Beiersdorf Aktiengesellschaft (BDRFF) CEO Stefan De Loecker on Q1 2020 Results - Earnings Call Transcript

Beiersdorf Aktiengesellschaft (OTCPK:BDRFF) Q1 2020 Earnings Conference Call May 5, 2020 3:00 AM ET

Company Participants

Jens Geissler - Head of IR and Corporate Treasurer

Stefan De Loecker - CEO

Dessi Temperley - Group CFO

Norman Goldberg - CEO of Tesa

Conference Call Participants

Richard Taylor - Morgan Stanley

Celine Pannuti - JPMorgan

Iain Simpson - Barclays Capital

Gian Marco - MainFirst Bank AG

John Ennis - Goldman Sachs

Jeff Stent - Exane

David Hayes - Société Générale

Chris Pitcher - Redburn Partners

Charles Eden - UBS

Operator

Good morning, everyone. I would like to welcome you to Beiersdorf's First Quarter Conference Call. This is Jens Geissler, and here with me in our Hamburg offices is our CEO, Stefan De Loecker; and our CFO, Dessi Temperley. We would like to share with you Beiersdorf's business results of the first three months of 2020. The main sales figures were already pre-released on April the 2nd. We will start as always with a brief presentation, which you can access through the link in your invitation. When you register for the Q&A, please remember that there is a limit of two questions per caller.

And with that, I will now hand over to Stefan De Loecker.

Stefan De Loecker

Thank you, Jens, and good morning, ladies and gentlemen. I'd also like to welcome you to today's conference call. Toady, we will report on a quarter, which was under very special circumstances in view of the current corona pandemic.

It was shaped by the beginnings and the subsequent spread of the coronavirus, which has changed and impacted the lives of society, consumers, and our business. From the very beginning, we focused on three things. First, protecting the health and safety of every employee around the world remains our highest priority; secondly, safeguarding and successfully continuing our business by adapting our offer to the rapidly-changing expectations and shopping habits of our consumers, while ensuring a stable supply capability; and thirdly, doing our utmost to help society battle COVID-19.

The corona pandemic has had a significant impact on our quarterly results. Group sales fell by 3.6% in organic terms. They stood at €1,910,000,000 in nominal terms, down 1.9% on the prior year figure. Sales at the Consumer Business segment declined by 3.3% and at the Tesa business segment by 5.1%. Our derma and healthcare brands have weathered the crisis well, and produced strong double-digit sales growth. At the same time, NIVEA suffered a slight decline. Our selective cosmetics brand, La Prairie, was hit particularly hard by the collapse of international travel and business in China, and recorded a 35.8% decline in sales.

The impact of the coronavirus crisis was reflected in particular in three areas of our business in the first quarter. First, the consumption behavior and consumers are changing. We're seeing far stronger demand for essential personal care products such as soap, hand wash, and hand cream. Thereby trusted and familiar brands gain preference. Spending significant more time at home drove a shift in media consumption, specifically increase of online. Secondly, the lockdown has dominated our lives and business over the past two months, and will have a longer term effect. The limited mobility paired with partial store closures drove online sales, both by existing consumers and by attracting new consumers who made their first experiences. When people went to brick-and-mortar stores, they try to limit their in-store time, and the size of the shopping basket increased. Sales effects from planned consumer activations in retail were delayed. Thirdly, as I mentioned, La Prairie, has been hit hard by the collapse of international travel. Markets of the tourism industry and area where we are active in particular with our sun protection products are suffering along with the travel retail business.

We immediately started to deploy measures to mitigate the impact of the corona crisis on our operations. We placed a special focus on the stable sourcing situation in order to largely maintain our accustomed high service level. Targeted cost saving initiatives will mitigate the long-term economic impact of the coronavirus crisis on our business. Apart from steps to reduce material costs and disciplined management of fixed costs, we've concluded our Solidarity Pact, an agreement that will also help us cut personnel expenses. I will return to that later. At this stage, we focus on what we can influence right now. We are determined to do everything we can to keep the company on this strategic course and adapt to the changes in this time of uncertainty.

The relevance and long-term orientation of our C.A.R.E.+ strategy strategy has never been so tangible as they are right now in this times of crisis. This is why we will continue to invest in the initiatives related to C.A.R.E.+ in spite of the huge economic challenges we face in digitalization, skincare innovations, and the tapping of new growth markets. We're all doing all this in a responsible and sustainable matter, given our determination to continue to significantly boost our contribution to sustainability. We remain committed to C.A.R.E.+, resolutely without compromise.

Ladies and gentlemen, in recent weeks, our teams have been working around the world to remain close to our consumers during today's challenging times, and to provide them with the very best support possible. We have adapted agilely to changing consumer needs, rework media plans, and modified our product assortments. Values like trust and caring for one another are becoming important once again, and care is exactly the thing that has characterized Beiersdorf for more than 135 years. We fulfill consumer wishes in the best possible way, if we maintain a close relationship with our consumers. This is why we focus on a digital dialogue with consumers, a practice that has never been so important as it is today.

More than ever, consumers are using digital media of searching for suitable skincare products, and are buying them online. First, it was clear long before the COVID-19 pandemic, the rapid expansion of digitalization is a key success factor. For this reason, we boosted our investments in digital media about 43% in the first quarter. We were able to significantly boost ecommerce in the first quarter of 2020, even before the virus began to spread around the world. We increased our sales here by 23%.

In mid-April, we introduced our new web app, a digital innovation. This app is able to virtually determine the individual skin needs of female users. The NIVEA skin guide draws on the results of this analysis to inform users about their skin's true needs. With the apps help, consumers gain personal care tips, and individual product recommendations. The app is based on the research data of more than 10,000 women. A total of 12 million photographs are evaluated on the basis of 11 parameters that included redness, depth of wrinkles, and skin impurities. Information about lifestyles and care habits flow into the evaluation as well. This new digital tool will significantly improve skin diagnosis for women around the world. It will also bring us even closer to our female consumers and their individual skincare needs. This will enable us to provide personalized assistance based on individual needs right at home.

We also made progress in the area of innovative skincare during the first quarter. At the annual press conference, we held last week -- I'm sorry, at the beginning of March, I already mentioned, the revolutionary Eucerin anti-pigments range with a patented ingredient Thiamidol that fights hyperpigmentation has been one of the most successful product introductions in Beiersdorf's history. The product range helped to significantly fuel growth in the Derma segment during the first quarter of 2020. Sales generated by the Thiamidol product range jumped by 43% compared to the previous year. Eucerine anti-pigment is and will remain the market leader in the even skin category, and already enjoys a high level of acceptance among consumers. This huge success was also the reason why we presented a new launch with the Thiamidol ingredient in Q1, Eucerine Sun Pigment Control LSF 50 Plus. This new product not only protects skin from harmful UV radiation and its effects, but also helps visibly to reduce pigment spots. We are preparing other market introductions in the area of sun protection care for 2020.

Ladies and gentlemen, changing consumer needs in regards to naturalness and sustainability prompted us to expand our line of care products that are made of natural ingredients. This crisis will not change that either. We entered the growth segment of natural cosmetics with the new NIVEA Naturally Good Line in Europe at the end of 2019. This range compromises products that are made up of at least 95% natural original ingredients and has beaten our expectations. We're also getting great feedback from consumers themselves. The NIVEA Naturally Good Line is now being sold in 28 countries in Europe. Other countries outside Europe will be added later this year. We also plan to add other product categories to this care line in the future, including deodorants as well as anti-aging and skin cleansing products, and will remain committed to total transparency and uncompromising quality.

Over the past few months, I've already presented our Oscar&Paul Venture Capital Fund to you in more detail. The unit invest in companies and start-ups, and gives us further access to promising technologies, new business models, or skincare innovations. Today I like to announce our latest investment to you. Our stake in the British company, Salford Valve Company Limited, Salvalco, it represents an investment in sustainable valve technology and business' sustainable packaging solutions. Salvalco develops innovative aerosol valves or Eco-Valves. This Eco-Valve Technology facilitates the use of environmentally-conscious propellants, including fresh air and nitrogen. It presents a sustainable alternative to conventional aerosol propellants, and fits right into our new sustainability agenda, Care Beyond Skin, and the commitment we have made as part of C.A.R.E.+. We attempt to jointly expand the reach of this promising and patented technology. We plan further to use sustainable valve solutions in our own global pipeline as well.

Ladies and gentlemen, I mentioned to you at the beginning, Beiersdorf took actions at the very early stage to protect these employees during the COVID-19 pandemic. Working from home was a major part of this effort, just one of the many steps we took, fast and agile. We have also provided the largest globally-coordinated humanitarian aid program in our company's history. It is €50 million program aimed at supporting the battle against COVID-19. It is also an expression of our purpose, Care Beyond Skin. We converted individual production lines on five continents, to produce medical disinfectants in the shorter space of time. We provided hospitals and medical personnel with 1 million liters of disinfectant. We have also distributed 5 million skin and healthcare products around the world that medical personnel can use to treat their particularly stressed skin, in gratitude for their tireless efforts during this difficult time. We are providing direct financial support to the global and local relief projects of our partner organizations and also helping by doubling the personnel, with the donations made by our employees to international aid organizations.

Safeguarding our business during the crisis is another top priority that we have set in addition to protecting our employees' health and providing immediate relief assistance. In order to cushion the potential financial effects on Beiersdorf as best as possible, and with Foresight, we are planning savings particularly in the area of material costs. We have also adopted an agreement known as a Solidarity Pact, so as to achieve the likewise necessity comes in personnel expenses in a balanced way with a spirit of solidarity, because solidarity is the core that will get us through this crisis together. Also Solidarity Pact means we bear the burden and the crisis together. So, a solution in order to safeguard jobs long-term during the pandemic, continue our C.A.R.E.+ investment, so as to future proof our business, and to express the solidarity and spirit of community among all Beiersdorf employees. In order to jointly support this far reaching measures the scale of solidarity contribution is differentiated according to the employees' pay grade.

The further development of this crisis is still difficult to predict. It may be that the situation worsens before things pick up again, but I can clearly state one thing today, Beiersdorf's foundations are strong. We will march and overcome this unprecedented crisis together. We are all doing all in our mind to emerge from this exceptional situation stronger.

I'd like now to hand over to Dessi Temperley, who will present the financial results for the first quarter.

Dessi Temperley

Good morning to everyone from my side as well. Let me start with the few figures of the Beiersdorf Group and by our business segments. Group sales decreased organically by 3.6%, a combination of negative foreign exchange impact of 0.7% and positive structural changes of 2.4% set to nominal growth of minus 1.9%, consumer sales decreased organically by 3.3%. M&A had a positive net effect of 3%. While foreign exchanges are negative 0.7%. This led to a development of nominal sales of minus 1%. So the sales, decreased on a like-for-like basis by 5.1%, including negative FX impact of 60 basis points as the reported long-term growth of minus 5.7%.

Taking now a close look at the sales development of our consumer business, on the strong organic growth base of Q1 of last year, we now report an organic sales decrease of 3.3% for the first quarter of 2020. As a reminder, the self-growth of Argentina is calculated based on current year average exchange rate. Therefore reported organic growth includes the continuous devaluation of the Argentine pesos, if the sales growth of Argentina [technical difficulty] base as per our other countries, the consumer organic sales declined probably at 3%.

So, now move to our performance by region, starting with Europe. Sales in Europe decreased organically by 6.8%. Western Europe sales slowed down on a like-for-like basis by 9.6%. The main reason being significantly weaker sales in March in earlier lockdown countries like France, Italy, and Spain. And equally important factor was the collapse of the travel retail business, which had a major negative impact on the sales of La Prairie. Beyond the Travel Retail segment, the majority of our La Prairie doors were closed in March. In many countries La Prairie has online sales only during that period. On a positive note in Germany, despite the difficult overall conditions, we saw good growth in the first quarter. Eastern Europe received strong growth of 5.4%, despite this challenging environment. This growth was mainly driven by Poland and Russia while Ukraine, Romania, and Hungary, also performed rather well.

In the Americas, our top line growth by 10.6% on a like-for-like basis. Adjusted for Argentina reported that the constant currency growth would have been at 12.7%. Our business in North America delivered organic sales growth of 1.3%. Strong growth in derma was offset by the reduction of La Prairie sales in the U.S. The nominal growth of 48.1% in North America is related to the additional sales from the Coppertone acquisition. In Latin America, we saw sales increasing by 18.9%. Adjusted for Argentina at constant FX, we delivered even higher growth of 23%. In Brazil and Chile, we reported strong double-digit growth rates, with very solid performance rates in the rest of the continent as well.

Lastly, in the Africa, Asia, and Australia region, sales decreased organically by 5%, the negative result was impacted significantly by the contraction of our La Prairie business in Asia. Looking at individual countries, India had the strongest negative growth momentum in March, particularly after they imposed lockdown restrictions. On the other hand, Malaysia and the Philippines continued to have strong double-digit growth.

Turning now to our Tesa business, the impact of the corona crisis on the global economy was most strongly felt in our Tesa's division, where we saw a like-for-like sales decline of 5.1% in Q1 of this year. The direct industry segment was materially impacted by the slowdown in both the automotive and the electronics industry. Resuming activities by the Chinese electronics manufacturers, towards the end of the quarter had some mitigating positive effect as all this picked up in March, and the full quarter growth in direct industries decelerated by 8.5%. The trade market segments showed a more resilient development held by the Do It Yourself segment, and online sales with flat like-for-like sales compared to Q1 of 2019.

This concludes my comments regarding first quarter sales. Now I hand back over to Stefan for his closing remarks.

Stefan De Loecker

Thank you, Dessi. Ladies and gentlemen, under normal circumstances I would comment on our guidance for the current fiscal year 2020 at this point, a reliable estimate is not possible at present due to the coronavirus crisis. These dynamics and the numerous factors influenced by it. Nevertheless, I'd like to highlight a number of points with regard to fiscal 2020, and the past recent month. As mentioned in the outset, we can see a shift in consumer and shopper behavior during the crisis. We cannot put a figure on the long-term impact, but one thing is certain, the coronavirus will leave a mark, also in light of the anticipated recession.

We mitigate the long-term economic impact of the coronavirus on our business by means of targeted cost saving initiatives. Under the Solidarity Pact, I talked about before, we advise of our taking an approach that strikes a healthy balance between future proofing our company and broad solidarity, while explicitly declining to use the personnel measures and tools available to us this crisis, we're well positioned in the crisis to ensure a reliable supply chain and supply situation. The economic consequences of the Coronavirus crisis will also be starkly felt by Beiersdorf in the second quarter. However, it's not possible to plan what will happen in fiscal 2020 with any degree of accuracy. We have to focus and focus on what we can influence now and what we can improve from consumers and society.

Ladies and gentlemen, tough times are ahead of us. We cannot see into the future. But I want to repeat, we have a strong financial position and are steadfastly determined to do everything we need to stick to our strategy and steer Beiersdorf through this crisis. It's in our own hands to keep acting as resolutely and also as responsibly as we have previously done and did before the crisis. That is the essence of our company. As we adapt to this change, the principles of our C.A.R. E.+ strategy remain the same. We're a consumer-centric company that arose and fulfills the wishes of consumers worldwide, digitally in skincare and sustainably.

Thank you for your attention, and now I'll hand over to Jens for the Q&A session.

Jens Geissler

Thank you. I will start the Q&A session and take the questions. Please remember that we have a limit of two questions per caller.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Richard Taylor with Morgan Stanley. Please go ahead.

Richard Taylor

Good morning, everybody. It's Richard Taylor here from Morgan Stanley. Thanks for the questions. Just three for me please, first of all, I'd like to ask about what the current situation means for your Coppertone plans, particularly for 2020, are they delayed, and also for other M&A opportunities? I suppose most people will think that this environment is conducive for other M&A opportunities. So, any color you can give on your pipeline or opportunities? And then secondly, I think you hinted back at the launch of the C.A.R. E.+ plan that you're a bit behind where you'd like to be on e-commerce, and I'm particularly thinking of La Prairie, which appears to be in this quarter impacted more than some of the competitive brands in terms of the like-for-like sales growth. So, can I ask, is that because the digital offering on La Prairie is not where you'd like it to be versus peers, and how long do you think it will take to get to where you'd like it to be?

Stefan De Loecker

Thank you for the questions, Richard. On the two topics, first, Coppertone; Coppertone in sun in North America is obviously facing the same uncertainty as the other sun business and as such. It's hard to predict what exactly will happen. The impact on Coppertone as a business is first, as far as the integration of the plans are concerned, that goes continuous unchanged. They're on track. We continue pushing them as we planned originally. Obviously, as far as we can execute part of these plans will depend a lot on what the possibilities will be in executing and activating during the sun season 2020. What the impact on M&A is, I think as far as M&A activities or plans is concerned, I refer to my almost standard statement, it remains a part of the strategy. We're obviously observing opportunities that might arise during this crisis or in the following month, but it's hard to comment now on what actually might happen or not happen.

On the C.A.R. E.+ plan, that I would summarize that there's certainly further potential in e-commerce for La Prairie, and that is where we're working on as such, and that potential obviously is increasing due to the crisis as such. We're working very hard on that, and in the coming month you will see a number of initiatives also coming online.

Richard Taylor

Thank you.

Operator

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

Stefan De Loecker

Good morning, Celine.

Celine Pannuti

Yes, good morning, and two questions. So first, I want you to understand a bit Western Europe better and especially NIVEA. So, could you give us a bit of an idea of how NIVEA performed, how much down it was? And am I to understand that you saw a negative impact from lockdown, you didn't see any stocking, I mean, was Germany good because of stocking you think or net-net you think it was a negative? And on sun care, you just mentioned Coppertone, how big is sun care and how should we look at Q2 for NIVEA, and should we basically write-off most of the sun care sales? That's my first question. My second question is trying to understand the different building blocks on the margin. So, is it possible to understand the mixed negative impact, I mean on H1 to start with, because I don't know how much visibility on for the year, but for H1, then you get to mix impacts from La Prairie from sun care, and then against that, the positive cost containment, and I presume as well, Tesa as well will see some negative impacts from operational de-leveraging, so, understanding all those moving parts and the net impact on H1. Thank you.

Stefan De Loecker

Thank you for the question, Celine. On the first question, in NIVEA in Europe, the situation in Europe, as you know has been very differentiated, I would say, both in the phasing of the crisis and in the impact on consumers and shoppers. We see that part of Europe and many in Southern Europe has been impacted by real lockdown, number of reduced distribution mainly. The other part of the impact comes and that's the majority impact is also by the fact that a lot of the activation plans have been postponed. The activation obviously in-store has been focused on other categories and that links to what you mentioned further is that the stockpiling on pure essentials is not very significant for us. It's more an impact of not being able to activate then it has an impact on the fact that we would product categories would have been stockpiled, such as these categories of hygiene essentials is relatively limited in our business.

Sun care is one of these areas that are very difficult to predict because a number of variables that will influence the sun season apart from the usual weather obviously, is what actually is going to happen with tourism, both inland tourism in a number of countries as real travel tourism. We've seen that in Germany for example, at the end of March, the sell-out with the great weather has been quite good. But that's obviously without the traveling that followed that in April, so it's hard to predict. You're obviously looking and activating as much as we can, the sun season. But really predicting on how it is going to impact Q2 and Q3 is in my opinion, at this moment impossible to forecast.

Dessi Temperley

Celine, good morning, and thank you for the second question as well on margin, yes, we're seeing strong headwinds, no doubt, which are difficult to quantify precisely at that point. However, indeed, they're linked to mix specifically from La Prairie but also which by the way as we have spelled out in the past is highly accretive, and clearly the reduction in H1 is going to have a reduction in sales, will have significant impact and a significant put pressure on our gross margin. Also, what we do see is more growth in the market in personal categories compared to the skin care ones and again, the personal care ones have relatively lower margin versus the average for the company.

The second impact in H1 and that we expect specifically in Q2 is going to be deflationary price pressures. At the same time, I should say that we really are taking all the mitigating actions and measures possible at that point, we continue with our Value Engineering Program which is part of C.A.R. E.+ and just continue with our optimization, manufacturing footprint delivering cost savings as well, we are literally leaving no stone unturned when it comes to also savings in personnel and non-personnel costs in order to be able to mitigate the impact on the gross margins from the external headwinds which we currently have in the business and we're very proud of what we delivered in terms of gross margin improvement in 2019 to 60 basis points, and again, we don't want to lose that. We will continue throughout 2020 to get size with we can this external headwinds we see at the moment.

Celine Pannuti

Thank you very much.

Jens Geissler

Thank you. We'll move on to next questions please.

Operator

The next question is from the line of Iain Simpson with Barclays. Please go ahead.

Iain Simpson

Thanks very much. Good morning. A couple of questions from me, please. Firstly, I wondered if you could just talk us through what's happening in Brazil, clearly going very well for you at the moment, perhaps a bit better than some other companies are experiencing down there. So, any color you can give on that market would be very helpful? And secondly, it's quite a few years with no real M&A from Beiersdorf, and you've now announced a number of transactions in the last year or so, most recent, this packaging thing. I mean, I'm assuming it's quite small but it's still an investment. I wondered if you could just talk us through in general terms, how your strategy has changed there and why we're seeing a number of transactions after probably 10, 15 years with nothing. Thank you very much.

Stefan De Loecker

Thank you. In Brazil, I think that we, over the times of the Brazilian crisis endured, we took a number of important decisions going forward. One of them is the real focus on where we can actually win and with an impact on the portfolio strategy, we set up a new organization in line with that strategy and that going forward and also, we obviously took all decisions on -- finished the expansion of the Itatiba factory, which allowed us to increase not only capacity but also capabilities in implementing the plan as such. So, that plan is being coming together very nicely in these circumstances, therefore we've been able to grow materially in Brazil over the last, I would say one and a half year now.

As far as M&A activation is concerned, the strategy remains as we announced last year, we've clearly identified which are the strategic pillars and the future of Beiersdorf in digitalization, in innovation, in sustainability. And our focus for M&A is exactly in this area, if we find possibilities to accelerate these pillars, then we would obviously act. Therefore we've aligned our search fields in that direction, and set up organizationally as well to be able to capture the opportunities that might arise, and finally also to decisions to go for it, and I think these three points are the ones that have led to the, to where we are today and will continue to guide us in the coming months.

Iain Simpson

Thank you very much.

Stefan De Loecker

Thank you.

Operator

The next question is from the line of Gian Marco with MainFirst. Please go ahead.

Gian Marco

Thank you. Good morning, everybody. And two questions for me please, the first one is a follow-up also on the Latin American sales. I'm really positively surprised by the strong performance, And you also mentioned some background information already, but can you also give us some more light about what changed in the consumer behavior there, doing really such a -- or bringing really such a big difference now in the grow in Brazil and the second question is just in relation to the strong fluctuation we see in the oil price currently. So, can you also give us some more detail there about the potential negative impact of pricing related growing pace for example, and also probably on your margins for 2020? Thank you.

Stefan De Loecker

I think it was a question on the Latin American sales, consumer behavior and shopping behaviors always been extraordinary volatile in Latin America. It's an area as we all know this is not foreign to any kind of crisis, and also for Q1 particularly, we also have to realize that the coronavirus impact has been very limited until now in Latin America. We will see a lot more impact. We saw a bit at the end of quarter one, but obviously that will come in Q2.

In total, in Latin America, focusing I think what I said in Brazil is very radical for Brazil, but it's driving the same thing. I think the key areas of the focus where we want to win, the ability to also put the innovation locally, relevant innovation into the market with the investments we took, and certainly also the decision we took to focus on NIVEA and what we can do in Derma, which is -- it's an important market in Latin America, Derma Cosmetics, and the fact that we focus on that one. For example, we started now one-and-a-half years ago with our Eucerin business in Brazil, which has been driven by the innovation and by the approach that we've seen somewhere else has all contributed to the growth in Latin America.

Dessi Temperley

And on the second question, on the impact of the oil price, yes, indeed, the collapse of the oil price have clear deflationary pressures both in consumer, and especially on the Tesa business. No doubt, the price pressures are there and typically on the direct industry business of Tesa. At the same time, in Tesa, we are taking exactly the same level of cost measures, as we doing consumer and we are looking at both input costs reductions especially where these can be now negotiated and fast and as well as personnel, non-personnel costs being reduced. We have the same recruitment freeze, so which Stefan earlier mentioned for both businesses. So there we are working as much as we can in order to minimize the impact from the deflationary price pressures, which are very clear now.

Gian Marco

Thank you, and all the best.

Stefan De Loecker

Thank you.

Dessi Temperley

Thank you.

Operator

The next question is from the line of John Ennis with Goldman Sachs. Please go ahead.

John Ennis

Good morning everyone. My first is a follow-up on sun care. I wondered if you could comment on recent trading in April and then just give us what proportion of your annual sun care sales usually fall into 2Q. And then my second was on La Prairie. Can you comment on the margin implications when you have store closures? Maybe you could give us a sensitivity with respect to the fixed cost proportion of its business unit and then maybe some steer on the profitability level in 1Q. Could you confirm, for instance, the La Prairie was still profitable in the first quarter? Thank you.

Stefan De Loecker

On the question regarding sun care such at this moment in April, it's under last year, and for the main reasons I already quoted is activation as such, even if the sun has been shining, activation on sun care is not at a preseason normal level as far as presence in store is concerned and priority by consumers as such. So that is situation in April going forward. On La Prairie, I hand over to the Dessi.

Dessi Temperley

Yes. So, in terms of the margins linked to the La Prairie and the door closures, pricing of La Prairie is very much aligned, so the gross margins from the doors is very similar to the average gross margin of La Prairie all together. So in terms of gross margins in La Prairie that is neither doesn't change significantly the level of a gross margin. In terms of the question, that La Prairie is still profitable deduction is -- it is still a very profitable business in Q1.

John Ennis

Okay. Thank you.

Stefan De Loecker

Thank you. We move to next question please.

Operator

The next question is from the line of Jeff Stent with Exane. Please go ahead.

Jeff Stent

Hi. Good morning, just one question from me, for Stefan. Stefan, when you came in, I remember that you said that a lot of us weren't familiar with you, but when you make a promise you deliver. And with respect to the 2023 targets, both top line and margin, can we assume that you intend to continue to deliver?

Stefan De Loecker

That's a simple question with a simple answer. Yes. We intend to continue to deliver by 2023.

Jeff Stent

Great, thank you.

Stefan De Loecker

Thank you.

Operator

The next question comes from David Hayes with Société Générale. Please go ahead.

David Hayes

Good morning. I also just -- just on La Prairie, the monthly progression, can you give us a feel for the [technical difficulty] and I guess, specifically towards the end of March, what kind of recovery you're seeing in Asia, both in terms of travel retail and domestically? Thanks so much.

Stefan De Loecker

Well, the development of La Prairie, we've seen that as the crisis peaked in China in January, February, we saw that stores opened again, very good sell out from the stores that were opened in China that we see. We do not see at this moment or certainly not in the first quarter and real development on the travel retail to give you a little bit of flavor at the depth of the crisis over 90% of the 93% of stores were closed. At the end of the quarter, we were -- I think at 86 or something. So it's albeit small, but an improvement and the sellout per store has been as be very good in Mainland, China.

David Hayes

Thank you.

Stefan De Loecker

Thank you.

Operator

The next question comes from the line of Chris Pitcher with Redburn. Please go ahead.

Chris Pitcher

Hi, good morning. Thanks very much. Could you give us an update on where your innovation and development plans off for Coppertone and whether the potential loss of a North American summer season impacts that development, whether this was a spill a year of sort of research and development rather than real execution? And then secondly on NIVEA, can you give us a sense of how your production has adapted? Are you like many companies reducing the number of SKUs you're producing and perhaps getting some manufacturing efficiencies on the back of that? Thanks.

Stefan De Loecker

As I said before, the Coppertone plants continue to develop. The execution is obviously a question mark. We will depend a lot on what happens in the summer and now in how far we can execute, for example, new innovation et cetera. So that is a question mark to be marked. So it's more in phasing issue as such on supply chain, but the focus has been to keep up the service level that we're used to and that largely is still the case. We have a network that allows us to have a good degree of flexibility, and obviously with the investments over localization over the last five years has made us a lot more robust to anticipate these kinds of changes, that obviously there has been planning volatility in certain categories like soap, which is a relatively small category with big spikes has influence our service level. But that is, as I said more from a planning point of view than from a capability point of view. As such, we continue to focus on efficiencies in production, in assortment, but there had not to be upped specifically during the crisis at this moment. Factories also worldwide are producing as far as local regulation. There is not stop doing so.

Okay, then, you are fine. Then we move on to the next question.

Operator

The next question is from the line of Charles Eden with UBS. Please go ahead.

Charles Eden

Hi. Good morning. So you provided a useful statistic that I think 86% of luxury doors are closed at the end of the quarter. If we look at the Tesa business, do you have a sense of the percent of your customers in direct industries that are currently not producing the tool due to lock up? Thank you.

Stefan De Loecker

Okay. I have not completely -- I'm sorry -- I did not completely pick up the question, percent of direct industries, not asking for products.

Charles Eden

Tesa related. That is a question here.

Stefan De Loecker

Well, we do have the CEO of Tesa also on the call, Norman Goldberg, is here with us in this virtual room. Norman, you have a brief answer to this one?

Norman Goldberg

Yes. Good morning everybody, Norman Goldberg here. You asked about the direct industries at the moment, not producing direct industry is mainly impacted in the automotive area, the automotive industry, but we have shutdowns in North America. You've seen the news about shutdowns also in Europe. We expect those shutdowns in the automotive industry to continue for roughly altogether four to six weeks. The overall automotive, let's say, tear off of Tesa is one about less than one-third. So, you can imagine that is of course, a certain impact, but as I said, with some of the plants opening in the next few weeks already, we expect sales also to continue to that. Thank you.

Charles Eden

Thank you.

Stefan De Loecker

Charles, you are good.

Charles Eden

Yes. Thank you very much.

Stefan De Loecker

Okay, thank you. I don't see any other callers.

Operator

At the time, there are no further questions. I'd like to hand back to Mr. Jens Geissler for closing comments.

Jens Geissler

Okay. Well, 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 August 06. We appreciate your interest in Beiersdorf. Thank you and good bye.