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Good morning and welcome to the Henkel Q3 2020 Results Conference Call. With us today are Carsten Knobel, CEO; Marco Swoboda, CFO; and the Investor Relations team. [Operator Instructions] Please note that there will be a live webcast of today's conference call, including the Q&A session. In addition, a replay of the conference call and the Q&A session will be available on our website, www.henkel.com/ir, for a certain period of time. By asking a question during the Q&A session, you agree to both the live broadcasting as well as the recording of your question, including salutation, to be published on our website. Here, we briefly mention your name and company you are representing.At this time, I'd like to turn the call over to Mr. Knobel. Please go ahead, sir.
Dear investors and analysts, good morning from Düsseldorf, and welcome to our conference call on the third quarter of 2020. Thank you for joining us. I hope that you and your loved ones are doing well. I'm joined today by Marco Swoboda, our Chief Financial Officer.Before we start, let me begin this call reminding everyone that this presentation, which contains the usual formal disclaimer of 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 this disclaimer. I will not read this disclaimer, but we take it as read into the record for the purpose of this conference call.What's on our agenda today? First, I'm going to lead you through the key developments in the third quarter. Then Marco will comment the Q3 business development in more detail as well as the new full year outlook we provided on October 9. I will close today's presentation with Henkel's business priorities. And afterwards, Marco and I are looking forward to answering your questions.Let's start with a brief overview of the key developments in the third quarter of 2020. The implications of the global COVID-19 pandemic continue to affect our business environment, although to a smaller extent compared to the second quarter. Despite these persisting challenges, Henkel returned to growth in the third quarter and achieved organic sales growth of 3.9%, with emerging markets up by 8.8%. I'm glad to say that the strong organic sales growth was supported by each of our 3 business units.In Adhesive Technologies, all business areas recovered compared to the second quarter, and the business unit delivered positive organic net sales growth, outperforming a still negative industrial environment. Beauty Care delivered a very strong top line performance, in particular, driven by the retail business. Our Hair Professional business recovered strongly from a very negative Q2 and closed the quarter low single-digit negative. Demand for our laundry detergents and household cleaners remained high, and Laundry & Home Care achieved significant organic sales growth. Worth noting that all regions contributed to this performance.As you know, we also issued a new financial guidance for fiscal 2020 in early October based on the business performance in the first 9 months and the assumption on the business development in quarter 4. We are all aware of the fact that infection rates have been rising to new highs in the past week. Governments are taking countermeasures and implement new restrictions, yet there are no complete lockdowns in most countries as we experienced in the second quarter. Taking the recent development into account, our full year guidance remains intact. Overall, we have not experienced adverse effects on our business performance in October although restrictions partly tightened again. At the same time, we note the high level of uncertainty in the environment.In these truly challenging times, the health and the safety of our employees, customers and business partners remains our first priority. I'm proud to see the team's unbroken dedication and commitment, which allows us to successfully master the current situation and lay the basis for a better future. And I am convinced that the true business transformation requires a cultural transformation. Here, we really moved forward accelerating our cultural journey with our leadership commitment at the core. To emerge stronger from the crisis, the execution of our purposeful growth agenda continues in full swing. Later in the presentation, I will especially focus on our progress in the area of competitive edge.Turning back to the third quarter and a brief recap on our business environment, which continued to be impacted by the global health crisis. With the pandemic situation prevailing, life didn't return to the pre-COVID times for most, with continued impact on economic activity and private consumption. Looking at currencies, quite some turbulences could be observed. Key currencies for Henkel strongly devaluated in the quarter. While the business environment remained challenging, demand in key markets and industries recovered versus the second quarter. This is evidenced by the development of the industrial production index as well as GDP and private consumption.Still, economic activity and household consumption remained below prior year's levels in many regions and countries. China is a notable exception. Here, industrial production and GDP increased in the mid-single digits in the third quarter. We also observed continued changes in consumer behavior triggered by the COVID-19 pandemic, with different impacts from category to category.Let me provide you some additional insights on how pandemic-related changes in industrial and consumer demand impacted our businesses in the third quarter.Adhesive Technologies. All business areas recovered from the lows in the second quarter. However, we continue to face headwinds from lower industrial and automotive production. One particular area of weakness was the aerospace business, which is accounting for a low single-digit share in sales. Our consumer and craftsmen as well as in our construction businesses, we benefited from staycation effect. Many people were still staying more at home, thus demand for do-it-yourself and construction products increased in quarter 3. And our China business mostly returned back to normal and grew very strongly in the third quarter.In Beauty Care, COVID-related impacts varied from category to category. While the salon business recovered strongly from a very weak Q2, it could not return to pre-crisis levels due to lower traffic in salons and some local lockdown. While social distancing in place, the styling market also developed negatively. In contrast, personal hygiene stayed on top of mind of consumers. The Beauty Care teams managed to capture these increased demands overproportionately. Human demand also remained elevated for at-home coloration, even though somewhat lower after a peak in Q2 when many hair salons were forced to close their doors.Laundry & Home Care. Strong hygiene consciousness among consumers remained evident in the third quarter, leading to increased demand for surface cleaners and toilet care. With people working, cooking and eating more at home, dishwashing product also remained high in demand. We were able to capture this overproportionately with our impactful innovation and targeted marketing campaign.To emerge stronger from the crisis, we continue to drive the execution of our purposeful growth agenda. Framework we established in the beginning of the year proves right and is guiding our way to win the '20s through purposeful growth. The execution of our growth agenda along the 6 pillars is in full swing.With regards to shaping a winning portfolio, I'm glad to say that we meanwhile closed both acquisitions we signed this summer. We also advanced implementing our future-ready operating model. Today, however, I would like to focus especially on the progress we made in the field of competitive edge, which contributed to the strong organic sales growth in the quarter.Starting with Beauty Care. I already mentioned that consumers stayed very aware of personal hygiene. To cater consumer demand, the Beauty Care teams continued to put increased focus on hygiene-related products. In this context, our North American brand, Dial, continued its success from the past months, recording double-digit growth in the third quarter. Teams also managed to outgrow the hair coloration market, winning market shares of around 50 basis points in our active markets globally. This outperformance was supported by successful launches such as Simply Color in the U.S. or Palette ELLE Favorites.Our Nature brands also continued to perform very well, growing double-digit in Q3. Moreover, we already saw first promising contributions from key hair care relaunches that came to market in the third quarter. With relaunches under our key brands, Gliss Kur, Syoss and Nature Box, we are addressing around 60% of our hair care retail business truly with impactful innovation.While we are driving sustainability across the group to achieve our ambitious climate packaging and social targets, we are also successfully anchoring sustainability in our product innovation. Part of the relaunches, we are enhancing sustainability features in packaging. We have been industry pioneers in the development of recyclable black plastic packaging, which is now implemented in our Syoss Care series. At Nature Box relaunch, we are the world's first beauty brand to introduce social plastic as a packaging material for the brand's complete bottle portfolio, which bodies made up of 98% of social plastics. And lastly, the new packaging of Gliss is now 100% recyclable, and a significant share is made from recycled materials. All in all, further improved important steps to promote circular economy and reach our ambitious packaging targets.Laundry & Home Care. The teams did a fantastic job winning market shares of around 150 basis points globally in the hand dishwashing category and delivering clear double-digit growth. This great performance was also supported by our Pril 5+ innovation with self-degreasing actions that works up to 5x faster in lifting the grease, thanks to an innovative surfactant system. Following successful launches supported by strong communications since Q1 2020 across key markets in Europe and Middle East, Africa, this innovation is rolled out in Germany as we speak.Let me also share an update on the detergent cap segment, which is of key strategic importance to us. Here, the teams achieved double-digit growth, building on the successful development of the first half year. Our impactful Persil 4in1 DISCS clearly boosted this result, also gaining further market share.Love Nature is our first launch on -- from our newly established internal sustainability, Idea Factory, in Laundry & Home Care. This new cross-category brand includes plant-based laundry detergents, surface cleaners and dishwashing products with sustainability as a key competitive edge. Love Nature is also pioneering the concept of refill stations at the national level with the brand pilot launch in Germany, the first Laundry & Home Care brand that offers refill stations across various retailers here in our homeland, exciting concept, leveraging a start-up innovation approach.Let me also share 3 impactful innovations in our Adhesive Technologies business. First, we saw strong business growth across major smartphone brands with our new series of high-end electronically conductive and nonconductive adhesives. The high-impact solutions enable the design of a new sensor technology that will allow consumers around the world to use the power of augmented reality featured 5G-enabled smartphones.We're also catering to changing customer needs in the context of e-mobility. Our expanded portfolio of thermal interface management material is highly demanded by multiple customers, delivering double-digit growth. Here, we successfully combine material expertise and engineering support and help to shape the world transition to a low-carbon economy. Double-digit number of projects were kicked off with large OEMs in the third quarter alone, thanks to our new high-impact offerings.With our portfolio of food-safe adhesives for paper straws, we enable the replacement of plastic straws. Our innovative adhesive solutions not only allow to increase the line speed in manufacturing by more than 4x but also improve the consumer experience, for example, through higher water resistance. A great example of how the teams actively contribute to a circular economy by enabling new packaging design with our solutions.I'd also like to speak out about our advancements in the area of digital, an important value creator and one of our strategic priorities. Here, we continue capturing emerging opportunities in the current environment, helping to accelerate digital sales force. I'm very pleased to see that in the third quarter, the digital share in overall sales surpassed the 15% for the group, with increases in all business.Our Beauty Care and Laundry & Home Care businesses combined, digital sales grew more than 65% in the quarter with new record levels in all regions. Successful direct-to-consumer operations, the expansion of strategic customer partnerships and an acceleration in performance marketing also contributed to this strong achievement.Also, our Adhesive Technologies business unit recorded double-digit growth in the quarter. Here, we are capitalizing on our e-shop, which, after recent go-lives in Australia and New Zealand, is now live in 55 countries in total. Throughout the year, the traffic increased significantly with a broad-based development across region. For sure, also a result of high user acceptance and consistently strong user feedback.With this, let me hand over to Marco, who will now lead you through our business development in the third quarter in more detail.
Thank you very much, Carsten, and good morning to everyone also from my side. Let us have a closer look at our sales development in the third quarter.Henkel recorded strong organic sales growth of 3.9% in the quarter. This was in particular due to strong volume expansion of 3.5%. Pricing overall was slightly up year-over-year in the third quarter at 0.4%. The net effect of our acquisitions and divestments was slightly positive at 0.1%. As already mentioned by Carsten, currencies were a strong headwind in the quarter and overcompensated the strong organic growth. Sales were negatively impacted by minus 5.5%, and especially the U.S. dollar and the many key emerging market currencies devaluated versus the euro; in the case of the Mexican peso, Russian ruble or Turkish lira, on average, even in the mid- to high-teens percentage range. As a result, Henkel recorded a decrease in nominal sales by minus 1.5% to EUR 5 billion.Moving on to the organic sales development by region. Overall, mature markets were positive at 0.6%. Our businesses in emerging markets recorded a significant organic sales growth of 8.8%. And Henkel recorded organic sales growth in all regions, except for Western Europe, which was slightly negative at minus 1.2%. This was due to lower automotive and industrial production. North American, in contrast, recorded good organic growth of 2.9%, supported by double-digit performance of our Body Care business and a strong development in Laundry & Home Care. The performance in Asia Pacific was positive at plus 1.2% due to a good performance in the region's emerging markets driven by China. Here, we recorded very strong organic sales growth, further improving from an already good second quarter. The mature markets of Asia Pacific declined year-over-year. In each of the Eastern Europe, Africa, Middle East and Latin America regions, we recorded double-digit growth, each significantly improving from the second quarter.Let me now move to our business units, starting with Adhesive Technologies. As you know, the first and especially the second quarter have been strongly impacted by the COVID-19 pandemic. In the third quarter, our business was still influenced by demand-driven decline of overall industrial production. However, we experienced a sequential recovery in our markets, with catch-up effects in selected businesses. Overall, the business unit recorded positive sales growth of 1.3% in the third quarter.Within Adhesive Technologies, developments in the different business areas and regions varied. Automotive & Metals remained behind the prior year development. However, the business area improved in the course of the quarter. In China, the automotive market mostly recovered and sales are approaching normal levels. Our Packaging & Consumer Goods business area showed a good organic sales development. This was driven by strong growth of our Consumer Goods business and very strong growth in the Packaging business.Moving on to the Electronics & Industrial business. In that area, overall, we remained below the prior year level, impacted by weak demand in the Industrials business. Especially, the aerospace industry, which accounts for a low single-digit percentage share of total Adhesive Technologies sales, continued to be severely impacted by COVID-19. Our Electronics business, in contrast, recorded a positive development.In Craftsmen, Construction & Professional, organic sales growth was very strong in the third quarter. In particular, our Consumer & Craftsmen business recovered from a weak second quarter and grew by a double digit percentage, partially due to catch-up effects.In total, the business unit recorded a positive volume of 0.3%. Pricing continued to be resilient at plus 1% in the period under review. In the third quarter, demand recovered across all regions compared to the second quarter. Nevertheless, the regional performance was mixed as the implications of COVID-19 on industrial businesses varied across regions.In the Asia Pacific region, the Chinese economy recovered. Here, most of our businesses were mostly back to normal, and we achieved very strong organic growth. The other countries in the region, in contrast, remained below the prior year despite recovery trends.Eastern Europe and Latin America each recorded double-digit growth, with key markets such as Russia and Turkey as well as Mexico and Brazil driving the respective developments. Africa, Middle East recorded a significant increase in sales. In all of these markets, in particular, the Packaging & Consumer Goods, but also Craftsmen, Construction & Professional businesses were strong. On the other side, all mature markets remained below prior year's levels. Western Europe was particularly affected by a decline in the Automotive and Industrials businesses.Moving on to Beauty Care, which achieved very strong organic sales growth of 4.3% in the third quarter. Our retail business showed a very strong performance across both mature and emerging markets. Our largest category, Hair, recorded a very strong organic sales growth. As Carsten explained earlier, our at-home coloration business grew double-digit in the quarter, a key driver for the overall performance. Moreover, the Hair Care business grew strongly in the quarter, while we continue to feel the negative demand trends for styling products amid social distancing in many countries.Our Body Care business could continue its success already seen in the second quarter, achieving double-digit growth in Q3. As you know, this business is especially large for us in North America where we have our brand Dial positioned in antibacterial handwashing and personal hygiene. While our Hair Professional business was hit by salon closures in the first and especially the second quarter, this business area recovered strongly in the third quarter. Throughout the pandemic, supporting our customers was a key priority with measures including prolonged payment terms, digital sales initiatives as well as in-store communication and speed service products when lockdowns were lifted. However, the Hair Professional business remained organically below prior year and declined by a low single-digit percentage due to hygiene regulations reducing traffic in salons as well as some local lockdowns. The business unit's very strong organic sales growth was driven by both positive volumes at plus 2.7% and positive pricing at plus 1.6%.From a regional perspective, Beauty Care recorded the strongest development in North America region. Here, as mentioned, the Body Care business was the key growth driver, while the retail business also performed very well. Western Europe achieved positive organic sales growth, with both the retail and professional businesses contributing. Beauty Care recorded strong organic sales growth in the emerging markets. Eastern Europe and Latin America each posted significant organic sales growth driven by the hair coloration and body care businesses. And in contrast, the overall business in Middle East, Africa was negative due to COVID-19 effects.Finally, on to Laundry & Home Care, which had an exceptionally strong quarter with 7.7% organic sales growth, with all regions contributing. And from a category point of view, Home Care continued to be the key driver of this performance with strong double-digit growth, with each of our core brands Pril, Bref and Somat, growing double digit. Both our successful product innovations as well as changed consumer behavior towards more hygiene consciousness supported this development. Also, our Laundry Care business improved quarter-over-quarter and achieved strong organic sales growth in the third quarter due to significant growth of our mega brand, Persil. Here, our innovation offensive is paying off, and amongst others, with a double-digit growth of our 4in1 DISCS.And importantly, we were able to grow our market shares in Europe, Middle East, Africa and Asia Pacific. In North America, our market shares are still below prior year. However, our production normalized in the course of the third quarter following the production issues in Q2. Overall, we recorded very strong organic sales growth in the third quarter in North America, also benefiting from catch-up effects from a weaker Q2.Organic sales growth of 7.7% at Laundry & Home Care was solidly driven by volume, which increased 8.8% in the third quarter. Pricing, in contrast, was negative at minus 1.1%, still impacted by mix effects and trade investments as was the case already in the first half of the year, though now to a lower extent.Looking at the geographic split. As you can see on the chart, Laundry & Home Care has been growing in each region in the third quarter. In Asia Pacific, Middle East, Africa and Latin America regions, the business unit even recorded double-digit growth. Eastern Europe achieved significant growth. North America, as already mentioned, returned to very strong growth. And also, Western Europe delivered good organic growth.Before we move now to the outlook, let's briefly recap on the organic sales development in the first 9 months of the year. The COVID-19 pandemic and its implications on the economies and societies affected our businesses, especially in the first half of 2020. In particular, our Industrial and Hair Professional businesses were hit, with headwinds on our businesses and sales peaking in the second quarter, while demand recovered strongly in the third quarter. Laundry & Home Care sustained a strong performance throughout the quarters to date, benefiting from increased hygiene awareness as well as our impactful innovations. For the group, organic sales development amounted to minus 2.1% in the first 9 months of 2020.Now back in October, when we issued the new full year outlook, we already anticipated that uncertainty would remain high in the remainder of the year. And as you all know, many countries are experiencing a strong second wave of infections. In some regions and countries, this triggered extensive government reactions, including lockdowns of private life and, to a lower extent, of business activity.Even before the recent rise in infection rates, market statistics already expected GDP and private consumption to remain below the prior year in Q4. The same holds true for the industrial production index. In a year-over-year comparison, industrial production is expected to decline by a low single-digit percentage in the fourth quarter. And in addition, consumer behavior continues to be impacted by the development of COVID-19 infection rates and the pandemic-related restrictions implemented in response. So obviously, we continue to operate in a very challenging environment, and uncertainty remains high.Our new outlook, as provided on October 9, is based on the assumption that the industrial demand and business activity in areas of importance to Henkel in the fourth quarter will be below prior year but will not deteriorate significantly. For the outlook, we assumed that there will be no far-reaching lockdowns in our core regions in the fourth quarter of 2020 as we have experienced especially in the second quarter.So based on these assumptions that we have taken, our outlook is as follows: We do expect organic sales growth of between minus 1% and minus 2% at group level in the full year 2020. And we are expecting the adjusted EBIT margin to be in the range between 13.0% and 13.5% at group level, negatively impacted by the expected decline in sales in the industrial and hair salon businesses due to the pandemic. Furthermore, and in line with our agenda for purposeful growth, we are also increasing investments in marketing and advertising as well as in digitalization and IT. Adjusted earnings per preferred share at constant exchange rates are expected to decline in the range between minus 18% and minus 22%.And with this, let me hand back to Carsten.
Thank you, Marco. So before we move on to the Q&A, I'd like to outline our key business priorities for the remainder of 2020 and beyond.As the global health crisis evolves, we, as the management board, care and react. Protecting the health, safety and the well-being of our employees, their families, our customers and our strategic partner remains our highest priority. Our broad set of support measures stays in place as we address the challenges together. While we are successfully managing the short term, we are keeping sight on the medium and the long term, shaping the company to build on our purposeful growth agenda. We are capturing emerging opportunities with agility and a strong entrepreneurial spirit, be it through impactful innovations or as part of our accelerated digital transformation. Last but not least, we retain our strong focus on liquidity while we continue to monitor and adequately manage costs, working capital and CapEx. And finally, and especially during these times, we are proud of the strong Henkel spirit across the region and the businesses, and we continue our cultural journey with passion and with commitment.Let us now move on to the Q&A. Ladies and gentlemen, the floor is yours.
[Operator Instructions] Our first question is coming from the line of Christian Faitz from Kepler Cheuvreux.
Two questions maybe. First of all, in Adhesives, if you look at the Automotive segment within Adhesives, how is demand at this point in time, i.e., in Q4? Has it sequentially further improved from Q3 levels?And then you -- a more general question for your consumer-driven activities, obviously, including consumer demand in Adhesives but also Home Care within Laundry. If we are past the COVID-19 pandemic, or as you call it in your presentation, staycation effect, do you expect to see a reversal of the positive lockdown effects we have seen for these activities?
So to your first question, when it comes to Automotive. So following the shutdowns and the production stops in many countries, the light vehicle production index as a key indicator for the Automotive outlook decreased by roughly 25% in the first quarter and around 45% in the second. In Q3, we saw a recovery across regions. Still, production volumes remain mid-single-digit percentage below the prior year level. So the automotive market in China, and I think we talked about that during the presentation, recorded strongly -- recovered strongly and almost reached with this prior year level.The development here is, for sure, also reflected in our Automotive business performance in Q3. Sales have been recovering from the lows in Q2 but remained below prior year levels. As per the last update by mid of October and thus before the recent increase in the global infection rates and restrictions, for the fourth quarter, IHS expected the development slightly weaker than in Q3. And for the full year, IHS is forecasting it will decline by roughly minus 20%.So -- and to your second question, Christian, when it comes to consumer staycation effect, maybe if we look first -- when it comes to our Laundry & Home Care business, we have to take into account, yes, there is a high comparison base as well as the reversal of pantry loading effects after very strong growth in 2020, but it's also supported by changed consumer demand patterns amidst the pandemic.And in Beauty Care, yes, there are some high comparable basis when it comes to our retail Body Care business, but overall, Christian, I believe now, and I think that's something maybe which can -- which we need to debate since yesterday when there are first signs that vaccines may and will come out. Independent of that, I believe that the hygiene trend, which was, I would say, accelerated by the pandemic, will also stay in 2021 because I think it's not a trend. It will definitely change the consumer behavior and customer behavior going forward. I hope this clarifies.
Okay. But just coming back to my first question, sorry for that. But Q4, I mean, if you look at your order book in Adhesives for Automotive, is this still stronger -- sequentially stronger than you saw in the previous months?
Christian, I hope you understand that I'm not giving trading comments on Q4. But I think you heard what I said, overall for the company in October that we have not seen any adverse effects related to our performance also maybe because of some rising COVID, I would say, closures or impact lockdowns, which have been there. But trading, I hope you understand. Thank you.
The next question is coming from the line of Bruno Monteyne from Bernstein.
Two for me. So one is a bit of a follow-on on the previous question around assuming we have an effective vaccine next year that gets deployed rather quickly, what are kind of the biggest shifts we should be looking out for the challenge of you next year? And did I understand correct that you're expecting hygiene growth upon hygiene growth? So despite the very high level of hygiene consumptions in H1, you'd expect higher growth on top of that rather than some small decline as a headwind?And the second question is you mentioning loads of great examples of innovation driving market share growth. But if we take broadly across the portfolio of all your consumer brands, have you been able to accelerate the transition you wanted to make your turnaround plan? Has there been sort of a pause in the transition plan on acceleration? And if so, can you quantify with some ways that acceleration? The percentage of markets where you're gaining or losing market share, has it improved? Or any other measures you would have with that.
Quite intense questions, so let me try to start with your first one and taking the situation of the announcement of yesterday. So first of all, from a health perspective, these are for sure encouraging news, and the vaccines will play a key role for sure in protecting the lives, especially of the most vulnerable to this virus.From a business perspective, I believe it's too early to make any predictions or speculations how this would impact our business. The vaccine will only be submitted to the authorities now for approval. And it is not clear if and when the vaccine will be approved and when we will become really available -- when this will become available on a wider scale. So let's hope that it will help to fight the pandemic, and I think the rest is what I already said, I think, in the context of Christian's question, that I believe, independent of vaccines, that this hygiene topic overall will stay and by that will also impact our businesses on the part.And for Adhesives, looking at Adhesives, here, per update of mid-October, which is before the recent rise in the infection rates, the implication of restrictions, the IHS expected GDP and industrial production in 2021 to increase by about 4%, respectively, following strong declines in 2020 with significant differences between industrial segment and the region.Coming to your second question, Bruno, which is related then more to -- your question was more to market shares in the consumer businesses. You know that we also have in our Adhesives business a significant consumer business. Maybe we start with that.Here, we're seeing good developments in the last couple of quarters and seeing rising market shares in our consumer setup. If I look at Laundry & Home Care, we see market share increases really across the world with the exception of North America. We pointed that out, that here the situation is not satisfying, and we're working on that. We have also changed management. Since a couple of weeks or, to be precise, since September of this year, we have a new Senior Vice President who's taking care in Laundry & Home Care of our business in North America.And if I look at the Beauty Care business overall, we are seeing overall stable situation of market shares with the significant changes or differences, though, in North America, a very good development I alluded during the presentation in terms of the situation of Dial, bringing double-digit growth into the setup and also good development in Europe.Independent of that, I would say, an overall point because you're also saying are we satisfied with our innovation initiatives and our priorities which we are setting, from my point of view, there is a clear, yes, we are going into the right direction. And I think this is also confirmed by the situation of our development of digital sales. You know that this is one of our priorities. We have reported that during Q1, Q2, where we have already seen high increases in our consumer businesses in Laundry and Beauty, and we have seen now in Q3 plus 65% growing -- organic net sales growth for B&L together, which brings our total digital sales of -- total Henkel sales to a level now of roughly 15%. And here, therefore, I think we are definitely on the right way.For sure, there is still a lot of things to be changed and come. Not everything is perfect, but definitely, we are on the right agenda, and the purpose for growth agenda is paying into the right direction. I hope that clarifies it.
The next question is coming from the line of Guillaume Delmas from UBS.
One point of clarification for you and then 2 questions. The point of clarification is, would you be able to provide what your organic sales growth would have been in Q3 excluding the catch-up effects? And the only reason I'm asking is so we can get a better feel for your run rate in October.And then my 2 questions. I mean, firstly, pricing in Laundry & Home Care. I was surprised to see a small sequential deterioration in Q3, particularly given that in Africa, Middle East, you've probably been growing in the high-teen territory in Q3. And I would expect some nice pricing contribution there. So what's driving this negative pricing? Is it more promotional activities in North America? And given what's happening on the foreign exchange front in emerging markets, do you see scope for additional pricing actions in the EM for Laundry & Home Care?And then my second question, I guess more big-picture question. It's about your margin mindset because your guidance for 2020 implies a 300 basis points decline versus last year, a 400 basis points decline versus 2018. So curious to hear how you look at your margin development from 2021 onward. Is it going to be about getting back as fast as you can to your 2018 peak margin levels? Or are you going to be looking at reinvesting maybe more behind the business, which would mean a more modest annual margin expansion going forward?
So good that also Marco comes now into play. He will -- may comment on the catch-up effect and also on the pricing. Maybe let me start with the margin mindset. And I hope you also understand that we will not make today a guidance for 2021. As you can imagine that the situation is quite difficult to judge, and independent of that, it's anyway not planned for today.One thing is clear, and I think this is what we outlined in March, you referred to the margin decreases we had been also stating at that point. We have our purposeful growth agenda. And for us, it is important, and I alluded to that before when Bruno had his question in terms of market shares and how we are doing overall. I think it's important to pay into our purposeful growth agenda. And on the long term, it is important that we have the right brands, that we have the right innovations and that we support the innovations in the right setup. And I think that is what we disclosed in March, where we, on the one side, had this margin reset; and on the other side, where we also clearly pointed out that our midterm guidance stays intact in terms of our organic growth, 2% to 4%, with more at the higher end of that range and also the situations that we are planning to have a mid- to high single-digit EPS growth with adjusted -- well, at constant currencies. And there is no change to that. And I think that's the overall situation, what I can allude to.As I said, we are having good signs that we're working into the right direction. And by that, what with the midterm is implied, a profitable growth development is something which we will not change. And the rest will come in 2021. And maybe that's for the more consumer-oriented part. For the industrial part, you see that the industrial recovery is not something -- and I think that's not new, which will come immediately back in 2021 with a full extent. So it's definitely depending on categories that it will take longer than a year. And all of that we will take into account when we will judge the situation how 2021 will look like also from a guidance perspective. I hope that clarifies a little bit more, Guillaume. And with this, I hand over to Marco for the other 2 -- for the questions left to remark.
Yes. Guillaume, your first question was on organic sales growth in the third quarter and the catch-up effects. And indeed, we -- like we said, we have experienced some catch-up effects in the third quarter. And in Adhesive Technologies, we saw a catch-up in customer orders, particularly in July and August in our Consumer and Craftsmen business when comparing to the second quarter. And also, in Laundry & Home Care business, in particular, in North America, which was, to a large extent, driven by catch-up effects following the production issues we had experienced in the second quarter.As you can maybe imagine, it's not easy -- doable to quantify these effects now exactly in the given market situation to really distinguish what is a catch-up, what is a normal consumer demand in that environment, which is characterized by a particular high volatility. So we refrain here from giving really a quantification, but we give you some color on the businesses that are affected and that you can make up your mind to the magnitude.On the pricing for laundry, the question was on why that is negative, in particular now in the third quarter. Now what we saw is that we have, on average, negative price effects, mainly driven by mix effects in the portfolio and also driven by higher trade investments as was the case already in the first half of the year. So that is more continuing the trend. And we see that, in particular, in Europe, where we also then introduced a lot of innovations into the market. While now looking at other regions, in particular, into the emerging markets, we did see strong volume gains across the emerging markets and also in Middle East, Africa. For example, we saw not only volume being strong but also price up, also as a reflection of the strong currency declines that we have seen in that region. So it's a bit of a mixed picture. But overall, mix and trade investments are the key drivers of that.
The next question is coming from the line of Richard Taylor from Morgan Stanley.
I'd love if you could give us an update on your disposals and the progress that you're making in terms of the underperforming brands at the tail of the consumer business. So that's my first question.And then a very simple one, on Turkey. I think Turkey is still a significant business for you. Obviously, the currency has had a little bit of a move there. Could you just update us on your business in Turkey and perhaps some of the mitigating actions that you're taking?
Marco, you take them?
Yes. On the first -- on the question update on disposal. In the course of the year so far, we have completed divestments and discontinuations with a total volume of roughly EUR 80 million sales, mainly in the Adhesives business and some smaller brands in the consumer business. And compared to the last update in mid-August, there have not been further material divestments or discontinuations at that moment in time.However, in the current environment, we mostly focus on setting up our structured divestment processes in order to be ready when markets come back. And here, I can say that we did make further progress, so we are well on track in our preparation of further disposals. And what I can say at this moment in time is that we are fully committed to execute the announced portfolio measures in the defined time frame by the end of 2021, and we will come back with further information as soon as that is possible.
Yes. Just sorry, if I may just have a follow-up on acquisitions. You've made some pretty interesting acquisitions over the last 12 months. So I appreciate that disposals have been a bit of slow progress. But maybe you could just talk a little bit about the changes that you're making in terms of digital and also beauty tech that have come via some of those acquisitions.
Now, Richard, on that, I think we have a clear path that M&A remains an integral part of our strategy going forward. And I think we can clearly say that M&A, that we also have here clear competencies and clear strength, which is also confirmed again what I said at the beginning of the -- of my speech that both acquisitions which we did over the last couple of months have been -- but not only signed, but have been already closed. And by that, we integrate them already in our businesses.And the ones which we just mentioned are really 2 compelling ones, which, on the one side, in Beauty Care, here, we are increasing our D2C, direct-to-consumer, business and our digital capabilities. And by that, I think that's definitely the right way where we need to go, which is also confirmed by our digital sales expansion. And with the Adhesives one, which we did here, we are broadening our position in the North American sealant market with this really becoming a strong -- having a very strong position in that. And yes, both are in line. And I hope you understand that what is in the pipeline I will not comment at this point.Maybe we have still the topic of Turkey, which I open to Marco.
So Turkey, in total, accounts for roughly 2% of group sales. So it's a larger country but not one of the largest. Of course, we do see, for sure, that the currency has devaluated substantially. And for sure, we will be hit by translation effects out of it. And that, for sure, also played a part of the FX-related decline in net sales that we did report on also for the third quarter. We do see, however, that also we have volume growth in Turkey in important businesses. So overall, I think we do fairly well in that environment. But for sure, on the translation part, we will have an impact.
The next question is coming from the line of Celine Pannuti from JPMorgan.
First question would be on raw material cost inflation. Could you tell us what kind of environment you are seeing in the second half of the year? My understanding was that in Adhesive Technologies, this was probably discretionary. So I'm quite surprised that your pricing remaining positive. Can you comment whether there are special effects in that and whether we should expect pricing to start weakening or not as we look into Q4, into 2021 in Adhesive Technologies?And then my second question on online. Could you give us how much of your sales are in consumer, so in Beauty and Laundry & Home Care altogether in online? You said they were up 65% this quarter. And you also mentioned that D2C was doing well. So could you mention what is it that you have in D2C in this category and how big it is?
Marco, you start with the raw material.
Good. So first question on raw material price inflation in the second half. So in the third quarter of 2020, Henkel, on a group level, recorded a small headwind from gross material price movements with, however, a quite differentiated development through the business units. When we go deeper then and looking at Adhesive Technologies, here, we recorded slightly declining gross material prices due to the tailwinds in petrochemical categories driven by the sharp decline of the oil price and lower global demand.In Beauty Care, on the other hand, we recorded a gross material price increase in the low single-digit percent. This was in particular driven by higher prices for contract manufacturing as well as short-term fragrance markets.And then lastly, Laundry & Home Care, we did experience an increase in the low single-digit percent mainly affected by short markets in fragrances and also in bleaches. So for the full year '20, we do expect gross prices of direct materials to remain roughly stable compared to the prior year. And that is the current picture that we do see. So quite differentiated.And you're right, and a, we have been able to keep prices up to some extent. That is, for sure, also a mix effect, but also we have quite a good market position with our broad offering of high-impact solutions. And here, we do set prices based on the value creation of the underlying solutions and not so much on the methodology of cost plus. So that is what also helped us in the given environment in Adhesive Technologies.For 2021, please do understand that we cannot give an outlook and guidance now. I think we have to see how that further develops, and then we will give the guidance also on the year 2021 in due course.
So Celine, for your second question, the terms of online, to give you here a rough number, the Laundry & Home Care, so both businesses, Laundry and Beauty together, so the consumer businesses, are around 10% of total sales, with the Beauty a little bit higher; Laundry, a little bit lower related to that number.
And D2C?
D2C, we don't disclose that in this part. It's also too early because we just have acquired the business, and we are not giving this split at this point.
We will now take our last question from Iain Simpson from Barclays.
A couple of questions from me, please. Firstly, you've highlighted the catch-up effects in both Adhesives and Laundry, which I assume is inventory rebuild at the customer end. Are you able to give any indication as to the size of the benefit from that, please, and whether we might see any more inventory build in Q4?And then perhaps just discussing your Home Care business, can you just remind us how big surface cleaner and dishwash both are as a proportion of your overall Laundry & Home Care business, please?
So Iain, very specific questions. I think for the first one, Marco has already, I would say, answered that the catch-up effect to quantify them are not really possible or to distinguish between normal business and the catch-up effects. And to your question now of Home Care in terms of surface cleaner, and you're bringing me a little bit into the point that I don't have these numbers ahead of my mind. So maybe we will either come back to that or let me have a look. I think it's -- I need to come back to that. Otherwise, I think it's -- otherwise, I would give wrong numbers, which I don't want, and I'm not -- having not all these numbers in -- ahead of my mind. I hope you understand.
Of course. We can come back to that.
No problem. Thank you, Iain.
Thank you, ladies and gentlemen, I will now hand over to Mr. Knobel for his closing remarks.
So dear investors and analysts, thank you very much for your questions, and let me close today's presentation with a summary of our key takeaways. Given the dynamic development of the pandemic, the health and the safety of our employees, their families and our business partner, this remains really our first priority. And despite the continued challenging economic environment, Henkel returned to growth in the third quarter and delivered strong organic sales growth with all business units really contributing to this. And with this, confirming the breadth and robustness of our balanced business portfolio with successful brands and innovative technology.Already in the beginning of October, we have provided our new outlook for fiscal 2020 in a business environment that remains highly uncertain. Due to our solid financial foundation, our strong company culture with our dedicated employees at the heart and our new momentum, we are confident to emerge stronger from the crisis. Our low debt levels and the significant financial flexibility give us really room to maneuver. We are firmly committed to our purposeful growth agenda. We will continue to drive our strategic initiatives constantly, adapting to evolving market dynamics and the results.As always, please be reminded of our upcoming events. Our next event will be the release of our full year 2020 results on March 4.With this, I would like to thank you for joining our call today. Take care. Stay safe, and stay healthy.
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