cost and capital discipline•lean office •lean value stream •total performance management in...
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Cost and Capital Discipline
François-Xavier RogerEVP, Chief Financial Officer
Nestlé Investor Seminar24 – 25 May, 2016
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2
This presentation contains forward looking statements which
reflect Management’s current views and estimates. The
forward looking statements involve certain risks and
uncertainties that could cause actual results to differ
materially from those contained in the forward looking
statements. Potential risks and uncertainties include such
factors as general economic conditions, foreign exchange
fluctuations, competitive product and pricing pressures and
regulatory developments.
Disclaimer
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Agenda
Flexibility in a changing world
3
Cost discipline to drive growth and margins
Driving Cash Flow and Return on Capital
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Agenda
Flexibility in a changing world
4
Cost discipline to drive growth and margins
Driving Cash Flow and Return on Capital
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Nestlé is delivering superior growth both in OG
5
5.04.4 4.2 4.0
3.73.2
1.0-1.6
(Pro forma)
OG Full Year 2015
F&B Co. 1 F&B Co. 2 F&B Co. 5F&B Co. 3 F&B Co. 4 F&B Co. 6 F&B Co. 7
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And even more in RIG
6
2.2 2.0
1.1 1.0 0.90.5 -2.6
(Pro Forma)-3.1
RIG Full Year 2015
F&B Co. 6 F&B Co. 2 F&B Co. 1 F&B Co. 7 F&B Co. 4F&B Co. 3 F&B Co. 5
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Although growth is lower
7
5.9
4.6 4.54.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2012 2013 2014 2015
Nestlé OG 2012-15
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Inflation has decreased in the developed world
8
-1
0
1
2
3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
European Union
USA
2012 2013 2014 2015
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Resilient Pricing
Source: IMF, internal data9
-
1.0
2.0
3.0
4.0
5.0
2011 2012 2013 2014 2015
IMF World Consumer price Index Nestlé Pricing
World CPI: -3.5 ppt.
Nestlé Pricing: -1.6 ppt.
5.0%
1.5%
2.0%
3.6%
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Commodity prices down to a low point
10
50
60
70
80
90
100
Nestlé weighted commodity
price index
-40% since
2011 peak
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Evolving competitive landscape
11
5149
Retailer brands & small, local players
International players
2015 Share53
47 2012 Share
+200 bps
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Fast reshaping of retail through e-Commerce
12
AOA*
EMENA
AMS
e-Com Examples:
• 20% sales growth in
2015
• Size of e-Com
corresponds to Top 5
Market of the Group
• % of Sales:
Nespresso > 50%
IF China > 10%
UK & China > 5%
e-Com growth contribution to 2015
Nestlé OG
e-Com channel
All other channels
* AOA total OG adjusted for Noodles impact
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Changing consumer expectation towards food
GLUTEN-FREE
ORGANIC
13
Market size (CHF bn) Market Growth
• CAGR 10-19: 13.2%
Nestlé today ~ CHF 0.1bn
10.619.8
39.8
0.0
20.0
40.0
60.0
2010 2014 2019
• CAGR 10-19: 15.8%
Nestlé today ~ CHF 0.7bn
52.769.4
94.2
-40.0
10.0
60.0
110.0
2010 2014 2019
4.0
7.4
12.2
0.0
5.0
10.0
15.0
2010 2014 2019
• CAGR 10-19: 6.7%
Nestlé today ~ CHF 0.7bn
PLANT PROTEIN
Examples
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Consistent I&R contribution supporting growth
14
70% 69%
30% 31%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2015
Innovation & Renovation % of Sales*
Baseline
Business
Innovation &
Renovation
*: Current year’s sales of new and renovated products launched in the last 3 years
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Growth requires higher investment behind brands
15
49%(2013)
56%(2015)
Category/Country
gaining/maintaining
share
2013 – 2015
Consumer facing
Marketing Spend
> +10%
Organic
Growth (CAGR)
+4.4%
>
2 x OG
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Agenda
Flexibility in a changing world
16
Cost discipline to drive growth and margins
Driving Cash Flow and Return on Capital
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Nestlé CONTINUOUS Excellence
17
Scope• Lean Office
• Lean Value Stream
• Total Performance
Management in
manufacturing
• Lean Innovation
Cost Culture• Zero Waste, Zero
Incidents, Zero
Accidents, etc.
• Visibility on approx.
25.000 annual
improvement
activities
Target Setting• Annual Group NCE
savings targets 2-4%
of total delivered
costs
Methodology• Compliance
• Leadership
Development
• Goal alignment
• Continuous
Improvement
NCE journey of success initiated in 2008 –
close to 100% of Group Sales covered
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Operational opportunities driving performance
18
Example: Zone AMS Value Chain review
64 Initiatives concluded in 2015/16
Top common opportunities identified:
• Route to Market improvement
• Adapt portfolio to regions/channels
• Harmonization / simplification of
portfolio
• Sourcing optimization from farmers
• Other cost optimization of value chain
Business opportunities 2015-17:
• Over CHF 230 m
in incremental sales
• About CHF 50 m
in Cost Reduction
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Significant operational cost base improvement
1.4
1.6 1.6
1.4
1.4
1.5
1.5
1.6
1.6
2013 2014 2015
in CHF bn
19
NCE Cost Reduction
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Cost efficiencies supporting growth and margins
Redeployment of NCE efficiency gains 2013-15 (in %):
25
60
15
Reinvestment in
competitiveness
Reinvestment in
brands
Margin
improvement
20
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Continuous margin-improvement over time
0
0
0
0
0
1
1
1
1
1
1
2012 2013 2014 2015
TOP improvement in bps 2012-15
(constant currency)
+27 bps / year
21
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Leveraging scale offers further opportunities
22
Scale
Complexity
SG&A %
of Sales
Sales in
CHF bn
Source: Thomson Reuters, 2014 figures
120
100
80
60
40
20
0
15% 20% 25% 30% 35% 40%
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…delivering
structural savings
on top of
operational ones
Achieving both sales and margin growth by…
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Identified structural savings beyond NCE
Estimated structural savings by
2019/20
1 Operations Raise our asset intensity by 10
percentage points
2 ProcurementLeverage on scale through global
sourcing (from 40% today to 60%)
3 G&A Expenses
Consolidate Nestlé in the markets,
delayer functions, improve facility
management and increase shared
services
>200bps
24
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Use of structural savings
25
Brand Support (Marketing spend and R&D)
Competitiveness
Trading Operating Profit
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Broad based investment for growth
26
Five Focus Areas:
• Portfolio strengthening
• Premiumization
• Global brand expansion
• Innovation roll-out acceleration
• Digital and e-Com
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Portfolio Strengthening
27
Example Purina EMENA
2012Focus on
Snacks
2010
Roll Out
Felix
2008
Exit of
Private Label
2003
Move from Multi Serve
to Single Serve
& Grill TechnologyReduction in Eco Dry
and Focus on SP Dry
2000
Clean up
Spillers
Portfolio
2001 2015
2000-2005 2005-2010 2010-2015
3.1% OG CAGR
6.4% OG CAGR
100 129Marketing Investment Index 100
1.7% OG CAGR
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28
Les Recettes de
L'Atelier (France)
6
170%
7
167%
2%
WYETHIlluma
NESCAFÉ
Dolce Gusto
84
>200%
23% 4% Premium
Tablets*
MAGGI
Juicy Chicken
57
256%
18%
NESCAFÉ
Azera UK
5
170%
49%
Index vs. mainstream
Value Share
Premiumization
* 18% in the Gourmand segment
# of Countries
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Global brand expansion - Felix
29
2010 2015
17 Countries 45 Countries28+
+Sales: 86%*: at constant currency 2010
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Innovation roll-out acceleration – Milo Activ-Go
30
2013-15 Countries covered: 29+
0% 12%2013-15 Milo Active-Go % of sales
of Cocoa Malted Beverages:From To
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Digital and eCom – delivering growth
31
+
Example: Purina Germany with eCom pure play Zooplus
2009-15 eCom sales share growth:
Digital marketing spend vs group average: Index 130
0% 13%From To
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Agenda
Flexibility in a changing world
32
Cost discipline to drive growth and margins
Driving Cash Flow and Return on Capital
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Consistent Free Cash Flow track record
33
11.0
10.2
10.911.2
8.6
10.3
8.5
9.9
2012 2013 2014 2015
Nestle
Main Competitors
* ***
Free Cash Flow % of Sales
**
* Adjusted for exceptional income due to Givaudan and L’Oreal transaction
** Average FCF of main competitors, Source: company websites
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Working capital strongly supported performance
34
8.5
6.5
5.3
4.7
2012 2013 2014 2015
Working Capital % of Sales
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Discipline in CAPEX
35
5.9
5.3
4.3 4.4
2012 2013 2014 2015
Capital Investment % of Sales
* Restated following implementation of IFRS 11 and IAS 19
*
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Delivering attractive ROIC
36
29.7
30.1
30.4
29.9
2012 2013 2014 2015
ROIC before Goodwill %
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Goodwill affecting ROIC in the short term
37
14.1
12.7
10.8 10.9
2012 2013 2014 2015
ROIC after Goodwill %
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We will use all levers to improve ROIC
38
Improving on all operating levers: • Sales growth
• Margin growth
• Working capital efficiency
• CAPEX discipline
• Sustainable ETR improvement
Strict M&A criteria• Strategic, cultural and financial fit
• ROIC > WACC within 5 years
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In summary
39
Nestlé is delivering superior growth
And demonstrating resilience in Pricing
Structural savings, beyond operational ones, to
support growth and margins
Acting on operational levers / M&A discipline to drive
ROIC up
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40
Thank you !