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NESTLÉ S.A.
2005 9 MONTHS SALES CONFERENCE CALL TRANSCRIPT
Conference Date: 20 October 2005
Nestlé S.A.

Roddy Child-Villiers - Nestlé S.A. Head of Investor Relations

Slide 1

Good morning, ladies and gentlemen, and welcome to the Nestlé 9 months sales conference call. As usual, I will discuss the key numbers only, leaving more time for questions….

Slide 2

... and I will take this first slide covering the safe harbour statement, as read, and will move directly to the highlights.

Slide 3

The key message is that, even in a tough environment, our strategy is delivering, as demonstrated by an organic growth of 5.8%, and RIG, or real internal growth, of 3.8%. And this is not just due to our Pharmaceutical activities:- the Food and Beverage business achieved organic growth of 5.6% and RIG of 3.5%. These numbers, which are the result of a broad based, robust performance across the different regions and product categories, demonstrate the strong growth characteristics of our core food and beverage business.

That strength is underlined by positive organic growth from each of our four food and beverage reporting areas:- Europe maintained its positive organic growth, whilst the Americas continued to be strong at 7.3%, Zone Asia Oceania and Africa improved to 7% and Nestlé Waters improved to 8.4%. Other activities achieved an organic growth of 10.7%.

Pricing was 2%, as we attempted to recover increased input costs in certain categories. It was particularly strong in Milk products, Soluble coffee, Nutrition, and Roast and Ground Coffee. We continued to see pricing pressure in Nestlé Waters and Japan, as well as in

Brazil due to the tax change there. These three businesses together represent over 10 billion of our 68 billion Swiss francs of sales at the 9 month stage, so it is fair to say that the 2% group pricing number understates the level of pricing taken elsewhere.

Slide 4

This next slide gives you the breakdown of the sales evolution. Reported sales increased 4.8% to 67.7 billion Swiss Francs. I've already touched on the strong organic growth and RIG. We had a negative impact from disposals, net of acquisitions, of 0.8%, that number made up of a positive 0.8% contribution from acquisitions, mainly Wagner, and a negative 1.6% contribution from disposals, primarily Eismann. We are almost able to report a flat impact from foreign exchange, that number coming in at minus 0.2%, an improvement from minus 1.8% at the half year.

Slide 5

On the next slide are the key currencies. A mixed picture compared to the same period of last year, although the good news is that the Euro and US dollar are not so far away from their average rates for the full year 2004.

Slide 6

Moving now to a bit more detail on the Zones.

Zone Europe had organic growth of 1.6%, a slight improvement over the 1.5% at the half year. There is no change in the market trends in Europe. That is to say, conditions have remained tough. Overall, we have maintained our market shares, and I include the impacts of private label and hard discounters in that comment. We did best in PetCare and Soluble coffee, as well as Frozen Food, and worst in Chilled Dairy, due to France and Spain, and in Chocolate, due to Russia.

In the Americas the US continued strong, and there was an acceleration in Brazil.

Zone Asia, Oceania, Africa, or AOA, achieved the strongest performance of the Zones in the third quarter, with an improvement in the cumulative organic growth from 6% to 7%.

I am pleased to be able to report that our predictions at the half year for Zone AOA have proven to be accurate:- the Middle East and South Asia continued to perform well, as we had forecast, whilst South Africa, the Philippines and Japan all achieved an improved performance, as promised.

There were some expressions of disappointment at the Half Year about the growth rates in Nestlé's emerging markets. I hope that the performance in the third quarter in AOA and Brazil will put people's minds at rest. The Nestlé emerging market story is as strong and as rich in potential as ever it was.

Slide 7

Now I will go into the detail of the organic growth performance by market, starting in Europe, with Germany. My comments on the performance of the categories within the markets are all based on RIG numbers for those categories.

Germany was slightly lower at 0.5% organic growth. There was a mixed performance by category, with Culinary and Frozen Food improving, but Ice cream a bit weaker. Soluble coffee continued to be the best performing category cumulatively.

In France also, there were some improvements and some that were slower, leading to an overall acceleration from 0.2% negative organic growth to 1.2% positive. Among those that accelerated were Frozen Food, Soluble coffee and Ice cream. There was also a good performance from our Foodservice business.

Great Britain was the strongest cumulative performer in Western Europe, with 5.9% organic growth. Chocolate was a bit weaker but Soluble coffee accelerated a little. We do expect to see a slight slowdown in coffee to the year end.

For our British-based listeners, the exciting news in Frozen Food is that Hot Pockets will be launched there this quarter, following successful introductions in France, Germany and Spain.
PetCare Europe achieved a strong acceleration since the half year to 4.3% organic growth.

In the East, Russia has continued to be weak. That said, things are looking up and I expect that we will return to historic growth rates next year. There are a number of reasons to support this belief: first of all, the market shares tell a good story: our coffee shares have been showing consistent gains through 2005, whilst we have halted the decline in Chocolate. We have cleaned out chocolate stocks in the trade and discontinued relationships with about 40% of our distributors. This means that we will be selling to consumer demand, rather than to distributor orders. Also, key measures such as credit days and working capital have improved significantly, whilst profitability continues above Group average.

Slide 8

In the Americas, the US was unchanged from the half year, Frozen food, including Stouffer's, Lean Cuisine and Hot Pockets, Shelf stable dairy, particularly Coffee-mate, and Ready-to-Drink beverages continued strong. Nesquik is doing particularly well in schools, as the carbonated soft drink manufacturers pull out. We have put about 5,000 vending machines into schools for Nesquik.

Petcare North America remains strong at 6.9% organic growth. Dreyer's accelerated somewhat to 9.5% organic growth.

Canada also accelerated slightly, with Chocolate particularly strong in the third quarter, benefiting from a good sell-in ahead of Halloween.

In Latin America, Brazil accelerated sharply to 5.2% organic growth, with good performances from the three biggest categories, Shelf stable dairy, particularly Ninho, Powdered beverages, particularly Nescau, and Chocolate. This acceleration by Chocolate confirms our comment at the half year that the 2nd quarter slowdown in Chocolate was simply due to the timing of Easter.

Mexico went in the opposite direction from Brazil, being weaker across most categories as input cost-driven pricing slowed the RIG. That said, organic growth of 9.1% is an impressive performance.

The smaller regions in Latin America performed well.

Slide 9

Moving to Zone AOA, Japan's RIG is now positive 1%, although organic growth remains at minus 1.1%. We achieved positive cumulative RIG and share gains in Soluble coffee, with new pouch packaging and the launch of a Mild Excella the catalysts. There was also continued strong growth in Chocolate.

In the Philippines the organic growth increased from under 5% to 7.4%, with a good improvement in Soluble coffee, but I should remind you that this market is up against a very strong final quarter comparison.
Africa's organic growth increased to 6.5%, from 2% in June. Both the Central/West and South/East regions contributed to the improvement. The Middle East continued to perform well, with 13% organic growth.

That said, I expect that all eyes were on China following the product exchange earlier in the year. The organic growth in China halved from 7.5% at the half year to 3.7%. The good news, however, is that we achieved nearly 8% growth in September, so the signs are that we are over the worst, as our investment in communication starts to pay growth dividends. Shelf stable dairy actually had a higher cumulative 9 month RIG than it did at the 6 month stage. The situation is rather different in Infant Formula which is recommended by doctors and is not therefore supported by consumer communication: the recovery in this category may therefore be slower.

I will repeat our half year forecast that we hope to be back to normal levels of growth in China in the second half of next year.

Slide 10

Nestlé Waters achieved a strong acceleration from the half year to 9% RIG. Organic growth, at 8.4%, reflected negative pricing. Europe was about flat but both North America and the rest of the world were particularly strong, growing at about 17%.

Slide 11

In the Other Activities, there were once again strong performances from Alcon, at 9.8% organic growth, and Nespresso, at around 30%. If Nespresso continues at this pace, it will be a one billion Swiss Franc brand by the end of 2006. Just for your information, the sales of Other activities are about 75% Pharmaceutical and 25% Food and Beverage.

Slide 12

Turning now to the product groups and starting with Beverages.

I have just discussed Waters, which contributed to an improved organic growth for Beverages of 7.8%.
Soluble coffee's organic growth accelerated from 5.7% to 6.7%, reflecting strong pricing, as well as improved RIG in Japan. You have probably heard the main news in this segment, which is the launch of Partners Blend in the UK. This has had a good reception from the retailers.

The other Beverage categories, Powdered beverages and Ready to drink beverages, have also performed well over the 9 months. In the powdered segment, Nesquik is doing well in Europe following its relaunch with added vitamins and minerals. Ready to drink beverages was particularly strong in the US. There was also a good performance from Beverages Partners Worldwide with 10% organic growth. Nestea is performing particularly well.

In Milk products, Nutrition and Ice Cream, there was a slight increase in organic growth to 5.5%, driven by pricing.

Milk products improved its organic growth to 5.7%, with Shelf stable near double digit, which tells you that growth in Chilled Dairy continued to be negative. In Shelf Stable, Mexico was weaker but in line with the market, and this was more than compensated by improvements in Brazil, the US, the Philippines and elsewhere.

Nutrition reached 4.9% organic growth, clearly impacted by the situation in China. Infant nutrition slipped back despite good performances in many markets, demonstrated by RIG of 9.4% in the Americas. Healthcare nutrition was over 10% organic, whilst Performance nutrition continued to be held back, primarily by tough comps with 2004.

Ice cream dipped to 5.5%, due to a slowdown in Europe. The Americas continued strong, with Dreyer's delivering over 10% RIG. There was good growth also in Zone AOA. Nestlé is now the leader in the majority of the markets around the world were it is present, including the US.

Cereal Partners Worldwide was unchanged from the half year.

Next is Prepared dishes and cooking aids, where there was an acceleration to 4.2% organic growth. Both sub-categories accelerated during the third quarter.

Chocolate, confectionery and biscuits accelerated slightly to 2.7% organic growth.

Chocolate improved due to Brazil, France and Germany. It continued strong in AOA, with 8% RIG. Sugar was less negative due to the US, whilst Biscuits improved significantly due to Brazil.

PetCare was practically unchanged at 5.2% organic growth, with Europe a bit faster and North America a bit slower, as discussed on the zone slides.

As usual, there is a strong finish to the product groups with Pharmaceutical products slightly higher than in June, at 9.4% organic growth.

Slide 13

I am not intending to get drawn into a margin debate on this sales call, but I thought it would be useful to update you on the raw material environment. Inflationary pressure has continued in the second half of 2005, and the cost pressure remains significant for Nestlé. Our response has been continued pricing activity, demonstrated by the 2% group number, as well as a continued focus on our savings initiatives. You saw that in the first half we were able to compensate for most of this cost pressure.

Turning to our prospects for the rest of 2005, I can confirm that the Nestlé Model of strong organic growth combined with sustainable margin improvement remains secure for the year. For 2005, we will deliver our target of organic growth of between 5 and 6% combined with an improvement in constant currency margins.

The other good news is that the 2005 share buy-back is 80% complete. This means that a second programme can be proposed to the Board of Directors.

Thank you for your attention. I would be happy now to take your questions.

Slide 14

Q&A Session

Questions on: Share buy back & Price increases

Sylvain Massot, Morgan Stanley
Following up on what you said on buy back, in the presentation you are talking about acceleration in 2006, maybe you can elaborate a little bit more on that. The second thing is on the price increase, we have seen the acceleration in prices all along the year, are you still taking price increases I am thinking about categories like Water in the US, what should we expect in terms of pricing in the next few quarters.

Roddy Child-Villiers
On the buy back the next Board meeting is in November and the proposal we made to the Board at that time, I can’t at this stage give you any guidance on the size. They are already forecasts in the market and I can’t give you any further guidance. On the pricing aspect, you mentioned Nestlé Waters, in North America we have tried some slight pricing increases but we have made it very clear that we are not prepared to sacrifice market share. So the sustainability of those pricing increases depends on the competitive reaction. Elsewhere there are some continued price increases in Milk so we are still taking price increases where the input costs demanded.

Sylvain Massot, Morgan Stanley
Maybe just to follow up on this, can you tell us whether there are any areas where you experience some resistance, some pull back on prices because clearly the third quarter results show that you get good RIG and a very strong pricing. Maybe you can elaborate a bit more on where pricing is more difficult other than water?

Roddy Child-Villiers
I think we have already covered it. Really is Japan, it is the most difficult market for us in terms of pricing. US Water has been difficult and as I said, it depends on the competitive reaction really, I think those are the two main issues.

Questions on: Petcare in Europe and North American Water business

Arnaud Langlois, JP Morgan
First could you talk a bit about the Pet Care business in Europe, it seems that it had a really good acceleration in Q3, and also I had a question about the North American Water business which has seen a stable acceleration in Q3. I would like to know whether you see that as sustainable or whether this was influenced by what happened in the first half of the US, especially hurricanes, have we seen any stockpiling from consumers. And obviously could you also elaborate a bit on the margin impact of this. Have you seen any margin pressure in the North American Water business.

Roddy Child-Villiers
Regarding Pet Care in Europe. There has been a good performance generally speaking, we have increased shares in the UK and France in particular, we are now the market leader in France. We have also increased shares in Italy and Spain, double digit growth has been achieved in most of the eastern European countries as well as in Switzerland. The growth is as it was at the half year, is primarily in the higher value brands such as Bakers, Pro Plan, VB/ONE, Darling is doing very well in Russia particularly, and also in the Single Serve Wet Cat segment.

Turning to Waters I can’t make any comment for you on the margin on Waters at this stage.

In terms of North America the category remains dynamic, we seeing PET (category of small formats) up year to date by 25% the total category up about 14%, the performance is pretty broad based so I don’t think it is necessarily related just to the hurricanes. When I say broad based it is broad based in so far as it applies to Pure Life, and also applies to our international brands and the regional brands. I don’t think people would go out and by Perrier just because there is a hurricane.

On the market share, our market share is up about 0.6% over the year.

Questions on: Nespresso growth & Infant products in China

Thomas Russo, Gardner Russo & Gardner
Did you say that the share re-purchase was 80 or 18% complete on the billion dollar authorization year to date.

Roddy Child-Villiers
80%.

Thomas Russo, Gardner Russo & Gardner
Terrific, congratulations. The question about Nespresso which seems to grow at quite a sharp impressive rate. It seems to be growing at an accelerating rate as it gains in size. Could you talk a bit about the mix between equipment sales and capsule sales, roll out facilities and the way it is gaining traction and showing an accelerated growth?

Roddy Child-Villiers
I think Nespresso has been around 30% for a long time now. Talking to Henk Kwakman who runs the Coffee SBU and used to run Nespresso some years back, his forecasts then was a 30% growth and he was telling me that he had done that year in and year out and would continue to do it year in, year out. Clearly we have rolled out into more countries and that obviously gives it a broader footprint and opportunities for growth. But, it is clear that we are not seeing in that business any impact from the introduction of lower priced coffee machines by other players in the market. But the sales reflect the sales of the capsules.

Thomas Russo, Gardner Russo & Gardner
Wonderful, so that’s increasingly the capsule shares that you are showing?

Roddy Child-Villiers
Exactly.

Thomas Russo, Gardner Russo & Gardner
In China the infant formula issue in relation to doctor prescribed products, nonetheless as I toured China in early February through Walmart I seemed to see quite a strong offering of the product on display at Walmart so it maybe doctor prescribed but it seems to be available at the standard retailer. How does that allow you to market on the premises, or at the retailer independent of the doctor or is it indeed only a prescription product?

Roddy Child-Villiers
There’s a difference between the Infant formula products and the Growing Up milks. I think what you are seeing in Walmart would be the growing up milks, the Infant Formula milks, the ones for new born babies where the mother is not able to breast feed and it is those infant products that are recommended by doctors and are subject to WHO regulations, there is no marketing. But then, as I say the Growing Up Milks that you are seeing in Walmart, those are the milk products that are benefiting from the consumer communication. So it is a market segmentation issue effectively.

Thomas Russo, Gardner Russo & Gardner
Thank you, congratulations on a great set of numbers.

Roddy Child-Villiers
Thanks very much. For everyone’s information you can follow the buy back on our web site. Each week we publish the latest state of play in terms of shares bought back.

Question on: Margin Targets for the full year

Martin Dolan, Execution Limited
On the reconfirmation of the margin target by Mr Brabeck for the full year, can we assume that margins to the end of Q3 are in line with your expectations and that this comment takes into account any higher input costs from the US due to Hurricane Katrina?

Roddy Child-Villiers
You can assume what you like, but our margin forecast is based on the discussions that the Executive Board had in terms of past performance and the outlook for the rest of the year.

And we are comfortable that we can achieve our EBITA margin improvement at constant currency.

Question on: Raw Material costs

Julian Hardwick, ABN Amro
Could you talk a bit more about some of the raw material cost trends that you are seeing, I am particularly interested because the wire services are reporting Mr Brabeck as saying that he sees less pressure on raw material prices next year, which would seem to be a slight contrast with comments coming from some of your peers. Could you just give us a run through of the key drivers here?

Roddy Child-Villiers
I am always talking about 2005 rather than 2006. You might remember that at the half year we showed you an index of weighted average of raw material prices that covered the bulk of our traded raw materials. Since the half year that index has continued to rise. We are seeing particularly cost increases in PET and energy as you would expect and also some cost increases in coffee, albeit that we obviously have some cover in place. It is fundamentally the oil ones that are the most dramatic.

Julian Hardwick, ABN Amro
The reason for Mr Brabeck's more positive view on raw materials for next year?

Roddy Child-Villiers
As you know our biggest food raw material is milk, that has remained stable at a high level and I think that’s a fair comment, and other few raw materials we have seen grains and fats are down a bit. So, that’s his reason I guess. He will talk more about that at the Press Conference that follows this call.

Julian Hardwick, ABN Amro
Could I ask when the Executive Board looked at the larger projections for the balance of the year, what’s the most recent profit numbers that they have seen. What period of profits for the year, so far this year, have you actually had numbers for.

Roddy Child-Villiers
The zones make their margins on a monthly basis.

Julian Hardwick, ABN Amro
Have they had September numbers?

Roddy Child-Villiers
The zones will know their September margins, yes.

Questions on: Price increases in Europe & Sustainability of volume increases in next quarter

Mark Lynch, Goldman Sachs
Looking at the Europe performance I notice that pricing has gone up from 1.2% at the half year to 2.2% at the Q3 stage, that’s quite a big increase. I think you talked about 10% price increases in soluble coffee at the half year, have you put through any other price increases in Europe at all?

Roddy Child-Villiers
Coffee is the main one. There’s a little bit in Dairy perhaps but that’s really about it. There is a comp against this period of last year not against the first half of this year. But coffee would be the main one.

Mark Lynch, Goldman Sachs
Going back to Sylvain’s point at the beginning, what surprised me from these numbers is that you have managed to achieve both a good increase in price and a good increase in volume. As you look into the fourth quarter I would have thought that your pricing momentum would be sustained. Do you think you can continue to drive both to the same degree as you have done in Q3, or do you think we are seeing any potential buy in ahead of price increases in this quarter?

Roddy Child-Villiers
Coming back to your earlier question, there is also quite strong pricing in France across all categories, France is obviously a big market. It is very difficult for us to answer your second question, our guidance is that we will get to the 5 or 6% organic growth but to try and break that down in one quarter between pricing and RIG is quite difficult. But clearly it is difficult to see those trends changing much in the final quarter just because it is only one quarter in four so the rate of the sales is already there.

Mark Lynch, Goldman Sachs
There is no evidence of any buy in?

Roddy Child-Villiers
No.

Questions on : Water segments in Europe; Volume & Higher range products highlights

Alain Oberhuber, Lombard Odier Darier Hentsch
Can you give us a bit more highlights between the different segments, lets say the volume products and also the champagne products as you mentioned them, San Pellegrino and Perrier in Europe?

Roddy Child-Villiers
The outstanding performer in Europe has been San Pellegrino, that’s done very well amongst the higher range products. It has done particularly well in the UK where it is up about 50%, but also in some of the other markets. Aquarel has continued to do well in Europe which is our low price water which is effectively a price fighting water against the private label. And that’s doing very well, but its weight is still relatively small in our overall European sales. I think those are the two main winners that we have in terms of European performance.

Alain Oberhuber, Lombard Odier Darier Hentsch
To follow on France, could you give us some highlights of that region in water?

Roddy Child-Villiers
We report France and Belgium together, basically the organic growth was flat in France and Belgium. In France it was Perrier, Contrex and those higher priced ones that were more penalized and as I say it was Aquarel that did very well. And again San Pellegrino did very well, even in France.

Question on: Comments on effects in Q3 with reference to Q4 results

Thomas Schwarzenbach, Bank am Bellevue
Is there any special effect in Q3 that would have accelerated the growth rate at the expense of Q4?

Roddy Child-Villiers
No.

Question on: Food & Beverage Margins

John Cox, Kepler Equities

You seem to be saying that there’s no sign of any slow down in Q4 is that a correct assessment?

Roddy Child-Villiers
What we have said is that we will achieve our 5 -6% organic growth.

John Cox, Kepler Equities

Coming back to this whole margin issue. I know you are dancing around it a little bit. On the constant currencies you talk about an improvement for the Group as a whole, can you say that there will be an improvement just for the Food & Beverage business for the year as a whole.

Roddy Child-Villiers
This is only a sales call so I am afraid I cannot. We have never given a EBITA margin target for the Foods & Beverage business.

John Cox, Kepler Equities
On coffee, you said you have some cover there, how far does that cover go out?

Roddy Child-Villiers
I haven’t got the latest data on that but it covers us into next year.

Question on: UK Performance comments

James Amoroso, Helvea
The UK performance in the press release was said to be continuing strong. I am assuming that was mainly Soluble Coffee as opposed to confectionary, would I be right in that?

Roddy Child-Villiers
Soluble Coffee accelerated somewhat, confectionary was a little bit slower. And something else that is doing particularly well in the UK, even if it is rather smaller, is Coffee-mate which we put a lot of activity behind and is up about 14%.

James Amoroso, Helvea
Is that the product that was delisted by Tesco? I think it was a culinary product?

Roddy Child-Villiers
No Coffee-mate is a dairy product, it was as you say a culinary product.

Questions on: Increases in Ice Cream market share & Ice cream in Europe

John Parker, Deutsche Bank
Could you flesh out a little bit more your comments on ice cream. I think you said you were market leader now in most of the countries in which you operated, can I read that to mean that you overall have gained share in ice cream and if you have got any more details on where you may have done that, that would be interesting. And specifically perhaps within ice cream in Europe you talk about, it was down I think you said, I was expecting ice cream to be a bit better this year because of the summer effect. Could you say whether that was a market issue in Europe or whether that was a share issue. I think you did say that you had been putting prices up generally in France. That strikes me as slightly against the trend of things at the moment, did I hear you right and could you perhaps explain what’s happened there?

Roddy Child-Villiers
I haven’t actually got with me the individual markets where we were the market leader, although I think there’s a slide on the web site in a relatively recent presentation that lists them. We have been getting some shares, obviously the big news in that sense is the US, trials were announced in early November so I can’t talk too much about that, but we have gained share there.

In Europe I think the market as a whole was expecting ice cream to be better rather than worse this quarter, but we didn’t have much of an August here in Europe and that does have an impact, even if there is an easy comparison from last year. It is interesting that we do have some quite good performances in Europe and some less good performances in Europe and our SBU head puts that down to the difference between excellent in execution and good execution. And the other thing to say about Europe is that we are much more excited about the level of innovation in Europe for next year, than we had this year. As you know the US this year had a lot of innovation and we expect that level of innovation to be happening in Europe next year.
In France I don’t know whether it is against the trend in terms of the pricing increases but we have certainly been able to take some towards the end of this year. There is also, I think, last year we had a negative price in this quarter last year. So, there’s probably a comparative effect, and that would have been because of the Loi Galland. It is important to remember that the pricing is always a comparison against the previous year, the same quarter, rather than against the same quarter of the same year.

Questions on: Key drivers behind Q3 growth in Japan & Improvements in Russia

Warren Ackerman, Citigroup
At the half year stage it looks as though Japan was down 1.5% and it is now up 2.4%.
Obviously a nice improvement in Q3. Could you flesh out what the key drivers were behind that?

Roddy Child-Villiers
I guess those are your Q3 numbers you are talking. Improvement in Japan was primarily driven by the strong growth in soluble coffee and as I said in my speech there are two things that we have done, one is launching Excella Mild. Excella is our biggest brand there, so this is a mild variation of the biggest brand. And the second thing is launching a soft pouch. Soft pouches as I expect you know are cheaper than glass jars because you can refill your glass jar. So that’s been playing in terms of innovation and also through a lower price offering. That being successful in turning soluble coffee business from negative RIG to positive RIG over the last quarter and also our share is up 1%.

Also performing well in coffee are the "three-in-ones" and the specialty coffees like Cappuccino. "Three-in-ones" is where we sell it with milk and sugar added. Chocolate has also continued to do very well, it is continuing to deliver double digit RIG, Aero is also being tremendously successful as well as KitKat. Important for the rest of the year, we are just coming into this peculiar Japanese season with the gift boxes, where people buy gift boxes of coffee and give them to their relatives, and this is a key part for us, because it is also very profitable. We have historically done very well in this sector and this is a key for us for the rest of the year.

Warren Ackerman, Citigroup
Have you seen any price pressure still coming through from the number two player in coffee in Japan, Ajinomoto, I think that was a big issue at the beginning of the year.

Roddy Child-Villiers
Pricing has continued to be a challenge for us and actually you can see that the pricing has got worse from the half year to the 9 months.

Warren Ackerman, Citigroup
Is it possible to give us a ball park number for what you think Japanese coffee price deflation is running at year to date?

Roddy Child-Villiers
No. Because the pricing is impacted by several actions. If we do a promotion, for example when we attach a small soft pack to a glass jar, this impacts pricing. Also there are different things that are impacting the numbers. There is still pressure, that is why we have said at Half Year that the Japanese margin will come off a bit.

Warren Ackerman, Citigroup
A question on Russia. We have been talking about it for the last 3 or 4 quarters and in the press statement it sounds like you are more confident that it is going to get better in 06. I think the issues we have been through before, include distribution. In terms of your confidence level for that improving can you tell us why you are so much more confident than you were earlier in the year?

Roddy Child-Villiers
I have tried to do that on the call. All basics of the business are going better. But I think it is important to remember that we had a change of management around April time. They took a look at the issue in Russia and I think if I use a medical metaphor they chose to cut rather deeper perhaps than the previous team cut. And, you know, if you have deep surgery it takes longer to recover than if you don’t. So, it is taking a bit longer to recover, but equally having gone deeper the recovery is more secure. So, we are comfortable that, as I say, as of next year we will start to see Russia returning to its traditional growth rates.

Warren Ackerman, Citigroup
Looking at the comp in Q4, the comp in Q4 with Russia looks very easy.

Roddy Child-Villiers
I am sure that pleases the market.

Questions on: Hard discounters in Europe & Globe Update

Thomas Russo, Gardner Russo & Gardner
What update can you give us with your improvement with the work with the hard discounters, possibly Lidl in Europe?

Roddy Child-Villiers
The big news in Europe this week was that Aldi have announced that they will consider the idea of stocking branded goods. We have continued to do very well with Lidl we have expanded our coverage in terms of the markets in which we are present with them. We will at the full year give you an update on the growth of that particular channel. We said last year it was growing at 10% and certainly this year it is growing at more than 10%. And, we are delighted by Aldi’s announcement and we will be doing our best to ensure that they are our brands that are in there. So I think that’s a good news story for Europe at the moment, the hard discounter channel.

Thomas Russo, Gardner Russo & Gardner
Update on Globe the perennial question on Globe?

Roddy Child-Villiers
Globe’s going fine, we are likely to slightly beat our 30% implementation of the systems target for the current year by adding Brazil and Central Europe to the implementations, so that’s also a good news story that’s going very well.

Closing words
Thank you for your questions and as I said before, Nestlé is on track to meet its forecast for the year made back in February, of achieving organic growth of between 5 and 6% combined with an improvement in constant currency margins. Thank you.

Source: Nestle Q3 2005 Earnings Conference Call Transcript (NSRGY)
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