Beiersdorf Ag

ladies and gentlemen thank you for standing by welcome and thank you for joining the q3 results 2023 conference call for best of ag throughout today's recorded presentation all participants will be in the listen only mode the presentation will be followed by a question and answer session if you would like to ask a question you may press star followed by one on your telephone Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Jens Keisler, Head of Investor Relations. Please go ahead.

Thank you, Zico. And welcome to Biostoff's third quarter conference call. Here with me this morning is our CEO, Vincent Warnery, and our CFO, Astrid Herrmann. We would like to share with you Biostoff's business results of the first nine months of 2023. We will start with the presentation and the business review. But before we get going, let me make some technical remarks. Throughout today's presentations, all participants will be in listen-only mode. The presentation will be followed by a question-and-answer session. When you register for Q&A, please remember that there is a limit of two questions per caller. And with that, I will now hand over to Vincent.

Thank you so much, Jens, and good morning. It is my pleasure to welcome you to today's conference call regarding our business performance for the first nine months of 2023. This is the first time I'm talking to you from the Biosdorf campus, our beautiful new global headquarters that we officially opened in September and where we have now united over 3,000 employees at one site in the heart of Hamburg. We accompany this move and milestone moment for us with a dedicated corporate advertising campaign all over the city and in parts of Germany with a campaign centerpiece at the port of Hamburg. This is what you see on today's cover. Astrid and I will now take you through our financial figures and further strategic key development for Biosdorf. Let's start with our exceptional sales performance. Thanks to a continued strong performance in the third quarter and impressive dedication of our teams, we were able to deliver outstanding double-digit sales growth of plus 11.2% at the group level in the first nine months. The main driver of these remarkable results was the powerful momentum in our consumer segment. With 13.6% organic sales growth in the period from January to September, we are confident that we will outperform our previous four-year guidance and have therefore raised our guidance today. While the TEZA business faced another quarter with difficult market environments, especially in the electronics business, this was more than offset by the very strong performance in the automotive and consumer business, leading to organic sales growth of plus 1.3% in the first three quarters. Now to a more detailed look at the results in the third quarter. At group level, we maintained the growth momentum and achieved dynamic sales growth of plus 9%. The TESA segment contributed here with a slight growth of plus 1.5%. Similar to the results for the first nine months of 2023, the main driving force behind the overall strong group results remains our consumer business. Even though the situation for La Prairie and the luxury market continued to be difficult, the outperformance of the other brands helped sustain double-digit sales growth of 10.9% in this segment. Particularly impressive were again the extraordinary performances of Nivea and the Derma business with 15.8% and 22.2% organic sales growth in a quarter. In summary, this specific performance in Q3 is a perfect showcase for the success of our balanced and previously explained four-wheel drive dynamic. Buyers' Dove successfully and steadily moves forward, even if one will temporarily lose its traction. Our derma brands continue to drive the strongest net sales growth in the consumer business. The established recipe for success with e-commerce, dermatological innovations, white spots, and digitalization continue to pay off in Q3. We achieved growth of plus 28% in the online business. This was fueled, for example, by focusing our digital efforts for Aquaphor on TikTok advertising, leading to strong top-line growth and increased market share. Usurinson is performing extremely well and is winning significant market shares for the fourth consecutive year on a global scale with strong new innovation, as well as the existing core range. At the same time, we managed a very successful relaunch in the anti-edge category by extending or TI Middle range. We are now the fastest-growing anti-edge franchise globally, driving our market share growth and strengthening our leadership position in this area. Following the significant success in FACE, we will now also launch our very first TI Middle body product range. While all regions have been contributing to the strong demo performance, the tremendous results in LATAM, with a plus 43% sales increase, are particularly noteworthy. This underlines that our continuous focus on white spots proves to be highly successful. For example, we achieved outstanding results of plus 61% sales growth in a dynamic Brazilian market in the third quarter. Let's move to the La Prairie business. As already expected during our last presentation, we faced another difficult quarter with strong headwinds from various directions. First and most impactful was again the effect coming from the reduction of the Daigo business. As discussed last time, we think this is the right change in the long term and will help our brand equity, but in the short term, it is hurting ourselves. Additionally, we are still facing a negative market in domestic China and see substantial destocking in 2009. But at the same time also, we record sell-out growth there of more than 30%. Despite these challenging factors around the Chinese ecosystem, we see highly encouraging Q3 results in the rest of travel retail, which grew by plus 50%, primarily driven by Hong Kong, Macau, Japan, and Europe. Additionally, local markets in the rest of Asia accelerated further in Q3 and grew strongly. Hong Kong grew by 40% and Japan by 50%. We are also happy to see the U.S. back to growth figures. Although those results are not enough to cover the missing sales from China, they are clearly showcasing the strong equity of the brand and the continuously strong consumer appetite for La Prairie. I would like to note that our net sales performance is also strongly impacted by our decision to clean up and strongly reduce inventory at our retailers, particularly in travel retail. If we look at sellout, we see a turnaround in Q3, which is up mid single digit versus the prior year and shows an encouraging trend. This cleanup will allow us to start 2024 from a healthy base and accelerate particularly in the second half. On top of that, we'll be able to drive the business forward through a much stronger innovation pipeline, the opening of TikTok social commerce, continuous expansion of new physical stores in China, and our global flagship store strategy. Now turning to one of our strongest growth drivers in the last quarter and the last years, our emerging market region. Emerging markets with Usurin and Nivea continued to perform exceptionally, leading to an 18.3% increase in sales in Q3. Since 2019, Nivea has been the strongest growing brand in emerging markets, and since 2021, we have been the clear number one skincare brand in the region. Furthermore, we are now also the number one brand in face in Brazil and Mexico, with the latter leading the way with an impressive 48% overall sales growth in the third quarter. LATAM in general is our fastest growing region worldwide. Let me highlight the key success drivers of the last years on the example of Mexico. Firstly, we upgraded our manufacturing infrastructure in the region, leading to an impactful 60% capacity increase of our Mexican production site. Secondly, we focused on driving face care with a holistic combination of distinctive innovations, higher investments, especially into digital, and effective and strong execution. Year to date, we achieved an outstanding face care market share growth of plus 400 base points. Thirdly, our increased digital capabilities particularly in precision marketing with a full funnel focus, helped us to almost double online sales in Mexico in 2023. We are taking full advantage of the fast-developing e-commerce and digital environment in this important region, and we will continue to invest in the emerging markets. Moving to our European business, I am particularly proud to report the best sales growth quarter for Nivea in our history. This translates to double-digit sales growth year-to-date and an impressive 16.8% in a single third quarter. Top market positions, strong brand equity, and successful innovations are the main growth drivers behind these amazing results. We are proud to share more details now on the impressive performance of France and Germany in the third quarter, which both grew by 24%. The 24% sales growth for Nivea was the strongest quarterly growth ever in France as well. We're happy to see that our strategic investments are paying off with outstanding sales results. Powered by strong digital campaigns, our e-commerce business, especially with big pure player, is booming, and we achieved plus 72% online sales growth in the third quarter. Another focus in France is skincare. and especially face care, with 60% sales growth for our luminous series, our innovations around the hero ingredient W630 continue to outperform the market. Moreover, our core portfolio builds a strong foundation in the country and remains the main driver of total growth. We are happy to report broad-based success as all key categories are fueling this growth. The face category around the Q10 and cellular franchises are performing very well. The body and deodorant categories are also growing on the back of improved in-store presence and media activities. Coming to our next positive story, our home market in Germany. I am very happy to report that we have also seen the strongest sales growth quarter for Nivea in Germany in recent history. 2023 marks a tremendously successful year with stunning third quarter growth of 24% for Nivea. We achieved broad-based momentum in Germany by activating our innovations with greatness and growing our core portfolio of established products. On the innovation front, our most prominent example is the anti-spot treatment range Luminous 630, which outperformed behind the activation of our new line extensions and grew by 68%. This year, we also relaunched our repair and care line with new and improved formulas, packaging, and communication. The consumer response to our relaunch is outstanding, and we have increased sales tenfold versus our former repair and care line. At the same time, we have strengthened our best sellers. Some outstanding examples are Nivea's soft franchise. We'll come back to this success story in a second. And our Q10 series, which achieved sales growth of plus 42% with its core products complemented by the new wrinkle filler innovations. In general, Nivea has incredibly strong brand credentials in Germany. We have more than 50 million consumers purchasing our products every year. They love Nivea, and they have voted us the most trusted brand for the 23rd consecutive year. We enjoy number one positions in seven out of eight top categories. The German market is also our home market, the place where Biosoft was founded over 140 years ago. We have strengthened this commitment and the importance of Germany in our global infrastructure with a significant investment of over 500 million euros. On the one hand, into our new global headquarters, the Bioshoff Campus in Hamburg. On the other hand, into our new state-of-the-art production site in Leipzig. Both sites were officially opened in the third quarter of 2023. Why did we invest in our new campus? because only from exchange and inspiration, innovation and growth emerge. This is precisely what has made us and our brands, such as Nivea, Usurin or Aquaphor, so strong and unique for decades. Therefore, it was our goal to create an environment with a new campus that even better supports and fuels this exchange. At the same time, this new headquarters and the expansion of our research center on an area of 51,000 square meters in Hamburg also positioned Biosdorf as one of the most attractive employers in the global skincare industry. The Biosdorf campus is a new global heart of organization connected to all affiliates worldwide. Our new production center in Leipzig, which I also briefly touched upon in our half-year presentation in August, was officially opened in September. At almost 300 million euro, it is the largest investment Biosof has ever made in a production site. With a capacity of up to 450 million products per year, the site in Leipzig is already one of the largest Biosof plants, fulfills the highest environmental and technological standards, and creates the capacity for long-term sustainable growth of our brands in Europe. In short, We believe in Germany, wir glauben an den Standort Deutschland. Both these investments reflect the significance of Germany in our global plans. In a section of the German business, I touched on one of our global icons, Nivea Soft, which has gone through a significant transformation to enhance its sustainability profile. Before we launched Nivea Soft in 2022, the objective was to keep the performance and the sensorial profile while reducing the footprint and increasing renewability and biodegradability. And we achieved exactly that after four years of extensive development, 2,000 prototypes, tests with 10,000 consumers, and 100 sensory panels. The result, we managed to reduce the CO2 impact of the formula by 40%, increase the moisturizing effect from 24 to 48 hours, utilize 95% naturally derived ingredients and create a 98% biodegradable product, ultimately resulting in a more sustainable and a vegan formula. The results on the financial side was similarly impressive. We began to relaunch this iconic product in summer 2022 in nine countries, which resulted in very strong organic sales increases. As an example, Nivea Soft grew in Germany by 51% in the third quarter of 2023. The full global rollout in all markets will follow throughout 2024. Moreover, the general sustainability aspect, along with our new sustainable packaging, was an integral part of our communication strategy, which has been leveraged via a digital-first approach to also attract Gen Z to Nivea Airsoft. The outstanding numbers, for example, on channels such as TikTok, with 126,000 new followers and over 16 million views, highlight the success of this strategy. Right next to ambition and commitment in terms of sustainability, we also aim high on topics focusing on diversity, equity, and inclusion. Alongside international and cultural diversity, equal career opportunities for all genders are a particular focus area for us. To create an inclusive workplace and promote the target of gender parity, we offer a wide range of flexible working arrangements. On International Women's Day in 2021, we announced our Biosoft gender parity ambition. We committed to achieving a 50-50 gender balance leadership across all management levels worldwide by 2025. With this target in mind, I am partly thrilled to share today that following the already achieved 50-50 balance within my executive committee, As of September 1st, 2023, the representation of women in management positions worldwide increased to 50.3%. We achieved our gender parity ambition 18 months early, a great success and important steps. However, we are not done yet. We must maintain our commitment, continue our efforts and ensure that achieving 50-50 gender balance remains not just a milestone, a lasting legacy. An important contributor to this significant achievement is also the Bias of Initiative Female Leadership in Finance of my colleague and our CFO, Astrid Herrmann, who will now take you through our detailed financials of the first nine months.

Thank you, Vincent, and good morning also from my side. I'm happy to guide you through our nine-month 2023 results in more detail. Let's start with a view on the sales development at group and segment levels. In the first three quarters, Buyer Store of Consumer Business grew organically by plus 13.6%. Adverse foreign exchange effects led to a nominal growth of plus 10.2%. Our TASA business finished the same period with organic growth of plus 1.3%. Structural and foreign exchange effects led to a nominal decrease of minus 2.2%. All in all, the group reports double-digit growth with plus 11.2% in organic terms and plus 7.8% nominal. Following two very strong quarters, our consumer business is delivering another quarter of double-digit growth on top of strong growth in the prior quarter and despite the challenging situation in the luxury markets. In the third quarter, we saw balanced growth in terms of volume and pricing mix. Let's take a look at the performance of our brands in the consumer segment. Vincent has already shared the details about the performance in the third quarter, so I will just briefly comment on the brand performance for the first nine months of the year. Nivea continued to outperform the market with broad-based growth of plus 17.5%. All regions grew double-digit, as did personal and skincare, and almost all subcategories. The split between pricing and volume is getting closer to a balanced ratio quarter after quarter. The success story of Derma continued in Q3, leading to growth of plus 24.8% in the first nine months of the year. From the top line, but also from the market share perspective, our Eucerin and Aquaphor brands have beaten the market. We can report excellent performance with double-digit growth in all regions. Emerging markets, particularly with Latin America and the Middle East, are especially noteworthy with outstanding developments. Our innovation power, led by our hero, Tiamidol, is driving the business, as is our strong e-commerce performance. On the basis of strong double-digit growth in last year's nine months, our healthcare business could grow by plus 4.3%, maintaining its leading market share position. Our top markets in Germany, Australia, Indonesia, UK, India, and Mexico were key growth drivers. We already discussed the La Prairie performance in more detail, so I will directly move to the consumer sales performance by region. On the regional level, you can see all regions and almost all sub-regions growing double-digit in the first nine months. The strong development of plus 11.1% in Europe is supported by both Western and Eastern Europe. Western Europe sales are mainly driven by Nivea's outstanding performance and the extraordinary Derma business, and as Vincent has already pointed out, of France and Germany. Please remember that these numbers include the currently slower global travel retail business, which is recorded in Western Europe. In Eastern Europe, we see both Nivea and Derma performing very well across the entire region and can report particularly strong results on a country level in Poland. The Americas region continues to outperform in the third quarter. In North America, our top line is supported by a fantastic Derma business and very strong Nivea performance. Latin America, as already showcased in our Mexico example, is benefiting from our well-established ecosystem in the region. Nivea, Derma, and Healthcare continue to gain market share as they accelerate their top lines. The Africa, Asia, Australia region managed to grow again in the third quarter despite the still difficult market environment for luxury brands. From a nine-month perspective, both Derma and Nivea could achieve double-digit growth rates. Japan, India, and Thailand are countries to mention here. Let's now move to the Teza business in more detail. Overall, Teza grew by plus 1.3% in the first nine months of the year. By business segment, the Teza consumer business is growing while the market is declining. Top-line drivers include new products and customer projects. For example, the new Teza film Eco and Crystal now with 90% recycled PET backing and a water-based acrylic adhesive. The focus on more sustainable products is a very important part of TESA's strategy. By 2030, the share of recycled and bio-based materials in all products is to increase to 70%. Secondly, in the course of this year, Teza's industry business recorded a strong double-digit development in the automotive and electrical systems business units. This growth is supported by our strong product pipeline and positive market share development. We have seen substantial growth in applications such as hole covering, security labeling, and masking. Additionally, we can report a cautious acceleration of the electronics business in recent months. Additionally, TESA recently opened a new manufacturing site in Haiphong, Vietnam, as part of its strategy to regionalize production, expand capacity, and optimize supply chain. The Haiphong site has a production capacity of 40 million square meters of adhesive tape per year. serving the fast-growing Asian market, particularly in the automotive and electronic industries. Before we finish our presentation, let's revisit our full-year guidance. We are pleased to see the outstanding performance of our business year to date and are therefore raising our consumer guidance for the full year. We now expect low double-digit organic sales growth and confirm the EBIT margin to be plus 50 basis points above previous year. At Teza, due to the ongoing uncertainty about the shape of the pickup in the electronics business, we now expect low to mid single-digit organic sales growth for the full year. At the same time, we confirm that Teza's EBIT margin is expected to be slightly below the previous year's level. For the group, we are therefore upgrading our sales guidance and expect low double-digit organic sales growth. We confirm the EBIT margin to be slightly above previous year's level. Thank you for your attention. Back to Jens, who will start our Q&A session for today.

Thank you. At this time, we will begin the Q&A. Anyone who wishes to ask a question may press star, followed by one on their touchtone telephone. Please remember that we have a maximum of two questions per caller. Okay, the first question comes from Ian Simpson at Barclays. Good morning, Ian.

Hello. Okay, thank you. Good morning. A couple of questions from me, please. Firstly, on La Prairie, so sell-out growth of mid-single-digit, sell-in down high 20s, presumably that implies growth at least a month of inventory reduction on a sort of global basis, and I'm guessing more like two or three months of inventory reduction within your Hainan and Korea travel retail businesses. Could you give any commentary as to what level of inventory reduction we should expect in Q4, and also I take from your comment around this putting you in a good place for 2024, that inventory reduction will be entirely complete by the end of this year. If you could confirm that that would be the case, please. And then secondly, just thinking about your growth pipeline for next year, clearly Nivea's had a great 23. How much of a tailwind from rollover pricing should we expect from Nivea into 2024 growth? And do you see the current emerging market growth rates as sustainable into next year? Thank you so much.

Thank you, Yann. On La Prairie, you're absolutely right. I mean, the effect, the La Prairie figures of Q3 show voluntary destocking to companies To be very precise, the 27 points of loss are explained by the destocking in Hainan. the fact that not only in Q3 2022 we increase stocks like everybody hoping to have a turnaround in Q4 and the necessary stocking since the beginning of the year, explain the 27 points of loss in La Prairie. It means by the end of the Q3 we'll have digested 75% of the extra stocks and we'll finish the last 25% by the end of Q4. We are really in a position that in the first January of 2024, we will be absolutely with the right level of stock in each and every country, each and every travel retail operator, in order to start on a much better situation in 2024. On the growth pipeline of Nivea, Astrid will take it.

Thank you, Ian, for that question. So we feel very strongly about our pipeline for next year. On Nivea, very strong pipeline starting very early in the year, whereas this year's pipeline was more towards May ongoing. So we're feeling very good about that. Also having some impact from rollover pricing into next year, but clearly at a much lower level than what we're seeing this year. Particularly in emerging markets, obviously, we will continue to see positive pricing also to help offset, obviously, negative effects rates. In terms of sustainability of emerging markets and maybe more in general of our business, what we are very happy to see is the strong volume development that we're seeing quarter by quarter. We have had positive volume all year long, and we're seeing that strengthen from quarter to quarter level. particularly so in our emerging markets business, also in the DERMA and Nivea business. And we see there a real big strength that we absolutely think will continue into next year as well.

Thank you so much. Thank you. We move on. Next on our line is Bruno Montaigne at Bernstein. Good morning, Bruno.

Hi, good morning, Dean Baezoff. My first question is back to China a bit. because obviously the Daigu declining and the impact on travel retail is nothing new. Your peers already had that. But what I was surprised was to see for La Prairie that you're also mentioning negative growth for the mainland or domestic China, as you call it. And that's what I'm confused, because clearly the government is closing down the Daigu channel. That means there's much less Daigu that buys suitcases of your product and brings it to the mainland. So if that channel isn't there, and you're still declining in the mainland China, would have almost expected an improvement in mainland China. So can you comment why the mainland China would be down if it doesn't get supplied by Daegu anymore? The second question is, I think somewhere you mentioned that Latin America was the fastest growing region. I think it was for Nivea. Now we see Latin America always have the benefit, not the benefit, but a nuisance of very high effects driven organic growth, and you lose the negative effects next to it. So if you were to put this on a currency neutral basis, is Latin America still the fastest growing region for Nivea? Thank you.

Thanks, Bruno. On your first question, Bruno, the situation of La Prairie in brick and mortar in China is a bit specific. In difficult times, you have two ways to increase your sales in brick and mortar. You increase the level of promotion or you increase the level of distribution. And we are doing neither of that. As you might remember, we are... one of the only brands absolutely doing no promotion so we are not you know in the big event like double 11 we are not doing buy one get one free that most of our competitors and obviously it is impacting your performance in brick and mortar the second issue that we are also trying to improve is is that we have a reduced distribution where we will be at the end of the year in 100 stores this is perhaps only 30 percent of what you know our main competitors in upper luxury segment are achieving so we are increasing you know this level of distribution but in a very uh reasonable manner you know that we absolutely focus you know on reaching having the right location the right space so we'll go up to 120 130 stores but we'll never be at the level of the competitor in this area. And the third element, which is something that will make a big, big difference for us and which is also missing today, we are pretty late entering Tmall and JD.com and we are doing extremely well, but we are just opening TikTok and the social commerce TikTok doing right now. And we are expecting a lot. As you know perfectly well, this is the main growth opportunity in China, and it has driven the growth of our key competitors. We are entering TikTok, the social commerce, next month. And this, you know, together with increased distribution, a better innovation plan should help us to do a much better year in China, not only in brick and mortar, but also in e-commerce and obviously in travel retail. On the second question, Astrid will take over.

Thanks, Bruno. So on a year-to-date basis, nine months, the nominal sales growth for LATAM is still the top growth. It beats everyone else in our region, absolutely.

But nominal includes the benefit of this kind of appreciating currency. Yes, absolutely. But on a volume basis, it's still the best on a volume basis as well?

Yes, volume is positive in emerging markets and particularly in LATAM. Absolutely.

Thank you. Thank you. We move on to Céline Panotti, JP Morgan. Hello, Céline.

Hello. Good morning. Good morning. So my first question, coming back into Europe, some of those numbers you show are very impressive indeed. Can you talk about Nivea market share performance? across Europe, maybe across as well some of your subcategories. I'm interested in skincare, for instance, in Europe. And what kind of normalization of the market are you expecting next year once yourself and your peers would have probably the pricing I know Astrid spoke about some rollover of pricing. I don't know if that includes for Europe. I just wanted to as well check whether you've seen heightened promotional activities in Europe. And my second question coming back into China, and maybe you said it, but could you give us what has been the growth of Nivea in China in the third quarter? And, you know, AAA came a bit weaker than anticipated. Is that all explained by La Prairie not doing well in brick and mortar? Or have you seen as well a deceleration of growth elsewhere in the region? Thank you.

Thank you, Céline. On the first question, Nivea market share in Europe, as you might remember, we started the year in a complicated situation because of the first time you know ever we are doing pretty big price increases so we had some disruption. We had some delisting. We were not taken in some big promotions. So we started the quarter and the first and beginning of the second quarter in a difficult situation. But the good news is that we are catching up. We are now positive in most of the categories. We still are lagging behind in face care because we, of course, you know, face care being a big priority, this is what was chosen as a retaliation from all the retailers at the beginning of the year so we are catching up. I just got for example the latest market share in Germany this morning where we are reaching one of the highest ever market shares, so we are going in the right direction. What was very important for us, and this is also what made us optimistic for the future, we were a bit afraid of getting some price sensitivity. Again, for a value-for-money brand like Nivea, not being in such a level of price increase is something we have never done, so we didn't know if we would see some loss in volumes. And the good news is that we are not seeing any price sensitivity. We are even... growing in units and even reaching level of growth in the Q3, which are pretty amazing both value in units. So it puts us in a positive situation for the year to go and for 2024. On the question on China, you must remember also that like everybody in Q3 2022, we did a fantastic year with all our brands because again, everybody was waiting to see a turnaround of the market. So we had a 30% increase last year in China. on EVR this year we are flat in growth on EVR again comparing with that the good news is more the sell out as you might know we are starting we started last night in fact the pre-sales of double 11 And that's something we have very important for the brand Nivea. And the famous Luminous 630 serum is already the top two serum in the market. So right after Olay and above everybody else, which is giving us a lot of hope for the fourth quarter, where we should continue to reach a very high level. So China, Nivea is a very good news. Usuin also. And we are very optimistic for the years to come.

Thank you. Can I just come back on my point on Europe? Thank you for the color on market share. Can you talk about what the normalized level of growth in this market should be? Because obviously you've done 20 plus percent. Some of your peers have done as well. What's the normalized level? And are you seeing maybe an appetite or desire from retailers for you to promote next year?

We are entering into a more normal trend. course you know development understand that we will do price increase but reasonable as as we said you know the the the the the good evolution of cost of goods and the fact that we have already uh fathered in a very nice price increases in 23 we make that we'll not we are not expecting big disruption for us and and i would say i imagine will be the same for our competitors so Are we going into a direction going back to 1-2% growth in Europe for the markets? We want to overperform that, so this is what we are working on. But for the time being, we have in mind that the European markets, which was flat for years, could be around 2-3% growth next year, which is the hypothesis on which we are building our strategy.

Excellent. Thank you.

Next caller is Guillaume Delmas at UBS.

Hello, Guillaume. Hi Jens, good morning Vincent and Astrid. Two questions for me please. The first one is on the operating margin, because you're raising again your organic sales growth guidance for consumer, but at the same time you're leaving your operating margin guidance unchanged for the year. I would think on the commodity cost front, you're still expecting some tailwind in the second half. Are you seeing an opportunity to further strengthen your top line gross momentum? Is it down to the cost of doing business in beauty rapidly increasing or is just you being prudent at this stage? And then my second question is on Chantecaille because it's soon going to be the two-year anniversary of the acquisition of Chantecaille. So just wondering if so far the deal, the acquisition has gone according to plan or And if you view 2024 as the year, you will be able to properly accelerate the growth of the brand. And related to that, should the destocking of the Daegu channel continue? I mean, is there any risk of goodwill being written off for Shantakai? Thank you.

I will take your first question, Guillaume. Thank you so much. Look, I would say there that we are clearly in a competitive market. If you looked at some of our key competitors, especially the very large one, and just how much additional spending they put in the market, that is quite significant. And we absolutely feel like we have a strong momentum and we want to support our business there. So we're clearly trying to invest for significant growth, also to accelerate into the future. That said, a little bit of prudence is probably also how we proceed with our business. In terms of Chantecaille, look, we do see some of the same impact we're seeing, and our competition in the luxury or in the premium skincare business is seeing growth. currently happening. So that is impacting Shantekai as well. Shantekai had a nice Korean travel retail business that pretty much has disappeared in terms of sell-in at the moment. So it's going through some of the same challenges there. So we are monitoring that very, very carefully. That said, we are very happy with the acquisition itself. We think it's a fantastic brand. We're seeing good momentum there. in North America and other parts of the world, but yes, impacted also by what we're seeing in luxury.

Okay. Thank you. We move on. We have Victoria Vika at Bank of America. Good morning.

Good morning. Thank you very much and congratulations on performance in Nivi and Derm, especially. Could you similarly maybe to last quarter's comments provide a bit more granularity around volume mix performance in the third quarter so we could understand the dynamics a little bit better? That would be my first question, please.

Okay. Sure, we'll answer that one. So we mentioned already in the speech that we're seeing a very nice progression of volume quarter by quarter Each quarter, we've had positive volume, so that's fantastic, and we're seeing very nice progression in the third quarter. If you're looking at the third quarter and kind of exclude La Prairie clearly having negative volume, you really have a Perfect balance there of the growth in terms of pricing and volume. So really, really good, fantastic growth in Eucerin, but also really strong growth in Nevaeh and really across the globe, positive volume.

I have a second question, Rico.

Thank you so much. Could you maybe talk us through the white spaces left? It was obviously a very strong driver of your growth. Could we expect some sort of additional market entrance or product category entrance to look at incremental growth in 2024?

Yes, we have some very good opportunities. The first one is that we, as I announced already, we are launching Usurin Face in the U.S. This is the biggest market, face market in the world. And we, as you know, we are extremely happy with Usurin in the body category. We launched successfully Usurin Sun, thanks also to the Copper Toner House. So we are launching Usurin. you saw in face in the u.s starting in january 2024. guillaume was just asking a question about shantokai we are launching shantokais in china so we were you know in a small cross-border cross-border business you know now we are launching shantokai in mainland china which is a very good opportunity we do have other plans you know you might remember that we launched Eucerin in Poland, we are now launching Eucerin in Africa, in Nigeria, in Kenya, in Ghana. We are also strengthening our distribution in Brazil. I mentioned the plus 61%, we are not yet in the full a country we are not expanding into the full country of Brazil. So we do have a lot of things happening. And as you might also remember, we are working on the launch of Nivea Faith in India, which is really a milestone for us. This is a huge market. Not a lot of people have been successful. And this will be also a game changer for us in this part of the world. So a lot of good projects, which also make us optimistic for 2024.

Thank you very much. And Luminous in China would be 2025 outside of cross-border online, right?

Absolutely. So we are working, you know, we are waiting for the, we have some exchange with the FDA, the Chinese regulatory body, and we are progressing with all the data they are requesting. This is why we took our time and we didn't plan to launch in 2024, but in 2025 we will be able indeed to launch Luminous or W630 ingredients, not only on the Usuin and the but also on La Prairie and later on Chantecaille. So this will be also a huge opportunity. The last time such an ingredient was registered in China was 2013. So it will be really a big, big milestone for us and for the beauty market in China.

Thank you very much.

Okay, very good. Thank you. We move on. Next caller is Tom Sykes at Deutsche Bank. Hello, Tom.

Yeah, morning, everybody. Thank you. Firstly, a question on La Prairie and then on your volume comments, please. I'm struggling with understanding what the medium term algorithm is going to be for earnings for La Prairie, given your volumes are probably even prior to Q3 quite a long way down on where they were pre-pandemic. you've got FX in the cost base, you know, you've got Swiss franc in the cost base, which probably isn't going to help you versus maybe EM currencies, particularly China in the medium term. And so when you consider the profitability now, are you able to say where profitability is versus 2019 and sort of what scale of recovery of profitability we might see if, the top line does improve, please. And then on volume, I think your volume definition is units. Could you just say something about where the growth of actual amount of product is versus units? Maybe it's best to sort of say, are you actually consuming more raw materials than you did last year? Or is the volume growth all unit growth, please?

Tom, so I'll take both of those questions this time around. So, Locke, you are right in terms of the La Prairie business. Clearly, the China foreign exchange impact is making an impact. And clearly, also from a volumes perspective, given that that is down quite substantially versus also a very strong, again, in the quarterly prior period. It is having an impact on profitability and clearly we are not where we were the last couple of years, which by the way, the last couple of years, even if the business was below 2019 levels, we actually held profitability very, very strongly up. So we were very happy with where La Prairie was the last couple of years. And we see a return to that profitability, assuming, again, we have a return there in terms of, obviously, volume and business. So we think the earnings model for La Prairie is fantastic. broadly healthy yes effects having an impact but we have also taken pricing regularly the last few years so outside of the relatively significant impact now from travel retail korea and hainan in terms of volumes we do see a return to good profitability at least over the midterms In terms of volume, we do look at real volume. So, you know, whatever you want to call it, tons in the end, liters and so on, you know, being shipped. And we are really seeing growth there. And it's very, very broad-based growth that we're seeing from a volume perspective. It's very, very healthy business. We are not driving the businesses. with just pricing growth, but we're really seeing more consumers buying more of our products. Thank you.

Thank you. We move on. We have Jeremy Fialkow on the line, HSBC. Hello, Jeremy.

Hello. Good morning. Thanks for taking the questions. First one, just a La Prairie Q4 clarification. So if you're saying that you've done around 75% of the D-stock and there's a 30% difference between the sell-in and the sell-out, I'm assuming that means La Prairie will be still down in Q4, but the pace of the decline would be dramatically lower, maybe a low to mid-single-digit decline rather than this 20%-plus decline. decline that we saw in Q3. So if you could just clarify that that is broadly correct. And then a second question is on TESA. The full year guidance does seem to imply quite a pickup in Q4, even though you did reduce that guidance for the full year. So can you talk about what your grounds for confidence are? Because I suppose it would still imply you're exiting the year at closer to a mid-single-digit growth rate. Thanks.

On your first question, absolutely. You're absolutely right. This is exactly what we have in mind for the last quarter. It will be negative. Will it be low single digits or even better? It depends a little bit on the sell-out. I must say the figures we are getting are extremely good, as I mentioned. you know, plus 30% in Inan. That's pretty good. Travel retail plus 50%. And again, I'm really talking sellout. So all of that is pretty positive. But I think the magnitude of the figure in Q4 is exactly what you mentioned. Antesa Street will take over.

Sorry, the second question was Antesa. Yes, so you are right. We are expecting a stronger quarter in Q4. What I should mention here is we saw a very nice exit rate of the electronics business in the third quarter with double digit growth in September. So, yes, the plan is to have a very nice Q4. That will, of course, depend on how the electronic market continues to progress and how holiday season and all of that, you know, will unfold. So there is obviously a bit of uncertainty there, but we are seeing some good progression there.

Sorry, can I just clarify, Vincent? You said Hainan sellout was plus 30%.

Is that correct? Absolutely. Plus 33%. This is a sellout in Hainan, yeah.

In Q3, okay. Absolutely.

Okay. Thank you. Yeah, okay. We move on. We have Karel Zoete at Kepler next on our line. Hello, Karel.

Hello. Good morning, Jens. Good morning, all. I have a question also on Labrie, but also a little bit more on the luxury business. If you zoom out a little bit, the business is fairly volatile amid a big play on the Chinese consumer, Labrie being the dominant brand, and Chantikelly a new one. If you look forward, what's really needed for your luxury business to become more predictable and more robust? Is that more brands? Is that more diversification globally or among channels? Because it's been so volatile over the last couple of years. So what's really needed to become more predictable here? Thank you.

Thanks for your question. La Prairie is a very specific brand because, again, we are not promoting the brand. We are betting on the reduced distribution, so we will never be the brand benefiting from this heavy promotion that you see on the double 11. What we need, in fact, and what we are doing, I would say it's three directions. The first one is to continue to grow, but perhaps a little bit quicker, our distribution. The fact that today we are only in 39 cities is a handicap because in many big cities we are not there. So we want to go from 39 to 45 cities. The fact that we have a level of distribution which is 40% of comparable upper luxury brands is also a handicap. So we will continue to increase the number of doors. That's the first one. The second thing which I think is essential and I think for us Europeans is perhaps less tangible is TikTok. TikTok in China is different. It's doing, this is social commerce. This has made, as I said, 50% of the growth last year of some of our main competitors in luxury. We are entering TikTok, we will sell on TikTok. If I look at the weight of TikTok in comparison with Tmall and JD, that's obviously something which will play a key role, not only in allowing us to target new consumers, but also younger consumers. And this is where also, The fact that we are also working on a new innovation plan, also leveraging the fact that we have an R&D center in Shanghai, so we can also develop for the first time specific formula with La Prairie for Chinese consumers, is making us so optimistic on our ability to grab more consumers. And the third element is travel retail. We feel pretty safe, I would say, In Hainan, we feel pretty safe in Chinese tourists going to the neighboring countries and the retail figures that we have. I mentioned the increase of sell-out by 50% in travel retail overall. So China, Korea, Japan, Macau, Hong Kong is good news. What we don't know yet, and it will be a big question mark for all of us, is when and if they will go back to Europe, to North America, to the rest of the world. And this is what is perhaps the biggest uncertainty in comparison with pre-COVID. We have not seen them coming. We know that, you know, the forecast is saying that they might be back, you know, by 24, 25, but so far they are not there, you know, and that's something which reduces, obviously, the weight of Chinese consumers on our business, but which also allows us to rebalance the business. You know, for example, I'm very happy I mentioned that in the speech, but in the u.s you know we are back to growth in the u.s and even more important we are opening we are open in the q3 you know the biggest number of stores ever 14 store nordstrom nordstrom is a very fashion young you know target which we didn't target you know with our existing distribution network so we are rebalancing a little bit ambition you know being less dependent on china and developing more business in the rest of the world. So short answer, difficult to anticipate, but there are a lot of things, especially for us, that make us more optimistic for the months and years to go in China with La Prairie. Thank you.

Thank you. We have Olivier Nicolai at Goldman Sachs.

Good morning. First, on Nivea, it's been a few years since the focus on the brand has been really on skincare versus personal care. Could you just give us an update on the sales today within Nivea between skincare, personal care versus, for instance, three years ago? And is the goal ultimately to exit personal care for the Nivea brand? And then a second question, if I may. You have very strong results so far this year. Presumably, cash generation for full year 23 is going to be strong. Would you be able to give us a bit of an update in terms of capital allocation priorities and what is the board view on dividend policy, knowing that obviously your next set of results will be the full year results in February? Thank you.

I think you answered already the second question. So I think we are working on that. We are discussing the priorities on the second point. They are very clear. Number one is M&A. We are working on M&A. Number two is obviously to have a better capital allocation. So we are looking at everything possible. We have very good conversations with the shareholders. As you said rightly, this will be something we will discuss at the end of the year. On your first question, the First, the good news is that we are developing skin care. That's the good news, and it's working across the board. But the second good news is that we are not losing ground on personal care, and particularly on deodorants. This is still deodorants. It's our number one category in terms of not only net sales, but also in terms of growth in absolute value. So today, if you look at the speed, we are into the 57% skin care, 43% personal care. But the good news, we are growing on both in a similar way, which is making us optimistic. Within personal care, there is a clear difference between deodorants where we have a clear added value, we have a technology, we have a story to tell, and other categories like soap, like shower, where we have not really a big role to play. So we have a good business in Germany, we have some good business in Eastern Europe, but clearly not a priority. The priority is skincare and deodorants. And as I said, both are doing well and will continue to be a focus for the years to come.

That's very clear. Thank you.

Thank you. And we move on. We have Roger Fujimori at Stifle. Hello.

Good morning. Good morning, everyone. I have just one question on DERMA, which has been flying. So I was just wondering what is the normalized market growth for DERMA planning for 2024. I think the multi-year compase is quite high, but consumers are more knowledgeable and interested in health and PhD via social media. So any color on your thoughts on normalized growth will be helpful. Thank you.

If you allow my enthusiasm, this is a miracle, Derma, for us. This is really a business which is flying, and we are still not in most of the big markets. If you look at the big Derma market, as I mentioned already, in China, we are only cross-border, and the launch of Tiamidol in 2015 It will be a huge game changer. We are not in Japan. We are very small in Korea. We are not in India. We are not in Indonesia. So we are working for all those countries into launch plans in the years to come. We still have also some product categories in which we are not yet big enough. You know, acne... is the number one category in DERMA, and we are small. And you might remember the launch, the acquisition of SBOMDX, which will be a game changer, and we are planning to come with a fantastic ACNE proposal in 2025. And then, you know, there are some countries in which We have only a limited range. I was mentioning the U.S. where we are only with body. Body is only one-third of the skincare market. So entering successively sun care and then face care is, in fact, multiplying by two the potential of the brand. So all of that is making us pretty optimistic. I will not give you a guidance for that. 2024, but we don't see why, you know, the rhythm of growth we are experiencing since three, four years will not continue to take place with a mix of existing geographies and white spaces.

Thank you. Well, thank you. We don't have any more callers on our line, so thank you very much. Thank you for having joined our conference call. We appreciate your interest in Bayerstoff. Thank you, and goodbye.