Half Year 2020 Nestle SA Earnings Call
We are witnessing extraordinary times with extraordinary challenges.
In this context and plan to report that Nestle has truly risen to the challenge.
We have proven in the resilience of our business model and have acted in a dependable consistent and responsible manner as we dealt with the consequences of the pandemic.
We were able to live up to our three key objectives in this crisis.
First assuming the health and safety assuring the health and safety of our associates and business partners around the world.
Second assuring business continuity, so that critically needed food and beverage products were on shelf, even in the darkest moments of this crisis.
And third acting as a carrying citizen enabler in the communities where we operate.
And providing a helping hand.
Safety action and solidarity will be a good way to summarize the three objectives.
My sincere thanks go out to the 290000 nestling associates around the world.
You have flexibility hard work dedication.
And also your craze under pressure has truly made is one of our finest analysts.
As you can see from slide four we have not only been responding to the cobot crisis.
We have also continue to try forwards key initiatives from portfolio transformation to sustainability and diversity and inclusion.
As shown on slide five we continue to reposition our portfolio towards businesses that offer more profitable growth.
Compared to 2019.
Significant divestments and strategic reviews are now increasingly balanced by acquisitions in high growth areas, namely Nestle Health science and pet Cam.
Page six provides more detail on one particular review that we announced in June.
We had promised you a new strategy for nessler waters in the first half of this year.
The cobot crisis did not stop us from delivering it on time.
The new strategy focuses on premium mineral water brands and functional water products.
Our new focus will lead over time to an increasingly differentiated product lineup with improved growth and profitability.
Short term the water business was impacted by the cobot crisis.
But we remain committed to this category and the concept of healthy hydration, which we pioneered.
For our North America waters business under review, we have seen very strong interest from potential buyers. We anticipate that we can complete this review in early 2021.
In our Q1 conference call at told you that entire company had a very strong short term and operational focus in the early stages of this pandemic to ensure safety and business continuity.
While this remains a priority we have wasted no time in thinking through the strategic implications of that pandemic.
As you can see from slide seven most of the long term trends, we have been working on still very much appliance.
Yes.
Some of them have even been accelerated in particular ecommerce and digital engagement.
As well as helping nutrition.
With particular focus on plant based nutrition and the immune system.
My apologies.
One major short term change has been the rapid shift towards at home consumption.
This shift heavily impacted our auto home business in Esther professional waters confectionery and ice cream.
While the recovery will take some time, we remain fully committed to outperform business now as the time to Reimagine and we think this part of the business to help our business partners in this area.
Yes.
I will always open for you initiative, which we unveiled in April has been met with enthusiasm from the many small to midsize business partners. We have in this area.
It strengthens our business relationship with them through support such as extended credit terms and free products.
It also helped to stabilize communities and employment, where we operate as such it is a great example of doing good and doing well.
Moving to slide eight I would like to talk about our new Nestle strategy narrative and the new purpose language.
Following our divestiture of Nestle skin health, we focused our purpose and strategy much more unlocking the unique powell of food and beverages.
Next to the healthy nutrition theme, which we have patients we pursued for over 20 years and to which we remain fully committed we also strengthened our sustainability commitment in everything we do.
Food that is good for you and good for the planet.
These two strategic directions go hand in hand.
Over the coming months, we will publish more detail on how this new purpose language translates into the Companys strategy narrative.
Before handing it over the Francois I would like to talk about our guidance on page nine.
Previous guidance in February in April was prior to any cobot impact as it was practically impossible at that time to estimate the size and shape of this pandemic and economic fallout.
This crisis is far from overall.
It's under these circumstances is riskier than in normal times.
We nonetheless, PR, but guidance is helpful and important to you to calibrate your expectations and reduce financial uncertainty.
We're pleased to confirm that our expectations regarding underlying trading operating profit.
Underlying earnings per share and constant currency and capital efficiency can remain unchanged from what we told you in February.
Let me say in all modesty. This is no small feat.
Regarding organic sales growth, we have to reflect the impact of a crisis on out of home business.
This is a reality we cannot escape.
We therefore expect organic sales growth for the full year to be in the range of 2% to 3%.
As always we worked very hard to fully meet or even exceed.
Our guidance commitments.
For the sake of good order, let me underline that this guidance is based on our current knowledge of the Copenhagen team developments and assumes no material deterioration versus present conditions, where does that mean over to Francois.
Thank you Mark.
Thank you Martin good morning, or good afternoon to all.
Let me start with the highlight for the first six months as you can see from these numbers in this day has proven to be resilient in a rapidly changing environment.
Total sales for the first half were 41.2 billion Swiss francs organic growth was 2.8 persons and the underlying trading operating profit margin reached 17.4% of sales an increase of 60 basis points underlying EPS grew by 0.5% on a constant currency basis.
Looking in more details at the components of four cents development organic growth was 2.8% in behalf. After a strong goes unexpected start to the year organic growth moderated in the second quarter, two 1.3%, reflecting the food effect of Lockdowns on some consumer de stocking.
In the first half rig was solid at 2.6% on pricing contributed 0.2 persons having returned to positive territory across all three zones in the second quarter.
Divestitures reduced sales by 5.3% largely related to the disposal of mystic in house on the us ice cream business.
For any change reduced sales by sales of 7%, reflecting the appreciation of the Swiss francs against most currencies.
Total reported sales decreased by 9.5%.
In the first half the effect of covered 19 on organic growth varied metal Uli by channel as a result of Lockdowns.
As this slide shows organic growth for retail sales accelerated to 6.3%, reflecting the significant shift from out of home to at home consumption.
Within retail E commerce, so exceptional growth of almost 60% with a strong acceleration in the second quarter across all geographies and categories.
Ecommerce now accounts for 12.4% of total sales as compared to 8.5% in 2019.
Before covering 19, the out of home channel accounted for around 10% of boot sales.
If we include undergo conception on products typically brought both on inputs then the total contribution was closer to 15% of sales.
Out of wholesale declined sharply as a consequence of movement restriction on the closure of menu Fccs restaurants are no towns to name just a few.
The rate of decline bottomed out in April at around minus 60%. Since then we have seen a modest sequential improvement, but the full recovery will take time.
This slide shows the development of sales by geography. It includes both saw zones as well as our globally on originally managed businesses.
The first half SOCOM trusted growth in terms of geographies.
The Americas continue to see strong momentum with positive contribution from both North and Latin America.
We sold a strongest impact of consumer stockpiling in North America.
In may not posted positive growth after an exceptionally strong first quarter at 6% growth slowed to 1.7% in the first half, reflecting the significant decline in the out of home sales channel.
He was negative but returned to positive territory in the second quarter.
Turning to the growth dynamic in developed and emerging markets organic growth in developed markets was 4.1 person's based on solid rig foremost regions pricing improved to almost flat in the second quarter.
Emerging markets grew by 1.1% organic growth was lower than usual as a result of percentage decline in China.
Excluding China organic growth in emerging market was in mid single digits with strong performances in Brazil, The Philippines, Russia and India.
We're positive on emerging markets as a key growth platform for the years to club.
Let's now look at the results of our full operating segments, starting with only Amis, where we saw strong organic growth again.
North America grew at a mid single digit right most product categories performed very well.
Purina Petcare remain just on helped we saw continued strong growth driven by E commerce on our premium brands.
In beverages, Starbucks at all NIS, Cassie and coffee met grew at double digit rates.
Starbucks foodservice, so as shop sales decline in the second quarter.
Frozen food accelerated to double digit growth with increased sales for digital no hot pockets on staffers.
At the end of the second quarter, we launched life cuisine offering on train meal solutions, ranging from gluten free to high protein.
Water reported negative growth impacted by reduced sales in the outperform channel.
An international premium brands in the United States, So positive growth led by some bidding renewal.
Latin America maintained the mid single digit growth rate with positive contributions from most geographies on product categories.
The Brazilian market performed well with strong growth in most categories and broad based market share gains.
Sales in Mexico grew at a low single digit right supported by coffee only dairy.
Zones underlying trading operating profit margin increased by 60 basis points. The increase was driven by a combination of portfolio management reduced in store activation during of downs on the direct store delivery transformation, which more than offset covered 19 related cost and come.
Our duty inflation.
Next is on a minute.
After an exceptionally strong start to the year organic growth turn positive in the second quarter due to a sharp set decline in the out of home channel, particularly for water honestly professional.
The other product categories performed well and posted high single digit growth.
Each regions, so positive growth, particularly in eastern Europe, we strong momentum in Russia.
Our four largest market in western Europe, France, Germany, the UK and Spain, all delivered solid growth.
By product category coffee Purina Petcare on culinary products, all grew at a double digit rate, which market share gains.
In coffee the improvement was broad based across brands, we Starbucks products on this capital should boost dozy highlights.
Purina Petcare reported strong rose four Salix Purina, one thirds dot com and lease kitchens supported by ecommerce.
Sales of culinary products were boosted by increased at home conception across most segments, particularly Maggie and government gourmet Plum best products.
In early July we are great lead off plan based on Sessional Burger with the new Meteor sit recipe.
What are recorded negative growth, but gain market share.
Zones underlying trading operating profit margin increased by 40 basis points.
As a reduced in store activation during lockdowns on lower commodity spent outweighed covered 19 related cost.
Moving to zone anyway.
His own reported negative organic growth as a double digit decline in China outweighed mid single digit growth in the other regions.
The zone return to positive growth in the second quarter held by improved trading conditions in China.
In China precisely growth was negatively impacted by a significant decline in the out of home channels and the timing of Chinese new year.
Sales growth was almost flat in the second quarter.
Coffee dairy ice cream culinary and confectionary or return to positive growth.
The contraction in wire infant formula sales moderated.
In June we just launched the locally manufactured infant formula build solar.
The new brands transcends wire suffering in the super premium segments and lower fuel cities.
Insights around grew double digits.
Purina Petcare, so continued double digit growth driven by pro plan Purina one on Salix.
E Commerce sales gain momentum with broad based improvements across most categories.
Southeast Asia grew mid single digit growth the Philippines grew at a double digit rates with elevated consumer demand for barbarism, Milo and Maggie.
Indonesia delivered high single digit growth led by background on denko.
South Asia reported mid single digit growth, India perform well supported by non everyday on this Kathy.
Megi saw solid growth despite temporary supply chain constraints in the second quarter.
Sub Saharan Africa grew at a double digit growth led by stronger cell development in South Africa.
Japan on us anymore, so negative growth.
The zones underlying trading operating profit margin decreased by 20 basis points as commodity inflation uncovered 19 related cost outweighed reduce install activation during lockdowns.
Finally, turning to other businesses, which includes Nespresso honestly health science.
Nespresso grew at a mid single digit rights has a strong increase in direct to consumer sales more than offset significant declines in the out of home channel and the impact of boutique closures for almost two months.
Ecommerce sales surged by 40%.
Growth was also supported by a significant celexa said acceleration for the virtual system.
North America grew strong double digit growth with continued market share gains.
We grew at a double digit rate with positive contribution from most markets.
Sales in Europe decreased reflecting significantly reduced demand in the out of home channel on booty closures, primarily between March and May.
By the end of June 86% of our boutiques, we are open.
Nestle Health science posted double digit growth vitamins minerals on supplement that support overall health and the immune system continued to see elevated demand.
Government of life on pure and calculations, so increase growth, particularly in ecommerce.
So now to subscription base personalize determine business more than tripled the sales medical nutrition experienced strong sales, particularly in pediatric food allergies.
I don't medical care and Vita flow products.
Underlying trading operating profit margin increased by 260 basis points with positive contribution from both Nespresso on Nestle Health Science.
Looking now at grows by product categories. There is a clear contrast between segments.
Overall, the first have demonstrated the resilience of our business on shows how our diversified portfolio is well geared for fast so fast changing trading conditions.
Powdered on liquid beverages grew by 1.3% despite a sharp sales decline in the outperform channel coffee grew by 2.9 persons and gain market share supported by Starbucks products Nespresso unless Kathy.
Pardon formats, ecova on malt beverages, including the including Milo unless squeak grew in high single digits.
On the other hand across subcategories ready to drink formats reported double digit sales declines due to reduced on the go consumption.
Pet care continued to see outstanding growth globally, most segments grew in double digits with market share gains.
Purina performance was driven by continued strong momentum.
E Commerce and increased demand for premium products.
Innovation also continued to make a significant contribution as demonstrated by the recent launch of poor plan life clear the first allergan, reducing cat food them.
Nutrition and health Sciences grew at 1.2 persons.
Infant nutrition growth was impacted by yourself contraction in China, but the performance improved during the second quarter.
Outside of China. The category, so low single digit growth Influencer rail saw strong growth boosted by increased demand in China, Brazil and India.
We already discussed Nestle health science.
In prepare dishes and cooking Ed that growth was broad based by region brand and product segment frozen grew in high single digits chilled grew at a double digit rate supported by the expansion of vegetarian on Columbus, food offering which grew by 40%.
Ambien culinary in retail grew in high single digit.
Gross was supported by new product launches on increased digital engagement to maintain strong level of at home conception.
Milk products on ice cream grew at 7% within the category dairy performed strongly with elevated demand for 45 product fortified products such as new unbranded coffee met also saw solid growth.
Okay.
What else so negative growth, reflecting lower demand in the out of home channel on confectionary declined mainly due to reduce impulse buying and gift, giving which more than offset increased demand for tablets and baking products.
Moving now to product margin by product categories.
As we saw with growth the contract in margin evolution strongly reflects each category level of explorer exposure to the out of home channel.
Mill products on ice cream pet care on prepare dishes, so material improvements, reflecting strong sales growth on the benefit of operating leverage.
Nutrition and health Science also posted improved margins based on increased contribution from Nestle Health Science, and Influencer results, which benefited from strong sales growth.
Powdered on liquid beverages, so a marginal decline in margin mainly impacted by a decline in out of home and ready to drink product sales.
Both net Cassie and Nespresso saw improved margins.
Water on confectionary posted strong declines.
This slide shows the progress of our underlying trading operating profit margin on a reported basis and illustrates the impact of the Nestle skin health divestitures, which reduced gross margin and improve SGN cdone actually more relevant to look at the margin expansion on the like for like basis, excluding Zimmer.
Pact of the Netlists can have divestiture has shown as an under next Snyder.
So excluding nestle skinheads or underlying trading operating profit margin increased by 40 basis points.
In the first half copied 19 related cost were 290 million Swiss francs, including expenses for bonuses paid to frontline workers and employee safety protocols donations and other staff on customer allowances.
In addition, the group absorb the cost of 120 million Swiss francs related to resources made I don't during load Donegal imposed by governments.
This recurring costs are essentially related to salaries of staff med idle and depreciations of boutiques on other facilities that were front already closed.
At the same time consumer facing marketing expenses decreased by around 60 basis points as some install activation and other promotional activities could not be executed during lockdowns.
Examples include install demonstrations sampling and event sponsoring.
On the other hand, we increased media spend particularly in digital channels to support brand building and consumer engagement.
Digital media spend now accounts for 45% of total media segment.
Lower media rights load for increased consumer reach.
We also saw some cost savings such has reduced travel spend and conferences.
Gross margin was negatively impacted by higher commodity and packaging costs, which are expected to soften going forward.
We continued to delivered to deliver structural cost reduction across the clearly.
Moving on to clearly lightens from underlying treading operating profit to underlying EPS, just a few items to call out the group underlying tax rate remained stable at 21.4 persons net profit margin increased by 340 basis points to 14.3 person.
Reflecting the impact of one of income coming from disposals as well as improved operating performance.
Underlying earnings per share increased by 0.5% in constant currency and by 5.9% on reported basis to two Swiss francs on one sentiment.
Divestitures that had a negative impact of 2.4%, while lower contributions from associates and joint venture had to further negative impact of 2%.
Nestle's share buyback program contributed 1.4 person to the underlying earnings per share increased net of finance cost.
Free cash flow was 3.3 billion Swiss francs in the first half the decrease in adjusted EBITDA reflected the impact of foreign exchange and divestitures.
We continue to be disciplined enough capital allocation with positive contribution from both Capex and working capital.
Our cash flow was reduced by half a billion as one of our associates delayed it didn't payment from April to July.
When adjusted for this delayed payments of free cash flow as a percentage of sales increased by 40 basis points to 9.3%.
This improvement reflects our stronger operating performance unimproved capital discipline.
Before closing my remarks allow me to give you a brief sub debt or not always open for you initiatives.
We had planned to make 500 million Swiss francs available to support our customers by the end of the second quarter. We had used around one third of this consideration predominantly who extended payment terms granted to our foodservice partners.
Let me know handover to Luca we will monitor those acuity.
Thank you for insulin and with that we moved it to the Kuni session. We open the lines for questions from investors and financial analyst.
As a reminder, please press star one to entering Q and start to if you want withdrawal. Please limit yourselves to no more than two questions.
So the first question is coming from retailer at Morgan Stanley. Please go and returns.
Okay. Okay.
Good afternoon everybody.
First question is all we also coffee.
Can you talk a little bit more will rollout plan this fall.
Yes.
Typically in China.
The median term.
Second one.
Full year about specific issues you have it in.
Especially looking at your performance in Japan, particularly.
As being a little bit alike.
All right.
For some time, so give us a little color on what's going on in Japan.
Rich out the good afternoon, let me take the question on Eylea or newer most particularly on Japan actually in Japan.
The we up the suffering a little bit from the fact that there are less inbound tourists from Jeff from China, which are two usually buying quite a lot of our products and especially keep kept products, but there is no specific point of concern in Japan. If we look at of sell out which is really all sell in the market on our market share we see both certain.
Those drivers moving in the positive direction. So we are gaining market share on a sellout is growing nicely, but don't forget the Japan is an economy with.
An aging population on low GDP growth, but in that context, where do we actually quite well.
And Richard This is Mark let me apologize first and foremost for my poor voice at about Cold did I understand your question right that youre, referring specifically to ready to drink coffee is that correct.
Yes, yes, okay. So look at this is an area where super committed to and where we do have key plans for expansion not only in China, but also in the rest of Asia.
Latin America.
North America good market nothing eventually also in Europe, you see better category are taking off in China now, it's all eyes on our strategic review of in Lou and making sure that in our whatever we decide to do that will not impacting and hurting the prospects of the ready to drink.
Business and so this is something that's more operational in nature.
Our main brand there when it comes to expansion is next cafe and it's quite established even as a registering product and then in other markets, we'll pursue other brand names.
As you know one of the platforms, we're using in the U.S market is coming on as an example, and so around the globe I think one after another you will see us tackle these markets and to expand when it comes to younger consumers and also coffee consumption and harder and more humid climate and ready to rank is certainly.
Entrant into its a category, we're very committed to.
When it comes to manufacturing, we are investing where necessary and aseptic filling we're investing in more capital distribution. So.
We are very bullish on this category.
Next question is from Warren Ackerman and Barclays. Please go ahead Lauren.
Good morning, Mark transfer liquor as more and hair Barclays check for me Thats, a hot food incredible growth, 12.5% in the half 40% in Q1, I guess most people thought there was maybe some de stocking effect.
In Q2, but you're also double digit in the second quarter, a scanner data the U.S. showing negative growth. So just really interested to know how youve managed to do so well.
What's the growth in E commerce, or maybe non tracked channels and pet care, maybe you can talk a little bit by market share.
Pet food because as an incredible numbers maybe.
What kind of growth should we expect ongoing him and pet food.
Let's say good and then the second one of my Francoise just on the guidance Francoise, obviously lots of moving parcel of volatility around Kobe yours, Youre quite a wide range on a 2% to 3% organic for the year, given 3.8 and each one that does kind of in slow down.
In the second half of I've had the midpoint of 3.5, just wondered whether you can talk to the moving parts that you see in the back half on the topline and then on the margin how some of those buckets that you outlined in your slides might or might progress in the in the second half frankly.
Good afternoon, Warren actually I will take the first question I will give the second one tomorrow.
[music].
So the pet food, you're obviously, we're very happy with what we have seen both in the us but in Europe and in emerging markets as well the market has been growing at a strong mid single digits right. Even before coded 19 don't forget the rates at two we grew by 7% last year.
We saw strong performances across most markets on segment, we have clearly been gaining market share and especially through E commerce.
Even when you look at for example, some of the panels with market share. They don't totally reflect the reality, but we have gained significant market share and specialists. We cannot once again there might have been summers stockpiling in Q1, we might have since we have seen EBITDA to de stocking in Q2, maybe more to come we don't know difficult to assess but.
We will see early comes we continue as well to focus on Premiumization personalization innovation and need so we're working very well on the you could see what the letter to innovation that we have with this.
First.
Product that is reducing allergan for four cats for example, which is actually quite interesting. So it's a combination of good market momentum gained market share and innovation.
And more emphasis mark let me push back little bit when it comes to the guidance and I hope that everyone does appreciate we're providing guidance sq now we're one of their very very few players in munis right now thats doing that.
Against the backdrop of what everyone else is doing work when tempting to just say, okay. Let's go with our guidance. It's a very fluid situation. So we were trying really hard to give you as much as possible financial stability into in dependability here and Tim the one percentage point band at the half your point is nothing unusual in fact.
When you go back several years, even income at times that sometimes used to be the demand for the second half of a year and.
Given the volatility and Kevin remaining uncertainties around Corona.
This is a situation where you know the usual h. to metric like you take H ones. You noted the full year guidance and you back into what exactly were thinking about h. too. This is not how it works. So clearly you know where we're trying to do as well as we can hear but we need a little bit of downside protection. So I hope the fact.
So we're giving guidance is seen as calm determined confidence and again are you may have noticed my comment on meet or exceed so you know we're clearly aiming here.
So much to just meeting the downside a bit but really doing better.
Next question is from Celine Pannuti JP Morgan.
Hello ceiling. Please go ahead with your questions.
Good afternoon, everyone.
My first question, maybe rebranding the decline that I want to turn the stand and how you see the different actual form you get the global number for that if you could give us a bit of color I previously.
As being a pencil longer now than other regions and you said that we should see a progressive improvement pretty quickly maybe elteks understanding.
How that fits into the second half.
My second question is on the new patients Thanks, Matt.
Doug beverage is not included in that so I was wondering if you could you elaborate why that is the case, we're looking towards the transmission segment.
And if all to fill up to four pillar.
Of course.
I was also maybe of itself comment that you could comment about your pipeline for M&A.
Looking about.
The potential strategic review of water and we've not shipped for.
The announced so I was wondering if you could also type Sir thank you.
Good afternoon, Suneet Celina will take the first question so in the out of Omar.
Reached the bottom in the months of prone and we will even slightly at slightly less than minus 60 persons.
Versus last year in the month of therefore, we saw some gradual improvement seen zones month. After month in May in June probably even Furthermore in July.
But we have not recovered to the level, where we were before you could take sometime it will certainly not happening twentytwenty, probably not even in 2021 to one it would take some time, obviously by geography, given that the covered 19 heat Asia first we saw an earlier recovery there on needs.
The opposite in the Americas, obviously, but so we are following up the it very.
Closely.
The challenge is obviously to recover at home whatever we can of what we lose in out of woman, we did reasonably well, even which you can see with coffee for example that an interesting.
Recovery.
While the as we got to the part or even all in some instances of what we lost in outperform that we got back in at home business.
So in this is mark so on the purpose statement.
Other than the fact.
That we're not trying to cover skin help anymore.
And other than the fact that we're also pointing out future generations to stress the whole sustainability aspect.
There is nothing else, we want to exclude so I mean basically all the categories will categories. You're seeing today are fully covered by that purpose statement and there was no hidden messaging here to deemphasize any time.
So we will remain committed to all of the categories. We are in specifically when it comes to water.
That continues to be one of our for targeted high growth categories and less underlined the what category. So just the path. It's a high crop category doesn't mean, you know that outperformance every quarter or every year as high crop and ask you know we're coming out of a few disappointing quarters in years and hence we are having now.
This new strategy to be sure better we benefit from that strong category growth in the future and bring it back to high crop performance with us as well and I believe that in premium spring waters and functional water products or opportunity for doing that is the best So we're working on this on what I was trying to indicate to you.
With that in implementing this now we'll take a bit of time and of course cobot is an additional burden on the water business because some aspect of water is out of home and on the goal.
But we'll get down and I hope that you see from our pretty strong moves that we're taking that we mean business, we really want to lead that business back to success.
When it comes to acquisitions.
You've seen.
Increased activity already in H., one over the entire year 2019 on the acquisition front. So let me just remind you are vital proteins. I think we just announced that in late June send Pap, which were already close to enter also released kitchen. So that's why I'm, saying compared to last year.
Acquisitions, and now becoming a larger part of the picture and we continue to work on an attractive pipeline and hopefully there'll be some more.
Next question is from a yield denies that GBS. Please go ahead beyond that.
Good afternoon gentlemen.
Couple of questions.
First one it's on polarization Mark you talked about some ongoing polarization across many of the categories.
Back in April that you want trading at that stage, so wondering whether youre already seeing some acceleration in this polarization signed for instance.
Would be helpful. You could provide your organic sales force for premium and for the DPP first half.
Hi, guys.
Looking forward.
So just trying to be an opportunity home office threat from a gross margin standpoint.
And then my second question is on Latin America.
This is.
Very limited sequential deceleration, which in the first second quarter.
With the exception of Mexico.
This is in sharp contrast, what has been reported by most of your tier so far so wondering if you could shed some light on what's happening in this region.
So we didn't whether you would expect some imminent slow down over the coming not thanks.
Thanks, Kian limited the first one so the fact that in a crisis traditionally the premium entered the spectrum and then the affordable and at the spectrum have done better than the middle I think that is something thats likely to happen. This time again.
It's very hard right now as you can imagine with all these major moves in the market to tell what is a trend from some of the week after week or month month after month noise, but.
Overall, we feel that that pattern will come true again.
Into we're seeing some signs in that direction. When you look at our performance even before covert I think over the last few years.
We have done.
Really well on the premium side of things.
When it comes to the affordable side of things going up is PPP in extremely affordable products. There with 10, okay, but we've not entirely met our goals and so even before cobot. We had started to get this more emphasis inside the company at all levels in the value chain to be sure that were more competitive in this segment.
In August this price range is important to us because affordable products in many parts of the world a really important to assure the basics of nutrition and that is something that we see part of our mission here. So we'll get this more emphasis and again with the crisis auditors as it gets it more reason to succeed here because.
Affordability, especially when it comes to be economic consequences of coverage.
Will become ever more important.
Yes.
Yes.
As far as Latin America is concerned I will talk to more specifically about the two largest market starting with Brazil. So in Brazil, We had a strong performance in the in the first half.
With a good focus on innovation on improving execution, we've done very well done very well as when E. Commerce. We had the there is from roads there.
Brazil grew in high single digits supported by strong contribution from rig as well as positive pricing and more specifically in dairy and this growth since from goals that we Android we saw in most categories from infant nutrition ambien, the re coffee culinary biscuits.
We gained market share clearly and more specifically in infant nutrition coffee culinary pet care on chocolate and as far as Mexico is concerned. So we did well as well we grew low single digits supported by coffee dairy Creamers sugared beverages pet care.
There again is very much about innovation and strong execution, we did a lot of innovation as well with youth levels with the organic local recipes lactose free items and so forth.
I cannot give you any further color for the second half you know that we operate there was a lot of volatility as well, but we saw strong momentum.
Innovation, certainly helped us win as the market share gains.
Next question is from Alberta Mainfirst.
Good afternoon and now please go ahead with your questions.
Good afternoon.
Mark.
Hello.
Two questions from my side.
Starting at the coffee.
Yes, good Starbucks coffee business in Q1, it come out decelerated could you elaborate more on that case why sell and although we could expect then.
Yes.
The second question is regarding nutrition, obviously.
Step outside technical performance I assume that in.
The patient goes we're.
Mainly in China or did you have also for development.
Creation in order to markets and then what we could expect particularly in China for remaining.
Thank you good afternoon alone as fast coffee is concerned so we had the good performance we grew by 2.9% in each one.
That is made of double digit growth in coffee at home, which increased quite significantly but it was partially offset by a said declining the out of home channel as well Alizay, India ready to drink format. So the net of the two or 2.9 person is actually in our opinion. We performed we gained market share as well, which is probably the most important.
Thing.
Particularly in North America, with Niska phenomena with ready to drink given.
Crossings was relatively stable versus the last couple of years close to flat actually the growth was obviously very supported as well by Starbucks products Nespresso and the next Cassie adjust to give you an idea of the major differences between the in Oman.
Out of all marketing coffee.
In March and April combined for the coffee market worldwide. It's an estimate we believe that there has been about 40 40 or 40 billion surplus, which we are lost in the out of home market and only 9 billion were recovered in Allman, just modeling and not on this digital the market.
This is largely the consequence of the fact that coffee is part of the social fabric that has been CBLI impacted by slowdowns.
We also have in coffee some consumers were drinking coffee onea deal fees was our drinking coffee at home. So a good good performance of or you had a question on the nutrition.
As well so nutrition.
We.
We had.
Negative performance in advisory China is concerned we added sales decrease in China and the negative mixed impact.
As well in the US which is linked to an increase the demand. He has a weaker contracts outside of China nutrition grow grew in low single digits with a strong contribution from Brazil, sausage, Philippines, Russia, and the middle East.
We saw in infant formula as solid gross supported by innovation.
Of China Hmm product you know, we have been doing very very well and we have launched now in 60 markets and finally in science around the posted double digit growth supported by most markets, including China indexes and Alan Let me just build on that when it comes to China infant Formula. So clearly we're not happy with the results.
Let me just add that we also and the second quarter change their leadership in that business in China. So can we we don't sort of fully meet our objectives, there and we're committed to improving.
Next question is from a Jeremy Fialko at HSBC I know Jeremy. Please go ahead with your question.
Hi.
Jeremy Fialko HSBC a couple of questions for me. The first one is on the pricing, which clearly improved quite a bit the second quarter to what extent was that down to lower promotion, particularly within some of the developed markets that you think that state.
The second half second question is just on the M&A more broadly I guess with offset divestments.
Handy.
Looking at probably a conservative double digit begins the Swiss franc sort of been divested over the course of the last few years and is there a point where.
We're happy to say that I think I get a cohort were lying in the sand.
Yes.
This is far is divestments are concerned that portfolio, which I will wrap with for the next say two to three two to three years.
Jeremy Good afternoon, I will take the question on pricing. So the increased pricing in Q2 has nothing to do with lower.
Discounting on things like that because what I was referring to earlier in terms of lower promotional activities. It's essentially around install activation, which is below the line actually doesn't hit the top line. So pricing is not to it does the device with a better pricing in Q2 has nothing to do with covered 19.
Jeremy.
I think the last few calls we have mentioned our interest in that building the business through acquisitions and that continues.
And at the same time look if for certain business a.
Review, our divestiture makes sense, we will continue to do that overall and quality speaking here over several years, what I would want to shore is combined with our internal growth that our earnings growth and as growth and dividend close Doj doesn't get interrupted so this is something where I sort of broadly.
We watch that we in balance, but again, you cannot always pinpoint that down to one quarter or one year.
So overall I.
I guess as we signaled in the winter.
The portfolio transformation process will continue towards.
Higher growth into in more differentiated products.
Next question is on the junk upset Kettler I know John. Please go ahead with your question.
Yes, Thanks for taking my question, Jon Cox capital Chevron.
Just to come back.
France, while maybe on the acts of home.
Obviously indicated a lot of at the same coffee and.
In in water I wanted to give bit granularity in terms of.
The regions is it really split that out or is it.
Weighted to some particular region just to help us a little that maybe with a modeling for the next at awhile and just on that thinking about rightsizing that business. It's all the exciting other people think this this extraordinary situation. We're in could lead to a widespread sociological sort of change I could go on quite a few years.
Terms of avoiding.
Some public places and going out to restaurants et cetera et cetera. So that was on the first 0.2nd point just to circle back all my colleagues question about margin.
Really any reason to believe you margin should go down in the second half of the.
Given the fact that I guess some of the covert costs will tail off on the other and maybe a ramp up.
Marketing or advertising a little bit.
Or is that something where maybe missing.
On the profitability side by side, Thank you very much.
Good afternoon, let me take the second question on the margins. So as we said early on as a is included in our guidance for the full year, we expect to have some improvement in our underlying trailing operating margin for the full year or just to give you little bit more color. We expect a neutral to positive gross margin evolution for the full year.
Versus last year on the like for like busy tsunami, excluding the impact of Nicholas Kenyans, because I think it makes sense to do it that way.
To give you some occurred about when we do still expect some coverage cost have you seen significant ones in niche too.
But probably not to the same extent as what we experienced in each one of provided that the crazy that doesn't deteriorate, but so we'll have some but less.
On the other hand, we expect to have more install promotional activities. As you know we did less in the in each one because we could not executed in the tried and provided there again that the crisis does not to deteriorate and finally.
The efficiencies that we are delivering in terms of for structural cost to decline, which continued in each one we expect that to continue for the full year as well about at the same run rate as what we experienced over the last three years.
And John let me comment on the out of home business.
And this may have been sort of turned out in my prepared remarks, because as another cutting spell here, but I think this is.
Right time to re imagine and we think this business. So it's not about rightsizing per se. It's about adapting to change that I think is inevitable now in the out of home business and yes, so probably there'll be less hotel in restaurant business for a while going forward and people may be eating less at some company.
Cafeterias for awhile, but imagine how many more people for example, order then from restaurants and dark kitchens, and what have you in so clearly vessel changing nature and there's almost like a blurring of the lines between what is in home consumption and what is out of on consumption. So when you order and I mean, you clearly eat it inside here on for.
Waltz, but it's got its prepared and assembled somewhere else outside and then you order in because of the convenience and freshness and what have you. So I think this is where there's a lot of rapid experimentation now on the ground and its different market by market because the circumstances at different market by market, but there's lots of.
Opportunities and how we can can embed our products and services into some of these new delivery services that are showing explosive growth and so rather than just trying to cut cost here. It's much more important now to take that resource that highly qualified outperformed resource that we have build out and then really be sure.
That we put it to the best uses that would benefit from that new growth going forward and to me that plaza in line between in home and out of home consumption. It just another manifestation of this anytime anywhere where in LP traditional channels kind of mean less and less and so you need to do business with these new.
Ways of region to consume our new companies that have new ways of regional consumer so I see an opportunity there it's going to be some choppy quarters. No question and we may have to do some adjustments here and there, but overall, we want to maintain across focus and then also lets not forget for several decades.
Prior to covert.
Our categories and out of home have shown.
Growth that was superior to in home consumption.
It may take awhile and again as I explained earlier it may change in nature, but I would not be surprised if after some years, we see that trends come back and hence this is not the right moment to take a short term view as promised to explain to you from the Marshall situation I mean, we're doing well and so again investing for the future is a key theme.
For us and we're committed to it.
Next question is from John anything has done and sacks. Please go ahead John.
Yes. Good afternoon, everyone. A couple of follow US for me. The first is on the powder illiquid beverage business can you tell us how big the RTT parts of that.
Is in a normal course, FDA and then maybe give us a bit of color on on how that trended throughout the quarter and then my second questions on the pet care inventory levels can can I, just confirmed TGC or inventory levels for pet care as largely normal when you look at levels that you retailers and then can you maybe just comment on.
The growth rate was relatively similar throughout the quarter for that particular division. Thank you.
John Good afternoon deem on the liquid none the bottled beverages, the ready to drink part I think it's around probably the same as what type of what we have in other categories. It's about 10%.
But it depends you need to look at it because it's probably higher for summer.
Brands like my loads for the below where for some other ones like business Cafe for example, as with growing fast. So it has to be looked at by category, but around 10% in pet care.
I mean, we don't have necessary to food visibility on the inventory level in Detroit, So, it's a little bit too difficult. Once again, we did very well in the H. One are we there was a little bit of stockpiling for sure in March we saw a little bit of consumer de stocking in Q2, what is the net situation.
At the end of June is probably the difficult to assess at this stage two very difficult to comment on the on the question.
Maybe just building on the first part of your question.
The the whole question on credit strength.
So to me the poster boy here is Milo and think about Southeast Asia, where this is in our standard part of children's lunch boxes at score and so with school closures and Lockdowns. This was a business there was quite impacted into hence we saw good development and powder, but not so much and ready to drink.
But this is against normal trends and so this is one of those typical.
In our corporate kind of turbulence items.
Next question is from the Divvied ASER Solicitor General.
David Please go ahead.
Thanks. Good afternoon also achieved for me as well Thats, what our market share second one on on U.S. trade and so on the market share, it's pretty consistent market share gains across a lot of the catch we mentioned, there's a call obviously that stays very agile well resource company I guess would have come back from disruption patch quicker than some of the local small apply.
Yes, it's not a dynamic that you've seen and is that something that we should take account of in the second half that might mean that apologies just a little bit less.
Impressive as we go forward and the second question just in terms of U.S. trends I'm, obviously lot of pantry loading in March we saw but I'm guessing in some areas, Florida, California, and so forth are we seeing we re patchy loadings are we seeing spikes out at certain points over the last few weeks. It is that something you expect maybe to Apple as we see so second wave.
Coming through maybe in the U.S. and maybe elsewhere as well thank you.
Let me comment on the market share so our market share gains have been improving internally, we have about 60% or for business sale. A cell is a mix of the geography on a category. So six in 60% CEO of them, we either gain market share or.
We have been holding market share so it's actually 52% gaining an 8% holding market share each is slightly better than what we've experienced over the last couple of years, So which tends to support what you said, we have noticed as well the during the crisis to consumers are the tendency to move rather to trust brands and which is largely what we certainly do.
So.
We may have benefited a little bit and probably a little bit less consumer experience with new brands during the crisis.
Its market share gain is actually close to the highest levels that we experienced in 2016. They are different trends by region product category and channel, but we had significant market share gains in EMEA now on overall in pet care in coffee as I mentioned on your ambient on children culinary as well and.
Interestingly as well in ecommerce, which is actually quite good on the U.S. trend the let us trend them, even with some granularity, but it's really difficult to say, but do what we have seen though is that there will be probably less stockpiling. Even if there is a second wave because many consumers have understood that too you know the.
Products are available or have been available during the first waves.
In the install so we do expect that there will be less of it might be some of it but probably utilities.
Probably going to be choppy into as Francois set the confidence is there that as shelves remains stocked and so there will be probably as people stay home a bit more in home consumption, but not so much but kind of spikes that we have seen.
Especially in March.
Next question is from genes target you have the owner to conclude our webcast. Please go ahead Jim is.
Well. Thank you just one follow up from actually just coming back.
So.
Okay.
Just wondering how material has been a strong.
Yes.
Sure.
To drive your market share improvements I can you maybe some color on the categories.
Great and E Commerce is materially accretive to your shares thank you.
Good Gen. So ecommerce as being the really important India gaining of the market shares I. Just mentioned you. So that we had a very strong growth each actually very close to 50%, it's 49% of exceptional growth in each one E commerce.
Actually even without Nespresso 54 person, so which is really good ecommerce sales now represent 12.4% of total sales. We expect that to continue to increase it will not go back to where it was before just as an example, we were at 8.5%.
Last year the interesting thing as one is that we have had the an even stronger performance online and offline in terms of market share, which is evidenced by the fact that about two third of our business sales show online share both offline so into sort of the cases, we have a better market share online and offline and in addition.
We are gaining market share.
Online in about 64% of the cases, so which is actually even better than what I mentioned earlier in terms of market share gains to answer. Your question, Yes, ecommerce has been really instrumental in driving our market share but.
Okay, well Patrick you are the last one on the lease days in the United You name. It so Patrick genuine Transamerica Tunnel Bank. Please go ahead with your question.
Patrick Financer can't I'd like thank you, Okay. Good afternoon, Mark Frost.
What do you say 88 on organic growth of 2.8% keeps a good picture of the real demand or is it still distorted by stockpiling.
The product and my second question regarding restructuring costs in HR, just 66 million bots, obviously your best guess in terms of restructuring costs for the full year. Thank you.
In terms of restructuring cost. So we had a little bit less we always need to be careful on looking at ti to over six months period.
We had to do you see some programs as well that we put on hold during the crisis.
I cannot give you a number for the full year, but it might be little bit at the lower levels on what we have experience over the last couple of years.
And Patrick look on the crop, it's pretty hard to handicap that first half growth number, but do member pre cobot I mean, our plan was to grow at north of 3.5%. So I mean, we've done very very well sort of benefiting from some of these in home trends and so forth, but as Francois explained to you and it's.
Marks I mean, what this very strong presence in.
Out of home consumption on the go an impulse products, it's very hard to escape some of the consequences from this.
From this crisis, so I think on the balance in our we're quite pleased with the performance I think you also saw the underlying confidence here when we look at the second half and beyond.
But.
Rest assured I mean, we would've preferred to play our original game plan, which called for north of 3.5% and not this crisis that really struck so much difficulties to the world.
Okay. Thank you we know for the question we come to an end of transaction today. We thank you very much and please stay in attaching the seasonality I think at year end IR. We are available in case in front of question.
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