Q3 2020 Nestle SA Corporate Sales Call
We made good on all three of them.
[music] I tip, my hat, what's true and heartfelt with respect to our 290000 Nestle associates around the world.
You are truly rising to the challenge of the global endemic and making a noticeable difference to our consumers retail partners suppliers and communities around us.
[music], that's the cobot crisis at box, we're also making significant progress in our portfolio development activities.
As expected it has been and continues to be a busy year on the acquisition and divestiture front.
I would like to focus here on Nestle Health Science, which is clearly on a roll.
Standalone organic growth and operating performance of a starting point.
I'm a strong believer in the mantra that you have to earn the right to acquire.
Nestle Health Science has clearly done that very consistently over the past years.
In addition, they have landed a very impressive string of deals with strong strategic fit as you can see from the bottom of the slide.
The net result is that we are almost doubling the business over a five year period.
[music] screen nutrition metabolism signs to the table to advance the health and well being of our consumers and patients has always been core to our mission.
Over the past decade, Nestle Health Science has also grown into a meaningful contributor to our consolidated financial results.
I'm impressed by the strong pipeline of internal and external crop opportunities to build this business further onward.
Onwards and upwards.
[music] in this quarter's business as a cost of goods section I would like to focus on how sustainable packaging journey.
We are now almost two years into the pursuit of our ambitious 2025 packaging commitments.
Lots of momentum and lots of learning.
We have made solid progress in particular, when it comes to novel materials that facilitate recycling.
In addition, we're now putting increased emphasis on the areas of reduce and reuse.
The reduced pillar focuses on scaling down the size and volume of our packaging material.
Using less boats in plastics.
The reuse pillar has the goal of scaling up new reusable and we fell about systems.
Eliminate the need for disposable packaging.
Both tell us how what significant promise and we're.
<unk> require close cooperation with our retail partners around the world.
The goal is to have a range of packaging options available that are a good fit for all the various geographies around the world that we serve.
Depending on factors such as climate infrastructure population density and others. We aim to have safe packaging choices available that offer a superior environmental footprint.
Before handing it over to Francois I would like to cover our improved guidance put 2020.
The only change as our increased expectations for organic growth.
Reflecting the strong third quarter.
We are raising our organic growth expectation for the full year from the band of 2% to 3% to around 3%.
Finally, it's important to have some downward protection at this volatile time we.
We would be disappointed if for your organic growth in 2020 would not stay at or above 3%.
Certain calendar items, such as the timing of Chinese new year will work against us this quarter, but other.
But other than that at the present time, we're not aware of major headwinds that would stand in the way of making good on this expectation.
With this let me hand, it over to Francois.
Thank you Mark and good morning, or good afternoon to all let me.
Let me start with the highlights for the nine months organic growth was 3.5% following a soft second quarter impacted by look downs organic growth accelerated in the second quarter to 4.9%. This is the highest level of quarterly growth in the last six years.
Relating to loan growth for the nine months was strong at 3.3% most geographies contributed to the improvement in the second quarter.
Pricing contributed 0.2% largely reflecting currency depreciations in emerging markets.
Acquisitions net of divestitures reduced sales by 5.5% this mainly relates to the divestments of nitpicky now the U.S. ice cream business and the F. that shockey Tory business.
Foreign exchange had a negative impact of 7.4%, reflecting the appreciation of the Swiss francs against most currencies.
Total reported sales for the nine months were 61.9 billion Swiss francs, the 9.4% decrease.
The effect of COVID-19 on organic growth continued to vary materially by sales channel.
This slide shows organic growth for retail sales accelerated materially to 7.1%, reflecting sustained strong demand for at home consumption.
Within retail ecommerce saw exceptional growth of 47.6% and ecommerce now accounts for 12.3% of total sounds.
Out of home sales declined sharply sharply as a consequence of movements restrictions and the closure of many offices restaurants and hotels to name just a few.
As a reminder, before could be 19, the out of home channel accounted for around 10% of group sales.
Sales in retail has continued to be strong with a further increase in the second quarter.
In out of home the rate of decline bottomed out in April at around minus 60% in the soft quarter set a declines moderated to minus 26%.
We remain cautious at this as a channel may come under further pressure in the coming quarters should movement restrictions be reinstated in major markets.
Improvement in the out of home channel is expected to be gradual weezer recovery back to pre covered levels at the earliest you 2020 two.
This slide shows the development of sounds by geography. It includes both saw zones as well as our globally and regionally manage businesses.
Growth was positive across all geographies the Americas, So assistance from momentum in both North America and Latin America.
I mean, I posted robust growth accelerating in the second quarter with positive contributions from all regions.
Gross he knew it turned positive in the nine months, reaching a mid single digit level in the second quarter.
Now looking at the growth dynamics between developed and emerging markets organic growth in developed markets was 3.9% supported by broad based strong re pricing remain negative.
Emerging markets, so growth of 2.8% with an acceleration to a mid single digit right in the second quarter.
Why turning positive in the saltwater China post he does tend to decrease.
Excluding China emerging markets reported mid single digit growth with strong performances in Brazil, The Philippines, Russia, and India, we remain positive on emerging markets as a key growth platforms for the years to come.
Let's now look at the results of our four operating segments, starting with his own Emmis, where we continue to see strong organic growth momentum.
Sales were 25 billion Swiss francs organic growth was 5.1% supported by robust rig of 4.7% pricing was positive at 0.4%.
North America continued to grow at a mid single digit rate most product categories performed very well.
Sure enough Petcare remain the standout contributor growth continue to be driven by successful innovation ecommerce and premium brands.
As a result of increasing demand we are further expanding our production capacity with an investment of $450 million in a new plant in North Carolina, which will be operational in Twentytwenty two.
Growth in coffee reach a double digit rate will sustain high demand for Starbucks at home coffee met unless Kathy.
Frozen food posted high single digit growth supported by digital know on Staphos within frozen we created a new range of modern health offerings, which include lean cuisine and the newly launched like squeezing them.
The range delivered positive growth in the second quarter.
We capture growth opportunities in dairy and baking to meet increasing demand for cooking at home, so innovation and digital engagement.
What the reported a sales decrease reflecting a high exposure to outperform channels, but recovered to almost flat in the second quarter led by some degree no unfairly.
Latin America reach high single digit growth with positive contribution from most markets.
Categories.
Brazil was a standout performer supported by strong set of development in Derry nutrition coffee.
Confectionery saw strong demand across brands in the soft quarter.
Chile continue to see high single digit growth led by dairy ice cream and.
Uncertainty in Mexico reach a mid single digit right in the second quarter, we strong demand from let Chirag NIS KFC and Purina Petcare.
Turning now to is only me now sales were 15 billion Swiss fronts organic growth reached 2.9% with strong greig supported by both the volume and mix.
Pricing decreased by 0.4% gross reach a mid single digit right in the second quarter.
The zone continued to see broad based market share gains, particularly in coffee and pet food.
All regions posted positive growth Western Europe reported mid single digit growth in the second quarter supported by the United Kingdom on Troms.
Eastern Europe, Russia was a standout performer with double digit growth.
By category coffee Purina Petcare on culinary products, we have two main contributors or delivering double digit gross.
Gross he kofi fills our improved with high demand from this cafe Niska fiddle, she goes to Starbucks products.
Purina Petcare sustained strong momentum across most brands supported by ecommerce on premium innovations.
In September we introduced recyclable flexible pouch for wet pet food and the awfully good brand.
Increased at home conception continued to boost sales of culinary products.
Vegetarian unplanned based sounds posted strong double digit growth supported by new launches.
We also upgraded garden gourmets sensational Burger, which has among the best nutrition no scores of any plum best Burger on the market with the new trees core a rating.
Infant nutrition posted positive gross Russia performed strongly and we recently achieved market share leadership with none.
Growth in confectionery was almost flat turning positive in the second quarter supported by strong growth in tablets and home baking.
What a reported negative gross with declines moderating in the saltwater as Sam's in the out of home channels improved.
Moving next to his own anyway, we sales of 15.3 billion Swiss francs organic growth was flat, reaching 4.5% in the second quarter.
China, So negative growth turning positive in the second quarter.
Coffee culinary on ice cream contributed positively seeing sequential improvements.
The contraction in why your infant formula sounds continue to moderate.
Our turnaround plan for this business is under way why Islam shop locally manufactured Formula belt sold is on track.
The new brand strength sends why you're suffering in the Super premium segment.
Tier three and tier four cities.
In France, our rail grew at a double digit rate.
Purina Petcare sustained double digit growth led by Felix Purina Proplet on Purina one.
Sales momentum in ecommerce continued with broad based improvements across most categories.
Southeast Asia continues to grow at a mid single digits right. The key growth contributors wells the Philippine led by Bob Brown, Milo on Maggie, whereas Indonesia supported by Bell Browne, Dan Cow and Michael.
Southeast Asia continued to perform well, India posted strong mid single digit growth with good momentum in Maggie NIS Kefi keep get.
Sub Saharan Africa grew at a double digit rate with strong growth across most markets, particularly South Africa.
Japan, South Korea, and Oceania, So put it slightly positive gross Oceania had strong growth across most categories.
Japan saw a decline in sales we saw some improvement in the self quarter.
Keep get sales declining Japan impacted by a reduction of inbound tourist.
Overall for the zone dairy culinary coffee and Purina Petcare were the main contributors to gross out outside of China infant nutrition. So good sales momentum and Starbucks products continue to attract strong demand.
Finally, turning to other businesses, which includes nespresso unless they had science total sales for the other businesses were 6.7 billion Swiss francs strong organic growth of 7.4% was driven almost entirely by rig of 6.8% pricing was positive.
Steve had 0.6%.
Nespresso continue to see mid single digit growth was broad based improvement in the second quarter.
He could Nelson Divesture system, where the largest contributor to growth.
The Americas on aways saw double digit growth with continued market share gains in North America.
Growth in Europe turned positive in the second quarter with the reopening of boutiques and the strong momentum in E Commerce.
Nestle Health Science continue to be one of our key growth platform reporting double digit growth comp.
Consumer care and medical nutrition, both contributed positively as demand remained high for products that support helps on the immune system.
Ecommerce continued to see strong double digit growth garden of life on pure encapsulation perform strongly.
The newly acquired vital protein also delivered robust growth based on high demand for premium Kola Gen protein powders.
Health see edging products grew at a double digit rate supported by boosting North America, new trend in Brazil, and Mary 10 units and.
Medical nutrition posted high single digit gross food allergy, an advert medical care products were the main contributors.
Looking now at grows by product categories. A clear contrast remains between segments overall growth highlight the strength of our diversified portfolio and the ability of a company to adapt to a fast changing environment.
Powder liquid beverage GE reported growth of 3.1% Kofi posted 4.8% growth.
See it in the out of home channel were more than offset by strong developments in at home consumption, which grew at a double digit rate.
Starbucks products Nespresso, unless cafe continue to gain market share.
Starbucks products, our Nols now sold in more than 60 countries.
Pardon formats in cocoa and more beverages, including my view on this quick grew at a high single digit rates.
So the decline in ready to drink formats maturity does it look down either at the end of the second quarter.
Petcare continued to see outstanding growth globally supported by momentum in ecommerce Premiumization and science based offerings. Most segments grew at a double digit rate with market share gains we continue to bring innovation to the market, including Purina Pro plan life clear.
North America, and Europe on Purina Prime bones in North America.
Nutrition and health Sciences grew at 1.5% in.
Infant nutrition growth remain impacted by yourself contraction in China out.
Outside of China growth was in low single digits.
In summary, as posted strong growth boosted by increased demand in China, Brazil and India.
We already discussed Nestle health science.
In prepared dishes and cooking AD growth was broad based by region and product segment are vegetarian on plant based food offering continued to see strong momentum.
Ambien culinary and frozen retail grew at a high single digit right.
Growth was supported by new product launches and increased digital engagement focused on maintaining a strong level of headphone conception.
MS products on ice creams grew at 8.2% within the category dairy performed strongly with elevated demand for home baking products and fortified products, such as New York unveiled Brandon.
Coffee met in retail posted double digit growth.
After a difficult first quarter ice cream continued to show sequential improvement with growth, reaching a double digit rate in the third quarter.
What also negative growth given its high exposure to the out of home channel sales declines moderated in the second quarter.
Confectionery decline with growth turning positive in the second quarter as the only owns a go conception improved demand for tablets and baking products remained high.
Let me know handover to look out for securitization.
Thank you Frank what we.
With that we move to the queue any session. We open the lines for questions from financial analyst.
As a reminder, please press star one or two entered the acute and star two if you want to withdraw. Please please limit yourself to no more than two questions.
The first question is coming from Richard Taylor at Morgan Stanley. Please go ahead Richard.
Good afternoon, everybody two questions from me on.
It's one specific one.
And then one more question.
The state many point to online sales now being 12.3%.
Which in itself is a big step up on last year, which I think was.
Can you give us a sense how big.
Right.
The health Sciences.
Online versus the rest of it.
Perhaps what your cost is quite we should E commerce it yesterday.
And then.
We hear an awful lot from others.
Capabilities.
Since that you've been somewhat understated about your writing ability.
It's been quite a while since I've been out there.
If I remember well in 2012.
Social media.
Can you give us a sense.
Great.
Digital capabilities.
Maybe in terms of hiring investment.
What I'm really trying to get to is if necessary is now.
The level in terms of its okay.
Okay.
Disproportionately benefit from this ongoing it's Toby.
Given the categories.
Sure.
Yes, Thanks, Richard and maybe I'll start with that second one and then handed to Francois for the first part so long.
So look even before cobot hit this had been a key priority of ours and I think we've been quite open and outspoken about this for example last year in our Investor day in Arlington.
And we've been putting things into action I think under leadership of our new Chief Marketing Officer, we plan to significantly now expanding our digital skills and.
Across the whole spectrum here from you know digital communication social media outreach, but.
But also then when it comes to E commerce fulfillment capabilities.
It's important that we do there's always in line with local market our customs because they trade off you know it it sounds like a one size fits all but there's lots of local flavors and.
Local consumer preferences and to also local players that you have to work with and so we adapt to that we try to avoid duplication by basically having the central toolbox and support system here.
But it's important that we also led to our local markets had a strong voice in how they tailor those systems and apply them. So put him very good about this it's a key priority in essentially all of our strategy meetings and town then of course at the beginning of this year like what everyone else, we've seen there's tremendous acceleration come.
Meanwhile, Cobot this is where everyone in a short period of time here to improvise and we talk about the airports.
So that one is more like you know your short term ability to adapt to changing circumstances. My view is now this is the coming of age when it comes to digital in food and beverage as you know beverage had been.
Comparatively slow compared to other consumer categories in adopting.
More digital and E commerce driven business.
But now I think this is here to stay people have to adopt this way of purchasing out of safety concerns and the health concerns now that they see the convenience. We don't expect this to slide back even after the immediate pandemic is now Obama. So all the more reason to give it continued airport queen like more.
Investment in this area and NPL lead in this space.
Regional profit speaking, let me cover the first question so could be 19 accelerated ecommerce sales as you said with an exceptionally strong growth of almost 48% since the beginning of the year towards fairly consistent even across the last two quarters you comment.
E Commerce sales now represents a 12.3% of our total sales and we don't think that it will go back to where it was last year. It was 8.5% last year good.
The good news is that we continue to gain market share online in about 60% of our business sounds.
Lineup, we have improved and maintain our market share and the interesting thing is why do you think about two thirds of the cases, we have a better market share online than offline.
You talked about geographies and categories our.
Online sales are essentially is very concentrated in a certain number of markets by weight and buys value, it's largely coming from the U.S.C., UK, France, Germany, China, and Japan. Some countries are more advanced than others, but if we look at the growth rate since the beginning of the year. It has been relatively consistent across.
So geographies, maybe with a stronger development in the U.S. and especially because of pet care, because we really did very well over there for pet care category Wise, we have five categories, which are four categories, which are more relevant for ecommerce coffee petcare nutrition on water zero again, I mean, we had strong growth moment.
Across categories.
Probably a little bit stronger in coffee as you can understand especially because of nespresso because we use that channel online platform almost exclusively in Q2 during a low downs in many geographies as our boutiques were closed.
Next question is from Warren Ackerman at Barclays. Please go ahead Warren.
Hi, everybody at San Juan had Barclays High Mark Francois.
Hi, Luca. So my first question is for me the three big standouts from today, what a big acceleration in powder and liquid beverages Inc. Q3.
Also the huge acceleration and amino in Q3.
I wonder whether you could say well the coffee growth was overall in Q3 and the kind of split it out between the stress so less cafe and Starbucks I think on a mean imagine UK, France, Spain. The contributors maybe flesh out I'm, just trying to get a sense of how much of this is kind of elevated category.
Versus market share is this kind of how much is rising tide lifts all boats versus better execution and innovation are from Nestle, specifically related to how the liquid.
The first one and then the second one from me is on the guidance I know.
No youre right Youre kind of a tri be a meet and beat but the New York, 3.5% at the nine month period, 3% guidance profit for the year.
You mentioned the Chinese new years later, so that's a swing at the could you could you maybe help us a little bit.
How much of a swing factor that can that be and then maybe what youre assuming for out of home in Q4, I mean, I know, it's moving because of Covidien restrictions, but do you think out of home.
Better or worse than Q3.
Then related so all of that what does this will mean for margins because I mean the growth today is very very weak driven hardly any pricing.
They you know big operational gearing on those high margin categories like pet food.
And coffee driving down into a better margin performance in the second half. Thank you.
Good afternoon, wherein let me cover the question on coffee.
Of course, he grew by 4.9% in the nine months coffee at own so double digit growth. So we saw the acceleration there and that more than offsets uncompensated. These significant set of decline that we saw in the out of home channel as well and India ready to drink format. We had actually a strong improvement in Q3 for coffee we were.
Not far away from being double digit actually in Q3, driven by a broad based acceleration in at home consumption and.
And some improvement as well in the out of home channel, which reflects a one of the slides that I presented earlier today the ex the improvement of our gross loss became as one from a market share gains in the nine months across segments across geographies and brands under the same remark it applies to the gross it happened across brands from Starbucks Tunis.
So through a nest carefully as well Joe.
Just one additional remark, we had some pricing improvement as well and we were slightly positive in pricing pricing, which is a change versus what we experienced over the last couple of years.
And Amena warrants Mark and let me just reiterate performance was set up your very good about how the coffee category has developed in Q3. So this is not just the rising tide I think this is also as winning in quite a few markets and segments. There. So.
So look on the guidance and I think that was pretty open with you that we know this is cautious and ask you know you know this year what cobot. This is not exactly the environment for high precision forecasting. This is where you would want to leave yourself a little bit of that safety margin and this is what we're doing and as I mentioned above.
Then.
The timing of Chinese new year, which is going to be lighter on Q4 sales compared to.
The previous here, we don't see really.
Any specific new negatives here, but it's very hard to predict where exactly cobot is going to turn next and what the myrisk, they're going to be in key markets for us.
I Hope you also appreciated the guidance was as short as Chris as it usually is we've removed all cautionary language around it that existed as part of the H one guidance and so this is something that you can absolutely hang your hat on.
It's not designed to slack here any specific bad news that we're seeing.
For the second half will be on specifically for Q4.
The you asked about out of home.
So we have not seen that trending down yet.
So I saw you saw from Francois slide that there was a recovery in Q3, we are watching very carefully if it now starts to trend down again with some.
Restrictions out there again that has not happened it could happen as things get worse and that is one of the cautionary items that of course, we're watching out for but as of this point mid October we have not seen it yet it may turn out of home markets for us.
On the margin I can only.
Referred to the guidance, which is unchanged from the summer and.
Some of the explanation script given in the summer when it comes to the margin we have started to reinvest some it appears to me.
Because I think now is the good time to do this.
You see that benefit inorganic growth and to them other than that no new comments on the margin and when it comes to break and pricing I do keep in mind.
I mean, Rick has expanded very very solidly some of that is mix and Tim I think mix really is signaling the strong innovation our track record that we've been building up now and that essentially people are paying for so to us as you know mixes the new form of pricing and and it is clearly paying off.
Next question is from Jon Cox with Kepler. Please go ahead John.
Yeah, good afternoon guys.
Just a couple of questions for you.
Looking into.
Next year and congratulations by the way very strong volume mix I think it was the strongest in almost 10 years just looking into next year, though I'm wondering is there any reason why you can see at this point that organic sales growth would go lower.
Then.
Given some of the M&A.
The positive pricing in the category. So it's like a 2021 question.
And then a second question, we're hearing about inflation coming back into the system.
Help pricing next year.
Do you see much of that.
Obviously your biggest.
Quite weak in terms of pricing. Thank you.
Hi, John Let me start on the first question about next year's LG log.
With the.
Strong roller coaster profile that Youve seen this here I mean, when it comes to a quarter over quarter comparison, you will see a messy 12.
12 to 18 months period, I think that's unavoidable. So it's hard to sort of give you any forecasts here exactly buying each quarter, but by and large the trend towards more in home consumption, which favors us I think is here to stay and I think that bodes well for next year.
But again on specific quarters like Q1 over Q1, when do you saw you know somewhat the consumer stockpiling here in March 2020, it's going to be very hard to get precise expectations for the full year and then also beyond.
You're quite optimistic because it's clear that.
That even when some of the immediate health concerns might be abated our people.
People do actually skew towards more in home consumption now.
Let me answer your question on inflation.
As you know pricing is relatively limited into this world because first of all we live in a deflationary environment and pricing is actually the media reflection of two forces. One is the depreciation of the currencies, which happens essentially in emerging market as well as input cost, which means a essentially a common.
Commodity and packaging material pricing if I look at next year. We there is no evidence that these state that we will have a significant inflation on commodities and packaging material. We have seen over the last couple of months, rather will trend of softening price increase for commodities and packaging material probably by drilling.
Into a lower demand maybe for some of this raw material.
On the other side as far as the inflation coming from depreciation of currencies, Yes, we will see more profit and we have started already to raise prices in some emerging markets. When we have been facing you know number the number of tests is a depreciation of currencies of 25% to 30% that has to be addressed over time with some kind of inflow.
And so we will see some of it what matters at the end for Twentytwenty. One is a net profit still early to say so we have some two conflicting trends I would say over there.
Next question is from selling Pannuti of JP Morgan. Please go ahead Sir.
Yes, good afternoon, everyone and.
My first question is on trying to lift and competitiveness in the past you had given.
Some numbers about.
Where the percentage of your business that you all gained share if you could show that he does how that evolved into Q3 and more specifically if you can talk about where maybe you don't seem to be gaining share achieving nutrition.
Could you talk about how your share loss.
Let's see progressing in China, and if you could give us a bit of an accurate here given that some of your competitors lucky's one yesterday.
More cautious about the market growth going into 20 to 21.
And second question again.
Going into the year end and Twentytwenty, one I would like to understand how you think.
Pending.
Next year.
Contribute to the conflicting messages some copper, it's asking us to you.
Willing to spend for at home and beauty spend on brand.
I worry about worrying about.
In short pressure and especially in emerging markets I don't know, Brazil is doing well, but what will happen to the consumer when the government will show where consumer less with current that check so could you give us a bit of your perspective on that thank you.
Celine Good afternoon, let me take the first question on market share so our market share have been improving we.
We have close to 60% of our business segments. The cell is a combination of a geography on a category, which have been gaining market share. It's actually 52 person gaining or holding is 6% market share that's close to the highest level that we've had since 2013. So it's a good overall they are obviously different trends by region by.
For the category and channel the market share gains the main ones are imminent and the Mets as well if we exclude water, but as you know most of it is linked to a water in North America.
The other market share gains notable ones our pet care.
As well as in coffee, both unsuitable portion on the roast and ground, we gained market share on creamers until culinary infant surrealism and more to the beverages as well as I mentioned earlier, we also gained market share in an interesting way for E Commerce channel and we are getting market share there as well.
About 60% of the sounds where we lost market share is essentially with the new.
In China and with 26.
26, as well in China, essentially for wireless and I mentioned as well as for what our North American.
So in this is mark so as to your second question, it's hard to give a one size fits all answer here, but let me share a few thoughts with you. One is that the model that we've seen in previous recessions, where the two extremes of the pricing spectrum hold up pretty well.
I think that is poised to happen again, so you will see strong interest on the value side of things, including you know about your parents larger pack sizes trust getting good deals good value and on the other hand, there is a continued interest in premium products.
And people don't want to give up on those easily and those who can afford to.
Continue buying them, we'll do that.
So from everything we've seen so far that continues to play out again this time.
I think at some point, yes, some support checks are running out there.
Maybe less consumer spending overall, but do keep in mind, you have to eat and drink. So it's not like this is where you start to save and also let's not forget with less out of home consumption. There's a savings effect anyways, because typically your unit prices at retail level that you spent in out of home.
Tend to be much higher so you know.
That purchasing power is available at the end for more in home consumption or support the in home consumption.
Next question is from albeit at Mainfirst. Please go ahead.
Okay trial.
Good afternoon, Mark cost.
Two questions from my side. The first question is regarding.
None of the portfolio.
Mr announced they would like to.
Phase.
2023.
I would be very much interested how is the current development of divestments you at all.
Rich if you export.
Thank you Ashley could even expect an earlier divestment then you have guided for addressing that regarding investments and acquisition of.
Politics, you went into.
Yes.
Two parenteral nutrition.
Previous focus.
I wish we could expect more of parental nutrition acquisitions in the future.
The second question confectionery obviously.
In particular, I guess in Brazil and Europe.
As you mentioned.
Interest Italys current development China.
And.
Yes.
Good at the moment when do you expect it.
With that brand in China.
Alan Thanks for the questions and let me try and tackle both so we feel very good about the timeline of the ongoing reviews.
But I do feel that the timeframe that we had given which is.
Q1 of next year is still the right one so.
We're we're fully on track for that but I don't see much room here for an acceleration as you know there is only 10 weeks left in the year and so.
[music].
The Q1 21 timeframe to me makes sense.
Very glad you're asking the question about a immune because this gives me an opportunity to clear up a misconception here.
I noticed that a few media reports when we acquired the company.
Talked about a biotech firm and then some people came to assume that this is a parenteral product that gets injected because this is what happens to many biologics.
[music].
The product itself God regulated by the FDA as a so called biologic approval pathway.
The FDA has a few pathways for cooling products and pitch always a biologic one but it is natural product and Tim and.
And it is not like an anti body or something that gets injected into our hands.
It's less high tech than maybe some biotech products out there in in other therapeutic areas. So we believe that this is very much within our range of skills is something we can handle really well it built nicely in our portfolio of them off an allergy products, we had already and will continue to do.
Research and try to expand also be technology platform that aimmune offers to overtime cover other allergens and not just that peanut so.
So we believe this is a wonderful fit as you know we've been a minority investment that companies since 2016, So we had a.
We had a chance to far all the technology and its approval process very closely and so we feel very comfortable with leading this business going forward into and handling technology and maximizing its potential.
When it comes to confectionery.
Look I'm very pleased with the progress now we've seen in Q3. So clearly this business has been hard hit by the reduced out of home consumption.
And then in particular when it comes to Super duty in China as you know a big part of their business is picking mix and so this is where you essentially self serve enter in this current environment with Hydra any concerns. This is sometimes a hard sell on people. We've been responding of course, the Swift way trying to have more package choices center.
And online but none.
Nonetheless, you know and.
The large part of the existing business was exposed here to pick and mix and to have this is something that I think we have to repair overtime.
We're putting a lot of effort on reinventing and we matching that business and so.
So let's give it some time for the results to play out but overall in confectionery I'm very pleased with the amount of innovation I'm seeing new things would bring to the table.
The continued strong success story of our wonderful kit Kat brand in other so feeling good about it.
Next question is from David Amy said Societe Generale. Please go ahead David.
Thanks, Rick.
Hello, gentlemen, Apache for me one on.
Finally health side.
Why don't I mean, so on Nestle health science numbers.
Numbers it looks like it really stepped up in the third quarter, but up in that.
Up in the high teens I, just wonder whether you can comment on whether anything specific in there.
That was up slightly standout quarter that may be unwind, a little bit in the fourth quarter always just to grow.
The growing trend of growing evolution of people wanting to take.
Take healthy supplements and so forth.
The second question I mean, we still but this gap when you look at I mean, a with and without upper.
In the numbers.
Nine versus 2.2 backing that it looks like others down there for a couple of percent also given the NHS is doing so well.
It would suggest in spreads.
Struggling a little bit in Amena, which I guess in some way to surprising given the move out is that just because David.
In home is it because that say much out of home.
Hey, Mike.
In that region or are you seeing some cannibalization early on with the Starbucks push and that cannibalization will ease off as we go through next year. Thanks, So much.
David profit speaking, let me answer the question. So on the let's build science. So it grew at double digit rate supported by the strong growth for consumer care and medical nutrition products.
Clearly consumer care products were supported by both a tree or innovation vital protein and the healthy aging products I would mention specifically garden of life and pure uncapped relations, which are clearly saw strong momentum with high demand for supplements that support both helps on the immune system.
Could mention more even more specifically encapsulation pure defense for respiratory health, our garden of life organic Middlebury syrups and gummies as the herbal remedies we.
We have some ranges like garden of life, a pullback boutiques as when we did the very well the medical nutrition side were supported by pediatric products and for other medical care.
The them be good.
Good mentioned the brand, which has put them in that did very well and finally for NHS.
Part of the growth came as well from the ecommerce sales that grew.
Very strongly in double digit double digit growth.
As far as you May know is concerned youre absolutely right that the different that you mentioned is largely coming from this way. So as you know when this was so most of our boutiques were closed for quite some time and we went to actually we are difficulties because of some issues with the post office in some countries to deliver during the peak of.
Your loved downs in some European countries. It gets sorted out over time and now it's back to normal and actually in Q3. We are happy to report that we were back into positive territory from this play so even though Europe. There is no sign of cannibalization.
At this stage so no no specific concern on that appetite.
Next question is from Patrick Handymen to internal bank.
Please go ahead Patrick.
That trend Youve answered that all bank Highmark high profit Luca you have reached 3.5% organic growth after nine months in a tough environment. Your mid to long term target is to get to a mid single digit growth, let's say, 4% to 5% growth. How close are you already took this target or what has still to be changed to reach the target on us.
Favorable base, that's my first question and second.
Second regarding the China.
The Chinese new year is almost three weeks later, what's your best guess packed for China in terms of phase.
10% lower sales or what's your best guess assumption here for China. Thank you.
Thanks, Patrick So let me start on the mid single day to target, which is still very much of course guidance our actions and so we're very much focused on ensuring the internal steps that are necessary to hit that consistently over time no. One served if we hit this for one quarter or one year and then slow.
Back no. It's important to have innovation engine here in all of our categories that allows us to stay there in a consistent manner. Now short term. This is what I was trying to explain earlier.
With cobot around US you will see roller coasters movements, he and the numbers going forward and so.
The quarterly pictures that wouldn't be very messy and.
Still mid term everything we told you in February about aiming here for mid single digit still applies and.
I think the good news to me in that we are showing used to me is that why we're handling the cobot crisis in all modesty, so well the internal work when it comes to ensuring future innovation building product pipelines building, new digital capabilities and all that that continues unabated. So.
That has not slowed down there were a few weeks in the spring is everyone kind of improvised to set themselves up to work from home offices and everything like that but beyond that now I saw solid progress on all of these efforts throughout the year.
Management very much focused on it and so I feel good about our ability.
To be there in a reasonable amount of time.
So speaking on the the question of the impact of Chinese New year. Indeed, we do expect one impact for the quarter, which is the reason why we are little bit cautious as well on the outlook for the full year, we expect to lose probably close to two weeks as far as China is concerned and you know China is our second largest market. So you.
Can do the math, it's about 200 basis points potentially of low season, one because we won't get this preseason shipment for China on its own which is probably 40 to 50 basis points of impact in terms of organic growth for the quarter for the group So it's quite material.
Categories will be hitting the same way and so and this is still an estimate it's not an exact science you also will see exactly how it goes but it could go up to that level.
Perfect. Thanks next question is from the Master DBS. Please go ahead Gilman.
Hi, Good afternoon, Mark Fosland look at a couple of questions.
The first one on nutrition and going back to your.
Mid single digit organic growth ambition.
That all high growth categories. This year.
Already performing at or above.
Your medium term ambition.
The exception exception to this rule is nutrition so.
So curious to hear your thoughts about how you look at that.
Whether you think it's just a temporary softness.
A challenging market conditions.
You think there's more you can.
Quickly there.
Then my second question going back to health.
Hello.
Yes.
The category remains fragmented.
More and more about pharmaceutical boots, creating standalone entities, what our consumer healthcare assets.
So my question here is why.
What's your vision for Nestle Health Science.
Are you happy with that combination of strong organic sales growth and bolt ons.
I would actually be open to more trends.
Accelerate.
Right.
Okay.
Thanks, Kian I think both of these are really important questions look on your attrition I think you're seeing.
Two things at work one is we were pretty open all throughout the year that we're not happy with the performance, we're seeing in China and in particular with wife Bayer.
I think I told you as part of the H one call that we changed leadership, we're very focused on this and as.
As always you have seen us in the past when we focus on matters I think we set them straight into and we get them going and we'll make sure it won't be different this time.
Generally.
No what we're totally committed and very bullish about infant nutrition. It is true better on infant formula itself. When you look at birth rates in key markets, it's very hard to get to the significant growth rates right now.
The best way to address that and still keep the crop ambition of this category is to also think about some of the additional products that we have on offer there think about infant cereals, which I think are doing extremely well and there's lots more potential here to upgrade those over time I think about the.
BMS vitamins minerals supplement space for both.
Both mothers and children to be sure that the first 1000 days on nutritionally optimal.
So I think you know bye.
Defining our business scope, there a little broader not just in infant formula as we've done already over the last several years and then.
In a good way executing on that.
I think we will be able to improve the growth profile over time. So it's important not just too narrowly look at infant formula alone and then Troy your conclusions from there I think this is one of the benefits of our nutrition segment as a compare to some of our direct competitors.
Unless they help signs.
Nothing has changed from what I laid out to you as part of the Investor meeting in London in 2017 and that is we are super bullish on the Super committed, but we're not intending to build a to profit to suncream.
Kind of soup to nuts portfolio.
We are focused on nutritional metabolism products, and we want to be thought leader into them.
End market leader in products to relate to that and this is what we're patiently building up had just been for large numbers, we could build one of these consumer care Empire. So much earlier.
But I think a business model that only a brass on one common denominator and that is a channel to the pharmacy of a truck store in my view has no future I think you want to be the thought leader you want to be the know how leader.
On a particular area, we want to own it and for US of course. This is nutrition science and metabolism and this is what we focus on so particular problems such as food allergies digestion problems and in.
And ensuring that.
Humans have all the micrel routines the need I think this is what our course kill is and we'll keep expanding there. It takes a little longer to then build it up two sizable numbers, but I hope you've seen by now that you know what the central Dublin that we've accomplished here are on track to accomplish we are.
We are heading now to something that is meaningful for the group, but then more importantly, it's built to last because it really builds then on the know how we haven't the space and it's not just a mini portfolio that gets sold for truck store pharmacy.
Next question is from Jeremy Fialko at HSBC. Please go ahead Jeremy.
Hi, good afternoon.
Couple of questions from me the first one is.
Yes.
So.
In the retail side of things, but then said at the outset.
Yes, so really just a question of whether there.
Stocking that youre seeing any sort of catch up spend.
Eddie.
Seating.
Represents.
Yes.
Run rate and then the second question is just.
Mix versus volumes.
Right now.
This in a previous question.
Any indication as to what the mix of oil.
The primary components of your rig thanks.
Yes.
As Jeremy let me take the first one and then maybe handed for Francois for the second one so again, it's pretty hard to get a one size fits all answer and they may have been sort of isolated circumstances, where are the retailer or consumer may have been stocking up but broadly speaking this quarter.
Felt different from what we've seen for example in March where clearly you know some cautionary stockpiling at the consumer level and also the retailer leper was at work.
This is not so much the case now I think what you're seeing here is genuinely people staying more at home consuming more at home and also now getting settled into that habit, which I think is going to be here to stay with us for a while and I think that bodes well generally so I see it as something positive.
And so you are talking about the components of our growth. So as I mentioned earlier pricing and wouldn't that doesn't exist anymore, but is limited because we live in a deflationary environment and this is just the passing through of input cost that we have commodities packaging material or currency.
Currency depreciation as well, we don't create really any value there, but we have to reflect it and proceed to protected through mix.
Mix is certainly more interesting because we're creating value there because the mix that we have you just centrally product mix, which is largely linked to premiumization, we're creating value there because the price book you know the price per liter is usually higher and this is what we have been really doing over the last couple of years that continued during the year.
Since the beginning of the year, which is rather good news and.
And the volume volume is important as well you saw that in the past we had about 1% of volume gain per annum. We are still around the same level as we speak and this is important as well because we see so certainly creating value this in shops to make as well so we value that overall.
We are getting close to the end of our core but we still have time for two more I food.
Next the next question is coming from.
John Enisa at Goldman Sachs.
Yes, good afternoon, everyone.
I have a follow up question on our market share trends pace, you highlighted coffee and pet care is categories that have gained share and they of course more E commerce friendly category. So I just wondered what do you think has been the main driver behind the share gains is it predominantly down to channel shift or is it down to your supply chain strength, maybe relative to some other competitors Jordan Cove, Ed or is it.
Something else altogether I'm just interested to see what you think has been the biggest driver if those share gains and how confident you are that the share gains now that you have them can be held onto medium term. Thanks.
He is a share gain you fight talk of coffee.
Happen as I said across brands and across geographies certainly one of the key driver of the growth has been the innovation on I would mention the Starbucks there we did gain significant market share through Starbucks I would mention one clear example in a minute we have gained about 10% of the nespresso compatible capsules branded in Starbucks in.
In Europe, which is a market where we were in a prison before as you know we sell nespresso capsules, who own boutiques are not own ecommerce platform. So thats.
A good example of it we have been very innovating as well and turning into Rustom grounds with when does.
When does the Starbucks Starbucks brands, and so I would mention as well one highlight for advanced Coffees concern, which is this capital should we still we have been doing very very well since the beginning of the year. As you know we built over the years of business, which is more than 1.2 billion Swiss francs by value and it is growing at a strong double digits right.
Petcare lot has to do with Premiumization and innovation as well. So we launched products. Like for example is this low until allergan products off cats.
In the in the U.S.. So we have launched as well and just to name a few products that will meet backing for dogs.
Consumers are ready to pet parents are ready to pay a premium for it just to name a few.
Of the.
But you have a product that we have launched in pet care in emerging market. It's a different story, it's a little bit less about premiumisation, it's much more about to cattle reconversion, which we are actually driving many of the markets and as you know we are gaining significant market share as we speak in eastern Europe in Latin America, as well as in Asia overall.
Sure.
And Jonathan build on that sort of fully concurrent I feel about the trends that we were building on here in coffee and Petcare were by and large trends that were already at play before corporate head. So this is not a supply chain game I mean, im very proud of what our supply chain people have done but.
This is not only supply chain, driven but rather a continuation of the trends we've seen before.
Next question is from an Chantilly could bear she at Vontobel. Please go ahead John Phillips.
Thanks, Luca Thanks for taking my question and good afternoon. The first.
It does.
Regarding.
Possible production bottlenecks, considering the strong growth in some categories and if you want maybe to reallocate capital in some strong growth or high growth categories.
The second one is on Starbucks.
North America.
Very much interested in your first of this.
Of this acquisition, what Youve been learning from Starbucks and vice versa. So thats your liquid above your expectations from back then when you acquired the business.
Thanks.
Thanks, I don't believe so look on production, we just touched upon petcare in I think this is the one I would call out we.
We are in a massive capital.
Expenditure triumph right now as you know this is our second year now of very significant outsize growth rates a lot has to do with the trend that we covered earlier costs, but not today and that is.
A renewed interest in science based products.
Products and maybe less growth in some of the premium natural products and that trend of course is very much right now will house into something that we are we.
Very much welcome, but as a result of that we had to fast track quite a lot of capex now around the world and in Petcare and this will take a bit of time to come on stream and so.
Nothing that at this point looks absolutely serious here when it comes to continued growth, but nonetheless, we need to work hard here to to keep expanding in line with the market demand were seeing but again there is nothing I like more than spending capex into arising categories. So for me as much as I know.
This is hard work with the team and I see that as good news the Starbucks partnership is absolutely wonderful.
And as you know we close the transaction in August 2018. So this is now two years of work side by side to bring all these SK used to the market.
As you've seen beyond the initial batch of 24, S.K. use which was unveiled in early 2019. We now also have a steady stream of new products coming to the market I feel very good about the pipeline that is shaping up for 21.
We had some really really good launches this year so.
So this is not a one shot deal. This is an ongoing strong partnership where I think the two companies sort of put the best coffee.
Thinking together and they continue to come up with an amazing dazzling product so.
Couldn't feel better.
Couldn't feel better about it.
Thank you all we look for the questions we come to the end of our session. Today. If you have any other questions. Please feel free to reach out to our IR team.
Thanks, everyone.
Okay.
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