Beiersdorf AG

Jens Geissler – Head-Investor Relations Stefan Heidenreich – Chief Executive Officer Jesper Andersen – Chief Financial Officer

Guillaume Delmas – Bank of Merrill Lynch Mirco Badocco – RBC Rosie Edwards – Berenberg Celine Pannuti – JPMorgan Toby McCullagh – Macquarie Chas Manso – Societe Generale Philip Frey – Farbourg Research

Thank you. Yes, good morning, everybody.

Welcome to Beiersdorf's conference call. With me this morning, as always, are Beiersdorf's CEO, Stefan Heidenreich; and our CFO, Jesper Andersen.

My name is Jens Geissler. And we are pleased to report continued good organic growth in our consumer business in the past quarter, even in the current macro environment.

Today, we would like to share these sales numbers with you, so let's start with a brief message from our CEO, followed by a Q&A session. And I’ll now hand over to Stefan Heidenreich.

Good morning, ladies and gentlemen, and a warm welcome to Beiersdorf. Thanks for joining us in today's conference call.

My colleague, Jesper and I, will now report on our Company's performance in the last nine months. We will also give you an outlook for the coming months.

Ladies and gentlemen, we have good news. Given our strong business performance, Beiersdorf is increasing its profit guidance.

We now expect the EBIT margin for 2016 to be significantly exceeding the prior-year figure. Beiersdorf has continued on its profitable growth path in the first nine months of the current financial year.

We have succeeded, once again, in increasing our sales and market shares; our long-term efforts to further raise efficiency and improve our working capital are paying off more and more. We achieved this performance despite a very challenging economic environment.

The markets out there are anything but straightforward and have become considerably more challenging in the recent months. There are no tailwinds at present.

This is no news to you, but I would like to emphasize this here once again. To sum it up, Beiersdorf is in excellent shape that makes us confident about the coming months.

However, we remain cautiously optimistic due to the difficult economic and political situation in many markets in the world. Let us now turn to our results in detail.

Beiersdorf increased organic Group sales in the first nine months by 2.9% at EUR5.032 billion and nominal sales were slightly down by 0.1% in the prior-year figure of EUR5.035 billion. This was a result of negative exchange rate effects.

To tesa; tesa achieved organic sales of 1.2% in the first nine months of 2016 at EUR855 million. Nominal sales were down 1.0% on the prior-year figure of EUR863 million due to negative exchange rate effects.

This positive sales performance shows that tesa has picked up momentum in recent months, following weaker sales in the first quarter and a slight recovery in the second quarter. The increase in sales was thanks to the good performance of the industrial and consumer businesses in Europe and the Americas.

In Asia, sales remained below the prior-year level due to continued weak demand from the electronics industry. Turning to the consumer business.

In the consumer business we achieved organic sales growth of 3.2% in the first nine months of the year. This growth rate is very positive given the high basis of comparison in the third quarter of 2015.

Good performance in Europe was one of the drivers, despite a drop in sales of suncare products caused by the wet first summer months. We also increased sales in the Americas regions.

The heavy growth in the previous months continued in the Africa/Asia/Australia regions. Nominal sales rose by 0.1% from EUR4.172 billion in the previous year to EUR4.177 billion.

All our core brands contributed to the success of the business: NIVEA sales climbed by 3.6% year on year, Eucerin increased sales by 2.9% and La Prairie generated fantastic sales growth of 6.1%. Sales performance in the regions was mixed.

Organic sales in Europe rose by 1.6%. In Western Europe, sales were up 0.7% on the previous year.

There was strong growth, especially in Germany and Spain. We boosted growth in Eastern Europe by 5.5%.

Russia, especially, contributed once again to this positive performance. Organic sales in the Americas regions increased by 3.0%.

In North America sales were up 1.0%. Sales in Latin America climbed by 4.2%, driven by good growth rates in Brazil and Mexico.

In contrast, sales declined in Argentina. Once again, and important, I would like to point out that we have calculated organic growth for Argentina based on the current average exchange rate and not on the prior-year average exchange rate.

If the previous year exchange rates had been used, the consumer business, altogether, would have recorded total growth of 4.1% instead of the 3.2% reported. The calculation would have resulted in a growth rate of 11.9% for the Latin American region.

Let me repeat that once more, because we should always compare apples with apples, especially also against our dear friends. Repeat 4.1% for the consumer business segment and 11.9% for Latin America.

In the Africa/Asia/Australia regions Beiersdorf again substantially grew its sales by 6.1%. We achieved especially strong growth rates in Japan and India, and China sales were slightly down year on year.

To sum it up, Beiersdorf remains on track. We have continued on our profitable growth path, despite all the macroeconomic difficulties.

To the outlook, I would like to conclude with our outlook for the full year 2016. As I mentioned we are cautiously optimistic about the performance of the business in the coming months.

We are monitoring developments very closely and we continue to respond quickly and flexibly to any changes. We confirm our Group sales guidance for the 2016 financial year and continue to expect growth of 3% to 4%.

The consolidated EBIT margin from operations will now significantly exceed the prior-year figure. In the consumer business, segment we expect to outperform the market with sales growth of 3% to 4%.

The EBIT margin from operations in the consumer business segment is now forecasted to significantly exceed the prior-year figure. At tesa we expect sales growth to be slightly higher than in the previous year.

The EBIT margin from operations is expected to be significantly below last year's level. Thank you for your attention.

Thank you. We will now start the Q&A session and are happy to take your questions.

Please remember maximum two for each participant please.

Good morning gentlemen. A couple of questions from me.

The first one is on margins. So you've upgraded your margin guidance for the year from slight to significantly exceed.

I was wondering whether you could quantify, or help us quantify, what you mean. I think slight usually means around 50 basis points at Beiersdorf.

So for significantly, what should we expect? And still on the margin front, what are the key drivers behind this margin upgrade?

Is it down to the efficiency agenda implement by Jesper, or is it down to less FX transactional headwind than you initially anticipated? And then my second question is on your organic sales growth.

Because if I look at both your European and U.S. competitors, around a third of their organic sales growth at the moment, is from recently acquired small brands that are being quickly rolled out internationally.

So my question is why have you not pulled that lever yet, in order to boost your organic sales growth, which is already, particularly adjusted for Argentina, almost best-in-class? Thank you.

Maybe let me start with the margin question. So first of all, I'm really pleased to share with you that we've continued to make good progress on our efficiency and working capital initiatives.

Our Company-wide program that we started earlier in the year has landed very well through the entire organization. And the results, as you can see, are already very visible.

Our efficiency program addresses all areas of the P&L and it provides us with the means to deliver margin improvements in the consumer segment, despite that we also continue to see FX headwinds. Those are few examples of the efficiency program.

In the cost of goods sold area, our focus on procurement and logistics are providing us with gross margin savings, through network and load optimization, spend consolidation and competitive buying. In the marketing spending area, we are making good progress on generating efficiencies as well, through both spend and mix optimization, while maintaining our competitive investment levels across all relevant consumer touch points.

We have also initiated a long-term assortment and complexity improvement program, focusing on streamlining and harmonizing our assortment, both from a supply and from a commercial point of view. Last, but definitely not least, regarding our working capital, we have and continue to see strong improvements in the consumer working capital percent to sales, resulting in substantial liquidity improvements.

Our working capital drive focuses on all aspects, from streamlining our payables and receivable processes to inventory. However, I must say that I'm in particular pleased with the progress that we are making on inventory.

And our target for working capital remains to be single-digit within the next 18 months. So in summary, we're very pleased with the progress that we're making on our efficiency initiative.

And that we will deliver a positive contribution to our EBIT margin and liquidity already in 2016.

Yes, thank you Jesper, and probably also a word here from my side not a direct question. I think Jesper, and also Harald Emberger on supply chain, are really making the bias of model more complete, more robust.

You remember we focused very much in the beginning on brand innovation, footprint and people. Now the efficiency bit comes on top of that; that makes it a much better model, which I simply sum up as higher sales, higher EBIT, higher cash.

Go to your second question. In general I think, when I understood it right, is first of all I think the quarter like for like and compared – ought to right comparison, was a very good quarter.

Nine months, I told you 4.1% is the right number for the quarter, even 4.0%. If we look around, that's so far best-in-class for what we've seen.

I think also the mix of the countries, when we look at Europe with 1.6%, 0.7% in Western Europe, 5.5% in Eastern Europe; the Americas, you saw, came nicely back, especially the U.S. on 0% and 4.2% respectively, with 11.9% for Latin.

Good numbers and Africa/Asia/Australia with 6.1% also good. So we're quite happy with the mix what we're having at the moment.

My question was more about you not pulling the acquisition lever. Because Unilever even yesterday is still already think that using the organic sales growth for this company is increasingly relying on the acquisition of small brands that get very quickly internationalized and that becomes a nice contributor to the group's overall organic sales growth.

Just wondering why you're not pulling that lever, contrary to most of your competitors?

First of all, your assumption whether that works or not that's to be seen but that is not my call. Number two is we're running our model very, very straightforward.

We've never said anything else. And I think the results which we've shown, particularly in that quarter, is proof of it.

It's true that we have cash. It's also true that we're looking at things.

But we will follow our strategy first. It's organic, organic, organic and then if something comes, we put it on top.

Does that answer your question?

Okay, thank you.

Yes, morning all. I wonder if you can add a bit of color on your Q3 top line performance.

Specifically, I wonder if you are seeing any sign of improvements in the skin care category. And also if you can share your expectations for the category growth rate for this year and the next, that would be very useful.

I think that the skin care market, as such, has not improved. Unfortunately, we're still seeing a relatively tough market out there.

Actually even when we look month by month, even further declining. We see our skin market overall now, our estimate on a value basis, at around 1.0% globally at that stage.

Will it get worse? We don't think so.

Will it get a lot better in the next months? We also don't think so.

And I think we are well equipped at the moment. We have the market.

We have the competition. We have high comps.

And we also, as Jesper iterated, have the assortment reduction. So all that plays and I think that's the justification that our model at the moment is very robust.

A lot of people said, well the high comps and this and that. I think I'm very, very pleased with quarter 3 I have to say.

Under all the circumstances, putting it together, delivering a 4.0% and a 4.1% for the first nine months. And when you look also quarter by quarter, looking very nice.

Okay, thank you.

Good morning and just a question on your full-year growth target. I'm just wondering why we still have a range of 100 basis points.

Obviously, we've only got a couple of months left to go, so I thought the range of outcomes may have narrowed by this stage of the year. So anything you can add around that or what you're expecting in the fourth quarter.

And then secondly just on margin, just following up, again, on a question I think Guillaume asked. Could you just give us some indication in terms of certain meaning around the slightly and significantly ahead in terms of basis points?

I think previously the 50 basis points marker has been used. But I wasn't quite sure whether that was for slightly or significantly.

Thank you.

In regards to the top-line guidance, so we're holding the guidance as we've said all year long. Of course, as Stefan Heidenreich already explained, there is a lot of volatility in the market and we've seen that.

And we will be within that guidance, as we said all along. With regards to the EBIT margin guidance, we are, as I explained, very pleased with the progress we're making in consumer, in the efficiency area and that has delivered and will continue to deliver to the bottom line.

And that's very positive for us. At Group level, tesa weighs a little bit the other way and that's what we're expecting for the full year.

But the 50 basis points you've previously talked about, is that attributed to significantly or to slightly?

Okay, so let's say the wording we used, it's 50 basis points for slight. That implies everything above 50 basis points would be significant.

That's the way we need to phrase it, so significant starts at 60 basis points. When you do the math, and I'm sure you will do it, you will of course see that consumer will command a higher number, reflecting significant than the Group.

Because, as Jesper just said, we have a diluting effect coming from tesa. But all in all, it's an improvement in guidance, clearly consumer driving profitability upwards, which then is reflected also on the Group level.

Okay, thank you very much.

Yes, good morning. Would it be possible to have a bit of color in Q3 on three key markets of Russia, China and Brazil?

And also, circling back on what you said at the beginning that the market remains quite challenging and in the past it has gotten worse, where is it that you've seen that? And my second question is on tesa, could you comment on what are the drivers of the sudden deterioration in margin outlook, while your top line has been indeed better?

Thank you.

Well, on the top countries, I'll run you through. I think Europe, we're very pleased.

I think Western Europe, despite all the volatility in the markets and the France market in particular, achieving 1.6% all together is good. Russia, in particular is good.

A big part is in the 5.5%, which you see in Eastern Europe. So it's still holding on, also share-wise.

And we have to see in both of these circumstances, Europe and Russia, how it further develops but so far, so good.

Isn't it that Russia has decelerated in the third quarter?

Not much. We would have expected it more to go to a very low single but it hasn't done that.

It's still in the range of 5% to 10%, rather on the upper part. And that is pretty good.

We did expect, actually, a further slowdown but it hasn't happened yet, at least for us. When it comes to Brazil, obviously, the markets have continued a big-time cool down.

You also heard that from our competition. We’re still doing extremely good and we’re still doing double digit, which is nice, not any more double digit as we had to.

It’s double digit, just about it. But we are pleased with that performance, particular in that really, really tough environment.

And also it needs to be seen how that further continues. India, which you didn’t mention, is still flying for us.

I mean it’s still a very young company, but it will top €100 million. Considering that that was a company more or less from scratch, you can imagine that we still have big double-digit growth numbers and we’re very pleased market share and volume-wise what we’re doing there.

China is slightly down, which we also consider not too bad. We’re not going to lose money this year on China.

But in China, obviously, it’s quite a shift I mean what you hear everything. We have tremendous growth rates on ecommerce.

We’re all waiting now for 11.11. But on the other hand, we’re also losing big time in the brick and mortar stores.

So the mixture of it leads it to slightly, which we’re quite pleased with. Profitability-wise, obviously, it’s then the other way around.

So we’re okay with it, but we have to monitor China, in particular. I was there in the last four weeks, it’s particularly extremely changing modeling.

And we have to see how that develops in the next three years to five years.

Regarding tesa, then as we mentioned we had, from a sales point of view, a very good performance in Europe and Americas in the consumer and the automotive industry in particular. While we’ve seen the continued weakness in the electronic industry, in particular in Asia, and that composition of the business segments is what is impacting our profitability guidance for the full year.

I would remind you though that I think we’ve seen over the last couple of years very good profitability improvements in tesa and we expect nothing else going forward.

Okay. Can I just add one more question because I didn’t really understand?

Did you say that the suncare growth was down in the quarter? Because overall what we’ve seen is that the summer has been quite good in the end, especially with a better September.

Thank you.

Yes, yes, but I mean we started – the sun business is very simple. If you have very wet months, which we had until mid-July/July and, indeed, August/September was good, there’s no doubt about it, you have in the end a good sell-out.

But the selling you’re completing missing is the first two months or three months. So there’s no way that in August/September, because of the seasonality, the customer is stocking up.

So I mean I think if it’s wet in the beginning, it is always a challenging market and that’s what we indicated. Sun was not good for us.

Thank you.

Hi, good morning. Just two questions.

Firstly, both Jesper and Stefan mentioned streamlining of the assortment. Could you comment, I think there was a fairly major SKU rationalization at the beginning of the year, which presumably is what you’re referring to?

Can you comment on what the impact of that was, both in the quarter and perhaps the year-to-date numbers on both like for like and, presumably, that is also an impact on the margin improvement? So could you isolate how much of that is coming from this assortment improvement?

And then just secondly, on the key brands, whilst Eucerin, in particular, looks to have had a very good quarter and La Prairie also, it looks like NIVEA slowed down sequentially slightly into the third quarter. Is that just a comp issue?

Or is there anything about the phasing of product launches or rollout that should lead to acceleration in the fourth quarter and into next year? Thanks.

Maybe let me start with our assortment program. So we kicked off this assortment and complexity rationalization program in the beginning of the year.

And this is a long-term program for us. So it was not a let’s reduce significantly the assortment in the beginning of the year.

So it is really a long-term program for us. We have seen good progress on this.

But we will continue to work on this. And the reason why we treat it as a long-term program is that we manage very carefully the sales implication that this will have in any of our countries.

So on a like-for-like basis, I see very little direct impact on the sales line because we’re managing it very carefully through harmonization, through simplification. And from a margin point of view, I cannot quantify it but I know that the positive impact is already being seen.

Go to the business, to the brands, let’s start with the really good news. La Prairie is in excellent shape.

Also considering that we saw yesterday one of our major competitors, we’re very happy with that. La Prairie has a great pipeline, great innovation.

We are also having a lot of expertise now, selective expertise more in the house and that more and more pays our rent. 6.1% in skincare, and we only do skincare, we don’t do make-up, we don’t do fragrance, is a great result, without any doubt.

Point one. Eucerin, indeed, Toby, increased.

Nice. That’s particularly due to the U.S., which generally this year saw a turnaround in quarter 3.

When I woke up this morning we had 1.5 degrees in Germany this morning. Winter season is starting, so let’s cross fingers that the winter season is good.

Eucerin is good, so it’s starting now. Unfortunately, as of yesterday, in the U.S.

it’s still 20 degrees, so it’s a little bit the – what we have to see. On NIVEA, indeed, you hit it on the nail, it’s comps.

Still, for that quarter we are quite pleased with it. The innovation particularly, which we meant in protect and care, men care, creams, etc., are doing extremely nice.

So, we are overall very happy with NIVEA. Also market share-wise we’re seeing good trends.

Thanks very much.

My two questions, the first one is on your skincare performance. You’re saying the cash free is growing at 1%.

Clearly you’re doing much better on that. So market share gains.

If you could perhaps give us a bit more color on what’s driving those market share gains and whether consumers are trading up or down, presumably down, and whether that’s benefiting NIVEA. That would be the first question.

And second question would be about the rise of small brands. There’s a lot of angst about that at the moment across the industry.

Could you tell us across which geographies and in particular across which product categories of yours do you see the rise of competitive small brands being the most challenging for you? Thank you.

Yes, good question, I think, because we obviously saw some question marks on this and that. Let me repeat like that.

Number one is skincare market is 1%. It is down but it’s still a great market and it will become again a bigger market, as it has been in the last 1,000 years or so.

Skincare market is a business to be in, point. Whether it’s 1% or 3% or something but that discussion sometimes I find a little funny.

The second point which is driving it is the debate of whether an umbrella brand or many brands. Look at our results.

We are absolutely happy with an umbrella brand. The brand is in great shape, better than ever.

We can see that in the brand health tracker and this umbrella brand we drive further in certain segments. We see it as a strength and not as a weakness.

And then we obviously have a lot of chances in the footprint. It is true that we have still an over-dimension in Europe but over the time now more than 50% in emerging markets and that’s good for us because there’s still a lot of potential for us to lift and all the rest of it.

So we are quite happy with skincare, umbrella brand and also footprint expansion. So, to the local brands, yes, that absolutely something everybody has to watch.

The FMCG model is definitely challenged in some areas. It is not so much private labels anymore but it’s definitely local brands and local brands is, as I said, local.

We have some markets where they came, made also good progress in that, and we have to deal with it and that means here and there a different measure but we are finding concepts, how to tackle that in a faster way because they come very fast. Normally they have a very good insight and we have to react very fast to these things.

We cannot let that go. The reaction time has to be very quick and that’s what we are trying more and more to accomplish.

But it is definitely true. We will see also in the future, that’s my prediction, more local brands coming up and we, as the more established companies, have to react to that in the right manner.

Thank you but – thank you for that answer but what I was getting – what I was asking for, really, is there any difference between your product categories in the intensity of competition from small brands or is it pretty much the same across all your product categories?

Well, I think it comes a little bit. I think everybody has seen in the market that – particularly in sales we have seen here and there entrants.

I have not seen anything in deo, for example, so it depends a lot category by category and it depends a lot on who has an insight here and there. I think what it is, it is really a local matter.

It is not even in a second country or third country. It comes with a great insight, you have to say a great insight, with very passionate and energized people and what we cannot allow is to take that light.

And I'm asking my guys, if we see something, we have to react faster and basically copy them or do it even better than them and that's nothing to be ashamed of. But we cannot give these guys 12 months/18 months, run the market and so on.

Do it. Learn from it and so on.

And the good news is some of these insights which we've seen, we were able to dump already into other markets. So it's also a great new, let's say, source for innovation, a new source of product, and steal from the best.

Thank you.

Thank you.

Hello, gentlemen. I'm wondering could you comment a bit on the mix effects behind your optimism on margin?

How much is efficiency contributing that and how much is probably higher margin from your new innovations contributing and probably, lastly, what are you seeing in terms of regional mix effects on margins?

We don't really break out the different components but, obviously, as we are talking about the improvements and the good progress we are making, the contribution from our efficiency program is obviously weighing into our resource and we are pleased with that. From a regional point of view, we see our opportunities in the efficiencies across all regions.

There is no regions where we have more or less – everything is across all regions. So, we really see the same opportunity across different regions.

Maybe just a small remark. I've seen more dashboards and KPIs in the last six months than I have done in the last 10 years, basically, and they're bugging us with that.

But we are learning and what is for me good this year, I'm more, obviously, a commercial guy from the brand, from the innovation, from the footprint side and the people side. It's great to see how much the people adapt and also in very quick time and that's nice to see and it's – I have to say it's relatively – I know Jesper will agree, it's easier when – than to make growth, to be honest.

Okay. Then all the best for the future.

Thank you.

Thank you.

Yes. Thanks for the follow up.

Obviously the margin upgrade is the major news today and doing peer comparisons, Beiersdorf has been towards the bottom end, from a margin perspective. Are there any reasons that you can highlight why, over the medium/long term, Beiersdorf would have structurally lower margins than its peers?

Essentially, can you close the gap? That would be the first question.

And the second question, coming back to M&A, you’ve said you’re looking at some things. Obviously, nothing’s happened as yet.

Could you say where the bottleneck is, whether it’s asset availability, asset cost or sign-off from the owners? Thank you.

So, I think on the margin question first, we are focused on continuous long-term improvement. From a structural point of view, we obviously have smaller scale, our footprint is different.

So, there is differences but for us what matters is long-term continuous improvement.

And on M&A I’ve said everything. There is nothing more to add from my side.

Okay, thank you.

Okay? I think we’ve exhausted the list.

Emma?

Thank you for having joined our conference call. Beiersdorf’s next investor relations event will be the analyst meeting for our full-year results on March 1, 2017.

We appreciate your interest in Beiersdorf. Thank you and goodbye.