Slide 1: 2002 Half Year Roadshow
2002 Half Year Roadshow August 2002 2002 Half Year Roadshow Name of chairman
Slide 2: Forward looking statements
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
Slide 3: Agenda
Agenda The financials Regional highlights Nestlé and currencies Key developments in 2002 2002 key objectives - update 2002 Half Year Roadshow Name of chairman
Slide 4: A solid first half performance
A solid first half performance • Excellent start in difficult environment • Improving RIG trend to 3.5% • Sustainable industry beating organic growth • EBITA shows real progress in operational efficiencies • Net profit reflects increased value of Alcon under Nestlé ownership • Improvement in working
Slide 5: Strong profit growth
Strong profit growth CHF bn H1 2001 H1 2002 % increase Sales 41'241 44'219 7.2 % EBITDA 5'885 6'643 12.8 % EBITA 4'577 5'195 13.5 % Net profit 3'152 5'656 79.4 % EPS (CHF) 8.15 14.57 78.9 % Operating cash flow 2'408 2'757 14.5 % 2002 Half Year Roadshow Name of chairman
Slide 6: Organic growth rate leads the industry
Organic growth rate leads the industry January - June 2002 : CHF 44.2 billion + 7.2 % + 3.5 % REAL INTERNAL GROWTH + 1.2 % Selling price increases and others + 8.5 % Acquisitions minus divestitures 0 - 6.0 % Variation of exchange rates Organic growth: 4.7 % 2002 Half Year Roadshow Name of chairman
Slide 7: The Swiss Franc continues to be the world's strongest currency
The Swiss Franc continues to be the world's strongest currency CHF per H1 2001 H1 2002 % decrease Euro (1) 1.53 1.47 - 4.0 U.S. dollar (1) 1.71 1.64 - 4.1 £ sterling (1) 2.45 2.36 - 3.6 Real (100) 79.40 67.49 - 15.0 Yen (100) 1.42 1.26 - 10.8 Mex. Peso (100) 18.10 17.60 - 3.0 Swiss Franc strengthens
Slide 8: Key figures in foreign currency - H1 2002
Key figures* in foreign currency - H1 2002 % % % CHFmio change EUR change USD change Sales 44'219 + 7.2 30'081 + 10.9 29'677 + 29.5 EBITA 5'195 + 13.5 3'534 + 17.4 3'487 + 37.1 Net profit 5'656 + 79.4 3'848 + 85.5 3'796 + 116.8 EPS (CHF) 14.57 + 78.8 9.91 + 84.9 9.78 + 116.4 Market cap. 134'620 - 9.
Slide 9: Strong depreciation of USD vs. CHF in Q2 2002
Strong depreciation of USD vs. CHF in Q2 2002 1.85 1.75 CHF/USD 1.65 1.55 2001 1.45 2002 1.35 July May January April June March October February August November December September 2002 Half Year Roadshow Name of chairman
Slide 10: Pricing increases generally below level of 2001
As expected, pricing increases generally below level of 2001 • 2001 H1 saw sharp increases in milk, meat and packaging costs (PET) • 2001 H1 saw aggressive price increases by Water and Petcare USA 2002 Half Year Roadshow Name of chairman
Slide 11: EBITA - improved operating performance
EBITA - improved operating performance H1 H1 Diff. basis points As % of sales 2001 2002 (rounded) Sales (CHF million) 41'241 44'219 --- 100 100 Cost of goods sold (44.5) (43.4) + 110 Distribution (7.7) (8.1) - 40 Marketing and administration (35.2) (35.3) - 10 Research and development (1.3) (1.3) 0
Slide 12: Net profit - reflects enhanced value of Alcon
Net profit - reflects enhanced value of Alcon H1 H1 Diff. basis points As % of sales 2001 2002 (rounded) EBITA 11.1 11.7 +60 Amortisation of goodwill (0.6) (1.6) - 100 Trading profit margin 10.5 10.1 - 40 Net financing costs (0.6) (1.0) - 40 Net non-trading income 0.3 5.9 + 560 Taxes (3.0) (2.4) + 6
Slide 13: Improved profitability: general
Improved profitability: general • Positive impact of Ralston Purina matched by dilution from other acquisitions & disposals and FX impact • Cost of goods sold shows benefits of Target 2004 and lower raw material costs • Distribution costs up due to Water and to Schöller's costs being similar to Wate
Slide 14: Improved profitability: net non-trading items
Improved profitability: net non-trading items Non-trading expenses include: • One time restructuring costs of CHF 0.3bn • Impairment of goodwill of CHF 0.6bn • Impairment of property, plant & equipment of CHF 1.0bn Non-trading income includes: • CHF 3.9bn from Alcon partial IPO • CHF 0.5bn from FIS
Slide 15: Improved profitability: net non-trading items
Improved profitability: net non-trading items • Restructuring costs relate primarily to Ralston Purina • Goodwill impairment relates primarily to Spillers • Asset impairments relate primarily to Petcare, Ice cream, Chocolate and Milk • Annual restructuring costs to remain in the range of CHF 200mio
Slide 16: Positive evolution of costs of goods sold
Positive evolution of costs of goods sold % sales 54 52.6 51.7 52 50.5 50 48.5 48 47.0 46 44.5 43.4 44 42 H1 H1 H1 H1 H1 H1 H1 1996 1997 1998 1999 2000 2001 2002 Takes into account the change to historic cost accounting in 1998 and the 2001 trade spend review 2002 Half Year Roadshow Name of chairman
Slide 17: Reduction in net indebtedness
Reduction in net indebtedness* CHFbn 25 19.4 20 16.2 15 10 6.2 9.5 6.0 5.2 5 3.0 0 H1 H2 H1 H2 H1 H2 H1 1999 2000 2001 2002 * Total financial liabilities minus liquid assets. Liquid assets do not include the carrying value of treasury shares of CHF 2.6 billion. 2002 Half Year Roadshow Name of chairm
Slide 18: Improved operating cash flow
Improved operating cash flow CHFm 3500 3167 3000 2757 2590 2500 2408 2231 2223 2000 1500 1000 H1 H1 H1 H1 H1 H1 1997 1998 1999 2000 2001 2002 2002 Half Year Roadshow Name of chairman
Slide 19: Faster cash conversion cycle
Faster cash conversion cycle Days 70 65 62 59 60 50 40 H1 H1 H1 2000 2001 2002 (AVG trade receivables/sales x 365) + (AVG inventory/ COGS x 365) - (AVG trade payables/ COGS x 365) * 365) 2002 Half Year Roadshow Name of chairman
Slide 20: Improved cash flow - key points
Improved cash flow - key points • Operating cash flow increased from 2001 • The cash out in 2002 has significantly improved - back to 2000 levels despite the higher level of sales in 2002 • Working capital includes an exceptional CHF300mio increase which will reverse in second half • Cash conversion
Slide 21: Investments in fixed assets
Investments in fixed assets CHFm % of sales 1440 1446 1399 1394 10 1500 1319 1230 1280 1329 1327 1314 1250 1171 1000 5.2 4.8 4.7 750 4.3 5 5.0 4.5 4.0 3.4 500 3.2 3.3 3.2 250 0 0 H1: 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2002 Half Year Roadshow Name of chairman
Slide 22: Agenda
Agenda The financials Regional highlights Nestlé and currencies Key developments in 2002 2002 key objectives - update 2002 Half Year Roadshow Name of chairman
Slide 23: Sales by management responsibilities and geographical area
Sales by management responsibilities and geographical area % Variation vs. % CHF bio H1 2001 RIG Zones Europe 13.8 4.6 0.7 Americas 14.5 18.1 3.6 Asia, Oceania and Africa 7.5 - 2.5 3.8 Nestlé Waters 3.9 3.8 8.7 Other activities 4.5 4.5 6.7 *Calculation based on non-rounded figures for sales. The % v
Slide 24: EBITA margin by management responsibilities and geographical area
EBITA margin by management responsibilities and geographical area H1 H1 % of sales, before unallocated items* 2001 2002 Zones Europe 10.3 10.5 Americas 11.4 13.4 Asia, Oceania and Africa 17.4 17.2 Nestlé Waters 8.1 9.4 Other activities 19.2 19.5 *Unallocated items include mainly corporate expenses,
Slide 25: Key points - Zone Europe
Key points - Zone Europe Sales • Most markets achieve positive RIG • Schöller, pricing are other positives EBITA • Schöller is dilutive - pending integration • Petcare improves despite RIG performance • Eastern Europe continues its trend of margin improvement 2002 Half Year Roadshow Name of chairman
Slide 26: Key points - Zone Americas
Key points - Zone Americas Sales • USA, Canada and Petcare perform well • Mexico weak, but Brazil resilient EBITA • USA, Canada, Petcare and many LatAm markets perform well • Ralston Purina is a positive 2002 Half Year Roadshow Name of chairman
Slide 27: Key points - Zone Americas - tax review
Key points - Zone Americas - tax review • American Competitive Act 2002 targeted at inverted companies • Scope is much broader: could impact all US subsidiaries of foreign based companies • Nestlé has expressed its concerns through representatives, organisations and discussions with US government •
Slide 28: Key points - Zone Asia, Oceania & Africa
Key points - Zone Asia, Oceania & Africa Sales • FX impact of 7.5% not offset by pricing • RIG slower even in high performing markets such as China • Japan shows a good RIG improvement over Q1 EBITA • Improvements in Africa and Middle East fail to compensate for reductions elsewhere including in Jap
Slide 29: Key points - Water
Key points - Water Sales • Continued excellent USA performance (+17.7%) - market share gain continues • Europe (+3.3%) impacted by Vittel strike • Other regions deliver double digit growth EBITA • Driven by 8.2% organic growth, cost control and PET • Excellent performance continues in the USA • Prev
Slide 30: Key points - Other activities
Key points - Other activities • Alcon performs well - sales and profit • F&B joint ventures make progress • Nespresso continues its extraordinary success 2002 Half Year Roadshow Name of chairman
Slide 31: Agenda
Agenda The financials Regional highlights Nestlé and currencies Key developments in 2002 2002 key objectives - update 2002 Half Year Roadshow Name of chairman
Slide 32: Currency exposure management
Currency exposure management Our objective, in a complex group, is to manage our currency exposure by favouring or creating natural hedges while actively managing tactical deviations 2002 Half Year Roadshow Name of chairman
Slide 33: Going beyond the translation exposure
Going beyond the translation exposure • Translation impact of USD depreciation vs CHF is partially hedged by mitigating factors: - USD denominated commodity purchases - Lack of synchronisation between commodity hedging and currency cash flow hedging (e.g. long commodity cover and short currency cash
Slide 34: De-synchronised commodity / currency hedging
Currency exposure management - De-synchronised commodity / currency hedging • Longer coffee cover with shorter USD/EURO or CHF cover delivers full benefit in our commodity purchases from the depreciation of the USD • Our USD commodity purchases create a natural hedge against our USD revenues, profit
Slide 35: Currency allocation of net debt - Strategic objective
Currency allocation of net debt - Strategic objective • To create a natural economic hedge between the currency mix of our net debt and the currency mix of our free cash flow: - Total net debt at 30.6.02 = 3 yrs x DFCF - USD net debt = 3 yrs x USD DFCF: strategic benchmark - Liquidities = 3 yrs x CH
Slide 36: Currency allocation of net debt - Tactical deviations
Currency allocation of net debt - Tactical deviations • To respond to likely evolution of currencies and interest rate differentials: - Current USD net debt > 4 years of USD based FCF - Current CHF liquidities > 4 years of CHF cash (out) flow Achieves a positive effect on our net financing cost and
Slide 37: Currency exposure management
Currency exposure management Our objective, in a complex group, is to manage our currency exposure by favouring or creating natural hedges while actively managing tactical deviations 2002 Half Year Roadshow Name of chairman
Slide 38: Agenda
Agenda The financials Regional highlights Nestlé and currencies Key developments in 2002 2002 key objectives - update 2002 Half Year Roadshow Name of chairman
Slide 39: Key developments in 2002
Key developments in 2002 • Disposal of FIS • Partial IPO of Alcon Nestlé focuses on achieving value and consumers visibility • Acquisition of Schöller • Acquisition of Chef America excellent position in leadership in key food Germany and central category Europe • Dreyer's transaction • Venture Fund
Slide 40: Agenda
Agenda The financials Regional highlights Nestlé and currencies Key developments in 2002 2002 key objectives - update 2002 Half Year Roadshow Name of chairman
Slide 41: 2002 objectives - update
2002 objectives - update • Drive profitability through efficiency programmes • Continue to deliver 4% RIG • Continue improvement in Ice Cream • Improve performance of Chilled Dairy and Petcare • Integrate Ralston Purina, ICP, Schöller • Conclude partial IPO of Alcon 2002 Half Year Roadshow Name of c
Slide 42: 2002 objectives - update
2002 objectives - update • Drive profitability through efficiency programmes • Continue to deliver 4% RIG • Continue improvement in Ice Cream • Improve performance of Chilled Dairy and Petcare • Integrate Ralston Purina, ICP, Schöller • Conclude partial IPO of Alcon On track to be achieved, but marg
Slide 43: Conclusion
Conclusion • Currencies remain an unpredictable element • H1 2002 confirms Nestlé's defensive qualities • Organic growth remains strong • EBITA underlines efficiency improvement • Key developments lay foundation for future earnings enhancing growth On track to meet expectations 2002 Half Year Roadsh
Slide 44: 2002 Half Year Roadshow
2002 Half Year Roadshow 2002 Half Year Roadshow Name of chairman