Increased focus from management on digitalization as Beiersdorf lags its peers in terms of its share of digital sales

Business Strategy and Outlook

Beiersdorf’s strategy, C.A.R.E.+, focuses on three key growth drivers: skincare prioritization, white-space penetration, and an acceleration of digital transformation. Vincent Warnery, the new CEO appointed in May 2021, has emphasized his continued support for the strategy, having been part of Beiersdorf’s executive board at the time it was introduced in 2019. In the past few years, Beiersdorf has put the strategy into action by focusing its innovation program on the skincare category, with an emphasis on facial care, as the fastest-growing subcategory. It is anticipated for this strategy to be wise, given that the facial care segment features both faster growth and higher margins than the body care segment, in which Beiersdorf, and its flagship brand Nivea, have been historically over-indexed.

Nivea is a EUR 4 billion brand and accounts for about two thirds of the sales in the consumer segment and over half of the group sales. The brand has a long history in Europe and is the largest brand in skincare globally, albeit in a highly fragmented market. Under Warnery, the business is moving toward a more centrally driven model, with a newly appointed global head of Nivea being responsible for all the branding decisions, allowing markets to focus on execution rather than adaptation of communication or brand strategy. However, it is alleged cohesiveness in marketing, repositioning to faster growing segments, and investments in digital are still needed to bring back some of the brand’s lost lustre.

White-space penetration is another area emphasized by management as the business looks to decrease its reliance on Europe, and looks to expand its business, primarily in the U.S. and China. There is also increased focus from management on digitalization as Beiersdorf lags its peers in terms of its share of digital sales. Given all these initiatives, it is likely for the mix to be the largest contributor to margin expansion over the medium term, while marketing and sales investment will likely remain elevated to enable the implementation of the strategy

Financial Strength

Beiersdorf has one of the strongest balance sheets among consumer staples coverage. The company held EUR 1 billion of cash as well as EUR 4.5 billion in current and non-current securities on its balance sheet at the end of 2021, while debt only amounted to EUR 0.6 billion. This translates into a net debt to EBITDA of negative 4 times, using both cash and securities. The company argues that this conservative financial policy enables management to successfully navigate periods of crisis such as those experienced during the Covid-19 pandemic. However, it is held, this level of cash may be excessive, especially since shareholder distributions have been meagre, with dividends kept flat at EUR 0.70 for over a decade and a lack of share buy-back initiatives. Holding the dividend constant, it is projected the payout ratio (using net income) will decrease from 25% in 2021 to just 14% in five years. Leveraging up to 2 times debt/EBITDA, including cash and securities and the more than 2 EUR billion that Beiersdorf holds in treasury stock, could finance a transformative deal through cash of up to EUR 8 billion. However, given the company’s clear preference for conservative balance sheet management, it is not probable that there will be a significant appetite for a large deal, with management continuing to pursue bolt-on acquisitions and small deals in areas that complement the strategy of expanding their presence in skincare, such as the recent Chantecaille acquisition.

Bulls Say’s

Beiersdorf’s clear focus on skincare and the efforts to reposition Nivea into facial care has the potential to pay out in both superior growth and improved margin over the midterm.
The move toward a centrally managed model should benefit the business, with more cohesive marketing and increased digital investment helping to rejuvenate Nivea.
With its low cost of financing, cash and securities of EUR 5.5 billion, slowing global organic growth, and highly fragmented categories, it is likely, Beiersdorf will eventually be involved in industry consolidation.

Company Profile

Beiersdorf is a Germany-based company engaged in producing personal-care products, with a focus on manufacturing cosmetic products. The company operates through two business segments. Consumer provides skincare and beauty care products and operates portfolio brands such as Nivea, Eucerin, La Prairie, Labello, Hansaplast, Elastoplast, and Florena. The other business segment markets self-adhesive system and product solutions, primarily for industrial customers, under the Tesa brand. Beiersdorf is majority-owned by Maxingvest.

(Source: MorningStar)

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