。13 February 2019 Household Personal Care Bubble & BeautyBeauty growth in 2018 Accelerating growth around a widening gap... Accelerating growth in an accelerating market According to L'Oral, the global beauty market grew +5.5% in 2018, its highest in two decades1, having accelerated one point above the prior year. Unsurprisingly, the European and US beauty players2 have over the last few years directionally tracked the market, reporting a step-up in organic top-line growth in 2017/ 2018. Figure 1: Global beauty market growth, 1994-18Figure 2: Global beauty companies' LFL growth, 2004-18 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 199 4 199 5 199 6 199 7 199 8 199 9 200 0 200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 80.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 200420052006200720082009201020112012201320142015201620172018 Market Global group Source: Deutsche Bank, L'OralSource: Deutsche Bank, company data A widening performance gap What did, however, surprise us in both, 2017 and 2018, was just how much greater than usual the discrepancy between the best and worst performing companies had become, ranging from as much as +14% for LVMH's Perfumes & Cosmetics division to as little as -2% for Coty. Figure 3: Global beauty companies' LFL growth, CY18Figure 4: Divergence between best and worst performer, 2004-18 -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% LVM H P &C Est e La ude r L'Or eal P&GBea uty BDCon sum er Unil eve r Be auty Hen kelBea utyCoty 0% 2% 4% 6% 8% 10% 12% 14% 16% 200420052006200720082009201020112012201320142015201620172018 Source: Deutsche Bank, company dataSource: Deutsche Bank, company data 1Note that L'Oral excludes oral care, razors/ blades and soap from its denition, as a result of which this is not directly comparable across the group. 2We include Beiersdorf Consumer, Henkel Beauty Care, L'Oral, Unilever Beauty & Personal Care, Coty, Este Lauder and P&G Beaut Page 2Deutsche Bank AG/London 13 February 2019 Household Personal Care Bubble & Beauty...Reecting dierences in mix Mix was the main driver behind the divergence in growth rates: channel mix weighed most strongly as luxury consumption continued to accelerate, followed by regional mix (with emerging markets, notable Asia/ China more important than ever) and category mix (with skin care back very strongly). We would, however, note that the weaker performers also had to grapple with a number of more company-specic issues like the admission of past underinvestment at Henkel and (albeit moderating) market share losses in mass and supply chain issues at Coty. Channel mix - more impactful than ever We believe that, over the last two years, the single most important dierentiator has been companies' channel mix as the prestige market continued to accelerate from +5-6% over the 2012-16 period to +9% in 2017 and +11% in 2018, outperforming the other channels three-fold (compared to one and a half to two- fold over the 2012-16 period). This automatically secured strong performances from the pure luxury players (i.e. Este Lauder and LVMH Perfumes & Cosmetics reported organic top-line growth of +11.3% and +13.8% respectively over the last four quarters). It also provided a strong boost to companies exposed to the prestige market, notably L'Oral (L'Oral Luxe accounted for 35% of sales and 66% of growth) and Coty (Luxury accounted for 34% of sales and was the only of the three divisions to report positive organic top-line growth), but also Beiersdorf (La prairie grew +39%), P&G (SK-II grew in double-digits in each of the last four quarters) and Unilever (aggregate growth of the various prestige brands was in double-digits). Figure 5: LFL growth by channel (2010-18) - more important than ever Figure 6: Beauty companies' sales by channel, 2018 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 201020112012201320142015201620172018 Hair salonsMass-marketLuxuryDermo-cosmetics 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% BDConsumerHenkelBeautyL'OrealLVMH P&CUnileverBeautyCotyEsteLauderP&G Beauty LuxuryPharmaMassSalon Source: Deutsche Bank, company data, L'OralSource: Deutsche Bank, company data, Euromonitor In the mass channel, Coty and Henkel grew in negative territory, reecting their unfavorable mix and market share loss; the other European players reported organic top-line growth in the low to mid single digits and we estimate that P&G grew in mid single-digits, driven by strong growth of the Olay brand. Deutsche Bank AG/LondonPage 3 13 February 2019 Household Personal Care Bubble & BeautyFigure 7: Beauty companies' LFL growth in the mass market, 2018 CY18Comment BD Consumer2.0%Held back by the smaller brands (NIVEA +2.8%) Henkel Beauty-0.7%Adversely impacted by the US logistics issues L'Oreal CP2.5%Accelerating somewhat in the latter part of the year Unilver2.9%Excluding the prestige brands (growing in double-digits) Coty-7.2%Reflecting market share losses and supply chain issues P&GMid-SDAssuming strong growth for Olay/ low-SD growth for the rest Source: Deutsche Bank, company data In the pharmacy channel, L'Oral (+11.9%) grew twice as fast as the market, while Beiersdorf (+5.8%) was more broadly in line. In the professional channel, we estimate that Henkel grew slightly faster than the market (+2.0%), while L'Oral was broadly in line (albeit accelerating in 4Q18) and Coty (at) underperformed, held back by supply chain issues, adjusted for which growth would have been in the low single digits. Category mix - skin care back in focus From a category point of view, skin care has been staging a comeback, growing +9%, outperforming the other channels almost threefold. However, with much of that pick-up driven by Asia and prestige, sizeable skin care exposure alone did not automatically make for outperformance, as seen in the case of Beiersdorf, which has the highest skin care exposure in the space, yet underperformed Este Lauder and L'Oral (with their greater exposure from luxury) as well as P&G (with its greater exposure to Asia/ China, including the mass market). While makeup has been slowing from recent highs, it is still growing in mid single- digits3- as is perfume - whereas hair care continues to underperform, marked by high levels of competitive and promotional pressure, notably in developed markets. Figure 8: LFL growth by category (2018) - skin care back in focus Figure 9: Beauty companies' sales by category, 2018Skin care Hair Make-up Perfume Other 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 5%10%15%20%25%30%35%40% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% BDConsumerHenkelBeautyL'OrealLVMH P&CUnileverBeautyCotyEsteLauderP&G Beauty SkinMake-upPerfumeHairOther Note: x-axis = contribution to sales, y-axis = LFL growth, size of bubble = contribution to growthSource: Deutsche Bank, company data, L'OralSource: Deutsche Bank, company data, Euromonitor 3We estimate that growth was above average in luxury and below average in the mass market (which L'Oral outperformed with L'Oral Paris and Maybelline). Page 4Deutsche Bank AG/London 。。。。。。