Beiersdorf AG
XETRA:BEI
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
120.5
147.25
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Beiersdorf AG
Earnings Call Analysis
Q2-2023 Analysis
Beiersdorf AG
After benefiting from government support during COVID-19, which helped bring goods to China for resale, the ending of this support has resulted in a sharp market decline. The company is choosing to focus on preserving its brand equity over engaging in aggressive promotions to offset this impact. This strategic decision, aimed at maintaining premium brand positioning, is expected to affect the last quarter's results and will likely influence future quarters as well.
The Travel Retail Asia division, excluding Korea and Hainan, has tripled its business in the first half of the year, with Hong Kong, Japan, Singapore, and Thailand serving as significant growth drivers. Strong momentum is also seen outside Asia, particularly in the Middle East and Europe. There's an optimistic outlook for the future, and the company plans to open approximately 20 new retail locations in 2023, entering 4 new cities in China and adding over 10 new stores in the U.S. market. This expansion includes the opening of a new boutique in Zurich and another scheduled for Shanghai in August, showcasing a commitment to growing the customer base and brick-and-mortar retail expansion.
The company launched its new Leipzig plant in Germany with nearly €300 million invested in sustainability and innovation for Europe. This plant operates nearly carbon-neutral, utilizing renewable energy and biogas, highlighting the company's commitment to environmental responsibility. Beiersdorf, already an industry leader in climate action, topped a study for emission reduction achievements. Further sustainability efforts are evident in their product lineup, with over 500 product packages and more than 400 skin care formulations transformed since 2018 to include recycled content and sustainable practices.
Beiersdorf reported a strong first half with 12.3% organic sales growth and 10.3% nominal sales growth, including foreign exchange effects. The EBIT margin increased to 17.3%, with significant marketing investments yielding profitability despite a complex macro environment. The consumer segment saw a 14.9% organic sales increase, while the tesa business grew organically by 1.2%. The company's core brand, NIVEA, achieved an 18.4% like-for-like sales growth, with Dermatology brands Eucerin and Aquaphor also showing remarkable growth, especially in North America and Latin America. Plaster brands Hansaplast and Elastoplast continued to deliver solid performance with a 5.4% sales increase.
You don't have any saved screeners yet
Good morning, and welcome to Beiersdorf's Second Quarter Earnings Conference Call. This is Jens Geissler. Here with me today are Vincent Warnery, our CEO; and Astrid Hermann, our CFO. We would like to share with you Beiersdorf's business results of the first 6 months of 2023. We will start with the presentation and the business review, but let me just make some technical remarks. [Operator Instructions]
And with that, I hand over to Vincent.
Thank you, Jens. Good morning, and welcome to today's conference. Astrid and I are pleased to take you through our performance for the first 6 months and to give you an overview of the key developments in the past quarter.
Building on the impressive momentum from the first quarter of 2023, we achieved broad-based top line growth and strong profitability in the first half of the year. For our consumer business segment, we can report significant double-digit sales growth of 14.9%, driven by excellent development across all regions with our NIVEA and Derma brands. I will come back to that in a moment.
Thanks to the significant top line performance, we increased our EBIT margin substantially by 190 basis points during the first 6 months even in the face of a challenging luxury business. Astrid will share more details on the EBIT development in her parts.
Despite difficult macroeconomic conditions in China, we managed to maintain modest growth in our tesa business. Our success was largely fueled by a resilient automotive segment, which helped offset the weaker performance in electronics. As anticipated, our profitability declined as we remain committed to substantial investments in sustainability, digitalization and the automotive business to prepare us for future opportunities.
Overall, we are pleased to share that the group achieved impressive double-digit sales growth of 12.3% in the first half year, supported by a significant rise in profitability of 140 basis points, delivering an EBIT margin, excluding special factors of 17.3%.
Let's take a more detailed look at our brand's performance in the second quarter. Our core brand NIVEA continued to outperform the market, achieving an exceptional organic growth of 18.8% in the second quarter. All regions supported the sales development with double-digit expansion with strong contributions from both the skin care and personal care categories.
In Europe, NIVEA managed to increase its sales by 13% in the second quarter. We are delighted to see significant volume increases alongside those impressive figures. Noteworthy is also NIVEA's impressive e-commerce growth of 30% in the first half of the year, proving the success of our efforts to enhance NIVEA's digital presence.
Once again, our Derma brands demonstrated their unwavering potential with significant growth of 25.3% in the second quarter. The U.S. business stood out with exceptional performance for both Eucerin and Aquaphor.
We're further expanding our market share for the Derma brands, especially in the antiaging, body care and sun protection categories. The health care business, which comprises the plaster business of Hansaplast and Elastoplast posted organic sales growth of 3.1%. The positive sellout trend was observed in top countries like Australia and Indonesia, complemented by solid e-commerce growth.
The La Prairie business faced significant challenges due to disruptions of Daigou business in Asian Travel Retail. These disruptions also affected our Chantecaille business significantly. All in all, La Prairie recorded a decline in sales of 7.5% in the second quarter. Although we witnessed some recovery in other parts of the world, it was not enough to substantially mitigate the impact on La Prairie's top line. I will come back to that later.
The excellent development of our total consumer business is solidly based on the good mix of volume and pricing-driven growth. In the course of Q2, volume growth has accelerated even further. Excluding the luxury business, our volume growth in the second quarter accounted for more than 1/3 of total growth. The exceptional results once again validate the power of our 4-wheel drive dynamic.
If 1 wheel loses traction, the others will keep the car moving forward. NIVEA in Europe and in the emerging markets, combined with our Derma brands globally, is generating outstanding and steady growth, effectively mitigating the adverse market conditions experienced by La Prairie, that gives us even greater confidence and security in times shaped by volatility and crisis.
In addition to our outstanding success in Europe, I would like to shift our focus this quarter towards Northeast Asia and the emerging markets, starting with our NIVEA business in China. In China, premiumization is a key to success. As a global brand striving for success in this highly strategic market, securing premium positioning has to be our highest priority to prepare the ground for sustainable growth.
With NIVEA, we are strategically focusing on the face care business and intensifying our efforts in the online segment. We are experiencing great success with NIVEA LUMINOUS630, which we sell via cross-border e-commerce.
With NIVEA LUMINOUS630 anti-dark spot serum, we increased sales by more than 200% and significantly expanded our market shares in the even skin category. As a result, the serum is now #1 in its category in cross-border e-commerce, a remarkable improvement from #4 position last year.
At the same time, we are continuing to premiumize our core portfolio, driving premium and high-margin products, both on and offline. In the second quarter, we managed to increase the share of premium products in China by 60%.
Our premiumization strategy has led to remarkable results with outstanding organic sales growth of 35% in the second quarter.
Let's look at our third largest market for NIVEA, Japan. Please keep in mind that Japan's market is primarily dominated by local brands, making NIVEA's position even more remarkable. It is the only successful international and widely recognized skin care brand in the mass channel in Japan.
Despite the challenging circumstances of the COVID years and strict government regulations in Japan, 2022 already proved to be a successful year for our business. Now we are witnessing even greater momentum with the strongest quarter in recent history. This growth can be attributed to 2 driving factors.
Firstly, we continue to build upon our multiyear success in sun protection by introducing another outstanding innovation. The NIVEA UV Tone-Up essence which not only contains our patented 3D UV field also infused with an essence that provides deep moisturizing care to make the skin more even.
Our product series directly addresses the #1 unmet need of Japanese women, skin spots caused by UV light. Secondly, we are strengthening our core products, particularly noteworthy is our success with lip products. We have gained the #1 market position and saw excellent growth of 82%.
In Korea, we also experienced strong acceleration in net sales, with an impressive 15.4% increase in the second quarter. Online sales grew by 24% in the second quarter. Additionally, our portfolio strategic refocus on the skin care core categories has been rewarded as demonstrated at the remarkable triple-digit growth of our lip category and NIVEA cream in the second quarter.
We continue to outperform the market with our portfolio and Korea is one of the fastest-growing countries in terms of skin care market share for us. Turning now to our emerging markets region. Our achievements thus far in our road map for future business expansion, underpinned by 3 key drivers: building on our strong NIVEA brand value, focusing on skin care and taking full advantage of the fast developing e-commerce and digital environment in the region.
In the last couple of years, we gained significant market shares in the emerging markets with our entire portfolio, especially strong is the development with our skin care business, led by the face care and body care categories. We are outperforming international key competitors and increased our market shares by 325 basis points since 2019.
Our emerging markets online business is particularly strong growth engine with a remarkable 48% e-commerce growth rate in the first half of the year. This trend underscores the increasing importance of e-commerce for Beiersdorf and our continued success in the digital marketplace.
Overall, our efforts in emerging markets have led to significant growth, expanded household penetration of our products and a remarkable 340 basis point increase in profitability since 2018. By focusing our efforts on the skin care and online business, we generated significant double-digit growth across all our key emerging markets in the second quarter, as you can see.
It is worth highlighting the Central America region as we have grown by 36.7% there. All major countries contributed to the growth with Mexico leading the way. Face care product, especially the globally successful innovation NIVEA LUMINOUS630, were the main drivers alongside a strong Sun Care business.
Furthermore, the Central and West Africa region stood out with an impressive sales increase of 52.4% in the second quarter. Nigeria, emerged as a key growth contributor, particularly in the deodorant and body care categories.
Last, but not least, we have also observed significant growth in the Southeast Asian region where tourism has begun to rebound in recent months. Both Indonesia and Thailand, which are among our major markets are experiencing robust growth driven by the demand for Body and Sun categories.
Let's move to our luxury business. In the first quarter, we provided an optimistic outlook for the recovery of our La Prairie business in the second quarter. However, we recorded negative growth of 7.5% in the second quarter, and the primary reason lies in the significant disruptions of the Daigou business in the Asian Travel Retail markets.
A substantial part of Korean Travel Retail has been benefiting during the COVID years from government support to bring goods to China for resale in absence of individual shoppers. The government support ended last year, and this market has been on sharp decline since.
While some competitors are offsetting the impact by promotions, we focus on striking the right balance between preserving our brand equity while still entering targeted consumer reach in China. While we believe this is the absolutely right decision for the brand. We are aware that these developments impacts strongly our last quarter results and will remain visible in the quarters to come.
The similar trend, though not on the same scale, is evident in travel retail in China around Hainan. Despite the gradual but slow recovery of traffic in Hainan, this is currently being offset by stricter stock controls by operators along with strong governmental actions to reduce daigou purchases. Overall, daigou business declined by 87% in the second quarter. In total, excluding daigou business in China and Korea, La Prairie would have achieved a 10% growth in the second quarter. The challenging business environment is not limited to La Prairie, but also impacts Chantecaille business, which experienced negative sales growth in the second quarter.
Apart from the disruptions in the travel retail business in China and Korea, we are witnessing a promising recovery in the rest of the portfolio.
The Travel Retail Asia division excluding Korea and Hainan has shown impressive progress, tripping its business in the first half of the year with Hong Kong, Japan, Singapore and Thailand, serving as significant growth drivers.
Additionally, we are witnessing strong momentum outside Asia, driven by the Middle East region and Europe. We anticipate that market disruptions in Korea and Hainan will likely normalize around the fourth quarter. And the slower market recovery in Mainland China may persist through the third quarter before showing stronger consumption trends starting in the fourth quarter.
In spite of this, we maintain an optimistic outlook for the midterm and beyond. In preparation for upcoming opportunities, we are leveraging our existing exclusive distribution footprint to expand our presence. With a focus on brick-and-mortar expansion, we are targeting white spot areas, for example, in China.
In 2023, we aim to open approximately 20 new doors, enabling us to enter 4 new cities and connect with a broader customer base. So far, we have already opened 8 doors this year. Additionally, our focus on the U.S. market involves opening over 10 new doors in 2023. Furthermore, we are showcasing our exceptional products and services through owned retail, such as the recently opened boutique in Zurich and another one scheduled to open in Shanghai in August.
In addition to our brick-and-mortar expansion, we will continue to drive our e-commerce business with a strong focus on the Chinese market. Our achievements on Tmall and JD.com are a testament to our success in this domain. As we move forward, we'll explore additional dynamic platforms to enhance our online reach. All these actions are aimed at further building brand equity.
I would like now to present a milestone for Beiersdorf, showcasing our determination to lead the industry in cosmetic product manufacturing.
In May, the first cosmetic products made in Leipzig [indiscernible] at Beiersdorf new plant in Germany. Deodorants, air sprays and shaving foams, sold under the brand names NIVEA [indiscernible] and Hyaluron-Filler, are now being produced in Leipzig for the European market.
With an investment of nearly €300 million, the state-of-the-art facility is proof of our commitment to sustainable growth and innovation in Europe. The new plant has a flexible modular design and fulfills future requirements in terms of automation, digitalization and agility to adapt to evolving consumer needs and market trends.
Not only does our plants increase productivity, but it also exemplifies our dedication to environmental responsibility. Utilizing renewable energy and biogas, the facility is virtually carbon-neutral and we actively recover and treat variable resources for sustainable practices.
In this context, let me share some of our sustainability achievements before I hand over to Astrid. Recently, the French industry magazine, [indiscernible] conducted a comprehensive study that went beyond mere targets and commitments, shedding light on the tangible achievements of companies in terms of climate action.
The study examined annual emission reduction rates, aligning them with the Paris Climate Accord and Science Based Targets initiative guidelines. I'm delighted to share that Beiersdorf is not only a leader in our industry, but has topped the list of 40 international companies in this study. Our success in emission reduction showcases our strengths, and unwavering determination to turn our sustainability goals into reality.
Our climate strategy takes a holistic approach, encompassing not only Scope 1 and 2 emissions, but also Scope 3 emissions, which are closely linked to our product ingredients and packaging materials. And we have made further progress here.
Following last year's sustainability innovation with the NIVEA shower lightweight bottle and NIVEA soft formula, that is more climate friendly, both of which achieved significant CO2 emission reductions, we have recently launched NIVEA Sun and NIVEA Lip Care with relevant improvements and the reduced carbon footprint.
Also, Eucerin is progressing well with its product transformation, having launched a refill jar for its Hyaluron-Filler range.
All in all, since 2018, we have included recycled content in about 500 product packaging. In the same time frame, we have transformed more than 400 skin care formulations to make them more sustainable. This represents about 1/3 of our NIVEA and Eucerin portfolio.
With that, I will hand it over to Astrid, to go through the financial performance of our Consumer and tesa businesses in more detail.
Thank you, Vincent. Welcome to our half year results presentation also from my side. I'm happy to share more details about our strong performance in the first 6 months of the year. Let's start with the results on group level. We achieved double-digit organic sales growth of 12.3% in H1 2023. .
Including foreign exchange effects, we recorded nominal sales growth of 10.3%. This strong top line growth has fueled our profitability figures despite strong marketing investment in the business. We grew our EBIT significantly in both absolute and relative terms and reached an EBIT margin of 17.3%, which is 140 basis points above previous year, mainly due to onetime adjustments in Beiersdorf's transfer pricing system in relation to the new operating model and tax charges for prior periods, tax payments increased in the first 6 months.
The profit after-tax margin went up by 20 basis points in the same period. This means earnings per share, excluding special factors of €2.50, up €0.28 versus a year ago.
Turning to our segment view. Consumer sales increased organically by 14.9% in the first half. Including foreign exchange effects, this means nominal growth of 12.9%. We increased our EBIT margin by 190 basis points to 17.0% of sales. Positive contributions came from the strong gross margin and from the slower development of our general and marketing expenses compared to sales growth.
Our absolute marketing budget increased by around €100 million year-on-year. With our clear focus on skin care and digital media, we increased efficiencies within the marketing budget and can report significant increases in absolute and relative terms in working media, specifically in digital spending.
At the same time, the nonworking media spend decreased in absolute terms despite the strong sales acceleration. Our tesa business had to deal with a complex macro environment in the first half of the year. Nevertheless, we were able to grow this business significantly by -- slightly, sorry, by 1.2% organically.
Adverse foreign exchange and structural effects led to a nominal sales decrease of 1.3%. As expected, given our ongoing investments in the main strategy pillars and the slower electronics business, the EBIT margin decreased by 70 basis points to 18.4%.
Let's briefly look at the performance of our consumer business over the last 1.5 years. We finished the full year 2022 with double-digit growth of 10.5%, then accelerated the consumer top line in the first quarter to 14.8%. We remained at that high level also during the second quarter. This development is all the more impressive when considering the already strong double-digit sales growth in the first half of 2022 which is a tough basis for comparison.
Let's now take a look at how our different brands contributed to the overall excellent performance in the first 6 months of the year. Vincent already shared a number of details on the second quarter, so I will just briefly comment on the brand performance through the first half.
Our core brand, NIVEA, continuously outperformed the market and grew by an outstanding 18.4% like-for-like in all regions and categories. Throughout the first half of 2023, all major categories recorded impressive double-digit growth with Skin Care outperforming the Personal Care portfolio, both growing on high levels.
Notably, the Sun and Lip categories within the Skin Care portfolio showed particularly strong growth rates. In addition, NIVEA successfully concluded all pricing negotiations in Europe, ensuring stability and favorable conditions for the brand.
Our Derma brands, Eucerin and Aquaphor, once again demonstrated their unwavering potential with remarkable sales growth of 26.1% like-for-like. Particularly noteworthy is the unbroken demand in North America, driven by Aquaphor and in Latin America fueled by the hugely successful Sun category.
At the same time, we increased our market share, especially in the categories Anti-Age, Body Care and Sun. Our Plaster brands, Hansaplast and Elastoplast, kept delivering a solid performance with sales increasing by 5.4% despite a tough base period.
Next to our key markets, we saw good growth rates in Latin America and in India, among others. This is coming with market share gains and even stronger market leadership. Vincent already shared a lot of details on the performance of La Prairie, so I will directly move to our consumer sales on a regional level.
Once again, we can report broad-based growth from a regional perspective as well. The 3 main regions and almost all subregions reported double-digit sales growth. In the Europe region, organic sales climbed by 11.2%. In Western Europe, top line growth amounted to 9.2%, mainly driven by strong sales in the United Kingdom, Italy and Spain.
In the Eastern Europe region, sales were up significantly across all countries by 19.5% like-for-like. Organic sales in the Americas region increased by 21.5%. North America was largely driven by the continued momentum of Eucerin and Aquaphor.
At 31.0%, Latin America once again recorded the strongest sales growth across our portfolio. This remarkable performance was backed by double-digit growth rates in almost all countries.
The Africa, Asia, Australia region accelerated significantly in the second quarter and finished the first half of the year with organic sales growth of 14.7%. As mentioned, we faced a difficult environment for our luxury brands in the region, but this was compensated by the strong performance of NIVEA and Eucerin.
Let's have a brief look at our half year income statement at group level. As already mentioned, the operating results increased significantly in absolute and relative terms in the first 6 months of the year. Profitability was materially fueled by our strong top line, research and development as well as general and administrative expenses developed slower than sales.
Our marketing and selling expenses increased in absolute terms by €146 million, but grew slower than net sales due to efficient uses of resources and a higher level of spending on digital marketing activities. In combination, this helped to significantly increase EBIT and profit after-tax in both absolute and relative terms.
Let us now turn to the development of the consumer gross margin in the first half of 2023. Assuming constant exchange rates, our gross margin increased by 50 basis points to 59.8% from 59.3%. We were able to nearly offset the ongoing cost inflation by meaningful and well-balanced price increases around the globe.
Positive mix effects contributed strongly. The main drivers of mix are the focus on our skin care categories as well as the outperformance of our Derma brands. The development of our gross margin is very encouraging, and it makes us confident to deliver on our full year profit guidance despite the current weakness of the luxury market.
The strong gross margin further solidifies our midterm ambitions regarding the delivery of at least plus 50 basis points to consumer EBIT margins every year.
Turning to working capital. In the first half of 2023, working capital increased to 6.1% of sales. This increase was, for one, driven by inventory buildup to safeguard material supply and also by higher trade receivables due to the stronger Sun business with longer payment terms.
The good performance of trade payables did not fully offset the developments and the other elements of working capital.
Let's continue with our tesa business. We finished the second quarter with organic sales growth of 1.4%, bringing the first 6 months to a slight sales increase of 1.2%. Given the difficult market environment around the consumer electronics business, we are happy with this performance.
It is very much driven by the outperforming automotive business, which grew double digit in the first 6 months. Our EBIT margin came in at 18.4%, which is below last year. We continue to invest in innovation, digital and sustainability activities.
We are happy to see that our sustainability efforts have just been awarded by EcoVadis, one of the most trusted providers of business sustainability ratings.
With our gold status, tesa is placed among the top 2% of companies in the industry. Tesa achieved excellent results with its extensive sustainability initiatives, particularly in the areas of environment and energy, sustainable supply chains, working conditions and ethics.
Before I finish my presentation, a few words about our full year guidance for 2023. Looking ahead, we are expecting a certain level of volatility in the coming months, especially around the recovery of the luxury market. However, on the back of the strong sales development year-to-date, we increased our sales guidance for the Consumer segment. We now expect to achieve growth in the range of high single to low double digit with better performance in the luxury segment, we expect to reach the upper end of this range.
At the same time, we reiterate our guidance of plus 50 basis points of EBIT margin improvement. We plan to strongly drive investments in our business in the second half to continue to fuel future profitable growth, particularly in terms of marketing and digital investments.
For tesa, we are confident regarding the second half of the year and maintain our guidance. We are looking for mid-single-digit organic sales growth in the full year 2023. The EBIT margin will be slightly below last year's level. This means for the group that we are guiding for a high single- to low double-digit organic sales growth range in 2023 and for an EBIT margin slightly above last year's level.
With this, I conclude and hand back to Jens for our Q&A session.
Thank you. At this time, we will open up for question and answer. [Operator Instructions] Thank you. The first question comes from Bruno Monteyne at Bernstein.
I'm going to be a bit like a broken record on cash returns -- I remember asking the question at quarter 1, but when you're sort of reading capital allocation framework with your main shareholder. I think at the time, you literally almost word-to-word said, look, you were expecting to make another statement in the near future, that hasn't happened, so I presume bigger dividends, buybacks are even further away in the future, possibly next year.
I mean, to what extent -- I mean, a fantastic numbers, to what extent should investors really care about all that growth if you sort of never ever going to share that upside? So I just want to think about your latest development, not only when you could make an announcement, but how do you justify this to your minority shareholders?
The second one is on the kind of level of margin reversal that's implied in the second half. I know you want to be cautious, but you would have to have quite a big margin drop year-on-year in the second half. Can you -- I mean, it's probably 80 or 90 basis points down year-on-year [indiscernible] growth momentum, everything seems to be working. So can you just explain in more detail why you would have to have such a big margin reversal in the second half to only have 50 basis points of EBIT margin expansion in Consumer?
Thanks, Bruno, I will take the first question, and Astrid will answer the second one. As you know, perfect capital allocation is not only about dividend and share buyback. It's also about M&A. So on this front, we are working on a few opportunities. But I know you have in mind the question of dividend. We are working on that. As you know, dividends are a yearly decision. So please hold your horses. We will come back in due time, and I hope that will be -- we'll do -- able to announce some good things. Astrid?
Thank you, [indiscernible] Sorry, Bruno, I'll repeat again because the microphone was not on. Thank you so much for your question on margin in the second half. If you're looking at our business, we have this pretty much every year that we have a very strong profit level in the first half and a much weaker one in the second half. That is very much related to a typical pattern in our business. Obviously, a very strong Q4, Double 11, all these different events, the holidays and so on, but also the pattern of how we launch our products tend to be around March and so on with increasing levels of investments.
When you're looking at our first half, we have strongly increased that, but we will do even more in the second half to really drive this business. So very much committed to the 50 basis points at this time to ensure that we have the right in the ammunition for our business. Thank you so much.
You did mention in the past on the long-term framework that it's at least 50 basis points. Now for this year, you're not using the word, at least. How much should I read into that as to, Astrid, please?
Yes, we did say at the beginning of the year that for this year, we're committing to 50 basis points. We had set at least or -- plus 50 basis points, at least, on the midterm, so not necessarily specifying the year. And this year, we did commit to the 50. Let's see how the year goes.
Thank you. Next in line is Guillaume Delmas at UBS.
Can I -- first, a housekeeping question, Astrid, and apologies if I missed it, but could you tell us what your advertising and promotional spend was as a percentage of sales in the first half of the year?
And then my 2 questions. I mean just to follow up on Bruno's question about your margin guidance for consumer because I'm still trying to reconcile your full year guidance with your performance in the first half. Because one would need to assume -- I mean I would get even to 150 basis points EBIT margin decline in the second half. And I would assume that in the second half, you're also going to have significant gross margin improvement. I mean simply extrapolating your first half gross margin level, I get to nearly 100 basis points gross margin enhancement in the second half.
So we would be looking at anywhere between 200 to 300 basis points increase in SG&A in the second half. Are you just being very conservative with your margin guidance or are you planning a very significant step-up in SG&A?
And if so, any color you can give us at this stage in kind of the buckets the areas where you're going to be investing that money, whether it's mostly A&P or maybe digital infrastructures? I mean any color you can shed on that would be interesting.
And then my second question is on North America. Because when I look at your Q1 versus Q2 organic sales growth by region, it looks incredibly consistent for all regions. So Q2 very similar to Q1. The only exception to that flow is North America, where there's been a bit of a slowdown from 16% in Q1 to, I think, slightly under 10% in Q2. I mean it's still a very good performance. But wondering any particular reason for this deceleration in North America that we don't see in other regions?
I will answer, obviously, your first question. So advertising went down from 24.5% in the first half last year to 23.8%. In absolute terms, though we increased it by approximately €100 million, almost all of that going into our working media. And it's as much increase in the first half as we've increased in the full year previously.
So really trying to obviously really drive our business, seeing the momentum and wanting to really support the business here, but given the very strong top line growth from a percentage perspective going backwards.
In terms of your margin question, look, we might be slightly cautious, but we really have this commitment to ensure that in the end, we do what's right for our business and are really driving our business in the right direction for future profitable growth as well. So we have a strong commitment. You also have to understand in the first half of the year, we did have some disruption in terms of pricing negotiations. We did not spend a lot of media to support our business. We also had basically a March and beyond timeline in terms of launching new products. So we have an imbalance in how we support our business that is related to that, and it's quite typical for every year.
So again, you're right, yes, EBIT would be going down versus prior year second half, but it's really in strong support for our business. And let's see how things turn out, obviously also driven by the top line that we will deliver in the second half.
And please do note, Luxury does make obviously an impact on the business that will also determine our profitability in the second half. Let's see how that performs ongoing.
Your question, Guillaume, on the North America business. It's pretty simple. In fact, when you look at the details per brand, we are pretty consistent on NIVEA, on Derma brands, extremely strong growth of Derma brands, Eucerin and Aquaphor.
We are doing better on La Prairie. The difference is simply the pipeline feeling of Coppertone. Last year, we were not able to deliver the right quantities in the first quarter. We had a big issue of like everybody of supply disruption. This time, we are able to fulfill all the orders of our customers in the first quarter to be ready for the sun season in the U.S. That's the only difference.
Thanks, Guillaume. We move on. Next caller would be Celine Pannuti, JPMorgan.
My first question is on Luxury. So you gave some indication in the presentation, thank you for that. But just I wanted to come back to a few things. 10% growth ex daigou, could you give us a bit more color on maybe Mainland China and the rest of the business? I was a bit surprised that it was not a bit better. I mean, obviously, it's a good number, but if you could shed a bit of light on that?
Then you mentioned that the daigou restriction will continue to impact into the next 3 quarters. What's -- I mean you seem to yet see some lack of visibility. So are you expecting any hit on the rest of the business beyond this daigou? I don't really understand why Luxury will not progress because I think you have an easier base of comparative in the second half?
And then could you also give us travel retail growth for the group for the second quarter? And then my second question, which may be linked to the first question, understanding as well the moving parts in your organic guidance, organic growth guidance. We put 15% almost in Consumer in the first half. Yes, I'm trying to reconcile even doing low double digit would have to be a pretty as well deceleration maybe on the rest of the business beyond Luxury. So if you could as well help us a bit understanding whether they will be beyond Luxury other moving parts in the second half?
Thanks, Celine. I will take the first question, and Astrid will take the second one. On the phenomena of daigou, I think, is very clear, and I think our competitors express the same phenomenon. In your case, I would say it's not something we are unhappy with. We believe that this kind of purchase and the fact also that daigou also publicizing their promotion online is not good for the brand. And it's hitting our figures. But we like the idea that it's [indiscernible] the market. So we believe that this phenomenon will continue.
We believe that there will not be a turnaround, that suddenly the daigou business may now -- go back to growth. So we are back to the time when individual shoppers are buying products and this is what we expect. So our expectation is that the Daigou business will continue to decline.
We're not expecting any recovery. But we do expect a recovery of the clean part of the business, the individual shoppers. Our figures, if I go region by region, we are doing okay in China, but you know that the market is not as good as expected. So we are slightly growing in brick-and-mortar, and we're doing extremely well on Tmall and JD.com, which is also something which was new for us, and we entered online business only 2 years ago.
We are doing extremely well, as I mentioned, in Asia, outside Travel Retail, Korea and Hainan. So we are tripling ourselves and extremely strong in Japan, for example, we have one of the best ever quarter in Hong Kong, in Australia.
So I would say on Asia, Asia works well. If you exclude Daigou Korea and Daigou Hainan. In the rest of the world, you remember, Celine, that in the U.S., we are struggling a little bit because of the distribution in which we are. We are absolutely willing to maintain our positioning, which is we are in department store. We are not in the -- we are clearly in those stores where we can deliver the right service to our consumers.
Also we can get the right data. Remember that we are the only luxury brand having access to the consumer data in those department stores, so we can do CRM. So we are growing in market share, but this is a department store category which is a bit flattening. So this is why we see a third quarter which should be not better than the second quarter. But we expect the fourth quarter being much better, not only because China will go back to normal level of growth, and also because the start of the disruption of the daigou was really in Q4. So we'll enter into a more positive competitive environment. That's where we are today.
And Celine, your question regarding organic growth guidance. Look, we are qualifying the guidance in terms of saying given a bit of an improvement in the luxury market. We are at the upper end of that guidance that we've given. So from there, let's see if there is more upside, but that's what we can see at the moment. We have a very tough comparison with the back half last year with a lot of pricing being taken there.
Obviously, that is starting to slow down in this back half. So the comparison is really getting tough there. And I'm not sure we can continue to expect 15% growth in the rest of the business. But we feel good about the business. We see no signs of it really deteriorating very, very strongly. So we're continuing to be committed to driving as much growth as we can.
Thank you. We move on further down the line, a lot of callers today. So we have Rashad Kawan, next on the line, Morgan Stanley.
Congrats on the results. Just a couple from me. On the level of investment that you're planning for the second half, and obviously, I think you talked about the €100 million of increased spend in H1. Maybe if you can talk about your innovation pipeline. How you're feeling about it relative to the past few quarters? And if anything, in particular, excites you going forward?
And then just a quick housekeeping question on the tax rate came in a little bit higher versus last year. I know Astrid, you talked about this a little bit in your opening remarks. Can you just give a little bit more color there? Anything longer term? Or is it just really some one-off items kind of impacting it here in the first half?
Very good. The first question, Rashad. No, we -- as you might remember, we have changed also the way we drive innovation at Beiersdorf. We are moving into something which is fewer, better, bigger innovation, being much more top-down. And when we do an innovation, this is a global innovation. This is not -- we are not giving the chance to country manager to do cherry picking.
And this is working well, and you've seen the result. This is working well, particularly when we talk about NIVEA LUMINOUS630. LUMINOUS630 is the absolute game-changer for NIVEA. This is not only the biggest breakthrough innovation we came with over the last 10 years, but it's also the most expensive NIVEA product, and you find LUMINOUS at around €30, €35 on shelve, which is obviously far from what we used to do with NIVEA products.
So we are launching additional SKUs under the LUMINOUS630 franchise, new serums. Serums is the category which is flying. So new anti-spot serum. And also for the first time, we are launching LUMINOUS630 for men under the franchise NIVEA Men.
On Derma, we are also continuing the success story of Thiamidol. This is despite the fact that we are already in the fourth year of activity, we are still growing extremely high. And you know that we have also the prospect of, when we get the regulatory approval, to launch it in China. So big activity on Thiamidol and also very big activity on Sun. We are doing a fantastic season. And also that part of the season is also in the second semester because we are extremely strong in Latin American country.
So strong activity in Sun, strong activity in Body. And all in all, this is why we are extremely optimistic regarding Derma. The good news also for us is La Prairie. We have a rhythm of new products, at least the full potential of new products which is much stronger this year than last year. We are tripling the impact of new products on this business, which is pretty good.
And so we have relaunched White Caviar. We have -- we are launching a new skin caviar luxury in September and the presale we are seeing so far are pretty good. So all in all, fewer, better and bigger innovations. This is also coming back to the comment of still we're pretty optimistic regarding the second part of the year. Astrid on tax?
Sure. So Rashad, your question on tax. So let me just explain why it's gone up so significantly, obviously, in the first half. So the underlying tax rate actually improved in the quarter despite the fact that we have less La Prairie business, which has a very favorable tax rate. So that is good news. But we did have a onetime adjustment related to our transfer pricing system, we booked the entire onetime adjustment in this first half. So that's impacting the tax rate.
And we also had some tax charges related to some rather old tax audits, and that's impacting this first half as well. We very much stay committed to the longer term or midterm, sorry, target of 28% and so staying committed to that, but are seeing a higher rate this year.
Moving on. Next, we will hear Fulvio Cazzol's question at Berenberg.
Two questions. The first one is on La Prairie. So I see that your as you mentioned, you're opening 20 new doors, 4 new cities. I was just wondering, would that be enough to capture? Do you think the sales lost via the daigou that are being repatriated in the Mainland? So I just wanted to understand if that's the objective and how confident you are on that?
And then the second one is on Sun Care. So we're seeing another year of high growth. I guess one could put it down to the seasons given that we're seeing the hottest weather ever on record. But is -- I was just wondering if there's something more than that. Is there are some structural drivers? Is there more interest into this segment within skin care? Or are there also other one-off factors that are driving this like retailer inventory builds or anything like that? So any comments on those 2 will be greatly appreciated.
Thank you, Fulvio. On your question about La Prairie, so you know that on brick-and-mortar, we have a pretty dogmatic strategy. We really open point of sale when it makes sense. When we have the right space when we can do some treatment. So this is why you will never find with La Prairie the quantitative distribution that you find with our key competitors. What we are doing this year in brick-and-mortar, it's more the idea that there are some areas in China that we are not covering.
We are today only in 36 cities. We want to be in 42 cities. And we saw also that we -- there are some -- when we enter online, we saw some areas where we have absolutely no distribution.
So would it be enough to compensate daigou? No. But what is really something on which we are betting since 2 years is e-commerce. The fact that we are extremely successful with Tmall and JD.com, the fact also that we are working on launching La Prairie on TikTok. The fact that those 3 e-retailers are absolutely respecting the equity of the brand and they don't run promotion, they respect the aesthetic and visual cost of the brand, make us pretty optimistic.
We are -- despite the fact that we are not promoting the brand, we are successful in the various festivals that are taking place. So this is, I think, the way we -- with a good reasonable increase of brick-and-mortar and the fact that we have online growing double digits since 3 years, we believe, indeed, that we can more than compensate the daigou phenomenon.
And again, with a much more, much cleaner business, which we expect the brand equity of La Prairie. On Sun Care, I think there is -- you're absolutely right to ask this question. I think there is not only the fact that we are after -- we are coming back after a difficult sun season due to COVID, we are also benefiting from the fact that consumers are aware of skin cancer that consumers are looking for a high level of protection, that consumer also are also very sensitive to the texture, the formula, the success we're having right now with Eucerin with a very transparent read is showing that really that there is always an opportunity to improve the look and feel of formula.
So all in the -- so all of that is making our brands pretty successful. We're extremely successful last year. We are not yet through the summer, but what we see so far, particularly on Eucerin, is pretty promising.
And again, what is also very important when you look at the Sun business of Beiersdorf, we are so successful in emerging markets and particularly in Latin America and South Africa, that we see also the sun season for us is not only July, August, it's also the end of the year. So when we look at the prospects and the feedback of retailers, we believe that we'll do a good -- very good second outstanding season in a row.
Okay. Thank you. So we move on to Jeremy Fialko. Your 2 questions, please, Jeremy.
Okay. My 2 questions. I know we've talked about this quite a bit, but I guess, clearly, the EBIT came in the half somewhat ahead of your expectations and you're holding the EBIT guidance. To what extent are you going to be doing, let's say, more investment than you anticipated?
So you're doing, I don't know, more product launches or more white space expansion. I mean are there some activities which you've kind of brought forward or accelerated into the second half or your spending now for a bigger program in '24. Perhaps you could just talk in some of those dimensions about the investment in the business?
And then secondly, the question on tesa. Can you just talk about your confidence in the second half because clearly, that part of the business does need a bit of a pickup, if it is going to hit your guidance. So what gives you that confidence?
Thank you, Jeremy, for this question. So yes, we are investing really behind fueling all the things that you've mentioned, innovation, also white space where we're seeing significant success you're seeing that obviously in our numbers we showed emerging markets where we have a number of key white spaces, but also Asia and also category white spaces that we're really trying to drive. So absolutely, and we are looking also, which was what I mentioned to really drive future profitable growth, anything we can do to obviously prepare for the future as well.
In terms of tesa, the team at tesa still feels very confident about the year. We are winning and have won, sorry, we have won a number of big electronics projects that is an annual business, you have to win it again and again. We are in all the major devices.
I can't name the brand name, but you know what I'm talking about. So we are just waiting to see that business really take off, but the fundamentals are there. And again, the automotive business has been doing very, very well. And also the consumer business, we are really winning market share in that business as well. So the team still feels very confident to deliver the back half.
Moving on to the next caller, Iain Simpson at Barclays.
Two very quick questions from me, please. Firstly, and I do apologize, Astrid, you must feel like you've done this margin question to death now, but you said you were confident in hitting 50 bps margin sort of despite Luxury weakness. I noticed on your top line guidance, you said, hey, we might be at the upper end of this if Luxury recovers. Should I sort of infer from that, that contingent on a decent Luxury recovery in the second half, maybe it could be a bit better than 50 bps, but you don't have that visibility yet, hence, the conservatism in your guidance?
And then my second question, fortunately, not about margin. It's just thinking a little bit more about that innovation pipeline. I wondered if we could get a little bit of an update on the potential timeline for Thiamidol regulatory approval in China?
And then you also did the acquisition of S-Biomedic at the end of last year that looked to have some really interesting kind of acne treatment stuff, albeit quite early stage. I just wondered if you could give us any kind of update on the potential timeline for that being commercialized?
Iain, I will take your first question, and Vincent will answer your second one. Look, we are not moving away from our guidance this morning. So we will stick to the 50 basis points...
I had to try. I had to try.
I understand. If our Luxury business picks up, obviously, there is also significant investment we would have to add back. As you can imagine, we've obviously looked at where we are from a Luxury perspective, profitability has been hurting there, and we've looked also to reduce investment which we have done to date, and we need to then see what do we need to add back and how quickly we will try to be as flexible as we can on that side.
On your questions about innovation, Iain, thanks a lot for this one. China, we are expecting a feedback from the Chinese FDA next month, so in September, and it's -- we have done everything we had. You can imagine the number of reports and analysis we had to submit, but we are pretty optimistic.
It will be also a game-changer for China and giving us the chance to cascade down the W630 ingredient into our brand. So September should be the decision, which means that after we have to get the regulatory approval of our formula, September is the ingredient, which means that we are thinking and we are planning to launch the new W630 base formula by 2025.
On S-Biomedic, this is also a great opportunity. This is a game-changer for us, particularly for Eucerin. It would give us the opportunity to occupy a category, which is absolutely essential for Derma, which is acne, which is currently owned by our 2 biggest Derma competitors.
We are -- we have been testing the product with outstanding results. I've never seen so good results in the Derma product. We are working on how to produce it because it's a tricky production process, how to sell it also. I mean, look at all the details, price positioning, how to embark also the dermatologists. So we are into a timing, which is more 2025 in order to be sure that when we come with this offer, we have the absolute right mix and the right plan to make it a huge, huge success and a huge game changer for Eucerin in the world.
Next caller this morning is Olivier Nicolai at Goldman Sachs.
Congrats on your results. Just got a couple of questions left, really. I remember last year, we were talking about -- but at this time, actually, last year were talking about potential delisting in Europe. Now could you give us your thoughts on pricing dynamic in Europe in H2 and next year, particularly as your input cost inflation is fading? The first question.
And then secondly, just I don't think -- or maybe I missed it in the presentation, but could you give us an update on the Chantecaille brand? Is it following the same dynamic La Prairie, i.e., big weight of -- big impact from the daigou's and what's the prospect for the brand in the midterm?
Thank you, Olivier. So on your first question, the good news is that we've been going through the price increases of 2023. And while we had obviously some little irritation in -- with some retailers in some countries. We have been able to sign all the agreements. So we have 0 delisting, and we are back also -- it was important also we are back to the shelves of Lidl and Aldi since the 1 May.
So all fine on this part. We still have some price increases in some emerging markets, which are mostly driven by foreign exchange, but I would say we are used to that. How do we see price? I think we see price, and this is a change also in the culture of Beiersdorf. We see price as something we'll embrace, every time not only we do see some increase of cost of goods, that's obvious, but also when we come with new proposal.
When we come with innovation, which are worth asking consumers to pay more. I gave the example of LUMINOUS, which is around €30. We will not refrain from having the same attitude when we come with the right launches and the right initiatives.
On Chantecaille, yes, absolutely, you're absolutely right, we were in fact, mostly buoyed by daigou in Korea. So we have a Korean business, which is totally collapsing. But in a sense, we are happy with that because it was absolutely not the kind of business we wanted to develop. We are doing a good job in North America. The issue in North America, we are skewed towards 1 or 2 customers. So we have clearly to enlarge our distribution, and we have some good discussion. The future of the brand is clearly positive. We will not only strengthen our position in the U.S., again, opening new stores, developing even more e-commerce activity.
But also, we are benefiting. It was one of the reasons why we are interesting, benefiting from the added value of La Prairie in areas like travel retail. So we are having our first conversations with the key travel retail retailers in order to distribute the brand and to really start something which has never existing.
So that's the short-term decision. The big thing, and I'm sure you remember that is obviously the launch in China in 2024. We are going through all the regulatory processes in China. It's simpler than W630 because it's not, we are not dealing with a totally new breakthrough ingredient. But we are doing the paperwork.
We are preparing ourselves. We are building the teams and 2024 will be clearly a milestone for Chantecaille. And it's important to know that this year, we are celebrating the 25th anniversary, but the big milestone being that we will be able to sell the brand in China. We are already in cross-border. We are doing a nice business there, but obviously, there's nothing compared to what we can achieve in China Mainland as of next year.
Next in our line is Tom Sykes, Deutsche Bank.
Yes. And sorry, 2 more questions on margin. But it's your fault for having such a good one in the first half. But just to get to the -- go back to the point of seasonality, the seasonality is greater than we've seen historically. I know the last couple of years were going back longer for that -- than that.
So are you more reliant now on seasonal products to drive the margin? And if Sun and Deo are sort of flattish next year or it's a reasonable year, I mean, is this H1, the correct base from which you can grow operating margin in the first half of next year. And then when we look at the FX, the euro, Swiss franc, the peso, they've all strengthened against currencies of countries they supply. So how quickly would FX impact either gross or operating margin? And is that a headwind to margin and any other factors such as hedging unwinds that may affect the second half, please?
I will take both of those questions, Tom. So let me just stress our year-to-date performance and even the performance over the last, let's say, couple of years. It was very broad-based growth, every category, every geography, pretty much everywhere, obviously, with the Luxury weakness that we currently see in the first half. But otherwise, really broad-based growth not just one category driving and certainly not alone Sun.
So this dependence on, let's say, 1 category or dependence on a region, that is a bit of a thing of the path for us. And we obviously stress that, that what we're seeing in our business and what we're trying to drive in our business is really skin care and Deo very much so, and we are successful in doing so.
So nothing indicates right now that, that picture will change to the future in terms of obviously our pipeline, our innovation, but also where we're continuing to drive white spots or building them out and so on.
So we feel like we have a business that is very broad-based and should continue to deliver strong growth, that is certainly our ambition. So again, seasonality, yes, it's part of the business, but it's not the main driver.
In terms of FX, yes, it's already having an impact this first half. You see it, obviously, from a top line perspective, we're off by a couple of percent. Now I can't foresee what happens in the future, but I can imagine that in the full year, we are somewhere around 3%-or-so off. I think the back half spread also with the U.S. dollar that could have a little bit more negative impact as well.
So it is having already a headwind in the first half, and we've obviously been able to compensate that. In emerging markets, we always look at where the FX rates are going and then obviously do take pricing to offset. It has some delayed impact. It's obviously not immediately at the same time, but we have been managing that quite well so far. So again, we are committed to 50 basis points despite that. Thank you.
Thanks. So we have 2 more callers here. We have Rogerio Fujimori next, Stifel.
You said that volume growth accounted for 1/3 of the strong like-for-like growth ex flux in Q2 globally. Just wonder if you could elaborate on the volume trends in Europe in Q2 versus Q1 and what you expect for H2?
And my second question for Astrid is on the gross margin headwinds, tailwinds for H2. I think you flagged 400 bps price impact in H1, 110 positive mix and -- 460 bps drag from COGS and logistic cost inflation. So how should we think about particularly the mix element? And should we expect a bigger gross margin gain in H2 than H1, just to confirm that?
I will take the first question. It was indeed one of the questions for us knowing that we were coming with price increases, which were absolutely never seen for Beiersdorf for NIVEA, who wanted to check if there was any kind of price sensitivity.
The first quarter, as you might remember, was a bit polluted by the challenges we had in Germany and France with some retailers when we had some delisting and some lack of promotion because of the price increase. So now we can really conclude -- because we are over, we can really conclude that our brands I'm not suffering from any kind of price sensitivity, that we were able to grow the units and the value on each and every category with 1 exception, which is Showers, which is not really a strategic business for us, but where we see clearly that when we increase prices, we decrease volume.
But on all the other countries, all the other categories could be Sun, it could be Face, could be Body, it could be Lip, we see an acceleration of the growth in volume, and this is something, obviously, which is making us very optimistic for the future.
I think we kept with NIVEA this extremely important value-for-money positioning which means that, yes, indeed, you have LUMINOUS630 at €30, but you have also Q10 at €11, and you have essentials at €3. So we have also this opportunity to offer a very large range of prices and being able to fit all consumer expectations. So we plan to increase our volume, not only in the second semester, but in the years to go while increasing prices in a more -- in a stronger way than what we used to do before 2021.
In terms of your question on margin for the back half, look, we will obviously start lapping pricing, and we will see a smaller impact from pricing. But at the same time, we're also lapping higher cost, and we will see a lower impact from that as well. On mix, obviously, that is the big question mark. We did have very strong mix impact this year.
There's a lot of moving parts there, obviously, including when did which categories also kind of come back, Lip is last year, a big rebound in the second half. So there is a little bit of a mix comparison as well that will have an impact. But we continue to believe, especially over the midterm, that obviously are pricing to great extent will come, as Vincent mentioned, from taking pricing with innovation, but also from our mix as we're continuing to drive skin care categories and obviously, our, let's call it, more premium brands, Derma, La Prairie and so on.
Okay. Thank you. Well, I can see the last caller actually dropped out here. So we have exhausted our queue. So thank you for all your questions.
So this concludes our second quarter earnings call. Thank you for your participation. Beiersdorf's next Investor Relations event will be the release of our 9-month sales figures on October 25. We appreciate your interest in Beiersdorf. Thank you, and goodbye.