Nestle India Ltd. · NSE:NESTLEIND
Nestle India — Investor Presentation (August 2016)
77 slides from Nestle India's investor presentation, Aug 22, 2016
Slide 1: Nestlé India Limited Financial Analysts and Institutional Investors Meet
Nestlé India Limited Financial Analysts and Institutional Investors Meet Gurgaon 22nd August 2016
Slide 2: Disclaimers
Disclaimers 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: Agenda
Agenda • Accelerating Our Game: Suresh Narayanan • Financial Highlights: Shobinder Duggal • Questions & Answers: Suresh & Shobinder 3
Slide 4: Financial Analysts and Institutional Investors Meet 22nd August 2016
Financial Analysts and Institutional Investors Meet 22nd August 2016 4
Slide 5: Agenda
Agenda Recap “Must Win Battles” MAGGI Noodles – Rebound & Rebuild Way Forward What is the new reality Where do we want to go How will we get there Disclaimer: All images used in this presentation are for reference purpose only 5
Slide 6: Our Must Win Battles
Double digit Insight led volume growth Innovation NHW leadership Execution Our brilliance Must Win Responsiveness Reward and Recognition Battles to environment FAST FOCUSED FLEXIBLE Nimble 100% Footed compliance Consumer People fit for engagement battle 6
Slide 7: Rebound & Rebuild
Rebound & Rebuild 7
Slide 8: Accelerate To Market
Accelerate To Market ' Packaging Material: 42 days )) 9 days 4 ibe S | Raw Material: 21 days ») 5 days & POSM: 60 days )) 20 days System Readiness: 21 days )) 5 days Zz Ss Campaign: 45 days )) 20 days
Slide 9: Galvanise The Troops
Galvanise The Troops 900 Towns* 24,00,000 Outlets* *Approximate numbers indicating number of towns we have a presence in as well the likely number of total indirect outlets reached 9
Slide 10: Way Forward
Way Forward What is the new reality Where do we want to go How will we get there
Slide 11: What Is The New Reality
1 What Is The New Reality 11
Slide 12: Trends: Dynamics Are Favourable
Trends: Dynamics Are Favourable Urbanization Technology Women Worth Propensity to Tide Up Premiumise Valourising Quest for Shifting the Value goodness Sweet spot 12
Slide 13: Environment defined by competitive intensity but with upside opportunities
We are in an environment defined by competitive intensity but with “upside” opportunities 13
Slide 14: Where Do We Want To Go
2 Where Do We Want To Go
Slide 15: Our Vision
Our Vision and most trusted : NHW company, placing Consumers, Customers and eG at the
Slide 16: Our Ambition & Our Key Growth Drivers
Our Ambition & Our Key Growth Drivers • Double digit growth (volume driven) • Consumer Insight led • Launch new products in each category • Fast, Focused, Flexible in • Process reduction of 30-40% thought and action • Reduction in meetings by 50% • Embrace powerful ways of • Zero tolerance for non c
Slide 17: The Size Of The Opportunity
The Size Of The Opportunity Nestlé Target Population Population and Income pyramid Urban - 315m 2015 2015 USD Per capita % Share of income Expenditure Global >30,000 4% 4% 16 51m 51m Seeking / >7600-28000 Striving 12% 27 12% 153m 153m Aspiring >2300-7500 41% 41% 32 524m 524m Deprived <2300 43% ` 26
Slide 18: Consumers: Middle Class Will Expand
Consumers: Middle Class Will Expand 2015 2020 Globals 4% 5% Seeking & 12% 16% Striving Aspiring 41% 42% Deprived 43% 38% Source: India: BCG report | 18
Slide 19: In a nutshell
In a nutshell: • Drive volumes • Sustain profitability 19
Slide 20: Drive Penetration and Frequency
Drive Penetration and Frequency Consumer centric innovation across categories Capture potential of many India’s within India 20
Slide 21: Drive Penetration & Frequency
Drive Penetration & Frequency Contribution 21
Slide 22: Consumer Centric Innovation & Renovation Across Categories
Consumer Centric Innovation & Renovation Across Categories Consumer insights around NHW Value-up and premiumize Size of opportunity and our competency Sustainability and innovation of an accretive nature Building capabilities to expand in new categories 22
Slide 23: Prepared Dishes and Cooking Aids
Prepared Dishes and Cooking Aids New Products • MAGGI Cuppa Noodles – 4 variants • MAGGI HOTHEADS – 4 variants • MAGGI No Onion No Garlic Noodles 23
Slide 24: Chocolate & Confectionary
Chocolate & Confectionary New Products • NESTLÉ BARONE Charge • NESTLÉ MUNCH Nuts • Gift Packs • Premium Chocolates 24
Slide 25: Milk Products & Nutrition
Milk Products & Nutrition New Products • NESTLÉ a+ GREKYO – 4 variants • NESTLÉ a+ PRO-GROW • NESTLÉ EVERYDAY Masala Fusion • NESTLÉ CEREGROW 25
Slide 26: Beverages
Beverages New Products • NESCAFÉ SUNRISE Insta-Filter • NESCAFÉ 3-in-1 • NESCAFÉ RTD – 3 variants • NESTEA – 3 variants 26
Slide 27: Consumer Centric Innovation & Renovation Across Categories
Consumer Centric Innovation & Renovation Across Categories 25 new products & many more to come 27
Slide 28: Capture Potential Of Many India’s Within India
Capture Potential Of Many India’s Within India Calibrated launches basis geography, brand, category and channel potential Resources to be placed behind national and regional winners Organization capabilities to be fast, focused and flexible helping to excel in execution 28
Slide 29: Ecommerce: Tapping The Channel
Ecommerce: Tapping The Channel eCommerce Market (in Billion US$) Expected to contribute 5% (5 Bio US$) of FMCG sale by 2020 2014 2020 5.3 6X 32 Our ambition is to grow our business further in this sector 29
Slide 30: Out Of Home: Opportunity Beckons
Out Of Home: Opportunity Beckons Food Services/Eating Out share in Consumers eating out of Fun Spending 70% home at least once in a CAGR Gr% Store Count (Per Capita = US$42) week (2010-2016) 22% Domino’s Current count: 1026 55% McDonalds17% Current count: 223 *Goldman Sachs: India Consumer Close-Up
Slide 31: Food Regulatory Environment: Positive Winds of Change
Food Regulatory Environment: Positive Winds of Change 11000 additives Infant & special medical allowed foods under review Only ingredients Harmonisation with CODEX approved by FSSR can be used Fully committed to work with FSSAI 31
Slide 32: Changing Face of Consumers
Changing Face of Consumers 24X7 CES Operation Across Channels - India 2012 2016 NUMBER OF CONTACTS NUMBER OF CONTACTS 2,500 Contacts Estimated 450,000 Contacts TEAM STRUCTURE TEAM STRUCTURE FTE 4 FTE 60 RESPONSE RESPONSE First Response in 24 Hours First Response in 30 minutes 32
Slide 33: Nestlé in Society – 104 Years of Commitment
Nestlé in Society – 104 Years of Commitment Our Focus Nutrition Areas Water and Environment Sustainability Rural Development Nutrition Water Rural Environment Compliance Development 33
Slide 34: Nestlé in Society – 104 Years of Commitment
Nestlé in Society – 104 Years of Commitment HEALTHY KIDS Over 46,000 beneficiaries 100,000 Milk Farmers MAMTA 100,000 beneficiaries Clean Drinking Water Projects over 15000 beneficiaries Over 2000 Coffee Farmers 34
Slide 35: Nestlé in Society – 104 Years of Commitment
Nestlé in Society – 104 Years of Commitment 35
Slide 36: Our People: Our Stars
Our People: Our Stars … by leading through example, holding ourselves to the highest standards of integrity and always striving to do what’s right. What makes Nestlé attractive • Opportunity to work for iconic brands • Feeling of involvement in Society • Culture of ethics and performance • Continuou
Slide 37: Key Takeaways Today
Key Takeaways Today Priority on growth across the portfolio Strong commitment to NHW Key role of penetration, frequency and insight led innovation Tapping into the many India’s within India – the emerging channels and consumer trends Responsive, committed to society, nimble footed and proud to be Ne
Slide 38: A reminder
A reminder Financial Results for 2016 are being reported in accordance with the Accounting Standards specified under Companies (Accounting Standards) Rules, 2006. IND-AS is applicable w.e.f 1st January 2017. 38
Slide 39: Market Dynamics
Market Dynamics Market Size 2015 Market Growth % 2016 FMCG FMCG Q2 '16 4.4 H1 5.8% USD 39.7 Bio Q1 '16 7.2 F&B F&B Q2 '16 5.3 H1 6.3% USD 21.1 Bio Q1 '16 7.4 Processed Food Processed Food (excl. Commodities) (excl. Commodities) Q2 '16 2.7 USD 13.7 Bio H1 3.8% Q1 '16 5.0 Nestlé Nestlé Categories Cate
Slide 40: Brand Strength & Market Position
Brand Strength & Market Position Nestlé’s Category Brand Market Share % (Value) Position YTD MAT (Jan-Jun 2016) (Jul’15-June’16) 53 56 57 Instant Noodles 52.0 44 48 51 42.9 1 Jan Feb Mar Apr May Jun Ketchups & Sauces 23.8 24.4 2 Instant Pasta 56.7 50.4 1 Infant Formula 42.4 42.5 1 Infant Cereals 96.
Slide 41: January – June highlights
January – June highlights INR 45.5 Bio Impacted by MAGGI issue in 2015 INR 8.26 Bio INR 4.9 Bio INR 50.80 2016 2.4 18.1%* 10.8%* 0.8 INR +1.1 Bio Weighted INR -125 Million INR +2.3 Bio INR +24.26 Volumes +2.5% & Prices -75 bps +500 bps +91.4% INR 44.4 Bio INR 8.38 Bio Reported Comparable 2015 18.9%*
Slide 42: Quarterly evolution
Quarterly evolution Q1 Q2 Q3 Q4 % YoY Growth NET SALES -17.2 2.5 [INR 81.2 Bio] [INR 45.5 Bio] 8.4 -8.4 16.7 -20.1 -22.6 -32.1 INR Bio 25.1 19.3 17.4 19.5 23.0 22.6 2015 2016 % of Net Sales Profit from Operations (b) 16.4 18.1 20.6 [INR 13.3 Bio] [INR 8.3 Bio] 19.4 16.8 (a) 16.7 15.3 11.4 INR Bio 5.
Slide 43: Domestic Sales and Exports: January-June
Domestic Sales: January-June 7.3% 2.6% 161 172 41.1 42.2 Contribution 93% 93% to Sales Volume (000’ Tons) Value (INR Bio) Exports (Affiliates + Third parties) -0.8% 0.8% 10 10 3.3 3.3 Contribution to Sales 7% 7% 2015 2016 43
Slide 44: Reported & Comparable Domestic Sales Growth: Jan-June
Reported & Comparable Domestic Sales Growth: Jan-June Growth% Reported 7.3 Volume (Tons) Comparable* 0.5 Reported 2.6 Value (INR Mio) Comparable* -0.7 * Excluding sales of Noodles, Surplus Fat & Product Portfolio Optimisation initiatives. 44
Slide 45: Category Contribution % to Domestic Sales
Category Contribution % to Domestic Sales January - June 55.0 Milk Products & 52.8 Nutrition Prepared Dishes 22.2 & Cooking Aids 25.6 12.0 Chocolate & Confectionery 11.9 10.8 Beverages 9.7 2015 2016 45
Slide 46: Domestic Sales - 2016
Domestic Sales - 2016 Q1 Q2 H1 Reported Sales in INR Bio 21.3 20.9 42.2 Reported yoy Growth % -8.7 17.5 2.6 Comparable Growth %* -2.0 0.7 -0.7 Innovation & Renovation across categories Most other categories recovering * Excluding sales of Noodles, Surplus Fat & Product Portfolio Optimisation ini
Slide 47: 3rd Party Sales - 2016
3rd Party Sales - 2016 Q1 Q2 H1 Organic Growth (%) Reported -8.4 16.6 2.4 Comparable* -2.1 1.2 -0.5 Real Internal Growth (%) Reported -9.7 14.5 0.8 Comparable* -3.0 0.3 -1.3 * Excluding sales of Noodles, Surplus Fat & Product Portfolio Optimisation initiatives. Note: Organic Growth (OG) and Real Int
Slide 48: Materials Cost - 2016
Materials Cost - 2016 Q1 Q2 H1 # Materials cost in % of Net Sales as reported 42.9 42.1 42.5 ## Movement in conversion cost in bps -90 20 -40 Net materials cost in % of Net Sales 42.0 42.3 42.1 yoy movement in bps 30 100 70 of which Commodities 100 20 60 Realisations 40 20 10 Mix impact 30 60 20 (Pr
Slide 49: Other Variable Cost - 2016
Other Variable Cost - 2016 Q1 Q2 H1 Cost in % of Net Sales 12.5 13.1 12.8 yoy movement in bps 40 50 0 Benefits of Lower crude oil & energy prices offset by higher cost of distribution (impacted by product mix) Includes Distribution Cost, General licence fees, Power & Fuel, Rates & Taxes etc. 49
Slide 50: Advertisement & Sales Promotion - 2016
Advertisement & Sales Promotion - 2016 Q1 Q2 H1 Cost in INR Bio 1.2 1.5 2.7 yoy increase in % - 26.3 + 14.8 8.1 % of Domestic Sales 5.6 7.1 6.4 yoy movement in bps 135 15 75 New Media Campaigns across Categories Stepped up spends on New launches Base not fully comparable Includes Media spends, Consu
Slide 51: Fixed Cost
Fixed Cost Q1 Q2 H1 2016 Reported Cost in INR Bio 4.6 5.0 9.6 Cost in % of Net Sales 20.2 22.1 21.1 yoy movement in bps - Reported 215 115 185 yoy movement in bps - Comparable 215 180 55 +2.6% +7.8% +5.2% 2015 Reported Cost in INR Bio 4.5 4.1 8.6 Cost in % of Net Sales 18.0 21.0 19.3 Comparable* Cos
Slide 52: Profit from Operations
Profit from Operations Q1 Q2 H1 2016 Reported Profit in INR Bio 4.5 3.8 8.3 Profit in % of Net Sales 19.4 16.8 18.1 yoy movement in bps - Reported 115 15 75 yoy movement in bps - Comparable 115 210 10 2015 Reported Profit in INR Bio 5.2 3.2 8.4 Profit in % of Net Sales 20.6 16.7 18.9 Comparable* Pro
Slide 53: Profit from Operations: January-June
Profit from Operations: January-June In bps Reclassification of fixed Costs to ‘Exceptional Item’ in 2015 130 - 65 55 70 30 One offs Materials Variable Adv. & Sales Fixed Costs Export Costs Promotion Incentives 18.9% 18.1% H1 ’15 H1 ’16 Reported Reported % are with reference to Net sales 53
Slide 54: Effective Tax Rate (ETR): January-June
Effective Tax Rate (ETR) : January-June MTR change : 80 bps Pantnagar Tax holiday DTL revaluation : 110 bps - Profitability in Q1’16 in 2015 impacted by lower MAGGI Noodles volume - Sunset w.e.f 1st April’2016 140 30 60 INR 2.8 Bio Mix of profits from Tax holiday 80 Vs other sites 100 320 Tax benefi
Slide 55: Net Profit after Tax (PAT): January-June
Net Profit after Tax (PAT): January-June 20 Contingencies - others:20 660 90 CSR expense :10 50 40 INR 4.9 Bio INR 2.6 Bio Exceptional Treasury Δ ETR Profit from Other Items Income Operations Costs 5.8% In bps 10.8% H1 ’ 15 Net Profit % Q1 Q2 H1 H1 ‘16 2016 11.3 10.2 10.8 2015 12.8 (3.3) 5.8 % and b
Slide 56: Cash generation from Operations: January-June
Cash generation from Operations : January-June INR Million 120 260 200 750 1,000 4,400 230 13.9%* Lower working capital in H1’15 due to MAGGI 10.0%* Noodle issue PBIT: 4020 6,310 4,470 Exceptional Profit from Other Costs Dep. & Trade Net Other Taxes Items operations Impairment Working elements of Ca
Slide 57: Recovery from an exceptional base
Recovery from an exceptional base Shareholders Fund (INR Bio) Return on Equity (%) Debt: Equity 1:99 1:99 29.1 31.7 17.8 32.7 Jun-15 Jun-16 Jan-Jun' 15 Jan-Jun' 16 AAA Rating reaffirmed by CRISIL on 18th Nov’15 EPS (INR) Share Price (INR) 26.5 50.8 6,346 6,343 5,976 6,350 6,180 5,873 5,824 5,491 5,0
Slide 58: Dividend: DPS (INR)
Dividend DPS (INR) 2014 - Additional Interim dividend of INR 10 Per Share 63.0 10.0 48.5 48.5 48.5 Impacted by MAGGI Noodles Issue 24.0 14.0 53.0 2012 2013 2014 2015 H1 '15 H1 '16 58
Slide 59: Sales and Market Share Evolution: MAGGI Noodles
Sales and Market Share Evolution: MAGGI Noodles Sales Indexed to November 2015 1.8 170 171 180 148 1.6 136 131 138 160 1.4 129 140 1.2 100 120 1.0 NA* 100 0.8 80 0.6 60 0.4 40 0.2 20 - - Nov'15 Dec'15 Jan'16 Feb'16 Mar'16 Apr'16 May'16 Jun'16 (re-launched on 9th Nov’15) Bar size represents Sales Val
Slide 60: Nestlé India’s Commodity Price Index
Nestlé India’s Commodity Price Index 122 115 112 114 107 100 2011 2012 2013 2014 2015 YTD Jun'16 Indexed with base year 2011 60
Slide 61: Milks Consumption Price Index
Milks Consumption Price Index Others 54% Milks 46% 106 105 100 99 98 97 98 95 Current Price 94 91 90 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Indexed with base Q1-14 61
Slide 62: MSK Consumption Price Index
MSK Consumption Price Index MSK 6% Others 94% 107 105 98 100 84 78 78 75 74 72 73 Current Price Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Indexed with base Q1-14 62
Slide 63: Skimmed Milk Powder (MSK) Prices /kg
Skimmed Milk Powder (MSK) Prices /kg Variance vs LY -24% -26% -23% -16% -9% -7% -44% 206 202 195 188 188 -42% 199 -11% 164 -26% -12% -41% 134 133 122 118 111 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 International* Domestic *USD spot Prices /Kg converted to INR 63
Slide 64: AMF (Ghee) Prices /kg
AMF (Ghee) Prices /kg Variance vs LY +23% +6% +8% -2% -5% -12% 335 -20% 299 288 +10% 296 -11% +5% 275 -13% 262 273 -11% 232 213 241 224 183 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 International* Domestic *USD spot Prices /Kg converted to INR 64
Slide 65: Full Cream Milk Powder (FCMP) Prices /kg
Full Cream Milk Powder(FCMP) Prices /kg Variance vs LY 10% -25% -27% -19% -6% -2% 239 217 -41% 216 214 215 212 +9% -34% 176 -5% -22% -27% 152 161 137 144 129 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 International* Domestic *USD spot Prices /Kg converted to INR 65
Slide 66: Green Coffee Consumption Price Index
Green Coffee Consumption Price Index Green Coffee Others 9% 91% 114 111 111 109 108 106 104 Current Price 103 100 97 96 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Indexed with base Q1-14 66
Slide 67: Wheat Flour Consumption Price Index
Wheat Flour Consumption Price Index Wheat Flour Others 10% 90% 112 Current Price 106 105 103 100 99 100 101 97 97 96 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Indexed with base Q1-14 67
Slide 68: Palm Oil Consumption Price Index
Palm Oil Consumption Price Index Palm Oil 7% Others 93% 112 106 Current Price 103 102 103 100 100 100 102 97 97 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Indexed with base Q1-14 68
Slide 69: Sugar Consumption Price Index
Sugar Consumption Price Index Sugar 6% Others 94% 118 120 Current Price 107 106 107 105 100 101 94 91 87 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Indexed with base Q1-14 69
Slide 70: Brent Crude
Brent Crude USD per barrel Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 x =56 x =63 x =52 x =45 x =36 x =48 Source: Intercontinental Exchange 70
Slide 71: Robusta
Robusta USD per Ton Source: London Exchange 71
Slide 72: Arabica
Arabica US Cent per Pound Source: New York Exchange 72
Slide 73: Palm Oil
Palm Oil MYR per Ton Source: Malaysia Exchange 73
Slide 74: Sugar
Sugar INR per Quintal Source: National Commodity & Derivative Exchange Limited 74
Slide 75: Average Trade Net Working Capital
Average Trade Net Working Capital 4.1 3.8 3.9 3.1 June 2015 June 2016 ATNWC (INR Bio) % of Net Sales ATNWC :Basis 12 Months Average (Nestlé Internal Reporting Standards) :Inventories + Debtors – Trade Payables for goods and services 75
Slide 76: Capital Efficiency
Capital Efficiency Return on Invested 17.2 38.9 Capital (%) Economic Profit (%) 3.3 25.1 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 32.7 29.0 4 2 0 Jan-Jun 2015 Jan-Jun 2016 Invested Capital (INR Bio) Invested capital : basis average of 5 quarter end (Nestlé Internal Reporting Standar
Slide 77: THANK YOU
THANK YOU 77