Beiersdorf AG
XETRA:BEI
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Beiersdorf AG
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Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the Beiersdorf Conference Call Quarterly Statement January to March 2019. [Operator Instructions] I would now like to turn the conference over to Mr. Jens Geißler, Head of Investor Relations of Beiersdorf AG. Please go ahead.
Thank you. Good morning, everyone, and welcome to our First Quarter Conference Call. 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 3 months of 2019. As usual, we will start with a brief presentation 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 De Loecker.
Thank you, Jens. Good morning, ladies and gentlemen, also from my side, and a warm welcome on the Q1 2019 Conference Call. Appreciate your interest in our company's performance over the first 3 months of 2019. Our CFO, Dessi Temperley, and myself will guide you through the details of our results and we're 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 just a short overview of the first quarter. After we presented our strategic program, C.A.R.E.+, at the end of February, we immediately started with implementing our agenda. It points us towards the future while reminding us of Beiersdorf's essential core. We had a good performance in our Consumer Business Segment in quarter 1. This was driven by a very strong La Prairie 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 a good acceptance of our innovation pipeline by major trade partners. However, we faced softer growth in some of the European countries. As briefly mentioned already, La Prairie continued to perform exceptionally well, and it's not only because of the increasing demand of the market, La Prairie's continuing success is also a result of a strong innovation pipeline. Besides the 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 started to reverse the trend of last year. This was all true for all regions, including Europe, where pricing was and still is challenging. Tesa had a solid performance considering the challenging market environment which we faced in our automotive-related activities. We overcame these headwinds with our balanced portfolio, first and foremost, with the strong Electronics and Trade Markets businesses. Our guidance for full year '19 remains unchanged.Ladies and gentlemen, 2 months ago, we presented our strategic program, C.A.R.E.+. We launched a multiyear investment program with EUR 70 million to EUR 80 million additional investments per year to boost the opening of new markets, drive further with innovations, accelerate digitalization and upscaling our staff. Right after the launch of C.A.R.E.+, I started a worldwide roadshow with a tour through the major markets in Europe and Asia, presenting our strategy and discussing directly with our local teams the implementation of C.A.R.E.+. We immediately also started the first projects, the progress of which we will report on throughout the year.I would like to emphasize again and remind that the goal of the strategy is to significantly increase growth and market penetration, to create added value with 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 what our major milestone innovation in Eucerin, Thiamidol, an effective ingredient against hyperpigmentation. And we see now today the first very convincing results with -- already now significantly exceeding our market launch targets in the majority of the countries. The uncompromising implementation of C.A.R.E.+ is a top priority for me, for the management team and the entire organization. We're committed to deliver competitive, sustainable growth.Now for more details in our performance in the first quarter, I hand over to Dessi.
Thank you, Stefan. Good morning from my side as well. We start with the key first quarter figures at group level and for our 2 business segments. Group sales increased organically by 6%. Positive foreign exchange rate development and the impact of our 2018 acquisitions in tesa led to a nominal growth of 7.8%. Consumer sales increased organically by 6.8%, including positive FX of 1.3%. Our nominal growth reached 8.1%. Tesa sales increased organically by 2.2%. This growth is against the backdrop of softer demands from the automotive industry, particularly in the 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 are pleased with our growth in Consumer of 6.8%. Growth was broad-based across business units and geographies. As Stefan already mentioned, we managed to achieve moderate positive pricing in the first quarter, reversing the negative trend of the previous quarters. As a reminder, the sales of growth -- the sales growth of Argentina is calculated based on current year average exchange rates for the period and therefore reported organic growth incorporates the material devaluation of the Argentine peso. Hence, the sales growth of Argentina being reported in constant currency rates, like the rest of the country's growth in our portfolio, Consumer organic growth would have been at 7.4% instead. The strong reported first quarter growth contains some positive phasing impacts in particular due to the launch pipeline in the period. Therefore, we remain cautious on our full year expectations and continue to guide for 3% to 5% organic growth in 2019.Allow me now to add some more color on the growth performance of our brands. Our core brand, NIVEA, started the year with a solid growth rate of 4.9%. We recorded very good growth in the mass market, especially in Europe and our Skincare categories, supported by the new launches. Our Derma business achieved excellent growth in Germany and Thailand where we have a strong presence. Overall, Derma grew by 4.7% with share gains in the majority of the geographies where we play. Aquaphor achieved another quarter of double-digit growth as we started the brand rollout in Europe. In our Health Care business, we had strong growth in Germany leading to 7% growth in the quarter after a negative quarter 1 in 2018. La Prairie continues to be the highlight of our performance with another exceptional quarter growth of 28.7%, well above the underlying selective skincare market. Travel Retail and tesa 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 3 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 Travel Retail business is reported under Western Europe and has a meaningful contribution to this result. While Germany and Austria reported very strong results, Italy and Spain had softer growth. Eastern Europe grew by 1.3%. Despite tough multi-year comps, this figure would has been a higher had it not been for the challenging retail environment in Poland where we had to make some difficult calls.Next is the Americas region with 4.4% organic sales growth. Adjusted for Argentina's constant foreign exchange rate, the growth rate would have been 8.1% for the region. North America recorded a 3.7% increase in sales despite high comps of the previous year. Latin America reported positive organic growth of 5%. Adjusted for Argentina at constant foreign exchange, we delivered growth of 12%. Within Latin America, Brazil here is the highlight with double-digit growth after a difficult 2018. Mexico continues its consistently strong performance in the first quarter of this year. Lastly, in the Africa, Asia and Australia region, 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 Travel Retail. Moreover, we saw a very good performance in Japan, India, Australia and Indonesia as well as the African continent. In China, we recognize that there is still much work to be done in order for us to capture the growth potential of this market. While we had a modest positive growth in Skincare, our Haircare business continues to underperform and sales contracted further.Before I present some of our launches in the first quarter in the Consumer segment, a few words on our adhesive solution business, tesa. Tesa started the year with growth in organic sales growth of 2.2% despite very tough multiyear comps from previous years. Direct industries grew by 1.6%. On one hand for Asia and specifically from the electronics sector, we reported strong single-digit growth. On the other hand, we faced weak demand in automotive which impacted all regions but particularly our U.S. sales. Trade Markets had a good start of the year with 3.4% organic growth helped by solid consumer demand.In our strategy update back in February, we identified Skincare and in particular Face Care as the key focus of future growth for us. We started already tapping into this potential with new launches in the first quarter. The NIVEA Cellular Elasticity line had a very promising start, driving growth for NIVEA and in Europe. Already in its second year, the NIVEA Cellular Anti-Age Cushion innovation is an example of continued strong growth with focused marketing and selling efforts. With these innovations, we participate in the premiumization trends with materially above-average price points. Going now to Eucerin. The new anti-pigment line based on our unique ingredient, Thiamidol, achieved excellent initial results in Europe and Asia. This month, Eucerin is also introducing Hyaluron-Filler Vitamin C Booster, an innovation in our core anti-age range with some first very positive sellout data in Germany.Within the selective skincare segment, La Prairie continues its strong growth momentum and it overperformed growth in the segment. This performance was fueled by new launches in the quarter such as the Platinum Rare Cellular Life-Lotion. We also continued our support and focus on the core lines of the brand, for example, the Skin Caviar Collections, delivering strong growth in core lines as well. As mentioned before, Asia and Travel Retail was a key driver with strong double-digit growth.Moving to another key strategic pillar, the acceleration in white spots. We are addressing white spots both from a geography as well as a category perspective. As communicated in our strategy update in February, we will continue to open new affiliates where we see meaningful growth potential. In the first quarter of 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 markets such as Russia and China and accelerating our presence in Brazil. Coupled with strengthening activities in anti-pigmentation but also leveraging our unique anti-age positioning, we are confident that we 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% to 5%, and an EBIT margin on ongoing operations of 14% to 14.5%. The tesa Business Segment is expected to grow organically by 3% to 4%. Tesa's EBIT margins on ongoing operations for full year 2019 is expected to be slightly below previous year. At group level, organic sales growth forecast is 3% to 5%, and the EBIT margin is [ synched ] 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. [Operator Instructions] Please go ahead.
[Operator Instructions] The first question comes from the line of Richard Taylor from Morgan Stanley.
So a couple of questions for me. The first one is on NIVEA. Obviously, an impressive acceleration there. Maybe you could talk us through what the key drivers behind that were. Was there any kind of channel filling, maybe a sense on the categories and geographies? So that's the first question. And then secondly, I think you started the launch of the Eucerin Anti-Pigmentation Dual Serum product. So maybe you can give us an update on how that has been received so far. And I'm particularly interested in what you're doing differently with your digital marketing strategy with the new investment.
Thank you, Richard. I will take the first question, and that is on the NIVEA acceleration. Indeed, NIVEA accelerated in the quarter and we are very pleased. Some of this is due to some channel filling, especially when it comes to the launch pipeline. The players, as we mentioned, have accepted 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 of NIVEA. Brazil has come back double digits, and our business in Brazil is mainly the NIVEA brand. When we also look at Mexico and some other -- the Latin 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, we've performed very strongly.
On the question on the Eucerin Thiamidol launch, essentially, we've launched now 2 -- about 3 months ago with the specific double chamber in the first market, which has been Thailand. And there, both in the presence, but specifically in the sellout, has been extremely good. And since we know that the effect comes for the first time visibly after 4 to 6 weeks, it's extraordinarily important that we see that the repurchase rate of the people who try for the first time, that, that is extraordinarily good. We see people already now coming back and repurchasing, and that is only in the first country that we've launched, but it's very much in line with what we expected, namely a product that has an impactful and visible effect for people suffering from hyperpigmentation. On digital, the start and the focus is on 2 areas, the -- apart from obviously continuing to accelerate the -- what we already did in digital in the past. One of them is the -- the first focus is on the development of gathering consumer insights, more specifically on the analysis and assessment of skin conditions and skin needs, driven by a far larger number of criteria and KPIs than the self-assessment mode that we have. And that is a project that is accelerating, where we're really bringing together the digital capabilities plus, obviously, the analytics on that part. The second focus is activation, and direct activation is very much stepping up the quality and the intensity on the focus areas that we have. We want to really drive there the direct contact and the activation in phase, focusing very much in Europe, where we have the highest direct and the highest penetration.
Question comes from the line of Alain Oberhuber from MainFirst.
Alain Oberhuber, MainFirst. Two questions also from my side. Regarding the guidance, given that you had such a good start, aren't you a little bit too cautious in particular on the second half as the base is low? Or is the filling you have done 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, with the strong growth we have seen in La Prairie with the high gross margins, isn't there really a positive effect on the EBIT margin as well? The second question is regarding FX. Surprisingly positive trend there. If we look at that the constant currencies today or take the exchange rate today, what could be the impact then for the full year in 2019?
Good. I'll take the first question, and I suggest Dessi to take the second one. The reason why we stick to the guidance is, I think, first of all, it's early in the year, to take, what I would call a normal, conservative, cautious outlook. As we said, we're happy with the start. There are good signs of the key elements of the strategy working. With a focus on the opening of the white spots, the activation of some of the key innovations is looking well. But as Dessi already mentioned as well, there is some phasing elements quarter 1, quarter 2. Secondly, we do have China certainly as one of the challenges we already identified before, on which we are working on the strategic review. So yes, I think that is the reason why we would look at a continuation of the guidance at this moment. On La Prairie, obviously, La Prairie continues to be 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've given in February that we want to invest and reinvest and that any upsides we would look at would certainly in the -- at this moment be reinvested in the business as such. So there might be an impact on the gross margin, but on the usage of that one, we're certainly focused on strengthening the strategy we announced.
And on the question of currency, while we generally do not forecast currency impacts, if we assume that there will be no material volatility on the currency side, we are looking at a slightly positive currency impact for the full year.
We've seen the appreciation of certain currencies in the first quarter. Difficult to extrapolate, so no. Actually, we don't have a specific guidance on that.
Next question comes from the line of Iain Simpson from Barclays.
Firstly, there's been a sort of welcome acceleration in growth in your Health Care business after last year's decline. Could you talk a little bit about the drivers of that, please? And then secondly, what would be growth in Western Europe have been ex travel retail in Q1? You mentioned that it made a meaningful contribution.
So first of all, I'll -- thank you for the question. I'll take the Health Care question. Indeed, the Health Care growth is actually very weak Q1 of 2018. As we did, we have managed to launch a number of innovations both in wound care and pain. So our new wound care routine is delivering very good results as well as the pain [ through ] heat innovation. So both of these innovations which were launched at the very back of last year and this year in various countries are delivering strong growth, and the growth is particularly strong in Health Care in Germany. So we are positive on the Health Care segment-wise. 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 digits, but a strong performance given that there is still quite a lot of pricing pressure and the [ pace ] is challenging. On the -- we talked about the positive growth and the strong growth in Germany and Austria and I have to mention here that in Spain and Italy, our sales growth was not [ topped ] and particularly in the mainstream segment, we still see that pricing is also tough there.
Next question comes the line of Philipp Frey from Warburg Research.
Just first of all, you mentioned a very positive hyperpigmentation launch. And can you just tell us in how many of your countries hyperpigmentation has actually already been available in Q1 or fully available? And so there should be a continuing launch effect building up just on that side. And then secondly, can you remind us of the extent of the base effect we had last year because I think you had some packaging relaunches in deodorants, which burdened NIVEA; faced off in Q1, and just remind us a bit of the magnitude of this base effect?
Jorg, let me start with the hyperpigmentation. We are at the beginning of the launch. So we launched in Thailand first, that rollout of the Eucerin part will be following in other Asian countries throughout this year, that's one. The -- obviously, that within the range, we already have products that address hyperpigmentation, is clear, but the products hyperpigmentation supported by the active ingredient, Thiamidol, the rollout only just started and will continue over '19 and '20.
So on the second question, yes, that is correct. Within personal care, actually, there was also -- our deodorant lines had strong growth, and they benefited from these because of the first quarter of last year, as we mentioned, and this was due to the relaunch of our female aerosols 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 1 percentage point? Or at least not significantly more than that?
No, I think we would -- no, 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.
Next question comes from the line of Pinar Ergun.
I have a follow-up longer-term question on your promotion strategy. Western European Nielsen data indicates that Beiersdorf has been promoting above the category averages in recent years. So are you happy with this strategy? Should we expect your promotion levels to come down, particularly as you launch new products? Or is it a formula that works well for NIVEA and will continue in the foreseeable future? And what does that mean for the brand equity of NIVEA? Would being perceived as more of a value-for-money brand fit well with where you see this brand in the future, particularly given your premiumization efforts?
Thank you for your question. Our data doesn't show that we would be promoting over the market average. If you look and that's the way we're looking at promotion intensity by category, by country, and there, the data shows that we are category by country, basically in line with what the market average would be. That's number one. Number two is, obviously, in the mix. And depending on the category, it depends as well that the more personal care categories are obviously trading more intense in promotions. And if the growth of the personal care categories outgrow the skincare categories, then obviously, there might be a promotional, a total category impact, which we do not measure as such. And that is also the philosophy. We play the rules of the category in which we play, and therefore competitiveness and promotion is important. As 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. It's 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 our policy to be more aggressive. We are a mainstream brand. We want to be a mainstream brand but increasingly creating value in the portfolio going forward.
Next question comes from the line of Guillaume Delmas from Bank of America Merrill Lynch.
Just to start with, a point of clarification. Dessi, I think you mentioned some benefit from some pipeline fill in Q1. Would you be able to quantify that? And then my 2 questions, the first one is on Japan, because you're 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're reporting strong growth there. Given that category growth in Japan has been relatively muted in recent years, I was wondering if you could shed more light on the main drivers behind your success in Japan, and particularly your relationship there with Kao. And my second question is on tesa. Q1 organic sales growth was slightly below the bottom end of the 3% to 4% guidance range. So my question here would be, what supports your confidence in a future acceleration at tesa above and beyond the fact that you're going to get an easy base of comparison in the second half?
All right. I'll -- Good morning, Guillaume. I will first -- I think there were 3 questions in here, but I won't...
Actually, there were.
But it's all right. We will take them all. First, would we quantify the pipeline effect? It's very difficult to do so. We obviously measure the selling growth, but how much of that is then really selling and -- in order to fill out the pipeline, and how much is already in sell out is for us and certainly also difficult to take a judgment. But what I can say is that, while it is material for us to mention it, it's clearly not the key driver of our good performance -- solid performance of NIVEA. On the tesa, 2.2% growth in Q1, and whether we're still confident in our guidance. What I can say that, yes, we clearly have many internal discussions here in terms of where we see the market's going. And while the softer demand from aftermarket effect is a fact, the good news is that we have diversified, especially with the latest acquisitions in tesa, into having also more weight of other industries within the customer portfolio. So we now see that while 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 per our guidance. Now I will let Stefan answer the second question.
Yes. In Japan, 3 things to highlight, which drives the good performance in Japan. The first one is the winter season in Japan. In Japan, we have 2 specific approaches and assortments, one for the winter season and one for the summer season. The winter season, in general, has been a good season, in general, and we've been able to outperform that season with the pipeline we have on Lip and Body Lotions during that period. 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 deo in Japan with -- under the NIVEA brand for the first time. And that has been very well accepted, so in so far it's more a selling effect, maybe part of the phasing that we already mentioned is also looking very good. So good underlying category growth with outperformance 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 the -- not only to have good ideas, but also to be able to implement them on a very wide basis, and so far, makes our business, I think, on a very solid basis and underpins the growth.
Next question comes from the line of Loïc Morvan from Bryan Garnier.
I would like to know what has been the volume and the value impact in Q1? And the second question is, what could be the perimeter impact on the full year?
Sorry, could you repeat the second question, please?
The perimeter impact on the full year. You've talked that in Q1 it was open for you, and what would be 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's 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 on 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 it still has a fairly moderate pricing in the growth numbers. In terms of the volume and mix effect, was it for us a very positive development as well is that we have positive mix. So we have a positive mix, a positive pricing and positive volume growth. The next question, which was whether we expect the impact of the acquisitions would be -- they will be slightly below where they are in -- that will be, in fact, just about 1/2. Given that a lot of the acquisitions happened in the second quarter of last year, we would expect roughly the 1/2 of the impact for the full year that we currently see in Q1.
The next question comes from the line of Chas Manso from Société Générale.
I'd like to -- I'll try to come back to the easy comp on NIVEA, if I may. So last Q1 you did 1.9%, this quarter, you did 4.9%. So the average is 3.4%. That's a slowdown 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 fill, that selling component, and the underlying performance looks lower still. So could you -- I mean the question is, could you really give us some more color on what's happening to the underlying categories beneath this? Because if you are beginning to ramp up your assets on the Face Care side and that's coming through, then it feels as if the other categories that NIVEA is in, the other categories are substandard. 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 intense cleansing, we achieved very strong growth. But also in Personal Care, especially also due to some of the phasing [ effects ], we have a good growth as well. While we mentioned the pipeline phasing, as I said, even when we exclude 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're 2.8%. Q4 accelerated slightly and now Q1 is clearly above. And I mean pipeline filling or selling in is a normal thing. You will see that every now and then. We're naming this now because it's supporting the Face Care initiatives, but it's normal course of business, so nothing super unusual, I would say. And the -- yes, it is, to signal, the impact is there logically. But it's not halving the growth number. So there is some impact and that would mark a signal, but it is not of a materializing part that would be massively questioned the underlying trend.
Okay. And on my second question, it's back on to price/mix. I was assuming that you'll push into higher priced Face Care products, which come under mix. Maybe it also comes under price as well and maybe you can clarify that, but if it is coming under more mix and you're highlighting that yes, it's 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 the -- from all of our higher priced innovations, that's going through the mix. Also us pushing more the skincare categories with higher growth there, in particular in Face Care, that is also factored in the mix impact. In terms of pricing, pricing is moderate, which is positive, so we have reversed the trend. It is also positive in our Mainstream segment, which is very important. There, we have looked at taking -- or as we have already realized price increases, we also have price increases planned for the second part of the year or for the remaining part of the year. And it is a combination of price increases where we can take such plus rationalizing our trade promotions where possible.
There are no further questions at this time, and I would like to hand back to Mr. Jens Geißler for closing comments. Please go ahead.
Yes. Thank you. Thank you for having joined our conference call. Beiersdorf's next investor relations event will be the publication of our half year results on the 6th of August. We appreciate your interest in Beiersdorf. Thank you, and goodbye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.