Beiersdorf Aktiengesellschaft (BEI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Haley, your Chorus call operator. Welcome, and thank you for joining the Beiersdorf conference call full year results call. [Operator Instructions] I would now like to turn the conference over to Mr. Jens Geißler, Head of Investor Relations for Beiersdorf AG.

Thank you. Good morning, everyone, and welcome to our full year conference call. This is Jens Geißler. And here with me this morning in our Hamburg offices is Beiersdorf CEO, Stefan De Loecker; and our CFO, Dessi Temperley. Today, we have a different setup regarding our full year communication. Due to the current development of the coronavirus situation and in order to protect the well-being of everybody involved, we decided to cancel the conference, which we usually have, and are conducting this earnings call with you instead. First on our agenda today is a message from Stefan De Loecker. You will hear about the progress we made with our C.A.R.E.+ strategy so far and, of course, how we will further develop our business this year and beyond. In the second part, Dessi Temperley talks about the financial aspects of C.A.R.E.+. Dessi will also speak about the formal guidance for this year 2020. And after this, as always, we will have question-and-answer with you, of course. Okay. I now hand over to Stefan.

Thank you, Jens, and good morning, ladies and gentlemen. Well, welcome also from my side to Beiersdorf AG financial analyst meeting. I would obviously have like to personally welcome you here in Hamburg in our Beiersdorf office. But as Jens already said, the latest developments and the increasing spread of the coronavirus, we put people's health as a key priority. Thank you for understanding for -- and making this change on short notice. Regarding 2019, I basically have one message. We delivered what we promised a year ago. We outperformed the market with 4.8% net sales growth. We've maintained or gained market share in almost 2/3 of the markets in which we are active. We've improved the quality of our sales with a gross margin that grew, for the first time in years, by 60% last year -- by 60 basis points last year. For price and product mix, we're positive. We've launched many different initiatives, all within the framework of our C.A.R.E.+ strategy. What they all have in common is that they always put the focus on the consumer. We've increased our investment in digital communications by 40% over the previous year more than ever before. Our consumers are reacting enthusiastically to the innovation, Eucerin Thiamidol, which makes it the most successful launch in Eucerin's history. We accessed the largest sun protection market in the world with the acquisition of Coppertone. To ensure the long-term profitability of our Chinese business, we're focusing more strongly in our core expertise in skin care and have divested the SLEK hair care business after a thorough strategic review. We entered the European natural cosmetics market with 2 different concepts, NIVEA NATURALLY GOOD and Florena Fermented Skincare. Climate change is one of the greatest challenges of our time. With our sustainability agenda, CARE BEYOND SKIN, we define our commitments and action plan. With OSCAR&PAUL, we introduced Skin Stories for tattooed skin, the first new brand in over 30 years. We have invested in several innovative start-ups via our venture capital firm and our NIVEA accelerated program in Korea. And in Hamburg, STOP THE WATER WHILE USING ME! recently joined Beiersdorf family. And with no less than 3 plant expansions in Brazil, India and Thailand in 2019, we are meeting our growth ambitions in the emerging markets. 2019 was a strong year for Beiersdorf. We delivered what we promised. However, there's a lot more work to be done, and our C.A.R.E.+ strategy shows us what. Almost exactly 1 year ago, we presented our corporate strategy, C.A.R.E.+, to you. C.A.R.E.+ describes the way Beiersdorf will redefine its relevance for consumers. In doing so, we are continuously guided by our purpose with which we have been convincing people over 135 years, our passion for people and their skin. In terms of digitalization, demographic developments and climate change, our consumers' expectations are also changing and presenting us with new challenges. With C.A.R.E.+, we're providing an answer to these profound changes in society, industry and company. We regard the challenges as a great opportunity where we can increase consumer connection through new digital channels and technologies, improve the lives of our consumers with superior skin care innovations and a unique portfolio of strong brands, tap into new growth markets and business areas, fuel the growth through productivity gains and further significantly increase our contribution to more sustainability. With C.A.R.E.+, we have formulated a clear commitment to competitive, sustainable growth. To achieve that, we must transform our brands, adding value, digitally connected, sustainable and worldwide, but locally relevant. As I mentioned in my introduction, we have already made quite some progress. And I would like, here, to give a bit more details. C.A.R.E.+ defines the way how we will increase our relevance to consumers. Our goal is to be as close as possible to each individual consumer along their individual consumer journey, along all the points of contact we have with them. To strengthen the dialogue with our consumers, we continuously personalize our digital marketing by dynamically placing for relevant consumer groups' agile and focused content based on consumer data on the appropriate channel. We have done a lot in recent months. We're systematically shifting our investments towards intensifying our connection to consumers and increasing our presence via digital media, last year, 40% more than in the previous year. We're introducing our brands into more and more relevant online channels. We grew by 23% in the e-commerce segment. For example, through the launch of the new user in online shops in Russia or in China's largest cross-border platform, Tmall. I will come back to that later. Our consumers appreciate the quality of our products and the brand experience we offer them. We increased the number of positive online product reviews by 70% last year. Innovative skin care has always been the quality that defines us. The foundation of our success is the close relationship that we maintain with people and our understanding of their wishes and needs all around the world. We develop products that address specific consumer needs, such as the NIVEA Cellular anti-aging care range. The range is specifically tailored to the skin needs of women with mature skin, visibly reduces age spots and provides a skin with intensive moisture. NIVEA Cellular 3in1 Care Cushion gives the skin an even radiant appearance, thanks to light coverage pigments. And our range is winning over consumers. In our stronghold, Europe, we increased net sales in the Face Care category by 6.2%, confirming our leading market position. In already strong national markets such as Germany, the U.K. and Poland, we were able to attract additional consumer groups with innovative products. Global consumer relevance and breakthrough innovation are the success factors for how we win with skin care and convince consumers. 50% of women worldwide suffer from hyperpigmentation. Our Eucerin Anti-Pigment range that is based on the revolutionary ingredient, Thiamidol, is breaking all records. With the shortest amount of time last year, it became the most successful product launch in the history of Eucerin. It helped Eucerin capture the leading market position in 11 countries in the Even Skin category. This type of innovation opens the door to entries to new countries. And in 2019, we entered 2 new important markets for Eucerin. Last spring, Eucerin opened its new online shop on China's biggest cross-border platform, Tmall, which is operated by Alibaba. This platform offers us the opportunity to present our innovations online to more than 150 million consumers in China and drive our success in the Chinese market. Our goal -- our clear goal here is to make Eucerin the market leader in the Derma cosmetic skin care segment. In addition, since September 2019, consumers in Russia have been able to buy Eucerin products from our online shop and at the 5 largest pharmacy chains in the Moscow metropolitan area. This allows us to leverage further growth potential in these markets as part of C.A.R.E.+. Ladies and gentlemen, our strategic priorities also include identifying and tapping into new growth markets, business areas and segments. In this area, we have set decisive actions in recent months and made initial progress. As mentioned at the beginning, the lifestyles and expectations of our consumers are changing. People expect more naturalness and sustainability. This drives us to further expand our portfolio and include more products with natural ingredients. We're addressing those expectations with a high level of transparency without compromising on quality. Our NIVEA NATURALLY GOOD range, with a minimum of 95% natural ingredients, caters for this continuing trend and was launched at the end of last year. In this spring, we will add new product categories like deodorants to the range. Whereas NIVEA NATURALLY GOOD is aimed at the mass market, with Florena Fermented Skincare, we are offering, for the first time, a range of certified natural cosmetics products whose innovative concept is based on the natural process of fermentation in the test markets of Italy and France. The first results are promising. This month, we will expand with antiaging and skin cleansing products to the assortment as a way of -- to comprehensively meet consumer needs. In September, we launched Beiersdorf's new Skin Stories brand under the umbrella of OSCAR&PAUL. Skin Stories steps into a new skin care category in the mass market, caring for tattooed skin. Almost every fifth person in Germany is tattooed. A special technology provide optimal care to tattoos and offers long-term protection from fading. Initial results are very promising and demonstrate that we have correctly identified the care needs of a specific target group with Skin Stories. Our body lotion is already now the best-selling product in online retailing, a key sales channel for this category. Ladies and gentlemen, last year, we acquired the iconic U.S. brand, Coppertone. With this acquisition, we have entered the largest sun protection market in the world and have further built on our position as the world's leading sun protection specialist. At the same time, this gives our U.S. business a new dimension, opening up new opportunities. Coppertone and its 450 employees have been an official part of the Beiersdorf family since the very end of August. The integration of Coppertone is proceeding smoothly and continues at full pace. We are focusing on maximizing the growth potential moving ahead. We are there where consumers expect us and are systematically expanding our presence and capabilities worldwide. Being close to our consumers is critical for us to meet a specific and often very different needs in the regions. It also means we can adjust quickly and effectively to changing expectations. We've reached around 800 million additional people by founding new subsidiaries over the last 5 years. The most recent member is our group affiliate in Myanmar, which began operating in January 2020. We're also systematically investing in projects to set up and expand our successful production centers around the world in 2019 in Brazil, Thailand and India. But we're not only expanding our production capacities and capabilities internationally, we're also investing in Europe and in Germany. As we announced back in September and confirmed a few days ago, we will build a new plant in Zellhausen near Leipzig. With a volume of EUR 220 million, the new building will be the largest single investment aimed at expanding our production capacities we ever made in Europe. Production there is scheduled to commence in 2022. Since 2017, we have just started an investment program for Germany and in Germany of well over EUR 0.5 billion. After 1 year of C.A.R.E.+, I want to summarize what I said in the beginning. We have delivered what we promised a year ago: competitive and sustainable growth, a strategy capital that defines the road, the key road for the future, and we have immediately and decisively started implementing the strategic priorities. Let's now turn to our tesa Business. The development of production of self-adhesive system solutions has long been an integral part of our business portfolio. And today, tesa is a valuable and important part of the Beiersdorf Group. 2019 was a challenging year for tesa. Slower global growth and a declining demand from industry partners were reasons to prepare for an even more difficult conditions. Let's take a look at some of the highlights of the tesa divisions. [indiscernible] like the electronics and automotive industries, to name just two. Products and the solutions in the market for mobile devices include so-called stretch-release tapes, which can be easily removed and leaves no residues. Another example is in our HIP system tape for the car industry. HIP stands for High Initial Performance and allows for the bonding of different plastics without treatment during the assembly of vehicles. Sales of this division slightly declined by 2 point -- by 0.3% organically and reached EUR 818 million for the full year 2019. tesa's trade market division supplies customers via retail partners. This segment includes product ranges aimed at private consumers and craftsmen. The important product range is our adhesive solutions for bathroom accessories. They combine attractive bathroom designs with a specific tesa Powerstrip technology, which is an easy solution for reliable hold. In the Consumer Interaction segment, the digital sales channel outperformed the market. In 2019, sales in the trade markets division increased by 2.5% to EUR 555 million. It now accounts for slightly above 40% of tesa's total sales. I'd now like to hand over to Dessi Temperley, who will present you the financial results.

Thank you, Stefan, and good morning to everyone. Before I take you through the details of the financial results, let me briefly summarize the year 2019, which has been the first year of our C.A.R.E.+ strategy. We delivered a competitive top line growth ahead of the market. Our EBIT margin is in line with guidance as we executed the investments behind our growth pillars of accelerating the digital consumer connection, winning in skin care and unlocking white spots. In 2019, we managed to reverse the past negative trend in gross margin and withdraw for tangible improvements through both positive pricing and positive product mix. We also delivered on our C.A.R.E.+ commitments with regards to working capital improvement and the underlying effective tax rate. Starting with our key figures for the group. Sales increased organically by 4.1%. Foreign exchange movements and net impact from acquisitions and divestments led to a nominal growth in euros of 5.8%. In 2019, we had one-off costs of EUR 63 million, which were related to the acquisition and integration of the Coppertone brand; the divestment of our Chinese hair care brand, SLEK; and to the Fit For Tomorrow restructuring program of the tesa division. Excluding these special factors as well as the operational results of Coppertone as of September 2019, our underlying EBIT margin at group level decreased, as guided, to 14.5%. Our underlying profit margin after tax stood at 10.4%, just 10 basis points below last year's level, supported by an improved effective tax rate as well as positive net financial results. At the start of the year, we said that one of our objectives, to reverse the negative financial results of the previous 2 years, and we delivered on this commitment as well. Underlying earnings per share increased to EUR 3.42, an improvement of 5.1% versus previous year's level. Some details on our performance by segment. Consumer sales increased organically by 4.8% with a nominal growth of 6.5% due to foreign exchange movement. The additional sales from the acquisition of Coppertone were fully offset by the sales reduction from the SLEK divestments. The underlying consumer EBIT margin decreased to 14.3%, impacted by our strategic investments. Total sales increased organically by 0.8% after a strong growth in the previous year. The foreign exchange impact was a positive 1.1%, plus an additional 0.8% from acquisitions, reaching nominal growth rate of 2.7%. tesa's underlying EBIT margin decreased to 15.3%, which is slightly below previous year's level and in line with our guidance. Turning now to our Consumer Business and the development of growth by quarters and for the full year. We reported organic sales growth for 2019 of 4.8%. The sales growth of Argentina, as a reminder, is calculated based on current year average exchange rate, and therefore, the material devaluation of the Argentine peso, we factored into the reported organic growth. If the sales growth of Argentina has been reported at constant currency rates as for all other countries, consumer organic sales growth would have been at 5.4%. Fourth quarter organic growth was at 4.1% and at 4.9% with the adjustments for Argentina. Now on this slide, we would like to give you some more color on the growth performance of our brands for the full year as well as for the quarter. In backlog, the year was 3% growth. In the mass market, that has become increasingly competitive. In 2019, we reported above-average growth in Face Care and Face Cleansing, in body lotions and in all-purpose creams, in line with our strategy of investments in skin care. At the same time, the deodorant category remains an important growth driver in personal care. Our Derma brands used in Aquaphor delivered strong growth of 7.5%, gaining market shares in the geographies where we play. The new Thiamidol product line against hyperpigmentation and the Eucerin brands contributed around half of the Derma growth in 2019. Health care also recorded good growth of 3.1%. Based on a strong owned care business, the growth was driven by Germany, Australia and Mexico. La Prairie continued strong growth momentum into 2019 with an overall growth of 20%. However, there were also significant headwinds such as the political disruptions in Hong Kong, the U.S.-China trade relations and the sluggish U.S. retail market, which affected the performance in the second half of the key drivers of growth with China, travel retail worldwide and Australia. Sales in Europe were affected by the closing of doors in the region in order to support an even more selective distribution of this ultra-premium brand. We move now to our performance by region, starting with Europe. Sales in Europe increased organically by 2.3%. Western European sales grew by 2.2%, with a very good performance in Face Care. Eastern Europe achieved 3% growth. Eucerin recorded strong growth in the region and has also now been launched in Russia. At country level, we reported good growth in Germany and the U.K. and broad-based growth in Eastern Europe. France continues to be a very challenging market. In the Americas, our top line grew by 5.3% organically. Adjusted for Argentina reported at constant currency rates, the growth would have been at 8.3%. The business in North America delivered 3.8% growth. We achieved good growth with NIVEA Body and had another year of strong double-digit growth with Aquaphor. The recently acquired Coppertone business is not included in the organic growth rate. Due to the fact that we took over the business only after the end of the season, it recorded low sales volumes. In Latin America, we reported growth of 6.4%. Adjusted for Argentina's constant foreign exchange, we delivered growth of 11.5%. Mexico, Brazil and Central America recorded strong double-digit growth. In NIVEA, our deodorants, body lotions and all-purpose creams as well as the cleansing business had an excellent performance. Eucerin also contributed strongly to the growth. Lastly, in the Africa, Asia and Australia region, sales increased organically by 8.4%. We saw double-digit growth in India, Turkey, Malaysia, Vietnam, the Philippines and in parts of the African continent. NIVEA deodorants, body, all-purpose creams and face cleansing performed particularly well here as well. In China, sales were below previous year's level. This was mainly due to the continued weak performance of our hair care business. Both the Eucerin and La Prairie brands reported double-digit growth in the region despite some of the headwinds mentioned earlier. Turning now to our margin performance. The consumer EBIT, excluding special factors and the Coppertone brand, stood at 14.3%, in line with our guidance. Along the profit and loss lines, our marketing spend in consumer increased by 10 basis points versus previous year to 25.5% of consumer sales. We also spent proportionately more on digital advertising, which is now 1/3 of our marketing budget. Research and development costs were also up by 20 basis points as we accelerated investments in developing innovative products to support our future growth. The other operating results had a number of negative impacts when compared to the previous year. In 2018, we reported one-off gains on disposals of real estate with a 30 basis point positive effect. Aligned with our strategy of investing in white spots and upscaling the organization, we had higher one-off costs linked to the reorganization of our regional setup and other restructuring projects. Optimizing our structures enabled us to invest resources behind our priorities without increasing our overall structural cost base. In 2019, as the euro weakens against some of the major currencies, we also incurred some losses from currency hedging, which are reported under this line. While in 2018, we had a marginally positive hedging result. We are pleased that we managed to reverse the trend of declining gross margin from the previous -- from previous years. And in 2019, consumer gross margin was up by 50 basis points versus 2018 level. We reported positive pricing through all quarters with a positive margin impact of 60 basis points. Product mix effect was also positive, significantly improved by the growth of La Prairie and overall by the increasing share of skin care sales in our consumer portfolio. Supply chain efficiencies had a positive effect on our cost of sales, logistics and other costs and partially offset input cost increases. In combination with easing foreign exchange headwinds, our consumer gross margin materially improved versus previous year's level. Consumer division's working capital, on a 12-month rolling basis, decreased to 9.2% of sales in 2019. As a reminder, in our C.A.R.E.+ strategy, we committed to an average annual reduction of working capital of 50 basis points, and we delivered 70 basis points improvement. We will continue our focus on this KPI in 2020 as we see a tangible improvement potential in the mid-term. Now going to the performance of our tesa division. tesa had a year of subdued growth with organic sales of 0.8% in a very difficult market environment. Acquisitions late in 2018 contributed to the sales by 0.8% and foreign exchange movements by 1.1%, bringing nominal sales growth to 2.7%. The strongest growth came from Asia and specifically from the electronics sector. Sales within the automotive industry, however, were weaker across all regions. tesa's EBIT margin, excluding special factors, was 15.3%. The 40 basis point reduction versus previous year is mainly driven by investments in digital and IT capabilities as well as the full annualized impact of the additional depreciation of the assets from acquisitions. Special factors costs of EUR 19 million are mainly linked to the announced restructuring program, Fit For Tomorrow, which aimed to rightsizing the headquarters' organization. The persistent deterioration of market conditions in important core markets for tesa made this program a critical step to ensure a competitive structural base for the future. Going to underlying profit after-tax margin at group level, this stood at 10.4%, which is 10 basis points below previous year, despite the materially lower EBIT margins of the consumer division. This is due to an improved effective tax rate and [indiscernible] through the derisking of our investment portfolio. The reported effective tax rate was at 29%. Excluding the impact of special factors, our underlying effective tax rate on ongoing operations decreased to 28.3%, which reflects our efforts to deliver on our commitment to an improved underlying effective tax rate in 2019 and beyond. My last slide is our guidance for the year 2020. Consumer is expected to achieve organic growth of 3% to 5% and an EBIT margin of 14% to 14.5%. This is expected to have slightly positive growth. tesa's EBIT margin for 2020 is expected to be on last year's level. At group level, organic sales growth forecast is 3% to 5% and both the EBIT margin and the profit after-tax margins are forecasted at last year's level. The above guidance does not factor the full impact of coronavirus, which we're not in a position to quantify at this point of time. And now back over to Stefan.

Thank you, Dessi. We are satisfied with the results in the first year of our C.A.R.E.+ strategy. But yes, we are also aware, there is still a lot to be done. As Dessi just mentioned, the full year effect of the coronavirus cannot be predicted at this stage. In addition, we see a decline in growth in various large markets and expect competitive situation to become more intense. We will continue to push ahead with our digital transformation in all areas of Beiersdorf in 2020. In order to be able to advise our consumers individually and give them more specific product and care recommendations, we need to understand our skin needs better enabled by digital technology. Our new NIVEA Skin Care -- SKiN GUiDE App is an example of how we can use this dialogue and digital technology to pass on our many years of skin expertise directly to our consumers. With NIVEA SKiN GUiDE's launch in the middle of the year, we will take a decisive step in the field of digital skin diagnostics. As part of a large-scale long-term study, we have captured and analyzed the faces of more than 10,000 women using 11 parameters such as redness, depth of wrinkles, impurities in 12 million photos. That data, along with information on lifestyles and care habits, is the basis for a new form of skin diagnostics based on the artificial intelligence and personalized. It will enable us to make more specific product and care recommendation for each individual consumer. Ladies and gentlemen, renewal skin care is a key aspect of C.A.R.E.+ strategy. Also in 2020, we will continue to set clear actions with innovations. Let's take a look at the top NIVEA innovations of recent and coming months, the products that we expect to produce, our sustainable growth this year. Consumers expect a strong product performance using the power of biology in nature. Our research and development is focused on developing innovations based on our extensive knowledge of skin-owned processes. We, therefore, succeeded in enriching the 2 new NIVEA Q10 power products with 100% skin identical Q10 for the first time. The advantage, skin -- 100% Skin Identical Q10 has a higher bioavailability that conventionally update Q10. Thanks to this pure form of Coenzyme Q10, we can care for skin even better and visibly reduce wrinkles. It's our best Q10 ever. This philosophy is also the basis for another milestone in our innovation pipeline, the microbiome effective products. At Beiersdorf, we have been researching microbiological relationships for over 20 years. Skin microbiome, in particular, is an important research focus. Skin bacteria can be used as natural helpers for healthy skin. The balance between skin moisture, skin barrier and skin microbiome has a decisive influence on the protective function of our skin and thus, on a natural, healthy and beautiful appearance. To protect and support this balance, we have developed a new formula technology called microbiome balance. This month, we are launching the first 2 care products with the new microbiome balanced formula technology, NIVEA body lotion, Repair & Care microbiome balance and NIVEA Care Shower, face and sensitive on the market. I already mentioned the success of our Eucerin Anti-Pigment range at the beginning. We aim to continue the success story in 2020. Also by introducing the active ingredient, Thiamidol, we developed ourselves into our sun care products. We launched our Eucerin Pigment Control Sun Fluid with a sun protection factor of 50+ at the end of 2019. This product offers consumers comprehensive protection against harmful UV rays and high energy visible HEV light, which are regarded as the main trigger for hyperpigmentation. We're setting a new standard in the field of Derma cosmetic sun care products. Also, a new addition to our selective cosmetics is brand La Prairie. La Prairie White Caviar Eye Extraordinaire was put on the market just a few days ago. The cream is highly effective against pigment spots and demonstratively improves the skin's elasticity and moisture. Following the successful foundation of the OSCAR&PAUL corporate indie brands unit, we're pulling further venturing activities at Beiersdorf under the common brand umbrella, OSCAR&PAUL. OSCAR&PAUL embodies the founding spirit in our Beiersdorf DNA and our ambition to dare something new. It consolidates new approaches for innovation in the Beiersdorf world. OSCAR&PAUL-Beiersdorf venture capital focuses on investments in external companies. Our investment in the Korean start-up, LYCL Inc., is one of the first activities. LYCL Inc. is a rapidly growing skin care and tech start-up based in Seoul, Korea. In addition to its own skin care brand, LYCL provides review and content platforms for Korean beauty products and an influencer network platform. Our goal is to make investments in companies with strategic added value for Beiersdorf. Our aim is for such investments to give us quick access to new, disruptive technologies, relevant skin care innovations and new business models. The topics of digitalization, personalization and sustainability are further focus for venturing strategy. About a month ago, we complemented our portfolio in the segment of natural cosmetics and acquired the Hamburg-based natural cosmetics line STOP THE WATER WHILE USING ME! The brand will be continued as an independent company. Together, we aim to expand the impact of sustainable skin care and develop initiatives to protect the climate and resources. C.A.R.E.+ also stands for a further dimension of our commitment, sustainability. Sustainability represents a key part of our consumer-oriented company. At Beiersdorf, we've been caring for skin since more than 135 years. C.A.R.E. is part of our core ever since. First, however, C.A.R.E. is not limited to skin care. It goes far beyond that. C.A.R.E. also defines our responsibility for consumers, employees and the environment. Therefore, I'm pleased to introduce you, our new sustainability agenda today. CARE BEYOND SKIN, our sustainability agenda describes our obligation to strengthen and expand our commitment to consumers, employees and the environment in a manner that goes much, much further than skin care. The agenda is based on 7 focus fields that are aligned with the UN sustainable development goals. We intend to use these focus fields to generate positive momentum in three areas: environment, society and consumers. These are the areas where we, a global skin care company, can have our greatest impact. The environmental goals include the continuous reduction of CO2 emissions, the promotion of a circular economy, the sustainable sourcing of raw materials and measures to promote more conscious use and protection of water. In the following section, I would like to present you our commitments. In the United Nations Climate Conference in Madrid, Beiersdorf signed the business ambition for 1.5 degree Celsius. In doing so, it joined 5 other German companies in a pledge to set ambitious climate goals. The aim of this commitment is to limit global warming by 1.5 degrees Celsius by 2100. We set, therefore, the following goals to strive to achieve an absolute reduction of our emissions by 30% throughout our value chain by 2025 and intend to make our production operations completely climate-neutral by 2030. Circular economy. This is an issue that is especially important to us. Our goal is to avoid waste wherever possible and to promote and implement the circular economy principle in terms of packaging and ingredients. At the beginning of 2019, we made publicly the plastic pledge. As part of this commitment, we plan to completely use recyclable, compostable or reasonable packaging by 2025 and increase the recycled material used in plastic packaging in Europe to 25%. In addition, we plan to reduce wastes in our production sites by an additional 30% by 2025. We've made tremendous strides in this area in recent months. The bottles used in the new NIVEA shower fresh blends range are made of 100% recycled plastic. The format itself is up to 98% biodegradable. By the end of 2020, 90% of our PET bottles in Europe will be made of recycled plastic. By taking this step, we will save more than 1,200 tonnes of new plastic every year. Ladies and gentlemen, we have also achieved much in the areas of sustainable resources. We met around 91% of our demand for palm oil with mass balance palm oil in 2019. Our goal is to meet 100% of our palm oil needs with sustainably certified palm oil by the end of this very year. In 2019, we also added shea butter to our commitment to the sustainable cultivation of raw materials that we use. Our goal is to increase the transparency and sustainability of all raw materials that we use throughout the entire supply chain. For this reason, by 2025, we'll update all renewable raw materials for sustainable sources as part of the new sustainability agenda and procure our main raw materials in a deforestation-free manner. The conscious economical use of water is another focal point of our sustainability agenda, just like the protection of water. We will work in future years to achieve 3 main goals. We will exclusively use biodegradable polymers in our European product formats by 2025. We have set ambitious goals regarding the avoidance of microplastics for 2 of our major brands. NIVEA will be 100% microplastic-free by 2021. Our Eucerin brand will join it by 2023. Our third goal is to achieve 25% reduction in water consumption in our production operations by 2025. These goals are ambitious, both for us as well as for the whole industry. With CARE BEYOND SKIN, we have created a holistic approach based on our strength and firmly anchored in C.A.R.E.+. With CARE BEYOND SKIN, we will accelerate our initiatives and commitments, build our expertise and expand our financial means to implement our new sustainability agenda successfully. Ladies and gentlemen, it took a lot of energy and efforts to launch the C.A.R.E.+ a year ago. It also takes courage to make a decision that means less profitability in the short-term and long-term investments at the same time. We made this decision resolutely and consciously, and our results in 2019 prove this to be right. We will need even more determination to further implement C.A.R.E.+ in 2020, a year that will be shaped by strong headwinds. We at Beiersdorf are ready for them. From its very beginning, our company has always been guided by long-term thinking and actions. A year ago, I said that everything will turn out to be a major success immediately. We are prepared for that. It is an understanding that still shapes our thinking today. But I believe a willingness to invest should be independent of short-term temporary challenges. Together with my colleagues and the executive board and our more than 20,000 employees around the world, we will remain firmly on the course that I said when I became CEO. I thank you for your attention and obviously, answer -- happy to answer any questions you might have.

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

[Operator Instructions] And the first question comes from the line of Celine Pannuti of JPMorgan.

My first question is on NIVEA. So as a brand, it grew 3% in 2019. Is that ahead of its market exposure?

Hello?

Hello?

Hello. Yes, we lost you. Could you repeat your question, please?

Yes, of course. So my first question is on NIVEA. So it grew 3% in 2019. Is that ahead of its market exposure, i.e., did you win share overall at NIVEA? And could you try to help us understand what would be the impact in the China situation regarding the virus in the first quarter and also whether we are right to believe that there will be a slow start to the year for NIVEA, given the tough comp last year? My second question is trying to understand the performance at Coppertone in the 4 months that you added. First, was there any organic growth in the -- at Coppertone in the 4 months where you added? And why was margin -- we saw an operating loss, which we estimated is about 40% of sales. What happened there, please?

Let me take the question on NIVEA. Yes, the 3% growth and obviously at -- with Argentina at constant rate, would be 3.6% was ahead of the market. We grew in -- if we take the markets in which we are -- actively grew in -- or confirmed shares that are sometimes already at a very high level in 2/3 of the markets in we are active. As a brand, in total, we gained share across the world in every region that we are operating on. On the impact on China, as we said, yes, there is a slow start in total in China. And not surprisingly, maybe January, limited, but certainly in February is -- we see that there was an impact on the NIVEA sales.

And I'll take the second question, Celine, and thank you for the question. On Coppertone, sales in the 4 months since we've had the business from September onwards were at EUR 15 million. The business is highly seasonal, and clearly, we took over the business after the end of the season. Therefore, our sales were very limited, and they're not part of the organic growth. At the same time, we had still the full structural cost of the business. And therefore, the margin dilution of the business overall was at 20 basis points. So we landed our consumer business with Coppertone at 14.1%. Without Coppertone, that is adjusted, ended 14.3%. That is the impact for 2019.

So am I right to understand that you made a loss in Coppertone in the 4 months when you add it? And if that's the case, I'm a bit surprised why that is and also why you didn't flag that at the time of Q3 if you said that everything is on track with expectation.

We always guided on ongoing operations, ongoing operations excluding impact of any acquisitions, whichever those acquisition are. And therefore, our guidance was without Coppertone at any point of time.

All right. So why was it -- am I right to understand there was an EBIT loss in the 4 months when you add it?

That's correct, yes. It was dilutive at -- total level, it was a 20 basis point dilution, low double-digit EBIT, EUR 12 million.

The next question comes from the line of Richard Taylor of Morgan Stanley.

I know that you said on the COVID-19 impact that it can't be predicted at this stage. But I want to press you a little bit more on this, particularly in that January versus February impact. So maybe you can give us a little bit of color, the impact from La Prairie on NIVEA and on tesa relating to that. Also, perhaps some color on your contingency plans relating to the impact of COVID-19. I appreciate the guidance with this ex COVID-19, but I think it would be really helpful if you could give us some more color around your thinking there. And then secondly, again, I'm going to follow-up on Celine with a question on the Coppertone margins. Your 2020 guidance on margins for consumer includes the full consolidation of Coppertone. But if I assume the Coppertone margins are high single digit, that means your consumer margin guidance implies some improvement, either in the existing business or from Coppertone. So how should we think about where that margin improvement will come from according to your guidance?

Richard, coming to the impact of corona in January and February. For the consumer business, January and February, only looking at that, is considerably under -- below plan as a start, while the data business is obviously also affected. Well, it's clearly below plan at last year. We are -- as I said, the full year is -- we don't want to speculate on it because the full year impact is not only limited to China, I'm afraid, but the spread of the disease will have an impact we expect also on other parts of the business. We have and are working through medication plans as far as we can. Let's put it like this. We see changes in the behavior of the consumer and obviously also changes in sales channels, and we obviously want to tap into that possibility. But it's a very local issue, and it's something that is basically ongoing at this moment.

And on the Coppertone, Richard, yes, I confirm that our 2020 guidance fully includes Coppertone into the margin guidance with corona impact. Coppertone in 2020, we plan it to be marginally dilutive at around the same level as for 2019. And therefore, you are right to conclude it, yes, for the rest of the business, we will also have a marginal improvement as we're guiding now with margin at around the same level.

The next question is from Iain Simpson of Barclays.

First question for me is about your guidance for this year. So when you announced C.A.R.E.+, it was very much about increasing investment to further drive top line growth, yet your 3% to 5% organic sales growth guidance for consumer this year is, if anything, at the low end versus what you've done in the last 3 years where you've basically done somewhere between 4.7% and 5%. So what changed in the end markets that the step-up in investment isn't going to result in faster top line growth according to your guidance? The guidance is before coronavirus, so it can't be that. Or are you just being conservative here? And the second question for me is there seems to have been a real step-change in the pace of brand launches and acquisition in recent months, Coppertone, Skin Stories, STOP THE WATER, Fermented Skincare, that South Korean start-up. You've probably done more here in the last 6 months than the last 30 years. So what's been the driver here? And how is it changing you as an organization having all these start-up brands to manage and think about and presumably looking for new brands to buy or build, instead of just focusing on the blockbuster brands. Is it requiring a shift in mindset and how are people responding internally?

Thank you. On the guidance, it's in line with what we said last year. We -- so we guide 3% to 5%. We also guided 3.5% last year and ended up, as you know. So I think it's between the brackets, and we indeed expect C.A.R.E.+ to accelerate the outperformance of the market over the years to come, as we guided last year going up then to 4% to 6% by 2023. So I don't think there's any change in what we want to do and see to do. There's obviously a lot of the investments in C.A.R.E.+ that we are doing now and we're doing in 2019 that will deliver in the years to come, and that's exactly how we saw it. The need to invest now in order to be able to deliver competitive and sustainable growth going forward. As far as the brand is concerned, yes, we realize that a lot is happening in the world and that a lot of opportunities are there outside our existing brands, territories, but also outside our existing thinking. And that is what we -- is part of the cultural change that we are driving within the company. And that is a combination of thinking outside of the box in the company. OSCAR&PAUL is a typical example, but also tapping into what has happened in the world in very different and very agile ways of working together. That goes from R&D already, but also in start-ups and learning in that area. So I'm very glad, obviously, to see that what we announced is really taking and getting traction of -- with initiatives that come out throughout the organization internally and externally.

The next question comes from the line of Chris Pitcher of Redburn.

A couple of questions. You talked about how, over the last 5 years, new subsidiaries have opened up. I think you said 800 million potential new consumers. Are you done now in terms of your structural investments in affiliates and the sort of incremental investment is really just investing in the footprint you now have? And then secondly, again, apologies for following up on coronavirus. But can we confirm that La Prairie is still roughly 25% of sales in travel retail? And can you give us a color on how much is China and Hong Kong as well?

On the affiliates, no, I cannot say that it is finished because if I look at the world where we are present and how we are present, still certainly going forward in the longer term. There's still countries where I believe that we can -- that we will invest in the future and set up affiliates as such. So that is -- there is certainly more to come in the years to come. On the coronavirus, to be honest, I can't really immediately pin a number on that one. We know that, obviously, the travel retail channel is very much driven by the traveling Chinese consumer as the Chinese consumer didn't travel that much or at all. It must have an impact, and it has an impact on travel retail. What that means in the percentage for La Prairie is for the full year, very difficult to predict or almost impossible to predict. And on the correct number now on the first couple of weeks, I can't really comment on that.

Just to follow from both of those. Is travel retail roughly 1/4 of La Prairie sales? I just wanted to reconfirm at the end of the year that, that's where it finished. And then on the affiliates, do we expect any new affiliates in 2020? Or are those sort of on hold for now?

Of course, I can confirm that the travel retail is indeed around 1/4 of our operated business.

On the affiliates, in 2020, we do not plan a new affiliate here. We focus on those that we have created and drive growth there.

The next question comes from the line of John Ennis of Goldman Sachs.

Yes, it's John Ennis from Goldman. A couple from me as well, please. I just wondered if you could give us some sensitivity around the tesa business. What does your guidance assume from an industrial production standpoint or from an auto production standpoint to get to the slightly positive organic sales growth and flat margins that you've printed as the 2020 guidance? That would be helpful. And then my second question is a quick follow-up on the guidance. Your 3% to 5% consumer growth guidance, does this not reflect any of the negative impacts you've already seen in the first 2 months of the year because in answer to one of the previous questions, you flagged that the Consumer business is running below flat. And I just wondered if you factored in a weak January and February into that full year guidance or if you stripped that out as well.

So I'll take the tesa question, first. Thank you for that. So first, to give you a little bit more details on how we see the growth in the different divisions of tesa. The trade market still continue to have a positive growth, both in the last quarter and in the first 2 months of the year. So when it comes down to trade markets, which are primarily also in Europe, we are factoring a positive single-digit growth in -- for 2019. The automotive industry there, we do see a continuous slowdown. So we would expect that even the automotive industry will be at the same negative level as it was in 2019. At the same time, we still believe that with all of the innovations we're bringing to the electronics [indiscernible] making it in Asia, we can achieve for 2020 a slightly positive growth. And therefore, we continue to guide for slightly above last year's sales.

I confirm that the -- our guidance for the full year includes the year-to-date sales reality.

The next question comes from Karel Zoete of Kepler.

I have two questions. The first one is with regards to the scale of the newly acquired small branch and launch brands and you -- yes, you are active in today. What's the skill today? And what's basically the 5-year potential of these brands, if you look a bit further down the road? And the second question is on -- you're mentioning declining growth rates in a couple of large markets. Can you be a bit more specific and not only mention, of course, corona, but what are you seeing in large markets where there's a bit of a decelerating trend?

So Karel, thank you for the question -- for the 2 questions. I'll address the first one. On the scale of those small brands, which we recently acquired, what I can say is that, today, they are at a single-digit million euros of revenue. However, we acquired them so that we can geographically -- expand geographically and also product-wise expand those and invest in those brands. Therefore, we believe that they will become more sizable brands with double-digit turnover within the next -- million turnover within the next 5 years.

On the growth rates, we see particularly a number of mature markets where the growth rates have declined already in the second half of '19 and the first quarter, in particular. The European market as such is flat with a tendency to a small decline. Japan is considerably negative already in the end of quarter 4, and we see in the beginning of the year also weak. And the specific businesses in which we are present, in North America, I think it's important to underline that, based on a mild winter, is also the market, not very dynamic. Specifically in the emerging markets, I would like to highlight the Indian market and the South Asian market, which is considerably less dynamic than what we have seen over the last couple of years.

[Operator Instructions] The next question comes from the line of Fulvio Cazzol of Berenberg.

I have 2, the first one is on La Prairie. Given that we have seen a slowdown in Q4 to just under 10% growth year-on-year, I think the run rate in Q3 was around the mid-teens. Just observing the likes of Estée and L'Oréal, which actually saw an acceleration to their prestige businesses in Q4, can you maybe just highlight what potentially has impacted your business, particularly more so than some of the other companies, please, whether it's a timing-related issue, innovation issue and so forth? And then my second question is more on for 2020, if you could give us some guidance on currency, what you expect the impact to be based on the latest spot rates.

For La Prairie, the growth of La Prairie in 2019 is still being considerably above market. The luxury market grew by around 10%, 11% while La Prairie grew by 20%. So the first thing is that the relative performance in the market -- in a relevant market has still been very strong. What we do have in line with our strategy is that we have, obviously, some impact in Hong Kong and travel retail. And specifically -- and on the second part is the continuation of our distribution optimization program where we closed doors, specifically in Europe, in line with the strategy of the brand. And these 2 factors have an impact -- have had an impact on 2019.

I'll take the currency question. Based on the current spot rates, in terms of net sales impact, we are looking at around 1% positive impact. When we look at gross margin there, we expect a slightly negative impact on gross margins. And this is mainly driven by countries or businesses in the countries where we generally have weaker currencies or high devaluation historically.

The next question comes from the line of Gian Marco Werro of MainFirst.

Three questions from my side, please. The first one on your C.A.R.E.+ strategy. So how are you in line with the investments of between EUR 70 million to EUR 80 million per year? And for which year do we really have to expect a step-up in the EBIT margin up to your 2023 target of 16% to 17%? And then for the integration development of Coppertone, did you experience any positive or negative surprises so far? And what are your major strategic steps taken so far? And then for the tax rates, what can we expect there in the mid-term? So we are currently in the underlying 28.3%. What is your expectation for the coming years?

In C.A.R.E.+ strategy, as we want to refer to what I said last year is that we take a period of 2 to 3 years where we do these extra investments. Obviously, during that period, we focus on the improvement of our productivity, albeit that we will only invest...

[indiscernible]

Sorry, I didn't get that?

Carry on.

Okay. So on the C.A.R.E.+ strategy, referring to what I said last year, and this is the continuation -- and we'll continue that road map is that we plan these extra investments for 2 to 3 years that we obviously continue to focus on the productivity side, but that we would also reinvest the productivity gains into the plan. And then, therefore, also, we expect that the improvement on the margin will then come through after that period, and that is what we continue to do. On Coppertone, before I pass over to Dessi Temperley, is that the integration of Coppertone as such has gone very smoothly. We -- first of all, we're able to retain over 95% of the employees who are specifically working in there, mainly in marketing, a very capable R&D team and the factory, which shows the great engagement of people that join the company. Integration itself went very smoothly with a minimum impact on the operations, both commercially and also on supply chain is going well. As such, we are now working and focusing on how to address the key challenges. One of them is, it's a great brand. And the key one is the rejuvenation of the brand, how do you make it a more contemporary, stronger brand after a very long period where the brand has, I think, suffered from underinvestment and underattention. We are stepping up the innovation pipeline for Coppertone, which profits, a, from what they've developed already and what they have in the pipeline; but also adding the opportunity of innovations coming from the buyers off-road and bringing that together. And a lot of focus is now on the operational excellence of running the season in 2020, and that is obviously also only going to come out in the coming months and weeks.

So on the effective tax rate, yes, we are very pleased with the progress we've made only within one area, bringing the tax rate down to 28.3%. We have, you can say, over-delivered because our ambition was to get to 28% within 3 years. Now I cannot quantify how further down we will go. We are working on a number of projects, and I'm fairly confident that we certainly will achieve the 28%. And I hope that we will bring the effective tax rate below 28% in the next 3 years. But at that stage, I'm not ready to quantify that. Hopefully, we'll be ready to give you more details on that in the coming months.

The next question comes from the line of Philipp Frey of Warburg Research.

Just, first of all, a bit of housekeeping. Can you remind us of the advertising and promotion expenditures since -- as a percentage of sales in consumer in 2019 and the change you had relative to 2018? And secondly, well, you had obviously a positive pricing contribution in 2019. And I had the impression that you've stepped up actually the price increases, particularly in the second half of 2019. Can you remind us a bit of -- is this increased price momentum going to stick? And what has generally the consumer reaction volume buys on these price increases?

So thank you for the questions. First, on the marketing and advertising spend. So in 2018, we were at the level of 25.4% of sales in 2019 and 25.5% of consumer sales. This is a 10 basis point increase. And in terms of the absolute amount, this is over EUR 70 million additional investment in advertising and marketing.

On the price increases. The price increases are -- have been driven by a multiple of reasons. One of them has been the successful introduction of more added-value innovation, and I expect that the innovation that have been supported by this higher price will be sustainable. That's number one. We've obviously also been looking, as we announced, particularly into the details of the portfolio and where we might have dilutive activities. That also is a decision we've taken, which we will continue to do in 2020. Pricing, unfortunately -- or fortunately, obviously, is also impacted by competitive actions, and that is something I cannot foresee. However, as said, I expect, considering the situation, that competitive intensity will increase in 2020. And so we will need to evaluate our competitive situation there.

And there are no more questions at this time. I hand back to Mr. Jens Geißler for closing comments.

Thank you. And thank you, everyone, for having joined our conference call today. Of course, 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.