Beiersdorf AG

Jens Geissler - Head, IR Stefan Heidenreich - CEO Jesper Andersen - CFO

Mirco Badocco - RBC Capital Markets Hermine De Bentzmann - Raymond James Harold Thompson - Deutsche Bank Research Toby McCullagh - Macquarie Research Christian Weiz - Baader Helvea Equity Research Graham Jones - HSBC Philipp Frey - Warburg Research

Thank you. Good morning, everybody and welcome to Beiersdorf's conference call.

My name is Jens Geissler and today, Beiersdorf CEO, Stefan Heidenreich and for the first time CFO, Jesper Andersen, would like to share with you our business results for the first quarter of 2016. As you have probably noticed this morning, we have remodeled our reporting package for this quarter.

With many of you I had already discussed this. Our Q1 report is now much more focused on the really relevant information which is sales in full detail and a guidance update of our sales growth and EBIT margin expectations for the full year.

Q3 which will come in November, will have the same format, whereas half-year and our full-year reporting will remain unchanged. This reporting update reflects the new regulations introduced by Deutsche Borse by the end of last year.

We decided early this year to take the opportunity and to make our reporting easier to read and quicker to process for you. Okay.

We will now kick off with a brief presentation which you can access through the link in your invitation, followed by a Q&A session. Please remember that this Q&A session will be limited to two questions per caller.

I now hand over to Stefan Heidenreich.

Good morning, ladies and gentlemen. A warm welcome to Beiersdorf's financial analyst meeting for the first quarter.

Together with our new CFO, Jesper Andersen, we will record Beiersdorf's start to the financial year of 2016 and we will also give you an outlook for the upcoming months. Ladies and gentlemen, Beiersdorf remained on track in the first quarter of 2016.

The consumer business continued on its profitable growth path. Tesa, however, weaker demand in the electronics business in Asia led to decline in sales.

I will shed some light on this shortly. The growth generated by consumer is not something we're taking for granted.

We faced some major challenges, as expected, during the first three months of the new financial year. Our relevant market remained extremely volatile.

And the competition for consumers and market shares has intensified considerably in the consumer goods industry. Despite these challenging conditions, we significantly increased sales in many markets.

We're particularly satisfied with our performance in Europe's highly competitive market where our market shares increased in many countries. All core brands contributed to this growth.

Let's take a look at the key figures. We increased organic Group sales by 2.4% in the first quarter.

Nominal sales fell 1.9% due to negative exchange rate effect totaling at €1.673 billion compared to last year's €1.706 billion. To tesa, Tesa's performance was far from satisfactory in the first quarter.

Sales were down 3.2% on the high prior-year level. Nominal sales fell by 5.9% from €295 million to €277 million.

This decrease resulted from a significant decline in Asia's electronic business only. We do not expect to see a short term recovery of the electronics business in Asia.

Therefore, we have adapted ourselves to the new market conditions and have initiated the required market activities as it is good practice at Beiersdorf. To the consumer segment.

Consumer performed very well, delivering organic growth of 3.6% in the first three months of 2016. Nominal sales declined by 1.1% from €1.411 billion to €1.396 billion due to the strong euro.

Sales growth was driven by all core brands. NIVEA increased sales by 4.3%, Eucerin by 1.2% and La Prairie by 6.9%.

In the regions, sales performance was mixed. We recorded strong sales growth of 3.2% in the European market.

This is especially encouraging considering the tough competition in this market. The Western Europe sales increased by 2.0%.

Good growth was generated particularly in Germany, the UK and Spain. Again, sales in Eastern Europe increased by 8.5% driven again in particular by a superior performance in Russia.

In the Americas organic sales declined by 1.2% in the first quarter of 2016 following a strong performance last year. Let me give some details on Americas.

In North America, sales were down 4.3% on the higher prior-year level which was particularly driven by the sell-in of NIVEA In-Shower in the first quarter of 2015. Sales in Latin America increased by 1.3%.

Good growth rates were again achieved in Brazil and Mexico. By contrast, sales declined in Argentina.

Important here to note, unlike many other competitors, Beiersdorf calculates its organic growth rate in Argentina based on the actual average exchange rate and not on the average exchange rate of the previous year. This measure had a significant impact on the region.

If we would have used the exchange rate for the previous year in Argentina, we would have generated organic sales growth of 9.1% in Latin America. This also would have significantly impacted the growth rate of our consumer business segment, with sales increasing by 4.4% instead of 3.6%.

In the region Africa/Asia/Australia, we increased sales by 7.3%. This positive performance was mainly driven by Japan, Thailand and Australia.

Sales in China continued to make good progress. Ladies and gentlemen, the sales figures of the first quarter clearly show Beiersdorf remains on its profitable growth path.

Our business strategy is paying off. We continue to focus on strengthening our internationally-renowned brands, systematically increasing our innovation power and turning it into successful products, plus extending our presence in the emerging markets; and at the same time, we further concentrate on our home markets in Europe.

The systematic strengthening of our brands, particularly of our iconic NIVEA brand, ensures our long term, profitable growth. This clearly reflected in both Beiersdorf's strong performance of recent years and also in our figures for the first quarter of 2016.

To innovation, we're continuously increasing our innovation powers. We build the foundation for our Company's future.

Several NIVEA products that we recently introduced have shown the potential to drive long term growth. A couple of examples with NIVEA Care and also very much with NIVEA Men creme, we have tapped into new consumer potential for skin care market and have profited strongly from both products in the first quarter.

Furthermore and we're very happy with that, we successfully kicked off the world-wide launch on NIVEA Protect & Care Deodorant in the first three months of 2016 following an ongoing success in Brazil from last year. This new product also shares the quality of our future growth drivers.

Just a few weeks after its market introduction NIVEA Protect & Care Deodorant became a leading seller already in a number of countries. With NIVEA Face Originals, we recently introduced a new outstanding series for facial cleansing, a combination of cleansing milk, foam and wipes, delivers optimal skin care from just one source whilst offering the unique care qualities of the NIVEA Creme.

This distinctive blue product design and the unique fragrance of NIVEA Creme makes its recognition value for consumers very high. With NIVEA Face In-Shower, not Body In-Shower, Face In-Shower, we're continuing our In-Shower success story and once again set the tone in the face care category.

Another innovation just in time for the upcoming summer season is the NIVEA Sun Roll-On product, thanks to its roll-on format, it offers safe sun protection and care at the same time, quickly and conveniently on the go, especially for our kids. Ladies and gentlemen, as you can see, we have a pipeline with a number of innovations that give new impetus to the market and fuel our long term growth.

On emerging markets, our hard work on emerging markets is also paying off. We generated again more than 50% of our first quarter sales in these regions.

We will increase this share even further as we move forward; at the same time remain focused on the European market. The sales figures of the first quarter in many European countries show that this strategy works.

Ladies and gentlemen, let me conclude with an outlook for the full year of 2016. The entire consumer goods industry, including Beiersdorf, will face the same economic challenges in the near future that it's faced in the past three months.

We still do not see any sign of strong momentum that triggers an uplift in the global economic growth in the next months. Nonetheless, we continue to have real growth opportunities for Beiersdorf.

For this reason, we confirm our forecast for 2016. We expect the consumer business segment to outperform the market, with sales growth of between 3% and 4%.

The EBIT margin from operations should slightly exceed the prior-year level. At tesa, we expect sales growth to slightly exceed the prior-year level for the reasons I mentioned earlier.

The EBIT margin from operation is expected to be slightly below last year's level. Based on the forecast for the two business segments, we expect the Group sales to increase by 3% to 4%.

The consolidated EBIT margin from operations should slightly exceed the prior-year level. Ladies and gentlemen, thank you for your attention.

In your full-year results, I think you said that you expected markets to grow in the range of 1% to 2%. So my question is, are you still seeing the same dynamics or do you see any change in the trend?

Thanks.

I think my take there is the markets remain volatile. That can be seen every day in the news.

I think free candies and presents are not given at this time, but we have to work very hard and a very disciplined to go against these trends. And as you can see and hear also in my voice, I'm very satisfied with the first quarter when it comes to consumer and the momentum we're seeing in the business.

I have two questions, please, the first one on the consumer division in Europe. I was wondering if you think that you are able to maintain the 3% growth that we've seen in Q1, especially as you benefited from easy comps this quarter.

So can we expect this 3% growth to be maintained over the rest of the year? My second question goes to Eucerin.

I was surprised by the deterioration of the brand. Maybe can you precise what's happened in Q1?

And last question, in Eastern Europe, I was wondering as well if you took some pricing in this region in Q1. Thank you.

First of all on Europe, as I stated already in my speech, we're happy with the momentum in Europe. We're particularly happy in Germany, the UK and Spain.

Good momentum; also France lately we're seeing some nice momentum and Eastern Europe goes by itself. Russia has not deteriorated yet for us.

It looks good. Obviously, we have to remain on watch there.

But so far, so good, so I still remain positive when it comes to Europe. Point 1.

Point 2 is on Eucerin. We have done a split which is also new.

We have done a split between Eucerin and Aquaphor. Aquaphor has always been in the Eucerin numbers before.

We now split it. Aquaphor has done double-digit growth.

Eucerin has been so-so, especially in Americas. We had a warmer winter there which has also gone, so at that stage we're now preparing for the next winter.

We'll come with a re-launch, new start and I think then Eucerin will also take off. The Eucerin business in Europe has been extremely strong which is also a good sign, so we're happy with that one.

But the Americas, especially North America was here the issue. And on pricing, as always, we're not mentioning much about pricing, but as always it is good practice, we're very clear that the NSP always has to go in the right direction.

And I'm happy to report that in most of the markets, we're through with the trade negotiations and so that looks a lot brighter than when we met the last time in January.

And maybe one more question related to Europe. You mentioned in the presentation that you gained market share.

Can you precise in which region and in which category? Thank you.

Well, we don't go one by one. I said overall it's a positive trend what you can see in years also; and I repeat once more, particularly good in Germany, the UK and Spain and lately some nice momentum also in France.

That's where we're and it is obviously by the categories and driven by the innovations which I mentioned before, particularly through creams, deodorants and face products.

I've just got two questions. Skin care which I think has historically been one of the more star categories of the beauty industry appears to be a little bit slower at this point in time.

Could you maybe share your views as to why that might be the case? Is it may be linked to the innovation cycle or anything like that?

And maybe on to that, given the innovations you've showed in your slides, are there any more innovations to come this year? My second question is, I guess, welcome to Jesper, to the financial world and I was just wondering whether there's any initial comments you would like to share with us; i.e., in terms of the role you will have at Beiersdorf, some of your impressions maybe on the level of net working capital, balance sheets, anything like that which you might be in charge of.

Thank you very much.

To the question from Harold, yes, of course, my assessment as I've joined Beiersdorf has shown a number of opportunities and obviously strengths within the Company and those opportunities are the ones that are my priority in the areas of efficiency and working capital. I think we have some programs on the way that we will be able to share more about as we get further into the year, but clearly, these are the opportunities that will deliver the fuel that we need to drive the top line and gradually improve the bottom line.

Good. On the pipeline, Harold, that was, I think, your second question.

I feel pretty good. I think on deodorants, we have an extremely nice pipeline, I think especially in one -- I always look at one of the toughest markets which is Brazil which is dominated by a major competitor there -- we're making extremely good progress and that always gives me a good feeling of our endeavor on the right course, that we have the right innovation, the right assortment.

So very good. On face, we stepped up big time initiatives and more to come.

We see face more and more as the category to better for us. You see a lot already in the cleansing category; more to come in the care category and there, we're stepping up with the innovations which I told you before [indiscernible].

The roller is a very nice one. The first initial things were good but we're all waiting for the sun to come out.

It's been a relatively weak April; I'm not doubting that. But it's early times so we now have to have May/June.

This weekend looks a lot better. The sun is coming out and I hope the Sun gets started and then on shower, very interesting, very early times.

It came with a brand new innovation. So look at shares and tell you more in the next call.

It's for the first time an innovation which value rises the shower category. And, yes, we're very upbeat; we're going with a price way above the normal shower, but let's see whether that works.

We're very upbeat. It's a carry product and so.

Then on men category, men category is flying. It's really flying.

NIVEA Mean Creme had a superb winter and we're not only number 1 globally, we're also in the moisturizing category in many markets NIVEA Men Creme is number 1 product already, so we're very happy with the progress there, body has been a bit weak. The winter has just been too warm in general so we have to wait for the next season here.

And I think that's more or less all the categories I went through. Right?

And I was just going to -- that's on innovation. My just more general question on skin care as a segment of the personal care world; just appears to be a little bit slower than maybe what we've been used to in recent years.

Do you think there's anything specific or structural to that? And maybe my follow-on question to Jesper.

As you say, you're looking to work hard on the efficiencies and the net working capital. Is there anything structural why, for example, Beiersdorf's net working capital position is where it is?

And is there any reason why it couldn't be in line with industry standards; i.e., flat to slightly negative, for example?

I think it is evident that we have opportunities in working capital. I think that is to be seen as you compare us to the rest of the industry.

There is certain supply network reasons why we're where we're, but I think we have plenty of opportunities to improve the state that we have and we will be moving over time much closer to the benchmark of the industry.

And on your first question on the markets, Harold, don't know. I think the markets are long term.

If you look at it long term, I think the skin care market is one of the best ones to be in. I remain confident on that one.

I think it's just in the market there's a lot of volatility. The volatility puts pressure on pricing and income of people and that increases competition, spendings, promotions, all that and that what you see in the value and we just have to stay in touch with that one.

I think the overall is good. Short term, it's a little bit shorter.

I think it will pick up but there's too many things happening at the moment and I think once we see this year a little bit clearer, particularly I think in Latin America and also in the U.S. with all the things going on, I think then we'll also have a better [indiscernible] there.

I have just a couple left, please, firstly, on tesa margins. When you last reported divisional margins by region, the AAA region for tesa was much higher and it was the electronics contract that really drove the increase in divisional markets over the last handful of years.

Yet whilst you've moderated the top line outlook a little bit, you haven't changed the margin guidance on tesa. Can you just perhaps update what you are doing there to hold on to that margin increase that we saw over the last couple of years?

Secondly, on Eucerin, thanks for the detail on the regional split of the performance on U.S. being tough comps, Europe going pretty well.

Could you perhaps remind us where the regional footprint of Eucerin is very different from that of the consumer business as a whole? And then, just finally on China, I think you said it was good progress in China.

Does good progress -- was it positive organic growth in the quarter? And perhaps how did this split between SLEK and skin care?

Thanks very much.

Yes, Toby. Briefly on tesa margins, yes, we did change the guidance; took it from last year's level to slightly below which obviously is connected to the development of sales in the quarter.

You talked about Asia. Yes, that's the region where we typically are growing fastest, not in Q1 -- and this obviously then also somehow has to be reflected in our guidance and also in the profit guidance, but this is for the full year.

The Eucerin footprint, Toby, as you know, is different than the consumer footprint. We have some strong countries and some less and we're working step by step.

I think in Europe, we've seen good progress also in countries where we historically were weak, so we’re investing quite a lot into that. So there's more push on the line and I think also when we say Eucerin, we don't report on 100 plus.

We're also stepping up quite considerably on the plaster business nowadays and that shows also quite some good growth. So that's to that question on China.

I think that as everybody reports, the composition of the sales in China has changed dramatically and is changing dramatically. To give some light to what's that, we have seen growth rates on e-commerce in the first quarter of close to 100%.

And we're not talking any peanuts sales any more, we're talking considerable sales. And that goes into the NIVEA category as well as it goes, but much smaller, to the hair care category.

And that composition of the sales or that mix, I had never seen in my career before. It will continue as everybody reports.

What is extremely nice and also here to report something, we just got for the first time market shares in China on e-commerce and Nielsen promises for the first time by midyear that retail sales and e-commerce sales will be combined. And we're extremely pleased here also to say that the absolute, far distant number 1 men's skin care brand in China is NIVEA Men.

So we're very pleased about that. It's exactly the opposite way in the retail at the moment.

But putting that together we come closer. So we're very happy to see that and that shows that in e-commerce we're doing some things right.

In the past, you've been rather reluctant with your statements with regards to France. They've been rather negative.

But now you say that France is recovering, is doing better. What has changed there?

Is it your strategy or your products? Or is it that the overall market is improving?

And with regards to the Sun Roll-On, I assume that you will expand this product to other outlets, probably not only a kids' product. And can you give us an indication how big do you believe that this product might be and will it have above-average margins what I assume?

Can you just shed some more on this?

I don't know on roller or Roll-On. There's one market in the world which has a big share of rollers which is in Australia.

There indeed it has started over the kids. That's also why we're starting here with kids because it's an easy application for kids.

And also, the kids themselves like it because they don't have to put the cream everywhere and so on. There is some interesting thinking also now along the line that that might also be something for adults.

Don't say too much, but you could think about pocket applications. But I don't say more now.

So a point on that one. And then on France, I think what has changed here that we're probably the only -- we have a great team there.

I was recently there. That is getting more and more together.

And we're very, very pleased that in our categories, pleased our categories on sales we're dominating the market. So NIVEA is the number 1 face care brand not company in France and we're very happy about that and the distance has increased over the recent months with a lot of initiatives we're doing in cleansing and care.

So, yes; pretty pleased to see that in the home market of one of our major competitors.

My first question just relates to your phrasing on consumer in terms of your comment of considerably intensified competition. I just wanted to clarify.

Was that a comment about a change in Q1 in particular or just how things have been moving over the last six months to 12 months. And where in particular have you seen that intensification in competition?

Is it in particular countries or in particular categories? That's my first question.

Secondly, on North America with the 4% fall in organic sales and you flagged it was tough comp against Q1 when you had launches. I think North America Q1 last year was 5% growth, but you still going to be pretty decent growth in Q2 and Q3 of around about 4%.

So I just wondered whether you were still happy with consumer off-take and how that consumer off-take is progressing in North America. And thirdly, if I may, one final quick one is, could you give us an update on how razors and blades are performing in Germany?

Well, the first one is a quick one. Competition was tense last year and it's tense this year.

And especially in the beginning of the year it's more tense because, A, there's a lot more money available; and, B, many people come in the first and second quarter with the innovations. So I wouldn't say it's more or less but it clearly is still on a high level.

Point 1. Point 2 was on North America.

I think one has to acknowledge that we had a warm winter. One also has to acknowledge that we're running against a high pipe-full of In-Shower last year.

The next months will not give us a lot of light on that one because we're coming into the summer months. We're very much depending in North America on cold weather because all of our franchises are more or less in the body cream area.

So let's see that. We have some things coming.

We have also some innovations coming so hard to say where it lands in the end. Structure and profit-wise it's on a good trend.

Growth-wise at that stage I remain confident, but that has to be seen. And the last one on blades, doing great; happy, very happy and shares are increasing nicely in the markets where we're still testing and learning and so on.

You saw another launch from us into the next thing from disposables. We went now to hybrids.

That was the next or system razors. And you will see very shortly the next move from us.

And so far, we're above our expectations. We're quite happy with what we're seeing, so step by step going forward.

Well, quickly on tesa, you mentioned that you've initiated measures for the Asian electronics business. Are you mostly referring here to cost-saving measures or are you seeing any specific product innovations or new inroads into new customers that you think can improve the situation here?

Little comments on that one. And probably coming back to the blades one, interesting market.

By the way, is there any limit for you in terms of the capacities of your cooperation partners and how fast you could ramp up this business?

Right. So to question number 1 on tesa, I repeat, the overall business tesa is good.

We're very happy with what we're seeing in tesa. There is one issue and it's the only issue and that is electronics in Asia.

And it's something you can read in the press; you can also study yourself. It's something which is completely market driven and product and model driven and there's not much we can do about it.

And activities means, we hope, that with new projects coming up from our partners and new models are coming up, we have a good share and hopefully they get a good consumer acceptance and then also the electronic business will return but that remains to be seen. Here we're completely depending on our B2B partners.

And obviously, we have stepped up R&D, we've stepped up project work and we hope that here and there over time we get projects back. On blades, not more comments than I said.

Business is doing good and supply is being secured and the rest to be seen.

Just one additional remark here. Do you think that at tesa Asia that the electronics weakness partly reflects also an inventory reduction of your customers or would you see that it's mainly sell-out driven?

Well, I'm not reporting on my customers, as you can say. It's not good practice here.

You can imagine with what customers everybody works in the industry. And the rest is relatively clear, not more to say.

In that part of tesa's business, we're depending on the underlying industries and this is what's being reflected in this quarterly number.

Well, thank you for having joined our conference call. Beiersdorf's next investor relations event will be the conference call for our half-year results on August 4.

We appreciate your interest in Beiersdorf. Thank you and good bye.