Nestle S A : TRANSCRIPT 286KB

NESTLÉ S.A.

2021 BARCLAYS GLOBAL CONSUMER CONFERENCE

NESTLÉ FIRESIDE CHAT TRANSCRIPT

9th September, 2021

Speakers:

François-Xavier Roger, Chief Financial Officer, Nestlé S.A. Laurent Freixe, Chief Executive Officer Zone Americas, Nestlé S.A. Warren Ackerman, Head EU Consumer Staples, Barclays

This transcript may have been edited for clarity, and the spoken version is the valid record. This document is subject to the same terms and conditions found at https://www.Nestlé.com/info/tc

Nestlé 2021 Barclays Global Consumer Conference

Thursday, 9th September 2021

Warren Ackerman, Barclays:

Hello everybody, welcome to the Barclays Global Consumer Staples Conference. I'm Warren Ackerman, Head of the EU Consumer Staples team. I'm delighted to welcome Nestlé today, we have CFO François-Xavier Roger and the Head of Zone Americas, Laurent Freixe. Welcome gentlemen, and the format will be a fireside chat. We will have about 30, 35 minutes and I will be hosting that. So with that, let's get cracking.

Question on:	Margins and 2022 inflation

Warren Ackerman, Barclays:

So first one to François, I want to kick off with margins. You slightly lowered your margin guidance this year to around 17.5%, mainly due to input cost inflation where you talked about a 4% COGS inflation in 2021. But you've also said that the margin reduction in the second half is transitory and you expect next year to be back showing progress.

Can I ask as we stand at the moment, I know it's difficult with volatility in commodities, what do you think COGS inflation might do in 2022? And how do we think about, kind of, higher climate costs and the fact that we're having to re-hedge at higher rates and the fact that also you want to improve the margins? How do we square that circle and what kind of offsetting positive factors might there be? Thank you.

François-Xavier Roger, Chief Financial Officer, Nestlé S.A.

Thank you, Warren. It's a good question to start with. Good morning and good afternoon to all. So if we talk of 2022, we see, with what we know at the moment, that it is likely that the input cost inflation will be higher next year than it is this year. Still early to do a final call because I mean, two of the three items that are really contributing to the input cost inflation, and more specifically transportation costs and packaging material, we can't hedge. So we don't know to a certain extent till we enter into 2022, but with what we see today and what we know today, it is likely that the input cost inflation next year will be higher than what we're experiencing this year.

We don't know if this is going to be permanent. We don't know if this will go even further into 2023. We will have a fairly pragmatic approach and anyway, you know what our strategy is, which is to offset anything that we receive, through pricing. So the idea is really to pass it on to the trade and to consumers whenever we receive it. There will be a time delay which applies

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more for H2 2022. And it's more specific to some zones and regions, by the way, most specifically to Europe, because we are locked with a one-year pricing agreement, but so, still difficult to know exactly what it means, but more likely reason than anything to be higher next year.

Question on:	Commodity prices

Warren Ackerman, Barclays:

Maybe digging into a couple of the commodities specifically, coffee's been in the news recently, there's been a big increase, particularly in the more delicate Arabica varieties because of the frost in Brazil, we've seen big increases in dairy in emerging markets, which was already one reason why your Nutrition margins were down in the first half. Which actual commodities are you most concerned about? And it's hard to say, as you said already, what's structural, what's temporary. But what's the kind of reading on the ground from your guys in terms of what that's telling you about that?

François-Xavier Roger, Chief Financial Officer, Nestlé S.A.:

It's a little bit difficult because there are still a lot of moving parts there. So if we look at 2021, it was certainly much more about dairy and meat and grains. Next year, it will be more about coffee as well. But once again, the large part cannot be hedged, which has to do with transportation, which has to do with packaging material. So it's a little bit difficult. We have to adapt to a very different situation. By the way, it can even differ from one market, one region to the other, given that it is highly influenced by our portfolio as well in specific markets and specific regions. So we are very pragmatic in terms of approach. We can handle it with really the strategy of neutralizing it as quickly as we can.

Question on:	Pricing

Warren Ackerman, Barclays:

Okay. And just in terms of prices the pricing did step up a bit in the second quarter versus the first quarter. How much more pricing do you think you might need in the second half? And is it the case that in Europe, there is a lag because of the way the contracts are structured in Europe? I'm just trying to understand the pricing dynamic versus kind of mix. So you also said

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Thursday, 9th September 2021

you're going to roll out strategic revenue management tools as well as another weapon that you've got. But pricing, over the last 10 years in the sector has been quite low, but suddenly we're going to see it kind of step up. How do we sort of think about that? And are you worried that there will be some volume reaction as you do take the pricing?

François-Xavier Roger, Chief Financial Officer, Nestlé S.A.:

So do expect to see pricing ramping up. It's a reality already, because if you look at it last year in its totality, we were at 0.5% of pricing, but already in Q4 we were at 0.9%. We were at 1.3% in H1 this year, do expect that it will move up and it will move up most probably with what I said earlier, even further in 2022 as well. So still difficult to say exactly where it will apply and so forth. So we are very confident about our pricing power as well. We don't see any specific issue there.

It has to be looked at by category, by market and so forth. It's very much a function of our brand equity, very much a function of market position as well. But as you know, we have in 80 to 85% of the cases we have leading position number one, number two in our markets. So we are not necessarily worried about it. We have strong brands as well. We have 33 billionaire brands as well. So we believe that we are really in a strong position to pass on pricing. It depends as well on competitive forces by market, by SKU. So pricing is a local decision, by the way, this is not something that we decide centrally. This is something that is really decided locally, in the local context.

Question on:	Market share

Warren Ackerman, Barclays:

Okay. And maybe moving to organic growth, it's been a remarkable period for Nestlé. I mean, 8% organic growth in the first half with the portfolio holding or winning share in about 60%. Can you discuss a little bit about how you measure market share? Because it's been a topic for some other companies in the sector and then maybe dig into some of the cells, the other 40% where you're not winning share and what your plans are to address that share loss?

François-Xavier Roger, Chief Financial Officer, Nestlé S.A.:

Actually, we have been quite happy to see our market share increasing over the last two years and they continue to improve as we speak. So we measure market share at operating level, by

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market, by category, by channel. So we have a good level of granularity there. For the purpose of providing a global view after that, we look at the number of business cells gaining or holding share. A business cell is a combination of a market or category or a channel view.

If we look at H1 2021 more specifically, in more than 60% of the business cells, we were gaining or holding shares. This is a level that was similar to what we saw at the end of March, and this is by the way, close to the highest level that we have seen over the last couple of years in 2013.

To be more specific and answer to your question, in terms of market share gains I could speak more specifically of EMENA for example, where we are really gaining market share in Coffee, in Pet food, with Vegetarian and Plant-based products, with Water. In AMS we are really gaining market share in Pet food, in Coffee, in Plant-based food as well, in Water, and Infant Nutrition. In AOA in most categories, particularly Pet food, Coffee, Confectionery, and Culinary with one exception, which is Infant Nutrition in China, I'll come back to that. If I look at it by category, so this is again, I mean the same as what I just said, which is in Coffee, in PetCare, in Water, in Dairy, in Ice cream, and with Nestlé Health Science whenever we can measure our market share. If I look at it by channel, we are growing slightly ahead of the category anyway across categories.

Just to be specific as well, in terms of market share losses, we are losing market share in very few instances now, and the other interesting thing is that we are losing less than in the past wherever we lose market share. So where we lose market share is as I just said, Infant Nutrition in China, so we have a turnaround plan in place. And in Frozen pizza, but this is mainly due to supply chain constraints, and a little bit in Confectionery as well.

Question on:	Channel shift

Warren Ackerman, Barclays:

Just in terms of channel shift, there's a lot of moving parts in channel. I mean, on e-commerce it's still growing 20%, but it has slowed, I guess there's a comp issue. On the other side we've seen the retail sales elevated but slowing a little bit, but then we're now seeing out of home growing sort of 20%. I know it's difficult given the kind of comp effect, but what is your outlook for those three channels going forward into the second half and into next year?

François-Xavier Roger, Chief Financial Officer, Nestlé S.A.:

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