Beiersdorf AG

Good morning everyone and welcome to our first quarter conference all. This is Jens Geissler and I have our CEO, Stefan De Loecker, and our CFO, Dessi Temperley with me this morning.

We would like to share with you Beiersdorf’s business results of the first three months of 2019. As usual we will start with brief presentation and the business review and afterwards 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 Mr.

Stefan De Loecker.

Thank you, Jens. Good morning ladies and gentlemen also from my side and warm welcome on the Q1 2019 conference call.

I appreciate your interest in our Company’s performance over the first three months of 2019. Our CFO Dessi Temperley and myself will guide you through the details of our results and are pleased to take your questions following our presentation.

Overall, Beiersdorf had a good start into the year 2019. Both business segments Consumer and Tesa contributed to the performance.

Allow me to give short overview of the first quarter. As we presented our strategic program CARE + at the end of February, nearly starts implementing our agenda.

It points us towards the future while remaining [indiscernible] essential quarter. We had a good performance in our Consumer business segments in quarter one, this was driven by a very strong [indiscernible] performance and fast growth in the emerging markets like India, South Africa or Indonesia.

We also achieved a strong comeback in Latin America driven by Brazil after a difficult year 2018. Overall, we had good existence of our innovation pipeline by major trade partners.

However, we face softer growth in some of the European countries. As briefly mentioned already, La Prairie continues to perform exceptionally well and it’s not only because of the increasing demand of the market, La Prairie’s continued success is also a result of strong innovation pipeline.

Besides this strong top line performance and our strategic ambition to accelerate future sales growth, we are pleased to report moderate positive pricing in the first quarter, starting to reverse the trend of last year. This is all true for all regions, including Europe pricing loss still is challenging.

These had a solid performance considering the challenging market environment which we face in our automotive related activity. We overcame these headwinds without balanced portfolio first and foremost, the strong electronics and trademark its business.

Our guidance for full-year 2019 remains unchanged. Ladies and gentleman two months ago, we presented our strategic program CARE+, we launched a multiyear investment program with 70 million to 80 million additional investments per year to boost the opening of new markets, drive further innovation accelerate digitization and up-skilling of staff.

Right after the launch of CARE+, I started the world wide road show with tour through the major markets in Europe and Asia presenting our strategy and discussing directly with our local teams, the implementation of CARE+. We immediately also started the first project, the progress of which we will report on throughout the year.

I would like to emphasize again, remind that the goal of the strategy is to significantly increase growth and market penetration to create added value higher margin products and innovations and to convince more and more people of our products and services. As a great example at the end of February, we shared with you our major milestone in the innovation in Eucerin, [indiscernible] effective ingredient for hyper pigmentation.

And we see now today, the first very convincing results with already now significantly exceeding our market launched target in the majority of the countries. The uncompromising implementation of CARE+ is a top priority for me, for the management team and the entire organization.

We are committed to deliver competitive sustainable growth. Now for more details on our performance in the first quarter, I hand over to Dessi.

Thank you Stafan. Good morning from my side as well.

With that, if you see the first quarter results at Group level and for our two business segment. Group sales increased organically by 6%, profit in foreign exchange rate development and the effects of our 2018 acquisitions and treasure lead to nominal growth of 7.8%.

Consumer sales increased organically by 6.8% including positive FX of 1.3%. Our nominal growth reached 8.1%.

Sales increased organically by 2.2%. This is growth is again a better results of positive demand from geographic industry particularly in U.S.

The nominal increase of 6.3% was positively impacted by foreign exchange of 1.2% and by the additional sales from acquisitions of 2.9%. Turning now to our consumer business and the evolution of growth here.

We seen growth in consumer of 6.8%. Growth was broad based across business units and geographies.

As Stefan already mentioned, we managed to receive positive in the first quarter reversing the negative trends of the previous quarter. As a reminder, the sales growth of Argentina is calculated based on current average exchange rate for the period and therefore reported organic growth incorporate the material devaluation of Argentine peso.

This reserve Argentina positive in constant currency rate while the rates of the growth in our portfolio. Consumer organic growth which should be at 7.4% The strong reported first quarter growth contains some positive pricing impact in particularly due to the launched pipeline in the period.

Therefore, we remain cautious on our full-year expectation and continue to guide 3% to 5% organic growth in 2019. Allow me now to add some more color on the growth performance of our brand.

Our core brand NIVEA started with year with a solid growth rate of 4.9%. We recorded very good growth in the mass markets especially in Europe and skin care categories, supported by the new launches.

Our Derma business achieved excellent growth in Germany and Thailand where we have a strong presence. Although Derma grew by 4.7% which share gains in the majority of the geographies where we play.

Aquaphor chased another quarter of double-digit growth, as we stated the brand rollout in Europe. In our healthcare business, we have strong growth in Germany leading to 7% growth in the quarter after negative quarter one in 2018.

La Prairie continue to be the highlights of our performance with another exceptional quarter growth of 28.7% well above the underlying selective skin care markets. [indiscernible] are the main drivers of this growth helped by new launch in the premium rare collection and previous year’s successful innovations.

On the next three slides, I will provide you with further details on our regional performance starting with Europe where we increased sales by 5.3%. Western Europe grew by 6.2% it is worth mentioning here that La Prairie’s - retail business is recorded under Western Europe and has a meaningful contribution to this result.

Now Germany not really reported very strong results, Italy and Spain just had start the growth. Eastern Europe grew by 1.3%.

despite cash loyalty accounts this figure which has been higher had not been for the - increased environment in Poland where we have to make some difficult to call. Next is the Americas region with 4.4% organic sales growth adjusted for Argentina’s constant for exchange rate the growth rate which has been 8.1% for the regions.

North America recorded a 3.7% increase in sales despite high count of previous year. Latin America reported positive organic growth of 5% adjusted for Argentina its cost on foreign exchange will deliver growth of 12%.

Within Latin America, Brazil here is the highlight with double-digit growth after difficult 2018. Mexico continues its consistently strong performance in the first quarter of this year.

Lastly, in the Africa, Asia and Australia regions, we report organic sales growth of 10.6% with a mixed performance. La Prairie drove the growth in the region with an excellent performance in Asia and [indiscernible].

Moreover, we saw a very good performance in Japan, India, Australia and Indonesia as well as the African continent. In China, we recognized that there is still much work to be done in order for us to capture the growth potential of this market.

While we have the largest positive growth in skin care, our hair care continuous to underperform as the sales contracted further. Besides within some of our launches in the first quarter in the consumer segments, a few words on our Tesa Solutions business center.

As a strategy here, we have got the organic growth of 2.2% despite very fast multi-year comps from previous year. Direct industries grew by 1.6% along hand for Asia and specifically from the electronic sector we reported strong single-digit growth.

On the other hand, we have had weak demand in all the markets which impacted all regions but particularly our U.S. sales.

Trade markets had a good start of the year with 3.4% organic growth, held by solid consumer demand. In our strategy update back in February we identified skin care and in particularly face care as the key focus of future growth.

We started [indiscernible] into this potential with launches in the first quarter. The NIVEA [indiscernible] line had a very promising start driving growth for NIVEA in Europe.

Already in its second year, NIVEA cellular anti-age cushion innovation is an example of continuous strong growth with focused marketing and selling efforts. With this innovation we participate in the - utilization trends will be materially above average price points.

Going now to Eucerin, the new anti pigment line based on our unique ingredients [indiscernible] achieved excellent initial results in Europe and Asia. This month Eucerin is also introducing Hyaluron-Filler Vitamin C Booster an innovation in our call anti-age range with some first very positive sellout data in Germany.

Within this selected skin care segment La Prairie continued its strong growth momentum and all the performed the growth in the segment. This performance was fueled by new launches in the quarter such as the [indiscernible].

We also continued our support and focus on the call lines of the brand, for example the skin carrier collection delivering strong growth in co-lines as well. As mentioned before, Asia and [indiscernible] were the key driver with strong double-digit growth.

Moving to another key strategic pillar, the acceleration in white spots. We are addressing white spot both from a geography as well as a category prospective.

As communicating in our strategy update in February, we will continue to open new affiliates while we are seeing in some growth potential. In the first quarter this year we established a subsidiary in Myanmar and are in the planning phase of a new affiliate in Bangladesh.

In Derma we are currently entering important Derma growth market such as Russia and China and accelerating our presence in Brazil. [indiscernible] activities in anti pigmentation, but also leveraging our unique anti-age positioning, we are confident this will accelerate the growth of our Derma business in the coming quarters.

To conclude, the guidance for 2019 remains unchanged at this point. The consumer business segment is expected to achieve organic growth of 3% and 5% an EBIT margin of ongoing operations of 14% to 14.5%.

[indiscernible] business segment is expected to grow organically by 3% to 4%, as the EBIT margin of ongoing operations before year 2019 is expected to be slightly below previous years. At group level organic sales growth forecast is 3% to 5% and EBIT is same at around 14.5%.

The profit after tax margin will be slightly below the previous year. Now, I hand over back to Jens for the Q&A Session.

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

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

A couple of questions for me. The first one is NIVEA, obviously an impressive acceleration there.

Maybe you could talk us through what are the key drivers behind that were? Were there any kind of channel selling maybe a sense on the categories and geographies, that is first question.

And then secondly, I think you started the launch of the Eucerin anti-pigmentation serum product, so may be if you can give us an update on how that has been received so far. I'm particularly interested in what you are doing differently with your digital marketing strategy with new investment.

Thank you.

Thank you, Richard. I will take the first question and that is on the NIVEA acceleration, NIVEA accelerated in the quarter and we are very pleased.

Some of this is due to some offering channel filling especially when it come to the launch prime time, the [indiscernible] as we as we mentioned was receptive to our launches very well. So, there is also a phasing effect.

Having said that, we have performed very strongly in a number of regions. So, it's been a broad based performance for NIVEA.

Brazil has come back double-digit and our business in Brazil is mainly the NIVEA brand and we also look at Mexico and some other - the Lain countries very strong growth there. We also just had strong growth in Western Europe where the main part of our NIVEA sales are and in Western Europe particularly in Germany and Austria performed very strongly.

On the question of the Eucerin [indiscernible] launch. I said we have lost - three months ago with the specific double chamber in the first market which has been Thailand and they are both in the present but specifically the sellout has been extremely good and since we know that the effect comes for the first time visibly after four to six weeks is extraordinary important that we see that repurchase rate of the people who try for the first time that is extraordinarily good.

We see people already now coming back and repurchasing and that is only in the first country that we have launched was very much in line with what we expected may be a product that has an impactful and physical effect for people suffering from hyper pigmentation. On digital, the start and the focus is on two areas apart from - obviously continue accelerate what we already did in digital in the past, one of them is - the first focus is on the development of gathering consumer insights, most specifically on the analysis and assistance of skin conditions and skin needs driven by far large number of a criteria and KPIs than the sales assessment motive we have.

And that is project that is accelerating and where we really bring together the digital capabilities plus the obviously the analytics on that part. The second focus is activation and their activation is very much is stepping up the core and the density on the focus areas that we have.

We want to really drive there the direct compact and the activation in phase focusing very much in Europe where we have the highest direct in the highest penetration.

Thanks very much.

Thank you.

Next caller please.

Good morning Stefan, Dessi and Jens. Alain Oberhuber from MainFirst.

Two questions also from my side, regarding the guidance. Given that you had such a good store aren’t you a little bit too cautious in particular in second half as the base is low?

or is the feeling you have on mainly for the deceleration, you could see then in the second half if you could elaborate a little bit more on that and in that direction is - the strong growth we have seen in La Prairie, with the high gross margins, is it really a positive effect on the EBIT margin as well? The second question is regarding surprisingly positives strength there.

If we look at constant currencies today or take the exchange rate today what could be the impact then for the full-year in 2019?

Good. I will take the first question and I suggest that Dessi to take the second one.

And the reason why we speak to the guidance is I think first of all as early in the year today what I would call noble conservative cautious outlook. As we said, we are happy with the stock, there are good signs of the key elements of the strategy working.

The focus on the opening on the right spots help and the activation of some of the key innovation looking well, but as Dessi already mentioned as well, there is some phasing elements quarter one, quarter two and secondly we do have China certainly as one of the challenges that we already identified before in which working on the strategic review. And so yes.

I think that is reason why we look at configuration of the guidance at this moment. On La Prairie, obviously La Prairie continuously doing very strongly and I think the underlying elements are also very good and very strong so unless unforeseen impacts that is certainly encouraging.

I would like to reiterate on the impact on the bottom line the message we have given in February that we want to reinvest and that any upside we would look at would certainly at this moment be reinvested in the business as such. So there might be an impact on the growth margin, but on the usage of backlog its certainly focused on strengthening the strategy we announced.

And on the question of currency. While we have said that we do not focus currency impacts if we assume that there will be no material volatility on the currency side.

We are looking at the slightly positive currency impact for the full-year.

Yes. We seen the appreciation of certain currencies in the first quarter, difficult to extrapolate.

So actually we don’t have a specific items on that.

Thank you very much.

Thank you.

Thank you very much. Firstly there has been sort of welcome acceleration in growth in your healthcare business after last year’s declines.

Could you talk a little bit about the drivers of that please? And then secondly what would be growth in Western Europe has been ex-travel retail in Q1, you mentioned that it made a meaningful contribution.

Thank you.

So first thank you for the question, I will take the healthcare question. In this the health growth is after a very week Q1 2018, as we this year managed to launch a number of innovation both in wound care and pain.

So our new wound care routine is delivering very good results as well as the pain pillow heat innovation. So both of these innovations which were launched at the very back of last year and this year in various countries delivering strong growth and the growth is particularly strong [indiscernible] we are positive on the healthcare segment.

The second question on Western Europe performance without La Prairie. The West European performance even when we exclude the La Prairie growth was still very good, it was in the lower single-digit, but strong performance given that there is still quite a lot of pricing pressure and the growth is challenging.

We talked about the positive growth and strong growth in Germany and Austria, I had to mention in Spain and Italy our sales growth was soft and particularly in the men’s cream segment, we still see EBIT pricing just a result of soft sale.

Thank you.

Thank you.

Yes, hello gentlemen. First of all, you mentioned a very positive hyper pigmentation launch and can you just tell us in how many of you countries hyper pigmentation has actually already been available in Q1 or fully available and so there should be continuing launch effect building up just on debt side.

And then secondly can you remind us of the extend of the base effect we had last year, because I think you had some packaging relaunches in the order in which burdened NIVEA sales drop in Q1 and just remind us a bit of magnitude of this base effect.

Good. Let me start with the hyper pigmentation and we are in the beginning of the rollout, so we launched in Thailand first that rollout of the Eucerin part will be following other Asian countries throughout this year and that is one.

Obviously that is in the range we already have product that address hyper pigmentation is here. But the product for hyper pigmentation supported by the active ingredient humidor, the rollout only just started and will continue over 2019 and 2020.

So, on the second question. Yes, that is correct.

Within personal care actually there were also [indiscernible] line has a strong growth and they benefited from the comp of third quarter last year, as we mentioned. And this was due to the re-launch of our female eye results last year in March.

How much the base effect is we have not quantified.

Would it be fair to assume that it's probably in the ballpark of one percentage point or if not significantly more than that?

No. I think we would be opening up too much on this one.

No, I don't think that we have a number on this. There is a base effect.

We don't quantify.

Okay. Thank you very much.

Thank you.

Hi. Thank you for taking my question.

As a follow-up longer term questions on your promotion strategy, Western European Neilson data what indicate that Beiersdorf has been promoting above the category averages in recent years. So, are you happy with this strategies?

Should we expect promotion levels to come down, particularly as you launched new product or is it a formula that works well for NIVEA and will continue in the foreseeable future? And what does that means for the brand equity of NIVEA?

Would be perceived as more of a value for money, brand fits well with where you see this brand in the future particularly given your [premiumization] (Ph) efforts? Thank you.

Thank you for your question. Our data show that we would be promoting over the market average if we look and that is the way we are looking at promotion intensity by category, by country, there the data shows that we are category by country basically in line with what the market average would be and that is number one.

Number two is obviously in the mix and depending on the category, depends also that the more personal care categories are already trading more intense in promotions and if the growth of the person care categories outgrow the skincare categories and obviously there might be promotional in total category impact, which we do not measure as such. And there is also the philosophy, we play the rules of the category in which we play and therefore competitiveness and promotions is important.

As I already said, we however watch increasingly I would say on the value we can create, because it’s not only an issue of the brand equity, but also the quality of the portfolio. And therefore the focus on skincare is important as we already mentioned and the trade-off between the promotion intensity and the penetration is an important one.

So, policy wise it's not a policy to be more aggressive, we are mainstream brand, we want to be a mainstream brand, but increasingly creating value in the portfolio going forward.

Thank you.

Thank you. Next question comes from the line of Guillaume Delmas from Bank of America Merrill Lynch.

Please go ahead.

Good morning all. Just to start with a point of clarification, Dessi I think you mentioned some benefit from some pipeline sale in Q1 would you be able to quantify that?

And then my two questions, the first one is on Japan, because you are singling out Japan again as being a strong contributor to your organic sales growth and I think it must be the third consecutive year now that you are reporting stronger there. Given that category growth in Japan has been readily muted in recent years.

I was wondering if you could shed more light on the main drivers behind your success in Japan in particularly your relationship there with [indiscernible]? And my second question is on Tesa, Q1 organic sales gross was slightly below the bottom end of the 3% to 4% guidance range.

So my question here would be what support your confidence in a future acceleration at Tesa above and beyond the fact that you are going to get an easy basis of comparison in the second half?

Good morning Guillaume. I think there were three questions in here but it’s alright we will take them all.

First would we quantify the pipeline effect, it’s very difficult to do so. We obviously measure the sale in growth, but how much of that has been really [selling] (Ph) in order to fill out the pipeline how much is going to be in sell out is for us internally also difficult to take a judgment.

So what I can say is that while it’s material for us to mention it, it’s clearly a not the key driver of our good performance, a solid performance of NIVEA. On the Tesa 2.2% growth in Q1 and whether we feel confident in our guidance.

What I can say that yes we clearly have many internal discussions here in terms of where we woo see the market going and while the [indiscernible] demand from all the market that is the fact. The good news is that we have diversified especially with the latest acquisitions and sales into heading also a more weight of other industries within the customer portfolio.

So we now see that one of the sectors is getting softer, the other ones are still performing fairly well. We also have a solid innovation pipeline in Tesa, Tesa is driven by our R&D capabilities, so at this stage, we are fairly confident that we will deliver the growth as our guidance.

Stefan now to the second question.

Yes. On Japan three things to highlight which drives the good performance in Japan.

The first one is the winter season in Japan and in Japan we have two specific approaches and so assortments one for the winter season and one for the summer season. The winter season as generally has been good season in general and we have been able to outperform that season that the pipeline we have on this and body lotions during the period.

And second element is that March already was also influenced by the first selling of the summer season and we have the launch or relaunch of the deal in Japan is under the NEVIA brand for the first time and that has been very well accepted. And so far its more selling effect, maybe part of the phasing that we already mentioned is also looking very good.

So good underlying category growth with our performance from our side due to innovation on the key elements. Last one is obviously that we have this very strong and solid partnership with Kao in Japan, which continues over not only to have the good ideas, but also to be able to implement on a very wide basis and so far makes our business I think on a very solid basis and underpins the growth.

Thank you very much.

Thank you.

Yes. Good morning.

I would like to know what are the volume and volume impact in Q1. And second question is what could be the parameter impact on the full-year?

Sorry could you repeat the second question please.

Parameter impact on full-year, you talked about it in Q1 it was open five, and what could the impact on full-year?

I’m afraid we didn’t understand your question sorry. Could you rephrase your question please, the second question, first one is fine the second one we didn’t get.

The acquisition impact on full-year.

Acquisition impact on Tesa okay.

And for the full group.

Yes. okay thank you.

So on the first question. The first question was volume and value.

While we do not report pricing separately what we can say is that pricing has been moderate, so it is not driving the growth, but we still have a fairly moderate pricing in the growth numbers. In terms of the volume and mix effect, what is fast a very positive development as well is that we have positive mix.

So we have a positive mix of positive pricing and positive volume growth. The next question which was already the impact of the acquisitions, they will be slightly below where they are in - there will in fact just about half, given the lot of the acquisitions happened in the second quarter of last year, we would expect roughly the half of the impact for the full-year what we currently see in Q1.

Okay. Thank you.

Thank you.

Yes. Good morning.

I will try to come back to the easy compound NIVEA if I may. So last Q1 you did 1.9, this quarter you did 4.9 so the average is 3.4 that is a slow down compared to what NIVEA did in over the full-year last year and the second half last year.

And is the Q1 number this time around contains that pipeline so that selling component and the underlying performance looks lowest still. So I mean, the question is, could you really give us some more color on what is happening to the underlying categories beneath it, because if you are beginning to run pop your asset on the face care side and that is coming through then it feels as if the other categories in NIVEA is in the other categories are [indiscernible].

Could you talk about that?

So, first, both in personal care and in skincare in Q1, we have solid growth. So, in both of the segments, yes, skincare in particular in face care and cleansing which is very strong growth, but also in personal care especially also due to some of the pricing impact we had a good growth as well.

While we mentioned the pipeline phasing is even when we include that phasing we are growing above the market growth in mainstream personal and skincare in Q1.

And I mean let's not forget, last year we are 2.8, Q4 accelerated slightly and our Q1 is clearly above and I mean pipeline filling or selling in is a normal things you see that every now and then, we are naming this now because its supporting the face care initiative, but it's normal course of business. So nothing super unusual I would say.

And, yes it is to single, the impact is there, and largely there is some halt in the growth numbers. So there is some impact and that we want to signal, but it is not over materializing part that would be massively question the underlying trend.

Thank you. And on my second question, it's back on the price mix.

I was assuming you are pushing to higher price face care products, which come under Nicks and may be it also comes under price as well, and may be you can clarify that. But it is coming under more mix and you are highlighting that its positive in both areas as well as volume.

Could you please just talk a little bit about how the better pricing is coming through?

Yes. I confirm.

So from all of our higher priced innovations that is going through the mix also the [indiscernible] the skincare categories with higher growth there in particular in face care that is also impacted in the mix impact. In terms of pricing, pricing is modest which is positive, so we can reverse the trend, it is also positive in our mainstream segment, which is very important.

And there we look at taking or as we have already realized price increases, we also have price increases planned for the second part of the year, for the remaining part of the year and it is a combination of price increases where we can such plus rationalizing our trade promotions very comfortable.

Thank you.

Thank you.

Yes thank you. Thank you for having drawn to our conference call.

Beiersdorf’s next Investor Relation event will be the publication of our half year results on the 6th of August. We appreciate your interest in Beiersdorf.

Thank you and good bye.