So also for us in segment, we know the margins, I mean some attractive business to be in and also this Darex business has quite profit margin. Hope this gives some more light on this acquisition.

James Targett: Sure.

Thank you. Hans

Van Bylen: Thank you.

Operator: The next question comes from the line of Guillaume Delmas from Merrill Lynch. Please go ahead.

Guillaume Delmas: Good morning, gentlemen.

A couple of questions for me, the first one on calendar effects because some of you adhesive competitors have flagged about their Q1 performance had boosted by additional trading days in Q1 of this year compared to the same period last year. So just wondering if you also benefited from this and whether you would see any potential reversal impact in Q2 this year? My second question is on pricing, you're clearly calling out intensifying promotional and pricing pressures in consumer goods, but paradoxically we've seen a sequentially improvement in both Laundry & Home Care and Beauty Care from a price standpoint. I mean particular in Beauty Care, you've got a plus 1.8% pricing contribution. Wondering what's driving this sequential improvement in price in Beauty Care whether it's more done to mix? And conversely in adhesives, we have a negative pricing in the quarter, many of your competitors have announced some pricing actions in the first quarter, I appreciate there is always a delay and some negotiations happening before we see the impact form pricing. But is it fair to saying that pricing has kind of bottomed out in adhesives in Q1? Thank you.

Hans

Van Bylen:
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Carsten Knobel: First off I'll start with the calendar. Guillaume, good morning. Thanks for the question. First of all the number of working days has a mechanical impact on a single quarter, which is even more especially relevant in the Adhesive Technologies, but you know that we never emphasis on this respect.

But coming to your question, yeah, there are different factors which influence the number of the working days on the one hand in Q1, 2017, we had one more working day in Q1 especially because of Eastern. On the other than as a consequence, we will have two working days left in Q2, because of the different shift. But I think that something which we always have to handle and we're doing that since we're existing. And then pricing, you have - yeah we have to differentiate for sure in terms of the pricing effect you specially mentioned in Q1, the beauty pricing effect which was quite positive. That's different factor.

One you mentioned is also related to mix then for sure also to when Hans alluded to the strong professional business and the performance we have seen and third, you know that in the FMCG businesses, we are counting the innovation part in the price component which is also playing into that part. So that's related to this area. When it comes to the adhesive's part which was your third part, the negative impacts from the increase of the direct materials, for sure we continue to regular price to ensure the right balance between volume and the margin development and first price increases we're already communicated but as I said already before. We anticipated that by planning the year 2017, but I cannot approach customers before I see the prices really in my P&L plus in the market. So that will be on the one side.

That you will see from a gross margin point for sure effect when the price increases go into the P&L but on the other side, you can be insured. And I think here we have shown in the last couple of years in adhesive especially that we are able also to bring that prices also to our customers which will we do. Hope that helps.

Guillaume Delmas: Yes. Thank you very much.

Carsten Knobel: Welcome.

Operator: The next question comes from the line of Iain Simpson from Societe Generale. Please go ahead.

Iain Simpson: Thank you very much. Good morning, everyone.

Couple of question if I may. Firstly, within laundry, it looks like share gain accelerated in North America but slowed in Western Europe. Could just give a better a color on what market share Persil ProClean is at now, I think last we heard it was about a 4% share, I'm just wondered what that number was now? And secondly, how the countries in Western Europe are doing, if there any sort of changes on last quarter 2016? And finally, just a housekeeping question that 13 million net financial shorts for the first quarter, is that the sort of run right we should think about for the rest of the year? Thank you very much. Hans

Van Bylen: Thanks Iain for both questions. The hygiene question customer spends for our hygiene always answered by Carsten.

Let me comment on that loudly, because it's important to me to see that I mean you also see market development numbers, you also see what competitors perform. So with our 3% organic sales, I mean that we're doing quite well in a quite challenging market. But as always I mean if you look on not just for period of course somewhere you have some win, somewhere you are stable, somewhere, I mean, so it's a mixed picture. But in general I mean positive. And coming to U.S., I mean I mentioned the number before when I comment some Persil ProClean, we're now getting to 3.5 share, which makes us quite happy, but that's only Persil ProClean of course, other brands also are doing quite well.

If you look market share around to Europe, I mean it's in most countries we are on the win, in some countries we see some short term promotional effects, and then some periods, I mean you lose some slight points. But in general I mean if we look you have to date numbers I mean on laundry, we're doing quite well, we also see that our innovations I mean hit quite strongly the market. Customer on the hygiene. Yes.

Carsten Knobel: Iain, hygiene, I understand that you would like to have a guidance on that, but we're not guiding on the financial result, but you can be assured that - and I think the results are showing that we're doing a very good job in having that not only under control but proactively steering and developing that.

But if you see for example the minus 13 what we reported in Q1 is not incorporating for example the acquisitions we just have been announcing and that's not small, the Darex acquisition is roughly a 1 billion and also the Beauty Care acquisition, it's a couple 100 million what we have so roughly 1.5 billion which will come if additional financing part in the course of the year. So therefore I think it's not - you cannot multiply that by four and for sure you will see that we will do a great job also on here to have that number developing quite well.

Iain Simpson: Thank you very much.

Operator: [Operator Instructions] There are no further questions. Thank you, ladies and gentlemen.

Hans

Van Bylen: And if there are no more questions, so let me come to closing. Before closing, let me also thank you for your feedback which we already got from some of you on our new format on the quarterly report, many thanks for that. And let me also fine tune close that and by saying that we are happy to see a strong set of results for Q1 and to be able to confirm our guidance for the full year 2017. And together with custom for sure I look forward to our Q2 earnings call on August 10th. Thank you for listening in and goodbye.

Operator: Thank you for joining today's conference call. You may now replace your handsets.