Q1 2021 Nestle SA Corporate Sales Call
[music].
Good afternoon, and good morning to everyone.
Welcome to Nevertheless, first quarter sales conference call and webcast.
Luca Bellini and of Netherlands, Investor relation.
Today I'm joined by our Chief Executive Officer, Mark Schneider, and our Chief Financial Officer Francois here.
Mark and we'll start with the key messages prints.
Francois will follow with a review of the first quarter 2021 net sales performance.
We will then open the lines for your questions.
Before we begin please take note of our disclaimer.
And now I and over to Mark.
Thank you Luca and a warm welcome to our conference call participants today is on.
Always we appreciate your interest and our company.
We are pleased to report and exceptionally strong quarter to you today.
In a nutshell, we saw rebounding level of business in China based on a very low level of comparison last year.
Gradual recovery and our out of home business and continued strong demand for retail and in home consumption around the world.
I was particularly encouraged by our progress and pricing as many of our input costs are increasing.
It was reassuring to see that these pricing steps did not stand and the way of a positive market share development.
In line with our expectations E Commerce continued to thrive with a growth rate of 39, 6%.
Bringing our e-commerce sales to 14.5% of total net sales in Q1.
My sincere thanks go to the entire Nestle team.
The challenges related to COVID-19, and global supply chain pressures are daunting and the team navigated the situation and and outstanding manner to deliver this exceptional growth.
Just like and operations and sales, we did not Miss a beat in our strategic projects from research and development to digitalization to portfolio management.
Regarding portfolio management in particular, I would like to point your attention to the new strategic direction of our Nestle waters business, which is becoming quite visible now.
With the sale of Nestle waters, North America, and the acquisition and I'll be sentra, the sharpened focus on international premium brands.
Local natural and mineral waters and differentiated healthy hydration products.
Such as functional water is taking shape.
From a smaller and more focused base, our nestle waters business is now well positioned to capture growth opportunities with discern and consumers around the world.
Regarding financial metrics, we are confirming our 2021 guidance today.
In light of the exceptional growth in Q1, our guidance may appear to be conservative to you.
Our confidence level of getting to and organic sales growth rate of more than 4% has certainly increased on the back of our Q1 performance.
We are not aware of any material items that might stand and the way.
Our cautious revenue growth guidance at this point is mainly based on two reasons first the level of comparison for the second half of the year is going to be significantly higher.
And second we wanted to have one more quarter of visibility with regards to the Covid recovery before we revisit our 2021 growth guidance.
Well, we will not discuss cost and modern items and this Q1 conference call I would like to caution against excessive margin growth expectations based on this strong sales growth.
We now see broad based inflation across our various commodities packaging materials and transportation costs.
Not all of these items can be hedged and our hedging cover for a number of commodities will run out over time.
We're raising prices where appropriate but usually there's a time lag associated with pricing.
We are on top of the situation and my raising this issue should not give you alone I just wanted to caution against excessive expectations on the margin front. So please stay close to our guidance level. During this turbulent time.
Before turning it over to Francois and I would like to comment on how and Nestle supporting COVID-19, and vaccination of airports.
And as you know community support has been a key priority for us from the beginning of this crisis right next to keeping our workplace safe and maintaining business continuity.
From the onset of the pandemic, we have provided community support around the world and many different ways.
<unk> focus of this work has now shifted from a trashing immediate emergencies and needs to providing help and support on vaccinations.
There is an urgent need to advance equitable access to vaccines, particularly in low income countries.
We're not a medical firm, but we have unparalleled logistics and geographical reach to offer.
In addition to direct financial contributions and donations.
Needless to say all of this has been and will be and strict compliance with all applicable health care regulations and in close coordination with government authorities.
Widespread vaccinations are the best way to overcome this pandemic and we advocate for everyone getting vaccinated in line with public health priorities.
With this let me hand, it over to Francois for detailed review of our Q1 results.
And.
Thank you Mark and good morning, or good afternoon to all let me start with the highlights for the first quarter of 2021.
Organic growth was seven 7% with increases from all three components volume mix and pricing.
And we all internal growth was strong at six 4%.
Pricing contributed one 2% strengthening significantly versus the prior year.
Net acquisition reduced growth by 1% this largely relates to the divestments of FTR, charcuterie, and Lou and U S ice cream, which were partly offset by the acquisitions of freshly vital protein Lilly kitchen, and essentially our water to name a few.
Foreign exchange had a negative impact of five 3%, reflecting the continued appreciation of the Swiss francs against most currencies.
The exchange rate dynamic improved during the quarter with the impact on and neutral in the months of March.
Sales for the first three months were $21 1 billion Swiss francs by one 3% increase versus last year on a reported basis.
Overall, the acceleration in organic growth in the first quarter was driven by four main reasons.
Early signs of recovery in out of home channels increased contribution from pricing, reflecting input cost inflation.
Further our market share gains across most categories, particularly in coffee and pet food and finally, a rebounding level of business in China due to a low base of comparison last year.
This slide illustrate the development of our sales by geography and includes both our zones as well as a globally managed businesses.
Organic growth was strong in all geographies and growth in AOA was helped by low base of comparison and China.
Pricing was positive, particularly in the Americas on immuno, reflecting our ability to offset currency appreciation and input cost increases.
Turning to the distribution of growth between developed and emerging markets. We returned to a more typical pattern compared to last year with significantly higher growth in emerging markets.
Organic growth in developed markets increased two 5%, reflecting strong rig across all regions pricing turn positive.
Growth in emerging markets accelerated to 11, 4% supported by broad based improvements with brick markets on Mexico individually and collectively growing at a double digit rate.
Let's now look at the breakdown of sales by channel on.
<unk> growth for retail sales was strong at nine 2%, reflecting sustained demand for at home consumption.
Going forward retail sales are expected to moderate but remain at higher level and then in 2019.
We believe that some changes in consumer behavior are here to stay such as increased working from home pet parenting and the search for Els and immunity benefits.
Within retail and e-commerce or sustained growth of 39, 6% E. Commerce now accounts for 14, 5% of total sales.
This growth is built on solid foundation on investments over the course of several years.
And the recent acceleration and ecommerce penetration reflects our ability to adapt to rapidly evolving consumer needs.
Sales declines in out of home channels moderated with significant improvements in Asia, and Latin America, a recovery of out of home back to 2019 levels is expected at the earliest in 2022.
Let's now look at the results of our operating segments, beginning with zone M. S, where we saw high single digit growth with a high base of comparison.
Sales were $8 2 billion Swiss francs with organic growth at seven 2% based on strong rig of four 8% on and increased pricing contribution of two 4%.
These strong growth reflected broad based market share gains led by pet food coffee and dairy.
North America grew at a mid single digit rate supported by strong rig in most product categories with solid pricing.
Frozen food coffee and Creamers all grew at a double digit rate.
The newly acquired freshly business also delivered strong double digit growth based on distribution expansion and increased consumer loyalty.
Purina Petcare delivered mid single digit growth with continued momentum and e-commerce and premium brands, particularly in wet GAAP snacks and veterinary products.
Latin America delivered double digit growth supported by increased pricing and positive contribution across geographies, particularly Brazil and Mexico.
By product category, the key growth platforms, where dairy purina petcare and coffee.
Performance in pet care was robust with particular strength for the show.
The region also benefited from new production capacity coming online and Mexico, unless the professionals or slightly positive growth based on significant improvements in Brazil and Mexico.
Turning to resolve it may now sales were $5 2 billion Swiss francs.
Organic growth was four 4% based on strong rig supported by both volume and mix Pri.
Pricing turn positive contributing 0.6 persons.
<unk> zone and continued to see broad based market share gains led by coffee pet food Columbus with products infant nutrition and water heaters.
Each region posted positive growth with strong momentum in Russia, Turkey, and the United Kingdom and Italy.
And the key growth drivers, where coffee purina petcare and culinary products fueled by continued momentum in e-commerce on new product launches.
Sales of ambient dairy in the Middle East and North Africa grew at a double digit rate supported by strong growth in needle.
Infant nutrition posted negative growth due to consumer stockpiling in March of last year, and lower birth rate in the context of the pandemic.
Water on this the professional reported negative growth with an improving trend towards the end of the quarter.
Moving next to zone AOA with sales of $5 1 billion Swiss francs organic growth reached nine 1% led by China, which was helped by a low base of comparison.
Outside of China. The zone grew at a mid single digit rate.
Pricing increased by 0.3%.
China posted double digit growth supported by a recovery in out of home channels and the timing of Chinese new year.
Most product categories saw strong growth with continued momentum in e-commerce on a robust innovation pipeline.
Net day professional saw a strong rebound and sales with broad based contributions across categories, particularly dairy.
Growth in infant nutrition and positive helped by a low base of comparison for wireless and positive growth in non.
The rollout of new products focused on lower tier cities is on front. In addition, we have expanded distribution for Illumina <unk> organic.
Southeast Asia posted low single digit growth and a difficult economic environment positive set of developments or most product categories were partially offset by sales decreases and out of home channel and infant nutrition.
Asia recorded double digit growth with positive contributions from Maggie net cafe and kitkat.
Sub Saharan Africa grew at a double digit rate based on strong sales development for Maggie Milo and <unk> Cafe.
Japan posted mid single digit growth led by Kitkat on Starbucks products sales in South Korea grew at a strong double digit rate driven by coffee.
Oceania reported low single digit negative growth due to a high base of comparison.
Overall for the zone, the largest growth contributors byproduct category, where culinary dairy and coffee infant nutrition posted slightly negative growth, but gained market share in south Asia and Africa and <unk>.
Growth in Nestle professional term positive led by China and Japan.
From this quarter onwards, we are reporting Nespresso and <unk> health science separately to provide you with better transparency net.
And this price also sales of $1 6 billion Swiss francs.
Again gross reached 17, 1% based on strong rig of 16, 3% on pricing of 0.8 persons.
Growth was based on strong momentum for E. Commerce continued expansion of the virtual system and strong demand for original line captures.
By geography, the Americas EBITDA on AOA.
All contributed positively to growth North America was a standout with continued double digit growth and market share gains.
After a strong start to the year, we expect growth to moderate as we cycled a higher base of comparison in the second half of 2021.
During the quarter, we announced an investment of one on bread on 17 million Swiss francs.
Average facility on top of the 160 million Swiss franc investment for all raw facility communicated in July 2020.
Finishing with Nestle Health Science, which reported sales of 0.9 billion Swiss fronts. The business grew at a high single digit rate driven largely by rig of nine 4%.
This growth was fueled by continued momentum in ecommerce and new product launches and distribution expansion.
Consumer care posted double digit growth with strong contribution from garden of life vital protein on peso low.
Growth was supported by innovation and sustained momentum in E Commerce.
Garden of life on vital protein continued to expand internationally and are now sold in 30 and 13 markets respectively.
Healthy edging products grew at a double digit rate led by boosting North America, New training, and Brazil, Indonesia, as well as merit and in Europe.
Medical nutrition saw mid single digit growth with robust sales development for acute on adult medical care products, particularly better men and complete.
By geography, the Americas grew at a double digit rate.
<unk> on AOA reported mid single digit growth.
Looking now at product categories, we saw strong growth in all segments with the exception of infant nutrition on water and most categories saw market share gains with particular strength in coffee and pet food and dairy.
Within powdered and liquid beverages coffee grew at a double digit rate supported by net price sold net cafe and Starbucks products.
Coffee at home continued to see double digit growth.
Out of <unk>, and Ansible channel, we're still negatively impacted with some improvement in the quarter.
Sales of the total nespresso system, including Starbucks by net price all grew by more than 20%.
The months of March marks the two year anniversary of the launch of the first Starbucks products outside of North America.
Total sales from Starbucks products reached 716 million Swiss francs in 70 countries in the first quarter with a 15% CAGR over the last two years.
We are not done yet and we see further significant growth opportunities.
Cocoa and malt beverages grew at a mid single digit rate.
Petcare continued to see outstanding growth supported by E Commerce strong demand for science based products and the expansion of innovative business models with sales dotcom lease kitchen antagonists.
In prepared dishes and cooking AIDS growth was broad based by region and brand backed by new product launches and increased digital engagement with consumers.
Frozen and chilled foods combined grew at a double digit rate driven by staffers and lean cuisine and the recently acquired <unk> business is freshly and mindful shifts.
Vegetarian and plant based food products continued to deliver strong double digit growth.
Ambient culinary grew at a high single digit rate based on strong sales development for Maggie across geographies.
Nutrition and health science, so slightly negative growth organic growth for infant nutrition was minus four 4%.
A return to positive growth in China was more than offset by sales declines in other markets due to consumer stockpiling in March last year, and lower birth rates in the context of the pandemic.
We continue to rollout new products in all segments.
Key highlights include the launch of non Supreme Pro in Mexico, the 13th and Formula with a combination of fiber channels, and new pediatric and metal notes repayments.
Within baby food satellite delivered robust growth.
And we have already discussed Nestle health science.
Milk products on ice creams grew in double digits supported by sustained demand for home baking products and 45 milks growth was held by higher pricing, particularly in the Americas ice creams, So very strong growth supported by premium musician on our focus on key brands.
Confectionery recover to double digit growth driven by chocolate momentum in baking products on tablets continued the improved contribution from gifting and inputs products was helped by the timing of Easter and Chinese new year as well as early sign of recovery in out of home channels.
Water, so negative growth, reflecting continued disruption to out of home channels and on the go conception and.
We are focusing on differentiation through our international brands and functional waters as evidenced by our recent acquisition of essentially our water and the launch of products such as per year energized, a cafe and 18 sparkling water.
What else saw market share gains.
Let me now hand over to Luca for the Q&A session.
Thank you Francois and with.
We move to the Q&A session.
And the lines for questions from the financial analysts and investors.
Please limit yourself to no more than two questions.
And the first question is from yield and mass at UBS. Please go ahead Gail on them.
Thank you and good afternoon, Marc Lucca.
My first question is on the pre peg.
And because <unk> reported 949% rig again, what I start per day incredibly challenging comparator and.
And I think and Q1 last year Youre, probably penetrated in that division from some stockpiling.
Trying to understand how your rig cash came in almost and double digit.
And that first quarter is it down to share gain and category growth accelerating maybe you're expanding and Ta segway and.
And probably more importantly, how should we think about the next quarters.
Net.
And then my second question is on the less cafe capsules.
Net cash machine.
Thank you started this innovation initially and Oceania last year, and our volume at all and <unk>.
<unk>.
So my two questions on the quickest initiatives become totally global.
Or is it more about some markets, where you have identified some gaps and your offering and.
And secondly, what cannibalization effect do you expect if any from day.
In particular potential ways to net cafe adoption growth store or maybe the Starbucks capsules and thank you.
Okay. Good afternoon, <unk> and I will take the first question on the Markman, Texas thing on one on prepared dishes and cooking and to indeed, we had a strong performance. We grew at a double digit rate based essentially on rig <unk>.
And in spite of the fact that we had some decline in the outer on channel growth was broad based by region and product segment. It was helped by continued strong demand for increased AUM cooking and the shift from out of home to in home consumption. It was the case last year as you said in Q1. It was the case again this year. So it is true that it is growth on growth.
And certain extent, but.
And we still have some certainly some positive impact from our from Covid their innovation and increased digital and consumer connection and that certainly helped to elevate the role of home cooking and provided certainly their share of contribution by segment and so we had to a high single digit growth on frozen and <unk>.
Which essentially came from staffers meals and linked cuisine and retail.
And frozen grew close to double digit. So it is true that this was a very strong momentum.
The momentum that we had last year was actually more in the months of March while this year I mean, it was for the full quarter chilled.
Chilled culinary grew in strong double digit growth as well and the ambient culinary grew in EMEA and strong high single digits.
And given me, let me comment on the net Kathy capsule share rights. So we tested this in Australia, and also and the Netherlands.
And then we proceeded to rollout and Spain.
So far the results are very encouraging one on the reasons why we wanted to test extensively is exactly what you mentioned, we wanted to be sure that then.
There is no access of cannibalization.
So on that regard. The result, we're incredibly encouraging I think the beauty of our print architectures that we have very defined target groups here between the original and espresso brand the.
And the Starbucks brand and now net cafe and so yeah based on what we know today. We're certainly eager to also look at other markets, where there might be and opportunity.
Okay.
Next question is from a selling continuity of Jpmorgan. Please go ahead this arena.
Yes.
Good afternoon, everyone. Thank you for taking my questions and my first question is on net and debt.
And the guide on technology and product and.
And <unk>.
Got it for like a rate margin increase I was wondering and.
Later, and the topline and tough for life and personal delivery and from there.
Volume standpoint would lead to further add a day.
And if that cash.
You go into <unk>.
And that is that what you are trying to say when you are taking a Bachelor day rate or is it just a question of not yet having the visibility on how long this strong performance will be and at midyear.
And looking at the margin performance guide later on in the year and my second question is on your and its charter for lunch and the retail environment and I don't actually have mentioned, it's actually and.
And on the call debt and are you able to say what is the growth rate of the category and how you think you're performing in terms of market share. Thank you.
So the and thanks.
So on the margin I don't have and what we're trying to be helpful. But I don't have very much to add to what I said in my prepared remarks and that is clearly we saw that some of you may come to the conclusion that based on the strong sales calls that there is.
Also in excess of modern upside and place but.
It is important here to look at the inflationary environment out there on commodities on packaging materials and transportation costs. This is a very volatile environment right now very low visibility on lots of surprises happening and again, we will take pricing and internationally and we have taken some price and alright.
But.
It's important to stay very close to the margin guidance that we've given you for the year on February.
Good afternoon and <unk>.
On the retail performance, we had a very strong one and did nine 3% in Q1, which saw sales acceleration from where we were last year and.
And any quarter, so difficult to say exactly what is the.
On the growth of the market, but that being said we saw certain improvements in our market share on the just to give you a little bit more color, we have been gaining market share and about 63% of what we call our business sales Sandy and the combination of the geography on the category. So 63% is one of the best level on that we have seems better.
Since 2013, we have been holding market share and about six percentage of sales and as a consequence, we have been losing market share in 37000, and so once again. This is certainly a strong improvement versus what we have seen over the last couple of years.
We took geography, we saw a clear improvement and acceleration in market share gains in a manner and in EMS and I would say the cross categories and if we look at it by category, we see clear market share gains and coffee and pet care and dairy ice cream water, even even in water and if we are we have a declining.
Business, but because of the COVID-19 related situation and we saw market share gains as well and confectionery unnecessary and science. So it's relatively across the board both by geography and category.
Next question is from a balloon and maintain advanced and please go ahead Bruno.
Hi, good afternoon, and a little bit confused about the pricing information and on the one and I can see the acceleration of pricing and favorable.
50 basis points towards data and this year. So it looks like pricing is coming through and then when I look at the DM vs and split it looks like all the pricing and emerging markets.
I would imagine that most of the pricing is offset of currencies and emerging markets and read them asking us to what extent I also seeing pricing coming through for the higher input costs, whether its packaging and plastics food commodity cost and transfer is that starting to come through or is it too early.
It still has to go through would it be fair to expect another 15, other and basis points as we see the full impact of these more exit cost and prices and price and developed markets. My second question is on infant nutrition and <unk>.
And is growing again net of the rest of the world is negative.
And as like hardware on the cash now if you were to step out the impact of the stockpiling last year. It is.
Total net momentum outside China to return to positive growth.
Or is the impact of low birth rates, so big that actually we might see negative growth for the rest of the year. Thank you.
Yeah.
Let me take a below the first question on the source of inflation and first of all it is true that the reserve one item contributing to <unk>, which is the currency depreciation in emerging market, because we had significant currency depreciation last year and there is always a time delay.
Till it hits, our P&L, but it goes beyond that we clearly see a input commodity input cost inflation, which is back with price increases for commodities and packaging material and transportation cost we are hedging and forward buying to cover some of this exposure, but it only delays the impact for a few months and in addition.
Gene is mainly available for key agricultural commodity, but it does not really apply for packaging material and transportation who's price fluctuations goes immediately to the P&L.
And so obviously the main way to address input cost inflation is through price increases and our strategy has been the same over the last couple of sales is to offset over time as the input cost inflation that we received through price increases even if we are absorbing some of the inflation through productivity gains industrial efficiencies and product mix on.
<unk>.
Clearly I mean the.
We will see more probably coming from the input cost inflation as we progress into the year, maybe a little bit less currency depreciation because we start seeing things stabilizing.
But the.
Contribution from input cost inflation is significant including in the developed world. If we see for example, and M and now we start having positive pricing what we had been in negative territory for a few years. So we still you clearly see some traction there in them and as well as in the U S same story.
And Pune, if I could build on that I think you are seeing as you look at various quarterly updates a very consistent picture here from our peers as well and obviously that is not lost on the public consumers and retail partners. So I think that's giving us healthier that.
Pricing action, where appropriate and where warranted by the cost increases as possible.
Look on China, and nutrition, and we didn't get into specific guidance here. The key messages on I think we are seeing initial signs of progress on the work that we have described to you as part of our.
February conference call.
On the one picture we saw in China, but also and many other key geographies is simply.
On a depressed birth rates.
At the beginning of this pandemic there was this question and why.
And as the pandemic going to lead to.
Baby boom or baby, Pos and it's very clear debt in most geographies.
And with rates have been coming down.
You can imagine with economic uncertainty and health related uncertainty.
For many potential parents this may not occur and the best time to either start or expand their families.
So some of this will relieve itself again as you know we're long term player here, we have seen in key geographies good market share development, which I think is giving us hope.
But obviously this category has its ups and downs and in our.
And Europe circumstance like the pandemic here on.
These ups and downs and more pronounced.
Next question has come and Warren Ackerman and Barclays. Please go ahead Warren.
Good afternoon, and Mark Francois Luca water and here at Barclays I'm, sorry for me as well first of all on pet food.
And almost 9% growth and the coal so that's up against a 14% comp.
And Q1 last and can you tell us.
The growth was in the U S Europe, Latam and EMEA Latam is very strong and.
And maybe give us some color on what kind of core e-commerce growth, you're saying I'm just trying to get a sense of how big the share gains are and what benefits, you're getting from say personalization and pet food and maybe even the RBC investment impact clinics, because that number is pretty exceptional.
Pet food and how we should think about it for the year and then the second one is just around channel mix and one of the things I'm a bit confused by is that youre seeing retail sales and stepping up quite markedly and the first quarter compared to the full year.
Also saying the out of home declined stepping up as well said it looks like you know.
Consumption is going up or calories are going up paper just eating more.
Is that the way right way to read it and is that something that you think is a train and can sustain for any kind of prolonged period of time or do you. Just think it's a timing effect just be interested and any kind of color on this kind of channel mix and it seems a bit odd from the outside or maybe I can start with the second one and then hand it to Francois for the <unk>.
First one.
Just to be clear water out of home at year over year were.
Went down okay.
Net interest less pronounced than it was in some quarters last year, most notably in the second quarter last year.
And it's certainly better than the full year growth year over year. Nonetheless went down so I think what we're seeing is still is a world debt spends a lot of time at home and consumes a lot of their food and beverages at home and this is where our retail strength and to at home consumption strength is coming through.
R and good afternoon on Petcare saw we posted high single digit growth with strong performance across markets and segments on the top at yourself, a strong quarter on into Q1 and 2020. So it's really it was across our markets on segment. The growth was supported by continued focused on premium musician personality.
Session on innovation and very much what we have been doing as well over the last couple of sales of digital ecosystem and the expansion of our innovative business model and I would mention there tells dot com, ladies kitchen, Derek and needs. They have remained an important growth driver as well and you talked of market share, where we have been gaining market share is especially through e-commerce across geographies.
They're talking of the category dynamics, we stay with and attractive category dynamics with the market growing at a strong mid single digit rate. It was a cash before COVID-19, and certainly the pandemic has led to increase the pet parenting and this is certainly helping as well.
And as you know in a developed market. This is very much about innovation, while and emerging market. It's much more about calorific conversion and we expect that to continue and in both cases, we are obviously investing significantly to support debt as well and are you may have seen that we are putting a significant capex.
To support the growth and underneath there.
North America, just because I think you wanted to get some color. So we grew.
Mid single digit which was on a very high base of comparison on already last year, and we were and double digit as well.
Okay. Thank you next question is from Jon Cox at Kepler. Please go ahead John.
Yeah, good afternoon, guys and congrats on that.
And figure out except I think the best day.
And yes so.
On a couple of questions for you just on the inflation side of the equation again I Wonder if you can.
And so what I gave us a lot.
How much are you find you think your agri.
Aggregate logistics basket will rise this year compared to.
Last year, just to give us a ballpark figure and then just on the gross margin for this year.
And that mixture of pricing and also are you know the ongoing efficiency programs you have.
Would be enough to offset the higher inflation costs.
What do you think that actually the gross margin will actually be lower.
Sure and then yes.
Add on to really you know your comments that you expect more elevated levels of in home consumption to last.
Definitely I wonder why you sort of kept that from what you're saying.
And then just on add onto that and what does that mean for you will say baby food business I'm not talking about it for me and I'm talking about baby food because it seems that when people are hot and they spend a lot more time, maybe making baby food, rather and buying it off of the shelf any thoughts you have on that thank you.
John Let me start perhaps on the second one and I'll share what Francois the answer to the first one so.
When you look at the at home consumption now remember this pandemic is not over yet and so many people as a precautionary measure is still spending a lot of time at home or.
And do a mix between the time they spend at home on time and the workplace. So this is not a full return to normal yet with very few exceptions.
And so I think it is natural that elevate our consumption trends are continuing and.
And as you look at forecasts.
For the rest of the year I mean, this pandemic has surprised us a few times, but if we are assuming a steady recovery here then it would mean that even for the balance of this year.
And we'll have spent more time at home than say in 2019.
So that's a fact and that's pretty much a pandemic driven.
Beyond that you have the whole notion of future work, which you know gets discussed now a lot.
And more flexibility on already signals now by many employers post pandemic when it comes to allowing remote work styles and.
At least a fraction of the work being completed from home or remotely not at the normal workplace and so you pick your assumption on what that's going to be and for how many people, but clearly we and the 2000 twenty's when it comes to our places of work and commuting habits and <unk>.
After this pandemic will probably look different to the decade before.
And then of course, there's a third aspect and work, which has started last year with the onset of the pandemic and that is <unk>.
Consumer and retailer trend towards trusted and large brands.
And of course, with our well established brands, we benefited from that.
And here again, you will have to pick your own assumptions and how long battle and will last and what it will develop into after the pandemic, but as for now we are still on the middle of this pandemic enhance.
It's not surprising that the same trends that helped us in 2020 are also at work in 2020 one.
John on the inflation. So the increases are taking place across the board, but it's most specifically on daily on dairy cereal and packaging I would add to that obviously transportation cost and which is C. Freight airfreight trucking costs you name it and.
Obviously on the part that has to do with agricultural commodities as I said earlier, we have hedging in place and we have forward buying as well in place, which delays a little bit the impact. So we will get some of this impact later in 2021, we will get some as well in 2022. So this is not just something for this year.
It will certainly be carried forward to next year as well.
So growth in terms of impact on our gross margin as you know we value gross margin is an indicator of the quality of our portfolio and our capacity to price on our capacity to manage our industrial base efficiently as well.
Marketing and is impacted by a variety of factors, which include the mix pricing and cost efficiencies and.
And what we just discussed commodity packaging match on price movement as well and we are acting on all levers individually and in order to improve our gross margin on stabilize it overtime, we always try to offset the input cost increases commodity and packaging material and to start with through pricing.
And it has worked over the last couple of Europe. So we are confident that we can do it as well it may not necessarily work by quarter are exactly by semester, because as Mark said in his opening remarks, there might be a time delay as well, which may lead to some specific pressure on benefit in a given quarter on and given in a given semester, but globally. So this is our strategy.
Is to offset whatever we received through pricing and.
And let me build on batteries very quickly so what Francois described I mean from what we can see now is very much on 'twenty, one and to some aspect also 22 phenomenon.
To what extent it'll reach longer than that we don't know yet. So it is about 'twenty one 'twenty two for now and then we'll watch with you and how input costs develop.
The other thing and rebuilding.
Building on what Franco said last.
That's very important to me.
We're in a period now which started last year with the onset of the pandemic and which will probably last another year or so where you will have a pretty strong generations from one quarter to another.
Topline and gross margin bottom line. So this will not be your normal year over year steady comparison situations that maybe was offered and 19 over 18 or 18 over 17, and that's just one thing where it's important not to over interpret the latest info.
Inflammation proceed more on perspective and on a full year basis.
Next question is on the Tom Sykes Deutsche Bank, Sir please.
Please go ahead it on them.
Yes, thanks, Les take good afternoon, everybody and.
Just wondered on coffee place kitchen, and kept a little bit more data on the share gains by geography, and where they sustain strongest place.
And then on day.
And espresso.
And where the foodservice part <unk> and the out of home coffee and Starbucks.
Starbucks and <unk>.
Could you maybe just talk about the growth outlook, there and whether there's been any restocking benefit at all ahead is a more broader opening up and later quarters place.
And then also just on days geographies, where there has been a bit more opening up.
Following on from one of the earlier commentary around sort of a double benefit of out of home and proving and retail.
Consumption day and high.
And what are you seeing specific train and coffee and.
And those countries, which are opening up and do you still get the same pini and monetization trends at higher and when that Spain, Terry and place.
And Tom maybe if I could start on debt reopening part I guess, the one market.
Debt, we look at very closely is China and to add there youre seeing a nice a restart of the out of home activities, including of course coffee and so.
So that's gone really well it doesn't lead to a major problems on the at home side, but then again as you know China is a market that still has very low per capita consumption.
Off coffee and so it's a little hard to draw conclusions from that and for the rest of the world from what we've seen and particular Starbucks out of home and bodes well for other markets. It's hard for us to tell to what extent restocking goes on or its true pass through consumption, that's pretty hard for.
For us to guess.
And Tom on your question on market share gains.
And coffee, that's relatively simple to answer it happened across geographies across brands and across segments by segments, I mean portion and coffee soluble roseland ground, so and it happened.
In the Americas and across Europe, and in Asia and.
On the cross brand I mean, just remain brand as we have pursued and is carefully and Starbucks zone.
No no differentiation, there and very happy with it.
Next question is from Jeremy Pee alcohol at HSBC.
And Jeremy. Please go ahead with your question.
Hi, good afternoon. So two questions first one is.
And emerging markets was pretty strongly scores and not really there was the China factor given the base that Russo and markets like India, Latin America did very well too.
Yet the I guess, the health conditions and those markets are very very serious at the moment. So I suppose the question is how worried are you that the.
These are worsening health situations and the debt manifest itself and a worsening and kind of consumption and economic situations over the balance of the year or is what you've seen and the balance in the second half of 2020. So these are health and economic factors are perhaps coming in a little bit more separate and they might have been a year ago and then.
And just very quick question and within the 6% Rick that you delivered could you roughly split that out between the volume component and the mix and I forget.
Which was the larger of the two thanks.
Thanks, Jeremy let me address the emerging markets for us. So you are right.
On the rebounding of China is a big component of that.
You're also right we're watching with some concern the development of the pandemic.
And in another large emerging markets.
I think.
As long as you're able to operate and supply of products.
The at home strength is.
He is a strong net plus for us and China is still down and that we had one of the most developed a professional on the out of home market standard and hence the hit there was harder at the time of a lockdown.
And in other emerging markets the relative weight on the out of home business for us is not quite as strong and hence we believe as long as we can operate and deliver our goods that we could still come out with very good growth numbers. There now having said that as you know late and the here as we start to lap.
GAAP and very strong quarters in those markets. The base of comparison, there is going up as well.
And Germany on your question on the three components of our growth actually I'm glad you asked the question because we have a very balanced well balance growth in terms of between the three factors.
You look at it again to full year 2020, so we are comparing one quarter against the full year and you can see we have accelerated our growth by a factor of two X D. If you compare on pricing you have it and you wait two X as well on volume it's around two X. Two we had a strong volume growth and acceleration there, but the beauty of it is.
And as well is that we continue to see mix improving again in Q1 as it did last yards, where during the pandemic. So it's a very very healthy growth profile as well with a free component of organic growth contributing to it.
Next question is from John and it's at Goldman Sachs. Sir. Please go ahead John.
Yeah, Hello, and thanks for taking my question I wanted to ask on coffee, but the 17% sales growth that is per se.
A positive surprise can you help quantify how much of this is driven by new customer recruitment that's at a higher frequency of usage per customer.
As we progressed through the year do you think frequency of usage shapes.
And then my second question is it is a quite a broad one on the full year guidance, what would you need to see in order to raise the guidance and it shouldn't be as strong to ta.
And visibility on reopening low port there was it was there something specific you are worried about being cautious about with regards to assess and Catholic range or countries that you can highlight thanks.
John Let me start with the second one and then hand it to Francois for the first one and Tim and I.
I think you summarized it well I'd like to see how Q2 is going and what we know in July about how the world is climbing out from this pandemic crisis.
And so those are to me the two major things to watch.
And then I mentioned, the fact that we have a steeper base of comparison and the second half, but that's a fact, we know that so it's not changing very much so as those who they were watching and as I mentioned in my prepared remarks, there's no specific material bad news items that we are aware of here that we're trying to to watch other than these two enel.
Loans about the second quarter.
And how exactly we can out of the pandemic.
John on your question for the drivers of the 17% organic growth on espresso. It's a combination of increased frequency and increased penetration and so it's not one on the other it's clearly a combination of both I would mention as well and that it Kim as you could see across geographies, because we had a strong.
<unk> developed and very strong sales development and the U S but.
Europe grew very nicely and so did the Asia, so very happy with debt and regain market share basically across geographies as well as far as Nespresso is concerned.
A consequence of this increase of both frequency and penetration.
Next question is from James targets at the Americas. Please go ahead James.
Thank you good afternoon, and a couple of questions from me Firstly, just on the Alpha home consumption. So the cause of 11, 6% decline and Q1 can you talk about.
Some color on how that trended through the quarter.
And also and maybe what kind of a range of declines was on a sort of a broader regional basis with some regions already back in positive territory with some significantly more negative any color on that would be great.
And then secondly, just on on waters following the U S disposal could you give some color on water.
The business now between these two.
Premium sparkling and the functional products that you're and you're focusing on going forward versus.
And a more mainstream products and and should we expect further M&A.
So there is as well thanks.
If I could just start with the second one James so on and what does he Wes.
On the split now is very much all in either premium on functional and as you know we have a thriving business there with our international brands and Pellegrino Perrier and Acqua Panna and then we added a central to it and.
And we disposed of the rest so and so that's pretty much a pure play and battery cards.
And James as far as out of all these concerns or we do not want to comment volume months, what I can tell you that.
We should not be overly excited by it either because I mean the rate of decline has reduced by half because we were at around minus 25% and edge two last year and we at around minus 11% now that being said is.
If you look at it and absolute value, it's not significantly better. So the improvement is to a large extent coming from the better.
And easier comps tours of and extend but we are hopeful that the situation will improve because we start seeing some signs of improvement and to be more specific in countries like China and Japan. For example, we start the <unk>.
Seeing some interesting development, we're not exactly a day level, where we were pre COVID-19, but we will get there probably one of these days.
And the situation remains.
And there are significant pressure in Europe, as well as to what extent and North America on Latin America is doing.
Not okay, but two it could be worse, it could be better on as well.
Next question is from Athena Ergo and at Morgan Stanley. Please go ahead and pinard.
Hi, Thank you for taking my question you were recently cited and the media around your M&A ambitions. I. Appreciate you cannot discuss too much about this but when should we realistically expect acquisitions to become a more meaningful driver of net sales growth.
And would you please remind us of the areas of interest free and that's why when you think about external growth. Thank you.
And.
And Ah Yeah, you're right there is probably a limit to how much detail. We can provide here I think the key messaging was debt.
We are coming out of a period with pretty sizable divestments.
As you know our interest in meaningful and good and well fitting acquisitions had always been undiminished and we've done some and the past like thinking about Starbucks or we've talked about today.
And we struck that deal.
Three years ago, and then two years ago, we launched the product so.
So it's not so much anything new on the acquisition side. It was more of a signal of that.
And this period, often often large scale divestments that were also taken their toll on the top line.
That's all what they will continue they will be continued adjusted on the portfolio, but not to the same extent as you've seen specifically in the year is 2019 and 2020.
And look when it comes to.
And the areas of interest obviously the high growth categories are strong interest, but we've also said repeatedly that across the full spectrum. If something is a good fit and strength and says yes. We are open I mean, if you if you're if you start if you're if you start rolling out acquisitions and a category you're in you're basically saying you don't want to be in that category.
And so in the categories. We're in if something well fitting comes along and that really makes sense and advances our position there, yes, we'd be interested and open.
Okay.
Next question is from the DVD said Societe Generale.
Thanks Luke.
And it all assets are cheap and we first each day more pop on some one offs and then I'm going to come back and especially if I can say that just on the one offs and.
I guess, there's three that maybe stand out some people talk about supply chain issues in the U S. You don't seem to have seen any problems without sort of giving the numbers, but I just wonder whether there was any dynamics there and the first quarter and then there.
And was the leap year effect and then I guess, there was the China, new year timing I think EBITDA at 50 basis points when he talked about it and the fourth quarter and what was the impact around that level.
And you expected.
And on the second question on espresso.
Can you just talk about the fourth quarter and machine base dynamic and how do you got numbers for all of US are Joe in terms of what day of machine adoption and boom because of the Lockdowns that we've seen and is that a big driver of the 17% and and I'm surprised or I guess, it's a question you talked about it slowing because of tougher comps, but going to a record year.
Mid single digit for this vessel all the way through last year. So is that wrong or is that if there's a different dynamic that means that 17% growth slow through the year. Thanks, so much.
And with Davita will take the first question and I think Mark will take the other one day, where no one offs really in the quarter.
And what can we had different to some topics on cash.
And Barry as you know mainland China, but no one offs pursue supply chain in the U S. It's a difficult topic and to daily fight and I mean, our teams are really fighting in order to make sure that we can supply the product, but no major disruption that we can refer to the leap year on Chinese new year on because there were some impact there, but you can consider.
And that all of it was the evening out between one factor on the ASO. So you would consider that between debt on the timing of Chinese new year, the timing of Easter.
Leap year, it's more or less awash and so no impact on it.
And then look on espresso, we're trying to be helpful. But I also ask for your understanding and that.
We can't go into more detail here when it comes to competitive signaling I think as you saw from our step that we announced in February we are already increasing the transparency around and espresso very much and and.
And we would like to leave it at that.
Unfortunately, we are getting closer to and have a cool but.
But we still have time for one last question on the police urgently the debt. She had vontobel. Please go ahead.
Thanks, Good afternoon gentlemen.
And that is all one on a stressful but more.
At group level, probably the consumer behaving.
Behaviors here to stay for Avi.
Are you thinking of deploying your capital and your resources and a different manner.
And if yes, how do you see the picture going forward.
And the second one is to see if the premium premium additional premium segment continued to outperform the rest of the business in Q1 and chefs and she can give us a number please.
Yeah and.
Trump Philip I think on the second one.
And what we're seeing for Q1 and should continue Asian of the theme we've seen for last year and that premium is doing extremely well but.
The extremely affordable segment is also doing well and is probably more necessary than ever and let's not forget I mean this crisis has led to enormous economic hardship around the world and a.
Especially in emerging and low income markets and unfortunately, when it comes to some of the income gains and wealth gains that have happened and the previous decade. This pandemic has wiped out a lot of and progress and.
And so it sets us back several years. So I think both of these and are going to be we're very important are going to be very important going forward and Tim I think one of the hallmarks of Nestle under various price of course is that it can really and a meaningful way serve both of these.
Very much in line with previous downturns, and we've seen that's more like the mainstream.
Net price segments that have seen some pressure, but premium continues to do well and extremely affordable does well too.
On this press so maybe francois.
You can help out on on capital allocation.
I did maybe trumpf and if you could give us a bit more detail on what you're after.
On the peso basically probably you'll have more all working working from home.
And the shops, it's probably has on an issue. So how do you see the capital allocation and we just location between.
Professional shops, and all looking digital okay, navigated and look on that one there's not much of a shift between professional and the rest of the business because we assume debt when the crisis is over and professional will also have.
A thriving future there.
But even before the pandemic struck.
We've seen.
And as steady acceleration on digital and so this tragic and espresso has been pivoting more and more to that that doesn't mean, you don't need boutiques anymore.
They'll need them for activation.
Poor customer service and.
Advice and sampling.
But.
And what you don't need is a deep and dense network to cover geography over time, most people migrate to.
Two digital and I think the pandemic has only accelerated that trend.
So there is clearly tilting towards digital.
With that we come to an end of our session. Today. So we thank you all for the interest that you have and Nestle and.
And don't hesitate to call us.
If you still have outstanding questions IR is always available maybe mark you want to conclude.
Thank you see you next quarter.
Okay.
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