Beiersdorf's (BDRFF) CEO Stefan Heidenreich on Q2 2016 Results - Earnings Call Transcript

| About: Beiersdorf AG (BDRFF)

Beiersdorf AG (OTCPK:BDRFF) Q2 2016 Earnings Conference Call August 4, 2016 3:00 AM ET

Executives

Jens Geissler – Head of Investor Relations and Corporate Treasurer

Stefan Heidenreich – Chief Executive Officer

Jesper Andersen – Chief Financial Officer

Analysts

Jonathan Feeney – Consumer Edge Research

Jeremy Fialko – Redburn

Mirco Badocco – RBC

Christian Weiz – Baader Bank

Graham Jones – HSBC

Hermine De Bentzmann – Raymond James

Charlie Mills – Credit Suisse

Toby McCullagh – Macquarie

Catherine Rolland – Kepler Cheuvreux

Rosie Edwards – Berenberg

Chas Manso – Societe Generale

Jens Geissler

Good morning, everybody. Welcome to Beiersdorf’s Conference Call. This is Jens Geissler. With me this morning are Beiersdorf’s CEO, Stefan Heidenreich; and our CFO, Jesper Andersen.

We would like to share with you our business results for the first six months of 2016. As always, we will start with a brief presentation which you can access through the link on your invitation, and then followed by a Q&A session. Please remember that the Q&A session will be limited to two questions per caller.

I hand over now to Stefan Heidenreich.

Stefan Heidenreich

Good morning, ladies and gentlemen, and a warm welcome to Beiersdorf. Thank you for joining us today. My colleague Jesper Andersen and I will report on our Company’s performance in the first half year, and we will also give you an outlook for the coming months.

Ladies and gentlemen, let us start with the most important. Beiersdorf continued on its profitable growth path in the first six months of 2016. Once again, we have increased both our sales and our profit, and gained additional market shares.

Our innovations continued to fuel growth in recent months. Furthermore, we have successfully focused on further improving our efficiency and our working capital. All of this was despite poor macroeconomic conditions in many markets over the past few months. The political and economic developments across the world have increased both overall consumer uncertainty and competitive pressure.

In Europe, consumer confidence has been hit by the terrorist threat, the Brexit, and the risk of a new banking crisis. The unfavorable environment has impacted considerably on the entire consumer goods industry, and it is also clear these conditions will remain for a time.

Being such successful in such an environment is not a given. We continue to concentrate on our core strengths, our brands, our innovation capacity, and expanding our presence in the emerging markets. Overall, we are cautiously optimistic about the full year and confirm our guidance.

Let us take a look at our results in detail. We increased organic Group sales by 2.8% in the first six months of 2016, with an acceleration of growth in the second quarter. Nominal sales fell by 1.3% due to negative currency effects totaling at €3,358 million compared to last year’s €3,402 million. EBIT, excluding special factors, rose by 0.9% from €508 million to €513 million. The EBIT margin once again improved from 14.9% to 15.3%.

Coming to tesa, tesa achieved slight organic sales growth of 0.2%, with an acceleration of growth in the second quarter at €560 million. Nominal sales were down 2.7% on the prior-year figure of €575 million. This was also a result of negative exchange rate effects.

The sales volume achieved in the first half year has put tesa back on a growth path. Following weak sales performance in the first quarter, there is now light at the end of the tunnel. This is primarily thanks to a healthy performance of the industrial and consumer business in Europe and the Americas.

In Asia, meanwhile, sales remain below last year’s level due to a continued weak demand from the electronics industry at €89 million. EBIT in the tesa business segment was down from the €98 million seen last year. The EBIT margin was 16.0% compared with the prior-year figure of 17.1%.

Coming to the consumer segment, on the consumer business segment, we increased sales by 3.3% in the first six months of 2016. Due to the strong euro, nominal sales fell by 1% from €2,827 million to €2,798 million. All core brands contributed to this positive performance. NIVEA increased sales by 4.2%, Eucerin by 1.0%, and La Prairie by 6.2%.

EBIT, excluding special factors, increased by 3.3% from €410 million to €424 million. The EBIT margin improved to 15.1%, up from 14.5%. This is the first time that Beiersdorf’s EBIT margin in the consumer business segment has exceeded the magic 15%. This further encourages us to consistently pursue our successful path.

Sales performance in the regions was mixed in Europe. Organic sales rose by 2.4%. This was despite the lack of sunshine leading to substantial falls in sales of sun care products. Sales in Western Europe were up 1.4% against the prior year. At the end of the first six months, Germany was a major growth driver. We achieved considerable growth again in Eastern Europe with sales up 6.9%. This was fuelled once again by a healthy trend in Russia.

In the Americas, sales rose by 1.5%. Sales in North America were 1.7% lower than in the strong prior-year period. In Latin America, sales were up 3.8% driven by good growth rates in Brazil and Mexico. Meanwhile, the difficult economic situation in Argentina with high inflation and adverse exchange rate effects continued to have a negative impact on the region’s sales performance.

As you know, we calculate organic growth for Argentina based on the current average exchange rate and not on the average rates of the previous year. If we had used the previous year exchange rate, organic sales growth for Latin America would have been 11.1%. The consumer business segment in total would even have recorded total sales growth of 4.1% growth instead of 3.3%, which is 0.8% higher.

In the Africa/Asia/Australia region, we increased sales by 6.3%. Especially strong sales performance was recorded in Japan and India. China sales were slightly down on the previous year.

Ladies and gentlemen, to sum up these results, Beiersdorf has continued to grow in a challenging marketing environment, both in sales and profits. Several factors have contributed to this.

First of all on innovations, our latest major innovations have become real growth drivers recording double-digit increases. These particularly include NIVEA Care, NIVEA MEN Creme, and NIVEA deo Protect & Care. Also, La Prairie and some of Beiersdorf’s per brands have attracted strong consumer interest with the product innovations, and delivered high growth rates.

Our presence in emerging markets has also further advanced. It has only been a year since we have opened our Indian production facility and its development lab, and our efforts are already paying off. We have recently installed four additional new production lines, thereby considerably increasing the number of products manufactured to meet the growing demand in India.

Above all, we have put a lot of emphasis – and especially thanks here also to Jesper and his team – on further increasing Beiersdorf’s efficiency and improving our working capital in the first six months of 2016.

Over the last years, Beiersdorf has continuously increased its profitability, both in Europe, and more and more in the emerging markets. In our consumer business segment, our EBIT margin improved by another 60 basis point against the prior-year figure for the first six months. The major levers for the continuous improvement of our profitability are strong cost discipline, improved cost structures, as well as an optimized sales mix and focused marketing spend.

Regarding the improvement of our working capital, we have mainly concentrated on optimizing inventories. As a result, we have considerably reduced the ratio of working capital for sales in the consumer business segment with a decrease of 210 basis points over the past 12 months. Over the next two years, we intend to bring working capital down to a single-digit figure.

Coming to the outlook, ladies and gentlemen, let me conclude with an outlook for the full year 2016. The macroeconomic and industry-specific challenges we have seen in the first half of the year will continue to accompany the Company and the entire consumer goods industry. In short, things will not get easier. Nevertheless, we see further real growth opportunities for our Company. We therefore confirm our guidance for 2016.

In the consumer business segment, we expect to outperform the market with sales growth of 3% to 4%. The EBIT margin from operations for 2016 is expected to slightly exceed the prior-year level. At tesa, we expect sales growth slightly above the prior-year figure, and anticipate a slight year-on-year decline in the EBIT margins from operations. Based on the forecast for the two business segments, we are expecting the Group sales to grow by 3% to 4%. The consolidated EBIT margin from operations should exceed the prior-year figure.

Thank you for your attention, ladies and gentlemen, and now I will hand over to Jesper.

Jesper Andersen

Good morning, ladies and gentlemen. It is my pleasure to share with you some highlights from the efficiency and working capital programs that we have initiated. In addition to our solid sales performance in the first half of 2016, and this despite the challenging market conditions, we have made good progress on our efficiency and working capital initiatives, and the first results are already visible.

Our efficiency program addresses all areas of the P&L, and have provided us with the means to deliver solid EBIT margin improvements in the consumer segment despite the FX headwinds that have impacted our gross margin.

In the cost of goods sold area, our procurement and logistic initiatives are already providing benefits through spend consolidation and optimization, together with deployment of new procurement tools. Marketing spending, also here have we been able to further optimize, while keeping a close eye on share voice development in the markets, and maintaining our competitive investment level. These measures have secured our EBIT improvement of 60 basis points in the consumer segment, despite the negative FX headwinds.

On our working capital initiatives, we’ve also already seen the benefits, with a 220 basis point reduction on the consumer working capital percent to sales compared to the same period last year. The working capital initiatives have been focused around inventory reduction, better synchronization of supply and demand, and together with streamlining our payables and receivables processes. Our target is to be single digit within the next 18 to 24 months.

Our profit after tax has also improved nicely to 11% to sales for the Group, an improvement of 70 basis points compared to the same period last year. The after-tax result is resulting from the positive EBIT improvements, together with a tax-wise favorable mix of countries in the first six months, and realized gains from financial investments.

To conclude, we have already seen benefits from our efficiency initiatives, and they will continue to provide the means for our long-term sustainable margin growth.

Jens Geissler

Thank you. We will now start the Q&A session and are happy to take your questions; maximum two for each participant, please.

Question-and-Answer Session

Operator

[Operator Instructions] First question comes from the line of Jonathan Feeney of Consumer Edge Research. Please go ahead.

Jonathan Feeney

Good morning, thank you very much. Two questions, please. The first is you increased operating margin in the consumer group a little bit, and I guess if you could comment on the effectiveness of advertising and promotional spending; particularly in some of your developed markets if you’re seeing – if maybe some of this increase is – maybe you’re seeing a little bit less effectiveness in certain kinds of investments and are trying to be more efficient.

And then secondly, if you could just comment about your developments, particularly in North America where it would seem there’s significant opportunity, particularly for NIVEA; but for your Beiersdorf brands in general a kind of roadmap to how to maybe increase that; what you’re thinking as far as how to increase that distribution over time. Thank you.

Stefan Heidenreich

Yes. Let’s start with the second question. I mean, we have last year the very successful launch, a major initiative in the body category under NIVEA, the in-shower products, and they’re doing extremely well. That is also the explanation for the first half year going down. We have already seen a better Q2 than a better Q1, and we are also expecting positive Q3 and Q4 to come.

This is simply the fact that we had a lot of pipeline filling last year, but we can confirm that the product has hit the market; the repeats are good. So we are very happy we’re seeing the launch.

And on that base we will continue further to build NIVEA. I think over the last five years, if you look at it, we have done good organic moves when it comes to growth, but more importantly, we’re earning now nice money in America. And before that, that was not the case. So we are quite happy with the development. It’s so far an organic move step by step, and we are happy with what we’ve seen.

On the marketing spend, that’s a more interesting question and it’s such that we are seeing at the moment obviously shifts from media to promotion and pricing in general in the industry. We are recording at the moment higher numbers share of voice than we had before, so we’re relatively spending more, at least in our categories against competition. And that’s merely a fact that there are shifts taking place.

So we have to see this development; we are very agile on that development. But I think in the circumstance, particularly in Europe what we’re seeing, we believe that trend might go on and we are adapting towards that situation.

Jonathan Feeney

Thank you very much.

Stefan Heidenreich

Thank you.

Operator

Next question comes from the line of Jeremy Fialko of Redburn. Please go ahead.

Jeremy Fialko

Hi, good morning, it’s Jeremy Fialko of Redburn. I’ve got a question on tesa for you. Perhaps you could go into a bit more detail about how and why Q2 was actually meaningfully better than Q1. Is it more of a phasing issue, or do you think you see some signs of underlying improvement in any of your markets? And if so, could you single out which ones those were? Thanks.

Stefan Heidenreich

As I said in my speech, I think it’s clear that the electronics industry in China has not improved. It’s still weak and we are depending there on major customers. And you see their results; this reflects also our results, so that is clear.

But you’re right. We started very weak in quarter 1 with minus 3.2% and had a very good 3.7% in the quarter 2, so some of the things we’re seeing in Europe and North America and also in other industries we’re quite happy with. So that’s why we’re also staying within our guidance. And I think this will be a better second half year for tesa than the first half-year, but the electronics industry in China we don’t see any movements in the near future.

Jeremy Fialko

Okay. Thanks.

Stefan Heidenreich

Okay.

Operator

Next question comes from the line of Mirco Badocco of RBC. Please go ahead.

Mirco Badocco

I’ve got a couple of questions, please. The first one is on the skin care category. More specifically if you could tell us what your expectation is for the short-term; I mean next six/12 months, and then what you think about the medium/longer term. And the second one related to that, what gives you confidence you can meet your top-line guidance despite the tougher comps in the second half? Thank you.

Stefan Heidenreich

Well, I think that we always said from the beginning that this will be a tough year. We were, I think, one of the first ones who concluded that the markets will turn lower, and that’s what exactly what we’re seeing. The good news is that we prepared for it already six months ago and I’m confident on the guidance. First of all, we have a guidance of 3% to 4%, so we’re in that. Yes, we have tougher comps, but we also have a lot of things going with innovations, with a better footprint in the emerging markets.

So we also see a better trend. It’s a little bit like tesa where we saw very tough start in the Q1; then, the Q2 got a lot better, and we see the same thing. So we are very confident on the 3% to 4% range, and anything else, we have to see what the markets will do in the next months.

Mirco Badocco

Skin care category?

Stefan Heidenreich

Yes. Skin care category, as I said, we forecasted a slight growth, but more in the direction of 0% to 1%/0% to 2%, and that’s exactly what’s happening at the moment. That’s what we’re seeing. So I think the good news is we are prepared for that. We didn’t have any high expectations, and I think that’s what we are very confident also on the 3% to 4%.

Mirco Badocco

Thank you.

Stefan Heidenreich

Thank you.

Operator

Next question comes from the line of Christian Weiz of Baader Bank. Please go ahead sir.

Christian Weiz

Yes, good morning gentlemen. My first question just housekeeping. The tax rate was pretty low at 28.5%. Could you help us with a guidance for the full year, number 1? And number 2, coming back to the question with regard to the guidance. Would you at a certain point be willing to sacrifice parts of your margin progression?

Stefan Heidenreich

Let’s do tax first.

Jesper Andersen

Yes, let’s. Let me start with tax. So the result on the first half on tax is favorable compared to last year, and it’s mainly driven by, as I mentioned, a favorable mix from a tax point of view on our countries in the first half.

For the full year, we are well on track to deliver on our tax guidance of 32%, as we have said all along. So I’m very confident about that.

And over the last five years, to the second question, I think when you look at our curve, the curve really shows every year we have improved. The cause is very, very clear; profitable growth every year. And that goes on the gross line as well as the profitability line. I think we are delivering against that, and that’s why the guidance on 3% or 4% and slightly above last year stays.

Christian Weiz

But would you be willing to sacrifice at least part of the margin progression? I’m not saying that you drop back in a margin, but would you be willing to sacrifice part of the progression then?

Jesper Andersen

No. Why should we? We were very clear. We gave a guidance that every year we want to improve margin, and we’re on that course. And there’s no change of the course over the last four or five years, so there’s nothing changing. I’m not sacrificing left or right. I want profitable growth, and that includes good growth and good profitability. That’s what we’re doing here since four or five years, and we’re very happy with that.

Christian Weiz

Okay. Understood. Thank you.

Operator

Next question comes from the line of Graham Jones of HSBC. Please go ahead.

Graham Jones

I’ve got two questions as well. So firstly, on Eastern Europe, you’ve stated that the positive trends have continued. But if we look at the Q2 numbers, I think there was a deceleration from about 8.5% in Q1 to just over 5% in Q2. And if I look into what happened in your performance in 2015, every quarter I think of 2015 you delivered over 9% growth in Eastern Europe, apart from Q2 last year which was very weak at I think about 3% growth.

So I was just wondering whether there was any change in trends in Q2 that accounted for that slowdown versus a weak comparison in Q2 last year.

And then my second question is on working capital. So it’s good to see the progress that you’ve made and the target that you’ve given for further improvement over the next 18 to 24 months. I guess my question is, in consumer, if you look out medium term with the working capital, some of your – in terms of how you benchmark your performance. So if we look at Unilever or Reckitt Benckiser, they would have working capital of minus 6%/minus 9% of sales, and I was wondering if you could talk about your long-term thoughts on that and whether there was anything structural at Beiersdorf that prevents you from getting a much better performance in working capital over the long term.

Stefan Heidenreich

Yes. Let’s start with Eastern Europe. Your numbers are correct. They went from 8.5% to 5.4%, and we have two sides in Eastern Europe. One is the side of Southeast Europe and Poland. That’s still doing extremely well. Russia, as I said, is also good, but we’re seeing signs in Russia of climbing down. We still have a good performance in Russia.

Basically, we are looking very much at market shares, and in every market we have situations from one month to the other months which keep changing. This year, we have seen in France, you have heard it in France; you have seen England. It’s a very volatile environment out there. And I think the most important, and that’s what you also see in the Nielsen shares, is the market shares.

When we look, and we just got them in, the market share for the first six months, we have record high shares in volume and value. We have not seen this over the last years, and that’s strong. That shows us that we’re on a good trend, but obviously, the markets have come down, which goes without saying. So that’s a good trend for us when it comes to market shares. And same we see in Eastern Europe and in Russia; shares are high at record levels and will continue to that.

On markets in general, as I said in my interest statement, there are many markets where we really can’t foresee how they turn. It’s volatile out there. The teams have to be extremely agile, active and not reactive. And I think we’re doing that, but it’s tough out there there’s no doubt, and we have to out jump.

Jesper Andersen

On working capital, so we are very pleased with the progress that we have made in a relatively short period of time, and we are confident on our target in the 18 to 24 months.

Regarding the question on structural differences between us and competition, I think the only real difference is scale. So there, on working capital, the impact of scale and global footprint does have an impact, so that will influence the level that we will go to. The only thing I would say about the long-term ambition of ours is that it does definitely not finish in 18 to 24 months, and we will continue working on our work in progress – our working capital.

Graham Jones

Okay. Thank you very much. Thanks.

Operator

[Operator Instructions] Next question comes from the line of Hermine De Bentzmann of Raymond James. Please go ahead.

Hermine De Bentzmann

I have a question on your expectations for the consumer environment in Europe for H2. Do you expect an acceleration in your sales in H2 in Europe, and particularly Western Europe? And my second question is your CapEx guidance, please, for the full year. Thank you.

Stefan Heidenreich

Well, I think to your first question, a little philosophical, I simply don’t know. I think that if you ask me personally, I think that the half-year 2 is not going to get better, but whether it gets really worse, I don’t know.

You tell me how the Brexit what work in the UK, we’re seeing the first signs, but that is not conclusive. You heard our competition on France; that’s also not conclusive yet. Germany, there’s terror.

There is so many things going on. There’s the refugee thing. You just have to, I always tell here my guys, just switch on the TV every night and then you see what’s happening. And there are many, many open questions which Beiersdorf is not in the lead in that thing, but they’re influencing my consumers, and there’s a lot of consumer uncertainty and volatility at the moment out there, and it affects us, clearly.

So how that all churns, don’t know, but we are preparing for, as I said, this situation will remain for a time. How long, we have to see.

Jesper Andersen

Regarding CapEx, our midterm guidance is around €200 million to €250 million per year; and for 2016 particularly, I am anticipating us in the lower end of that range.

Hermine De Bentzmann

Thank you.

Operator

Next question comes from the line of Charlie Mills of Credit Suisse. Please go ahead.

Charlie Mills

I wonder if I could just return to your comment about tax. You said you’re well on course to deliver 32% for the year. But if I read your accounting policies on page 19, it says that the interim tax rate was calculated on the basis of the estimated effective rate for the full year. So should we use 28.5% or 32%?

Jesper Andersen

So we should use the 32%. It’s about the mix of the countries, so it’s the profit mix of the countries in the first half versus the full-year expectations. I think we have done very well. I’m pleased with the state of our tax rate. And as I said, we’re well on the track of delivering on the 32% on the full year.

Stefan Heidenreich

We have not changed anything in the accounting when it comes to that, and remember that the Q4 always is the most volatile when it comes to tax development. So that still might change under the annual number.

Charlie Mills

But your statement actually says it’s based on the estimated rate for the full year so that shouldn’t be there.

Stefan Heidenreich

Yes, as always.

Jesper Andersen

As always, and mix of the countries of how they contribute to the tax rate.

Charlie Mills

Okay. Thanks.

Operator

Next question comes from the line of Toby McCullagh of Macquarie. Please go ahead.

Toby McCullagh

I think you mentioned some success with some innovations on some of the tail brands or per brands. Could you perhaps expand on which brands they were and perhaps what the innovations were? And do you see those brands outside of the big three always or structurally being a drag on growth, or is this something that could turn around?

Stefan Heidenreich

Well, I think when you look at the brands per se, NIVEA, and that despite the Argentinean effect was over 4% so we were quite happy with that, driven by many innovations. And La Prairie I think had the best results in the first half year since many years. It was over 6%. And we’re seeing that trend continuing.

So we’re very pleased with these two. Eucerin was disappointing with 1%, but that also has to do that the dermo-cosmetic market at the moment is quite tough, and we’re also changing there certain things to get it to a better future.

On per brands, we’ve seen some brands doing extremely well. We have seen, for example, Hydro for gel in Germany capturing the market share, now well above 4% in the deo category, which is one of the biggest categories in Germany with a new positioning, with new advert. and so there we seem to have hit something.

What I’m particularly pleased on is that we – in the other, that a string of innovations will be launched behind Labello 8x4, Atrix, etc., now also not in Germany, also in other markets. For example, Atrix is very big in Japan. We’re just launching a new innovation now in August/September into that. And we’re using these per brands also quite interesting more and more as a platform to also see very early on if these innovations also would then later on be a carrier for the bigger mother brand.

So we’re quite happy with the progress. The teams are getting together. It took some time to get the teams and structures right because we are thinking 110% Blue, but we had to learn that we also need to give these new brands, or old brands if you want, more space, more structure to also independently develop.

And I think with La Prairie, we have done it now very good, and some of the per brands show very good success. So we’ll see how we go on with that one, but it’s definitely a nice, nice trend towards the future.

Toby McCullagh

Okay. Thank you.

Operator

Next question comes from the line of Catherine Rolland of Kepler Cheuvreux. Please go ahead.

Catherine Rolland

I have a question actually on the ForEx impact. You indicated that it was a headwind on gross margin and EBIT margin in H1. So could you help us to quantify this headwind impact? And second point is still about FX. You said you would consider that FX would remain stable until the year end. What could be the impact on margins on a full-year basis, please? Thank you very much.

Jesper Andersen

So first of all, we don’t really break out the details of the margin. I can tell you that the headwinds that we have obviously seen is in the currencies that have moved particularly against the euro. So we’re talking about the ruble, South Africa, Brazil, and so on, and that has impacted our gross margin for the first six months.

And the same thing would go for the year. We are continuously managing the exposure that we have for the full year and how it impacts both our hedging strategy and our margin evolution and what we must do in the market to anticipate these margin impacts.

Stefan Heidenreich

Could you repeat the second part, Catherine?

Catherine Rolland

Well, the second part was about the potential impact on a full-year basis taking into account your hedging policy. At the end of the day, should we still have a negative impact on EBIT margin? And could you just help us to try to quantify this negative impact?

Jesper Andersen

I cannot quantify it. I would say with the hedging expectations that we have and the FX expectations that we have, we would see gross margin negative headwinds also into the end of the year, but we have a positive position on our hedging and we continue with our positive guidance on the overall EBIT evolution.

Stefan Heidenreich

So the position in the statement of income is always the other operating income where you would find the gain, the hedging gains, which then partially offsets the negative effect on gross margin.

Catherine Rolland

Okay. But at the end of the day, it would be a net negative impact after hedging?

Stefan Heidenreich

Yes, probably, because we don’t hedge 100%. We always have to leave something open.

Catherine Rolland

Okay. Thank you very much.

Operator

Next question comes from the line of Rosie Edwards of Berenberg. Please go ahead.

Rosie Edwards

Just a quick follow-up on the gross margin. Am I right in thinking that you will have seen benefits from the commodity environment and also from some of the efficiency programs you were discussing on the call such as procurement and logistics? And therefore, clearly, the FX headwind was fairly material to offset those as well.

And then secondly, just on marketing selling expenses, could you just run us through the drivers behind the reduction year on year of about 40 basis points as a percentage of sales?

Jesper Andersen

So let me start with the gross margin. So, yes, absolutely we have seen, as I mentioned in my opening, a benefit from both procurement and logistic initiatives benefiting our gross margin; and commodities as well, even if it’s less impact for us. And that has been offset against the FX headwinds, and they have been quite material, yes.

Stefan Heidenreich

On marketing budget – it’s like we always say, marketing budget is changing, has changed, and will further change. We see an increase in digital, like everybody else.

What we are tracking now on a monthly base is more diligently our share of voice, which is basically like a market share on media spendings, on traditional media mainly. And as I said in one of the questions is we are seeing an increase in our share of voice vis-a-vis our competition. And that, number 1, means that they either spend less, because we’re not spending much more; we’re spending a little more but less, and that shows you that there are shifts in the market.

And these shifts in the market go partly to digital, but mainly also to price and promotion. And you see it by yourself. If you go today in many markets in Europe but also outside the world, promotion, pricing, buying on offer, buying on deals, has dramatically increased; the market environment is leaning towards that and everybody’s under pressure.

So that will further continue, and that also means that marketing spending, you’ll see the marketing spending; but the other thing what you also should see we also have a lot of trade spending which is roughly net sales. And that’s something we also need to manage. And both of these things in a way give you the spending vis-a-vis the consumer, and that we are tracking. But there’s – clearly, my expectations over the years to come is that the marketing spendings will further probably slide down at the expense of the other factors, as I said.

Rosie Edwards

Okay. Just sorry. One very quick follow-up. Just are there any other notable headwinds within gross margin that we should be aware of?

Stefan Heidenreich

No.

Jesper Andersen

No.

Rosie Edwards

Okay. Thank you.

Stefan Heidenreich

But opportunities.

Jesper Andersen

Yes. Opportunities, yes.

Stefan Heidenreich

Good. Okay. I think we can go with the last caller now.

Operator

Next question comes from the line of Chas Manso of Societe Generale. Please go ahead.

Chas Manso

My two questions. The first one is to try and get a bit more color on your consumers’ performance by category. So 4% ex Argentina, including substantial falls in sun care; sounds as if the rest of the portfolio is doing pretty well, particularly when you’re calling out skin care category growth as zero to 2.

So is it that you’re taking a lot of share in skin care, or is it that the other areas such as deos and showers and the rest of it are picking up the slack? So perhaps if you could just go through how you’re doing in the key areas, deos, MEN Shower and body creams, etc., that would be helpful. That would be the first question. And the second question would be perhaps you could take us through what the latest round of innovations is looking like.

Stefan Heidenreich

Okay. So you know we’re concentrating mainly on – when it’s NIVEA on six top categories. I think the one where we’re seeing good shares but unfortunately the category has really come down is sun.

We had a dramatic summer, the summer was bad. You can read it. We had in some markets declines of up to 30% in some months. The summer just didn’t come. And that is particularly tough in England, it’s tough in France, it’s tough in Germany, because it’s an important market for us, but it just didn’t come. And what we’ve seen lately in the last three weeks is just too late.

So basically, this will be a bad summer for us, which gives hope for the next summer. But on the other hand, the sun business is over now. We are concentrating now on the winter season, but that has a material impact. It hasn’t impacted the shares, but it has impacted the sales.

All the other categories, plus or minus are doing quite good. Body is to be seen for the winter, our winter category. Deo and MEN Shower are doing extremely well. We’re very happy with what we’re seeing. Face has two faces. We are extremely happy on cleansing but we have to improve on care.

So net, as I said to you, in the market shares, we’re quite happy with the developments.

On the innovations, as I said, what we have launched in the market, the big hits are still doing extremely well. We should never forget that we have other cycles than we used to have. So in deo, for example, Black & White is still doing nearly double digits, so we’re very happy with it. But also, our new innovations this year, Protect & Care, the Blue deo, very, very nice, and it already looks like reaching Black & White levels which would be fantastic. So we’re having a lot of hope on the Blue, Protect & Care and deo.

On MEN, I think what you’ve seen, we have probably relatively seen the biggest market share increases globally. We are the clear number 1 again. That has particularly to do not only on the whole range, but we’re particularly pleased with Leatherman which was – we called it Leatherman. It’s a NIVEA MEN cream which we launched the tin, and that is globally a fantastic success.

On shower, we launched a couple of things, but the mousses in Europe are a new hit, so that we have to see. We launched that; looks quite good. It’s very expensive, by the way, so this is a move in the shower category which we quite like because it’s a very different price point, but to be seen.

Sun, as I said, nothing, but next year, we’re coming with the big innovation so that we see what then comes. First time what I always promise now is coming.

And in body, you will see innovations in the second half year when the winter season starts. Face, I think, and cleansing, we have done a couple of good things. And on care, the second half is coming with innovation.

So overall, I think we are doing very good, and the mix now of big hits from the times and new hits and finding there a good mixture is getting better and better. I think that’s also the best strategy in going forward in these times. And so we are quite comfortable with the innovations and the products. Okay. Thank you.

Operator

There are no further questions at this time. I would like to hand back to Mr. Jens Geissler for closing comments.

Jens Geissler

Okay. Thank you for having joined our conference call. Beiersdorf’s next investor relations event will be the conference call for our nine-month results on November 3. We appreciate your interest in Beiersdorf. Thank you and goodbye.

Operator

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.

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