Presentation of the Material Risks and Opportunities

Strategic Risks

All strategic and hence material risks that already existed in 2023 were again subject to a comprehensive review. Where necessary, definitions of these risks were adjusted or supplemented, and the assessment of their probability and/or impact updated or changed (in other words, the potential negative financial impact on the forecast EBIT).

The analysis showed the following year-on-year change in the overall risk situation of the Consumer Business Segment: While the likelihood of occurrence rose slightly, the risk impact decreases overall. For example, the likelihood of reputational risks is higher, since consumers are increasingly demanding statements from companies on (socio-)political events; the risk impact is lower, for instance, in the field of sustainability risks, since Beiersdorf Consumer is a pioneer in many aspects and is perceived as such by consumers and retailers. As part of our cautious approach, the opportunities from the quantitative net determination of the risk portfolio that have so far exceeded our medium-term planning are not taken into account, as was previously the case. We have continued to keep risk aspects that we regard as part of the day-to-day challenges we continuously face as part of our business model, out of the definition of strategic risks, since these are generally already captured in our financial planning. These include, for example, recurring disputes with retailers over pricing, and diverse attacks on our brands and products by competitors, in particular the defense of our trademarks and product claims. Due to the expansion of reporting to include the segment level, the material strategic risks of tesa are presented below.

Material risks in the Consumer Business Segment

1. Reputational risks to brands and the company
   Maintaining and increasing the value of our major consumer brands with their broad appeal remains of decisive importance to Beiersdorf’s business development. The trust of our customers and, in particular, of the consumers of our products, is essential to this and cannot be taken for granted. We have designed our risk management system to fully justify this trust and to provide enduring, successful protection to the value of our brands. We have geared our risk management system towards fully justifying this trust at all times and thus successfully protecting the value of our brands in the long term. We continuously review our internal processes in all areas of the company in order to be able to react appropriately, correctly, quickly and effectively in the event of any potentially damaging or reputationally harmful incidents. We assume that this, together with all the activities described below to optimize the quality of our products and our overall market presence, can help to ensure that no critical issues arise in the event of potential reputational problems. This applies equally to our brands and to our company as a whole. Our extensive operational and communication measures in relation to sustainability, diversity, and other aspects of Corporate Social Responsibility (CSR) also help to limit the risks. We have reduced the risk impact compared to the previous year, particularly by incorporating our crisis management system, which is very well developed and tested overall. However, we have increased the assumption relating to the likelihood of occurrence. This was done in light of the fact that we perceive that there is an increasingly large group of our consumers that expects us to comment not only on sociopolitical but also geopolitical topics. As a consequence, Beiersdorf, like many other companies, becomes more vulnerable. Against this backdrop, we continue to categorize the risks to the reputation of our brands and our company as medium and possible overall.
   
   
2. Critical ingredients
   For a clearer distinction and risk assessment, we have presented the risk arising from the use of critical ingredients separately from general procurement risks. Our research and development department, with its broad expertise and geographical coverage, ensures that we always comply with all local legal requirements. It is supported in this by a specialized regulatory affairs function. We are responding to the growing requirements by building up additional human resources. We are also in permanent dialog with the relevant authorities so that we can react in good time when changes to product formulation requirements begin to emerge. As a member of the relevant associations, particularly at the European level, we as a company receive early notice of emerging changes. This also includes our regular dialog with the key suppliers. However, we note that challenges through the further spread of digital applications and channels critical of the ingredients used in the cosmetics industry remain at a high level. We continue to categorize the risk as medium and possible.
   
   
3. Accelerating digitalization
   Digitalization is spreading to all areas of life, which is why we divide the risk into internal and external digitalization aspects. Internally, the risks refer in particular to potential suboptimal processes and low productivity in individual areas due to a lack of or too poorly developed digitalization. Externally, the penetration of digital technology in consumer interaction all along the marketing and sales process is still constantly increasing. Beiersdorf therefore continues to work hard at planning and implementing these interactions in a way that makes them as specific to the target group as possible. We made considerable efforts in precision marketing in 2024, enabling us to invest significantly more effectively. At the same time, we put in place organizational measures for even more integrated working, across all brands, between the functions and IT, and in close collaboration with the business. Specifically in e-commerce, we further increased our resourcing to reflect the growing importance of this channel. Recruiting and retaining suitable talent remains a big challenge. This is particularly the case in the field of data analysis, which is crucially important for generating fast and accurate information to guide our actions, including in close dialog with our customers. Another aspect that remains is ensuring the full protection of private data. Our data protection management system, globally steered and locally implemented, helps us ensure that sensitive data of our company, business partners, and consumers is handled securely at all times. This includes, for example, the development and use of our social media presence and the development of new software solutions. These efforts are complemented by clear internal rules of conduct and transparent, further adjusted management structures, extensive training and monitoring activities, and, in the case of data protection, further work on global roll-out. In this reporting period, as a result of our various measures, we continue to regard the risk as medium and possible.
   
   
4. Growing political and economic uncertainty
   The global political situation remained very fraught in the reporting period. Military conflict both in Ukraine and the Middle East continues. In both cases, the uncertainty of an escalation into even greater regional conflicts remains, with potential impacts on our business, both directly through impacts on sales in the countries affected and indirectly through consumer confidence in the respective region.
   
   The outlook for the world economy is difficult to assess overall, especially in view of the change of government in the USA and the associated expectations regarding changed priorities. Uncertainty continues to arise from the possible introduction of import tariffs on imports of finished goods from Mexico and Europe.
   
   Even though the high interest phase of the past few years in the major economic regions of the USA and Europe has passed, the question of the direction in the medium term in view the possible resurgence of inflation remains, also driven by ever growing government debt. The extent to which a potential loss of purchasing power would translate into slower market growth for Beiersdorf remains to be seen.
   
   China remains the greatest element of uncertainty in Asia. Despite the new economic measures to stabilize the overall economic situation, it continues to be unclear whether the result will be a substantial reversal in consumer confidence. That would benefit not least our significant La Prairie business in China. Beiersdorf remains geographically relatively well balanced across all its divisions, without extreme dependency on a particular market. Potential market entries in new countries are comprehensively evaluated in their economic and political context. In the case of Russia, care is continuing to be taken to strictly comply with all sanctions. Against the background of general global tension, we continue to categorize the risk from the impact of an escalating military conflict or economic crisis in a market relevant to Beiersdorf as major and possible.
   
   
5. Shortage of raw materials, natural resources, and energy
   The procurement prices especially for raw- and packaging materials have a significant impact on the profitability of our Consumer business. Unplanned price increases may arise from: uncertainties in procurement markets (unalterable “VUCA” world: “vulnerability,” “uncertainty,” “complexity,” “ambiguity”), capacity bottlenecks in upstream value chains, loss of suppliers (insolvency, realignment of their strategy, acquisitions), regulatory changes especially due to environmental and sustainability aspects or trade disputes (customs barriers and others).
   
   To allow us to respond swiftly and appropriately to potential future or short-term supply bottlenecks, we are continuously monitoring our markets and suppliers and use appropriate contract management. Our Procurement also carefully manages the scope, timing, and frequency of our individual material call-offs. As a priority, strategic partnerships remain an important element of actively managing our supplier portfolio, as do internal programs designed to ensure the agility of the supply chain as a whole and its resilience to disruption. In addition, we are intensively seeking potential cost reductions throughout the value chain as part of the continuation of our broad-based value engineering project. Despite progress in strengthening our resilience, the external environment remains difficult to predict. Therefore, we now regard the strategic and corresponding functional risks in relation to availability and price trends on the procurement side as major and possible. The increase in the risk impact is also based on the growing share of material costs due to the forecast sales growth.
   
   
6. Cybersecurity
   As part of the review of our strategic risks, the risk from threats to our IT system and the IT systems of our direct business partners remains. This reflects the special and further increasing significance of this risk. With regard to cybersecurity, we successfully defended ourselves again in 2024 against increasing direct and indirect attacks on our own IT systems. We achieved further improvements in IT infrastructure, particularly in cloud services and recovery capabilities. As in the last two years, we have received externals certification according to ISO 27001 for information security, now in particular already with regard to meeting the new NIS2 regulations. We are also continuing to improve the protection of our operational systems along the value chain, especially in the supply chain. In light of the growing overall number of threats, we continue to categorize the risk as medium and possible, despite all the progress achieved.
   
   
7. Growing ESG requirements
   The regulatory requirements in the area of ESG (environmental, social and governance risks) are continuing to grow. This is due particularly to the European Green Deal, which is in the course of implementation through national law, and to the Lieferkettensorgfaltspflichtengesetz (German Supply Chain Due Diligence Act, LkSG). Its implementation progressed further in 2024, with supplier evaluations and audits being carried out as planned and work on further IT support. Implementing the EUDR (EU Regulation on Deforestation-free Products) was another focus in 2024, with dedicated resources working to ensure compliance with the regulations.
   
   Irrespective of legal requirements, Beiersdorf has been setting ambitious goals. This is evident from our own specific sustainability targets in relation to packaging reduction and avoidance, as well as climate protection. We are continuing to follow through on implementing our new plastics cycle strategy, which was announced in 2021, along with our efforts to develop and use sustainable packaging and applications. We have continuously increased our ability to transparently measure progress against interim targets and measure its achievement on an ongoing basis. In 2024, we also rolled out generally mandatory training on sustainability, as well as international social standards with a target level of achievement of at least 95%. Although we continue to anticipate that expectations on the part of the public, NGOs, and our customers will continue to grow in relation to both our environmental protection efforts and our actions as a responsible corporate citizen, we have downgraded the risk impact. The ESG activities in Consumer business are increasingly assessed by the this external environment and our consumers as very positive and as trend-setting for the industry: We assess the risk as medium and possible.
   
   
8. Climate change-related effects along the value chain
   The risk of possible impacts of climate change on our entire value chain (from the procurement of critical raw materials to production infrastructure and any transport), which was added last year, continues to exist. The insights from last year’s study on risk trends at our own production sites have been incorporated into further packages of measures. Specific measures have been defined in particular to mitigate potential water scarcity. The results of the implemented continuous monitoring of these risks (by the Corporate Sustainability function) were shared in 2024 with Supply Chain and Research & Development (R&D). We are also constantly updating our emergency plans for critical infrastructure and supplies so that we can swiftly and fully respond to such situations. We continue to regard the risk as medium and possible.
   
   
9. Shortage of talent and skills
   The risk of the growing challenge of recruiting and retaining suitable talent and providing all of our individuals with appropriately swift and comprehensive training on new technologies remains. This risk affects both our German locations and our national affiliates, particularly in relation to all tasks with a strong digital component. Beiersdorf is competing here not only with other players in our industry but also with technology firms both large and small. The employer branding program rolled out in 2023 has been subject to continuous performance measurement since 2024. An active presence on social media, including the involvement of all senior managers in our external communications, is continuing, in order to raise Beiersdorf’s profile and increase awareness of us as an attractive employer. The newly launched “#BTheLead” program aims to offer optimum working conditions to the best talents to foster their motivation and keep them at Beiersdorf. Partnerships and contacts with universities also serve to build links with qualified potential new employees so that we can prepare them for a career at Beiersdorf through special trainee programs. We have launched training programs to tailor employees’ skills to the constantly growing requirements, particularly in relation to digital technology. These cover general and function-specific skills for which our various in-house online academies are responsible. As in previous years, we reviewed our employees’ satisfaction using an external, standardized, and anonymous survey, comparing the results both to our own track record and the wider market. The very high satisfaction level of the previous year was maintained. Also given our current attractiveness as an employer, our competitive strength, and the measures, we assess the risk as low and possible.
   
   
10. Generative artificial intelligence
    The risk continues to exist due to the continuing momentum of the issue of artificial intelligence (AI). As a manufacturer of branded products, Beiersdorf is exposed to particular challenges here. We distinguish between two types of risks: firstly, risks arising from the feeding of data to external models, and secondly, risks arising from the use of these models’ output. Internally, the Beiersdorf “ChatGPT” application, initially used for Marketing and R&D, has now reached a wide variety of departments. We also recently published communication guidelines for using AI for all global brands in the Consumer segment, both as a guide for our own employees and for our agencies. In addition, we have bundled all marketing-related AI tools on one platform so that work on new application processes can be carried out globally in a secure environment with a high level of transparency. In parallel, we are working intensively on a general framework for the further strategic development of AI at Beiersdorf across all functions. We will continue to work on shaping the framework for the safe use of these tools. Due to the increase in application cases, the extent of the risk remains low, but the likelihood of occurrence is raised to possible.

Material risks in the tesa Segment

The risk situation for the tesa segment was explicitly included for the first time in 2024, which is why there is no explicit year-on-year comparison. Overall, the risk situation has not changed materially. The following risks, to be classified as material, exist from the Group perspective:

Global economic crisis

Macroeconomic and geopolitical volatility (such as polarization in the USA, tensions between the USA and China) are leading to a decline in industrial production; they are dampening economic sentiment, resulting in a decline in consumer confidence and changes in buying behavior. For tesa, the decline in purchase of automotive and high-end electronics, and subsequently the switch to cheaper products is leading to sales risks. The risk is classified as low and likely.

Restricted market access due to trade wars

Free market access for tesa in key markets (including China and the USA) is restricted due to unforeseen government decisions that affect free trade. The impact could be higher tariffs on exports (e.g., on adhesive tapes to China) or restricted access to raw materials. The risk is classified as low and possible.

Dependence on customers and markets

The risk relates to dependencies on (producer) markets especially for smartphones and on China in general. Alongside strong competition, continuing weak demand in China and increasing market saturation can lead to sales risks. The risk is classified as low and possible.

Functional Risks in the Consumer Segment

We once again had all functional risks evaluated by the global functions during the reporting period. Overall, the risk assessment for topics that are essentially unchanged remains at the previous year’s level. To a large extent, there is an overlap with the strategic risks. This particularly applies to the topics of reputation, climate change, sustainability, and procurement. However, there are additional compensatory measures for all of these topics from a purely functional perspective, which we limit to the main activities in the case of strategic risks. One example is the use of procurement contracts with protective clauses to reduce the volatility affecting important raw materials and packing materials in uncertain markets.

We have classed non-conformity in relation to European capital markets law as only a functional risk, for example, specifically as it concerns the risk of insider trading or non-compliance in terms of required adhoc reporting. Here we have been providing regular, target-specific training since many years. We also ensure continuous internal information sharing on potentially relevant ad hoc facts. An ad hoc committee evaluates and documents the information. We assess the risk to be low and possible.

Another purely functional risk, but one that is categorized as relevant, concerns market risk from investments. Potential default risks relating to the investment of the Group’s liquid funds are limited by only making investments with counterparties deemed reliable. Counterparty risk is monitored daily based on ratings and the counterparties’ liable capital as well as continuously updated risk indicators. These parameters are used to determine maximum amounts for investments with partner banks and securities issuers (counterparty limits), which are compared with the investments actually made throughout the Group. We have invested most of our liquidity in low-risk investments (such as government/corporate bonds and Pfandbriefe). Our formalized investment strategy is regularly agreed with our internal supervisory body and with the Supervisory Board. Our risk management process includes looking at the conditional value at risk so that even extreme market situations can be simulated, understood, and factored into investment decisions. Our financial risk management is characterized by the clear allocation of responsibilities, central rules for limiting financial risks as a matter of principle, and the conscious alignment of the instruments deployed with the requirements of our business activities. Specific, additional information on the extent of the currency, interest rate, default, and liquidity risks described above can be found in Note 30 of the notes to the consolidated financial statements, “Additional Disclosures on Financial Instruments, Financial Risk Management, and Derivative Financial Instruments.” The higher interest rates make our cautious strategy easier to implement. We therefore categorize this risk purely in arithmetical terms as medium but unlikely.

Short-Term Operational Risks and Opportunities for the Consumer Segment

Alongside the short-term impacts of the topics named in the long-term perspective of geopolitical, economic, but also climate change-related risks, the main risks in the Consumer Business Segment continue to lie in the price negotiations with our customers and the response of consumers to higher consumer prices. Negative, economically driven market developments in, among others, Mexico and China could have an impact on our sales. Most of the risks mentioned are, however, already included in the financial forecast. The risk of effects exceeding this are regarded as possible but with a rather low impact.

The key net operational risks currently remaining arise exclusively from legal and tax proceedings and from tax audits, as in the previous period. These risks are prudently quantified by both internal and external experts to the extent possible. Assessing the course and outcome of legal disputes is associated with considerable uncertainty. Based on the information currently available, no material charges are expected for the Group that would be considered probable.

Further information and details on the extent of the risks described here can be found in Note 31 of the notes to the consolidated financial statements, “Contingent Liabilities, Other Financial Obligations, and Legal Risks.”

Due to the non-materiality of the risks, neither functional nor operational risks are reported for the tesa Business Segment.

Material Opportunities

Consumer Segment

We see material opportunities in achieving the goals we have set with the new “Win With Care” strategy ahead of schedule. We see these in particular in the following three areas:

Tapping into new markets

We are capturing so-called “white spaces,” especially in the area of Face Care, faster and more successfully than anticipated in our forecast. Examples could be our innovations in the field of epigenetics or anti-pigment solutions, where launches in more markets than previously assumed could make a positive contribution to earnings.

Breakthrough innovations

Continuous investments and those made recently in R&D, especially in the fields of anti-aging and anti-acne, are leading earlier than planned to promising or also breakthrough innovation. The opportunity could increase further through the close cooperation between in-house R&D and external partners.

Acquisitions

Stepping up the search for new potential acquisitions which, by their nature, are heavily influenced by external factors, is leading to success faster than planned.

All three topics are about potential business developments that may lead to a positive earnings development compared to our forecast and to market share gains.

tesa Business Segment

The material opportunities are seen, as in the Consumer Business Segment, in tapping into new markets (e.g., through increased distribution/market launches of “Debonding on Demand” products, in other words, using adhesive tapes instead of conventional adhesives), successful new product developments (e.g., sustainable adhesive tapes), and acquisitions (e.g., acquiring new technologies).