U.S. Markets closed

Edited Transcript of BEI.DE earnings conference call or presentation 6-Aug-19 7:00am GMT

Half Year 2019 Beiersdorf AG Earnings Call

Hamburg Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Beiersdorf AG earnings conference call or presentation Tuesday, August 6, 2019 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* 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

================================================================================

Conference Call Participants

================================================================================

* 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

* Gian Marco Werro

MainFirst Bank AG, Research Division - Analyst

* Guillaume Gerard Vincent Delmas

BofA Merrill Lynch, Research Division - Director

* Iain Edward Simpson

Barclays Bank PLC, Research Division - Analyst

* James Edwardes Jones

RBC Capital Markets, LLC, Research Division - MD and Analyst

* Jörg Philipp Frey

Warburg Research GmbH - Senior Analyst

* Mirza Faham Ali Baig

Crédit Suisse AG, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. I'm Stewart, your Chorus Call operator. Welcome, and thank you for joining the Beiersdorf Conference Call Half Year Report 2019. (Operator Instructions)

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

--------------------------------------------------------------------------------

Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [2]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone. I would like to welcome you to Beiersdorf's half year conference call. I'm Jens Geißler, and here with me in our Hamburg offices is Beiersdorf CEO, Stefan De Loecker; and our CFO, Dessi Temperley. As usual, we will first present our numbers and the business review, and afterwards, we'll have a Q&A. (Operator Instructions)

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

--------------------------------------------------------------------------------

Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [3]

--------------------------------------------------------------------------------

Thank you, Jens, and good morning to you, ladies and gentlemen. Also, I would like to welcome you to today's conference call on the results of the first half of 2019. I appreciate your interest in our company's performance, and now, we'll give you an overview of our performance activities during the first 6 months of this year. Following that, Dessi Temperley, our CFO, will present to you our half year results.

Ladies and gentlemen, as already mentioned in February, consumer goods industry is undergoing its historical disruption. This also affects the skin care business. Our entire business model needs timely adaptation due to new market realities and fast-changing technology challenges. At the same time, these challenges changes over extensive growth opportunities particularly for our company. Our response with these disruptions and opportunities is our C.A.R. E.+ strategy.

First, we set up a multiyear investment program accounting for EUR 70 million to EUR 80 million additional investments into the business. Our aim in this strategy is to outperform the market, create added value for our consumers with higher-margin products and innovations and ensure sustainable profitability. We are convinced that we are on track with C.A.R. E.+. The needle is moving in the right direction. We made significant progress with every strategic priority.

Over the past month, we have consistently doing forward the implementation of our 5 strategic priorities, the acquisition of Coppertone showcases and particularly the efforts to unlock our white spots. We're also further intensifying our consumer centricity and focusing even more on local consumer needs not only through greater use of digital channels, but also through the expansion of our global manufacturing footprint. We focus on skin care, a category with great and attractive growth potential. Skincare has been our core area of expertise for over 135 years, and we're broadening this position of competitive strength decisively. Breakthrough innovations lift us above the competition and provide our consumers with distinct added value.

At the end of February, we introduced to you a breakthrough innovation, Thiamidol, an effective ingredient against hyperpigmentation developed and patented by Beiersdorf. During the development, the [consumer] was always top of mind with hyperpigmentation being one of the most common skin concerns around the globe affecting half of the world's female population. We can now really say confidently that 11 years of pioneering work of our expert research and development is paying off. The success is truly evident. The interest shown by internationally renowned dermatologists and scientists in Thiamidol as our -- and our anti-pigment range at the World Congress for Dermatology far exceeded our expectations. That also applies to the acceptance of our consumers who perceived the noticeable performance we have had this year with the anti-pigment range, which we introduced in more than 20 countries, and then just to date our most successful innovation from Eucerin in the history. The outstanding success in the past month has made Eucerin the world's #1 expert for even skin.

Besides Thiamidol, also other successful innovations this year demonstrate high consumer acceptance including the NIVEA Cellular Elasticity Filler. Its formula consists of a skin compatible combination of the cell-activating ingredient, hyaluronic acid, collagen booster and elastin booster, which help reduce wrinkles and improve elasticity especially in mature skin. The product range has performed extremely well over the last month.

In the selective skin care luxury segment, our La Prairie brand has seen sustained vigorous growth. The core skin caviar collection continued to perform exceptionally well. In addition, we bolstered the outstanding performance of the brand to new products such as Supreme Balm Cleanser, a deep cleansing facial care, which freezes skin from impurities and respect its natural moisture barrier during cleansing.

Ladies and gentlemen, as I've mentioned in the beginning, we are accelerating in white spots and we are investing in skin care to key aspects of our C.A.R. E.+ strategy. I'm therefore very pleased that we were able to expand our leading position as sun protection specialist by the acquisition of the iconic U.S. brand, Coppertone. This is a brand synonymous in its own market for sun protection and well suited to Beiersdorf with its market positioning. The acquisition is of key strategic importance for us. Protecting the skin against the negative impacts of harmful sun exposure is an essential and still rising worldwide skin care challenge. A global rise in the incidence rate of skin cancer increased sun exposure underpinned of utmost important to address this need. With the acquisition of Coppertone, we are further strengthening our presence in the skin care category, and thus, together with our brands NIVEA and Eucerin, we are the global leading expert in sun protection.

Coppertone also gives us access to the world's largest market for sun care products, the United States of America. We believe that with this acquisition, there is significant potential for synergies with our business, and we are convinced that, going forward as skin care and leading sun care protection expert, we will leverage the full growth potential of this iconic brand. The transaction is scheduled to be completed at the end of August. For that reason, we are now focusing on preparation for a successful integration as from September. The entire company is already very excited not only to welcome new employees, but also to onboard another strong skin care brand to Beiersdorf's portfolio and develop it further.

Ladies and gentlemen, to ensure competitive sustainable growth, we're strengthening our position globally. To achieve this, as already mentioned, the consumer centricity is all important for us. We are currently, systematically, investing and expanding our manufacturing capacities and capabilities. During this quarter, the most prominent project in this area include our expansions in India, Thailand, Brazil and Spain. And here, I'd like to emphasize that all these efforts are being carried out with a clear commitment to sustainability in the individual regions.

We successfully completed the key expansion project in June this year in India resulting in a significantly increased production capacity. We have invested around EUR 20 million in the second phase of our planned expansion in Sanand near Ahmedabad in India. What is unique about this plan is that one of our local R&D centers is also located here. With this expansion, we are investing further growth in the Indian market and particularly through local product innovation, locally produced and tailored to the needs of consumers in India and this further building on our success story.

We've also commenced the expansion of our production capacity with Thailand project in Thailand, which likewise marks a strategic key step to strengthen our local presence and further increase growth in Asia Pacific region. Just a few weeks ago, in July 11, the new state-of-the-art building for the production of deodorant roll-ons was inaugurated with the total investment volume of EUR 67 million for the expansion project. Product capacity and talent has increased by up to 50%.

In May, the team at our plant in Itatiba in Brazil successfully began the first aerosol production for the market. And this month, we will celebrate the completion of the expansion of production and delivery capacity in Brazil. We have invested around EUR 70 million in the expansion of production capacity in the plant.

On June 19, we celebrated a groundbreaking for our plant expansion in Tres Cantos, Spain. Over the next 3 years, we will expand the plant to 12,000 square meters with the aim of increasing production capacity by 74%. We are investing a total of EUR 55 million in new buildings, technological infrastructure and the integration of new machines and equipment.

Ladies and gentlemen, rapidly increasing digitalization across all business segments is key to the success of our company. Digitalization is rewriting the rules of how consumers engage with brands. We're using this is an opportunity not only to invest in digital expansion, but also in digital capabilities to get us closer as possible to consumers along the consumer journey. The consumer journey is the central element of our digital strategy. It's compromised all consumer touch points with our brands and products. We integrate the seamless consumer experience throughout the consumer journey and to make the brand visible, shoppable and lovable.

C.A.R. E.+ also represents another dimension of our commitment, sustainability and social responsibility. Sustainability is one of the most important expectations consumers have. This is an obligation for us, and we've significantly strengthened our commitment.

Let me give you a few examples. Palm oil is an important raw material for the production of our cosmetic ingredients. We, therefore, take our responsibility seriously to contribute to a deforestation-free sustainable palm oil industry.

We take a threefold approach: we prefer certified palm oil, strive for a transparent supply chain and engage in smallholder support. Our efforts have been rewarded with a CDP "A" list rating on the Carbon Disclosure Project. We're one of only 4 companies that have achieved this highest recognition by one of the leading rating agencies regarding environmental performance and reporting.

Secondly, climate change mitigation is one of the guiding principles of our commitment to sustainability. In order to lower our emissions, we shall switch -- we will switch to 100% electricity off from renewable sources by 2020. This effort led the highest percentage decrease, 33%, of energy-related CO2 emissions within the DAX 30 from 2017 to 2018.

At the beginning of this year, we also announced our sustainable plastic packaging pledge. The first pledge of many is the current launch of our NIVEA face cleansing oil whose bottles include 25% recycled PET. In addition, we will make sure that 100% of our packaging is recyclable, reusable or compostable by 2025.

Ladies and gentlemen, you can see that we're on track with C.A.R. E.+ in consistently accelerating our strategic priorities. The first 6 months show that the needle is moving in the right direction throughout the entire business. However, we are still on our way.

I'd now like to hand over to Dessi Temperley who will present the financial results. Thank you for your attention.

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [4]

--------------------------------------------------------------------------------

Thank you, Stefan, and good morning, everyone. Before I dive into the group figures for the first half of 2019, I would like to update you on one aspect of the productivity building block of our strategy, namely value engineering. We have identified 3 pillars in our value engineering program: value-up, cost-down and a change in mindset and approach in launching new products. At this point, I will talk about the progress we are making on the cost-down pillar where we look at 3 levers: smart buying for foreign packaging materials, smart products that is built around what the consumers' value and are prepared to pay for, and regular reviews of product benefits according to the life cycle of the product line.

To give you specific example on the group of projects we are working on linked to light-weighting of our packaging materials for our deodorant cans, shower and body bottles and caps as well as body wash and pumps where we see opportunities to significantly reduce the volume of materials used. Very importantly, this project contributes directly to another one of our strategic priorities, which is sustainability and specifically linked to our initiatives on reducing packaging waste.

Now we move to the first half year results, and with that, with the key figures for the group. Sales increased organically by 4.8%. Foreign exchange movements of 1.0% positive and acquisition effects of plus 0.4% led to nominal growth of 6.2%. Our EBIT margin excluding special factors at the group level stood at 15.4%, mostly the result of the investments in line with our C.A.R. E.+ strategy. Please note that in relation to the acquisition of Coppertone, fees of EUR 11 million were booked as one-off special factor item before tax. Profit margin after tax excluding special factors was 11.1% driven by an improved financial results of plus EUR 6 million. We are back to positive territory here after 2 years of net losses. Earnings per share excluding special factors increased to EUR 1.84 or up by 4.5% versus previous year.

Now some details on our performance by segments. Consumer sales increased organically by 5.3% with a nominal growth of 6.4% impacted by positive foreign exchange movement. The consumer EBIT margin was at 15.3%. tesa sales increased organically by 2.4% after double-digit growth in the same period of last year. Both the acquisitions from 2018 and the positive FX impact led to a nominal growth rate of tesa of 5.5%. tesa's EBIT margin decreased to 16%, mainly due to the dilutive impact from acquisitions and, to a lesser extent, to a reduction of the underlying margin.

Let's move now to our Consumer Business and the growth components there. Consumer growth of 5.3% remains strong with positive contribution from all business units and geographies to bearing expense. As a reminder, the sales growth of Argentina is calculated based on current year average exchange rates, and therefore, reported organic growth incorporates the material devaluation of the Argentine peso. Had the sales growth of Argentina being reported as constant currency rates like the rest of the countries' growth in our portfolio, consumer organic sales growth should be at 4.2% for the second half -- for the second quarter and 5.8% for the first half of 2019. It is also worth mentioning that since the announcement of placing our SLEK hair care business in China under strategic review, the sales performance of this business is further deteriorated compared to previous years. The impact of the sales losses of this SLEK brand is negative 40 basis points on our consumer results for both the second quarter and for the half year.

Finally, in the second quarter in particular, the unfavorable weather conditions in Europe led to a materially negative impact on sales growth. As a reminder, we also have some positive phasing benefits in the first quarter of the year, which affected the second quarter.

Before going to the regional sales performance, some highlights on the growth performance of our brands. Our core brand, NIVEA, notwithstanding the aforementioned weather impact, grew at a solid 3.2% in the first half. The growth rate in the second quarter was 1.6%, also impacted by phasing between the 2 quarters.

Our Derma business accelerated on an already strong first quarter results reporting growth of 7.7% in the second quarter and 6% in the first half of the year with excellent growth in Thailand and strong growth in Germany.

I would like to make a special mention here of our groundbreaking anti-pigment innovation, the most successful launch of Eucerin with significant market share gains in those markets where we have introduced the new product line. Aquaphor continues to grow double-digits as well.

In our health care business, we had a subdued quarter after an unusually strong first quarter resulting in growth of 0.7% in the second quarter and 3.7% in the first half of the year.

La Prairie kept up the pace with another very strong quarter with the growth rate of 24.6% in the second quarter and 26.8% in the first half year, well above the growth rates of the selective skin care market. Travel retail and Asia are the main drivers of growth, underpinned by new launches and previous year successful innovations.

On the next couple of slides, I would like to elaborate on our regional performance starting with Europe where we increased sales by 2.8%. Western Europe grew by 3.3% in the first half. La Prairie's travel retail business had a meaningful contribution to this result being reported under Western Europe. Adverse weather conditions were the main negative impact in the second quarter. It is worth remembering also that between March and April last year, there was a shift in sales from our deodorant relaunch, which pushed sales out from Q1 into Q2 in 2018. On a country level, Germany reported very positive results where France and U.K. had lower sales. Eastern Europe was slightly up at 0.4%, still challenged by tough multiyear comps and the difficult retail environment in Poland.

Now to illustrate the impact. The weather continues on a seasonal category such as the sun care category. As you can see from the weather data on sunshine hours in Europe, with the month of May being the case in point here, Central and Northern Europe saw materially less of it compared to last year. This is also where most of the key markets are for our sun care business. Weather in Southern Europe was only marginally better, and it was not sufficient to compensate the above development. While sun care is a category, the smallest consumer and NIVEA growth category, it is an important contributor in the second quarter of the year, and hence, the weather conditions can have noticeable effects on overall growth. According to the Nielsen data, the sun care market in Europe was down in the second quarter versus the same period of last year.

Next is the Americas region with 4.4% organic growth. Adjusted for Argentina, its constant foreign exchange rate, the growth rate would have been 9.1%. North America recorded a slight increase of 0.7% in organic sales despite our group competitive performance but in a weak body care market. Latin America accelerated in the second quarter and reported organic growth of 10% for the first half. Adjusted for Argentina at constant FX, we delivered an even higher growth of 15.9%.

In Latin America, we are particularly pleased with the performance of our business in Brazil where we reported double-digit growth driven by excellent share gains in a market, which is back to growth. Mexico continues to be another main contributor with double-digit growth in the quarter.

Finally, in Africa, Asia and Australia regions, we reported organic growth of 9.2% with growth in almost all markets. La Prairie again delivered an excellent performance in Asia and travel retail. Moreover, we saw a strong performance in Japan, India, Central and South Africa as well as Indonesia. In China, we recognized that there is still much work to be done in order for us to capture the growth potential of the market.

On our gross margin. At the start of this year, we committed to reverse the material downward trend of the previous years with the target to sustain and improve this line of the P&L. We have managed to deliver on these targets in the first half of this year. The gross margin of our consumer segment was up by 40 basis points. We hit positive impact from both pricing and mix of 50 basis points each, which more than offset the higher raw and packaging materials cost as well as FX headwinds of 40 basis points on transactional level.

Turning now to our margin performance. The Consumer EBIT excluding special factors stood at 15.3%. Along the P&L line, general expenses were lower as the percentage of sales driven by our efforts to contain structural costs. The R&D expenses were materially up as we invested in our product innovation capabilities being part of the C.A.R. E.+ strategy. We also attributed additional investments in marketing activities aligned with our strategic priorities.

On the other operating result line of the P&L, first half of last year, we had a material positive one-off effect from the sale of land while, this year, we have negative hedging effects as well as one-off project costs linked to the strategy execution.

Before we conclude with the guidance, some color on tesa sales performance. In an environment of adverse trade conditions, tesa accelerated itself in the second quarter. It ended the first half of the year with organic growth of 2.4% despite a tough double-digit comp from the same period of last year. Direct Industries grew by 2.4%. We improved on the first quarter and reported double-digit growth in Asia with strong performance in the electronics business. However, we continue to face weak demand in automotive, which impacted all geographies but particularly our Americas region. Trade Markets delivered 2.4% organic growth as well with good competitive performance.

The guidance for 2019 remains unchanged at this point. The Consumer Business Segment is expected to achieve organic growth of 3% to 5%, but please note, we are now aiming at the upper end of that range. We're still keeping the 3% to 5% range though as we see potential risks ahead. The EBIT margin is expected to be at 14% to 14.5% from ongoing corporations with the impact of the Coppertone acquisition not included. The tesa business segment is expected to grow organically by 3% to 4%. At this point, we expect to be closer to the lower level of our growth guidance. tesa's EBIT margin for full year 2019 is expected to be slightly below previous year. At group level, organic growth forecast is 3% to 5% and the EBIT margin on ongoing corporations is still at around 14.5%. The profit after-tax margin will be slightly below previous year.

Thank you for your attention. Now back over to Jens for the Q&A session.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

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

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is Guillaume Delmas from Bank of America.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Two questions for me. The first one on your gross margin and your ambition to structurally enhance your gross margin. So could you give us an update on your progress in accelerating your growth in skin care for NIVEA and therefore, reducing the gap versus your growth in personal care for that brand? And I guess, still on the gross margin topic, we've been hearing for quite some time now about the deflationary pressures in Western Europe. So my question here would be do you see some scope for rationalizing your promotional investments in the Western Europe or the price elasticity such that at least for the time being, you need to maintain this promo at a high level?

And my second question is on white space -- white spots. Japan again highlights, must have been 3 or 4 years now, that you're outperforming Japan. So clearly, a sign that your partnership with Kao is doing incredibly well. So when we think about white spots given your lack of critical mass in some countries, could partnership such as the one you've got with Kao be an opportunity?

--------------------------------------------------------------------------------

Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [3]

--------------------------------------------------------------------------------

Thank you for your question, Guillaume. On the gross margin, a couple of comments. We see in the first half of the year that the -- comparably to before that the skin care is accelerating faster than the personal care as such, and that obviously gives an impact on the gross margin as such. The driving gross margin and also linking to your comment on the deflationary effect, without any doubt, the deflationary effect and the promotional intensity remains very high in Europe, but they're also very dependent from the category in the segment we're talking about. So the right focus on the portfolio on where to invest and where to generate and how to generate growth has a massive impact on the gross margin, notwithstanding this intensity. But the other fact, we also see that the intensity is spreading, I will say, to more segments that are -- where the promotion intensity is falling as such. And so far, the drivers going forward as well in the ones that we have been focusing on have to do with portfolio. The accredited value of innovation and efforts in revenue growth management and the project of value engineering, as Dessi just introduced, it's going to be the span of these actions focused on the right portfolio parts -- or the right parts of the portfolio that will drive the gross margin.

As far as the white spot's acceleration is concerned, I should say, indeed, the Kao partnership has been very long standing, a very successful partnership unlocking our potential in Japan. And in general part, I would say, that no model de facto is excluded in order to unlock white spaces. But it's not something that now, immediately, would be the #1 way of going into other major markets.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question is from James Edward Jones from RBC.

--------------------------------------------------------------------------------

James Edwardes Jones, RBC Capital Markets, LLC, Research Division - MD and Analyst [5]

--------------------------------------------------------------------------------

Your sales and marketing costs and your general and admin costs fell a substantial sales in first half, but in the opposite direction, the other cost line took about 150 basis points of your EBIT margin compared to last year, as you've explained. I'm struggling to reconcile this with the C.A.R. E.+ investments you've been talking about. It's hard to conclude that the margin decline is really about investment and doesn't do as much guidance what to expect in the second half of this year or future years. Now can you perhaps clarify this a bit further, please?

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [6]

--------------------------------------------------------------------------------

So thank you for the question. First on the sales and marketing costs going down as a percentage of sales, yes. That is driven, first, by the fact that we are streamlining our structural costs and that has also an impact on our sales and general expenses, both. In terms of marketing investments, in fact, we have increased our marketing spend first in absolute numbers, and we are now also shifting marketing spend according to our strategic priorities. And in terms of percentage of sales, it is only slightly below. And as I said, we're investing more in digital capabilities, more behind digital media as well and certainly following on our commitment to support our skin care growth.

In terms of the other items, last year, we had a significant positive impact from the sale of lands in China, which I earlier flagged out. When it comes down to the negative impact this year, it is driven by 2 factors mainly, although this is a line of the P&L where we have a number of different types of expenses, the 2 main factors here are asset hedging negative impact is the first one and the second one are one-off project costs, which are linked to our investment. They are project costs linked to, first, the programs we are implementing including the productivity program. But beyond that, also some of the one-off project costs in digital and other initiatives according to the C.A.R. E.+ strategy.

--------------------------------------------------------------------------------

James Edwardes Jones, RBC Capital Markets, LLC, Research Division - MD and Analyst [7]

--------------------------------------------------------------------------------

So Dessi, just trying to understand a bit further. Should we expect to see those sales and marketing costs increasing as a percentage of sales in the second half of the year in 2020, in 2021? Or will those continue to decline? And I guess the same about general and admin costs, which we will see down in the first half as well?

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [8]

--------------------------------------------------------------------------------

So for general and admin costs, we are committed to contain those and for this, in terms of percentage of sales, to go down. When it comes to marketing expenses, we, for sure, will invest more in absolute terms and we would expect that marketing investment as a percentage of sales will stay around the same level as last year.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

The next question is from the line of Celine Pannuti from JPMorgan.

--------------------------------------------------------------------------------

Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [10]

--------------------------------------------------------------------------------

So first of all, I wanted to come back on some of the key growth drivers in the first half. One at La Prairie and Latin America, which would be accelerated in the second quarter. So on those, could you give us a bit -- help us to understand the strength and how -- whether this will be sustainable in the second half of the year, so La Prairie and Latin America, please?

And my second question is on Coppertone. You spoke about the strategic benefit. Could we get a bit more data point in terms of what kind of growth rate you're ambitioning and how long it's going to take for you to get where you want to be? And could you help us as well to propose numbers, understand what would be the impact on margin or EBIT in the second half of the year? And what is the EUR 11 million cost that you took in the P&L since it's not yet closed?

--------------------------------------------------------------------------------

Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [11]

--------------------------------------------------------------------------------

Coming on the growth drivers and the sustainability on La Prairie and Lat Am. La Prairie is continuing its performance and also relative performance in what is still a very buoyant market, and we're seeing this dynamism to continue. As such, the growth drivers we've explained are the same. As I said strong innovation-driven luxury skin care while we are rationalizing and more limiting the presence and the doors in the market. So this cleaning of distribution, making it more exclusive is still part of the strategy.

Lat Am is bouncing back and bouncing back strongly, very driven by Brazil, but also by Mexico. And Brazil is very much, I would say, C.A.R. E.+ in action with a lot of focus on skin care categories where we can drive innovation or we can drive excellent execution to counterbalance the enormous weight of the deo assortment. So that is both for growth that it's very much driven by, I would say, a better focus of strategy before. And the same applies for Mexico that was already on that way. We expected that, that performance for the second half of the year will continue in this level.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So thank you, Celine. I'll take the second question on Coppertone and on the various sub questions within that. In terms of growth, currently, the North American market is growing at around 2% to 3% in sun care, and our plans, mid- and longer term, are to outperform the market where the market is going to be especially given that this is a weather-affected market year-by-year. We cannot estimate that. However, we are confident that we will be able to gain market share once we take over the brand.

In terms of the EUR 11 million costs, these are financial and legal fees linked to the transaction, consultancy fees as part of the pre-integration work as well as insurance fees, again, linked to the acquisition. The EBIT impact at that point, we are still working on the described location, it is in progress. So I cannot to give you a specific number. We do know, however, the [PPA] is going to have an impact like for any other acquisitions. And also in terms of the business, once we take over in September, we have 4 months left of the year, and these are going to be 4 months of season. So it's clearly early for us at that point to forecast what exactly the P&L is going to be. And we hope to be able to give you more details once they actually -- the business is under our management and have a lot more visibility of how things are going.

--------------------------------------------------------------------------------

Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [13]

--------------------------------------------------------------------------------

Okay. Can I just follow up on the previous question? And you said that marketing as a percentage of sales will be the same as last year. How do I reconciliate your investments for the year, EUR 70 million to EUR 80 million? So where should we see those costs?

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [14]

--------------------------------------------------------------------------------

So first, they are investments on various lines of the P&L, some of these are in other. We have investments in marketing because we are looking at sales and marketing here. And while we are planning to be around flat as a percentage of sales, we are going to be significantly higher in absolute terms. In addition to that, we have significantly increased our R&D expenses. These are up not only in absolute terms, but only 20 basis points up as a percentage of sales, and these are following our strategic priorities as well in R&D.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

The next question is from the line of Iain Simpson from Barclays.

--------------------------------------------------------------------------------

Iain Edward Simpson, Barclays Bank PLC, Research Division - Analyst [16]

--------------------------------------------------------------------------------

Two questions from me, please. Firstly, you say that your haircut business in China was a 40 basis point headwind to consumer organic sales growth. Could you just tell us how much that business was down year-on-year? Would I be right in thinking sort of mid-teens or so?

And then secondly, thinking about sun care, you mentioned that it was the headwind in Q2. Could you give us an indication of the state of that headwind, please? And then following on from that, it feels like we had pretty good weather in July in Europe. How's the weather shaping up for Q3? And should we expect some positive sun care results there?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So okay, I'll take those questions. Thank you for the questions. In terms of our SLEK growth or negative growth, it is strongly double-digit negative. We do not disclose the exact number, but I can say that it is above mid-teens. In terms of the sun care, again, without disclosing the specific number, what I have to say is if we exclude the sun care category result from our overall European result, then the impact is material. And as the observation of the weather in July is very various one, and we are seeing very positive results in our sun care category in July.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from Gian Werro from MainFirst.

--------------------------------------------------------------------------------

Gian Marco Werro, MainFirst Bank AG, Research Division - Analyst [19]

--------------------------------------------------------------------------------

Quick question also on Coppertone and your -- one on your OSCAR&PAUL launch. So for Coppertone, I just wonder if you can give us some more light in relation to your expected synergies from a research and development-related potential. And then for your OSCAR&PAUL setup, just wonder, you also mentioned in a press release that we can expect new launch, one of the first launch since 30 years, a new brand. Can you probably give us also some more light in relation to this upcoming event?

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [20]

--------------------------------------------------------------------------------

Okay. I'll -- thank you for the questions. I'll take the Coppertone one first, and then Stefan is going to take the second question. In terms of synergies from Coppertone, we are looking at both revenues and cost synergies. On the revenue side, we do see a potential to geographically expand that brand in certain geographies. We believe that it can be where we [first] have a strong presence and where it can be a -- grow meaningfully. Either way, we do not have presence of our NIVEA brand or where in sun care or where we still believe that the plan has a very higher one as it can, in fact, be present next to the NIVEA brand as well.

In terms of cost synergies. First, we see full integration potential in terms of the sales force especially in North America where we go to the same customers. And second, we are planning to fully integrate the business back office-wise, IT, et cetera. So from that perspective, we plan to realize full cycle [synergies] as well.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Dessi. On OASCAR&PAUL, this is basically, I would say, the third part of our brand portfolio, being the #1 in NIVEA and obviously beyond strategic brands. The second one is that there is, as already said in February, a large opportunity for us to activate smaller brands with more specific positioning. [Also in Poland, we, first,] as well, I think very nicely to the heritage of Beiersdorf driven by a combination of innovation and in skin care. Now you will understand that what we have in the pipeline as a brand, I cannot comment at the moment, but more is coming indeed in the second half of the year already.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

The next question is from the line of Philipp Frey from Warburg Research.

--------------------------------------------------------------------------------

Jörg Philipp Frey, Warburg Research GmbH - Senior Analyst [23]

--------------------------------------------------------------------------------

I'm going to come back on the C.A.R. E.+ investment as well. And can you give us an idea of how much of this EUR 70 million you've already spent in the first half?

And secondly, you've stressed that your marketing is increasing in absolute numbers, but I hope I understand it right that the increase of marketing due to the uplift in sales is not included in this EUR 70 million, just to clarify that. And do you still have a positive impact in the second half already due to the capacity increasing production that you've launched?

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [24]

--------------------------------------------------------------------------------

Yes. Okay. Thank you. I'll take the marketing question and the phasing of the EUR 70 million to EUR 80 million. So clearly, once we announced the strategy, which was at the end of February, we only then started with the additional investment and gathering momentum. So the first half of the year is light-weighted compared to the second half of the year. So we're investing significantly less in the first half compared to the second half. In the second half, we are accelerating especially as we continue to launch new projects linked to the various initiatives.

In terms of marketing spend, I will repeat that we will increase the marketing spend in absolute values. And in terms of percentage of sales, we plan for that to be around the same level as previous year.

--------------------------------------------------------------------------------

Jörg Philipp Frey, Warburg Research GmbH - Senior Analyst [25]

--------------------------------------------------------------------------------

May I interrupt? But if you say your 5% organic sales growth, this 5% growth of marketing that you get at a stable percentage of sales, do you count that to the EUR 70 million or not?

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [26]

--------------------------------------------------------------------------------

Well, the question here is if we did not have the extra investments, our market expense percentage-wise will probably have gone down, and we would -- as it has been the case in the previous years where we have rationalized market expense in order to be able to contribute to the bottom line. So it's a judgment call what could we have done had we not invested and that probably would have been a reduction percentage-wise. The fact that we are choosing to invest in marketing, the rate of our growth is something which is directly linked to our strategy plus -- C.A.R. E.+ strategy.

--------------------------------------------------------------------------------

Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [27]

--------------------------------------------------------------------------------

The same weighing or I would say the ramping up of the C.A.R. E.+ investments applies, I would say, almost obviously as well for the capacity -- the production capacity projects that we mentioned. They are ramping up as we speak. But the real impact, you will only be able to see as from 2020.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question comes from Eva Quiroga from Deutsche Bank.

--------------------------------------------------------------------------------

Eva Quiroga-Thiele, Deutsche Bank AG, Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

I have one question and two small follow-ups, please. The question is on Eucerin. Can you maybe talk a little bit about what's behind that step-up in growth on slightly tougher comps? Is that a reflection of the new product launch at the start of the year? And in terms of confirmation, the 3% to 5%, when you said this is now at the top end of the range, does that apply to consumer or overall? And secondly, SLEK, the 40 basis points, is that an H1 number? And what's the momentum being between Q1 and Q2, please?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Good. On Eucerin, the Eucerin growth is driven by 3 major grounds. The number one is the performance in the top markets, Germany, Thailand doing extremely well. That is also driven by, obviously, underlying the innovation as we already mentioned in the beginning the fact that Thiamidol is doing extremely well and most of our number of other innovations that have hit the market. And the last one is the number of new markets on which we entered like Brazil. And the preparation on what we are also doing in Russia are contributing to the success of Eucerin.

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [31]

--------------------------------------------------------------------------------

On the second question with regards to the guidance for Consumer, we are saying that we are now guiding at the upper range of 3% to 5%.

--------------------------------------------------------------------------------

Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [32]

--------------------------------------------------------------------------------

The SLEK.

--------------------------------------------------------------------------------

Eva Quiroga-Thiele, Deutsche Bank AG, Research Division - Research Analyst [33]

--------------------------------------------------------------------------------

Sorry, on SLEK, yes.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And in terms of the SLEK momentum, it's very difficult to quantify this now, but we would expect the contraction of sales to be at around the same pace for the second half as well.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

The next question is from the line of Faham Baig from Crédit Suisse.

--------------------------------------------------------------------------------

Mirza Faham Ali Baig, Crédit Suisse AG, Research Division - Research Analyst [36]

--------------------------------------------------------------------------------

Can I please come back to NIVEA and Western Europe, please? If I exclude travel retail from Western Europe, I estimate your growth was probably minus 2% and I give you the benefit of the doubt that sun care probably had a 2% impact in Q2. It probably leads to a flat performance. What are the category growth dynamics within that performance and how's that comparing to the market? That's my first question.

And on my second question, sort of a follow-up. If we get that sun care performance back of around 2% in Q3 and NIVEA accelerates, and you said earlier in the call that you expect La Prairie strong performance to continue and Eucerin seems to be doing exceptionally well, then that puts you in a very comfortable position to do at least the upper end of 3% to 5% in -- for the full year in Consumer. Now Dessi, I believe, earlier in the call, you mentioned there are some mitigating factors that you see currently. Could you maybe highlight some of those to put a perspective on full year growth?

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [37]

--------------------------------------------------------------------------------

So thank you for the question. I'll take this one. In terms of the minus 2% negative growth, now it is not that negative, but I can confirm that it is slightly negative, the growth for Europe. And if we exclude the sun care performance, the performance will be positive in the second quarter, slightly positive. Now if we look at, apart from the sun care performance, what the drivers are, we mentioned the phasing in sale, the phasing impact between Q1 and Q2, and that is a significant driver because deo is our largest category and that has a negative impact in Q2 while, at the same time, our skin care categories excluding sun actually have a positive overall impact.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I see the in-market performance in Europe is overall positive. So far market shares are, I would say, slightly up as such, and that is, in general, throughout the different categories. Obviously, there are ups and downs between the different -- between the markets, and generally it's above -- slightly above market.

--------------------------------------------------------------------------------

Mirza Faham Ali Baig, Crédit Suisse AG, Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

My second follow-up was just on some of the mitigating risks you see in Consumer for the full year, which resulted in reluctancy to increase consumer guidance.

--------------------------------------------------------------------------------

Stefan De Loecker, Beiersdorf Aktiengesellschaft - Chairman of the Executive Board & CEO [40]

--------------------------------------------------------------------------------

Well, we moved the guidance to the upper end...

--------------------------------------------------------------------------------

Mirza Faham Ali Baig, Crédit Suisse AG, Research Division - Research Analyst [41]

--------------------------------------------------------------------------------

Well, I was just -- sure. I was just -- my question was -- my second question was pretty much that in Q3, which as you pointed out in July, we should get a positive impact in sun care. And you mentioned earlier that La Prairie should continue to grow very strongly. Clearly, Derma is accelerating. And earlier in the call, I think Dessi suggested that there are some mitigating risks that we see in the second half. If you could expand on those risk factors, that will be helpful.

--------------------------------------------------------------------------------

Dessi Temperley, Beiersdorf Aktiengesellschaft - CFO & Member of Executive Board [42]

--------------------------------------------------------------------------------

Yes. Well, thank you. Now I understand where you're coming from. I did mention potential risks that we see in the market, and they are linked to consumer confidence. They are also linked to, specifically, also U.S.-China trade conflicts. At the moment, [they're also linked]. So we see risks, which are linked specifically to the market and -- the skin care market overall, but specifically also the selective skin care market. Now we do plan to outperform the market. But if the market is softer, if the consumer confidence is significantly reduced, then, of course, that is going to have an impact on our growth potential as well.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

There are no further questions. At this time, I would like to hand back to Mr. Jens Geißler for closing comments. Please go ahead.

--------------------------------------------------------------------------------

Jens Geißler, Beiersdorf Aktiengesellschaft - Head of IR & Corporate Treasurer [44]

--------------------------------------------------------------------------------

Thank you. And thank you for having joined our session today. Beiersdorf's next Investor Relations event will be the conference call for our 9 months result on the 29th of October. We appreciate your interest in Beiersdorf. Thank you, and goodbye.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

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