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Edited Transcript of BEI.DE earnings conference call or presentation 27-Feb-19 8:00am GMT

Full Year 2018 Beiersdorf AG Earnings Presentation

Hamburg Mar 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Beiersdorf AG earnings conference call or presentation Wednesday, February 27, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dessi Temperley

Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board

* Jens Geißler

Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer

* Stefan De Loecker

Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO

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Conference Call Participants

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* Alain-Sebastian Oberhuber

MainFirst Bank AG, Research Division - Head of Equity Research Switzerland & MD

* Celine A.H. Pannuti

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

* Eva Quiroga-Thiele

Deutsche Bank AG, Research Division - Research Analyst

* Jörg Philipp Frey

Warburg Research GmbH - Senior Analyst

* Karel Zoete

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Pieter Willem Vorster

Crédit Suisse AG, Research Division - Research Analyst

* Richard Taylor

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [1]

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So good morning to all of you. I would like to welcome you to Beiersdorf's analyst meeting here in Hamburg. This is a special meeting today because it's with new management. Next to me is Beiersdorf's CEO, Stefan De Loecker, who took over at the beginning of the year after 6 years of board responsibility for the Near East and the Americas regions.

And it's also my pleasure to introduce our new CFO, Dessi Temperley, who joined the company at the middle of last year. Dessi will present the details of the year 2018 and the finance part of our new strategy. Stefan will present Beiersdorf's newest strategy program, which you probably have already seen from the release that we made last night.

So I suggest we start now, and I hand over to Stefan De Loecker for a welcoming statement.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [2]

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Thank you, Jens, for this nice introduction. Good morning, ladies and gentlemen. I admit, to sit here as CEO of the company is a very different experience from my natural habitat in which I lived and worked for the last 28 years. Apart from a very short period, I've always worked in the market in many countries very close to the consumer.

I personally thrive on the opportunity to delight and excite consumers and on building businesses together with my team. I love the rhythm of the street, I love the rhythm of the market, get my inspiration and excitement and energy from walking the streets in Nairobi, visiting consumers in Bogotá, talking to my people in Moscow or São Paulo. And although the decision to leave after 10 years, the dynamic world of the emerging growth markets has been an emotional one, I'm very excited to have joined the headquarters to take the helm of the company.

The reason for this excitement are the same as those why I decided to join this unique company 6.5 years ago: the ability to continue to develop powerful iconic brands, which I know since my youth; the ability to make a difference to consumers in a company where I can decide fast, act fast and execute fast, that will always take the long-term perspective and has the means to walk the talk; having the recognition and support of the supervisory board; and last but not least, to work with a group of people that are emotionally committed to the company, its brands and products and are ready to face challenges.

Therefore, my family and I decided to pack up, again and move from Dubai, where I lived since I joined Beiersdorf, to Hamburg, where we found a great home. We now enjoy the Hamburg experiences and already now visiting the fish market on Sunday morning, walking my family and dog along the River Elbe on the Sunday afternoon, a very different experience than Dubai, have rapidly become family traditions.

I am pleased to have the opportunity to explain you today where I want to take Beiersdorf in the future. I know this company in depth. The size of Beiersdorf allows me to personally know different management levels in the company.

Since I came to Hamburg now 6 months ago, I visited all regions and major markets that I was not directly responsible for in the past, met all the divisions in the headquarters to understand strength and weaknesses, challenges and opportunities of the company even better. This listen-and-learn period helped me to sharpen my assessment of our reality, which I would summarize as follows.

The consumer goods industry, including health and beauty, including skincare, is in turmoil. The disruption created by digital technology that enables consumers to express their -- in an unprecedented way, their desires and expectations, but that also enable suppliers and retailers to fulfill these expectations in ways that have never been possible before, affects all aspects of our business. For Beiersdorf, in particular, that generates around 3/4 of its revenue from classical mass-market businesses. This is a significant challenge.

Second. Consequently, the future of skincare is one of personalization of products and services. This trend is already very visible in the success of small disruptive brands that address specific target groups, specific demand and accounts already, now for around 40% of the mass European skincare market. This affects concretely many of our leading mass-market European skincare businesses which are increasingly under pressure in terms of growth, market share and profitability. This business represents 50% of our global turnover. I cannot wait and need to act now.

Thirdly, however, Beiersdorf also has second-to-none opportunities to continue the growth momentum in a sustainable way. Two main reasons: first, the attractiveness of the business we're in, the attractiveness of the skincare market as sizable, healthy, growing in penetration and trading up; secondly, our presence in the emerging growth markets rapidly improves, but it's still significantly underweight in comparison to our European business.

Both addressing these challenges and capturing the growth opportunities needs an immediate and decisive action. Our competitive sustainable growth strategy, C.A.R. E.+, is built on 3 growth pillars. First, accelerate our presence in what we call our white spot markets. Africa and obviously Asia, not only for NIVEA but also for our dermal cosmetic brands: Eucerin and Aquaphor.

Secondly, win, where we have created consumer value for over 100 years, skincare categories. Putting the priority on the margin-enhancing skincare parts of the category portfolio has been my very first decision after my appointment at the end of the last year, channeling investments in innovation and marketing support. Thirdly, step up our digital capabilities, which are and will be critical to be able to significantly engage with the consumer.

These 3 pillars are also the areas in which external growth opportunities will be envisaged to accelerate or complement our organic growth plans. This growth plan will demand perseverance and investments, but we are convinced and committed to deliver sustainable value for consumers, society and all stakeholders.

In order to unlock this growth potential, we need to become a faster, simpler and more effective organization. Our size and focus allows this. This more productive organization, in combination with an increased priority on growing the higher-margin skin categories and margin-enhancing innovations, will allow us to start funding our growth from within.

Before I give you more details on the plan itself, I'd like to give the word to Dessi, who will guide you through the financials.

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [3]

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Thank you, Stefan. Good morning from my side as well, and thank you all for joining us here today. Yes, I have been the CFO of Beiersdorf now for 8 months, but I have experience in finance for 23 years and the last 14 of those at Nestlé.

Before we dive into the numbers, with -- let me first sum up 2018 in a few words. Beiersdorf had a solid performance in a more challenging environment. Our growth was ahead of the market but was entirely volume-driven. Our margin delivery was impacted by 3 factors: substantial foreign exchange developments resulting in a material negative impact on our gross margin; the challenging input cost environment, with overall cost increases for all our relevant commodity basket; and our pricing in 2018 was negative, although with some improvement in the second half of the year.

Coming to our key figures for the group. Sales increased organically by 5.4%. Foreign exchange movements and additional sales from acquisitions led to a nominal growth of 2.5%. Our EBIT margin at group level, excluding special factors, remained flat versus 2017 at 15.4%, mostly as a result of foreign exchange, negative pricing and input cost headwinds. In 2018, we took an impairment charge of EUR 16 million on our Chinese hair care brand, SLEK, which is now fully impaired. This brand was acquired at start of the C-BONS still in 2007.

Profit margin after tax, excluding special factors, was significantly up by 70 basis points, driven by a materially better tax result as well as some improvement of the financial results due to the derisking of our investment portfolio in the latter part of 2018. Consequently, our earnings per share increased by 8.4%.

And now some details on our performance by segment. Consumer sales increased organically by 5%, with a nominal growth of 1.6%. About half of our organic growth was a result of the exceptional performance of the La Prairie business. The Consumer EBIT margin improved slightly by 10 basis points to 15.3%.

Sales of tesa increased organically by 6.8% after double-digit growth in the previous year. While FX impact was negative, nominal sales growth remained at 6.8% due to the positive sales effect of acquisitions. The tesa EBIT margin decreased by 80 basis points to 15.7%, of which 60 basis points is due to the dilutive impact of the acquisitions and 20 basis points of margin reduction within the ongoing operations in line with our guidance.

Turning now to our Consumer business and the evolution of our growth by quarters and for the full year. We reported organic sales growth for 2018 of 5%. As a reminder, the sales growth of Argentina is calculated based on current year average exchange rate. And therefore, the material devaluation of the Argentine peso is factored into the reported organic growth. If the sales growth of Argentina have been reported at constant currency rates, like the rest of the countries' growth in our portfolio, consumer organic sales growth would have been at 5.9% instead.

Quarter 4 organic growth was at 3.3% reported and with the adjustment of Argentina at 4.5%. And now some more color on the growth performance of our brands. And to save you the trouble of estimating, we have also added to the lower part of this slide the sales growth of the fourth quarter of the year.

NIVEA closed the year at 2.8% in the mass market, that has been increasingly competitive with new segments and small brands. In Western Europe, the pricing environment remained challenging. In the fourth quarter, growth of NIVEA accelerated, with some limited improvement in pricing.

Our Derma brands, Eucerin and Aquaphor, delivered strong growth in the U.S., Germany and Thailand and grew by 5.9% for the full year and 4.6% in quarter 4. Healthcare had a difficult year, mainly due to a difficult market in Argentina, where we're overweight and due to some operational challenges in other markets. Sales declined by 1.8% for the year and 3.1% in quarter 4.

La Prairie reported an exceptional growth of 38.5%. Travel retail and Asia had a particularly strong performance, underpinned by successful innovations such as the Platinum Rare Night Elixir and White Caviar Crème Extraordinaire. We continue to perform well in quarter 4, with growth above the selected segment.

The next 3 slides here are new additions as we would like to give you some more details on our performance by region, starting with Europe. Sales in Europe increased organically by 4.2%. Western Europe sales grew by 3.9%, and over half of this growth was delivered by La Prairie travel retail. Western Europe represents 40% of our Consumer sales. Eastern Europe achieved 5.3% growth. At country level, we reported good growth in Germany and the U.K. and broad-based growth in Eastern Europe, with continuously strong momentum in Russia. France continued to be a very challenging market.

Next is region Americas, with 1.1% organic growth. Adjusted for Argentina, reported at constant foreign exchange rates, the growth would have been 5.3%. North America delivered 7.3% increase in sales. We achieved good growth with NIVEA Body plus another year of strong double-digit growth for Aquaphor. We also had double-digit growth in Canada.

Latin America reported negative growth of 2.8%. However, adjusted for Argentina at constant FX, we delivered a positive growth of 4%. In Latin America, our business in Mexico continued its strong performance with double-digit growth, while sales in Brazil were below last year due to the significant price erosion in the deodorant market. On a positive note, we had a strong performance in the skincare categories in Brazil.

Lastly, in Africa, Asia and Australia region, sales rose organically by 8.8%. La Prairie was the main driver of the growth of the region, with an excellent performance in China, Korea and Hong Kong. We saw double-digit growth in India, Indonesia and overall, on the African continent. However, our China hair care business continued its sales decline and remained very difficult. We are addressing this topic, and in a few minutes, Stefan will give you some more details on the way forward there.

Turning now to our margin performance. The Consumer EBIT, excluding special factors, advanced by 10 basis points to 15.3%. The strong margin contribution of La Prairie was of particular importance in protecting our net margin. Along the P&L, our marketing spend decreased by 20 basis points to 25.4% of Consumer sales. In terms of digital advertising, we now spend about 20% of our midyear budget in digital advertising.

Despite new initiatives, such as our new subsidiaries in Pakistan and Egypt and IT expenses to shore up our systems, we kept our general and admin expenses under control for both Consumer and for the group overall. R&D expenses were up by 10 basis points as we continued to invest in developing innovative products to support our future growth.

Turning now to the gross margin evolution. Consumer's gross margin was down by 90 basis points. We reported overall negative pricing, though with some improvements in the second half of the year. Mix, to the contrary, was positive, materially driven by the growth of La Prairie. However, the mix in our core business remained negative due to the higher growth in the lower-margin categories.

Coming to the cost of sales, logistics and other costs, we saw commodity price increases in our relevant input cost basket. We also faced strong foreign exchange headwinds. The volume growth and operational savings were not sufficient to offset these negative impacts.

Consumer working capital on a 12-month rolling basis stood at 9.9% of sales in 2018. In the year before, 2017, we achieved a significant reduction of 180 basis points, down to 9.2%. However, a large part of this improvement was a direct consequence of the cyber attack in mid-2017, resulting in the sharp drop of inventories in the second half of the year of 2017, which we had to rebuild to normalize levels in 2018. We also built additional safety stock in the U.K. linked to Brexit in the latter part of 2018. On a like-for-like basis, we were able to keep the working capital ratio largely stable in 2018.

Tesa had another excellent year of growth, driven by strong double-digit growth in Asia and China, in particular. Furthermore, through 3 M&A transactions this year diversifying into different industries, tesa was able to set the foundations for further sustainable growth in the future.

Organic sales growth of 6.8% was higher than our guidance of 5% to 6%, as tesa was able to perform well despite an increasingly softer demand from the automotive industry in the second half of the year. The direct industry segment grew by 9.1%, thanks to the strong demand from the electronics and automotive sectors in Asia and North America.

Tesa's EBIT margin from ongoing operations was slightly below last year's level as we invested in growth through both competitive pricing and capabilities in digital and commercial teams. The impact of the acquisitions resulted in a negative 60 basis points, mainly due to the purchase price allocation effect.

Coming back now to the consolidated numbers at group level. Our liquidity increased by 5.1% to EUR 4.4 billion. We realized this increase thanks to our solid growth and sustained margins and despite Consumer's working capital normalization after the cyber effect in 2017. The increased capital expenditure and the cash outflow for tesa's acquisitions also had an impact on our cash position.

Profit after tax increased significantly to 10.5% due to a much-improved effective tax rate and the financial results that was better than last year, although still negative. Despite a normal balanced investment portfolio, our result was impacted by the high volatility of the financial markets, especially towards the back end of 2018. In the second half of the year, we exited a major part of the high-risk investments.

The reported tax rate was at 28.9%, significantly below last year's 32.6%. As guided, our underlying tax rate improved to around 30%, with the U.S. tax reform and a positive profit mix being the main drivers. It is also worth mentioning that we had a number of positive one-offs in 2018 due to a favorable settlement of some open cases.

We now come to our guidance of 2019. I will go into more details regarding our mid-term financial commitments later on after Stefan's presentation.

For 2019, the Consumer business is expected to achieve organic growth of 3% to 5% and an EBIT margin of 14% to 14.5%. Tesa is expected to grow organically by 3% to 4%, with EBIT margins slightly lower than previous year. At group level, organic sales growth forecast is 3% to 5% and EBIT margin at around 14.5%. Profit after tax is to decrease slightly versus previous year. 2018 is behind us, and we are looking forward to 2019 and beyond.

So now I hand over back to Stefan to talk about the future ahead of us.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [4]

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Thank you, Dessi. Let me elaborate and give you a bit more details on our strategy in the following slides. First, I will go and inform you about the 2 elements of our business: consumer skincare and tesa. As already said, tesa now representing almost 20% of the total group.

As I said in my opening statements, I see 3 key areas determining Beiersdorf's future: the disruption of the industry impacting the classical consumer models; the great growth opportunity for Beiersdorf in the emerging growth markets; and the challenge for our core European skincare business.

The board and the Executive Committee at Beiersdorf recognized the need to act now in order to address these challenges and capture the opportunities to ensure Beiersdorf's long-term sustainable performance. I know from my experience and in the markets that if we do not address these challenges and opportunities immediately and decisively, it might only lead to worsening the challenges and miss the opportunities.

I already addressed the disruption of the industry and the impact of smaller brands, but I want to give some flavor on the attractiveness of being a focused skincare company.

Currently, EUR 122 billion in size and expected to continue to grow healthy between 3% and 5% year-on-year, very much driven by luxury Derma cosmetics and added-value segments, like natural cosmetics and obviously, the growth markets.

On this growth opportunity, if you look at the current portfolio, you'll notice that half of our skincare business is generated in Europe, which was -- only have a limited contribution as a market in the future market growth. However, we are convinced that we will outperform the European markets based on our ability to innovate and leverage the investments focus that I already described.

In our growth regions, Latin America, Africa and India, we now generate 1/4 of our sales. And these countries will contribute 30% -- almost 30% of the expected market growth. We've been expanding our presence and drive both markets and brand penetration.

Asia, however, the geography where we are still underrepresented with less than 20% of our sales, offers the biggest growth potential and opportunities, contributing to around half of the expected market growth over the next years. Obviously, we are also present in North America, where we will continue to develop our profitable business.

We will seize our opportunities by delivering smart growth, which means that Beiersdorf will focus on organic growth complemented by external growth opportunities to capture micro trends, increase capabilities or accelerate growth.

We are confident to commit to capture the growth based on the unique combination of capabilities in Beiersdorf. We have well-known, reputable and desirable brands. NIVEA is the world's #1 skincare brand. Also, Eucerin, La Prairie and Hansaplast are leading brands in their respective product categories. I've worked for many great consumer brands, but I have to admit that I've been, and I'm still amazed by the strength and the reputation of a brand like NIVEA as a top-quality skincare brand, that it has even in countries where the presence is relatively limited.

Beiersdorf is a focused company. We take care of people's skin. This is why we exist, and this single-mindedness is a real competitive advantage. The focus on innovation to serve consumers is the basis of our current strength, and we will continue to invest in our R&D capabilities.

I already commented on the commitment of our people to company, brands and products. You have -- on top of that, you have a strong balance sheet to bolster our future investments and have all -- and will always have the long-term perspective. This prioritization of the long-term perspective is part of our DNA and demonstrated in our behavior in periods of crisis.

The long-term perspective commits us to deliver competitive and sustainable growth, which means outperforming the market as an expression of consumer preference and choice; creating consumer value which will drive gross margin; and ensuring sustainable profitability funding the strategy.

The name of our program is maybe not intuitively but important for us: C.A.R. E.+. CARE is the DNA since more than 130 years of the company. And in times of major disruptions, CARE will be carried by courage, aspiration, responsibility and empathy: C.A.R. E. The plus underlies our commitment that CARE will make Beiersdorf even stronger in the future.

The C.A.R. E.+ strategy has 5 priorities to our commitment to deliver competitive and sustainable growth: 3 to drive growth; one increasing productivity; and finally, our value for society, accelerating our presence in white spots, winning skincare portfolio and stepping up our digitalization. The growth ambitions will be fueled by measures to increase profitability.

On the following charts, I will give more details regarding these strategic priorities. Let's start with accelerating white spots. And I would like to start in a concrete action activity in India to demonstrate our potential.

I would -- we have in -- I admit, I'm personally proud of what we achieved in India as this is one of our key objectives why -- when I joined Beiersdorf. India became one of our most successful countries in the last couple of years. Since 2011, we multiplied net sales by 7. We became the #2 in the categories deo and body, which have been our focus. And we're leading in these categories in modern trade and e-commerce, the future and modern sales channels. We increased our distribution by 5 in the number of stores where we are present. And we broke even after 5 years on our further contributing to the profitability.

Why, and how did we do this? The key successes in our win in India is, first of all, based on NIVEA as an inspirational top-quality skincare brand. It's a brand people desire but are usually or were unable to use regularly. Making the brand locally relevant with a locally relevant portfolio focused on deo and body care, supported by locally relevant communication. Since the beginning, Anushka, a young actress at that moment, has been our spokesperson in India.

To be able to drive the affordability, we built a factory in India and established an R&D hub in 2015. We continued to drive local innovations in both areas and have now launched this year, a month ago, in the huge market of face cleansing, with an exciting new concept that combines local insights with R&D capability.

Finally, I would like to emphasize the crucial role of having a stable, ambitious local team in this success story. And notwithstanding, we're very proud of what we achieved, I think it's very clear that in a market of India, the potential to go on is still unlimited. This, I think, is a leading example that fuels our confidence in how to capture the white spots around -- further on.

Ladies and gentlemen, based on the fact that half of the world's population spend less than EUR 0.10 per capita per year on Beiersdorf products, we have a tremendous potential to further expand our business in regions and categories where we are underrepresented today.

Just to give you an idea. The comparable figure in Europe is EUR 9 per capita. Today, we generate 43% of our turnover in these growth markets. Since the majority of the future growth in skincare will take place in these markets and countries, we already progressed to our goal achieving a more balanced 50% revenues between emerging markets and developed markets in the mid and the long term.

Since 2011, we have established and increased our presence in a large number of markets, starting almost from symbolically maybe from west to east, stepping up Nigeria where we entered in 2016, establishing also a local production capacity to capture the country. Also there, in the categories of deo and body care, we have become the market leader. We have stepped up in Egypt, Saudi Arabia. This year, we stepped up Pakistan. And Pakistan, logically, is a very close model following India. And we are further expanding, planning this year Bangladesh and Myanmar. This covers a population of an extra 800 million that we will have to build up step-by-step following the key success factors of India.

Notwithstanding the impressive success of our La Prairie products with the Chinese consumer and our track record to ignite growth in emerging markets that I just demonstrated, and we have a good position in Japan, we have to acknowledge that China has not been a success story for us until now. I'm convinced, however, we will also develop a relevant position in the Chinese market. I do not present a concrete plan for China today, but we will start to build the base in 2019.

First, we've put on a strategic review of our SLEK hair care business. And secondly, we invest -- we will invest this year in the China headquarters skincare innovation center to expand the R&D hub that we have at this moment. I also would like to underpin that Mr. Asim Naseer, who joined the board in the beginning of January, is a real asset, complementing our strong knowledge of skincare in Europe in the Asian markets.

Women's skincare. What might sound as a very simple part has a couple of very important aspects, and I want to highlight 3 of them. The first one is portfolio focus. We have been extremely successful growing the personal care categories, as Dessi already mentioned. But the future of Beiersdorf and the attractiveness is in growing at the same level of success in the margin-enhancing skincare portfolio. This portfolio focus, as I already mentioned, is the #1 activity guidance in the country -- in the company.

Secondly, a focus on margin-enhancing innovations, delivering skincare benefits to the assortment. Within that effort, sustainability is a very important factor. And finally, we want to leverage external innovation opportunities. For example, with our newly established venture fund which we funded with EUR 50 million and strengthening our regional innovation hubs. The importance of the R&D investments, I think, can also be expressed in the appointment of our Global Head of R&D, Dr. May Shana’a, to the Executive Committee on January 1.

Concretely looking at the measurement of the portfolio, we have, I said, a number of extremely strong iconic brands to cover the major segments of the skincare market: mass, derm and cosmetic, luxury skincare, healthcare. And as the Blue & Beyond strategy already pointed out, we separated these businesses from the NIVEA brand in order to give them the full attention and the specific focus. Mr. Vincent Warnery, a specific board member, came to develop these businesses.

However, many opportunities are created outside these core segments. And we want, need and will participate here as we are convinced also to be able to contribute to the consumer interested in these elements. We see opportunities to grow this area organically, but we also want to certainly complement external growth opportunities in this area.

Also this year, we obviously have a rich portfolio of innovations that drive skincare. I will not go in every detail, but I think that the pipeline also this year is very rich to fuel the growth.

While we have already a proven historic track record of successful innovations, we will focus to even better serve science and technology-driven derma-adding benefits. And I would like to give you a very actual impressive example of a launch in 2019 that I will convinced will become a blockbuster product for Beiersdorf and the next milestone in innovation.

It addresses one of the most challenging skin concerns in the world, hyperpigmentation, as more than half of the global population is being affected. Obviously, many products already exist addressing this issue, but effectiveness remains a challenge. Our R&D team worked over 10 years to find a more effective solution to this problem. And the success of this R&D work, a specific ingredient, Thiamidol, has been the result.

The new ingredient, for which Beiersdorf enjoys patent protection in important countries around the world, is clinically proven to reduce the production of melanin and gives the skin a more even complexion. And this obviously is a consumer demand that spans the world. The effectiveness is proven to visibly reduce dark spots in 8 weeks. And we will launch, at this moment, under the Eucerin brand, this product. I think this demonstrates how we can really make breakthrough innovations in skincare leveraging our expertise.

A substantial step-up in digitalization is inevitable for Beiersdorf as a growth driver, supportive to our target to increase productivity but overall, is essential as an enabler to engage with consumers.

We are obviously digitalization, but we want to step up significantly in technical capabilities. The key one, as I already said in the beginning, is this is the enabler already now but in the future even more in connecting with the consumer throughout the consumer journey. And we believe that as this is a major challenge for us, that we need to accelerate and invest more in order to be able to increase our abilities.

We are intending, from the current 20% that we invest in communication today, to double over the next couple of years to 50%. The same applies to our sales in e-commerce, which are around 5%, which we intend to double to 10% in the next 5 years.

The fourth strategic priority is about increasing productivity. While Dessi gave you all the details regarding figures and ambitions in a minute, I will provide you with a broad overview and general ideas regarding Beiersdorf philosophy here.

We will focus basically on, operationally, 2 main areas. The first one is to drive growth margin and deliver gross margin. Dessi already explained to you the development of our gross margin over the last year, and we believe this is a main driver of productivity. Three areas are important here. First, as I already said, the portfolio mix. The focus on derma cosmetics, the focus on the margin-enhancing skincare categories is key.

Secondly, a portfolio and effectiveness of smart pricing to enable to really capture also the margin-enhancing areas. And driving the best possible cost to deliver, with enhancing manufacturing, leverage our manufacturing investments and value-engineering efforts. We need to become fast and simple in order to capture the opportunities and this in combination with a very disciplined cost control.

We are obviously not happy where we are yet with working capital. Dessi will give you details on how we will improve our working capital management later as well as to how we will address the tax rate, which is still too high to further improve our earnings per share.

Besides the broad variety of measures connected to the top and bottom line growth, Beiersdorf has always proven that we are committed to create value for the society we are in. We've always been very active, although we have not always been very communicative about it. We have a program since years, which is called "We care.", as part of our DNA: care for products, care for planet, care for people. As I said, we might not have been very vocal on what we already did yet, but there's a long list of achievements in our 130-year history regarding sustainable products, renewable energy and our social commitments, some of these highlights you can see on the chart.

What I commit you today is that we will start a number of extra initiatives to further strengthen our ambitions and expand our long-term commitment to sustainability. Therefore, we commit today, also publicly, the pledges to further increase the share of recycled content in plastic packaging in Europe to 25% and make 100% of our packaging [recyclably] compostable or reusable by 2025.

In addition to our C.A.R. E.+ initiatives in skincare, we will continue to develop our adhesive business, the segment tesa, which is a valuable and integral part to the Beiersdorf group. We are convinced that tesa will continue to contribute positively to our sales and earnings and to generate consistently high cash flows.

Tesa delivered a good performance again in 2018. Organic revenues rose by 6.8% to more than EUR 1.3 billion, a significant higher increase compared to the previous years. Our activities proved to be highly profitable and posted an EBIT margin of 15.7% despite dilution effects from acquisitions.

Both business segments reported impressive figures. Direct Industries achieved an organic growth of 9.1%, and Trade Markets has sales increase of 3.8%. Both cover a broad variety of customer groups and industries with adhesive solutions and are able to address customers' needs with a strong innovation pipeline. R&D expenses are currently around 5% of sales and will remain well above the group average also in the future.

We are active in areas you might not have expected use -- us to be in yet. More than 45 different adhesive solutions from tesa can be found in a modern mobile phone. They're also able to take over additional functions like light and heat management. The thinnest adhesive tape from our electronics assortment is only 5 millimeters thick, 10x less than a human hair.

The U.S. piece of tesa are based on a well-positioned and balanced product portfolio. We are successful because we're able to adequately address specific future trends in our customers' industries, which will deliver sustainable profitable growth in years to come. Our adhesive tapes, for example, are replacing technologies like fixing, bonding and mounting, as you could see in the mobile phone teardown example.

Our adhesive solutions enable miniaturization and lightweight construction. Tesa tapes can add functionalities of light and heat management, as already mentioned, for mobile phones. Our adhesive solutions support sustainability with energy-efficient, solvent-free and [possible] adhesive solutions. And tesa's products improve customers' lives, work and products they make.

Ladies and gentlemen, this concludes the strategy update of today's presentation. I will obviously come back at the end with a summary. But I would like to hand over to Dessi, who will continue presenting you the financial ambitions deriving from our strategic priorities. Please, Dessi.

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [5]

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Thanks, Stefan. In this section, I would like to outline in more detail our financial commitment from now until 2023.

First, I will start with our Consumer business, and I will cover 3 pillars for delivering sustainable value creation. The first one is related to the growth initiatives, which we will invest in starting this year: winning in white spots, winning with skincare and stepping out our digital efforts.

Another building block critical for delivering our profit commitment is increased productivity. Our initiatives started protecting and improving our gross margin, followed through the P&L lines to address our structural costs and further capture improvement opportunities in the group tax rate. Lastly, I will give you more clarity on how we will be deploying our capital in line with the strategic priorities which Stefan just presented. In the current year, we expect to grow between 3% and 5% based on the skin and personal care market growth at around 3%.

As of this year, we will start stepping up our potential growth rate by extending our presence in white spots. Filling these white spots is a major growth opportunity for us to capture. Similarly, by focusing investments on the skincare market and by addressing our portfolio gaps, we can accelerate growth in the high-value categories. And finally, building a close relationship with the consumer through digitalization will allow us to tap into the new growth opportunities.

All in all, we believe that we will add significant growth potential to our current growth rate, bringing it between 4% to 6% in the midterm, assuming current market growth levels.

Building strong and sustainable growth capabilities comes with meaningful investments starting already now. We have analyzed all opportunities and relevant costs and have prioritized the investments based on our capabilities, the size of the price as well as the expected returns in growth and margin. At this point, we estimate that we need additional investments of EUR 70 million to EUR 80 million in order to deliver the ambitious mid-term growth targets we have set for ourselves.

In terms of EBIT margin evolution, we forecast the Consumer EBIT margin of the year 2019 to be between 14% and 14.5% and that we will continue to invest beyond the current year. We will see a meaningful margin improvement in the latter part of the 5-year period. Beyond growth leverage, our productivity initiatives should get the momentum and will have an increasingly positive impact in 2021 and beyond.

With these initiatives, we will be able to strengthen our position in delivering above-market growth while enhancing the quality of this growth. We will significantly improve profitability beyond 2021 to between 16% and 70% (sic) [17%] by 2023. Here, I would like to underline our confidence in achieving both our growth and profit targets in a sustainable way.

This brings me to our productivity program, as already presented by Stefan, which underpins our mid-term margin commitment. This program consists of 4 parts: revenue growth management, driving value growth and enhanced gross margins through smart pricing, portfolio mix and premiumization; value engineering, delivering improved margins via a competitive cost base, optimum product value for our consumers and efficient manufacturing footprint; organizational efficiencies through a deep review of our current operating model and internal processes, with investments into productivity and upscaling of our workforce; and last but not least, the improvement of our group effective tax rate.

We will be rigorously tracking the delivered benefits by a clear framework of key performance indicators, ultimately improving our gross margin, general expense levels, EBIT margin and the group tax rate.

In 2018, we managed to bring our underlying tax rate to around 30%. In the last months, we have had the full review of tax opportunities going forward. We are confident that over the next 3 years, we can deliver further 200 basis points improvement through projects to be kicked off in the coming months. We aim at bringing our underlying tax rate to 28% by 2021.

And now a brief summary of the impacts planned from our productivity program -- yes, from our productivity program.

Our gross margin will increase sustainably, driven by revenue growth management, value engineering and an efficient manufacturing footprint. We will deliver organizational efficiencies by improving our operating model, upgrading our workforce and driving costs down with a rigorous discipline. These initiatives will generate cost improvements of 250 to 350 basis points by 2023.

Some of the savings will be reinvested back into the business, but the major part of this will drive our mid-term EBIT improvement, as already presented. The effective tax rate will be reduced by 200 basis points down to 28%, as I just mentioned in the previous slide.

We can see the capital deployment to be a key pillar of our strategy. In order to sustainably support our growth, we need to strengthen our manufacturing footprint through capital investments in growth-relevant geographies as well as in technologies.

Second, M&A opportunities. In our dynamic industry, we consider to be a key enabler to address the current portfolio gaps. And third, we are happy -- we are not happy with our working capital, but we are happy to tell you that we do plan to improve it. It needs to be improved as a matter of both our financial discipline and efficient operations.

In 2018, capital investments increased to EUR 358 million after 2 years of investments well below 3% of sales. We stepped up our investments in manufacturing capacity, particularly in geographies where we have built scale and see further growth potential, such as Brazil, Thailand and India. We also invested EUR 70 million in our new headquarters project.

Our capital expenditure in the medium term will be in the range of EUR 250 million to EUR 350 million per annum or around 4% of sales. We have had a comprehensive review of our manufacturing footprint and our plans to fully align with our growth projections in the key geographies. We are also planning to upgrade our capabilities to support the innovation pipeline and our flexibility in terms of new formulations and formats which can be manufactured internally. Our new manufacturing footprint will also deliver cost efficiencies, which are contributing to the productivity targets.

Having spoken about our growth ambitions and the building blocks around white spots, skincare and digital capabilities, we are very clear on the fact that M&A opportunities can be a key accelerator of the strategy. Analyzing our portfolio gaps in terms of geographies, segments and digital enablers, we have identified the priorities for potential M&A activities. We are putting in place a structured and disciplined approach to drive our acquisition agenda going forward.

Moreover, we will continue scouting for start-ups to partner with. Of special interest to us are the areas of skincare technology, skin applications and digital solutions that add value to our relationship with the consumer. To progress promptly with this initiative, we are setting a venture capital fund of EUR 50 million.

Last but not least, in terms of importance, I would like to say a word on working capital. Despite the challenges we faced in 2018 as a consequence of the cyber incident in 2017, we are not happy with the underlying performance of working capital. We are committed to an improvement of more than 50 basis points year-on-year until 2023, and we're mobilizing the organization to deliver this through renewed focus on this area as well as the number of projects to be kicked off shortly.

In summary. For the Consumer segment, our mid-term growth ambition is 4% to 6% organic growth. The productivity program will bring annual savings midterm of 250 to 350 basis points, driving an EBIT margin improvement net of reinvestments of 150 to 250 basis points by 2023. The group underlying tax rate will improve by around 200 basis points. For tesa, the mid-term growth ambition is to outperform tesa's respective markets growth by 2 percentage points per annum as well as to continue building capabilities while keeping an EBIT margin above 15%.

Stefan will now -- will conclude today's presentation with a short summary before we will take your questions.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [6]

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Thank you, Dessi. Ladies and gentlemen, I do think that there are companies who would be very proud on presenting the results we have in 2018. The perspective we've taken is one of 10 years ahead. And based on that one, I'd like you to take the following home.

We are faced with challenges, particular challenges and industry challenges. On the other side, I do think we have formidable growth opportunities. We address these challenges, and we address the opportunities. And we address them now and decisively. We have the capabilities and the means to deliver sustainable value for all stakeholders.

I hope that this presentation has given you a higher degree of transparency on the situation. And I will continue, and I'll commit to continue to update you on the progress of the plan. You obviously might not know me, but I want to assure you of one thing. When I commit, I deliver, supported by a very committed new management team.

Thank you for your attention, and I hand over back to Jens.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [7]

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Okay. Thank you, Stefan. So now we had the full year results, we had the strategy update and can now go into Q&A.

We have 2 microphones ready. I think the order of things was Alain Oberhuber starting first, and [Harold] coming next here. Alain Oberhuber.

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Questions and Answers

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Alain-Sebastian Oberhuber, MainFirst Bank AG, Research Division - Head of Equity Research Switzerland & MD [1]

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Alain Oberhuber, MainFirst. I have a question regarding the external growth and the M&A. Could you elaborate a little bit where you see currently the white spots for M&A at Beiersdorf, either on the sub segments on the categories or on the regions?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [2]

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White spots. White spots on regions.

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [3]

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(inaudible)

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [4]

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I didn't completely capture your question, but I'll answer. As I pointed out, we have our core business and our core strength in Europe. And on different elements in the world, we have stronger participations, stronger presence. But the key opportunities for us are still in the, I would say, growing emerging markets, and that has been the focus. I think there's a lot happening also, not only in brand presence but also opportunities to growth markets, as such, develop the categories as we once did them in Europe. And that is where we are focusing on. That's what has been -- we have been doing now over the last couple of years, why I joined. The point is that we, obviously, have to capture the full potential, and that includes also areas like Asia and East Asia where we are very weak. So that is the real focus on white spots geographically. And on products and segments, obviously, the elements that are not -- or having beyond, it's not a secret the success of natural cosmetics. And also, our limited participation in that category is another [wide] spot on the geographical portfolio side.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [5]

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Okay. Then we have [Harold] here in front next, and then we go to Richard afterwards.

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Unidentified Analyst, [6]

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[Harold Thompson] from (inaudible). First of all, congratulations for your appointment and the clear presentation you both gave today. I've got 2 questions. The first one is on the new plan. I think I know the answer, but I want to make sure I got it right. From the outside, you've delivered a very strong year in terms of growth. And it's not just the first, there's been a few in recent years as well with kind of steady margin expansion. So it's not obvious why suddenly there's this massive jump in investment taking place. Is it because things behind the scenes are a lot more stressed than we had realized? And if -- I think you said at the beginning, if we didn't react, actually, things would start going wrong. Or is it more really based that you think there's a much bigger opportunity for the group, which you think if you just stood still, you wouldn't really capture, and therefore, it's just worth putting more money? So is it more a defensive announcement, i.e., things weren't quite as good as they looked from what we look at? Or is it much more about the opportunity there is bigger than we realize and therefore, rather than just waste it, let's go and get it? So that would be my first question. The next question is on capital allocation. Companies which have too many resources or probably too much cash, they always waste it basically in one way or another. And you're kind of highlighting that maybe you might do a bit of M&A, which is a bit unusual for Beiersdorf. But you've also got no experience really of doing M&A. And you also are signaling that you've got loads of it, of organic opportunity, which is why you're putting EUR 70 million to EUR 80 million per annum extra in advertising or resources. Is it really the right time to go and spend cash when you've got so much organic opportunity? Why just give it back to people?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [7]

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On your first question, as you say, you know the answer, but I still want to highlight it. I do think that -- I don't think there was anything that would not have been seen in our results over the last couple of years that would indicate already a certain sense of urgency. The contribution of La Prairie on the total growth and therefore, also on the profitability is not really a huge revelation, I would say. Obviously, it all depends where you focus on. And obviously, the part that has not profitable, not contributed in the same way as our luxury division did is, as I pointed out, an area of concern. Maybe not a concern now, immediately but certainly a concern going further, seeing the trends where we are. That's number one. And I do think, I'm absolutely convinced, hence the strategy, that we need to change the way we approach this. And therefore, I think this sense of urgency to address that element, considering the impact and considering the size of the company, is one part. And equally important are the opportunities. I must say, over the last 6 years joining this company, I've come to realize, and we've come to realize as Beiersdorf as a group, that our potential to capture opportunities and growth outside of our core territory is there, and we're able to capture it. And that, obviously, gives the confidence and the ambition to say this is worthwhile. We know how to do that. We can do this. We -- and the amount of population where we can really address this is still enormous. And so therefore, also here, there's an opportunity that we want to capture. And as much as the urgency on the part to act on what you would describe the defensive part, as much is, in my opinion, the urgency to really generate and accelerate these white spots. Because I do think that the opportunity to capture it will not become easier over the times, rather the reverse. In terms of capital allocation, I do think and also with the people that we have on board, experience in M&A, have done M&A integration in the past. I think we have -- Dessi has her experiences, and we have a couple of other things, that will not be the showstopper. The part is that we do realize, in order to really capture the dynamism of certain elements, that only organically will probably not close the gap, and therefore, logically, we are looking at what the opportunity will be to go for that.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [8]

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Okay. We had Richard after that. And then we go to the back there, please. Yes.

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Richard Taylor, Morgan Stanley, Research Division - Equity Analyst [9]

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So Richard Taylor from Stanley, 2 questions from me. You talked a lot about, I guess, getting fit for the future, digital, disruption from smaller competitors. I guess the first observation I'd make is that there seems to be more to do with the research in Procter & Gamble than the above. We've seen resets from Colgate, Henkel, Reckitt and now Beiersdorf have all reset their margins. So I guess my question is, in the context of you talking about white space and acquisitions, we've heard a lot about that over the last 10, 20 years, but we've really seen no fulfillment of it. So would a strategic partnership or some kind of licensing agreement be a smarter way to go about it, given that we haven't really seen much action on acquisitions over the last 20 years? And then my second question is from the perspective of your shareholders. I'd be grateful if you could clarify your message to them. I really want to frame this in terms of your shareholders outside your major shareholder. Are they a priority? If we look back, we had a year of transition in 2010. We had a year of transition in 2011. We're going to have another year of transition in 2019. That's 3 in 10 years. There's been no dividend growth for over 10 years, has been no balance sheet deployment in over 10 years. And of course, this is the second major margin reset inside 10 years, despite having lower margins [ready] the new peers and only average growth. So my question is, do shareholders matter outside the major shareholder? And why would it be different this time?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [10]

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The perspective to create value for us will always be long term. It will always be how this company will thrive in the future. I will refrain from any references to the past because I don't think that's, in this case, in my opinion, not very relevant -- or maybe relevant but not that what I want to focus on now. We will -- I think the message is that we have been delivering growth in the past and over-market growth, and we want to do this in the areas we can create value, value for all shareholders and for all stakeholders. And I think that answers your question as such. That interest is there, and I think the best way that can be served is by a healthy, sustainable, growing company. In terms of M&A activities, I realize that this is a message that is maybe not that new. And a number of these messages are not new. That the categories and the markets are in turmoil, I think, is something that, as I said, is an industry phasing and that the element to phase that are also relatively similar, will not be a surprise neither. Yes, we will actively -- we believe that this is a key part of the strategy. But like always, as a financially careful, conservative company, it will have to make sense. And therefore, obviously, we need to see and evaluate case-by-case what we can do.

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Richard Taylor, Morgan Stanley, Research Division - Equity Analyst [11]

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[But the percentage] of the old licensing strategic partnerships, would that be under consideration?

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [12]

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Jens, I can take that. We, in fact -- when we started the strategy work, we looked at -- we did a very comprehensive portfolio analysis, and we identified where the portfolio gaps are in, which are the gaps which, specifically, we can accelerate with M&A activities. We are not excluding neither partnerships nor minority in stakes and in companies. And in fact, already, we have partnerships with some start-ups but more on the research and development side. But at this point, we are looking at M&A as an opportunity. As long as it makes financial sense, it can be in many forms, licensing or partnerships included. And that's why also the venture capital fund that we are setting up because there, that will give us flexibility as well to enter into opportunities which are very fast developing with start-ups, where we currently are not present.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [13]

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Yes, one more. Row #4, I think, was first, and then we go to row #5, Deutsche Bank.

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Karel Zoete, Kepler Cheuvreux, Research Division - Equity Research Analyst [14]

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It's Karel Zoete speaking with Kepler Cheuvreux. Two questions, one on M&A and one on the improving momentum on top line. With regards to M&A, what are the financial criteria? And could we consider Beiersdorf being a net debt company 2, 3 years down the road if there's a lot of opportunities available? The second question is on the ramp-up of growth. The margin improvement will come later in the program, but growth rates in the 4% to 6% range or hopefully at the high end of that, when should we expect that, also taking into account that, basically, we had 2 years of 5% behind us?

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [15]

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Shall I take the one on M&A? So I guess that what we really need to underline here is that we are going to invest in acquisitions when they make financial sense for us, especially when we believe that these areas where we cannot accelerate as fast as we can go organically. The financial models, the financial evaluations, they are what they are, and we are going to go with very prudent assumptions in terms of growth and the price values.

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Karel Zoete, Kepler Cheuvreux, Research Division - Equity Research Analyst [16]

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[The] positions in Southeast Asia -- oh, sorry. But typically, interesting assets in Southeast Asia skincare, they're high in demand. And if you would have returned criteria that are double digits quite quickly, then it might be difficult. So any help for outsiders would be, I think, appreciated.

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [17]

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We accept the fact that, yes, multiples at the moment in very interesting assets and fast-growing segments or geographies are what the market is. There are multiples on the market that we need to meet, and they are the strategic investors to compete with. However, if our assumptions for growth and margin justify those multiples, we are ready to go for them as long as we know that we have prudent assumptions in our business plans.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [18]

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We could mention, also, that we are not in a hurry, really. I mean, this has been our statement for years. We are not in a hurry. We are looking at the market and see where opportunities are. But why rush to things? And this has been also to be seen in connections with how much do we want to pay. On your second question, on the growth, I would summarize that we want outperforming market growth but together with the focus on the quality of that growth. Addressing the growth margin, capturing that value in the growth is what is a key element in the strategy.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [19]

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Okay. Then we go to Eva, please.

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Eva Quiroga-Thiele, Deutsche Bank AG, Research Division - Research Analyst [20]

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Yes. I have 2 questions. One of a regional nature. You've obviously said that China is something you'll be talking about more in 2019. Can you maybe talk a little bit about your initial assessment of, not the C-BONS nightmare but when NIVEA is -- why it's still relatively weak given that China is such a skincare market? And one thing that's been notably absent, really, was anything about the U.S., which, at some extent, I guess, falls into your emerging market. But if you could share a little bit what your view is on the U.S. And then my second point is on innovation. I mean, I go far back, I've known Mr. Kunisch, and innovation seems to have always been a big part of the Beiersdorf story. Can you talk a little bit more about what's going to be different this time and how you will make sure that you get this bigger, better, more impactful innovation right?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [21]

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First on China assessment. NIVEA in China. The NIVEA, as such, in the skincare business is a fairly successful business. We also have there a relevant position that we build up already before the acquisition as such. And therefore, we believe, just like in the other countries, that there is a good base in order to be able to further accelerate, putting the hair care -- SLEK hair care division under strategic review should enable us to focus exactly that and to channel investments solely on where we can -- believe we can win, and we can make a difference. The U.S., as such, is obviously -- is [underweighing] in our portfolio as such. However, and you've seen it in the results of 2018, also there, we do have a position, a specific -- we can call it maybe a niche position in a specific market where we both developed in the mass and the derma or the therapeutic market. It's as such an interesting market that creates value and where we are strengthening our competitive situation. However, in the portfolio assessment, the long-term growth potential is, obviously, a lot bigger in the emerging growth markets than it is immediately in the U.S. But I would say that, what Dessi mentioned about, the look at possibilities to change that will be evaluated when they would arise. As you say, innovation is a key element for the company since forever. It's a company that created a lot of the skincare over the last 100 years. And I think the same comment as -- because it's so interrelated, the same comment comes as to the growth before. We want have a focus on innovation that drives skincare benefits because we believe that is the way to have a margin-enhancing effect of the innovation as such. And that focus on end category and the ambition of what the contribution of innovation is going to be is a key element.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [22]

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Okay. We'll take the next question from Celine here in front.

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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 [23]

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All right. My first question is on emerging market, so this is one of focus area. And I think you said 50% of the growth will have to come from Asia, I can't remember, I think it's 22% of sales. So clearly, you expect high growth there. Could you talk about the prioritization of emerging market? So at which place you want to enter new markets? And also, when you mention India, it took 5 years for breakeven. So the risk there is that you overstretch yourself, going to a lot of emerging growth market. Good growth, but the investment phase may take time. So I would like to understand, what is your action plan? And maybe you can already talk about some key market beyond China and India. My second question is on Western Europe. Now Western Europe, I think you said, I can't remember, was about 46% of your total, and you expect this to contribute to 10% of sales, so -- of growth, excuse me. So roughly, you expect limited growth in this market. So is it just being at the level of the market? If that is your assumption, what you expect to deliver in your main region. And why is it that we can't be looking for market share gain? I mean, it seems that you have accepted that Western Europe is going to be flattish or thereabout, am I right in this assessment?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [24]

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On the emerging markets, China and India together, being 2.6 billion people, what are the options outside of China and India is, obviously, they're very key in the first place. The way we accelerate elements is that we obviously prioritize where we believe the opportunity for us to capture the growth is the driving opportunity. And the ambitions are different, and I think that is a key one. The ambitions on what we can achieve in the different markets is to be evaluated individually. One of the areas that I said in India is that we do not go full-fledged with the complete portfolio of categories immediately here. If you take the last 7 years of India, we launched this year in face cleansing. Although face in total is, I believe, also half of the Indian market. So we will do, obviously based on success, evaluate the expansion plan country by country. I think that's the first one. And yes, that means that we will, and we can activate multiple countries almost simultaneously, defining precisely the individual contribution and the opportunity. On Europe, first preliminary comment, the expected growth contribution is one of the market. It's not one of the portfolio. Secondly, our ambition to outperform each area in which we are active is also here. I believe that we can and will beat that market growth also in Europe based on the strength we have, based on the innovation that we will have. We need to be present also in the white spots in Europe, and there are important white spots in Europe. And I believe that the innovation pipeline is going to be the difference in the future as such. So the ambition is not any different in Europe as in the emerging markets. The contribution of the growth will be different, obviously, but the ambition to outperform and the ability to outperform is exactly the same.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [25]

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And another one from [Harold].

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Unidentified Analyst, [26]

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Yes. I think you said in your presentation that if you look at the delivery of the growth so far, it's kind of the personal care side of the business that's outperformed and the skincare side, especially, I guess, the face care, has underperformed. So are you now saying that personal care success will fund skincare? So is it being, in a way, deemphasized? Or are you saying that the ambitions of both is to both win? The reason I'm asking this is, whenever companies label a region as they will generate profits, and they will generate growth or a category, they will generate profits, and they will generate growth, the one which is deemphasized always goes far worse than anyone believes. So I'm just making sure you're not taking a risk of deemphasizing personal care at the expense of skincare, or you're just reemphasizing skincare with specific additional resources. My second question is on controls and culture. Clearly, Dessi, you've got a great background of operating in highly successful companies. So how would you summarize of how solid or strong or slow are Beiersdorf's internal controls? And maybe the corporate culture -- clearly, Stefan, you've been here for several years, you might not be able to describe anymore. But how would you describe the Beiersdorf culture, especially in your area of where you're operating?

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [27]

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I can take that question first, but...

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [28]

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[Go on].

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [29]

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Well, thank you for the questions. And first, let me say that I am extremely happy to be here with this company. Specifically, on culture, it is a very prudent financial culture. And I think that the company and my teams are proud of that. At the same time, when we went through the strategy work, I also realized how deep the analysis can go and how passionate people feel about the financial results of the company and doing the right thing for the company as well. In terms of what the priorities are for the finance team going forward, for me, our obsession is going to be with defending the gross margin and improving it. Because we have had a number of years of deterioration, and this really is the best indicator of quality of growth. And I would say that mobilizing the organization behind the right priorities is actually very easy in Beiersdorf because people understand and people want to drag the financial success of the company. And I'm very positive that we will deliver the financial commitments that we have just presented. I'm actually confident about it.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [30]

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Thank you, Dessi. I remember the same thing from years ago. Coming to the point of portfolio focus and not less market focus, I think the message is, one, very clearly is, we want to have the same dimension and dynamism on skincare as we have on personal care. Deo is not surprisingly our biggest category we have, so we're extremely aware of driving them both. We have done very successfully the in personal care, but we want to have the same on skincare. And that is the key message as such. And therefore, the driving, the ambitions are not going to -- there is no change in that one -- so the change of focus is in emphasize of a balanced performance in growth and not a shift.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [31]

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We had Warburg first, and then we go back to Richard, please.

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Jörg Philipp Frey, Warburg Research GmbH - Senior Analyst [32]

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Yes. Well, first of all, just to clarify. Did I get it more or less correct that your ambition for 2020 margin-wise is more or less stable? Or could you even imagine another increase of investments in the next year? And then secondly, if you wanted to split the growth investments you are doing in the different categories you mentioned, could you give a rough idea? Is it mostly about white spots? Is it about digitalization? Or is it roughly evenly split? And then in terms of also, probably, white segments, white spots. While you mentioned what -- I think the last point was sustainability that -- if you think about sustainability, natural trends, do you think that you need a new brand for something like that, like a natural brand? Or do you need to offer your -- the natural parts of your portfolio under the NIVEA brand? Or some ideas on that one would be helpful as well.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [33]

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If you take the first one, I'll take the second.

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [34]

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I'll take the first question. Thank you. In terms of the 2020 margin, we're not guiding on margins by year. However, yes, from the charts that we presented, we are planning to be at a stable level versus 2019. In terms of the investments of EUR 70 million to EUR 80 million, yes, they are continuous investments going forward. So we plan to also invest in 2019 and in 2020 and forward at about the same level. On where those investments fall, clearly, white spots is a big opportunity. And as was correctly pointed here by some of you, while we're entering white spots, and this might be just the white spot in the category. But in certain markets, it does takes some time to come to breakeven and come to a positive profit position. Therefore, they're going to be a big part of the investment but also digitalization. We do need to step up. We are not quantifying them separately. But clearly, we have plans behind each area, behind each project, and we have cost estimates as well. And we will go, and then we will measure the success. And we will measure the success with defined KPIs framework. And if we need to [risk] here as we go, we will do so as well.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [35]

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And addressing the opportunities and not only this one, you will see already -- it's, at this moment, too early to concretely give you the idea, but you will see, already, in 2019 activities from us in that direction.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [36]

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Okay, [go to] Richard, and then we go to Celine again.

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Richard Taylor, Morgan Stanley, Research Division - Equity Analyst [37]

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Richard Taylor from Morgan Stanley again. In your presentation on tesa, you said that it's a valuable and integral part of the Beiersdorf Group. Should we interpret that as a new commitment to tesa? And because, previously, it was described as noncore and as a potential financial asset. So please, can you let us know your view on tesa?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [38]

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Yes. I think the interpretation, it is an essential part of the group, and it's part of the strategy to go forward as well. Yes.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [39]

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Okay, short answer. And then Celine, please.

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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 [40]

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Yes. My first question, I want to come back on the M&A because obviously, you have a huge cash pile. What we've seen in the sector is that there has been more focus on small to midsized brand to complement growth. So is that the way you look forward? Or you do not exclude that it could be more sizable? So if you could kind of explain a bit what -- when you talk about organic -- sorry, inorganic opportunities on that front. My second part is on innovation, coming back to some question earlier. You're talking about a product that has been developed for 11 years. At the same time, you said that 40% of the market is being taken over by small brands. Much of them do not have the R&D capability that you have. So I don't think the innovation being a long-term R&D driven necessarily is a success factor. So I'm just wondering whether -- where you stand there, being a bit -- questioning whether it's a bit long-term driven versus short-term opportunity needs.

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [41]

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[I'll take the first one, Jens]. So on the question on M&A and small brands versus midsized opportunities and the size of the opportunities out there. First, where we clearly have a segment portfolio gap are in the smaller niche segments. And there, we do need to fill up this portfolio, whether it is a natural, ultra-natural brand, et cetera. But yes, these -- some of those companies, which are companies now on the market for 5 to 10 years, which have gained some scale, but they are still very small, we are looking at those. And we are looking at those geographically also in Europe, in Northeast Asia, in the U.S., wherever there are opportunities to actually acquire companies like that to fill in a segment gap. We are not excluding opportunities which might be midsized opportunities, in particular, in markets which might be developed, and we are clearly underweight.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [42]

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On the innovation part, yes, they're very little or not to say, no players in this 40% of small brands that they're in remotely our R&D capabilities. I think the strategy, also in line with what Dessi just said, is that both elements are important. We see very well that a lot is happening that's maybe not R&D driven but very consumer-driven, very short -- or very short-term driven, niche driven. And we recognize, as we said, our necessity for that, what happens in the skincare market, to address. But it doesn't exclude that the competitive advantage we have in R&D capabilities to enhance specific skincare benefits will be a critical one in the long term. I think the 11 years is maybe an exceptional long period to drive something which is very impactful, but that is certainly one that we will have to continue to do, and that we will -- well, it's basically why we continue investing in them, even if it takes a more longer-term development. But it's one that we really believe we will make a competitive advantage and a difference.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [43]

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Yes, please.

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Pieter Willem Vorster, Crédit Suisse AG, Research Division - Research Analyst [44]

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Pieter Vorster from Crédit Suisse. I have 2 questions on La Prairie. Can you help us understand the quarterly progression of the growth rate, basically since Q4 2017? It seems we had 4 quarters of very strong growth, and now in Q4, we sort of fell back to where we were previously. Were there any one-off benefits, for example, in the way that you go to market, be it through agents or direct that they were accounting benefits? And the second question, is there an opportunity to bring manufacturing of La Prairie in-house? Or why are you sticking to your current model?

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [45]

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Let me take the second one?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [46]

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Okay.

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [47]

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So first, indeed, in the fourth quarter for 2018, our growth was at 14.3%, which was significantly lower than the previous 4 quarters. But that fourth quarter growth last year was on already high comps. But beyond that, in the first half of the year, we launched 2 major innovations, which I mentioned in my presentations, and they actually triggered a significant growth in the first and second quarter. However, what we need to say here, for the 14.3% in quarter 4 is that this is still above the segment, where it's still outperforming Selective, and we are confident going forward that we will continue to outperform the Selective segment.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [48]

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There was this manufacturing question, I think?

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [49]

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Oh yes, on the manufacturing question, yes, we're looking at different models. And we are -- to be honest, I don't know exactly [what it is] around this period, but we are moving there in, I would say, a mixed model of manufacturing but bringing it closer into our in-house or a corporation model than we had before. So we're moving the model in that direction.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [50]

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Okay. Row #3 is first, please.

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Unidentified Analyst, [51]

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What gives you confidence that EUR 70 million to EUR 80 million is going to be enough of a rebase?

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [52]

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The EUR 70 million enough as an investment.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [53]

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Yes. I think the investment that we take in order to address the issues and to capture very opportunities we described, we believe that the balancing out and the phasing as we go forward is the amount that we will have. However, I would like to emphasize as well that, certainly, '19, '20, that productivity gains will be also reinvested in the company in the first place in order to get to solidify the growth opportunity.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [54]

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Yes. And this looks almost like the final question. We'll take these 2 as final questions, [Harold] and then Alain, second.

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Unidentified Analyst, [55]

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I think you've mentioned a few times the success of the smaller brands. Well, I just wonder whether there's not a bit of confusion here because the smaller brand, what they're really getting is people trying new things, but what they might not be getting is future repeat purchases, so they kind of come and go. Because if you look at your friends in Paris or other places around the world, actually, it's their biggest brands which are doing really well. So isn't it more the case of having stayed relevant as a big brand rather than saying that it's the smaller brands which are -- have nibbled? And even -- take Unilever, for example, take the Dove brand, I think it grew 9% organic growth rate last year. I mean, it's pretty much as large as NIVEA. Clearly, it's across more categories. But it's clearly showing that you can deliver very strong growth. So I just wonder whether talking about the small brands as a sideshow, and it's much more about staying relevant as a big brand.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [56]

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I think this is a core question, generally, in the portfolio, but I think there are 2 elements here. A, yes, staying relevant with the brands and in the activities that we have is what we express and where in Europe we need to tackle innovation and so forth. However, I think the small brands have, obviously and any brand, by the way, also innovation, repurchase is key and acceptance of the consumer as part of a regular usage is also key. I think raising above that, these small brands individually might have this sustainability issue, but it is also an expression of trends and specific opportunities that are captured. And that is obviously the one that we are specifically looking at and should be watchful for. And for us, the challenge is to capture these trends, either integrating them in our key markets, maybe addressing them as specific brands in a way that we do the same thing as what we want to do: create an added value that really is the establishment of a specific consumer advantage that can have this long-term view going in. And I would say, blow the noise is obviously not of relevant for us, but the trend that it expresses is important.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [57]

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Okay. And well, the final question, please.

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Alain-Sebastian Oberhuber, MainFirst Bank AG, Research Division - Head of Equity Research Switzerland & MD [58]

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Alain Oberhuber, MainFirst. Just a question regarding data. Last year, obviously, and particularly in H1, you had tremendous growth rate there. Some of your competitors [boarding] the adhesive side, in particular because of China and auto manufacturing. Could you give us a little bit insight what we could expect then, how the pattern will be this year, slow growth or even negative H1 and then an acceleration or -- I'm right, or how is -- could be the development?

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Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [59]

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I'll take that one. First, we will not be guiding by quarters. But what we do see is that, first, the automotive industry, in particular in the U.S., has significantly softened the demand, and that is the large part of our portfolio in the U.S. On the Asian side, there is -- there are some slight softness in demand from electronics -- consumer electronics companies in Asia, but it is not significant. So we are fairly positive on our performance, and we're confident on the growth of tesa that we are guiding for 2019.

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Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [60]

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Okay. So this concludes the Q&A session. Thank you for the questions. Thank you for coming. Thanks for interest in Beiersdorf. Thank you very much. We conclude the session.

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Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [61]

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Thank you very much.