Beiersdorf AG Fireside Chat with JPMorgan Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Celine Pannuti - JPMorgan - Analyst : Thank you so much for joining us. And what I would like to do in the next hour is talk about Beiersdorf, Beiersdorf, Beiersdorf. Introduce to us the strategic development and how you are positioning the company for the long term. But also maybe if you allow me to ask with the short-term considerations. So if I think about Q1, you had a strong momentum, especially in consumer, and that's followed what was already a very strong 2022. If I think about it, the growth has been broad-based across brands and markets. Maybe just La Prairie, which we'll discuss, in China. So my first question is really on the guidance. For this year, you are looking at mid- to high-single-digit organic growth in the consumer segment. And given the strong start, that sounds quite conservative, not only because of strong Q1, but I also think you have been implementing pricing. So can you talk through us to the momentum you are seeing at the moment and whether the H2 implied slowdown is due to conservatism or whether they are key headwinds that we should keep in mind?

Question: Celine Pannuti - JPMorgan - Analyst : All right. So thanks, Vincent. It starts well. But yeah, picking on what you say effectively is China that has been a bit thematic. Of course, for you, for the beauty sector in general, but obviously from a macro standpoint, what we've seen is that despite the big enthusiasm initially, there's been a bit of a question mark about the speed of the recovery. So how do you see the environment unfolding for La Prairie in China? Are you still confident of a strong growth acceleration from Q2, given what you just said? And specifically, talking about travel retail, where you have been impacted in Q1, we also heard from EstTe Lauder that travel retail has been weaker than they expected. So if I think about La Prairie and travel retail, how do you feel about demand and stock level?

Question: Celine Pannuti - JPMorgan - Analyst : All right. Well, thank you for that. Maybe another key focus has been the pricing performance. If I look at the panel that we have available, I can see that pricing is close to double-digit increases. Are you done in terms of your price increases? Which I think you have -- a lot of them has been negotiated at the end of last year. But are you done -- as I look into '23 onward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2023 / NTS, JPM.N - Beiersdorf AG Fireside Chat with JPMorgan And also, when we are looking at our COGS tracker, we are predicting for the HPC group COGS deflation of 5% to 10% in '24. In these circumstances, are we expecting to see price -- are you going to give back prices? Or are you going to see -- or are you seeing increased promotion? And if you could contrast in your answer, what happens in DM versus EMs?

Question: Celine Pannuti - JPMorgan - Analyst : All right. Thank you. And if I also come back to what you said about the European -- focusing on the European mass market. So you said you back on shelf. We've seen in the panel that the growth has rebounded in Q1 versus Q4. However, we clearly see that there are quite some big volume declines, pricing is helping, and also some market share pressures. Are you seeing any changes to consumer demand or any elasticity or down-trading? How is the competitive landscape and discussion evolving with your retailers? And maybe just if you could also talk about the weather. I know tune is better. I'm in London right now. It's very hot. But has there been any impact on your sun segment?

Question: Celine Pannuti - JPMorgan - Analyst : All right. An area where maybe there is some clouds gathering is in the US, where we are seeing mixed development from your retailers, some of your -- some other consumer goods companies. And so I just want to -- and questioning about the consumer spending resilience in that market, so are you sharing these concerns as far as the US developments? And I think you have a policy to premiumize the US portfolio. How do you expect a Beiersdorf portfolio to behave in a scenario of macro weakness? You have big brands: the Eucerin, Aquaphor, or the luxury brands, La Prairie and Chantecaille?

Question: Celine Pannuti - JPMorgan - Analyst : Okay. Thank you for that. Maybe I'm rounding up on what we started with. So you said the conservatism potentially in your top-line guidance. I wanted to talk about the margin guidance for consumer for the year. You have guided to around 50 basis point operating margin increase. This seems to be quite conservative given what seems to be still a strong good momentum. But you don't see it cost deflation, but maybe the cost inflation is easing. So with this higher growth being realized, do you see an upside to that guidance, or would you balance that with reinvestment?

Question: Celine Pannuti - JPMorgan - Analyst : Okay. And maybe if we look at the last short-term question, talking about Tesa. It has been a modest start to the year. You are guiding for mid-single-digit growth and a slight decline in margin. Are you still confident that growth will bounce back given what we've discussed? China probably is a bit weaker than expected. And then if I think about commodity costs rolling over, is that adding an impact on that business being in terms of pricing or consumer destock? And what does it mean for the margin? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2023 / NTS, JPM.N - Beiersdorf AG Fireside Chat with JPMorgan

Question: Celine Pannuti - JPMorgan - Analyst : Thank you for that, Vincent. So as you mentioned, about a year ago, you had your Capital Market Day and you presented your strategy along with the new team with the ambition to grow above the market and to grow margin at least 50 basis point in consumer. And now, you know, obviously, we mentioned earlier that your performance has been strong. But if I look at the peer set in beauty and personal care, they also did very well. So it's difficult from here, from where I sit in the outside to appraise how much change has been going on in the organization. So could you please help us with example on what you consider as the step changes that should put Beiersdorf on track to deliver on your ambition of stronger and more sustainable growth? And conversely, whether there are still areas that need attention.

Question: Celine Pannuti - JPMorgan - Analyst : Right. You are mentioning Nivea, your biggest franchise. You were mentioning that you're growing high-single digits. So that's quite good to hear. At the same time, there's been a price in benefiting there. So when we think about the normalized environment, do you still think that mid-single-digit growth for Nivea in the foreseeable future is possible? Now, you mentioned that, you had a new leadership. Well, you answered already some of my questions. But in terms of (inaudible) innovation, is there any example you can give on how the turnaround has been acted? And then as you said, innovation and premiumization have been two area of focus. How has the franchise evolved under these two parameters?

Question: Celine Pannuti - JPMorgan - Analyst : Excellent. So maybe let me rebound on that, and open up on the US specifically as a market. So where you have Nivea, but also Eucerin and Aquaphor, and the luxury brands. Profitability has been quite low in that region. I think it has improved, but still, I think, quite low. So can you talk about -- of course, the avenue of growth that you seem to say, in face care with Nivea. But how you balance your growth opportunity with margin delivery. And can we, as well, talk about Coppertone specifically? I think you are also focusing on delivering margin performance there. How has this improved?

Question: Celine Pannuti - JPMorgan - Analyst : Excellent. Staying in the Americas, if we look at Latin America, which has been a very strong performance as well for you, can you talk about what has worked well and how you have repositioned the portfolio, I think especially from a premiumization standpoint? And should we be concerned about maybe a bit of a slowdown in the Latin American countries? Some other companies in other categories have been talking about trading down. So if you could talk about that, too.

Question: Celine Pannuti - JPMorgan - Analyst : Okay. Maybe now focusing on the lux brand. Now, we spoke already short term about La Prairie, but how should we think about the size of the growth opportunity you see for that brand, especially in China, and how you think about developing that opportunity? And then maybe, can we talk about Chantecaille, which you acquired now more than a year ago, and what kind of growth delivery are you seeing? I don't think you mentioned that at Q1. And can you talk about the international expansions for this brand? And yeah, do you have any more ambition in widening the portfolio in this segment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2023 / NTS, JPM.N - Beiersdorf AG Fireside Chat with JPMorgan

Question: Celine Pannuti - JPMorgan - Analyst : Thank you. Another area I want to discuss is the derma brands. These have been doing extremely well through COVID, even post-COVID, because of the innovation, but as well the appetite of consumers for this kind of brands. What is the scope for expansion that you see? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2023 / NTS, JPM.N - Beiersdorf AG Fireside Chat with JPMorgan And last year, you did expand with the launch of US, Eucerin Sun in the US. How has this been complementary or potentially dented Coppertone performance there?

Question: Celine Pannuti - JPMorgan - Analyst : Maybe to finish on some of the business discussion on China. So clearly there is opportunity that you see for Chantecaille. You talked about La Prairie, Eucerin. I would like to understand Nivea. What is the role that Nivea can play in China? Especially because it's more mass market position and we've seen consumer appetite in this price environment more towards the local brands. So if you could talk about this and yeah, if China is, I think, 5% of sales for Beiersdorf, how much really you aspire to be in China?

Question: Celine Pannuti - JPMorgan - Analyst : Thank you. Now let's round it up with talking about the margin. Your margin at 12.3% is currently one of the lowest compared to the sector peers. But then if I think about what we've been discussing so far, premiumization, launch of more of the luxury or the derma brands, it looks like this should be quite positive for margin structurally. So what do you think structurally you could achieve for the consumer division? And can you talk about gross margin? What would be the driver of that gross margin if you think about mix? And if you think about the manufacturing that you mentioned earlier, which I think is also contributing on that, if you could help us to quantify maybe that.

Question: Celine Pannuti - JPMorgan - Analyst : All right. So just to round up on that, so SG&A as a ratio was 34%, I think, last year. So on one side you have GA operational efficiency; on the other side, higher ANP, net-net, what's the direction of travel on that ratio?

Question: Celine Pannuti - JPMorgan - Analyst : All right. So maybe a few more questions before we arrive at the end. White spaces in terms of inorganic growth. So you already mentioned your interest into US lux brand, skin. Now I think at the beginning of the year, you were alluding that you were already working with something in the pipeline. So I was expecting that we would have an announcement. Is it still something in the pipeline or unfortunately it has passed? And then beside this area, can you talk about what are you focusing in terms of M&A? Do we need to see -- and the timing as well, I mean, is Chantecaille that you mentioned now a bit of a setback because of what has happened in the travel retail? Maybe we need to see first evidence before you can go and move to the next?

Question: Celine Pannuti - JPMorgan - Analyst : All right. And maybe to finalize, because you mentioned the Board, and definitively I wanted to talk about that subject. So you still have quite an obvious cash -- net cash position of more than EUR4 billion, and there was a bit of a steer caused early this year because the dividend payment per share wasn't changed. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2023 / NTS, JPM.N - Beiersdorf AG Fireside Chat with JPMorgan And the acquisition, yes, you have full support. But for now, we have not seen that much redeployment of cash into M&A. So I think investors are concerned that the balance sheet is not rightly utilized, and also this is weighing on your total shareholder return. Can you please address these concerns?

Question: Celine Pannuti - JPMorgan - Analyst : All right. Vincent, this was a very interesting conversation. We still look forward, nonetheless, to hear about more about China and Nivea at Q2 stage. Thank you so much for your time today.