Q3 2021 Nestle SA Corporate Sales Call
Good afternoon, and good morning to everyone.
Welcome to the Nestle nine months 2021 sales webcast I'm.
I am Luca Bellini head of Netflix investor relation.
Today, I'm joined by our Chief Executive Officer, Mark Schneider.
And our Chief Financial Officer Francois here.
Mark will begin with our key messages and discuss the full year 2021 guidance.
First of all I will follow with a review of the nine months 2021 sales figures.
We will then open the lines for your questions.
Bill.
Neither geena please take note of our disclaimer.
And now I hand over to Mark.
Thank you Luca and a warm welcome to our conference call participants today as always we appreciate your interest in our company.
We are pleased to report another quarter of exceptionally strong.
Before we begin ink sales growth.
As you know we also had a strong comparable quarter last year, when we posted an organic sales growth rate of four 9%.
So there was no small feat to get to 6.5% in Q3 of this year.
As you can see from this slide our year to date organic sales growth is seven.
As in previous quarters growth was broad based across most geographies and categories, which is reassuring.
The only real exception was our infant nutrition business, which suffers from globally reduced birth rates in the context of the Covid pandemic.
And the strong sales decline in China.
I can assure you that we're working hard to fix our issues in China and find new crop opportunities globally for this key category of Nestle.
We completed the acquisition of core brands with the Bountiful company in line with our schedule and are very pleased with the company's performance and our progress.
Chris with regards to integrating this business.
Interest in personal health in particular in boosting the immune system continues to be high as we're entering the second northern hemisphere winter of the Covid pandemic.
I would also like to comment on last week's announcement regarding.
Regarding <unk> future organizational structure.
Local relevance and everything we do and staying close to local consumers around the world has long been a hallmark of Nestle.
We're now taken this approach to the next level and fully reflect the importance of our two largest global markets north.
America and China.
In our geographic zone structure.
In doing so we will sharpen the geographic focus of all five of our zones and increase agility and a fast moving consumer environment.
The new structure has broad support inside of our company and with our executive leadership team.
Effective January one 2022.
Under the business as a force for good section this quarter, we're focusing on our actions to promote regenerative agriculture.
This initiative is a direct follow on from our net zero carbon roadmap published.
Last December.
The roadmap made it clear that for a food and beverage company like ours. The key challenge on the road to net zero lies in our agricultural supply chain there.
This is where about two thirds of our greenhouse gas emissions lie and so this deserves our full attention.
It will be a move towards regenerative agriculture requires patient effort on the ground around the world in order to find local solutions that work for a specific environment and agricultural product.
In our approach to this we are firmly committed to the notion of what we call adjust transition.
It will not be sufficient to just raise the environmental specifications of the commodities. We buy this would be unfair to many farmers, who do not hamper knowhow or the resources to comply with.
We provide firsthand technical assistance and help to arrange financial support.
While there are many.
Benefit related to regenerative agriculture, the concept of restoring solid health stands out improve.
Improved telehealth stores more carbon in background improves water retention in water management and supports biodiversity.
In this context and ahead of cop 26 and Classico.
I would like to comment on the development of our greenhouse gas emissions.
Reducing them is no longer just a future plan for us it is a reality and I'm proud to say that we have left peak carbon behind us.
Since 2009 or greenhouse gas emissions a decree.
Leasing, even though nessler keeps growing.
We are on our client path down and fully on track for first intermediate target a 20% reduction in greenhouse gas emissions by 2025.
Before handing it over to Francois I would like to comment on our updated guidance.
Next month, we are now expecting organic sales growth for the full year in the range of 6% to 7%.
This reflects the strong performance in the third quarter and our continued good prospects for the remainder of the year.
We leave all other guidance aspect unchanged.
It will be tempting for some to translate the higher sales growth expectations into higher expectations for our underlying trading operating profit margin.
I would like to caution against that and the current cost inflation environment, where input costs are rising faster than we can roll forward through pricing.
As you know.
We have consistently cautioned on this aspect as from our Q1 conference call in April.
The situation has not improved if anything we're seeing a further downsides compared to what we told you in December.
With this let me hand, it over to Francois.
We mark and good morning, good afternoon to all let me start with the highlights for the nine months of 2021 organic growth was seven 6% rig was strong at 6% with increased contribution from volume and solid mix.
Pricing increased to one 6%.
Acquisitions net.
Thank you Mr. Charles Red yourselves by three 3% largely related to the divestment of the Nestle waters branded North America, <unk> peanut milk and canned rice porridge businesses in China as well as the FTR charcuterie business.
The negative impact on sales from foreign exchange moderated to 2% turning positive.
Positive in the third quarter.
Total reported sales for the nine months were $63 3 billion Swiss francs, but two 2% increase versus last year on a reported basis.
Overall, the strong growth in the nine months was driven by three key factors continued momentum in retail sales with a steady.
David covered in out of home channels.
Increased pricing for a fourth consecutive quarter, reflecting input cost inflation further market share gains across most categories. The latest available data showed that we were gaining or holding share in more than 60% of business sales.
Steady reliable 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.
<unk> improved, particularly in the Americas on immuno while rig remains stronger <unk>.
The increase in pricing reflects our ability to offset.
Net input cost increases and currency appreciation supported by the strength of our brands product differentiation and leading market positions.
Growth was balanced with strong contributions from developed and emerging markets organic growth in developed markets increased to seven 1% reflecting positive.
<unk> contribution from all regions on a significant increase in pricing, particularly for North America.
Growth in emerging markets was eight 3% with strong contribution from Brazil, India, Russia and Mexico.
Let's now look at the breakdown of sales by channel organic.
Organic growth for retail centers was six 6% with a mid single digit right in the third quarter. Following a high base of comparison in 2020.
Within retail e-commerce saw sustained growth of 17, 2%.
Commerce now accounts for 14, 1% of total sales most cap.
Categories saw strong momentum in ecommerce, particularly coffee purina petcare and culinary.
Sales growth in out of home channels reached 22, 8% helped by low base of comparison last year under further easing of movement restrictions in some geographies.
The level of sandals remained bill.
Below 2019.
We confirm that the impact from input cost inflation is expected to be around 4% of cost of goods sold for the full year of 2021. However, one thing that we would draw your attention to is the rise in energy and freight cost so if anything the situation.
And as therefore slightly worsen versus July.
We continue to proactively address these inflationary pressures and have steadily increased prices over the last four quarters with pricing accelerating to two 1% in the third quarter.
In the nine months pricing reached one 6%.
<unk> live homes that we have not seen for the last six years.
We expect to progressively increased pricing in a responsible manner over the remainder of 2021 and 2022 with different trends by geography and category.
The young pricing, we continue to strengthen the development of affordable.
The board offerings, particularly those that meet nutritional needs in emerging markets.
These efforts help to soften the effect of inflation for those most impacted.
In addition, we are using other lever other levers such as product mix disciplined cost management on the further rollout of strategic revenue.
The new management tools, we have also benefited from increased centralized procurement.
Let's now look at the results of our five operating segments, beginning with zone M. S, where we saw high single digit growth with a high base of comparison in 2020.
Sales were $24 6 billion Swiss.
With organic growth at eight 4% based on robust rig or five 2% on a further increase in pricing to three 2%.
Pricing was 5% in the third quarter.
Growth was supported by continued innovation strong momentum in ecommerce on the further recovery in out of home.
Channel. The zone also saw continued broadband market share gains led by coffee pet food and dairy.
North America grew at a mid single digit rate in the context of significant supply chain constraints. The largest contributors to growth were purina petcare unnecessary professional.
Growth in Purina Petcare was driven by science based premium brands Purina Pro plan Fancy feast and Purina one.
Sales in frozen and chilled food grew at a mid single digit rate with strong sales development for staffers lean cuisine freshly on hot pockets, partially offset by yourself decreasing.
Crazy bids are following a high base of comparison in 2020.
The beverage category, including Starbucks at home products coffee mate on less gassy posted mid single digit growth.
Sales in water grew at a mid single digit rate with double digit growth in the third quarter driven.
Even by strong set of development for essential.
Following increased consumer demand essentially are introduced a large formats of its agonized alcohol in water.
Latin America posted double digit growth with broad based contributions across geographies on most categories led by Mexico.
Brazil and Chile.
Byproduct categories, the largest contributor to growth was purina petcare with strong sell developments across all brands markets and channels.
Sales in confectionery coffee unless the professional all grew at a strong double digit rates.
Infant nutrition.
Tradition, so mid single digit growth accelerating to a high single digit rate in the third quarter based on robust demand for new premium and functional products.
Shifting to zone lamina sales were $15 5 billion Swiss francs organic growth was seven 2% based on strong rig supported by both volume.
And mix.
Pricing increased two 0.8% with western Europe, turning positive in the third quarter grew.
Growth was driven by successful innovation and continued strong momentum in ecommerce on specialist channels.
The zone continued to see broad based market share gains, particularly for pet food coffee.
Columbus products on infant nutrition each.
Each market posted positive growth with strong set of development in Russia, Turkey, and the United Kingdom and Italy.
The key growth drivers continue to be Purina pet care in coffee supported by continued innovation across all brands.
In pet care new business.
Modern including Delta come in really kitchen, all saw strong double digit growth.
Nestle professional reported double digit growth.
Sales in water grew at a mid single digit rate despite unfavorable weather condition in central Europe in the third quarter.
Sales in confectionary grew at the.
Called digit right with double digit growth for premium brands, such as liver said the lottery culinary so low single digit growth strong demand for garden Gourmet and mindful chef was partially offset by slightly negative rolls in cooking AIDS in pizza following elevated demand in 2020.
No.
Meeting also introduce MS East, a new middle Eastern cuisine food brand.
Infant nutrition posted slightly negative growth due to lower birth rate in the context of the pandemic, but so high single digit growth in the third quarter with continued market share gains.
Moving next to zone AOA with sales of 15 point.
Nestle billion Swiss francs.
Organic growth was four 1%, reflecting a difficult environment still impacted by regional Lockdowns.
<unk> turned slightly negative in the third quarter. Following a sales decline in infant nutrition in China on the high base of comparison in 2020.
Most.
Two categories gain market share led by coffee culinary and pet food.
China posted low single digit growth, excluding infant nutrition, China, so double digit growth driven by Nestle professional coffee culinary dairy and purina.
Infant nutrition posted.
Saturday nine impacted by challenging market conditions.
Turnaround initiatives continue to progress with further actions being implemented including a review of our portfolio and distribution strategy.
Outside of China infant nutrition resort reported high single digit growth.
South Asia Sub Saharan Africa, Japan, and Korea, all saw strong sense developments.
East Asia continued to be impacted by movement restrictions and regional Lockdowns.
Byproduct category, the key growth drivers, where culinary coffee amnesty professional sales in confectionery.
Larry and ice cream grew at a high single digit rates dairy reported mid single digit growth led by strong demand for 45, milks infant nutrition saw a sales decline with growth turning positive outside of China in the third quarter supported by strong sales development in South Asia and Africa.
And execute an espresso, which saw samples of $4 7 billion Swiss francs organic growth, which 11% based on strong rig of 10, 4% on pricing of 0.6% growth was mid single digits in the third quarter due to a high base of comparison in 2020.
The virtual system continue.
We need to drive growth with the original system also contributing positively.
Increased consumer adoption and innovation supported gross.
This price so expanded coffee offerings across the virtual system, including payroll organic.
<unk> also added Nova Chantal on millennial to the Italian.
<unk> heritage range for the original system.
Sheriff Iraqis Summer collection, and social media campaign resonated strongly with consumers.
By channel boutiques on out of home channel saw a further recovery with continued positive set of developments in ecommerce by geographies the Americas.
On the way all grew at double digit rates. It may not so high single digit growth.
Overall net price will gain market share with contribution from most markets.
Finishing with Nestle Health Science, which reported sales of $3 2 billion Swiss francs.
The business grew at a double digit rate.
Building on the strong sales development in 2020.
<unk> minerals and supplements that support health on the immune system continued to see strong demand with broad based market share gains across channels and markets.
Growth was supported by e-commerce momentum new product launches geographic.
<unk> expansion and strong supply chain execution.
Consumer care posted double digit growth with strong contribution from vital proteins garden of life persona on pure and calculations.
Healthier gene products, such as boost Maritain on Neutrolin also saw robust growth.
The newly acquired co brands of the Bountiful company in particular natural boundaries on saga posted strong double digit growth.
Noon functional hydration products also grew at a strong double digit rates.
Medical nutrition, so mid single digit growth with robust demand for complete.
A comprehensive nutritional tube feeding formula and pediatric care products, such as alcohol Alpha and alpha.
By geography, the Americas imminent on OUI, all posted double digit growth.
Looking now at product categories, we saw strong growth.
Segments with the exception of infant nutrition most.
Most categories saw market share gains with particular strength in coffee pet food and Nestle Health Science.
Within powdered and liquid beverages coffee grew by more than 10% supported by net cafe Nespresso and Starbucks products.
Growth was supported by new product launches across all brands.
Sales of Starbucks products grew by 15, 5% to reach $2 2 billion Swiss francs across 79 markets.
Cocoa and malt beverages grew at mid single digit rate with particular strength for ready to drink formats.
In all that care continued to see very strong growth globally, most segments and geographies grew at a double digit rate with market share gains.
Purion as performance was driven by continued strong demand for premium products supported by successful innovation and momentum across all channels.
<unk> nutrition.
Tricia on health Science grew at 0.8% organic growth in infant nutrition was minus five 2%, reflecting a sales decrease in China and the slowdown in births right across geographies in the context of the pandemic.
Outside of China growth was positive in the third quarter and we continue to gain.
<unk> led by human milk, oligosaccharides and functional formula products we.
We have already discussed Nestle health science.
Growth was seven 5% for prepared dishes and cooking AIDS.
Beyond culinary grew at a high single digit rate supported by Maggie.
Chilled culinary report.
Reported double digit growth fueled by our recently acquired D to C business is freshly unmindful chefs.
Frozen so mid single digit growth vegetarian and plant based food products continued to deliver double digit growth led by garden gourmet.
In early October we expanded the garden.
Market Runge.
With the launches of Ziggy a plant based alternative to eggs and rent plus beds seafood offering.
Milk products and ice cream grew at six 4% the key growth driver, we're 45 milks coffee creamers on ice cream.
What else grew.
Four 3% helped by a recovery in out of home channels and with strong contribution from North America and emerging markets in the third quarter.
Growth in Confectionary reached nine 5%, reflecting a further recovery in in person gifting products.
Let me now hand over to Luca for the Q&A.
Thank you Francois and with that we move to the Q&A session. We open the lines for questions from financial analysts.
Please note to limit yourself to no more than two questions.
The first question is from that given the maths of UBS. Please go ahead the Gilman.
Thank you.
Good afternoon.
Luck and courseware.
My first question is on your margin guidance.
Around 70%.
They got back in July you were indicating that the guidance was a cautious and conservative.
Today, you are reiterating this guidance but.
In light of the last three months development in commodity packaging transportation costs do you still view this guidance as being conservative.
And then my second question is on pricing. So we clearly saw a sequential step up in the third quarter, but could you shed more light on the.
Percentage of your portfolio, where you took some pricing at the end of Q3, and where do you expect to be by the end of this year.
And also if I can add on the pricing question I mean, despite your very strong rig performance in Q3.
Can I ask if shifts if you've seen some elephants.
Sales were twice thing I had a knock on impact on your volumes. Thank you.
Kim This is mark thanks for your questions I'll take a first crack at them and then hand over to Francois and then I guess on the margin guidance I mean, as you know being conservative and cautious as one.
Of our hallmarks of that is not changing what you're seeing here following the presentation from Francois and mine.
There are some pluses and minuses. So clearly the input cost situation has slightly worsened from the summer, but then of course, if you are aiming to post an organic sales growth rate.
That is basically a full percentage point higher than guided in the summer that also has some operating efficiencies stemming from it. So there's puts and takes and by and large are we still feel comfortable with that guidance range of around 17, 5%.
Also speaking good afternoon Guillermo.
On the question on pricing is difficult to say what is the percentage of our products to which we apply pricing you can see that pricing has been increasing sequentially and you can expect buzzworthy. Since you were asking about the outlook in terms of pricing without providing guidance, but you can expect that pricing will ramp up further in Q4 and next year as well because we do expect to have.
The higher input cost inflation next year in 2022, it's difficult to look at it as a percentage of our sales its more related to the specific categories that have been hit by input cost inflation you should look at it this year in 2021, it's much more about for example, dairy or Petcare. So this is where we really started to.
True some pricing as far as the coffee is concerned we did less so far but we can expect that we will have more pricing on coffee next year. Because this is where when we will start feeling the pressure on input cost inflation by category as far as the volume elasticity you can see that still we have a strong rig which is largely.
<unk> led by volume as well as we have a positive contribution from mix. So volume remains very positive and very attractive part of it is linked to some tailwind that we had in the context of the of the pandemic with a higher consumption at home. So we see volumes slowing the volume growth slowing down a little bit as we progress over time, but remaining.
To put it very attractive and easy.
Is it linked to pricing there is no evidence of it we believe that it is more a link to the exceeded to.
The exit of the pandemic to a large extent on the fact that we have a little bit maybe less consumption at home and more consumption out of them, but there is no direct link for the time being with pricing.
Yeah.
The next question is from Warren Ackerman at Barclays. Please go ahead Warren.
Hi, everybody inside Warren here at Barclays.
And as for me as well the first one is on China infant Formula I think I heard you're rightly, saying you're doing a full review of the portfolio and distribution strategy I think maybe mark but could.
Elaborate a little bit on the kind of options you're looking at in China. It seems to me to be one of the few remaining underperforming parts of the portfolio.
And it was underperforming even before COVID-19.
And does zone moving to zone, China does that help on the agility to try and.
Fix the.
You might be in that 26 brands I'm just interested to know.
What kind of scope, you're looking at in terms of that kind of a view.
And the second one is just following on from the whole pricing margin commodity question. Francois are you able to give us an early feel for what the Cox inflation might look like.
2022 given some of the hedging rolling off I know you said, 4% confirmed for 2021.
How much higher do you expect it to be for 2022, and then maybe could you help us with some of the building blocks for the 2022 and it was perhaps a little bit early and there's lots of moving parts, but for.
For Paul you said that you'll be spending a billion Swiss francs on climate change of investments is that still a number that is.
Violate all other offsets do you have going into next year, given Cogs inflation is higher and presumably climate costs are also higher thank you.
Thanks, Brian So let.
For example, on China, and before turning specifically to nutrition, let me comment quickly on peso and structure.
As you know create a China will be the smallest of the five zones and the fact that we elevated to a Sony you should see that as a sign of complete commitment and also future optimism when it comes.
Starting off that market and we are all in on China, and we will do what it takes to win their overtime, we recognize that in quite a few categories. We did have some performance issue over the past decade, or so we are absolutely focused on fixing those and succeeding in that market because it.
Subtle or a promise for the future and in that context, you're right. Our nutrition is a standout and we made no pretenses debt.
Nutrition in China was underperforming before Covid.
So we're not blaming it on Covid Covid has made it worse not only in China, but also elsewhere.
It had a we need to dig deeper here.
And we need to find a winning formula for our nutrition business in China as we do that I mean, we hinted at some of the levers we have in the past like a clearer and more articulated channel strategy Topnotch innovation and then also a stronger local offering.
But with increased cross border.
E Commerce as an example, when it comes to some of the details we're looking at now but I'm also asking for your understanding that I wouldn't want to go too deep into.
Any future steps that might involve competitive signaling I think for our shareholders. It's in our best interest here that we basically.
<unk> and publish those moves as and when they happen.
What I wanted to reassure you about us.
We will stay totally committed to this business in China.
What we're doing is not or retrenchment, we're not pulling out of here. We believe that winning there is going to be a central this is the largest and most demanding infant formula market in.
Well in term, we are committed to being a very competitive player in that market.
We're in front of us picking good afternoon on the.
Input cost inflation for 2022, I'm afraid I can't give you a figure now the main reason is that we see still a lot of volatility. So I mean, it's really moving almost by the day.
But what we know though is that it will be higher than in 2021, but I would say more than the amount what matters is the way we can mitigate it in the way we can offset it the main given the impact of the mainly the main way to offset or mitigate it because inflation will be pricing, but there are other ways as well like our strategic revenue management like Youre increasing.
Our efficiency program and so forth and we have covered I think part of it but so clearly no no full visibility at this stage and we are still two and half months before the beginning of the year, what we see though just to give you a little bit more color as I mentioned earlier, we see that in some areas like coffee and aluminium for example for packaging, we see a clear inquiries coming in for.
For next year.
Just since you were touching on the climate issue, we did medical meet mounting need if we if we include the.
Year to yet lodge in sustainability at large it's about a billion a year over the next five year between 'twenty one 'twenty five.
This is something that we want to ring fence anywhere this is not because we see commodity.
Our cost inflation in commodities packaging transportation and so forth that we are going to start saving on the climate commitment on climate investment that we want to do so to I would say in the same way as back into 2016. When we started to look at efficiency program, we ring fence marketing on R&D and I think it was very wise to do it.
Input and add to the list to a very large extent climate on ESG. We have made commitments, we need to get there that being said we need to be efficient in managing those investments as well. This is very much. What we are on the top of Warren Let me add one aspect here on a very high level and that is one.
To make it clear our industry in general is not in the industry.
Weakness in normal times pinched by inflation.
So when you are in a regular inflationary rhythm if you roughly know what it's going to be happening next.
This industry can adjust and can basically maintain its financial performance. It was specifically the turning point that came out of the flu this year.
And I think took the entire industry by surprise that led to some of the compression that we described in the summer.
But once.
I want to make that point just in case, you know there's inflationary recycle extends beyond 'twenty two on a longer term basis. Once we know what to expect I think we can pretty much addressed to that and in our pricing.
And heavier on some of the other levers we have made the best of it. It was specifically the turning point that created a challenge for this year.
Okay.
Next question is from ethylene Penuche of Jpmorgan. Please go ahead karina.
Thank you.
This can be in March and protect Jackie and look at my first question is on pricing.
Can't they just kept the bad debt I'm trying.
He was quite low in there anyway, and even in Europe, I think he said it pretty well.
I was wondering why such a flow.
Yeah.
Good actually in emerging market in Italy, and how confident are you about the acceleration in this region.
Thank you for the question.
Coming back on the guide on margin front each year.
The presentation you come on and it has not really changed but can you say a word.
The impact that you keep from energy and distribution costs.
And am I right in understanding that you are confident about this around $17.
But maybe not to beat a dead.
Thank you.
Celine let me start off on the pricing and then hand it to Francois.
So AOA is really for the most part the consequence of a number of one off steps that we've taken in China and nutrition there specifically.
So this is what our track down the sale and the rest of the performance they have essentially a quite satisfactory to us and then imminent is two most part.
Got it.
The consequence of our contractual relationship to retailers in Europe, where when it comes to the contract dates where you can adjust pricing you don't have the same flexibility as in some other parts of the world. So going forward of course, we will have to take pricing there as well and we've taken some already.
Part it doesn't go as fast as it goes in some other geographies.
Good afternoon, Celine for speaking on the.
Input cost inflation and the pricing indeed, we confirm the value of around 4% of cost of goods equivalent.
For 2021.
What we see that since we talked to you in July this.
But this has been relatively stable as far as commodities and packaging is concerned the main reason, especially as far as the community's concern that we had some aging in place as well as some forward buying since this is a reason why it didn't move much but as we said the deterioration that we saw is clearly on energy and transportation costs and to a lesser extent.
She is repeating salaries and social costs as well, but mainly on the energy.
Transportation, which hits, our P&L directly which is the reason why we are just saying even if we confirm the 4% of cost of goods. We have seen some deterioration since July I can't quantify it once again I mean, the year is not over either so we still see some volatility on these items.
Sent a little in the P&L right away.
Next question is from Bruno maintain at Bernstein Ma'am. Please go ahead Bruno.
Hi, Good afternoon. The first question is on your forward looking margin guidance you normally talk about mother of margin improvement and in coming years. It given that next year you should have the.
<unk> is our head of bountiful costs that are falling out those temporary commodity costs. He says a temporary problems in next year should come back when you've been at it and the pricing and the rights of the thing that you're still thinking next year should be a bit more than a very small moderate margin improvement and the second question is related to your sales growth.
Bennett items typically mid single digit this year was an exceptionally good year and I'm trying to gauge to what extent, there's some one offs in there. So you still feel that the full mid single digit 4% to 6% is achievable next year. Despite the amazingly strong year this year or should we already factored in a solid set of cost tough.
Growth questions next year. Thank you.
Yeah.
Thanks, Bruno and Tim Let me start off and maybe Francois can also build on a few points. So when it comes to the midterm margin improvement you will see that the language we use in our guidance is.
Very much unchanged from previous quarters, and what we issued.
Call it in any other year. So this is our standard ambition that we're aiming for.
I understand your optimism on adelphia optimism, but it's also important not to get too greedy here because.
I think that turning point that I described is probably also extending into at least the first half of.
Issued earlier, when you're really only started this spring and summer and I think a year of an adjustment here is probably a reasonable estimate.
And then from there we have to see where pricing develops so again good momentum hard work on the margin but.
It's important that we're.
Next facing here to a 2022 guidance at a moment when we haven't even finished at 21 yet.
On the 4% to 6% or mid single digit as we described it I think in a day and age of volatility where we live it's a good band it's good to have that wider band compared to the old 5% to 6%.
Not off the NSA model.
I think when it comes to next year, we're looking at the year with optimism because we still see continued good volume. We see continued good mix and of course as we just discussed there will be more activity on pricing and sell.
That year over year.
<unk> that you have I'm, probably a bit more on the optimistic side when it comes to that.
Thank you.
Next question is from Patrick 20 minutes sort of her Kantonalbank. Please go ahead Patrick.
Yeah. Thank you Luca Hi, Mark.
Phil.
For the outstanding results.
Both the out of home channel and the retail channel has been very strong in the third quarter. Typically you would expect some slowdown in the retail channel. When you outperform is recovering vast vast theres some inventory buildup here before the threat of a price increase in the retail and the out of home channel.
Archive, what do we expect a similar growth pattern in the in the near future. That's my first question and second question would you say it would be a fair assumption to say that in 'twenty two the price contribution to the organic growth will be higher than the rig contribution. Thank you.
Patrick Let me ask start on the first.
Oh, and then hand, it to Francois for the second one.
So the out of home recovery is reassuring.
But you're right, it's not a push pull relationship there whatever we game. There is then taken away from the retail side of the house.
I think in out of home, we are still not back to.
The levels from before the crisis. So I think there's still some upward room for improvement here and as you know in earlier calls with pointed to the.
The year 'twenty two as at that point in time, when hopefully, we're reaching 2019 levels again and this is of course provided that we see no surprises from the pandemic.
But I think we have reached a situation where people are returning back to traveling for business or vacation and yet at the same time, there's also more working from home and more.
More in home consumption coffee being a good example people have adopted more pets and hence as you know there was a sort of a onetime.
Step up here and now Crow from a higher base when it comes to pet.
Pet food.
For dogs and cats, so I feel that.
There is an underlying positive that happened to be to the overall picture and the relationship between out of home and retail you asked about.
One time they'd be buying ahead of inflation and stockpiling, we have seen no evidence of that and I think when you look at the pricing action here. It is still a reasonably modeled a moderate pricing action and so nothing that would lead now people to fill up their pantries put up the basement to be guarded for the future.
Patrick.
People make money.
Just to answer your question on the pricing contribution next year, yes. Indeed, it is a fair assumption to assume that pricing will have a stronger.
Impact on our total inorganic growth you see it already we at 1.6 year to date nine months, but we are already at 2.1 vessel in Q3 do expect further.
Those are the higher pricing in Q4, and again next year. So indeed, it will it will come certainly to a higher level next year that being said, it's important to understand as well that there is a sudden likelihood that volume growth will slow down while remaining positive and probably higher than what it was pre pandemic. So we are very optimistic cylinder.
On volume and the volume growth slowdown is not necessarily linked to pricing. We believe that it is much more linked to the fact that we are exiting the pandemic step by step and as a consequence of that we are comparing against a high level of comps precisely for what we just discussed which is a higher level of at home consumption and this is probably what is going to slow.
Our volume growth more than the pricing.
Next question is from Jon Cox, Kepler and Allergan.
Yeah, Hi, guys. Congrats from my side as well great print for Q3, and probably reflects the amount of work you guys have been doing on the business over the last couple of years as much.
Much of it in the rest of it.
A couple of questions from my side.
So just to clarify what you're saying there.
In terms of volume growth, you expect to be higher than say, the 3% you've seen.
Pre pandemic and then in addition, you expect the pricing to be you know you're talking about.
Slow down maybe 3%.
It's quite easy then to start adding up to five or 6% organic sales growth next year I'm not sure. If you meant to do that second question just on coffee.
Looking at an espresso it looks like there was a slowdown in Q3, and then you talked about very strong growth elsewhere in the coffee portfolio, but when I look at the prepared.
Two issues again, it looks like there was a decided sorry.
The drink spire to drinks business. It looks like there was a slowdown in Q3 can you just tell us what's happening in Q2 or is it just more of like phasing or you know I know the comps were pretty tricky as well Q3, a year ago, but it seems there's actually a slowdown in coffee during third quarter. Thank you.
Prepare don't know let me take the first question on the on the volume just to avoid any misunderstanding we didn't given if you've got three persons what when I was referring to the pre pandemic level. We were growing in 2000 1919 at around one to one 5% by volume.
So we expect to be at that level at a higher level going forward.
But currently we are running at a significantly higher rate once again, mainly as a benefiting from a tailwind from COVID-19 in the at home consumption. So we expect some volume growth slowed down but back to the level that we had pre pandemic at a higher level on the coffee a slowdown in Q3, you said it is largely linked.
Two high comps and we mentioned it for example fall Nespresso Nespresso is still in Q3 at mid single digit growth, which is attractive which is where we were pre pre pandemic level, but let's not forget that this comes on the top of a double digit growth last year in Q3 and to a large extent disciplines as well into the other brand that we have like a net cafe doesn't apply to Starbucks.
<unk> is a different a different story because it's a relatively recent but as you know for example, since the beginning of the year, we have been growing north of 15% as far as Starbucks is concerned.
Next question is from the DVD set Societe Generale I know David. Please go ahead.
Thanks, Luke good afternoon.
And it also just a couple of questions just digging back into.
The China dynamic, obviously as you've talked about double digit growth for China. The first half down to low single digits for the nine months, which suggest that China April was down about 10% I guess in the third quarter I guess the first part of the question is is that correct in terms of the mass.
And then if it is down that kind of quantum.
But even the rest of the business sounds pretty good powerful IMF infant formula.
Isn't the formula down around 20% also in the quarter.
And then related that's true the two questions I was was that because of some resetting of the portfolio from a volume perspective, there's some destocking that you often get in China.
Picking up on a comment you made earlier Mark I think you said there was a pricing reduction and a formula that they didn't contribute to the OE. So it's not a strategic moves that you took that you lowered the price point in China as part of the the addressing the strategic direction of that business. Thanks, So much.
David Let me take good question.
And I did though we have seen a slowdown in China. Once again it is absolutely a link to.
The negative performance that we saw on the infant nutrition and we touched on it it affected the pricing, which we saw even for the emerging market pricing dynamics. This is essentially linked in Q3, two one offs and so you don't expect.
So each will happen again in <unk> in Q4, and this is not at all linked to the fact that we reduce pricing, but this is linked to one off which are then from related to the review that we're doing of our product portfolio on our distribution strategy as well so but once again it will not happen in Q4.
Not linked to price.
Expect that disease.
Next question is from John Ennis at Goldman Sachs. Please go ahead John.
Yeah, Hello, everyone and thanks for taking my question I'll stick to one and it's on your investment plans in an inflationary environment.
Securing historic inflation cycles I.
<expletive> margins came under pressure in 2011 for instance, marketing was used as a partial offset to support EBIT margins by Nestle and then likewise reinvested when the cycle time deflationary. So I guess my question is are you planning on doing something similar during this cycle or is there a bigger commitment to hold or even increase investments.
And any update on how those are trending would be helpful. Thank you.
John I guess my high level answer to your advantage would be we don't even know yet whether it's going to be a longer term inflation cycle. As you know some of our projects takes it takes years to put into the ground when it comes to.
When new critical facility or so forth and so at this point, especially given the elevated demand levels, we've seen in so many categories.
For the past few years getting us closer to capacity limits, it's more about assuring.
Capacity.
To be able to supply to be able to cater.
No no and making sure that we can you know all of it.
Ability to deliver is and is not diminished.
At this point, it's not so much about financial fine tuning, it's really quite a few categories. We've been positively surprised by the strength of demand and the strength of our success in the market and so it's about really making sure that we.
Ada two headroom.
Debt under all circumstances, we can satisfy our retail partners and our consumers.
Does that hold true for more.
Okay.
John I think that your question was also about marketing so maybe let me complement what Mark said it is true that in the past we may have had deviations.
Have enough of an adjustment at the end of the year in marketing investment. According to the commodity cycle. We don't have much of it now because as you know over the last couple of years, we consolidated our procurement activities largely above market, so which means that we have a much much better visibility going forward on what's going to happen. So as a consequence of that we are in a better position.
<unk> into anticipates the impact of commodities on a P&L for the current year on even for the next year to a large extent, which mean that we are far far less adjustments if any to date in our marketing investment, which you were marketing has to be driven by innovation. It has to be driven by marketing needs not.
<unk> is a variable for adjustment for a procurement. So we don't do much of that now.
Next question is from Tom Sykes Deutsche Bank. Please go ahead Tom.
Yeah, good afternoon everybody.
Firstly on a couple of questions on promotions I, just wondered if you could say something on the changes.
Our level of promotion costs either sequentially or.
Year on year relative to sales it does look like in some of the scanner data.
So of.
The year on year increases you saw in Q2.
Went through Q3, and particularly interested in the degree to which that may.
And that's organic growth.
All say can I, just check from an accounting point of view that does sit within pricing and not within Rick. It plays and then just on the coffee business could you. Please just remind us how much of coffee is out of home excluding a <unk>.
Yes.
And the degree to which the out of home footprint.
<unk> has expanded its mainly due to investments <unk> put in train the pandemic naval the outlet crowds of heightened coffee glass is I know you mentioned it a bit before but if you could expand on that that would be great. Thanks.
Franco speaking so I will take the first part of the.
On the promotional cost Digi 2021, especially when comparing to 2020 is a little bit deeper.
Difficult to review by quarter, because we had a lot of volatility it happened that last year in Q2, we had to hold unfreeze some promotional activities during the peak of the pandemic.
A question, who would not activate in store promotional activities. So as a consequence, we caught up to a large extent because we like investing in promotional marketing that we caught up in the later part of the year last year in 2020, so by deferring. Some by comparison, obviously this is creating some ups and downs this year.
We are once.
Cause weak like investing in marketing and the promotional.
Promotional activities, which is the reason why this is traditionally not something that we want to get on the what you were mentioning the trade spend from an accounting point of a price the promotional activities.
Some promotion activities are recorded above netting it sounds.
Again winds in trade spend between that you don't necessarily see them on some of them depending on their nature are recorded in SG&A. So once again it depends on the nature may.
Maybe on coffee as I assume your question was more related to new espresso historically before the pandemic, we had about 50% of the sales which were.
Which more boutiques and 50% through our E Commerce platform as you can understand during the pandemic. It was the even at some time.
Closer to 90% through our e-commerce platform and 10% through the boutique now I think it's probably back to maybe 60%.
Through our ecommerce platform and 40% through the boutique so we have really.
With the boutiques coming back boutiques are important as well because this is very much about consumer experience as well. So we do value these outlets and the complement each other.
Tom If you were asking also about the outperformer the Delta for me down 10, 15% of sales are based on.
Of coffee sales have been spun out of phone activity.
<unk> next question and the last one instrument <unk> advisors. Please go ahead and variance.
Yeah. Good afternoon first question, given the input cost environment and your commitment to deliver a moderate margin improvement in 2022 I was wondering if you could comment on the restructuring spending you anticipate I mean.
Can that margin improvement be achieved at a stable.
Similar level of restructuring spending or shovel shall we expect here a step up in restructuring spending next year and then the second question is on the interview you gave in its waste newspaper recently on the healthy.
Food.
Confectionery.
<unk> U M sugar based drinks will be a part of your portfolio going forward.
I'll say it this is more impulse driven product I was wondering what would make you change that you, especially same thing the same into the U you provided.
Provide picture of Trendsetting young generations that seem to avoid exact same category and that's a trend that thing should be what we could see in the future I E. There would be much less demand for these high sugar product.
Let's go together, thank you very much.
Thanks.
Yes, we're trying to be helpful. Regarding the first part of the question, but we're not there yet when it comes to 'twenty two guidance. So at this point is all eyes on landing 21 in a highly volatile environment is francois pointed out.
So and in that context also wanted to clarify.
There is no.
<unk> guidance or commitment for 2022 now to increase margins, we don't even know yet what the modern for 'twenty, one is going to be.
There is a midterm ambition that we have reiterated in our guidance text today.
That applies to future years, so just wanted to be clear here that we're not.
Our statements are not being misconstrued and obviously a restructuring is one of several levers that we can use.
In order to increase operating efficiency and.
Where exactly that mix is going to be I will give you an update then as we report our full year 'twenty, one and also.
So provided guidance in February regarding the recent interview with <unk> Suisse.
Newspaper you highlighted.
So I just wanted to be clear when it comes to categories that are more.
Enjoyment related and.
That are not.
Not per Se health driven so confectionery is a good example, we are committed to that as well and that's no change from the past and the point I was trying to make there rather than of course, we try to offer.
Best in class Nutritionals, there too, but rather than trying to make these foods into the next health food.
I think it's more important to switch to a different dimension and that is.
<unk> for responsible consumption, so that could be portion size that could be perfect.
Transparency on the ingredients, including sugar content and also of course very strict rules when it comes to marketing to children.
So generally when it comes to these products they are part of a.
Complete.
Diet that people keep I mean, even the younger generation is not only about health I think enjoyment also.
Is.
Registering very high on the agenda, but the.
The ambition changes a little bit from just offering health alone two offering enjoyment in the clinic in a responsible a framework. If you will and then separately you're right in that interview I mentioned something that I mentioned on previous features as well.
You've never goes out of fashion, so as you spend time in.
If he towers around the world you basically see what the next generation is very interested in and you know getting.
Getting inspired by that to me is no contradiction.
To offering products that are more enrollment related so the next generation will be just as much about enrollment as the previous one obviously preferences shift.
Universe.
I think for us as a food and beverage company nutrition is one important dimension, but enjoyment is another one that we have when we're not we're not stepping away from.
Okay.
Thank you with no further questions, we come to an end of our session today.
Mark too.
To say a lot.
So to everyone.
Yeah. Thanks, a lot appreciate you staying with US here and then again.
Highly volatile environment and looking forward to reporting to you the full year 'twenty one when we talk to each other in 'twenty two.
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