Nestle India Ltd. · NSE:NESTLEIND
Nestle India — Investor Day (August 2017)
59 slides from Nestle India's investor day presentation, Aug 24, 2017
Slide 1: Financial Analysts & Institutional Investors Meet
Financial Analysts & Institutional Investors Meet 24th August 2017 1
Slide 2: Disclaimers
Disclaimers 1. This presentation may contain statements which reflect Management’s current views and estimates and could be construed as forward looking statements. The future involves uncertainties and risks that could cause actual results to differ materially from the current views being expressed
Slide 3: Building for the next 100 years; Financial Highlights; Q&A
Building for the next 100 years (15:30 hrs): Suresh Narayanan Financial Highlights (16:15 hrs): Shobinder Duggal Floor for Q&A (16:45 – 17:30 hrs) 3
Slide 4: Building for the next 100 years
Building for Where we Key Where we are Key takeaways Our GST are - headed - takeaways from last journey Growth Continuity today time Story Story 4
Slide 5: Priority on growth across the portfolio
Priority on growth across the portfolio Strong commitment to NHW Key role of penetration, frequency and insight led innovation from last time Tapping into the many India’s within India – the emerging channels and consumer trends Responsive, committed to society, nimble footed and proud to be Nestlé
Slide 6: Our GST Journey
Our GST Journey 6
Slide 7: Prepare, Practice, Partner
Prepare Day 3 Day 1 3500 suppliers, 1600 distributors All Distributors successfully Practice Sales and migrated to Billing started start sales by Engaged with 3rd July. awareness programs Partner across India. Start has been fairly good, operating issues will get resolved over time 7
Slide 8: Actions and Opportunities
Actions Opportunities Commensurate Recalibrating benefits passed distribution on to the infrastructure consumers Categories -Dairy Unleashing better Whitener, Sauces, economic Infant Cereals opportunities Level playing field to make us more competitive 8
Slide 9: Business Scenario – Post GST
Business Scenario – Post GST Impact Outlook June growth was negatively Expect registered impacted by softer sales to be lower trading (excise duty subsumed in GST) 9
Slide 10: Where We Are
Where We Are 10
Slide 11: Our Mantra: Drive Volumes and Sustain Profitability
Our Mantra: Drive Volumes and Sustain Profitability • Double digit growth (volume driven) • Consumer Insight led • Launch new products in each category • Process reduction of 30- • Fast, Focused, Flexible in 40% thought and action • Reduction in meetings by • Embrace powerful ways of 50% working • Z
Slide 12: Where We Are
Where We Are Approximately Nearly Close to a half of the another quarter of growth came quarter of the the growth from non- growth came came from noodles from new noodles portfolio product portfolio launches Encouraging responses to An energized Secular our new MAGGI growth across product Noodles ca
Slide 13: Brand Strength & Market Position
Brand Strength & Market Position Leadership Position In 5 Out Of 9 Categories YTD MAT Nestlé’s Category Brand (Jan-Jun 2017) (Jul’16-June’17) Position Instant Noodles 59.5 58.7 1 Ketchups & Sauces 24.3 24.4 2 Instant Pasta 65.2 61.4 1 Infant Formula 40.5 40.9 2 Infant Cereals 96.5 96.4 1 Tea Creamer
Slide 14: Some Of Our New Launches
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Slide 15: New Product Launches: Charting a new Course
New Product Launches: Charting a new Course * Jan ‘16- May ‘17 Population Share of Expenditure Nestlé India No. of innovations & NPD Portfolio Renovations* 4% 16% Value Up 14 Global 51m Seeking / 12% 27% Mainstream 22 Striving 153m Aspiring 41% 32% PPP 7 524m 43% 26% Deprived 550m 15
Slide 16: Wholesome proposition targeting the breakfast occasion
Wholesome proposition With the benefit of an Putting NUTRITION at the targeting the breakfast occasion essential nutrient heart of what we do Protein for Goodness performance of fibre & Sustained Loaded with energy veggies 16
Slide 17: Fortified Milk
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Slide 18: Unique Consumer Centric Initiatives
Unique Consumer Centric Initiatives 18
Slide 19: Unique Consumer Centric Initiatives
Unique Consumer Centric Initiatives 19
Slide 20: Where we are headed
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Slide 21: Continuity Of Strategy
Continuity Of Strategy Growth With Sustained Profitability Volume led growth Increased penetration and saliency Innovation and Renovation across brands Specific initiatives on channel / alternate business opportunities Need for continued investments to grow portfolio 21
Slide 22: Enhancing quality of life and contributing to a healthier future
Enhancing quality of life and contributing to a healthier future for individuals & families for our communities for the planet Enabling healthier and happier lives Helping develop thriving, resilient communities Stewarding resources for future generations Encouraging over good Creating nutrition and
Slide 23: Why Fortify?
Why Fortify? 70% Iron Deficiency 65% Vitamin A Deficiency 45% Zinc Deficiency For children below the age of 5, basis national survey 2013-14 conducted by Ministry of Women and Child Development Food items are 2-5% believed to be fortified with micronutrients Our task - innovate to support national p
Slide 24: Fortification within products/brands
Initiatives To Manage Malnutrition Via Micronutrient Fortification Fortification within products/brands Fortified Milk to hit shelves soon 24
Slide 25: Institutionalizing Our Learnings
Institutionalizing Our Learnings 25
Slide 26: Driven by our purpose and values
Driven by our purpose and values Growth plus sustained profits Focus on penetration + volume to drive growth Continued efforts towards innovation and renovation Today Commitment towards relevant Nutrition Proposition / NHW Consumer centric initiatives on digital, on ground activation, route to marke
Slide 27: Agenda
Agenda 1 Key impacts of transition to Ind AS 2 Financials: January-June 2017 3 Impact of GST on Key Financials 27
Slide 28: Key impacts of transition to Ind AS
Key impacts of transition to Ind AS Ind AS implemented w.e.f 1st January 2017 Previous period figures restated to make them comparable Treatment under Treatment under Cost Line Change impact IGAAP Ind AS Excise Duty Netted from Sales Separate cost line Sales Incentives to Trade - Marketing Adv.
Slide 29: Impact on Key Ratios: 2016
Impact on Key Ratios: 2016 IGAAP Ind AS Impact* (INR Bio) (INR Bio) Total Sales 91.6 94.1 270 bps Employee Benefits Expense 9.8 9.0 % Total Sales 10.8 9.6 120 bps Advertisement & Sales Promotion 5.7 5.0 % Total Sales 6.2 5.3 90 bps Selling & Distribution 4.6 4.4 % Total Sales 5.0 4.7 30 bps Profit f
Slide 30: Market Dynamics H1 2017
Market Dynamics H1 2017 Source : AC Nielsen Market Size 2016 FMCG 45 Bio F&B 25.2 Bio The market momentum Processed Food remained attractive (excld Commodities) 14.5 Bio Nestlé Categories 4.1 Bio Market Size in USD Bio for 2016 (1USD = INR 67.19) Note: Infant Formula and Infant Cereal Segments inclu
Slide 31: Highlights: January - June
Highlights : January - June Amount in INR billion unless otherwise stated Total Sales RIG (%) OG (%) Profit from Operations INR +3.8 Bio INR -0.3 Bio Growth +8.2% Margin -210 bps 8.1 8.9 18.3 16.2 2.4 46.6 50.4 0.8 8.5 8.2 Net Profit Total Comprehensive Income EPS (INR) INR +0.4 Bio INR +0.6 Bio INR
Slide 32: Evolution of Quarterly results
Evolution of Quarterly results Q1 Q2 Q3 Q4 Total Sales % YoY 12.8 8.2 Growth -7.8 16.4 34.6 15.9 9.1 7.3 INR Bio 23.6 23.0 24.1 23.3 25.7 24.7 2016 2017 Profit from Operations % of Net 17.6 16.2 Sales 19.4 17.1 16.6 17.2 17.0 15.4 INR Bio 4.6 3.9 4.0 4.0 4.4 3.8 - Percentage calculations are based o
Slide 33: Sales Performance
Sales Performance Domestic Sales Export Sales 93 94 % Contribution 7 6 + 9.3% Value - 5.7% (INR Bio) 43.3 47.3 3.3 3.1 + 9.5% Volume + 2.4% (000’ Tons) RIG 8.5% 172.3 188.7 9.7 9.9 H1’16 H1’17 33
Slide 34: Domestic Sales - Value Growth
Domestic Sales - Value Growth Reported Growth (%) 9.3 Maggi Noodles 2.8 New Products 2.4 Rest of the Portfolio 4.1 Domestic Sales Growth supported by rebuild of Maggi Noodles and New Products 34
Slide 35: Rebuilding the MAGGI Noodles business
Rebuilding the MAGGI Noodles business 140 5.5 100 115 121 108 124 132 120 5.0 100 80 4.5 60 4.0 NA* 40 3.5 20 3.0 - Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 47.5 54.9 57.4 58.3 59.1 59.9 Quarterly Market Share % (Value) Bar size represents Sales Value Sales Indexed with Q1 2016 35
Slide 36: New Products contributing to growth
New Products contributing to growth % Contribution to 0.7 2.2 2.8 domestic sales H1’16 H2’16 H1’17 Bar size represents sale of New Products 36
Slide 37: Category Contribution to Domestic Sales
Category Contribution to Domestic Sales Sales Growth Milk Products & 48.5 3.4% 51.2 Nutrition Prepared Dishes 27.6 17.9% 25.6 & Cooking Aids 12.8 Chocolate & 13.0 10.9% Confectionery 10.4 Beverages 10.9 15.1% H1'16 H1'17 37
Slide 38: Milk Products & Nutrition - Domestic
Milk Products & Nutrition - Domestic 48.5% Value (INR Bio) Volume (000’ Tons) 24.0 23.5 -0.2% 3.4% 63.0 23.0 62.0 22.5 61.0 22.0 60.0 59.0 21.5 21.0 58.0 RIG 57.0 1.1% 20.5 22.2 22.9 56.0 62.6 62.5 20.0 55.0 H1’16 H1’17 Strong Growth in NAN and Milkmaid Overall Growth adversely impacted by availabil
Slide 39: Prepared Dishes & Cooking Aids - Domestic
Prepared Dishes & Cooking Aids - Domestic 27.6% Value (INR Bio) Volume (000’ Tons) 17.9% 100.0 16.1% 13.0 95.0 12.0 90.0 11.0 85.0 80.0 10.0 75.0 9.0 RIG 70.0 8.0 65.0 18.8% 7.0 60.0 6.0 11.1 13.0 55.0 85.0 98.7 5.0 50.0 H1’16 H1’17 Rebuilding Maggi Noodles Valuing up the Portfolio 39
Slide 40: Chocolate & Confectionery - Domestic
Chocolate & Confectionery - Domestic 13.0% Value (INR Bio) Volume (000’ Tons) 6.5 20.0 10.9% 19.0 5.7% 6.0 18.0 5.5 17.0 5.0 16.0 15.0 4.5 14.0 RIG 4.0 13.0 12.4% 12.0 3.5 5.5 6.2 11.0 17.4 18.4 3.0 10.0 H1’16 H1’17 Strong Growth in KitKat & Munch Focused on Value Up and Mainstream 40
Slide 41: Beverages - Domestic
Beverages - Domestic 10.9% Value (INR Bio) Volume (000’ Tons) 11.0 5.5 10.0 15.1% 24.7% 5.0 9.0 4.5 8.0 4.0 7.0 6.0 3.5 5.0 RIG 3.0 14.7% 4.0 2.5 4.5 5.2 3.0 7.3 9.1 2.0 2.0 H1’16 H1’17 Strong Growth in NESCAFE Classic Growth, especially Volume growth, positively influenced by introduction of NESCAF
Slide 42: Movement of Profit from Operations
Movement of Profit from Operations 160 Power & Fuel 50 Selling & Dist. 20 35 50 40 45 40 18.3% 16.2% H1 ’16 Materials Excise duty Employee Depreciation Other Net Provision for H1 ’17 benefits Expenses Contingencies (Operations) Sharp increase in commodity prices have been only partially passed on to
Slide 43: Marketing Spends
Marketing Spends % of Domestic 8.0% 7.8% Sales INR Bio 3.5 3.7 H1' 16 H1' 17 Marketing spends redirected towards New Products Accelerated spends on digital platforms *Marketing Spends include: Advertisement & Sales Promotion, Marketing & Selling incentives to trade, free goods to consumers etc. Sour
Slide 44: Tax Expense and Effective Tax Rate
Tax Expense and Effective Tax Rate 35.0% 32.5% Marginal Tax rate @ 34.6% in both periods INR Bio 2.8 2.7 H1' 16 H1' 17 Tax Expense ETR (%) ETR improves as H1 ‘16 had “one offs” and H1’17 has higher tax holiday & tax free income The first 5 years of tax holiday @ 100% of profits of “Samalkha factory
Slide 45: Net Profit after Tax
Net Profit after Tax Contingencies(Others) 65 Exceptional Items 15 CSR Expense 5 INR 5.28 Bio 130 45 INR 5.70 Bio 75 10 Profit from Financial Other Costs Effective Tax Operations Income (Net) Rate 11.3% 11.3% H1 ’16 H1 ’17 % and bps movements are net of effective tax & in reference to sales 45
Slide 46: Cash generation from Operating activities
Cash generation from Operating activities INR Million 300 300 13.5% 429 442 327 49 574 574 101 11.4% 70 Profit from Depreciation Other Costs Trade Net Other Taxes Operations Working elements of Capital Working Capital 6,310 5,750 H1 ‘16 H1‘17 % are in reference to sales 46
Slide 47: Capital Efficiency & Value Creation Improves
Capital Efficiency & Value Creation Improves ROIC % 35.6 18.9 38.5 39.4 Economic Profit% 21.1 5.0 24.6 27.2 Turns 40 3.0 2.7 3.4 3.7 35 30 25 20 15 10 Invested Capital - INR Bio 5 33.7 30.4 27.5 27.4 0 2014 2015 2016 H1'17 Invested capital : basis average of 5 quarter end (Nestlé Internal Reporting
Slide 48: Dividend Payout Increased
Dividend Payout Increased Including additional Interim dividend of INR 10 Per Share 63.0 63.0 48.5 48.5 30.0 24.0 2013 2014 2015 2016 H1 '16 H1 '17 Dividend Per Share (INR) 48
Slide 49: Impact of GST on Key Financials
Impact of GST on Key Financials Pre GST Post GST a. Gross of Excise duty a. Excise duty subsumed Excise duty - Separate cost line in GST rate Sales b. VAT netted from Sales b. GST netted from Sales GST rates are higher than VAT rates Product Groups GST Rates Min Max Milk Products & Nutrition 5 28 Pr
Slide 50: Impact of GST on Key Financials
Impact of GST on Key Financials Reported Sales will be lower by ~ 525 bps [At Product Group level, the impact is between 150 to 1250 bps] Sales Growth Domestic Growth rate will be adversely impacted till Jun’18 e.g. H1’2017 domestic sales growth of 9.3% would be 3.6% post GST [-570 bps] Ratio Ra
Slide 51: Cost of Materials Consumed
Cost of Materials Consumed Material Costs (% of Sales) Nestlé India’s Commodity basket Price Index Commodities 270 bps 124 122 Realisations & 110 bps Product + Channel Mix + 160 bps 115 115 112 107 41.5% 43.1% 100 H1 ’16 H1 ’17 2011 2012 2013 2014 2015 2016 H1'17 Indexed with base year 2011 51
Slide 52: Milks Consumption Price Index
Milks Consumption Price Index 44% 121 121 Current Price 117 112 110 110 108 106 104 100 101 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Indexed with base Q1-15 52
Slide 53: MSK Consumption Price Index
MSK Consumption Price Index 3% 105 104 Current Price 100 98 96 93 93 90 89 88 86 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Indexed with base Q1-15 53
Slide 54: Green Coffee Consumption Price Index
Green Coffee Consumption Price Index 10% 107 100 99 98 98 97 96 93 Current Price 87 83 83 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Indexed with base Q1-15 54
Slide 55: Wheat Flour Consumption Price Index
Wheat Flour Consumption Price Index 11% 112 112 110 105 104 102 102 101 Current Price 100 95 95 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Indexed with base Q1-15 55
Slide 56: Sugar Consumption Price Index
Sugar Consumption Price Index 7% 133 Current Price 126 128 121 120 116 104 100 93 86 89 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Indexed with base Q1-15 56
Slide 57: Brent Crude
Brent Crude USD per barrel Q1 2016 x =36 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 x =56 x =64 x =52 x =45 x =47 x =47 x =52 x =55 x =51 Source: Intercontinental Exchange 57
Slide 58: Furnace Oil Consumption Price Index
Furnace Oil Consumption Price Index 104 100 101 97 91 90 81 77 68 59 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Indexed with base Q1-15 58
Slide 59: High Speed Diesel Consumption Price Index
High Speed Diesel Consumption Price Index 101 100 99 98 96 95 90 88 86 83 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Indexed with base Q1-15 59