Nestlé (NESN) Barclays Global Consumer Staples Conference summary

Performance and outlook

• H1 organic growth accelerated 80 bps to 3.6% from 2.8% in H1 2018; underlying trading operating profit margin rose 100 bps to 17.1% from 16.1%.

• FY19 organic growth target ~3.5%; 2020 targets include mid-single-digit organic growth and a 17.5%-18.5% margin, with the margin ambition’s lower end expected in 2019, one year early.

• H1 EPS grew 15.7%, supported by organic growth, margin gains and a lower underlying tax rate; working capital declined 50 bps and free cash flow improved.

• CHF 11.5B returned to shareholders in H1 through share buybacks and dividends.

• Pet care, water, infant nutrition, coffee and consumer healthcare each grew at mid-single-digit rates, with first- or second-ranked positions in each category.

Margin, costs and capital allocation

• FY19 underlying trading operating profit margin improvement expected to be at least 50 bps; structural cost reductions and growth contribute ~50 bps of annual margin improvement.

• Fixed industrial costs declined 2.5% in 2018 and 3.5% in 2019; plant closures accelerated from about two annually to one per month.

• Working capital fell from 8.5% of sales six years ago to slightly above 1%; medium-term aim is ~0%.

• R&D and marketing remain protected; savings may support marketing reinvestment, while procurement, G&A and industrial efficiency programs continue beyond 2020.

• Marketing investment rose 40 bps in 2018 with a digital focus; CAPEX totaled CHF 2.1bn since 2015, alongside disciplined investment and portfolio actions.

Zone AOA performance and opportunities

• Zone AOA spans 95 countries and 13 markets, represents 70% of the world’s population, and generated CHF 21.3B in sales, 23% of total sales and ~31% of operating profit.

• H1 organic growth was 3.3%; Pakistan faced macroeconomic and purchasing-power pressure, while softness in some Chinese categories weighed on growth. H1 margin was 23.1%, up from 21.9% in 2016 and 22.7% in 2018.

• Premium products grew from 7% of Zone sales in 2015 to 15% in 2018, with average yearly organic growth of 9%; e-commerce sales rose from CHF 0.6bn to CHF 1.1bn, a 37% CAGR.

• Growth priorities include premiumization, affordable nutrition, digital commerce, coffee innovation and out-of-home, ready-to-drink convenience and health, and super-premium pet nutrition.

• Starbucks products launched in Japan and Korea in April and China in August, with early demand exceeding estimates; launches also reached Taiwan and Hong Kong. Pet care opportunities include China and ASEAN.