Beiersdorf AG

Jens Geissler - Head of IR Stefan Heidenreich - Chief Executive Officer Stefan De Loecker - Deputy Chairman of Executive Board Dessi Temperley - Chief Financial Officer

Philipp Frey - Warburg Research Celine Pannuti - JPMorgan Richard Taylor - Morgan Stanley Guillaume Delmas - Bank of America Merrill Lynch Jeff Stent - Exane Chas Manso - Societe Generale Gian Marco - MainFirst Rosie Edwards - Berenberg Karel Zoete - Kepler Fulvio Cazzol - Goldman Sachs

Good morning, everyone, and welcome to our Quarterly Statements Conference Call. This is Jens Geissler.

Joining me this morning, and here with me in our Hamburg offices, is Beiersdorf's CEO, Stefan Heidenreich; and our CFO, Dessi Temperley. We also have Stefan De Loecker, who is today with us here, and will take over as CEO on January 1st.

And we will hear a few words from him, which is great, but he will not be in Q&A at this stage. So as usual, we will first present our numbers and the business review, and afterwards, we'll have a Q&A for analysts.

[Operator Instructions] And with that, I will now hand over to Stefan Heidenreich.

Good morning, ladies and gentlemen. A very warm welcome to Beiersdorf.

We appreciate your interest in our company and our performance over the first 9 months of the current financial year. Dessi Temperley, our new Chief Financial Officer, and myself are going to report on the year-to-date figures.

We will also provide a forecast for the full year 2018. I would also like to welcome my colleague on the Executive Board, Stefan De Loecker.

He will take over the position as CEO as of January 1, 2019. In the future, Stefan and Dessi will be reporting on the Beiersdorf results.

Stefan?

Good morning, everyone. As already announced, I'm sitting in the conference call today.

I obviously, look very much forward to taking the lead of Beiersdorf as of January 1. I ask for your understanding that I currently will not comment on the strategic direction for the future, which I'm preparing currently with the Executive Board.

But I will come back on this to you in the quarter 1 of 2019. So thank you very much, and I look forward, obviously, in communicating with you in the future.

Yes. Stefan, thank you.

We are wishing you lots of success with your ambitious plans and targets. We are now coming back to the quarter 3 call for Beiersdorf.

Ladies and gentlemen, the first 9 months of 2018 have been excellent for our company. For the seventh year in a row, our growth engine is powering ahead.

Our key performance indicators are pointing upward and continue to show a very positive trend at Beiersdorf. This applies to both the Consumer and tesa Business segments.

In a competitive market environment, we succeeded once again in substantially increasing sales and gaining market shares. Our results in detail.

In the first 9 months of the current financial year, we increased organic group sales by 6.0% as a result of negative exchange rate effects caused by the strong euro. Nominal sales growth stood at 2.3%.

Sales increased from €5.281 billion to €5.402 billion. On tesa.

Tesa performed extremely well, once again, in the first 9 months of 2018. The business segment again generated a strong growth of 7.8% in organic sales.

Sales were up 6.6% and nominal terms from €945 million to €1.00 billion. To the Consumer Segment.

The Consumer Business Segment ended the first 9 months of the financial year with a strong organic sales growth of 5.6%, outperforming, once again, the market. Sales were up 1.4% in nominal terms from €4.336 billion in the same period of the previous year to €4.39 billion.

Almost all core brands made a positive contributor to the sales growth. NIVEA sales were up 2.7%.

The Derma business unit, which include the Eucerin and Aquaphor brands, ended the first 9 months of the year with a strong increase in sales of 6.3%. Sales of healthcare, which includes the Hansaplast and Elastoplast brands, were down 1.3% on the previous year.

La Prairie once again achieved a significant increase in sales, with a remarkable 46.7%. Almost all regions where we do business generated sales growth.

In Europe, organic group sales grew by 4.7% in the first 9 months of 2018. In Western Europe, we lifted very strongly with sales by 4.6%.

In Eastern Europe, we achieved strong sales growth of 4.9%. Organic sales in the Americas region increased by 1.5%.

In North America, we recorded strong growth with an increase in organic sales of 8.1%. The Latin America business, we achieved good growth in Mexico.

Due to difficult broader political and economic conditions in Argentina and Brazil, sales in Latin America were down 2.6% on the previous year figure. On this subject, it's worth noting that Beiersdorf, unlike some peers, calculates organic growth for Argentina based on the current exchange rate rather than the previous year's average rate based on the data instead of a decline, which we would've reported an increase in organic sales for Latin America of 3.2%.

As a result, the Consumer Business Segment and that supportwould even have grown by 6.3% rather than 5.6%. Beiersdorf achieved also very strong growth in the Africa Asia Australia region, where sales were up 9.8%.

Ladies and gentlemen, let me sum up. Beiersdorf today is a very successful company.

The renewed strength of our brand, our consumer-focused innovations, our much enhanced efficiency and an extending footprint in emerging markets have been the basis for company success over the last 9 months and the past 7 years. Ladies and gentlemen, the Blue Agenda, our business strategy has made Beiersdorf internationally successful and highly competitive company.

This also serves as the basis for profitably growing Beiersdorf in the future. With Blue & Beyond, our extended business strategy, we have begun to leverage the potential of Eucerin, Hansaplast, and La Prairie.

This has given us a strong additional boost in our sales and will continue to greatly benefit Beiersdorf in the years ahead. Coming to the guidance.

Ladies and gentlemen, I come now to the guidance for 2018. The global economy is expected to continue growing.

However, the well-known economic and political uncertainty entail risks. Nevertheless, we are looking ahead with confidence, relying on our own strengths.

Our expectations are as follows: In the Consumer Business segment, we are predicting sales growth of around 5%. For the 2018 financial year, the EBIT margin from operation will slightly exceed the prior year figure.

In the tesa Business segment, we project sales growth of 5% to 6%. The EBIT margin from operations will be slightly below the prior year figure.

Based on the forecast for the 2 business segments, we are expecting group sales growth at around 5%. We expect the consolidated EBIT margin from operation to remain at the prior year level.

Finally, let me conclude with some personal remarks. As you know, I will step down as Beiersdorf's CEO at the end of the year.

At this point, I would like to take the opportunity to thank you all for your constructive and always fruitful discussions. I'm sure we will see each other soon again.

I wish my successor as CEO, Stefan De Loecker, every success in managing this great company and its exceptional employees. Thank you for being here today, and I wish you all the best.

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

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

Hello gentlemen. Two questions from my side, ladies and gentlemen, sorry.

Firstly, you had exceptional growth also in the third quarter in Western Europe. And wanted your views then on this would actually be pretty helpful for margins or is there anything which we should bear in mind, which is running strongly against this positive mix effect?

And secondly, Eastern Europe, well, was rather weak. Would you rather, would you only see the effect of the distortions in a comparison base or what's your view on that underlying market growth rate there right now?

Well, I think, first of all, we are very happy in Europe where it, as we reported 4.7% in the first 9 months. I think it's a very good number also comparing each other with the competition we have seen so far.

Western Europe, 4.6% is very strong; and Eastern Europe, quite frankly, we are very happy with 4.9%. Also there, certain markets are easier; others are more difficult but with 4.9%, we're perfectly happy with that.

In general, in Europe, as you also heard from our competitors, the challenge in the future will definitely be pricing up. And so, on this year, we are okay.

And next year, Stefan will take the right calls for the future. It's, that's the headwinds which everybody faces, which you also heard in the other markets and that's the next challenge which has to come.

Good morning. A few questions.

First, on the emerging markets. I think that there's been a deceleration in Latin America and in Eastern Europe in the third quarter.

Could you tell us what has happened in both of those regions, please? And my second question, regarding La Prairie, as you said, it was still quite a healthy quarter.

Can you give us a bit of an update on where we are tracking, where the demand is coming from and what you think is a sustainable growth rate now for the brand? Thank you.

Well, I mean, first of all, in Latin America, I think as everybody, as I said, we have 3.2% growth. If I exclude the Argentinian sector, which you have to exclude, it's massively impacting the quarter 3 by more or less a point.

So that is clearly something to watch. In Brazil, business is okay.

Not great, but okay. And [indiscernible] Mexico is looking very healthy.

So we are in, overall, in a good position. Obviously, we have to watch what is happening in Argentina, what's happening first in Brazil.

We also heard the election just came in. So I mean, many things are changing there at the moment and we have to be ahead of the sales.

In terms of La Prairie, your second question, I think we are experiencing, like many of our selective competitors, a real strong backwind this year. The market is still showing a Q3 phenomenal growth of about 20%, 30%.

In the premium skincare, we are benefiting from it and it's still going on. Now how long it's going to go on, I mean, there are others better to judge more in this field.

But so far, we enjoy the ride and it has been, by all means, with 46.7% a fantastic year for La Prairie.

Could you also comment on Eastern Europe, where there also seem to have been a deceleration in the third quarter?

Well, I mean, a lot of the third quarter is, when you look at the third quarter passing, then obviously, you have to put into effect the cyber effect, right? And to give a little bit of color on the total consumer there, the quarter would have been, instead of 2.9%, 5.1%.

So that leads you to the 5.6% for year-to-date, right? And even if you exclude the Argentinian, you would have a quarter with 5.9%.

With 5.1% and also 5.9%, we're happy to be within our target range and no issues from our side.

First of all, big congratulations to Stefan on everything you've achieved at Beiersdorf over the last many years. You are going to be missed and very best wishes for the future.

So just onto my question, please. First of all, we've had quite a bit around slowdowns in adhesives, and tesa seems to still be holding up relatively well.

So maybe you could just give us a commentary on how you're thinking about that. Secondly, I know you've made some comments about tough pricing in Europe.

But maybe you could expand on how you're thinking about the pricing environment overall. And then thirdly, could you just give us a little bit more color around the slowdown that you've seen in healthcare?

Perhaps, I'll take the first two. Thank you for the questions.

So in the first 9 months of the year, our tesa business delivered a very strong growth of 7.8%, and we reported solid organic growth in Europe but also, very strong performance in both North America and in Asia strong double digits. And there, we were very well-positioned for the continued strong demand in both electronics and automotive on both continents.

Now what we are seeing is a slowdown in the automotive sector in both China and the U.S. And that is also reflected in our proven guidance for the full year.

Yes. On healthcare, Richard, in general, I think this year is not -- in any business sector has not worked the way we wanted is healthcare, clearly, where sales down 1.3%.

This is not what we expected. If you look at the view in general with La Prairie really powering ahead.

Derma also was 6.3% good. Healthcare with minus 1.3% is not where we wanted.

There are things to fix. I can recall Vincent is on it, and I expect much better business in the years to come.

This is still, if you want so a disappointment this year, yes. And thanks for the comments, Richard.

Thank you very much. Appreciate it.

I don't see any further callers.

Just a second. Just seeing -- just right now, they are coming in, so could you perhaps take it all please first?

6 great years at Beiersdorf and all the best, of course, for the future. 2 questions for me, please, both on NIVEA.

I mean, if I adjust for the cyberattack, it seems that we've had a third consecutive quarter of organic sales acceleration for NIVEA. So wondering what's driving this acceleration, particularly because you were going against relatively tough comps in that third quarter, so why is NIVEA improving sequentially?

And then, I guess, a bigger picture question, just on NIVEA. Stefan, you set up priority categories for NIVEA a few years ago.

Looking back, which are the categories you think you've done a great job and which are the one that probably will need more attention and more work? And what would be the advice you would give to your successor in order to fix this category?

Your many questions. I mean, let me answer.

First of all, thanks for the compliments. Second is, I think that many of the things which are ahead are in good hands with Stefan, and he will address these things, as he said, in the quarter 1.

As with every CEO, I think we've done some really nice things. I think we also delivered on a lot of things, but there were also clearly some things where I would have liked to see it even better.

Well, in general, it's a good balance. It's positive, and I think you see it in the share price and so on.

And all the commentary still has to be fixed. And to Stefan, I think there's plenty still of things to do like in any tenure and that tenure will definitely also have its potentials as well as its challenges.

So NIVEA, I think what I can say is that a lot of the innovations came more in the year towards the second half year even in quarter 4 with quite a lot of innovations coming. And yes, I -- that's probably the reason what we have there.

Also, some emerging markets, which did very well on NIVEA, particularly in the second half. And that attributes to the growth.

Now it's not so different quarter-by-quarter. It is a slight increase, but I would also not overrate that.

I see it as a constant line around the 3%, and I think that overall puts us quite nicely into this spot also with the competition.

Thank you.

Thank you, Guillaume.

Good morning everyone. Just a quick question for Stefan, if I may.

Stefan, you're moving off to pursue other interests. I'm wondering if you'd be able to confirm whether or not those interests would exclude working in an entity that would compete with Beiersdorf in any way.

Thank you.

It gets more and more interesting. Probably the most interesting call in 7 years, right?

What I can confirm is, as I said, is that I would now take my time to decide on which plans to pursue. I'm here until the end of the year.

And as I said already, I'm sure, guys, we will see each other soon again. That's what I can say at this stage and not more and for the future.

Okay. Well I look forward with interest to seen you soon against Stefan.

Yes. And one way on other yes.

Thank's Jeff.

Okay. Thank you.

Yes, good morning. It's really a housekeeping question, really.

With all these moving parts, cyber or Argentina accounting, et cetera, trying to get the underlying momentum in Q3 is a bit messy. So could you, sort of, help us out and perhaps give us the ex cyber progress in NIVEA and Derma in the isolated third quarter?

And yes, that's the first question.

Okay. Happy to do that.

So I repeat it once more. The quarter, what you see, is 2.9% growth on consumer.

If you take the cyber effect into it, what we always said, it would be a like-for-like for 5.1% for consumer and it would be a 5.9%, excluding cyber and the Argentinian effect. So 2.9%, 5.1%, 5.9%.

And year-to-date would be 5.6%, and 6.3% with the Argentinian effect. I'm also happy to report the group results, look at that also it's 2.9% for the quarter of the group; 4.9%, cyber; 5.7%, Argentina; and respectively year-to-date, 6.0% and 6.6%.

Okay. And on the brands, on NIVEA and Derma?

No. We don't have the details on that.

That I don't have. No.

I mean, Consumer clearly dominates by NIVEA anyway so the number should give you some idea. But for the smaller brands, we don't break it down.

Okay. But I mean, there was a comment earlier that NIVEA had accelerated in the quarter.

Could you confirm that and just say where the major points rate has accelerated and ditto for Derma?

Well, as I said, I said everything what Guillaume already asked me, it did slightly accelerate. I would take, because many things come into it, the best numbers really guide is to look at the year-to-date number because that is free of cyber, which has these future swings as you have seen.

And number 2 is, with the Argentinian effects, these are the best numbers I can give you at this stage. You can say that deo has recovered.

Remember we have those comments.

Yes. Yes.

Yes. Deo was good.

And then on a category basis, body, shower, so that's the ballpark so to say. Nothing really, really special.

And in Derma?

Oh, I don't really know.

No. We don't have the breakdown.

I don't have the breakdown.

Just a quick question also, like, also a follow-up on the Derma business. I mean, so far you reported really solid growth in the first half of this year of 9.5%.

But now, if I look at your figures, I see really a deceleration in Eucerin. So can you maybe give more light on this or was it only because of the cyber attack?

Yes. I mean, we can, I think Jens can give you these numbers afterwards.

It is in the end. Cyber has a huge swing also in Derma.

Now I don't have that with me, but Jens is happy to give you that, the swing between the Q2 and the Q3. And I think there's a huge effect, as you've seen in the number, as I said to you just on consumer, 2.9%, 2.5%, 1% and I expect something similar also on Derma.

The strong comp from last year. That's something we should keep in mind on that one.

But we can discuss the details afterwards. Happy to do that.

Just a couple of questions. Just looking at the 9-month trend for NIVEA, sort of, close to 2.5%, 3%.

So if that is slightly lower than what the brand was doing sort of between, I don't know, 2013 and 2017. Is this is the sort of level of growth that we should expect looking out the next 2 to 3 years?

Well, again, Rosie, I think that any questions towards, and you have to understand that guys, Stefan and I had an agreement going into the meeting. Anything looking ahead that's up to Stefan is working.

I can confirm what he said intensively with the board team on strategy, roadmap, et cetera, and that will also lead to a clearer view of where he wants to head and he will come in Q1 and will give you a clearer guidance on that one.

Okay. And, okay.

Just quick follow-on then sun care. Obviously, we had a very good summer in Western Europe.

I think in Q2, there was a slight offsetting factor in terms of the tough comps from a product launch in Q2 '17, which I think is in Q3. So did you see, did you have a good Sun Care business, a good sun care quarter in Q3?

Yes. Well, we were obviously happy with sun care this year but, there's a big but, as I said and reported already on the last call, the mix effect of very strong in Northern Europe, extremely strong by the way, and rather lower start in Southern Europe, which in the end came by.

But Spain and also Italy, the whole [indiscernible] was until May, June. Really tough for sun care because simply, it wasn't warm enough.

But that also came back, as usual. So we had a pretty normal Q3, I would say.

The difference was really that in Q2, it started very early with the sun and the temperatures and that had to accelerate the whole category.

Thank you.

Yes good morning. Thanks for taking the question.

I have a question on Europe. As you already alluded, the pricing is difficult in European markets.

In that respect, are you already seeing changes to the promotional environment in Europe given the cost inflation coming or is that too soon? Thank you.

Yes. I'll take this question.

Thank you for the question. Yes, pricing in Europe has been challenging and that remains challenging due to the competitive and the retailers dynamic.

However, our pricing did improve in Q3 and slightly positive and will continue to work in conflict with price increases going forward, especially in view of the input cost increases and transport cost increases that we're seeing in the market at the moment.

Right. And the promotional intensity in this space remains unchanged then, I guess?

We are looking also at [Inaudible] pricing clearly to us knocked out the overall growth pricing but also the promotional intensity. We are looking at how we optimize our trade spend and going forward and what is the best return on investment we can get so that we can support the pricing for the future months.

Thank you.

Thank you.

Thank you ladies and gentlemen for taking my questions. Just as a follow-up to Rosie's question early on the weather effect.

So just to be clear, so Q3, are you basically indicating that this is a normal weather effect on your consumer business in Q3 and was slightly softer in Q2? So I just want to clarify that.

And if you can put any numbers to support any comments that you might, that would be great. And then, my second question is on the innovation pipeline.

Just some of the notable innovations that you're working on now, that perhaps you've recently launched in the market where we could see some positive effects on your growth rate in the coming quarters, please. Thank you.

I mean, as we said, the Q2 had warm weather particularly in Europe but we're not only operating in Europe. We're also operating in a lot of other markets, right?

So Europe was particularly warm in Q2. And as I said, Q3 was pretty normal, so -- when you take sun care, I always remind you guys, that's the smallest of our categories so even if sun care goes through the roof, it has an effect but we have other categories, which show a much more significant effect.

So that's how it looks like at the moment, so I wouldn't attribute these very strong results in the first 9 months entirely to weather clearly weather but that is not the reason why we're doing good. To your second question, was on innovation, as always we are not reporting on innovations ahead.

We can say that some of the innovation we launched this year, particularly on the deo packaging, we're quite happy with. And you see also in the results.

So overall, a good pipeline and that's what we're looking for.

Thank you, everyone. Thank you for having joined our conference call today.

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