Beiersdorf's (BDRFF) CEO Stefan Heidenreich on Q1 2017 Results - Earnings Call Transcript

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Beiersdorf AG (OTCPK:BDRFF) Q1 2017 Earnings Conference Call April 27, 2017 3:00 AM ET

Executives

Jens Geissler - Head of Investor Relations / Corporate Treasurer

Jesper Andersen - Chief Financial Officer

Stefan Heidenreich - Chairman

Analysts

Guillaume Delmas - Bank of America Merrill Lynch

Celine Pannuti - JP Morgan Chase

Iain Simpson - Societe Generale

Christian Weiz - Baader Bank

Marion Boucheron - Raymond James

Pinar Ergun - UBS

Jens Geissler

Good morning, everyone, and welcome to Beiersdorf's First Quarter Conference Call. This is Jens Geissler. With me this morning are Beiersdorf’s CEO, Stefan Heidenreich; our CFO, Jesper Andersen.

We are very pleased to report continued good organic growth in our Consumer and tesa businesses in the past quarter, particularly in the phase of a challenging macro environment. Today, we would like to share these results with you. So let's start with a brief message from our CEO followed by a Q&A session. I now hand over to Stefan Heidenreich.

Stefan Heidenreich

Good morning, ladies and gentlemen. My colleague Jesper Andersen and I would like to welcome you to Beiersdorf. Thank you for your interest in our company. We will now report on Beiersdorf's start to the financial year 2017. We will also provide a forecast for the coming months.

Ladies and gentlemen, the downturn in the consumer goods industry continued in the first three months of 2017. Competition in the sector intensified once again. There was no significant growth stimulus from the macroeconomic environment. Uncertainty persisted in many markets as a result of economic and political factors. Despite these continued difficult circumstances, Beiersdorf has made a strong start to the new financial year. This applies to both business segments, Consumer and tesa.

Tesa far exceeded expectations with a major boost in sales in the first quarter. In the previous year, the impact of declining sales in the electronics industry in Asia negatively affected first quarter sales. Tesa has now made up for this and has performed very positively.

Our Consumer business segment was very successful as well. In a declining market environment, Consumer generated a considerable sales increase and gained significant market share. Important to mention, that we have grown stronger with every month of the first quarter.

Our results in detail, we have managed to increase organic sales, Group sales by 4.8% in the first quarter. The growth was even higher in nominal terms at €1.801 billion, nominal group sales were up 7.7% on the previous year's figures of €1.673 billion.

On tesa, tesa performed extremely well in the first quarter. The business segment lifted organic sales by 13.5% year-on-year, in nominal terms, sales were up by 14.4% from €277 million to €317 million. Tesa achieved good sales growth in the direct industries business, meaning in business directly with industrial customers. The same applied to the trade markets segment, which includes the consumer business.

In the American market, tesa was very successful in the industrial business, especially with applications for the automotive industries. In Asia, sales in the electronics business has increased sharply again when compared with the same period of the previous year with soft weak sales.

On Consumer. In the Consumer business segment, we achieved organic sales growth of 3% in the first three months of the year at €1.484 billion, nominal sales were up 6.3% on the previous year's figure of €1.396 billion.

All core brands contributed to the sales growth. NIVEA increased its sales by 3.5%, Eucerin by 3.3% and Hansaplast by 3.8%, with La Prairie, we achieved a 10.5% rise in sales. We were successful in all regions. Organic sales in Europe grew by 2.4%, in Western Europe, we lifted sales by 1.4%. We generated good growth rates in the United Kingdom and Italy. In Eastern Europe, we achieved strong sales growth of 7.2% in the first quarter. This was mainly driven by healthy trend in Russia and Poland.

In the Americas region, we increased sales by 4.0% where sales in North America were 0.5% down on the previous year's strong figure. We generated dynamic growth of 7.7% in Latin America. Our company performed dynamically in Brazil and Mexico, Argentina, too. So good increases in sales.

In the previous year, the Argentinean currency's declining value negatively impacted sales growth. Sales growth of 3.5% was achieved in Africa, Asia, Australia regions. This was mainly driven by a very healthy performance in India. In China, sales was slightly below the previous year.

Ladies and gentlemen, let me sum up. Beiersdorf remains on its growth path. We have expanded our market position and recorded further strong growth in the first quarter despite a difficult macroeconomic environment and negative trends in the wider industry. In short, we are well positioned in the areas we can influence. Our assets are paying off. Our successful performance was the result of the consistent implementation of our Blue Agenda over the last few years.

The aims of the Blue Agenda are: to make our strong brands even stronger, to win our consumers with innovative products, to extend our position in the emerging markets, to further increase our efficiency and to engage our current employees to continue to drive the company's success. These factors are also determining our agenda for the 2017 financial year.

For the current year, we have defined clear areas on which to focus. We aim to inspire consumers with innovative products, to further extend our number one global position in men, to intensify our activities in the emerging markets, to drive digitalization forward and to leverage the potential of Eucerin, Hansaplast and La Prairie.

In detail, first point, breakthrough innovations. In the first three months of this year, we highlighted our claim to set new standards or a new trends in the skin care markets through the market launch of the new generation of NIVEA SUN.

Thanks to a new innovative product formula, NIVEA SUN makes it easier than with previous formulas to wash out clothing stains caused by the use of sun protection products. The sun protection product with clothing protection is a market first. The launch of this product innovation started very successfully.

Second point, global leader men. We aim to further expand our leading position in skin care for men in the course of this year. We intend to achieve this with the support of our world famous brand ambassadors, Real Madrid, Paris Saint-Germain, AC Milan and Liverpool FC, as well as Joachim Löw, coach of the German national soccer team.

We also drove growth with new products for men. This year, we successfully launched the NIVEA MEN’s Body Shaving range in Germany. NIVEA Body Shaving is a growing trend. The product range features items – various items to meet the consumers' needs. Third point, more local footprint.

Ladies and gentlemen, expanding our business activities in the emerging markets is one of the pillars of our company's success. This includes our business activities in India where we have grown by more than 20% per year over the last five years. The production site in India with its own regional research and development authority is more and more paying off.

Here, we successfully develop and produce products tailored to the specific consumer wishes of the Indian market. We will continue to invest in India this year and drive regional product development.

Fourth point, digital acceleration. Digitalization is one of the focus areas of our business. By setting up our digital marketing efforts and strengthening our collaboration with online platforms, we have established a new emphasis on digitalization in Beiersdorf. We also set up our new and first digital factory to drive innovative digital ideas.

Point five, new growth platforms. We are putting great focus on our Eucerin, Hansaplast and La Prairie core brands in the future. We want to make these brands just as successful as NIVEA. At Hansaplast, in particular, we see great economic potential that has yet – not yet been successfully tapped. We are in an excellent position to expand our presence in this growing market segment with innovative products.

After all, our company has the experience and expertise generated by more than 130 years of research and development work in this area. The good figures for the first quarters are encouraging and make us confident that the plaster business will be an important company pillar in the future. With a very filled pipeline for 2017, we are going to achieve this.

In a few days' time, we will launch our first silicone soft plaster on the market. This product is highly advanced in terms of its development and manufacturing. Silicone Soft guarantees dependable ground protection and its removal is completely pain free. This makes the new type of plaster particularly suitable for sensitive skin.

To our guidance. Ladies and gentlemen, I would like now to conclude with our guidance for the 2017 financial year. Economic and political uncertainties likely will continue to exist this year. As a result, we do not expect any back wind from the wider economy. However, we are confident of our own strength and are looking ahead of the future with cautious optimism.

For Beiersdorf, our forecast is as follows: In financial year 2017, we expect sales growth in the Consumer business segment to outperform the market at 3% to 4%, the EBIT margin from operation is expected to slightly exceed the prior year figure. At tesa, we now anticipate sales growth of 4% to 5%.

The EBIT margin from operation is now expected to be on the previous year's level. Based on the forecast for the two business segments, we expect Group sales to grow by 3% to 4%, a slight year-on-year increase in the consolidated EBIT margin from operation is expected.

Ladies and gentlemen, thank you for your attention.

Jens Geissler

Thank you. So we will now start the Q&A session and we are happy to take your questions. Please remember a maximum of two for each participant please.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of Guillaume Delmas with BAML. Please go ahead.

Guillaume Delmas

Hi, good morning gentlemen. Three questions for me please. The first one is on your organic sales growth in Consumer. I mean, when I compare to your competitors that I've reported so far, there is clearly a acceleration in your level of outperformance. So, I guess, one is, is it sustainable and what's behind this? Is it a phasing of new product launches, I am thinking Sun Care or is it also a higher level of reinvestments from your efficiency gains?

My second question would be about the comments you made, Stefan, about the gradual improvements in Q1 months-after-months. Any reason behind that and have you seen that continuing into April?

And finally my last question is on the Latin America. Good Q1, almost surprising given the comments we're hearing about Brazil. It seems Brazil is good for you. Why are you performing so well in Brazil and do we still have a impact from Argentina in your Q1 numbers? Thank you.

Stefan Heidenreich

Good. Let me start, Guillaume. I mean, first of all, I think, we are very happy with the start here in the company on Consumer. Tesa I think, we will tackle later. The spirit is very high. I think, to your point, first of all, we had a good Q4 and the trend is continuing in Q1, that's the first message.

The second message, yes, month-by-month as I cited, is accelerating and the acceleration is continuing. I think this is driven by, in general – sorry, the third point is there is absolutely also no doubt that the markets are tough, very volatile, very uncertain.

I think, we, at Beiersdorf, now have a good understanding of what volatility and the uncertainty means, how to drive our brands. How to drive innovations and also efficiencies in this very difficult market. And we see that not only in some regions, we see it across the regions that the people with high spirit, with the right passion, with the right energy are going for it.

And obviously we have the brands, we have the innovations, which are all helping. But in general I think, we are pretty good set at the moment for the uncertainty and volatile world at the moment. I'm very happy with the markets, because markets are very tough and this also is a huge reflection in the market share. I know some of our competitors also talk about market shares.

When I look at my desk, I mean, we clearly in Q1 are the number one in market shares. I haven't seen anyone even near in our categories. Now when I say categories, it's our top six categories, I don't see the others but in these six categories, we are beating the competition.

On Latam, yes, I mean, Mexico was very good despite some political instability, but there that seems to be going on okay and Brazil was good. I remember, Brazil again is a trend which we see now for years. Yes, it's on a lower level than we've seen before, but it's still in the range – in the high single-digit range. We are very happy with that.

I think also their innovation in the deodorant market, but also innovation in other areas seems to hold off the market trends and so, we are very happy in Brazil and things are going on. On Argentina, Jesper?

Jesper Andersen

Yes. So in Argentina, as you know we have a more conservative plus realistic approach to how we account for Argentina and in the first quarter, no, we don't have any negative effects from Argentina. We are pleased with the organic growth and the real market growth in Argentina for us.

Guillaume Delmas

Very clear. Thank you

Stefan Heidenreich

Thank you.

Operator

The next question comes from the line of Celine Pannuti with JPMorgan. Please go ahead.

Celine Pannuti

Yes, good morning. It’s Celine Pannuti at JPMorgan. My first question, maybe comes back a bit to what Guillaume just asked earlier. You mentioned the innovation in Sun, the innovation in Men where the EMEA impacts – positive impacts on this innovation in the quarter? If you could quantify.

And could you also let us know, you said that your market shares are doing very well. What has been the market growth in Western Europe in the first quarter and what do you see overall for the year in terms of market growth on a global basis?

And then my second question is China. Growth has been slightly negative as you said. If you could give us a bit of color on the moving parts there? Thank you.

Stefan Heidenreich

Okay. So market growth, I mean, I think, we see, all competitors see the same trend in Europe. I would say in Europe, it's flat. Very different market-by-market. In France, it's difficult. In the UK, it looks a little lighter. But overall it's a flat market.

In China, it's a two-faced country for us. We have super excellent growth on ecommerce business. We even saw some leadership in some of the periods now in our most important category in NIVEA MEN. On the other side, the brick and mortar stores are going the other way around and overall, there is no growth in the market.

The growth we've seen in China is now between 0% and 5% depending on categories. So far below what we've seen before. We also don't expect that trend to continue, but the most important to take with you is it’s a two faced country at the moment, which has a very strong ecommerce boost and a tough market on the brick and mortar business.

Celine Pannuti

And could you also let us know if there were – you said that, the Sun Care has been very successful, was that an impact that drove – that had drove Europe in the first quarter?

Stefan Heidenreich

No, I think, honestly, the point is, you will see innovation in all segments. This year we are blessed. So we have innovations nearly in all segments coming. Yes, Sun is a highlight, because that's a breakthrough innovation technology, which you don't have every year. But also in Men and in Body and in Lip and in Shower even, we come with innovation over the years.

So I am very happy with the pipeline we are having. And as I said to you, there is more breakthrough innovations to be coming this year and most importantly, even also in the next year. So our pipeline is really full and we are looking ahead to the coming months.

Celine Pannuti

Thank you.

Stefan Heidenreich

Thank you.

Operator

The next question comes from the line of Iain Simpson with Societe Generale. Please go ahead.

Iain Simpson

Thank you very much. Tesa clearly had a very good quarter. I wondered if we could just dive a little bit more into the drivers of that. Your full year guidance kind of assumes that the runrate in the remaining nine months of the year is going to be a lot slower. And I just wondered how much of that first quarter was around specific product launches or contract wins and how much is sort of broader based acceleration in underlying demand? Thank you very much.

Jesper Andersen

Yes, so we are very pleased with the first quarter results and in tesa up 13.5%. I think what's important about the results, tesa is – it is really broad based growth from – growth in across the regions, but also across the different industries. And in particular, we saw a great performance in the automotive industry and we saw a recovery in the electronic industries in Asia in particular and there, we also have to remember that we are on a, let's call it an easier comp versus prior year.

So I think the takeaway here is that we are pleased with the performance in the first quarter. We are pleased that we are raising the guidance and it is based on a good, solid, broad based performance.

Iain Simpson

Thank you.

Stefan Heidenreich

Okay, thank you.

Operator

The next question comes from the line of Christian Weiz with Baader Bank. Please go ahead.

Christian Weiz

Yes, hello everybody. Yes, also a bit of a follow-up question. You have mentioned several times that you won market share and you highlighted a bit more on the Men's segment. Can you also elaborate with regards to the regions, but also the other segments and then possibly give us even an insight into which brands mainly won market share?

Stefan Heidenreich

Yes, I mean, it's basically, I mean, we are focusing on all four categories. I mean, four big brands, as NIVEA, Eucerin, Hansaplast and La Prairie. And obviously, NIVEA is the biggest franchise we are having. There the markets are clearly below the growth rates we are showing. You also saw a major competitor around 1% in our relevant categories.

So I mean, if we have three and they have one, then obviously we won market share. It's relatively simple. So - and that goes across the regions, as I said. So in the major markets, what we've seen in Russia, in India, in Brazil, to a lesser extent in China, I mean, we are seeing good market share acceleration as I told you and in Europe, the same is the case.

So, even in France, a big market for us, tough market, really tough market, but the significant market share gains from us and also a major feat for example, like face. So we are very happy with that one. Thank you.

Christian Weiz

Okay, thanks, and I mean, it's a bit contradictory what you say. You say that France is a very tough market on the one hand. On the other hand, you say that you are winning market share there. Did I get this right? It's mainly in the Face or can you elaborate a little bit on that?

Stefan Heidenreich

No, I mean, that's the market share. I mean, it's relatively simple. If the market goes down by minus 5% and you have the zero growth for example, just then obviously you are winning market share.

Christian Weiz

Okay.

Stefan Heidenreich

So it's not contradictory. It is relatively straightforward and I repeat, market is tough in France. We are doing better than the markets, winning significant market shares and one of the areas where we are winning significantly is Face.

Christian Weiz

Okay. Thank you.

Stefan Heidenreich

Okay. Thank you.

Jesper Andersen

Thank you.

Operator

The next question comes from the line of Marion Boucheron with Raymond James. Please go ahead.

Marion Boucheron

Hi, good morning. I have two questions please. One is regarding the guidance, as you're listing the one on tesa, I was wondering if there was any change in the sense in regarding the Consumer division? And secondly, could you elaborate a bit on North America in the Consumer division? The sales were declining this quarter. So I was wondering where did that come from. Thanks.

Stefan Heidenreich

Okay. The first question, I didn't get. Can you repeat the first question? I didn't get it really what.

Marion Boucheron

Yes, it's on your guidance. I understand it's still Q1, but as you were listing the one on tesa, I realized you are not changing the one Consumer, but I was wondering if you were maybe looking more for growth now in Consumer at the low-end of the guidance, regarding any change in the market trends, you mentioned it was declining. I think it was more like flattish before. So, just…

Stefan Heidenreich

Yes, I think the - to give you some color on that, it's – we have a philosophy and a policy also that, we tend to view a couple of quarters before we change guidances. At the moment, we are sitting on the 3% to 4%. That's the best we can give you at the moment. Tesa was so significantly up in the first quarter that we had to change guidance early on. I think it's the first time ever in five, six years that we changed guidance in the first quarter.

We have to be seen. At the moment I am very happy with the trends. But I would – it's the first quarter and the market is volatile and uncertain. So I would like to see quarter two, quarter three coming in and then we see – it's good this year to be cautious. But you see me cautious with a smile. That's what I can say.

On North America, what happened this year is as we are predominantly in the Body business, which was very strong for us in North America. Here the market was negative. Simply, the weather was too warm. So we would have liked to have a little bit more colder weather there. So that's why we had a slow start. But it looks, what we see now in March and April is on the right track. So I am not worried about the US, but it had definitely in Jan, Feb a slow start due to the weather.

Marion Boucheron

Okay, thank you.

Stefan Heidenreich

Thank you.

Operator

[Operator Instructions] We have another question from the line Pinar Ergun with UBS. Please go ahead.

Pinar Ergun

Hi, thanks for taking my questions. I have one on tesa, a follow-up to Iain's question actually. Some of your industrial peers are highlighting a positive impact from the extra trading days in Q1. Did you also benefit from that? And any guidance as to how much of a boost this might have been? And the second one is on Consumer. I know you don't disclose the precise volume and pricing split, but if you could please give us some color around how your volumes progressed in the quarter, particularly in Latam and Eastern Europe, where you delivered very strong growth? Thank you.

Jesper Andersen

Maybe I see, let me start with the tesa. Yes, we also had a couple of extra trading days and of course, that also plays into the performance and we will see that level out as we go through the year.

Stefan Heidenreich

Yes. I think, on – but also don't forget Easter comes later, normally, Easter lifts in the first quarter, which speaks for lower numbers. So, I mean, yes, so we are happy with the trend. Let's see how that goes. We are not, especially in tesa, we are not looking so much at trading days. We are looking at the overall trends and there is not much more to add.

On Consumer, there is a clear message, it is volume more than price, because at the moment, price increases - we get price increase issue. It's tough in a market, which is declining also tough in a market where material is not really significantly increasing. So it's more volume, but that's good, because volume in the end means more consumer and more consumer means more penetration, and more life time for the brand in the long run. So I am very happy with volumes, but it's less price and more volumes.

Pinar Ergun

Okay, thank you.

Stefan Heidenreich

Operator

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

Jens Geissler

Yes, thank you and thank you for having joined our conference call. Beiersdorf's next investor relations event will be the publication of our half year results on the 3rd of August. We appreciate your interest in Beiersdorf. Thank you and goodbye.

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