Nestlé's Management Discusses Q4 2011 Results - Earnings Call Transcript

Nestlé Sa Reg Shrs S (NSRGY.PK)

Q4 2011 Earnings Call

February 16, 2012 02:00 am ET

Executives

James Singh – Executive Vice President

Roddy Child-Villiers – Head of Investor Relations

Analyst

Warren Ackerman – Société Générale

Jon Cox – Kepler Capital Markets

David Hayes – Nomura

Simon Marshall-Lockyer – Jefferies International Ltd.

Alain Oberhuber – MainFirst Bank

Patrik Schwendimann – Zürcher Kantonalbank

Pedro Gil – Santander Bank

Jane Gelfand – Barclays Capital

Jeremy Fialko – Redburn Partners LLP

Marco Gulpers – ING Financial Markets

Presentation

[No presentation session for this event]

Question-and-Answer Session

Operator

(Operator Instructions)

Thank you. Your first question is from Warren Ackerman with Société Générale. Please ask your question.

Warren Ackerman – Société Générale

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Good morning Jim. Good morning buddy, Warren here at Soc Gen. Two questions, the first question is just on your performance in Europe. I think Nestlé is one of the few consumer companies seeing an improved performance in Europe in the fourth quarter both volume and pricing improving.

And obviously Jim you mentioned innovation in your speech the big reason behind that. But I was wondering whether you can maybe just outline some of the trends that you’re seeing in the Western European market, food retail trends; the promotional trends some of the kind of the macro drivers behind that improved performance in Europe? And then the second question just looking at the cost of goods sold line. I was just wondering how you expect the [cox] line to trend from here. And is it realistic to think it might be positive by the time we get to the second half of 2012, and as commodity stand today what is your thoughts on guidance for 2012? Thank you.

James Singh

Thank you, Warren. First of all in Europe in general particularly in Western Europe, in Western Europe last year all our large markets had good organic growth and good really [internal] growth performance. I think the key to our progress and our continued progress in Europe is innovations, smarter innovations, large very impactful innovations. And over the last three years, we started about four years ago with an objective to have in Europe CHF1 billion coming from innovations. And I could tell you that the end of last year that number was CHF1.2 billion.

And it is the innovation

that is really driving our performance in Europe.

In addition to continue innovating and renovating around established, our brands like Maggi in terms of core, on the core proposition of those brands. So our active innovation program, our efficiencies, very active efficiencies across the value chain are really helping us to mange commodity cost inflation and the general competitive trade environment. Looking forward, I think innovation will continue to make a difference in Europe, but I don’t necessarily see that the competitive trade environment will change materially. I think we will continue to see competitive intensity within the trade environment.

Around the cost of goods sold, I think I would say that 2011 was a difficult year because we had a severe volatility at the start of the year. And we talked about this in the first half with the results where we had the impact of cost coming in immediately in January and our price realization during the course of the year.

I think next year, we’re not going to have the 10% to 11% inflation, I think we are looking at low single-digit and yeah, there may be a correction at the gross margin, but as you know, we don’t depend on gross margin as such. We have to manage our cost throughout the piece of the P&L to make sure that we don’t rely only on pricing to deal with cost inflation and deliver margin growth.

So, I think we have a more moderate view in terms of what inflation commodities or input cost basket will be. I think there is going to be some volatility continuing, we start to see it already, but the peaks and lows maybe lower. So we will have volatility, which will also help us to be better able to predict the trend of commodities during the course of the year.

Warren Ackerman – Société Générale

Okay, Jim. Thank you very much.

James Singh

You are welcome.

Roddy Child-Villiers

I think also Warren in terms of the Q4 trend in Europe, one of the improvement was down to the increased pricing particularly in soluble coffee. So, again picking up on Jim’s comment about raw material cost pressure, a lot of the improvement was down to pricing.

Warren Ackerman – Société Générale

What kind of pricing have you taken Roddy in coffee in Europe?

Roddy Child-Villiers

I haven’t got the precise percentage, but I mean we are quite significant.

Warren Ackerman – Société Générale

Right.

Roddy Child-Villiers

It is enough to move the dial further.

Warren Ackerman – Société Générale

Quite significantly.

Roddy Child-Villiers

Yeah.

Warren Ackerman – Société Générale

Okay. Okay, cheers guys. Thanks.

Operator

Thank you for your questions. Your next question comes from Jon Cox from Kepler. Please ask your question.

Jon Cox – Kepler Capital Markets

Good morning, James. Congratulations, I think the top line took some surprise over organic growth acceleration in Q4. I have a question on that, basically in the Americas you alluded to it somewhat, but it is that you accelerated by a couple of points in Q4. I’m just wondering on the environment in North America specifically, are you seeing signs of an improvement there? That's my first question. (Inaudible) maintained in that level and I'm just wondering, what I’m missing particularly if you are looking to actually [count] sort of working capital’s proportionate sales.

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