Beiersdorf AG

Jens Geissler - Head of Investor Relations Stefan Heidenreich - Chief Executive Officer Dessi Temperley - Chief Financial Officer

Richard Taylor - Morgan Stanley Alain Oberhuber - MainFirst Bank Martin Deboo - Jefferies Jorg Philipp Frey - Warburg Research Ian Wood - Redburn Marion Boucheron - Raymond James Rosie Edwards - Berenberg Chas Manso - Societe Generale Jeff Stent - Exane BNP Paribas Guillaume Delmas - Bank of America Merrill Lynch

Good morning, everyone. I would like to welcome you to Beiersdorf’s Half Year Conference Call.

I’m Jens Geissler and here with me officers is Beiersdorf’s CEO Stefan Heidenreich; and for the first time Beiersdorf’s CFO, Dessi Temperley. As usual, we will first present our numbers and the business review and afterwards we will have a Q&A for analyst.

When you register for the Q&A, please remember that there is a limit of two questions per caller. And with that, I will now hand over to Stefan Heidenreich.

Good morning, ladies and gentlemen, and a very warm welcome to Beiersdorf. We appreciate your interest in our Company and its performance in the first half of 2018.

I will report with [indiscernible] on our half year results and will give you an outlook for the coming months. Before I do so, may I first introduce my new colleague in the Executive Board, Dessi Temperley, who became our new Chief Financial Officer a few weeks ago.

In the future, she I will be both reporting on the Beiersdorf result welcome Dessi.

Thank you, Stefan. Good morning to everyone, I’m very pleased to be here at Beiersdorf.

Today, I will be a silent participant here, but I’m really looking forward to closely working with all during the future.

Good. Ladies and gentlemen in the first six months of 2018 Beiersdorf has continued on its profitable the growth part of the seventh year in a row.

The Company’s key financial figures all remain positive both business segments consumer and Tesa performed strongly. Given the products and performance in the first half year of 2018, we are listing our sales forecast for the financial year.

Beiersdorf has laid a strong foundation for sustainable growth with its forward thinking and result driven business model. Because of our blue and beyond focus is our effort to further leverage the potential Eucerin, Hansaplast and la prairie alongside our iconic NIVEA brand as drive forward digitalization.

It clearly shows that we are in strong position and that we have set the right direction for the future. This is why despite all the political and economic uncertainty, we look ahead to the coming months with optimism.

Our results in detail. We increase organic group sales by a strong 7.7% in the first half year, as a result of negative exchange rate effect cost by the strong euro number of sales grew stood at 2.8%.

Sales increased from €3.513 billion in the previous year it was €3.613 billion. This includes a one off effect due to the [indiscernible] in June 2017 and the residing senior shift in the previous year.

Its positive effects remains limited to the second quarter of 2018. Despite negative currency effects and increases in commodity prices, group EBIT improved by 4.3% from €561 million in the previous year €585 million.

The EBIT margins was at 16.2% compared with the prior year figure of 16.0%. Now to Tesa.

Tesa perform extremely well in the first six months of 2018, the business segment achieved strong organic sales growth of 10.6%. Sales were up 7.5% and number of terms from €610 million to €656 million.

EBIT improve slightly from €110 million in the previous year to $113 million an increase of 2.8%. The EBIT margin was 17.3% compared with the previous year's 18.1%.

This result was effective of several acquisitions. Turning to these acquisitions in more details.

Tesa made suitable additions to its product portfolio with acquisitions and Germany and elsewhere in the first half of 2018 and in the previous year. Let me give you some color on that.

In March 2017, Tesa purchased Nie-wieder-bohren Ag, one of the world's leading manufacturer of adhesive paste and self adhesive systems. In early 2018 Tesa acquired the Netherlands based business segment Twinlock from Polymount International.

The company is specializing and manufacturing adhesive product for the printing industry. The acquisition of Functional Coating Incorporated for the use of innovative adhesive tapes and sealing materials in the United States followed in May and fourth and most recently the investment in [Walsh] (Ph) a London based company from [ATT] (Ph) as it is which is known for its new diverse new cost [Indiscernible].

The total sales volume of the four companies acquired was approximately €65 million in 2017. With these acquisitions, Tesa’s is further improving it's already strong market position around the world and increasing its speed as a competitive supplier of system solutions entities.

Coming to the consumer segment. The consumer business segment ended this first half of 2018 with another sales record.

Consumer receive organic sales growth of 7.0% significantly outperforming the market. Sales were up 1.9% in nominal term from €2.9 billion or €3 billion to improved €0.957 billion.

This was despite negative exchange rate effect. EBIT increased by 4.7% from €451 million in the previous year to €472 million the EBIT margin was at 15.9% after 15.5% in the previous year.

All co-brands made a positive contribution to the sales growth, NIVEA’s sales were up 3.5%. The derma business unit which includes the Eucerin and [Indiscernible] brand ended the first half year with strong increase of sales of 9.5%.

Sales in healthcare including the Hansaplast and Elastoplast brands were up 0.9% year-on-year continuing it's excellent results in the previous year once la prairie once again achieved a significant increase in sales with remarkable 55.9%. On the regions.

Organic sales in Europe grew by 5.5% and Western Europe we lift the sales by 5.0%. In Eastern Europe we generated strong sales of 7.5% in the first six months of the year.

Sales in America were mix with 4.5% and North America, we recorded extremely strong growth with an increase in organic sales of 12.5% and Latin America sales were down 0.7% on the previous year figure due to a difficult broader political and economic condition in Argentina and Brazil. On this subject, let me give you some color.

It is worth noting that Beiersdorf's unlike some peers calculates organic for Argentina based on the current exchange rate rather than the previous year’s average rate. Based on the later instead of a decline, we would have reported an increase on organic sales for Latin America up 4.0%, as the results the consumer business segment would even have grown by 7.5% rather than 7.0%.

Business achieves very strong growth in the Africa, Asia, Australia regions where sales were up 11.2%. To sum up, Beiersdorf has successfully continued on its profitable growth plan in the first six months of 2018.

Nevertheless we are remaining cautious and observing market developments very closely. And above all, we are making sure we are keeping our feet on the ground.

As I said earlier, our focus business strategy is the essential pillar of our growth trends in recent years. Our strategic goals are as follows: Strengthening our brand, increasing our innovative capacity and pace of innovations, systematically extending our market presence especially in growth regions and improving our efficiency.

Over the last year, we have achieved significant success in this regard with NIVEA. With Blue & Beyond, we have added two important objectives.

We plan to one leverage the potential of la prairie, Eucerin and Hansaplast and two drive forward the digitalization in all business segments. On the first objective, over the first six months of the current financial year, la prairie achieved an impressive growth of more than 55%.

This w as mainly thanks to highly - new products. Sales also increased substantially at Q3 as with la prairie the growth in sales was mainly achieved again through newly developed product which has been very well received by consumers.

As a result, the Beyond segment grows more than 20%, a strong 22.2% to be precise. And regarding the second objective, the rapidly increasing digitalization at Beiersdorf is key to ensuring our company’s future success.

That is why my the topic at top of Beiersdorf’s agenda. Our focus is on one, extending digital marketing.

Two, investing in digital technologies. Three, new research and development applications.

Fourth, extending e-commerce and fifth, improving digitalization of skills of our employees. On digital marketing, digital marketing is becoming an increasingly important part of how our Company communicates with our consumers.

We use new media especially to reach young consumers. The key advantages of the new media are that they enable us to communicate directly with our consumers to inform them about our skin care products and to get some tips for their personal skincare.

This is laying the basis for long-term trust in consumer loyalties. Second, investing in [indiscernible] technologies.

Given the growing importance of digitalization both inside and outside of the Company, we are intensifying our investment in these new technologies. This includes projects using artificial intelligence and voice activated assistance [indiscernible].

We are therefore working both with international leading company, startups in this area. And the area of research and development too, we are developing new application for the latest technologies, Beiersdorf recent, we ended the partnership with S-Biomedic in Belgium across the company.

S-Biomedic is specializing in the cosmetic and therapeutic potential of the skin microbiome. We expect this investment will produce forward looking new discoveries in the field of skincare to add us develop new products.

Fourth expanding e-commerce. We are accelerating our broad expense on e-commerce in the national e-worker’s special focus on China.

We are working intensively to expand e-commerce in this important growth market for Beiersdorf by cooperating with the leading online platform. Our partnership include Alibaba and JD.com we will begun another collaboration in May 2018 with NetEase Kaola the largest online platforms in China for cross-border e-commerce.

Improving the digital skills of our employee is point number five. The digitalization process can only succeed if Beiersdorf employee has the necessary digital expertise.

We therefore further expanded the training offered for to our employees in the first year of the current financial year. To the guidance, ladies and gentlemen, I would like to conclude my comments with guidance for the next six months of the current financial year.

The global economy is expected to continue growing in the second half of the year; however there are risk from political and economic uncertainty. For Beiersdorf, we are nevertheless optimistic about the coming months.

Specifically our growth expectations for 2018 are as follows. Thanks to the strong performance in the first half of the year, Beiersdorf is now increasing its sales forecast for the group.

Sales growth of around 5% is now expected. The group's earnings forecast remains unchanged, the EBIT margin from operation is expected to remain at prior year levels.

The sales forecast for the consumer business segment is being increased to approximately 5%. The earnings forecast remain unchanged.

The EBIT margin from operation is expected to slightly exceed the previous year figure. For the Tesa business segment, Beiersdorf now expects sales growth of 5% to 6% the forecasted EBIT margin from ongoing operation remains unchanged and slightly down year-on-year.

Thank you for your attention.

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

Please remember that we have a limit of two questions per caller.

Three quick questions from me. What was the underlying volume growth, the degree specifically the underlying volume growth of NIVEA?

And secondly what were the drivers behind the negative gross margin?

Well, overall the composition of growth is clearly towards the volume component, so we don’t split this in absolute numbers, but it’s mostly volume. Regarding the EBIT part and the impact on where we are regarding EBIT margin, well, we see that pricing suffer from as we say competitive price deflation.

There was the strong euros FX on the EBIT margin clearly had a super strong impact and it goes for gross margin and EBIT margin. Raw material prices were headwinds in the first half of 2018 namely also prices of minimum all derivatives and impact on cost of goods also a bit of transportation costs.

Thank you.

Thank you.

I have two question. The first is regarding the free cash flow it was a strong increase in working capital as we have seen, could you explain us a little bit why was that the case and how we probably could expect regarding the working capital for the remaining of the year.

The second question is regarding your cautious guidance for the EBIT margin; now we have seen very strong growth in La Prairie, as well as solid growth in Eucerin and you are not increasing the group guidance for the EBIT margin it's mainly because of the currency which you just mentioned and or is it because of lower margin increase.

Well regarding let’s start with the working capital. Well actually I mean the numbers you are looking at are the balance sheet due date number.

So I can give you the details of consumer which was on a rolling 12 months basis where we are actually seeing a stable development for consumer at 9.3 that a progress and payroll, so it's a stable development and. Still Tesa had slightly working capital and this also has been reflected in balance sheet.

Regarding EBIT guidance, I think what I just said covers also the explanation for what is going on EBIT guidance. So we do see also for the rest of the year the raw material headwinds.

We don’t know what is going to happen with FX, so we are more on the cautious side. We don’t know what is going to happen to the very, very strong growth in La Prairie and I was just going to evolve so overall to be in the cautious side that is why EBIT guidance is where it is.

Thank you very much.

Thank you.

Stefan I think my question relates to Alain’s. Just going bit in the concept of Tesa, Tesa margins were well down in H1, a little bit more down than the market expected, but you are clearly expecting special margins in H2.

I realize the prior comps in Tesa are very different in H1, H2, but just what was putting pressure on the margin in H1 Stefan and what are you seeing in terms of the commodity and environment in Tesa?

Well we have just said about consumer also plans to teas, I mean they are also exposed to raw material, even more so due to lower gross margin and the consumer business. Regarding the full-year outlook, also keep in mind that we are going to allocate some of the purchase price that is coming from these acquisitions we made one in 2017 and three in 2018 and that is going to be reflected also in the full-year number for Tesa margin and also in guidance.

So reasons basically being similar through the ones in consumer with the exception of the purchase price allocation.

Okay. Thank you for that.

Thanks.

I'm just trying to really get my head around the relatively lower margin level which you have seen, while La Prairie obviously being your highest margin division, is there anything which is holding you back [indiscernible] and has a meaningful impact on margins, if you managed volumes reasonably well anything that you can give us there. And secondly do we expect to enact some price increases to counter raw material price increases or the more launches at higher price points.

So anything strategic to offset that?

Yes, I think that first of all we get a lot of questions to face on EBIT and margin, I mean let’s add a little bit of color and then I will come to you question. I think first of all, we are very, very happy with the first half results.

I mean just two months everybody can reach 7.7%, group 7.0% and consumer 10.6%, I don’t think there are companies who achieve this. Point one, that shows clearly that our strategy of Blue in particular Blue & Beyond is working extremely nice.

Touching here the Beyond part, which was an endeavor which we started two or three years shows EMEA grows of over 20%. To the EBIT margin, I’m relatively relaxed, I mean first of all consumer again increased the EBIT margin from 15.5 to 15.9, that is what the guidance we have always given you that we want to increase a half a point every year, alright.

And you know also by half year, we always remain cautious, because many things can happen. Tesa is always you have to live in to Tesa that Tesa is not a straight line upwards.

I mean you can have years of 18, 19 and you could also have years of 17. So this is not explainable as a consumer business.

We are extremely happy with the Tesa, EBIT margin of 17.3 be it last year 18.1, the acquisitions were more and more act to the same obviously they are at the moment rather negative in the mix, but also they are just comfortable. [indiscernible] you have seen me in a very good mood at the moment on and I’m very, very relaxed about the second half year here, also margin wise.

Sounds good.

I think I’m seven years here guy, hence reminded this morning that it’s my 25th call, as a [UBD] (Ph) or whatever and I cannot remember that I ever had a half year to present with over 7% et cetera, et cetera. So we are very happy and you also know that there were quarters where we put more focus on growth, there were quarter where we put more focus on profitability.

The end call always remain the same, we want profitable growth over the years and when you look at long-term and I will put some numbers together. Last seven years, every year on average over 5%, we increased EBIT from 11.5% well over 15 %.

The share price more than doubled and so that today so from a family point of view, we are all happy and yes good, just good.

Great.

Thank you. So can we have the next caller?

Hi, thanks for taking my question today. Just one very quick one from me, I wonder if you could comment on the growth rate you are achieving in North America particularly in the second quarter.

Looks like a very nice pick up there, could you give some idea is that is coming from La Prairie or just coming from Aquaphor?

No, the growth rate in North America is very, very much prevalent as this is the very nice thing from the consumer business and that also shows the fruit we are bearing since years now, because we have worked very hard to get the North American company in the right direction. We are very focused on pure skin care and with the brand NIVEA, Eucerin and Aquaphor that is paying more dividend.

As I think overall, what is more and more seen if you allow me that comment you know our focus on skin take Tesa for a moment aside, that pure play is more and more showing the right direction. We are focused on that with the structure is right, the process is right and its very nice when you I also look around how you structure when you have these conglomerates and so on.

We have a big, big benefit also in the future of going on. I think also there was a lot of rumors, which I read and saw the other day, how do you cope with small brands.

The answer is Beyond. I mean when you look at Beyond that is small brands of albeit at its best, its 20% and its sizable, it’s not 1 million or 2 million 3 million endeavor.

So I think that in general that is exactly what we are in keeping our NIVEA iconic brand on the road Blue focus Blue focus that stays the same. And then I think Beyond, and also with Beyond, it's not only in the future Eucerin, Hansaplast and La Prairie, we will also add more brands to the portfolio.

So as we start from scratch brand [indiscernible] portfolio. For example, we have a very nice brand in Germany HIDROFUGAL, which we extended now into other sectors that has become the fifth biggest deal brand already in Germany now, and wonderful success with double-digit growth over the last three years and these things we will more and more active actively also to counter the smaller brands in the arena.

Excellent. Thank you.

Sure.

I was just wondering if you could give us some flavor in how you have seen the skin care market evolving in Q2 versus the prior year and Q1. And in terms of region, the growth and then on the growth guidance for a consumer still it implies the deceleration in H2.

I understand part of that is due to the cyber effect and another to La Prairie, we don’t really know where it will end. But on NIVEA are you expecting things to move throughout the year.

And how is the innovation pipeline looking?

So on growth as also our French competitors said, we are seeing an increasing growth. I would - while we see something on our own in our categories around 3%.

Its accelerating and as I always said also in the years before its coming back a little bit. We had a lot of makeup, some over the years now, the skincare is coming back.

And yes, by region pretty different, but overall I think we will see a further increasing trend. On NIVEA we are quite happy with NIVEA, I think the second half year as explained to you last time that the deo has now started.

The new deo, it looks fantastic. We have got great results there, so I expect NIVEA further to accelerate step-by-step.

And we are in the half year, we now have to see how the next thing comes up and I obviously have to see in July. July was, for us, a very important month, because we wanted to figure out how the cyber attack really worked.

We knew we had benefits in June from it, but we also knew what would July - [indiscernible] as you can see July came in pretty much as we expected. So also that relaxes me.

Now its five months to go and the teams are in full and good spirit. Innovations are coming, so I'm looking very positive into the next months to comment then we will see in the end where we end up.

So I think when we meet again in October our call again, we will add another a lot more color to it, but so far, it's looking very positive here.

Okay, great. Thank you.

Yes.

Just two questions. So firstly, I may have missed it, but could you quantify the impact from cyber, either for the H1 or the second quarter?

And then secondly, could you just give us the revenue for 2017 and the first half of 2018 for the acquisitions in Tesa? I'm assuming there wasn't a lot in the first half of 2018?

Yes. Well we have a combined number for revenues which is 65 million, I think that is stated.

Was that in your number? Was that in your 2017 numbers?

No that' going to be consolidated starting this year for three of them in the acquisitions. One of them either [Indiscernible] was already part of the numbers in 2017.

Regarding the cyber impact the numbers we specified last on the sales level were 30 million impact for consumer and 5 million of Tesa.

Okay, thank you. Sorry, did the acquisition was in your numbers in 2017?

Sorry I missed, could you explain them?

One of the four acquisitions of Tesa was part of 2017.

With whom?

Nie-wieder-bohren is the name, never drill again. That is the translations.

And are you disclosing the sales?

No, not with that.

Okay. Thank you.

Thank you.

My two, one on NIVEA perhaps you could talk a bit about the second quarter for NIVEA, obviously in Q1 you had the new deo also so how did that go in the second quarter. Obviously over the weather issues hopefully very positive for sun and [indiscernible] and other areas and World Cup activities I guess.

So just to kind of a wrap up on progress on NIVEA in the second quarter. Second question would be on derma, so any color on sort of the potential there, I guess right now more in investments phase and perhaps you can talk to us about how you are building medical detailing sales force and getting the sort of recommendations from dermatologist and pharmacists?

Thank you.

Yes. Let's start with the two question NIVEA first of all.

I mean as we said, we had this half re-launch of the new deo packaging the female packaging and that is very well. The more pleasing one, as I said already a second ago is looking very well and that packaging is really awesome.

On the sun part to be honest, I guess you are calling from London we are here in Germany, it is supposed to be the hottest day of whole period so far. One has to be very careful in analyzing the data, it is absolute true, the [indiscernible] benefitting from sun sales like never before, but on the same topic in Spain until June was minus 30%, so you have to be very careful there was a real weather harsh this year and that is a positive, but it is not what you have seen in Germany, UK et cetera.

It is really a split Europe, but overall it’s still good, but as I said the southern Mediterranean was not benefitted now catch up July was very good in Spain and Italy and the weather is now really holding in, but for example, I will give you an example about last weekend [indiscernible] we had less temperatures in Mallorca, then we had an Enberg, so just if you know how here it is at the moment, so it’s hard to just caution. On the work up, as a the Chairman I do not want to comment upon it.

So its comes from an English guys, but they didn’t make it either. So anyhow the second thing on the derma, it is still in the early stages I was saying what is good is that our decisions to inaugurate a bulk position for that under the rings [indiscernible] is proven more that is the right way.

We are seeing at the moment in these markets where we represent tremendous success. Obviously the key now for Vincent is to build over and beyond footprint which is not that easy, just to state it this is not NIVEA, this is Eucerin going into wide foot print where do you find challenge and great cause investments in the years to come.

And to also expanding into other categories and new innovation. So it’s a lot we can do there, it’s a fantastic sector, that sector is around double-digit at the moment, the active derma and we are happy to be in and you know we are already Top 5 in the world, I guess if we further make good steps forward that is clearly where we want to be one of the top players in the future.

Okay.

Yes, thank you Chas.

Hi good morning. Just a quick question for Stefan, Stefan you seem to be very happy according to your sales the family is very happy.

So I was just wondering in the midst of all this happiness, why it is you are departing?

I expected that question from someone, let me give you my little bit more color on that. I think Chairman of Beiersdorf for the last seven years and I believe I can say it without any excessive price that the Beiersdorf team has done a very successful job in that time.

That is demonstrated by all the numbers, it’s also the half year numbers you have seen and Beiersdorf is today again there where it used to one of the most successful companies in skin care. So overall if you put it together in the last seven years, very, happy.

However, despite like working for the Company, that success of it doesn’t come easy, its hard work and it’s in a way are also hard earned particularly for the effort and the dedication of the person with ultimate responsible for the companies like that, it is a lot of effort. That is why the time has now come for me to give greater priority to other interest in my life again and looking very much forward to that.

Okay. Thank you.

Thank you.

So my question was not on foot ball but more on the triple A region, because I have seen your press release that your sales were down year-on-year in China and I'm virtually surprised to read this, given the current strengths of the Chinese market. So maybe you can shed a bit more light on this on what is happening in China.

And my second question I think hence you mentioned some deflationary pressures waving on margins in the first half. Now it’s not the first time we are hearing about these deflationary pressures particularly for Western Europe.

Can you again like tell us what keeps driving these deflationary pressure, is it more led by the retailers or by the manufacturers and would you see that has more structural or at some point we will get some positive pricing back in the mass market channel?

On Asia it is indeed as always we have a very mix bag, we see a good growth Japan continuing and we have seen good numbers in Southeast Asia, also in South Asia we are very happy and China is still in mix bag. We are not unhappy, but if you ask me honestly I’m also not super happy with China.

We are still having this dramatic or significant two phase company with fantastic success on e-commerce and booming still, and on the other hand we are still working our ways through the brick and mortar stores and I think the better the mix comes, the better it will be, but it's still everyday just what is there again. It's a lot of positive, but also a lot of headache still there and it remains for us still a tough market.

Like North America, we have to be patient, we have to work through and one day like North America it will come through, but still it is not like what I see also in the competitive rather weaker area for Beiersdorf's we have to state that very clear yes China. Okay, I don’t see further questions.

Guillaume you are fine.

No Guillaume, that is deflationary, he wanted to know.

Well it’s about the pricing. So I mean pricing is difficult, western Europe in Europe in other countries where we have a more inflationary environment, certainly much easier.

Yes pricing has become lot more difficult over the years, touching over the last 10 years, you need really good innovation to increases prices and that will be an ongoing struggle for sure. I mean it’s not only driven by the retail.

Its driven the consumers and Europe pricing at best will be flat over the years to come, so you have to get your efficiencies out of something else.

Thank you very much.

Okay. Thank you.

I don’t see any more caller. There has been no question on taxes.

Let me take the opportunity with an update on taxes. Tax rate was 28.1%, below last year’s 29%, that was a positive mix, profit mix strong profitable growth in the U.S.

Tax Reform. Tax guidance, we are changing for 2018 and beyond to now 30%, we used to have 31%.

So we are updating guidance 30%, 31% it used to be before 2018 and beyond. So still no further callers then I think I give the call back.

Okay, thank you for have joined our session today. Beiersdorf's next investor relations event will be the conference for our nine months results on 30th of October.

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