Nestl India Limited

Financial Analysts and

Institutional Investors Meet

Gurgaon 22nd August 2016

Disclaimers

This presentation may contain statements which reflect

Managements current views and estimates and could be construed
as forward looking statements. The future involves uncertainties and
risks that could cause actual results to differ materially from the
current views being expressed. Potential uncertainties and risks
include factors such as general economic conditions, commodities
and currency fluctuations, competitive product and pricing
pressures, industrial relations and regulatory developments.

Real Internal Growth (RIG) and Organic Growth (OG) are basis Nestl
Internal Reporting Standards.
Figures are regrouped / reclassified to make them comparable.
Calculations are based on non-rounded figures.
Analytical data are best estimates to facilitate understanding of
business and NOT meant to reconcile reported figures.
Answers may be given to non-price sensitive questions.

Agenda

Accelerating Our Game:

Suresh Narayanan

Financial Highlights:

Shobinder Duggal

Questions & Answers:

Suresh & Shobinder

Financial Analysts and Institutional Investors Meet

22nd August 2016
4

Agenda

Recap Must Win Battles

MAGGI Noodles Rebound & Rebuild

Way Forward

What is the new reality

Where do we want to go

How will we get there

Disclaimer: All images used in this presentation are for reference purpose only
5

Double digit
volume growth

Insight led
Innovation

NHW leadership

Reward and
Recognition

Our
Must
Win
Battles

Execution
brilliance

Responsiveness
to environment

FAST
FOCUSED
FLEXIBLE

100%
compliance

Nimble
Footed

Consumer
engagement

People fit for

battle

Rebound & Rebuild

Accelerate To Market

Galvanise The Troops

900 Towns*

24,00,000 Outlets*

*Approximate numbers indicating

number of towns we have a
presence in as well the likely
number of total indirect outlets
9
reached

Way Forward

10

11

Trends: Dynamics Are Favourable

Urbanization

Technology
Tide

Valourising
Value

Women Worth
Up

Quest for
goodness

Propensity to
Premiumise

Shifting the
Sweet spot

12

We are in an environment defined by competitive

intensity but with upside opportunities

13

14

Our Vision

15

Our Ambition & Our Key Growth Drivers

Double digit growth (volume
driven)
Consumer Insight led
Launch new products in each
category

Process reduction of 30-40%

Reduction in meetings by 50%
Zero tolerance for non compliance

Fast, Focused, Flexible in

thought and action
Embrace powerful ways of
working
Enable, empower, engage,
energize our colleagues
16

The Size Of The Opportunity

Nestl Target Population
Urban - 315m

Population and Income pyramid

2015

Global

USD Per capita

income
>30,000

2015
% Share of
Expenditure

4%

16

Deprived

Aspiring

Seeking /
Striving

51m

>7600-28000

>2300-7500

12%
153m

41%
524m

<2300

m= millions

43%
550m
1279m

4%
51m

27

32

` 26

12%
153m

41%
524m

43%
550m
1279m

Source: Mckinsey. BCG, Nestl CI analysis

17

Consumers: Middle Class Will Expand

2015

2020

Globals

4%

5%

Seeking &
Striving

12%

16%

Aspiring

41%

42%

Deprived

43%

38%

Source: India: BCG report |

18

In a nutshell:
Drive volumes
Sustain profitability

19

Drive Penetration and Frequency

Consumer centric innovation across categories
Capture potential of many Indias within India
20

Drive Penetration & Frequency

Contribution

21

Consumer Centric Innovation

& Renovation Across Categories
Consumer insights around
NHW
Value-up and premiumize
Size of opportunity and our
competency
Sustainability and innovation
of an accretive nature
Building capabilities to
expand in new categories
22

Prepared Dishes and Cooking Aids

New Products
MAGGI Cuppa Noodles 4 variants
MAGGI HOTHEADS 4 variants
MAGGI No Onion No Garlic Noodles

23

Chocolate & Confectionary

New Products
NESTL BARONE Charge
NESTL MUNCH Nuts
Gift Packs
Premium Chocolates

24

Milk Products & Nutrition

New Products
NESTL a+ GREKYO 4 variants
NESTL a+ PRO-GROW
NESTL EVERYDAY Masala Fusion
NESTL CEREGROW

25

Beverages

New Products
NESCAF SUNRISE Insta-Filter
NESCAF 3-in-1
NESCAF RTD 3 variants
NESTEA 3 variants

26

Consumer Centric Innovation

& Renovation Across Categories

25 new products

& many more to

come

27

Capture Potential Of Many Indias Within India

Calibrated launches basis

geography, brand, category and
channel potential

Resources to be placed behind

national and regional winners

Organization capabilities to be
fast, focused and flexible helping
to excel in execution

28

Ecommerce: Tapping The Channel

eCommerce Market
(in Billion US$)

Expected to contribute 5%
(5 Bio US$) of FMCG sale by 2020
2020

2014

5.3

6X

32

Our ambition is to grow our business further in this sector

29

Out Of Home: Opportunity Beckons

Food Services/Eating Out share in

Fun Spending
(Per Capita = US$42)

70%

Consumers eating out of

home at least once in a
week

CAGR Gr% Store Count

(2010-2016)

Dominos
55%

22%
Current count:
1026

McDonalds17%
*Goldman Sachs: India Consumer Close-Up 2016

Current count:
223
30

Food Regulatory Environment:

Positive Winds of Change

Infant & special medical

foods under review

11000 additives
allowed

Harmonisation with CODEX

Only ingredients
approved by FSSR can
be used

Fully committed to work with FSSAI

31

Changing Face of Consumers

24X7 CES Operation Across Channels - India
2012

2016

NUMBER OF CONTACTS
2,500 Contacts

NUMBER OF CONTACTS
Estimated 450,000 Contacts

TEAM STRUCTURE
FTE 4

TEAM STRUCTURE
FTE 60

RESPONSE
First Response in 24 Hours

RESPONSE
First Response in 30 minutes

32

Nestl in Society 104 Years of Commitment

Our Focus
Areas

Nutrition

Water and Environment Sustainability

Rural Development

Nutrition

Water

Rural
Development

Environment

Compliance

33

Nestl in Society 104 Years of Commitment

HEALTHY KIDS Over 46,000 beneficiaries

MAMTA 100,000 beneficiaries

100,000 Milk Farmers

Clean Drinking Water Projects over

15000 beneficiaries
Over 2000 Coffee Farmers
34

Nestl in Society 104 Years of Commitment

35

Our People: Our Stars

by leading through example, holding ourselves to the

highest standards of integrity and always striving to do whats
right.

What makes Nestl attractive

Opportunity to work for iconic brands
Feeling of involvement in Society
Culture of ethics and performance
Continuous upgrading of skills and competencies

36

Key Takeaways Today

Priority on growth across the portfolio
Strong commitment to NHW

Key role of penetration, frequency and insight led innovation

Tapping into the many Indias within India the emerging
channels and consumer trends
Responsive, committed to society, nimble footed and proud to be
Nestl

37

A reminder
Financial Results for 2016 are being reported in accordance with the
Accounting Standards specified under Companies (Accounting
Standards) Rules, 2006. IND-AS is applicable w.e.f 1st January 2017.

38

Market Dynamics
Market Size 2015

FMCG
USD 39.7 Bio

Market Growth % 2016

FMCG
Q2 '16

4.4

H1 5.8%

Q1 '16

7.2

F&B
F&B
USD 21.1 Bio

Processed Food
(excl. Commodities)
USD 13.7 Bio

Q2 '16

5.3

Q1 '16

7.4

Processed Food (excl. Commodities)

Q2 '16

2.7

Q1 '16
Nestl
Categories
USD 3.8 Bio

H1 6.3%

5.0

H1 3.8%

Nestl Categories
Q2 '16
Q1 '16

1.0

H1 1.2%

1.3

Source : AC Nielsen
Note: Infant Formula and Infant Cereal Segments included in FMCG, F&B, Processed Food and Nestl Categories

39

Brand Strength & Market Position

Category

Brand

Market Share % (Value)

MAT
(Jul15-June16)

YTD
(Jan-Jun 2016)

Instant Noodles

52.0

Nestls
Position

51

53

56

57

44

48

Jan

Feb Mar Apr May Jun

42.9

Ketchups & Sauces

23.8

24.4

Instant Pasta

56.7

50.4

Infant Formula

42.4

42.5

Infant Cereals

96.6

96.6

Tea Creamer

45.4

46.1

Chocolates

15.5

15.4

White & Wafers

63.7

64.3

Instant Coffee

50.4

50.4

Source: AC Nielsen

40

January June highlights

Impacted by MAGGI issue in 2015

INR 45.5 Bio

INR 8.26 Bio

INR 4.9 Bio

2016
18.1%*

2.4

10.8%*

0.8

INR +1.1 Bio

+2.5%

Weighted
Volumes
& Prices

INR 50.80

INR -125 Million

INR +2.3 Bio

INR +24.26

-75 bps

+500 bps

+91.4%

INR 44.4 Bio

Reported

INR 8.38 Bio

18.9%*

2015

(11.6)
Net Sales

18.0% *

Comparable

INR 2.6 Bio

INR 26.54

5.8%*

(6.5)

RIG%
OG%
Third Party Sales

Includes figures from Nestl Internal Reporting Standards

Profit from
Operations

Net Profit

EPS

* % of Net Sales
41

Quarterly evolution
% YoY Growth

8.4

25.1

2.5

[INR 81.2 Bio]

[INR 45.5 Bio]

-8.4

16.7

23.0

22.6

-22.6
-32.1

19.3

17.4

19.5

2015

2016

Profit from Operations

% of Net Sales
16.4

20.6

Q3

Q2

-17.2

-20.1

INR Bio

Q1

NET SALES

(b)

18.1

[INR 13.3 Bio]

16.7

19.4

[INR 8.3 Bio]

16.8

(a)

15.3
11.4

INR Bio

5.2

3.2

2.0

3.0

4.5

(a) 14.7% before reclassification of fixed cost to Exceptional item and movement in conversion cost due to destruction of MAGGI Noodles stock
(b) 15.9% before reclassification of fixed cost to Exceptional item and movement in conversion cost due to destruction of MAGGI Noodles stock

3.8
42

Q4

Domestic Sales: January-June

2.6%

7.3%

161

172
Contribution
to Sales

Volume (000 Tons)

41.1

42.2

93%

93%

Value (INR Bio)

Exports (Affiliates + Third parties)

-0.8%

10

0.8%

10
Contribution
to Sales

2015

2016

3.3

3.3

7%

7%

43

Reported & Comparable Domestic Sales Growth: Jan-June

Growth%

Reported

7.3

Comparable*

0.5

Reported

2.6

Comparable*

-0.7

Volume (Tons)

Value (INR Mio)

* Excluding sales of Noodles, Surplus Fat & Product Portfolio Optimisation initiatives.
44

Category Contribution % to Domestic Sales

January - June

52.8

55.0

Milk Products &

Nutrition

22.2

Prepared Dishes
& Cooking Aids

25.6

12.0

Chocolate &
Confectionery

11.9

10.8

Beverages

9.7

2015

2016
45

Domestic Sales - 2016

Q1

Q2

H1

Reported Sales in INR Bio

21.3

20.9

42.2

Reported yoy Growth %

-8.7

17.5

2.6

Comparable Growth %*

-2.0

0.7

-0.7

Innovation & Renovation across categories

Most other categories recovering

* Excluding sales of Noodles, Surplus Fat & Product Portfolio Optimisation initiatives.

46

3rd Party Sales - 2016

Q1

Q2

H1

Organic Growth (%)

Reported
Comparable*

-8.4
-2.1

16.6
1.2

2.4
-0.5

Real Internal Growth (%)

Reported
Comparable*

-9.7
-3.0

14.5
0.3

0.8
-1.3

* Excluding sales of Noodles, Surplus Fat & Product Portfolio Optimisation initiatives.
Note: Organic Growth (OG) and Real Internal Growth (RIG) are basis Nestl Internal Reporting Standards.

47

Materials Cost - 2016

#

Q1

Q2

H1

42.9

42.1

42.5

-90

20

-40

42.0

42.3

42.1

30

100

70

of which
Commodities

100

20

60

Realisations

40

20

10

Mix impact

30

60

20

Materials cost in % of Net Sales as reported

## Movement in conversion cost in bps

Net materials cost in % of Net Sales

yoy movement in bps

(Product mix and Mix of third party & Affiliates)

Favourable commodity prices with an upward price

trend in some commodities

# Materials Cost: Cost of materials consumed + Purchase of stock-in-trade + Change in inventories of Finished Goods & WIP
## Conversion cost embedded in inventories of Finished Goods & WIP
48

Other Variable Cost - 2016

Q1

Q2

H1

Cost in % of Net Sales

12.5

13.1

12.8

yoy movement in bps

40

50

Benefits of Lower crude oil & energy prices offset by higher cost of
distribution (impacted by product mix)

Includes Distribution Cost, General licence fees, Power & Fuel, Rates & Taxes etc.

49

Advertisement & Sales Promotion - 2016

Q1

Q2

H1

Cost in INR Bio

1.2

1.5

2.7

yoy increase in %

26.3

14.8

8.1

% of Domestic Sales

5.6

7.1

6.4

yoy movement in bps

135

15

75

New Media Campaigns across Categories

Stepped up spends on New launches
Base not fully comparable

Includes Media spends, Consumer Sampling and Promotions, Display etc.

50

Fixed Cost
Q1

Q2

H1

Reported
Cost in INR Bio
Cost in % of Net Sales

4.6
20.2

5.0
22.1

9.6
21.1

yoy movement in bps - Reported

yoy movement in bps - Comparable

215
215

115
180

185
55

2016

+7.8%

+2.6%

2015

+5.2%

Reported
Cost in INR Bio
Cost in % of Net Sales

4.5
18.0

4.1
21.0

8.6
19.3

Comparable*
Cost in INR Bio
Cost in % of Net Sales

4.5
18.0

4.6
23.9

9.1
20.6

Before reclassification of
fixed cost to Exceptional
Item in Q2 2015

* Includes fixed cost reclassified to Exceptional Item as reported in line with Accounting Standards (AS) 2 & 5
51

Profit from Operations

Q1

Q2

H1

Reported
Profit in INR Bio
Profit in % of Net Sales

4.5
19.4

3.8
16.8

8.3
18.1

yoy movement in bps - Reported

yoy movement in bps - Comparable

115
115

15
210

75
10

Reported
Profit in INR Bio
Profit in % of Net Sales

5.2
20.6

3.2
16.7

8.4
18.9

Comparable*
Profit in INR Bio
Profit in % of Net Sales

5.2
20.6

2.8
14.7

8.0
18.0

2016

2015

Before reclassification of fixed

cost to Exceptional item &
Movement in conversion cost due
to destruction of MAGGI Noodles
stock in Q2 2015

* Before reclassification of fixed costs to Exceptional Item as reported in line with Accounting Standards (AS) 2 & 5 and
Movement in conversion cost due to destruction of MAGGI Noodles stock in Q2 2015.
52

Profit from Operations: January-June

In bps
Reclassification of
fixed Costs to
Exceptional Item
in 2015

130

70

65

55

One offs

Materials

Variable
Costs

Adv. & Sales

Promotion

Fixed Costs

30

Export
Incentives

18.9%

18.1%

H1 15
Reported

H1 16
Reported

% are with reference to Net sales

53

Effective Tax Rate (ETR) : January-June

MTR change
: 80 bps
DTL revaluation : 110 bps
in 2015

Pantnagar Tax holiday

- Profitability in Q116
impacted by lower MAGGI
Noodles volume
- Sunset w.e.f 1st April2016

Mix of profits
from Tax holiday
Vs other sites

140

30

60

MTR
change

Others

INR 2.8 Bio

80
100

320
Tax benefits
INR 1.1 Bio

Profit Mix

30.5%

H1 15

Lower Tax
Holiday

Investment Exceptional
Allowance Items in 2016

In bps

36.0%

H1 16
54

Net Profit after Tax (PAT): January-June

660

20

Contingencies - others:20
CSR expense
:10

90
50

40

INR 4.9 Bio

INR 2.6 Bio

Exceptional
Items

Treasury
Income

5.8%

H1 15

ETR

Profit from
Operations

In bps

Net Profit %
2016
2015

% and bps movements are net of tax & in reference to sales

Q1
11.3
12.8

Other
Costs
10.8%

Q2
10.2
(3.3)

H1
10.8
5.8

H1 16

55

Cash generation from Operations : January-June

INR Million
120

260

200

750
1,000
230

4,400

13.9%*

Lower working capital

in H115 due to MAGGI
Noodle issue

10.0%*
PBIT: 4020

6,310
4,470

Exceptional
Items

Profit from Other Costs

Dep. &
Trade Net
operations
Impairment Working
Capital

Other
elements of
Working
Capital

Taxes

+ 1,840 million (41%)

H1 15

*% are in reference to sales

H1 16

56

Recovery from an exceptional base

Shareholders Fund (INR Bio)
Debt: Equity

Return on Equity (%)

1:99

1:99

29.1

31.7

17.8

32.7

Jun-15

Jun-16

Jan-Jun' 15

Jan-Jun' 16

AAA Rating reaffirmed by CRISIL on 18th Nov15

EPS (INR)

Share Price (INR)

26.5

50.8

Jan-Jun' 15

Jan-Jun' 16

6,346 6,343 5,976 6,350 6,180 5,873 5,824 5,491 5,012 5,769 5,744 6,099 6,489

Jun

July

Aug

Sep

2015

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

2016

Month end closing shareSource:

price
on BSE57
Nielsen

Jun

Dividend
DPS (INR)
2014 - Additional
Interim dividend of
INR 10 Per Share

63.0
10.0

48.5

48.5

48.5

Impacted by MAGGI
Noodles Issue

24.0

14.0
53.0
2012

2013

2014

2015

H1 '15

H1 '16
58

Sales and Market Share Evolution: MAGGI Noodles

Sales Indexed to November 2015
170

1.8

148

1.6

129

1.4

136

131

138

180

160

140

100

1.2

171

120

NA*

1.0

100

0.8

80

0.6

60

0.4

40

0.2

20

Nov'15

Dec'15

Jan'16

(re-launched
on 9th Nov15)

% Value
Market Share

10.9

Feb'16

Mar'16

Apr'16

May'16

Jun'16

53.5

55.5

57.1

Bar size represents Sales Value

35.2

43.5

48.1

51.0

59

Nestl Indias Commodity Price Index

122
115
114

112
107
100

2011

2012

Indexed with base year 2011

2013

2014

2015

YTD Jun'16

60

Milks Consumption Price Index

Others
54%

Milks
46%

106
105

100

99

98

98

97
95
94

Current Price

91
90

Q1 '14

Q2 '14

Indexed with base Q1-14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Q1 '16

Q2 '16
61

MSK Consumption Price Index

MSK
6%
Others
94%

107

105
98

100

84
78

78
75

74

73

72

Current Price

Q1 '14

Q2 '14

Indexed with base Q1-14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Q1 '16

Q2 '16
62

Skimmed Milk Powder (MSK) Prices /kg

Variance vs LY
-24%

-26%

-23%

-16%
-9%

-7%

-44%

206

202

195
199

-42%

188

188

-11%

164

-26%

-12%

-41%

134

133
111

Q1 15

Q2 15

Q3 15
International*

*USD spot Prices /Kg converted to INR

Q4 15

122

Q1 16

118

Q2 16

Domestic

63

AMF (Ghee) Prices /kg

Variance vs LY

+23%
+6%

-2%
-5%

+8%

335

-12%

-20%

299
288
275

262

-13%

+10%

-11%

296
+5%

273
-11%

213

232
241

224

183
Q1 15

Q2 15

Q3 15
International*

*USD spot Prices /Kg converted to INR

Q4 15

Q1 16

Q2 16

Domestic

64

Full Cream Milk Powder(FCMP) Prices /kg

Variance vs LY
10%

-25%

-41%

-27%

217

216

-19%

-6%

214

215

-2%

239

212

+9%

176

-34%
-5%
-22%
-27%

152

161

137

144

129
Q1 15

Q2 15

Q3 15
International*

*USD spot Prices /Kg converted to INR

Q4 15

Q1 16

Q2 16

Domestic

65

Green Coffee Consumption Price Index

Green
Coffee
9%

Others
91%

114
111
109

111

108

106
104

103

Current Price

100
97

96

Q1 '14

Q2 '14

Indexed with base Q1-14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Q1 '16

Q2 '16
66

Wheat Flour Consumption Price Index

Others
90%

Wheat
Flour
10%

112
106

Current Price

105
103

99

100

100
101

97

97

96

Q1 '14

Q2 '14

Indexed with base Q1-14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Q1 '16

Q2 '16
67

Palm Oil Consumption Price Index

Palm Oil
7%
Others
93%

112

106
103

102

Q1 '14

100

100

100

102

Q2 '14

Indexed with base Q1-14

Q3 '14

Q4 '14

Q1 '15

Current Price

103
97

97

Q2 '15

Q3 '15

Q4 '15

Q1 '16

Q2 '16
68

Sugar Consumption Price Index

Sugar
6%
Others
94%

120

118

Current Price

107

107

106
105

100
101
94

91
87

Q1 '14

Q2 '14

Indexed with base Q1-14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Q1 '16

Q2 '16
69

Brent Crude
USD per barrel

Q1 2015
x =56

Q2 2015
x =63

Source: Intercontinental Exchange

Q3 2015
x =52

Q4 2015
x =45

Q1 2016
x =36

Q2 2016
x =48

70

Robusta
USD per Ton

Source: London Exchange

71

Arabica
US Cent per Pound

Source: New York Exchange

72

Palm Oil
MYR per Ton

Source: Malaysia Exchange

73

Sugar
INR per Quintal

Source: National Commodity & Derivative Exchange Limited

74

Average Trade Net Working Capital

4.1
3.8

3.9

3.1

June 2015

June 2016

ATNWC (INR Bio)

% of Net Sales

ATNWC :Basis 12 Months Average (Nestl Internal Reporting Standards)

:Inventories + Debtors Trade Payables for goods and services

75

Capital Efficiency
Return on Invested
Capital (%)

17.2

38.9

Economic Profit (%)

3.3

25.1

44

42

40

38

36

34

32

30

28

26

24

22

20

18

16

14

12

10

32.7

29.0

Jan-Jun 2015

Jan-Jun 2016
Invested Capital (INR Bio)

Invested capital : basis average of 5 quarter end (Nestl Internal Reporting Standards)

76

THANK YOU

77