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Edited Transcript of BEI.DE earnings conference call or presentation 27-Apr-17 7:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Beiersdorf AG Earnings Call

Hamburg Apr 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Beiersdorf AG earnings conference call or presentation Thursday, April 27, 2017 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jens Geissler

* Jesper Andersen

Beiersdorf Aktiengesellschaft - CFO and Member of the Executive Board

* Stefan F. Heidenreich

Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO

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Conference Call Participants

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* Celine A.H. Pannuti

JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst

* Christian Weiz

Baader-Helvea Equity Research - Analyst

* Guillaume Gerard Vincent Delmas

BofA Merrill Lynch, Research Division - Director

* Iain Simpson

Societe Generale Cross Asset Research - Equity Analyst

* Marion Boucheron

Raymond James & Associates, Inc., Research Division - Financial Analyst

* Pinar Ergun

UBS Investment Bank, Research Division - Executive Director and Lead Research Analyst for Household, Personal Care and Manufacturing

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I am Jota, your Chorus Call operator. Welcome, and thank you for joining the Beiersdorf Investor and Analyst Conference Call of the First Quarterly Statement, January to March 2017. (Operator Instructions)

I would now like to turn the conference over to Mr. Jens Geissler, Head of Investor Relations of Beiersdorf AG. Please go ahead.

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Jens Geissler, [2]

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Thank you, Jota. Good morning, everyone, and welcome to Beiersdorf's First Quarter Conference Call. This is Jens Geissler. With me this morning are Beiersdorf 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 face 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.

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [3]

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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 3 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 EUR 1.801 billion. Nominal group sales were up 7.7% on the previous year's figures of EUR 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 EUR 277 million to EUR 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 industry. In Asia, sales in the electronic business have 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 3 months of the year at EUR 1.484 billion. Nominal sales were up 6.3% on the previous year's figure of EUR 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 a 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 Argentinian currency's decline in value negatively impacted sales growth.

Sales growth of 3.5% was achieved in Africa/Asia/Australia region, this was mainly driven by a very healthy performance in India. In China, sales were 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 is a 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 #1 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 3 months of this year, we highlighted our claim to set a new standard or a new trend in the skin care market, so 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. They are 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 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 5 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 product 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've 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 uncertainty 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 to 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 2 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.

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Jens Geissler, [4]

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Thank you. So we will now start the Q&A session and we are happy to take your questions. (Operator Instructions)

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Guillaume Delmas with BAML.

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Guillaume Gerard Vincent Delmas, BofA Merrill Lynch, Research Division - Director [2]

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Three questions for me, please, the first one is on your organic sales growth in Consumer. I mean, when I compare it to your competitors that I've reported so far, there is clearly an 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'm thinking sun care. Or is it also a higher level of reinvestment from your efficiency gains? My second question would be about the comments you made, Stefan, about the gradual improvement in Q1 month-after-month. Any reason behind that? And have you seen that continuing into April? And finally, my last question is on 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 an impact from Argentina in your Q1 numbers?

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [3]

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Good. Let me start, Guillaume. I mean, first of all, I think, we're 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's 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 shares. I know some of our competitors also talk about market shares. When I look at (inaudible), I mean, we clearly in Q1 are the #1 in market shares. I haven't seen anyone even near in our categories. Now when I say categories, it's our top 6 categories, I don't see the others. But in these 6 categories, we are beating the competition. On Latin, yes, I mean, Mexico was very good despite some political instability, but there are -- that seems to be going on okay. And Brazil was good. I remember, Brazil again is a trend, which we've seen 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're very happy with that. I think also their innovation in the deodorant market, but also innovation in other areas seem to hold off the market trends, and so we're very happy in Brazil and things are going on. On Argentina, Jesper?

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Jesper Andersen, Beiersdorf Aktiengesellschaft - CFO and Member of the Executive Board [4]

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

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Operator [5]

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

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Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [6]

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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 impact -- positive impact on this innovation in the quarter, if you could quantify. And could you also let us know, you said that your market share 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.

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [7]

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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 U.K., 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 e-commerce 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's no growth in the market. The growth we've seen in China is now between 0% and 5% depending on category, 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 a 2-faced country at the moment, which has a very strong e-commerce boost and a tough market on the brick-and-mortar business.

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Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [8]

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All right. 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 drove Europe in the first quarter?

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [9]

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No, I think, honestly, the point is you will see innovation in all segments. This year, we are blessed. We have innovation 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'm very happy with the pipeline we're having, and as I said to you, there are 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're looking ahead to the coming months.

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Operator [10]

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

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Iain Simpson, Societe Generale Cross Asset Research - Equity Analyst [11]

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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 run rate in the remaining 9 months of the year is going to be a lot slower. 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.

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Jesper Andersen, Beiersdorf Aktiengesellschaft - CFO and Member of the Executive Board [12]

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Yes, so we are very pleased with the first quarter results and in tesa are up 13.5%. And 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 industry 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're pleased that we're raising the guidance and it is based on a good, solid, broad-based performance.

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Operator [13]

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

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Christian Weiz, Baader-Helvea Equity Research - Analyst [14]

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Yes, mine's also a bit of a follow-up question. You 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 possibly give us even an insight into which brands mainly won market share?

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [15]

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I mean, it's basically, I mean, we are focusing on all 4 categories -- I mean, 4 big brands as NIVEA, Eucerin, Hansaplast and La Prairie. 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 3 and they have 1 then obviously we won market share, it's relatively simple. 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're 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 significant market share gains from us and also a major feat, for example, like face. We're very happy with that one. Thank you.

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Christian Weiz, Baader-Helvea Equity Research - Analyst [16]

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Okay. 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're winning market share there. Did I get this right, it's mainly in face? Or can you elaborate a little bit on that?

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [17]

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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 0 growth, for example, just -- then obviously you're winning market share, so it's not contradictory. It is relatively straightforward. And I repeat, market is tough in France. We are doing better than the market, winning significant market shares and one of the areas where we're winning significantly is face.

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Operator [18]

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

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Marion Boucheron, Raymond James & Associates, Inc., Research Division - Financial Analyst [19]

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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 was wondering where did that come from.

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [20]

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

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Marion Boucheron, Raymond James & Associates, Inc., Research Division - Financial Analyst [21]

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Yes, it's on your guidance. I understand it's still Q1, but as you were listing the one on tesa, I realized you're not changing the one on 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 thinking about that.

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [22]

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Yes, I think, 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 guidance. At the moment, we're 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 5, 6 years that we changed guidance in the first quarter. We have to be seen -- at the moment, I'm 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 2, quarter 3 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 we're -- as we're 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'm not worried about the U.S., but it had definitely in Jan, Feb a slow start due to the weather.

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Operator [23]

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(Operator Instructions) We have another question from the line Pinar Ergun with UBS.

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Pinar Ergun, UBS Investment Bank, Research Division - Executive Director and Lead Research Analyst for Household, Personal Care and Manufacturing [24]

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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 Lat Am and Eastern Europe where you delivered very strong growth.

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Jesper Andersen, Beiersdorf Aktiengesellschaft - CFO and Member of the Executive Board [25]

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Maybe 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 that's -- we'll see that level out as we go through the year.

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Stefan F. Heidenreich, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board and CEO [26]

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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're happy with the trend. Let's see how that goes. We're not, especially in tesa, we are not looking so much at trading days. We're looking at the overall trends and there's not much more to add. On Consumer, there's 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 lifetime for the brand in the long run. So I'm very happy with volume, but it's less price and more volume.

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Operator [27]

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

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Jens Geissler, [28]

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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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Operator [29]

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