The Press Conference presentation slides and audio archive of this speech can be found in the Presentations section of this website.
Ladies and Gentlemen, good morning and welcome to the Group's autumn press conference. Most of you will now be aware of the nine-month sales figures that we issued this morning; the press release is in your folder. And by now, we have already conducted a telephone conference with investors.
We are pleased to have the opportunity to comment on those figures in some more detail, but as is our custom in the autumn press conference, I would like to take this opportunity to address a series of other strategic topics of great importance for the Group. And, of course, we'll gladly answer any question you might have and I would like to encourage you to make use of this possibility. This press conference is webcast to many of your colleagues, who could not be present physically in Vevey, as well as to investors, and I take the opportunity to welcome them and to thank you all for your interest in Nestlé.
I will first make a brief comment on the nine-month figures disclosed today and describe how they reflect our strategic re-orientation and our new structures. Our Chief Financial Officer, Paul Polman will give you a more detailed view of the sales evolution so far. Afterwards, I will comment in detail on the progress achieved in the nutrition sector and describe the next step in our development strategy by illustrating the changes that are taking place in our food services business. I will also talk about some specific developments illustrating our robust and rapid innovation process, pointing out one specific example in the coffee area, where Dolce Gusto is making excellent headway.
This meeting in autumn has always been an excellent platform to inform about and to explain major management changes. The recent nomination of Mr. Paul Bulcke as future Chief Executive Officer of our Group led to other changes in the Executive Board and I will comment on them in some detail. After sharing with you how we view the rest of the year and how we see the Group performing in a challenging environment, I will open this press conference to your questions.
Before working our way through this list, Ladies and Gentlemen, let me briefly introduce my colleagues on the Executive Board. On my right, Mr. Paul Polman, Chief Financial Officer of the Group who in addition supervises the newly created Global Business Services, the Legal and the Intellectual Property Departments and the IS/IT Department. Since February, he has also been supervising GLOBE.
On Paul's right, Mr. Frits van Dijk, who is running Zone AOA.
Sitting on his right is Mr. Paul Bulcke who is in charge of Zone Americas, and who, as you know, will become CEO of the Group starting April 10 of next year.
Next to him, we have Mr. Luis Cantarell, Head of Zone Europe.
To his right you have Mr. Carlo Donati who runs Nestlé Waters worldwide until November 30, 2007 when he will join us back here at headquarters for a short special mission before retiring at the end of January 2008.
Next to him Mr. Richard Laube, Deputy Executive Vice President, who leads the global Nestlé Nutrition business.
On my left, François Perroud of Corporate Communications.
Next to him we have Mr. Francisco Castañer, who supervises our pharmaceutical activities, liaises with L'Oréal and is in charge of Human Resources and Corporate Affairs.
On his left, Mr. Werner Bauer, our Chief Technology Officer who is in charge of all our Research and Development as well as Regulatory Affairs and who is one of the key drivers of our innovation and renovation activities both within the Group and in our outside contacts and cooperations.
Next to him you find Mr. Lars Olofsson who supervises the Strategic Business Units, the Demand Generation Unit and Nespresso.
On his left, you have Mr. José Lopez, who has been running the Group's Operations Division since the beginning of the year. This highly integrated unit makes certain that the interface between the Ensuring Supply function and our commercial activities functions smoothly. This is why Supply Chain, Manufacturing, Quality Management, Safety, Health & Environment, Engineering, Agriculture and Operations Performance all report to José.
On his left, finally, Mr. Marc Caira, Deputy Executive Vice President since April of last year, who leads the Strategic Foodservice Business Division. In the course of my presentation, I will come back in detail to that business.
SLIDE 2 – Disclaimer
SLIDE 2bis – Key Figures
Before handing over to Paul Polman, let me, Ladies and Gentlemen, point out some of the key conclusions that I draw from the nine-month figures. First of all, we note with satisfaction that the momentum in top-line growth continues, with strong organic growth as well as a significant increase of our sales in Swiss francs. These results were achieved in a challenging environment, marked by continued high input costs, as well as by indications that economic growth and consumer confidence in some regions are flagging somewhat. The fact that our figures are barely impacted by these trends indicates that our foresight and the subsequent adaptation of our strategy was and is right.
SLIDE 3 – Demographics, Focusing on the Low and High Ends
The main growth drivers are in place. We now have a pre-eminent position in nutrition, we are extending our reach to low-income groups in developing and emerging countries, and, as I will show you in a little while, we are about to launch a significantly strengthened food service operation in the weeks to come. These three sectors show an above average growth potential as evidenced by this chart. As you can see, covering both the low and high ends of the market for manufactured food and beverage products results in incremental opportunities that we estimate at about 240 billion dollars for the whole food industry over the next ten years. This approach makes us very confident in being able to deliver the Nestlé model over the coming decade just as consistently as we have done over the past 12 years. I also note that we have the team in place that is aligned on this strategy and able to reach its objectives. I now would like Paul Polman to comment our sales results for the first nine months.
Presentation by Paul Polman
SLIDE 23 – Demographics, Focusing on the Low and High Ends
Let me now, Ladies and Gentlemen, briefly revert to Nestlé Nutrition, the first of the three growth drivers. In the course of this summer, we were able to conclude two critical acquisitions. Last year, at the same time, I passed on some information about the acquisition of Novartis Medical Nutrition. At that time, and for evident reasons, we did not mention another project which was launched shortly afterwards. I am of course referring to Gerber. As Paul mentioned, in the meantime both operations were successfully concluded and duly authorized. I am happy to report that the integration of both businesses progresses well.
SLIDE 24 – Global Presence in HealthCare Nutrition
With sales of nearly 1.2 billion Swiss francs, Novartis Medical Nutrition amounted to more than twice the sales of Nestlé Healthcare Nutrition. The combination gives us sales of over 1.7 billion Swiss francs and a very solid base to tackle a worldwide market estimated at 10 billion dollars. It is a market that shows fast growth as a result of ageing populations and the growing use of these products in healthcare facilities. There is increasing recognition that enteral nutrition is a beneficial and costeffective way to supply the patient with the required nutrients both in institutions as well as at home.
SLIDE 25 – Conditions for Success
It is a high margin business and its success depends essentially on three factors:
- strong R&D with a good pipeline of scientifically proven products and the ability to conduct meaningful clinical trials
- specialized health care marketing capabilities with specific databases, access to key decision makers, patient understanding
- capacity to distribute through all channels – institutions as well as retail (pharmacies and supermarket grocery sector).
Through the acquisition, we have significantly increased our presence globally and in the US, in Europe and in Japan, which are key markets for medical nutrition and we have clearly strengthened the three factors that are vital for succeeding in that business.
SLIDE 26 – Delivering Excellence to Babies
As for Gerber, you can imagine that combining our relatively modest presence on the infant feeding market in the US with the iconic, omnipresent Gerber brand was a strategic milestone. Gerber, with sales of about two billion US dollars, with good growth and high margins, will enable us now to take a leading role in the baby-food segment in the US. In addition, Gerber brings us good market positions in Mexico, Central America and in Poland. With 82 percent market share in the US, Gerber occupies a significant part of the baby aisle in the retail trade and its dedicated sales force will help Nestlé infant products to benefit from that critical mass. Overall, the acquisition reinforces and extends the leadership Nestlé had in infant nutrition. While we are already clear leaders in infant formula and in infant cereals at the global level, Gerber now propels us into the number one slot also in baby meals and drinks.
SLIDE 27 – Our Consumers
With these two key acquisitions, as well as the excellent internal growth generated by Nestlé Nutrition, the Group's position as the world's foremost nutrition company is now solidly anchored. Based on our sales forecast of more than 10 billion Swiss francs, or about 10% of the Group's food and beverage turnover, Nestlé Nutrition is now twice as large as its nearest competitor and a significant driver of growth for the Group. It covers all key areas, from infant nutrition to healthcare and to performance nutrition, as well as weight management with Jenny Craig.
SLIDE 28 – Our Business
As a stand-alone organization, with a global geographic presence, it can count on a strong R&D network to supply new products to the pipeline and its partnership with the medical and scientific community make us confident that Nestlé Nutrition will soon deliver on its ambitious targets: an organic growth of 10 percent, as well as an EBIT of 20 percent. Additionally, the learnings and know-how will radiate into the traditional business through the BABs, the branded active benefits. These have already created a nutrition-based mainstream business of more than four billion Swiss francs with a growth rate of about 20 percent.
SLIDE 29 – Demographics, Focusing on the Low and High Ends
As for the second growth driver, it is constituted by the large number of families with a per capita income between 1,500 and 5,000 dollars. They know our brands that are a symbol of the better standard of living they are aspiring to, and we can contribute to supplying them with better nutrition. At our spring press conference, we presented a specific example of how the Group can approach the growing market for PPPs, or popularly positioned products. We chose Brazil at the time, but we could have described other ways of tackling that same market in other countries. It is important to keep in mind that according to the OECD the business potential in this population amounts to 70 billion US dollars over the next ten years and Nestlé is well situated to benefit from it.
SLIDE 30 – PPP
Examples We now have about 300 PPP initiatives underway across Asia, Latin America and Eastern Europe. PPP products are currently also growing by over 20%, well over the Group average. Initiatives range from formerly unemployed South African township youths touring the streets on bicycles to sell ice cream - a program called "Magic on Wheels" – to vendors in Thailand selling Nescafé from mobile bars in street. You may have seen this kind of mobile bar just outside this room. This, by the way, is an example of a PPP initiative in food services, which brings me to the next subject I would like to discuss.
Nestlé Professional
SLIDE 31 – Demographics, Focusing on the Low and High Ends
Ladies and Gentlemen, let me show you how we are addressing the third important growth factor for the years to come, namely the food services business. SLIDE 32 – What is Foodservice?
This can broadly be defined as the whole of the opportunities to purchase and consume food and beverages out of home. Restaurants, fast-food places, cafés, convenience stores, pubs, canteens, hospitals, schools and all the vending machines – all of these and many more fall into this category. The overall market is huge: we estimate it at about two trillion Swiss francs in consumer spending. We also believe that the market still has considerable potential to keep on growing. Here is why.
SLIDE 33 – A Growing Trend
Demographics, socio-economic factors and consumer behavior drive the business. If you look at these figures, you see that both in the US, as well as in Europe, we still see large opportunities to grow our share in a market that increases significantly faster than population. We also see some excellent growth opportunities in emerging markets where we are already established with our retail business. We believe that, based on our product portfolio, our geographic spread and our nutritional and marketing know-how, we can consolidate and extend our well-established leadership. It is a business that operates under its own specific rules. The manufacturer does not have direct access to consumers, but sells to distributors and food service operators. These operators value long term relationships, dedicated and knowledgeable partners who have the ability to provide fast and personable service.
SLIDE 34 – The Global Manufacturers
Nestlé is already a clear leader in the category, operating in 97 countries and with 14 dedicated factories. It is important to realize, however, that the five largest manufacturers account for a small fraction of the total market at this stage.
SLIDE 35 – Two Key Priorities
In order to capitalize on the opportunities that we have identified, we have decided to take a series of measures aimed at improving our presence and to give clearer strategic focus to the business. We have ambitious targets. We want to more than double our sales in food service within the next ten years, establishing clear global leadership in branded hot and cold non-carbonated beverage solutions, as well as local and regional leadership in branded food in line with consumers taste expectations. We believe we have the products to do so, and the strong brands needed to attain such leadership.
SLIDE 36 – Nestlé Professional
In order to reach our objectives, we also felt it necessary to restructure our FoodServices Strategic Business Division into a globally managed business under the newly created brand "Nestlé Professional". Marc Caira who has led the Division since 2006 will manage this newly formed unit. In the course of 2008, Nestlé Professional will assume operational responsibility for all food services activities of the Group, and, after a transition period of one year, full financial responsibility as well.
Dolce Gusto
SLIDE 37 – Nescafé Dolce Gusto
Let me finally give you an example of how quickly innovation can contribute to growth. At last October's press conference, we showed you a brief video about the launch of Nescafé Dolce Gusto. We were then in the process of bringing this product to market in three European countries, namely Switzerland, Germany and the UK.
SLIDE 38 – Nescafé Dolce Gusto
I am pleased to report that this system which delivers coffee and soon other beverages in hot or cold form to consumers, is already contributing to the real internal growth of Nescafé in these markets. When measuring machine sales to consumers, we are performing well against our main competitor, as well as against the super premium product Nespresso. The combined move gives us a significant market share gain in portioned coffee. This segment accounts for about a quarter of coffee consumption in Europe today. It is furthermore growing at double-digit rates, while the retail sales of all other coffee grows at a modest 2 percent.
SLIDE 39 – Consumer Feedback
Let me remind you that it was the creativity and the technical and commercial skills of Nestlé people that created the market for portioned coffee systems. With Nespresso, we captured undisputed leadership of the super premium segment with its extraordinary growth. We are now building a strong presence in the portioned retail market through Nescafé Dolce Gusto which comes in addition to the continued strong growth of Nespresso. We are very pleased with the consumer feedback: our product rates high in ease of use, ease of cleaning, convenience, branding and design. We are working on broadening the product range, through the planned introduction of additional varieties and of course by broadening distribution.
SLIDE 40 – Launch Wave 2
Overall, the introduction has worked extremely well. So well in fact, that barely one year later, the second wave of introductions is already underway. This time we are targeting France, Spain, Italy, Portugal, Austria, the Czech Republic and Slovakia. In addition, a large-scale market test is being undertaken in Japan where we want to introduce the product through convenience stores.
SLIDE 41 - 44 Nescafé Dolce Gusto
One of the key considerations in a launch of this importance is the scale effects. We are, wherever possible, using the same machines, the same Welcome Packs, identical packaging, even TV commercials, and demonstration material and point-of-sales material are the same. Nescafe Dolce Gusto is a prime example of what we call internally B3, that is Better, Bigger, Bolder. This describes our determination to roll out innovations more quickly for global or at least regional markets in order to exploit market opportunities faster and more efficiently. Let me remind you that the development time for the machine and the capsules amounted to just about one year, illustrating a very robust and responsive approach to innovation.
SLIDE 45 - 46 – Innovation Capsules
Needless to say, we are keeping up our efforts to innovate. New varieties of hot and cold beverages are being tested and will come on the market in the course of the next months.
SLIDE 47
Before coming to the outlook for the rest of the year, Ladies and Gentlemen, let me now make a few remarks concerning the new composition of the Executive Board. Some of these changes evidently result from the nomination of Paul Bulcke as future CEO on September 20 and we now had the time to confirm the necessary adaptations of the Executive Board with the incoming Chief Executive Officer.
Mr. Paul Polman will be in charge of Zone Americas as of February 1, 2008 as Executive Vice President. He clearly brings the necessary executive experience, acquired both inside and outside of the Group, and in his two years as Chief Financial Officer of the Group, he became well acquainted with the Nestlé culture and the Company's way of doing business. I am convinced that under his leadership, the great performance of the Group's most sizable and most profitable region will improve even further.
He will be replaced as Executive Vice President and Chief Financial Officer by Mr. James Singh, currently in charge of Acquisitions and Business Development, starting January 1st 2008. Jim, who joined Nestlé in Canada in 1981, will also supervise the Legal and the Intellectual Property Departments, as well as the newly created Global Nestlé Business Services. Jim has been the key player in a number of important strategic acquisitions and business development projects; he has a solid and broad background in Finance and Control and is ideally suited to present the Company to the financial world.
In view of the strongly operational dimension of GLOBE, we decided to entrust the supervision of GLOBE to Mr. José Lopez, Executive Vice President and Head of the Operations Division.
In recognition of the fact that Nestlé Nutrition accounts for more than 10 billion Swiss francs in sales, the Board also will appoint Richard Laube as Executive Vice President, effective January 1st, 2008. Richard has been with the Group since April 2005. He has brought a broad experience in the consumer goods industry as well as in the pharmaceutical industry to his job as Head of Nestlé Nutrition and he is doing an outstanding job in integrating the acquired businesses into Nestlé Nutrition.
Finally, you have already been informed that Mr. Carlo Donati, currently Head of Nestlé Waters, has expressed the desire to retire early in 2008. Carlo has led Nestlé Waters very successfully since February 2005. Under his guidance, the Company saw strong growth and a significant improvement in EBIT; he also managed to resolve a long-lasting issue in our French water operations. I want to express our gratitude to Carlo for his important contribution throughout a career spanning 35 years and assignments in three continents. On December 1st, 2007, John Harris will be appointed Executive Vice President and will take over the responsibility for Nestlé Waters. John joined Carnation in Los Angeles in 1974 and he built his career mainly in the pet care business; he was instrumental in ensuring a smooth integration of these activities when we acquired Purina in 2001. From 2002 on he led the pet care business in Europe and later also in Asia, Oceania and Africa with excellent results. I want to take the opportunity to congratulate these new Executive Vice Presidents. As you can see, the careful thought that for years has gone into identifying and developing management talent has allowed us to ensure once again a well-planned very smooth transition. For the years to come, the Group will be able to continue counting on a strong management team with broad experience to keep on developing the business, delivering the Nestlé model and achieving the transformation of Nestlé into the world's foremost Nutrition, Health and Wellness Company. You will find the respective curricula of these Gentlemen in your documentation.
As for myself, Ladies and Gentlemen, I will become an active, but non-executive Chairman on April 10 of next year. I saw with some amusement that several media reports warned the newly appointed CEO of the supposedly interfering Chairman. These remarks produced a strong sense of "déjà vu" – as the same warnings were uttered when I took over from Helmut Maucher 11 years ago. Let me make it perfectly clear: it is Paul Bulcke who is going to be the Chief Executive Officer and therefore the Company's supreme executive authority. As an active Chairman, I will be involved in the overall global strategy and I will take a close interest in the Group's "non food and beverages" holdings. As you know, in the coming years, we will have to take an active approach to these investments to ensure that they best benefit the Nestlé shareholders in the long term. Simultaneously, corporate governance issues generate a fast growing amount of work for the Board. The Chairman spends far more time on these issues, as well as on broader political and social affairs which are handled by different institutions such as the World Economic Forum and the European Roundtable of Industrialists. Furthermore, I will again intensify my outside Board commitments which also put increased demands on my time. Coming back to Nestlé and to corporate governance allows me to make some comments on the project of modernizing our Articles of Association. This process was set in motion at the Annual General Meeting in 2005. In 2006, the Board of Directors proposed a resolution to our shareholders. 98 percent of the shares represented approved a mandate to the Board to draft a complete revision of the Articles, which would be subject of course to a vote by the shareholders. This decision was challenged by one shareholder, but the Court upheld the General Meeting's decision. The Board continues to work on the draft of revised Articles, searching for the right balance between the divergent interests of our shareholders and taking into consideration the changing legal environment in Switzerland. As foreseen, they will be put to a vote at the General Meeting of April 2008. We will explain these changes in detail in the course of the February press conference; at the same time, a full explanation will be given in the invitation to the Annual General Meeting. Ladies and Gentlemen, before opening this press conference to your questions, I would like to give you a brief outlook on the months to come. Despite the challenging environment, we are confident in our ability to once more, and for the 12th consecutive year, attain the objectives of the Nestlé model. For 2007, we expect to be able to deliver organic growth above our target range of between 5 and 6 percent and a further improvement of the EBIT margin in constant currencies.
SLIDE 48 – Next Media Events
With that, Ladies and Gentlemen, we conclude our presentations and I now welcome your questions. Thank you for interest and your active participation. I now have the pleasure of inviting you to our aperitif and the buffet, featuring some of our Nestlé Professional products that will follow it.
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