Beiersdorf Aktiengesellschaft (BEI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the Beiersdorf Conference Call 9-month Results 2020. [Operator Instructions] I would now like to turn the conference over to Mr. Jens Geissler, Head of Investor Relations of Beiersdorf AG. Please go ahead.

Thank you, Haley. Good morning, everyone, and welcome to our quarterly statements conference call. This is Jens Geissler. Here with me this morning is our CFO, Dessi Temperley; and we are, of course, joined by our CEO, Stefan De Loecker, who dials in remotely. We would like to share with you Beiersdorf's business results of the first 9 months of 2020. As usual, we will first present our numbers and the business review. We will be happy to take questions after that. [Operator Instructions]. And with that, I will now hand over to Stefan De Loecker.

Thank you, Jens, and good morning, ladies and gentlemen. The COVID-19 pandemic has large parts of the world firmly in its grip. The number of reported cases has recently begun to rise sharply again around the world and has resulted in new lockdowns in several countries. We have to assume that the pandemic's impact will continue to make itself clearly felt in the fourth quarter. It is currently impossible to predict when this situation will sustainably improve. Yet despite the uncertain times we are experiencing, we saw significant improvement in our financial results in the third quarter compared to the first half of the year, when COVID-19 resulted in a distinct and sharp decline in business. We held our ground well in this difficult market environment and won market share in all skin care categories, particularly in the emerging markets. The coronavirus is changing consumer behavior. We see fundamental trends, such as sustainability and responsible consumption, will not disappear while the importance of digital consumer engagement and online shopping have ever -- even grown stronger. Our C.A.R.E. + strategy addresses precisely these topics while we continually exploit our growth potential. Beiersdorf is strategically on course. Let's look at sales during the first 9 months of the year and the past quarter. We had group sales of EUR 5.241 billion, and thus saw negative organic growth of 7.1% year-on-year in the first 9 months of the year. However, our performance in the third quarter was much stronger. At group level, we reported positive organic sales growth of 0.2% during this period. The Consumer business segment had sales of EUR 4.267 million (sic) [ 4.267 billion ] and thus saw negative organic growth of 7.7% year-on-year. Sales at our tesa business segment suffered 4.6% decline in organic growth to EUR 974 million year-on-year in the first 9 months. Nonetheless, the segment generated a strong organic gain of 6.2% in the third quarter. In this challenging market environment, although NIVEA decreased by 6.2% during the first 9 months of 2020 year-on-year, it significantly picked up sales in the third quarter compared with the first half of the year. Without the specifically hard hit sun care business, NIVEA achieved a growth of 0.5% in the third quarter. Our derma brands EUCERIN and AQUAPHOR are continuing to grow with a strong increase of 9.2% during the reporting period. During the third quarter, they achieved an even stronger growth of 15.5%. In comparison with last year, our health care brands are showing a 4.8% decrease in sales. However, when we look at the third quarter and sales growth of 1.1%, we also see significant improvement over the first 6 months of the year. The market environment for LA PRAIRIE remains difficult. The downturn of the travel retail business resulted in a 34.5% decline in sales, well below the previous year's level. However, our luxury brand achieved a sequential improvement, recording a 16.9% fall in sales in the third quarter. I would now like to give you a detailed view of how our consumer brands developed under the dynamic market conditions of the past few months. Let's start by looking at how the market has developed. Since the crisis began, demand for personal care products such as shower gel, shampoo and hand soap has exceeded that of skin care products such as face care. While the personal care market has generated renewed positive results in recent months, the skincare market reported downward trend and remains challenging. The Indian market remains particularly weak, and European markets such as Germany, France, Italy recover slowly. Brazil, in contrast, was very resilient. Nonetheless, NIVEA held up well in this difficult environment in the third quarter. Since the COVID-19 pandemic began, we have gained market share in all skin care categories, particularly in face care and sun protection. The drivers of this trend were, above all, Australia and the emerging markets Brazil, India and Indonesia, but also in Germany, the United Kingdom, Benelux and Switzerland, NIVEA continued to trend from the first half of the year with further gains in market share. Our goal is to continuously expand our innovative strength and steadily develop our brands and product portfolio. We will remain committed to this goal even during times of crisis like the ones we face today and will also bring strong innovations during the fourth quarter. The additions that we have made to our successful series NIVEA Q10 and NIVEA Naturally Good are 2 examples of this approach. In our new product, NIVEA Naturally Good Body Lotion, we also have achieved a milestone in our efforts to reduce the amount of plastic used in our packaging. Thanks to an innovative packaging technology, we have succeeded in using 50% less material in the bottle, significantly reducing the thickness of the bottle wall and making the top smaller and lighter. This is an enormous improvement that saves valuable resources and avoids large quantities of waste. At the beginning of October, we began to set new standards for innovations in skin care with our new NIVEA Face Care Luminous 630. The line is currently available only in Germany. We are now introducing it step-by-step in Europe, and it will be available worldwide starting in January '21. Following more than a decade of intensive research, we have developed a new, highly effective ingredient for reducing pigment spots with Luminous 630. It demonstrably reduces melanin production and helps to prevent the appearance of new pigment spots. The dermocosmetics market has proven to be particularly resilient during the crisis, as sales channels such as pharmacies were less or not affected by the lockdown and consumers' continued need to address real skin problems. The product portfolio and the innovations of our dermocosmetics brands EUCERIN and AQUAPHOR meet these needs precisely. We generated a strong increase in sales once again during the third quarter, thanks in particular to strong demand in North America and Brazil. We have gained market share across all regions in key markets like Germany and Thailand, as well as in newer markets like Brazil, China and Russia. Powerful innovations, such as the successful Thiamidol range, drive our business and make our brand one of the leading providers of medical cosmetics for skin care. We will not rest on our laurels. Indeed, we constantly strive to continue our success story. With Eucerin Hyaluron Filler and Elasticity 3D Serum, a product that went on sale in August, we have introduced the first anti-aging product that offers a holistic solution for mature skin as of the age of 50, thanks to the patented ingredient Thiamidol. We come to our selective cosmetics brand LA PRAIRIE. Business here continues to be very adversely affected by lockdowns and travel restrictions. Compared with previous quarters, however, there has been a sequential improvement in the third quarter, a recovery that was caused in part by domestic travel in China. Strong growth in our reopened stores, particularly in mainland China, and e-commerce's continuing strong growth, have offset some of the lost travel retail business. The online share of sales for 2020 to date is now 8%. Even in this crisis, we're holding true to our course of safeguarding the exclusivity of LA PRAIRIE. Therefore, notwithstanding the short-term competitive pressure, we decided to forgo discounts. Moreover, as part of the strategic positioning of LA PRAIRIE Europe, we have initiated the closing of more than 1,000 doors that failed to meet the brand's exclusive standards. The process will be completed in '21 and is designed to provide consumers with the most intensive, highest quality brand experience in selected stores. Also LA PRAIRIE continues to bring innovation in the fourth quarter. The new serum Skin Caviar Liquid Lift, an enhancement to the successful Skin Caviar Collection. The 2 effective and innovative caviar ingredients are combined here in a unique serum for improving the appearance of elasticity and tone. We also have good news to report about our largest subsidiary, tesa. After a challenging first half of the year, a period in which tesa was also hard hit by the pandemic restrictions and a difficult market environment, we generated new sales growth of 6.2% in the third quarter. While tesa's automotive business continues to face a challenging market environment, the electronics business has developed very positively. The consumer and craftsmen segment, in which tesa develops innovative product solutions for households and craftsmen, has proven to be extremely robust. Do-it-yourself products, in particular, were in demand. The tesa foldable insect screen FALT, which went on sale this year, answers a well-known problem with its unique mechanism. It can be adjusted to exactly fit the dimension of all standard window frames. Unfolded and telescoped to the right size, the Insect Stop Foldable aluminum frame is easy to hang in a window without requiring drilling. Ladies and gentlemen, this historic crisis has once highlighted again the essence of Beiersdorf and what we stand for. To us, caring for skin means caring for people, and we go beyond that, we Care Beyond Skin. We understand our responsibility as a company holistically, and this includes in times of crisis. Therefore, at Beiersdorf, we have concentrated since the beginning of the crisis on these 3 priorities. We remain firmly committed to something that we stated at the start of the crisis. The health and safety of our employees are among our top priorities. A key aspect of this is also securing jobs in the long term. Another consideration that has emerged in the recent months is flexible way of working. We're constantly adapting the situation to the new normality. As part of this effort, we enabled our employees to return to their office locations in a flexible manner in addition to working remotely. At this point, I would like to say a special thanks to our employees around the world, whose great dedication, hard work and solidarity under these difficult circumstances are making a decisive contribution to our ability to emerge strengthened from the crisis. Another priority is to stay close to our consumers during these difficult times and to support them as well as possible. We have adapted agilely to changing consumer needs over the last few months and modified our product assortments. In the process, we have safeguarded our business and ensured its continuation. At the same time, we have not lost sight of what is happening around us. In these times of the coronavirus, we have initiated the largest global humanitarian aid project in our corporate history with an investment of around EUR 50 million, utterly in the spirit of Care Beyond Skin. It will combine uncomplicated emergency aid with measures that have a long-term orientation. All of this has one goal, to support our company around the globe and its fight against COVID-19 and the spread of the virus. The relevance and long-term orientation of our C.A.R.E.+ strategy have never been so tangible as they are right now in this time of crisis. This is why we will also continue to invest in our initiatives under C.A.R.E.+ and to pursue our strategic priorities even amidst today's huge economic challenges. More than ever, consumers are using digital media and searching for suitable skin care products and buying them online. The COVID-19 pandemic has given a strong boost to e-commerce worldwide. During the first 9 months of the year, we've achieved a growth rate of more than 45% in e-commerce. Long before the pandemic set in, the digital transformation is a key success factor. We are systematically expanding our digital capabilities and technology. This effort has one clear goal: to expand our reach and digital interaction with our consumers around the world, and to provide them with a tremendous brand experience in every sales channel they use. We are where consumers expect us to be and are systematically expanding our presence in countries where growth opportunities exist. Our tapping of the Chinese market is an important example of this work. China offers enormous potential, particularly for brands such as NIVEA and EUCERIN. But China will require us to be very patient. As part of this, we initiated a transformation process last year with the divestment of our SLEK hair care business. This has enabled us to focus more intensely on our core expertise in the area of skin care and on NIVEA, and to ensure the sustainability of our Chinese business. We, therefore, also recently opened our new innovation center in Shanghai. It's the second largest research center around the world and ranks only behind our headquarters here in Hamburg. This significant investment in R&D represents a clear commitment to growth in China and Asia, a strategically important region for us. We will not permit coronavirus to diminish our commitment to sustainability. On the contrary, we intend to make a substantial long-range contribution to people, society and environment. We've underscored this determination in recent months with our sustainability agenda and our clear commitments. At this point, I would like to hand over to my colleague, Dessi Temperley, who will present the financial results in detail.

Thank you, Stefan, and also good morning from my side. As already mentioned, we reported improved growth performance in the third quarter. And starting with the sales figures for the Beiersdorf Group on a year-to-date basis, sales decreased organically by 7.1%. Foreign exchange movement of minus 2.9% and structural effects of plus 1.5% led to the nominal growth in euros of minus 8.5%. Sales in the Consumer business decreased by 7.7%. The nominal growth of 8.9% negative is impacted by foreign exchange movements of minus 3.1% and positive net structural impact of 1.9% positive. Tesa had a strong third quarter growth, which reduced the organic sales decrease year-to-date to minus 4.6%. Negative foreign exchange effects of 1.9% led to a nominal sales decrease of 6.5% in the first 9 months of this year. Now taking a closer look at the sales development of our Consumer business. The second quarter was heavily impacted by the pandemic outbreak and ended with sales decreasing by minus 18.7%, just as a reminder. The third quarter, however, saw a strong recovery of our Consumer business with the sales decline of just 1.2% despite the LA PRAIRIE and NIVEA SUN businesses still being significantly impacted by the travel restrictions in place. Moving to the growth performance of our major brands for the first 9 months as well as for the single third quarter of this year, as we usually present it on this slide. Overall, you can see that all of our brands performed better in the third quarter. While NIVEA recorded a sales decline of minus 6.2% for the first 9 months, the development in the single third quarter was more positive at minus 1%. Shower and body care are the main growth drivers in the mass market. The skin care categories recovered at a slower pace with Sun still being the most affected category in the NIVEA portfolio. Our Derma brands EUCERIN and AQUAPHOR delivered strong growth of 9.2% in the first 9 months of the year and an even higher one of 15.5% in the third quarter. This growth is mostly driven by strong double-digit growth in North America, as well as by the ongoing success of Thiamidol, our formula for skin pigmentation treatment. After a volatile first half of 2020 and the strong decrease in the second quarter, Healthcare is now back to growth in the third quarter with sales increasing by 1.1%, as Stefan mentioned already. The growth in the quarter was fueled by an increasing demand in the wound and sports categories. Coming now to LA PRAIRIE, while we continue to report a double-digit decline in the third quarter being at minus 16.9%, LA PRAIRIE's performance tangibly improved compared to the previous quarters. On a 9-month basis, sales decreased by 34.5%, and we continued with the execution of rationalizing our doors in Europe, purposefully positioning LA PRAIRIE as the most exclusive skin care brand on the market. Looking at single regions, LA PRAIRIE's recovery in the third quarter is led by double-digit growth in Asia, while international travel retail remains still very weak. On the next slides, I will give you more color on our regional performance, starting with Europe, where our sales decreased by 9.8% on a 9-month basis. Western Europe decreased by 10.8%. This is a slight improvement over the first half year results with sales still significantly impacted by the pandemic, especially in countries such as Germany, France, Spain and the U.K. Additionally, the very weak international travel retail results of LA PRAIRIE have a strong impact here as these are reported under Western Europe. At minus 5.5%, the decline in Eastern Europe was less pronounced. The largest sales decreases in this region reported in Russia, Serbia and Croatia, whereas Hungary and Ukraine had a resilient demand with only very slight negative sales growth. Next is the Americas, our region with the strongest performance. We had a double-digit growth in the third quarter in both continents, which brought the year-to-date growth of the region to 5.1%. Adjusted for Argentina at constant foreign exchange rates, as we report the rest of the countries, the growth rate would have been at 7.3%. North America reported strong growth in the third quarter, in particular in the Derma segment with our AQUAPHOR brand being the major growth driver here. After delivering positive growth of 2.8% in the first half of the year, Latin America accelerated even further the momentum to 5.9% on a 9-month basis. Adjusted for Argentina at constant FX, this would be at 9.6% growth for the first 9 months. On the country level, our businesses in Brazil and Chile reached strong double-digit growth. Mexico sales were below last year's level. But also here, we're seeing very positive signs of recovery in the third quarter. Moving to the Africa, Asia and Australia region, where we reported an organic sales decrease of minus 11.4% year-to-date and the mid-single-digit decrease in the single quarter. So a bit more color here. We see significant sales decreases in India, Indonesia and Japan due to the sharp decline in demand caused by numerous lockdowns and restrictions. LA PRAIRIE sales were also significantly affected by the lockdowns and travel restrictions in this region. But in our reopened stores and in particular, in mainland China, we are back to strong growth. The recovery of the Healthcare segment in the third quarter was significantly influenced by Australia, where sports amateurs and professionals are back to action, leading to increased demand in both wound care and sports care. Now looking at the tesa business. As we already mentioned earlier, tesa recorded a strong third quarter with 6.2% growth despite the pandemic's economic impact weighing down on our adhesives business. The Direct Industries segment with a minus 6.8% decrease in sales in the first 9 months of 2020 continues to be impacted by the significant demand slowdown from the automotive industry. In Q3, we reported, however, strong growth with our Electronics customers, specifically from China, also boosted by the innovative adhesive solutions developed for the Electronics sector and launched in the third quarter. The Trade Market segment has shown a resilient development throughout the crisis. The Consumer & Craftsmen segment continued to report good growth rates throughout Europe, driven by the demand from the DIY stores. The last slide in terms of our performance is just to reiterate also our commitment on some of the key financial objectives, which we communicated at the start of 2019 as part of our C.A.R.E.+ strategy. Working capital management had been a focus area before the start of the pandemic, but its importance became even more relevant during the crisis in terms of safeguarding our liquidity. Despite the crisis headwinds, particularly in trade receivables, we managed to achieve a continuous reduction of working capital levels throughout 2020, and we expect to report an improvement of our working capital as a percentage of sales at the end of the year. We continue to build on the opportunities of our Value Engineering Initiatives with new projects being kicked off this year, and we're on a solid track to deliver the savings we set forward as part of the C.A.R.E.+ strategic pillars. We aim at maximizing the value for consumers in all of our products while taking out any costs, which brings no consumer benefits. A good example is the light-weighting of our packaging materials for the new Naturally Good Body Lotion. Another one is taking out all physical leaflets from our derma products going forward. These projects drive not only cost savings, but are also aligned with our strategic sustainability goals. Our effective tax rate, the third commitment here, continues to be a point of focus. We already indicated in our last call that we are on a good track to bring the ETR down to 29% by end of 2020, and we are confident to reconfirm our 2021 target of 28%, a result of a strong execution of our tax roadmap even during this challenging period. Now going to our 2020 guidance. Given the continuous uncertain environment we operate in, we expect sales growth of the Beiersdorf Group for the full year to be at year-to-date level or slightly better. EBIT margins of the group and of the Consumer business segment are expected to be significantly below prior year level. For tesa, we expect an EBIT margin at around prior year level. And now back over to Jens.

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

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] And the first question comes from the line of David Hayes of Societe Generale.

It's 2 for me. The first one on adhesives, the second one on the margin guidance. So just on the adhesive side, obviously, a strong recovery in the third quarter, which we've seen indications of from some of your peers in the last couple of weeks. Some of those peers have talked about they had a very strong July and then a weakening through August, September, maybe related to the Electronics launch phasing. I just wonder whether you can talk about how the quarter played out and whether you suspect that it will slow down quite notably from that trend in the fourth quarter? And then the second question, just on the margin outlook, slightly [indiscernible], I guess, so apologies. But you obviously be very specific about the tesa margin being relatively flat year-on-year. But you've used a significantly below term for the Consumer business. I'm just trying to understand whether you can be a little bit more specific about what significantly below would mean? Are we sort of talking over 200 basis points because of some of the extra spending and the LA PRAIRIE margin mix effects? Or would that seem to be too aggressive in terms of assumptions?

Thank you for the questions. I will take both of them. First, on the adhesives growth. Yes, there were some -- we did see very strong growth in adhesives in the third quarter. And some of this growth was driven, first, by our very strong innovation pipeline, specifically for some customers in Asia. So obviously, we have a pipeline filling effect here in the third quarter. But we do continue to see strong demand in Electronics, again, in China, in particular. The other positive impact, which we will see how things develop further in the fourth quarter, but in the third quarter, we had some what I would call pipeline replenishments from some of the automotive customers. Specifically, we had -- again, we have had negative growth with automotive customers. But specifically in Europe, some orders started to come through to also replenish the stock. So these are the 2 impacts so far that we see more pronounced in the third quarter, which might not repeat to the same extent in the fourth quarter. Also, it's -- we will see how things go in -- with our customers in the Trade segment. But there, we do not expect the same DIY activity during the autumn and winter months, as we've had during the summer. On the margin, it's a very good question. I -- we do have many moving blocks, in fact, still on the margin. You rightly pointed out that -- and we have also continued to talk about investing behind our brands. And in fact, in the second half of the year, we are increasing marketing investments also because we have some delays of launches from the first half of the year into the second half. So we will continue to invest. We do have the negative mix of specifically from LA PRAIRIE, despite the fact that the rest of the business, in fact, we are driving the slightly positive mix despite the pandemic. We also have some negative FX impact from weaker currencies now, especially in some emerging markets, such as Russia, Brazil, Turkey, South Africa. Having said all of that, just to give you slightly more perhaps direction in terms of how we see our underlying EBIT margin, so for the full year, we expect it to be largely at a similar level as the development of the underlying EBIT margin for the half year for consumer.

The next question is from the line of Celine Pannuti of JPMorgan.

So my first question will be understanding as well the guide for the Consumer segment because your guidance for the full year implies as well, some slowdown in Q4 in consumers. So like you did for adhesives, is it possible to understand whether there were any sell-in benefit? And if you could quantify that in Q3? I'm also wondering whether you could specify what happened in the Americas, where both LatAm and North America seems to have seen quite a strong recovery there. Just -- and then the second question will be on online and e-commerce. You said that it's high single-digit of sales for LA PRAIRIE for Consumer as a whole. What is the percentage of your sales online? And in China, what percentage of your business is online? And what was the growth year-to-date, please?

Thank you for your question. [indiscernible] benefiting Q3 versus Q4. But what we do see in Q4 is that the impact, the [indiscernible] impact, and we see that in a number of countries already going forward, that we do expect that with more restrictions, specifically in Europe regarding the COVID-19 crisis will have an impact on simply the possibility to market. We've seen how dramatic the impact can be in quarter 2, in which, for example, drug stores were particularly hit in Germany. And going forward, we have to assume that this impact will also come back. So there is -- it's not a particular Q3, Q4 impact. But the development of -- in Consumer, in the part of the Consumer where we are working that we expect this. Americas has been very resilient. We see that in Brazil, even relatively hard hit by COVID. The normalization of, I would say, public life has driven a continuous very resilient market de facto. And our performance in Brazil relatively specifically in the skin care categories has been very strong. The same applies for the market being less hit in the United States, in the combination of strong -- with a strong EUCERIN mainly, Derma Cosmetics brand has given us a very strong performance. Derma Cosmetics in U.S.A., skin care and Derma Cosmetics in Brazil. E-commerce share after -- in the total consumer part is around 8% as well. As such, in China, you know that in China, we are, I would say, almost atypical represented. I cannot give you the numbers specifically, but it is certainly higher than that. But obviously, it has -- does not have the huge impact on our global percentage of e-commerce.

Okay. And just a clarification on the commentary that was made earlier on the margin. When you said that -- if I understood well, so the margin for Consumer at a full year level, will be the same absolute level as in H1? Or you expect the same delta of margin decline?

We expect around the same delta of margin decline, Celine.

Next question is from the line of Bruno Monteyne of Bernstein.

Basically following up on some of the previous discussions. On the automotive sector, listening to most of the car companies, they're clearly talking about things getting quite a bit better and sort of the return of people using private cars over public transport. Are you seeing none of that sort of the improvement that sort of like Volkswagen and others are talking about in car volumes in the last few months? That would be my first question. And the second one is just coming back to the last question. You're seeing the same size of margin drop in consumer in the second half. I think the first half was 200. In the first half, you had a terrible quarter 2 with really, really big declines. Surely, that must have been very painful. And if we don't have any such sharp declines in the quarter 3 and quarter 4, I'm just struggling to see how we can have the same 200 basis points adverse in the second half as in the first half.

Yes. So first, on the -- thanks for the questions. And I'm happy to clarify on the automotive sector demand. Yes, we do see a slight improvement in demand in -- particularly from the European producers -- manufacturers. Having said that, we are coming from, indeed, a very negative strong demand in the second quarter of the year. So there is some improvement. The demand is still well below last year's level despite the fact that the European demand is slightly better than the one from the U.S. On the margins, we still continue to have a negative mix despite the fact that, indeed, the growth rates are better. The other significant impact for us are the weaker currencies in a number of markets where we actually have a fairly strong presence in our portfolio. Russia, Turkey, Brazil are the countries in point, South Africa as well, where, in fact, all [indiscernible] in terms of our shares there. And we continuously see these currencies weakening even in the fourth quarter and specifically in the third quarter as well. So that is a -- there is a significant impact from this. We also see trade promotional pressure. And we've seen that some of our peers are also commenting on, and we continue to be competitive when it comes to trade promotions as well as when it comes to marketing investments. So the marketing investments increased in the second half of the year, that's also obviously impacting our underlying EBIT margin.

Just following up on the currency declines you mentioned in Turkey, Russia and the like. Is it because these countries are more profitable for you as well? And so if the currency declines, you have a mix impact? Or am I missing something on the currency point you're making?

No, they are not necessarily more profitable for us, so that you have a negative mix. The point here is that we do not have manufacturing facilities in those countries. So all of our cost base is more exposed to normally Euro cost based products.

Next question is from the line of Guillaume Delmas of UBS.

A couple of questions for me. The first one, it's, Dessi, on the slide you showed on your C.A.R.E.+ financial commitments. And apologies if I missed it, but I don't think you mentioned the 16% to 17% margin target by 2023 for Consumer on this slide. So just wondering why you've left this guidance you said last year out of the slide? And then my second question...

Well...

Sorry.

No, no, it's okay. I apologize I thought that...

And then my second question is more generally, on your exposure to China. Because I think the current pandemic is even more evidencing the need for all large beauty multinationals to have sizable operations in China, which is proving quite resilient and fast growing. You've been underweight in China for, I mean, many, many years compared to your global peers. So my question here is, is becoming bigger in China in a relatively short-term horizon a clear priority of your C.A.R.E.+ strategy? And if so, is it down to improved execution, you've opened a new R&D center? Or it's also down to expanding your portfolio of brand there?

So I'll take the first question, and then I will let Stefan talk about our strategy in China. Yes, you haven't missed anything. Indeed, we have not reiterated our midterm guidance as we are experiencing an unprecedented period of volatility and uncertainty, not only the 2020 year. It's not complete yet, but we also are currently seeing a second wave of infections. And we, at the moment, also looking at what -- at various simulations of what 2021 might look like. So at this point of time, we're really not in a position to reconfirm our margin midterm guidance.

Thank you, Dessi. Coming back to China. It is an essential part of the C.A.R.E.+ strategy exactly for the reasons you say. The Chinese market, both in size and growth dynamics, makes that being underweight is, for us, is a critical issue. And that's why we are focusing a lot of our attention and efforts there. The first one is, we are happy, obviously, with our performance of LA PRAIRIE in the luxury segment in China. It's a major growth driver for LA PRAIRIE and the position is very strong in the country itself. Last year, we started -- the end of last year, beginning this year, started with cross-border activities with EUCERIN over Tmall, which is going extremely well in reintroducing, I would say, the brand on the Chinese market. We've divested SLEK in order to be able to focus on NIVEA and also the Maestro business, the hair styling business, which is the leader in the Chinese market. However, there's still a lot to do in the, I would say, the legacy business of NIVEA there in order to reposition and make also a relevant assortment on the market for China. And that is the reason, indeed, as we put our efforts in building a specific innovation center in China to be able to do what we've been -- what we've done in, for example, India and South Africa with relevant assortments and the right positioning of the brand, have been able to accelerate our presence dramatically. That is work in progress at this moment in China, but the determination to be sure that our brands have a relevant position in China is absolutely critical for our growth ambition of C.A.R.E.+.

The next question is from the line of Karel Zoete of Kepler.

Yes. The first one is coming back to your e-commerce strategy. You've clearly improved the percentage of sales here and you see good momentum. But we hear similar things of competitors. So overall, if you look back since the launch of C.A.R.E.+, do you think you've gained ground versus competitors? Or it's more or less a status quo? That's the first question. And then the second question, yes, coming back still on the 2023, your commitments for the margin in Consumer. Do you think that the fundamentals of your margin structure, your margins have really changed? Or is that too early to tell? In other words, do you need -- still need more investments in cost and capabilities to achieve what you want to achieve by 2023?

On the e-commerce question before handing to Dessi, yes, we are accelerating quite dramatically. I think it's very -- to be honest, very difficult to -- or let's put it like this, the reality is very diversified and segmented to really make a comparison. If I see, in generally, we are in line with what grossly our competitors are doing in the skin care business. But obviously a number of competitors, where I think they are ahead of us, a couple of them are weaker than us, all depending also on the geography where we are. What I do know is that we have to accelerate a lot further. I think that is the key issue. I think we've done very well in a very short area of time to get in all areas of the world and in all channels with all the brands accelerating our e-commerce presence, our e-commerce drive. But [indiscernible] it's all niche, I think we're only really at the beginning of that development.

And thank you for the question on the midterm margin guidance. What we can say at this point is that we are fully committed to the C.A.R.E.+ strategy. It's working. And its main pillars, we can reconfirm our investments are the right one. We will continue to invest behind digital in skin care categories, in the white spots, in sustainability. These pillars remain, as we've already spelled them out in the past. What we do see, however, at the moment from the pandemic is that things are changing dramatically in terms of the market, and we do not have sufficient visibility today to confirm midterm targets or midterm guidance. What I can reiterate is that the fundamentals are intact, and we will continue to drive the same initiatives. And we do believe that with that, we will deliver superior results. But right now, we're really not in a position to quantify further our margin guidance in the midterm.

The next question is from the line of Jeremy Fialko of HSBC.

Jeremy Fialko, HSBC here. So a couple from me. First one is just, can you talk about your market share performance outside of skin care. So you obviously highlighted gains in skin care, but didn't really talk about the other categories. And then the other thing is you've had markets like sort of in Asia, so particularly you highlighted India, Indonesia as being particularly weak. Are there any sort of signs of hope in those markets that figures might get better in the final quarter? Or do you expect that to remain very difficult in the final part of the year?

So market share, we gained share in skin care categories and are, I would say, stable in the personal care categories, stronger in deo than we are in shower, where we are very -- we focus there where we have an attractive business as such. So therefore, the stability in Personal Care, and we gain in skin care. Markets like Indonesia, markets like India, it's very hard to predict how far. It really goes together with the environment and the development of the lockdown decisions they take in these markets. India is particularly hard hit this year. It's great to see that we can gain share or continue to gain share quite significantly. But I honestly am unable to predict if in the quarter -- in quarter 4, we can expect an uplift. These markets, obviously, will come out of that crisis. But in a relatively short distance of 3 months, it's not possible to predict.

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

First question I'd like to ask is about the changes at maxingvest and the retirement of Michael Herz. Obviously, in the past, he was seen as a very hands-on Chairman, perhaps one of the reasons why Beiersdorf's dividend has been flat for 13 years. So could you give us a bit of commentary around if there'll be any changes as a result of that change in Chairmanship at maxingvest, particularly around the dividend? And then, secondly, on Coppertone. You've owned the business now for 12 months. Obviously, this year has been somewhat challenging. But maybe you could give us an update on your plans there and the progress that you've made there? And just one clarification. I'm sorry for all these questions on margins. But just one clarification on the margins. If I take this year's guidance to be -- full year margins in Consumer to be around 12.1%. And then obviously, your guidance previously for Consumer margins to get to 16% to 17% by 2023. Are your comments today, and I completely understand it's difficult to give guidance on margins, but should we assume that this is a withdrawal of guidance on those margins? Because, I mean, it certainly seems pretty tough to get from 12.1% to 16% to 17% by 2023.

Thank you for your questions, the 3 questions, Richard. The first one on maxingvest, things that's hard to comment as such. I think the change from Michael to Wolfgang in the Supervisory Board is probably -- these are 2 people with different characters, but part of one environment. Most careful, I can say is that I have at this -- until this moment, no indications that the thinking around dividend would be different compared to the past. On Coppertone, yes, obviously, unfortunately, this is, I will say, a year that we obviously wanted to make more progress than we effectively have been able to do due to the COVID crisis. What we see at this moment, we've integrated Coppertone very well operationally, getting our hands on it. We have worked hard on how to bring Coppertone Rejuvenator brand and bring significant innovation to the brand over the coming years, of which you're going to see the first effect in the '21 season. But even that, obviously, the impact of the weak '20 season on the '21 season will be noticeable as well. So we have some delay in stepping up compared to what we wanted to do originally. And yes, I think that summarizes where we are as such. I hope that by beginning of '21, in the first half of '21, we'll get clearer on the rhythm and the progress we will make over the years to come. On the margin guidance, I can only reiterate what has been said a couple of times now already in the half year and now again, is that the focus is on now and what we need to do now to win in the market. Secondly, it's an incredibly volatile, uncertain environment in which we operate. So it's not even the right moment, in my opinion, to start thinking about how this might work out because also within the company, I have not focused on simulation over simulation to see where this year might land and what it does for the other years. So the point is, as Dessi already said, that is, at this moment, not a point where we are focusing on. And we will obviously look at that once we plan this year, we see how '21 is developing as such.

That's very clear. And if I can just slip one more in. Stefan, I think in the past, you said that some of the incentive plans for the top managers in the firm may evolve. Is there any update that you can give us on incentive plans, particularly the long-term ones?

No. There is -- it's on the agenda, but it has -- there's nothing that I can comment at this moment.

The next question is from the line of Iain Simpson of Barclays.

A couple of questions for me, please. You talked about expecting innovation to step up in Q4. Are you able to give us any sign as to what might be in the pipeline? Just high level, particular brands or categories we should keep an eye out on. Secondly, can you comment a bit about what's driven the broad-based share gain in Q3? Is it that you were able to maintain on-shelf availability better than smaller competitors? Or are there specific bits of execution you'd point to? And then a very quick housekeeping question, if I may. Did I hear you correctly on the FX margin question that you don't have any manufacturing in Brazil? I'm just a bit surprised given how big a market that is for you.

So on the quarter 4 innovation, we -- what we've seen is that in quarter 2, it was very difficult to get the innovation de facto out in the market. Because in a lot of cases, we couldn't activate or part of the distribution was closed down. So a number of these planned innovations have come to the market in quarter 3, and that is certainly one of the reasons why market share has been driven. In quarter 4, we continue with a number of innovations that we still bring as I already said, or in my speech, there is a part of the further development of the Naturally Good segment and then Naturally Good range in the body range. We launched Luminous 630 and so after rollout, Europe is one that comes to the market as such and the further expansion of Thiamidol and EUCERIN. So these are the major launches that are still going to happen and to be introducing as we see today. Market share has been driven, I think, by 3 elements. First of all, indeed, the continuation of good service levels throughout the crisis. We've been able to continue to deliver what was demanded. Secondly, we've been very agile in changing our activation, adapting it to the assortments and the parts of the assortment that are ahead of demand and making them relevant for that demand per se. And thirdly, the continuation of the introduction of new products and the support given to these launches because we believe that, that is the right way to go forward. And that's obviously driven also not only online, but also offline, as we already said.

And...

And -- sorry.

Sorry, Stefan. Go ahead.

On your housekeeping question, we do have a factory in Brazil, as such, which we expanded last year, where we started producing aerosol deos in Brazil.

The reference in the previous comment was on Russia, Turkey and South Africa.

The next question is from Gian Marco Werro of MainFirst.

My first question is on the dermatologic business. So it looks -- if I look at competitors, the dermatologic segment seems to experience an increase in competition on a global scale. So how do you see this? And also, how do you react on this intensified competition? And then the second one on the current turbulences in the market and on smaller brands out there, so do you see potential M&A targets, which are suffering at the moment due to the pandemic? And maybe they are now reaching out to a strong partner, such as Beiersdorf.

On Derma Cosmetics, the market is very -- is in these times, as we already said, very resilient and very attractive. I think that it's a different kind of intensity of competitiveness than we have in other ones. The EUCERIN brand, the AQUAPHOR brand play in a different way in this market than other ones, and it's very variation driven. So our key is to be able to really bring, I would say, skin issue relief products on the market, and that is what is driving very much our business such as not an intensity that comes at an immediate price erosion, which you have in some of the more mainstream markets as such. So we believe that the market itself continues to outgrow mainstream. We see a clear switch upgrading for a number of consumers, going from more premium mainstream products to Derma Cosmetic products, specifically in areas like anti-age or sun. On smaller brands, at this moment, in general, those smaller brands that have a strong part in the market or a specific selling point, we do not see that much at this moment, people suffering in a way that there would be a lot more interesting opportunities coming up in the short term. But we obviously continue to monitor the market to see what is happening because I might expect, I said this already, I think, in the half year, that as the crisis continues, that we might see indeed more smaller producers and smaller brands suffering and opportunities might occur.

The next question is from Philipp Frey of Warburg Research.

Well, basically, just one question. I'm still struggling with your 200 basis point margin decline for the second half comment. And well, I'm trying to get if it's just a typical over conservative Beiersdorf statement? Or am I missing something? So basically, you disposed SLEK last year, which had -- which was loss making, at least you had it for more than 2 months in your figures. The negative mix effect, if I just look at the meltdown of LA PRAIRIE's business in the first half, well, you need to assume a complete catastrophe in the fourth quarter to have a similar negative mix effect. Well -- and you are telling me that you are winning market share in all skincare categories. So are you basically telling us that you are buying market shares in a big, well, effort in the second half or are Coppertone losses really skyrocketing even significantly more than in the first half? What -- just what am I missing?

First, we are not guiding the deterioration of exactly 200 basis points. What I said is at a large [indiscernible] level, which still leaves some margin for better performance than 200 basis points. Now in terms of the moving blocks, yes, LA PRAIRIE has improved in the third quarter. But we do see new travel restrictions, and it's very difficult to predict how much the impact is going to be in the fourth quarter in terms of the mix. The mix, however, from LA PRAIRIE, the impact on the mix is very significant, as we've stated before. In comparison, the disposal of SLEK, given its size, by the time we dispose it as a business, it gets significantly less weight on the mix compared to the LA PRAIRIE impact. And on -- again, I would reiterate that we do continue and in fact intensify investments in the second half of the year, both in trade promotions and investments in our brands, specifically behind launches. And we do see headwinds from the FX impact in many of our emerging markets. So there are many moving blocks. This is where we are today. And this is what we feel comfortable to guide you in terms of closing of 2020.

May I just -- to get it, well, if we just look at -- just to assess if it's your conservatism regarding Q4 or if you look now in the third quarter with basically just a 1% sales decline and a significantly better, what, mix effect with LA PRAIRIE just down 16%. Is it fair to assume that your margin decline is -- has now substantially reduced compared to this minus 200 basis points you had in the first half?

We are guiding at the moment prudently, given all the uncertainties. And again, it might be slightly better than the 200 basis points movement, but in view of the fact that we still have many headwinds, both potential headwinds on the top line and in terms of our costs on the P&L, we believe that this is the prudent way to go.

The next question is from the line of Eva Quiroga of Bank of America.

I would like to come back to the skin care market, please. On your NIVEA slide, you said the skin care market continues to be challenging. Can you maybe talk a little bit about this? Is this -- as you just described, partly due to the fact that people are going towards the more derma segment of the market? Or why do you see the mass market as challenging? You've obviously put a lot of focus on face care versus body care. How is that developing? And can you maybe give us a glimpse of how you think about 2021, given that the economies are weakening and we are probably going to face a demand crisis? Is the NIVEA brand one that should do well in that context? And then secondly, still on skin. Can you maybe talk about some of your smaller brands? And give us an update how the Florena launch in Italy and France has been doing?

Thank you for your questions. Normally, and it all depends on skincare markets. We've always seen in the past that the premium segments were outpacing the mainstream segments as a market. Therefore, brands like LA PRAIRIE in Luxury did very well. We do see that Derma Cosmetics is a growing part of the market. But also, mainstream segments are growing as such. What you see in this crisis specifically without being really to -- as I said, it's very different sometimes from country to country. But, a, the fact that in COVID-19, people have gone less out, less -- much more home office, much more homeworking has influenced the usage of skin care products. There is certainly also an impact on the activation, what we can do specifically in the online -- in the offline world. Less shopping, bigger shopping baskets, less shopping trips, less time in-store, are all effects that do not really are an advantage for skin care categories, [indiscernible] not the more sophisticated categories like face care. What we do see [indiscernible] is body care, probably a little more linked to the fact that if you're at home to take care and have a good, I would say, self indulgence moment, are the ones that are really driving face care, lip care are impacted by the trends that we know in COVID-19 behavior, de facto. And that we see, and it's all depending on a lot from country to country. I said in Brazil, we do not see that impact. In Germany, however, the market is very slow in recovery, specifically, notwithstanding certain measures that have been taken. If you then look -- and maybe also linking to the previous question, if you look Q4 ahead, and maybe we are careful, but we are seeing where what is happening in France, what is happening in Germany, what is happening in a number of countries. We can only but be careful that a number of these factors will come back if there is a restriction of going out, there is a restriction in shopping. We will see, again, people more at home, more working from home, that all will not have a positive influence on the market itself. The intensity is a lot higher. It's clear as well. As Dessi already mentioned, the promotion intensity and the pricing intensity in the skin care market being under pressure here. You see that, that intensity is going up significantly. And therefore, the price to sell is coming down in a number of these segments. If you look at the smaller brands, it's very diverse. As such. I think the first one is the Florena launch in France and Italy has been very promising. Unfortunately, also here with COVID-19, basically the introduction, the acceptance by consumers, the acceptance by customers has been very good as such, products have been listed, have been tried. But then, unfortunately, when the repeat purchase should come, has been delayed for the reasons we already mentioned, specifically Italy and France. So we see the development promising, in line, even slightly above what we expected, but it's too early now to say how it will and in what speed it can take up considering all the elements that I just mentioned before. On the other smaller brands, usually during COVID, massively impacted, much more than NIVEA, NIVEA is there. Much more resilient than the rest of these brands. And we see them, when things pick up, they also pick up because they are specific public things like, for example, the tattoo care that we launched on the Skin Stories were impacted in the crisis and then picking up fairly rapidly.

And the final question comes from the line of Tom Sykes of Deutsche Bank.

It was just on LA PRAIRIE, please. Could you maybe talk about how you are evolving your customer acquisition strategy now? Presumably can't just wait for travel retail to improve. So what are you doing to evolve the model there? And with regards to the level of reordering from existing LA PRAIRIE users, can you maybe give us a view of what proportion of those people on the database that you have for LA PRAIRIE are actually or have actually reordered since the crisis hit, please?

Well, the very important factor in LA PRAIRIE, as we said the last time, is the physical stores. At the end of the day, the LA PRAIRIE brand, it goes more and beyond the product experience. So the fact that we could reopen the stores [indiscernible] very, very strong rebound once stores are opened again. And it is both from existing consumers who went back to stores and also the normal or, I would say, the way of attracting and being able to reach out to new consumers. On top of that, that's where we specifically have put in our efforts online with the online engagement that has been important, both in -- mainly in China and North America the case. So it's a combination with the store acquisition and the online acquisition as such. We do not see at this moment a significant fall-off, if you can call it like this, of existing and loyal users from LA PRAIRIE. We've been able to continue to service them in difficult circumstances there, where they're usually related to an online -- I'm sorry, an offline store. From that offline store has been able to continue to service them as good as possible if we knew them. But those who are there have come back.

Okay. So I mean, are you able to say -- sorry, in a normal year or in 2019, so what proportion of the revenues come from first-time customers, please? And what proportion comes from repeat?

I'm unable to name these numbers like this. The majority comes from -- certainly from repeat consumers more than new consumers as such, but I can't put you the exact numbers.

And this concludes our question-and-answer session. I hand back to Mr. Jens Geissler for closing comments.

Yes. Thanks. Well, thank you all for having joined our conference call. Of course, we appreciate your interest in Beiersdorf. So 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.