Nestl India Limited

25th Financial Analysts Meet

Gurgaon 20th November 2015

Disclaimers
1. 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.
2. Real Internal Growth (RIG) and Organic Growth (OG) are basis
Nestl Internal Reporting Standards.
3. Figures are regrouped / reclassified to make them comparable to
current period.
4. Calculations are based on non-rounded figures.
5. Analytical data are best estimates to facilitate understanding of
business and NOT meant to reconcile reported figures.
6. Answers may be given to non-price sensitive questions.

Slide2

Agenda

Setting the Context & Strategic

Overview

Suresh Narayanan

MAGGI Noodles Issue

Sanjay Khajuria

Key Financials

Shobinder Duggal

Questions & Answers

Slide3

Getting Stronger after the Storm !

Financial Analysts Meet
Nestl House
20.11.2015

The Macro Picture

8.1 % YTD Sep 15

2010

2012

2014

2016

2018

2020

Setting the Stage

URBANISATION
LITERACY
RISING
WOMEN
TECHNOLOGY
SURGE
HEALTH
NOMADIC
CONSUMER
TRADING UP
& DOWN

Driving consumption across pyramid

Mega metros (>40L) becoming heterogeneous
Metro towns (>10L) growth >50%
Villages transforming-Rural spends up
Literacy co-relates with income
Improved literacy
Improved standard of living
Literacy and consumption +vely related
Financially enabled women consume differently Changing attitudes of women increasing
Working women increasing
consumption
Surge in internet and mobile penetration
Brands/products under scrutiny
Double burden on the prowl
Deficiency diseases

Growing E-commerce makes markets and consumers

more accessible
Lifestyle diseases
Proactive health

Shorter shelf life for products, brands,

relationships
Consumers trade down on inflation halo
Indians have tendency to trade up

No. of brands increasing

Greater social acceptance for switching

Size of the Prize

Projected

2010

2015

2020

Global

21

45

62

Seeking & Striving

164

240

309

Aspiring

422

538

672

Deprived

579

444

329

1186

1267

1372

(Pop in mn)

Source : Mckinsey; CI Team analysis

Consumer Attitudes Change

MULTIPLE DEMAND MOMENTS

FREE TO BE ME

VALOURISING VALUE

CITIES WITHIN A CITY

SHOPPING 24X7

Increased need for variety

Nutrition/indulgence boundaries blurring

Not guilty food options

Instant feel good foods

Increasing technology connects each

family member to market place

Increasing technology facilitating choice

Segmentation on the rise

Inflation halo- not feeling poor, but stretched

Searching for low cost, but higher value
Straddling many worlds in parallel
Sub-cities with purchase/consumption patterns
Accessibility
Online shopping

Distribution of premium
products/opportunity for PPP
Home delivery

Getting Stronger.
10 Must Win Battles

Bring Back Double Digit Growth

Bring Nestl India

back to stability

Learn to manage
Volatility and
Adversity

Fast
Focused
Flexible

Revamp to be Fast,
Focused, Flexible

Commercial Structures
Environment Response Mechanisms

OUR PEOPLE:
Enable, Empower, Engage and
Energise
Fit for Battle
Accountability with responsibility

Renew

Zero Tolerance for Non

Compliance

Comply
Engage

Nurture Key Partners back to

health & trigger Positive
Relationships

Key Priorities
Consumer Services Engagement
Digital Media Engagement
Media Responsiveness
Friendly Face of Nestl

Teamwork

Teamwork

Teamwork
Breaking
Silos and lethargic responses

Proud to be Nestl

What to expect

Greater Innovation

Moving beyond the crisis

Greater engagement

Commitment to CSV

Greater Talent and People capabilities

MAGGI NOODLES UPDATE

Financial Analysts Meet
20 November 2015
Nestl House, Gurgaon

Background
2014
AtBarabanki,UttarPradesh,onesampleofMAGGINoodlestakenfor
analysisinMarch2014anddeclaredmisbrandedonaccountofNo
addedMSGdeclaration
Onappeal,onesamplesenttoreferrallaboratoryatKolkata.Itfound:
a) Lead higher than permissible limit
b) MSG and therefore misbranded due to No added MSG
declaration

20November2015

FinancialAnalysts'Meet2015

Monosodium Glutamate
WhatisMonosodiumGlutamate?
Knownasthefifthtaste Umami
Proteinrichfoodslikecheese,milk,groundnut,tomatoes,etc.contain
glutamatenaturally
MAGGINoodleshashydrolysedgroundnutprotein,onionpowderand
wheatflour,etc.whichcontainglutamatenaturally,sowilltest+ve
Regulatoryprovision:
Everyadvertisementforand/orapackageoffoodcontainingaddedMonosodium
Glutamateshallcarrythefollowingdeclaration,namely
[Thispackageof(Nameofthefood)containsaddedMONOSODIUM
GLUTAMATE]NOTRECCOMENDEDFORINFANTSBELOW12MONTHS
20November2015

FinancialAnalysts'Meet2015

Lead
Leadoccursintheearthscrustandispresentinair,soilanddust
SafetyLimitsarethereforefixedbyregulators;inthiscase2.5partsper
million
Weregularlymonitorslevelsofleadinrawmaterials,water,packaging
materials
Allsuppliersareauditedbyus
Ourtestshaveshownleadtobemuchbelowpermissiblelimits
TheHighCourtmandated3independentNABLaccredited,FSSAInotified
laboratoriesgavethesamefindings
20November2015

FinancialAnalysts'Meet2015

At Nestl Quality = Trust

300personnelworkinIndiaintheareaoffoodsafety
11InternalandExternallaboratories
NQAClaboratoryatMogafactoryhasNABLaccreditationandthe
capabilitytotestheavymetals,antibioticsandothercontaminants
MogaNQACiscapableoftestingPartsPerBillion,whereasregulatory
limitsareonlyinPartsPerMillion
100millionanalysesarecarriedouteveryyearglobally

20November2015

FinancialAnalysts'Meet2015

At Nestl Quality = Trust

3,500testsdoneinrecenttimesataccreditedlabs(internalandexternal)
haveshownclearresults
8CountriesincludingUSA,UK,Singapore,Australia,etc.foundMAGGI
NoodlesexportedfromIndia SafeforConsumption
3accreditedlabsmandatedbyHonbleBombayHighCourthavecleared
100%samples(bothexistingandnewlymanufacturedbatches)

20November2015

FinancialAnalysts'Meet2015

Test Results
LeadResult(ppm) AllresultsInternal&ExternalLabs
Totalresults3,566Nos.
2.5

MRL:2.5ppm

1.5

0.5

0
20November2015

FinancialAnalysts'Meet2015

How it started
AtBarabanki,UttarPradesh,onesampleofMAGGINoodlestakenfor
analysisinMarch2014anddeclaredmisbrandedonaccountofNo
addedMSGdeclaration
Onappeal,onesamplesenttoreferrallaboratoryatKolkata.Itfound:
a) Lead higher than permissible limit
b) MSG and therefore misbranded due to No added MSG
declaration

20November2015

FinancialAnalysts'Meet2015

Background
Wewerecompliantandconfidentandindirectdialogueswith
stakeholders
PressRelease 5thJune201512:30AM
MAGGINoodlesarecompletelysafeandhavebeentrustedinIndiaforover30years.
Thetrustofourconsumersandthesafetyofourproductsisourfirstpriority.Unfortunately,
recentdevelopmentsandunfoundedconcernsabouttheproducthaveledtoanenvironment
ofconfusionfortheconsumer,tosuchanextentthatwehavedecidedtowithdrawthe
productofftheshelves,despitetheproductbeingsafe.
WepromisethatthetrustedMAGGINoodleswillbebackinthemarketassoonasthecurrent
situationisclarified.

Withdrawalprocessinitiated.
Aroundnoonon5th June,FSSAIorderedthebanonmanufactureand
sale.
20November2015

FinancialAnalysts'Meet2015

FSSAI Order
Salientfeatures
o Withdrawandrecall9approvedvariantsbeinghazardousandunsafe
o Stopfurtherproduction,processing,export,distributionandsale
o Rectificationoflabel(Re.NoaddedMSG)
o WithdrawMAGGIOatsMasalaNoodles NoProductApproval

20November2015

FinancialAnalysts'Meet2015

10

Proceedings before Honble Bombay High Court

11th June PetitionfiledintheHighCourt
13th August BombayCourtsetasidetheban
SalientFeatures:
o PrinciplesofNaturalJusticenotfollowed
o Labsconductingtestswerenotaccredited
o NoAddedMSGdeclaration Nogroundforban
o RefileapplicationforMAGGIOatsNoodles

20November2015

FinancialAnalysts'Meet2015

11

Honble Bombay High Court directed the way forward

Outofalreadymanufacturedstock,samplestobesenttothe3
accreditedlaboratoriesmandatedbytheHighCourt(samplestakenand
sentunderFDAOfficersDirections 100%clear)
Manufacturingtostart,ifallsamplesclear
Samplesfromnewmanufacturetobetestedagain(100%clear)
SalescanthenStart(Startedon9th November)

20November2015

FinancialAnalysts'Meet2015

12

Present Situation
Manufacturing

Sales

WehavelearntthatSpecialleavepetitionagainstBombayHighCourthasbeen
preferred.Noticenotyetserved.
20November2015

FinancialAnalysts'Meet2015

13

Efficient and Transparent Withdrawal

Biggestwithdrawal handledprofessionally,transparentlyandefficiently
ImmediatestoppageofManufacturing,BlockedStocksatDepotsand
Orderprocessing,Customersstocksalsoblocked
RegularupdatestoFSSAI
Dedicatedtollfreenumberandcustomercarecentreestablished
Recallinformationadsinleadingmainlineandregionalnewspapers
PickedupMAGGIdirectlyfrom>10,000households

20November2015

FinancialAnalysts'Meet2015

14

Reverse Logistics in the Withdrawal Process

Canteen
SalesDepartment
ModernTrade

Distribution
Centers
(38)

Retailer*

Consumers/
Shoppers

Wholesalers

Distributors
(1,357)

Substockists

DirectCustomer
(whobuytogiveMAGGI
freewithother
products)

Incineration
Centers
(14)

Returnthrough
Nestlemployeesor
distributor
employees

*TotalRetailersinIndia:8.8mio outlets,EstimatedNestlpresence:3.9mio Outlets

20November2015

FinancialAnalysts'Meet2015

5NestlFactories
+
1Contract
Manufacturer
15

Social Impact
AcrosstheValueChain

Suppliers

Distributors

Over10,000employees

Farmers
397,000wheatfarmers
15,000spicefarmers
20November2015

1,357

Retailors
3.9million

Factory
3,000contractworkman

FinancialAnalysts'Meet2015

16

NCDRC
TheConsumerAffairsMinistryfiledacomplaintbeforeNCDRCseeking
Rs.640Crores
MainallegationssimilartotheonesdecidedbyHonbleBombayHigh
Court
NCDRChassent13samplestoCFTRI,MysorefortestingthelevelofLead
andMSG.

20November2015

FinancialAnalysts'Meet2015

17

Re-launch 9th November Present Status

33,000,000
Packssold

350
Townsreached
120,000
Outletscovered
724
Distributorsinvoiced

20November2015

FinancialAnalysts'Meet2015

18

Re-launch 9th November Present Status

20November2015

FinancialAnalysts'Meet2015

19

Re-launch 9th November Present Status

20November2015

FinancialAnalysts'Meet2015

20

Financial impact of MAGGI Noodles Issue

(Jan-Sep15)

INR Mio

Net Sales reversal (23,649 Tons)

3,037

Exceptional Cost

4,762

Stock of MAGGI Noodles obsolete/ destroyed

2,435

(34,663 Tons)

Slide 1

Exceptional Cost
-Third party commitments
-Reverse transportation
-Cost of incinerating stock
-Handling, repacking
-Laboratory testing
-Administrative costs

34%

INR 1,614
mio

INR 3,148
mio

66%

-Cost of finished goods (Variable +Fixed)

-Obsolescence of RM/PM/ WIP
-Duties & Taxes etc.

Costs already incurred and reclassified to Exceptional Cost

Incremental costs due to MAGGI Noodles withdrawal
Slide 2

Stakeholders share in the MAGGI Noodles business

Suppliers Materials

Suppliers Services
Transporters

Others

Distributors &
Dealers
Shareholders

Exchequer

Slide 3

Most Valuable Brands by Millward Brown

8 F&B brands in Top 50
NESTL at no. 1 in F&B

Overall ranking
NESTL ranked 15th
MAGGI ranked 30th

Study Released in Sep 2015

Slide 4

Market Value Growth (%)

F&B

FMCG

F&B
(Nestl Categories)

12.2

11.9
8.5

8.8

8.1

JAN-SEP
2014

JAN-SEP
2015

6.8

JAN-SEP
2014

JAN-SEP
2015

JAN-SEP
2014

JAN-SEP
2015

Source: Nielsen Jan-Sep 2015; All India (Urban + Rural)

Slide 5

Jan-Sep highlights
61.8 Bio

Impact of
reclassification
of fixed cost

10.4 Bio
16.8%*

INR 39.42

15.8%*
3.8 Bio
6.2%*
4.8 Bio

2015

(19.6)

(15.9)
(7.7)%*

-11.1 Bio
-15.3%

Weighted
Volumes
& Prices

72.9 Bio

-2.7 Bio

-4.8 Bio

INR -49.60

-110 bps

-560 bps

-55.7%
INR 89.02

13.0 Bio
17.9%*

8.6 Bio
11.8%*

2014

1.8
Net Sales

7.6

RIG%
OG%
Third Party Sales

Profit from Exceptional Net Profit

Operations
Item

Includes figures from Nestl Internal Reporting Standards

EPS

* % of Net Sales

Slide
6 6
Slide

Quarterly evolution of results

Q1

NET SALES
% YoY

2.9

growth

INR Bio

9.3

8.9

11.7

8.4

98.1 Bio = 8.2%

23.1

24.2

25.6

(20.1)

Q2

Q4

Q3

(32.1)

61.8 Bio = -15.3%

25.2

25.1

2014

19.3

17.4

2015

OPBIT
% of

18.0

Net

18.1

19.4

20.6

17.9 Bio = 18.3%

Sales

INR Bio

17.5

4.2

4.2

4.6

16.7 #

11.4

10.4 Bio = 16.8%

4.9

# 13.7% without reclassification of fixed cost to Exceptional item

## 2.7 Bio without reclassification of fixed cost to Exceptional item

5.2

3.2 ##

2.0
Slide 7

Domestic Sales: Jan-Sep

-36.7%

328

-16.3%

208

Volume (000 Tons)

Contribution
to Sales

68.0

57.0

93%

92%

Value (INR Bio)

Exports (Affiliates + Third parties)

-10.6%

15

-1.1%

14
Contribution
to Sales

2014

2015

4.9

4.8

7%

8%
Slide 8

Jan-Sep Reported & Comparable Domestic Sales Growth

Reported in

VOLUME

Tons

2014

2015

328,399

207,990

(36.7)
(29.0)

Noodles

VALUE

INR Mio

(6.8)

(1.0)

(-)PPO (-)Ghee

Reported in

Effective%

68,045

Noodles
(-)PPO (-)Ghee

PPO Product Portfolio Optimisation initiatives.

56,964

(16.3)

(16.9)

1.7

(1.0)

Slide
Slide99

% Contribution to Domestic Sales Jan - Sep

Milk Products
& Nutrition

47.1

Prepared Dishes
& Cooking Aids

31.5

13.3

Chocolate &
Confectionery

12.2

11.6

Beverages

9.2

58.1

17.0

2015

2014
Slide 10

Domestic Sales - 2015

Q1

Q2

Q3

Reported Sales in INR Bio

23.3

17.8

15.9

Reported yoy Growth %

7.6

-20.6

-33.8

Comparable Growth %*

8.4

1.6

-4.5

Comparable RIG %*

0.7

-3.0

-5.5

Turbulent Quarters with

MAGGI Noodles Issue

* Excluding sales of Noodles & Product Portfolio Optimisation initiatives.

Slide 11

Materials Cost - 2015

#

Q1

Q2

Q3

42.4

44.2

42.8

10

90

40

Net materials cost in % of Net Sales

42.3

43.3

42.4

yoy movement in bps

390

420

380

of which
Commodities

60

240

310

Realisations

440

200

80

Mix impact

10

20

40

Materials cost in % of Net Sales as reported

## Movement in conversion cost in bps

(Product mix and Mix of third party & Affiliates)

- Favourable commodity prices

- Selling price increases, largely
carry over pricing

# Materials Cost = Cost of materials consumed + Purchase of stock-in-trade +

Changes in inventories of finished Goods & WIP
## Conversion cost embedded in inventories of finished Goods & WIP

Slide 12

Other Variable Cost - 2015

Q1

Q2

Q3

Cost in % of Net Sales

12.9

12.3

12.5

yoy movement in bps

105

180

165

- Lower crude oil & energy prices

- Also cost optimisation initiatives

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

Slide 13

Advertisement & Sales Promotion - 2015

Q1

Q2

Q3

Cost in INR Bio

1.6

1.3

1.1

yoy increase in %

34.5

41.6

-6.3

% of Domestic Sales

7.0

7.3

7.2

yoy movement in bps

140

320

210

Stepped up spends

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

Slide 14

Fixed Cost - 2015

Q1

Q2

Q3

Reported
Cost in INR Bio
Cost in % of Net Sales

4.5
18.0

4.1
21.3

4.7
27.1

Comparable*
Cost in INR Bio

4.5

4.7

4.7

Cost in % of Net Sales

18.0

24.2

27.1

yoy movement in bps

120

665

980

of which
Impairment
Depreciation (Companies Act13)

50
30

30

70
30
Impact of
absorption
of fixed cost
due to MAGGI
Noodles Issue

* Including fixed cost reclassified to Exceptional Item in the reported figures, in line with
Accounting Standards (AS) 2 & 5
Slide 15

Profit from Operations - 2015

Q1

Q2

Q3

YTD

Reported
Profit in INR Bio

5.2

3.2

2.0

10.4

Profit in % of Net Sales

20.6

16.7

11.4

16.8

yoy movement in bps

255

80

675

110

Comparable*
Profit in INR Bio

5.2

2.7

2.0

9.8

Profit in % of Net Sales

20.6

13.7

11.4

15.8

yoy movement in bps

255

375

675

205

Impact of
absorption
of fixed cost
due to MAGGI
Noodles Issue

* Including fixed cost reclassified to Exceptional Item in the reported figures, in line with
Accounting Standards (AS) 2 & 5
Slide 16

Tax Cost and Effective Tax Rate

34.1

34.0
33.2

ETR drops by 260 bps

30.6

Of which,
- Higher tax benefits

:100

- Mix of profits from tax

holiday and other sites. :240
- Deferred tax revaluation : 75
(Surcharge 12% Vs 10%)

4.3

1.7

Jan-Sep 2014

Jan-Sep 2015

Tax Expense (INR Bio)

Marginal Tax Rate (%)

Effective Tax Rate (%)

Slide 17

MAGGI Noodles issue impacts Net Profit

Net Profit %

Q1

Q2

Q3

12.8

-3.3

7.2

Treasury Income : 25 bps

ECB Costs
: 10 bps

11.8%

75 bps

35 bps

30 bps

: 15 bps
: 10 bps

20 bps

6.2%

Tax Expense

Jan - Sep
2015

INR 8.6 Billion

INR 3.8 Billion

Contingencies
(Others)
CSR Expense

510 bps

Jan - Sep
2014

Profit from
Operations

% are net of tax & in reference to sales

Treasury
Elements

Others

Exceptional
Item

Slide 18

Cash generation from Operations

16.0%

INR Bio
2.8

1.3

4.8

11.6%

2.3
1.3

1.0

0.4

7.1

11.7
Jan - Sep
2014

Profit before
Finance Cost,
Other income,
Exceptional item
& Tax expense

Exceptional
Item

Depreciation
& Impairment

% are in reference to sales

Trade & Other

elements of
Working
Capital

Taxation

Jan - Sep
2015
Slide 19

We remain debt free

ROE & EPS impacted by MAGGI Issue
Debt : Equity

1 : 99

1 : 99

AAA Rating
reaffirmed by CRISIL
on 9th June15
89.0

45

39.4
17

27.5

30.4

Jan-Sep 2014

Jan-Sep 2015

Shareholders fund (INR Bio) as on 30th September

Avg. Share
Price (INR)

5,155

EPS (INR)

ROE %

6,578
Slide 20

Interim dividend curtailed due to MAGGI Issue

DPS (INR)
63.0
10.0
48.5

48.5

48.5

42.5
2014 - Additional
Interim dividend of
INR 10 Per Share

10.0

14.0

53.0
2011

2012

2013

2014

32.5
Jan - Sep Jan - Sep
2014
2015
Slide 21

Linked Slides

Slide 22

Nestl Indias Commodity Basket

137

129

125
120
112

100

2010

2011

2012

2013

2014

YTD Sep'15

Slide 23

Milks
42.0%

144

142
135
122

133

136

Current

123

132
127

119
107
100
Q1

Q2

Q3
2013

Indexed with base Q1-13

2014

Q4

2015
Slide 24

MSK
4%

163

159

152

148

127

136
118

118

Current
110

100

100

Q1

Q2

102

Q3
2013

Indexed with base Q1-13

2014

Q4

2015
Slide 25

Skimmed Milk Powder (MSK) Prices /kg

Variance vs LY

+45%
+48%

+60%

+22%

-7%

-11%

290

-24%

-26%

-23%

-32%
272

272
260
234

-44%
-49%
232

-42%

189

206
150

Q1 14

Q2 14

Q3 14

Q4 14

International*
*USD spot Prices /Kg converted to INR

164

202
134

Q1 15

Q2 15

-41%
111

199

Q3 15

Domestic
Slide 26

AMF (Ghee) Prices /kg

Variance vs LY
+66%
+19%
+2%

+19%

-2%

-9%

327

311

-5%

-12%

-20%

-6%

293

288

282

289

275

-33%
245

-31%

262

-13%

273

-11%

220
213

207

Q1 14

Q2 14

Q3 14

Q4 14

International*
*USD spot Prices /Kg converted to INR

Q1 15

Q2 15

183

Q3 15

Domestic
Slide 27

Full Cream Milk Powder(FCMP) Prices /kg

Variance vs LY
+44%

+40%

+49%

+10%

299
296
289

-13%

-15%

-27%

-25%

263

-19%

230
229

-44%

217

-41%
216

176

-52%

-34%

176

214
-27%

152

148

129

Q1 14

Q2 14

Q3 14

Q4 14

International*
*USD spot Prices /Kg converted to INR

Q1 15

Q2 15

Q3 15

Domestic
Slide 28

Green Coffee
12%

115

114

113

106

103

106

99
100

100
95

Q1

Q2

100
Current

Q3
2013

Indexed with base Q1-13

118

2014

Q4

2015
Slide 29

Wheat Flour
8%

104

103

102

100

100

100
100

99

96

98

99

Current

95
Q1

Q2

Q3
2013

Indexed with base Q1-13

2014

Q4

2015
Slide 30

Palm Oil

6%

100

100

100

100

99

99

99

97
97
Current

94

82

Q1

Q2

Q3
2013

Indexed with base Q1-13

2014

Q4

2015
Slide 31

Sugar
5%

100

99
99

91

94

89
89

96

95

Current

83

81

75

Q1

Q2

Q3
2013

Indexed with base Q1-13

2014

Q4

2015
Slide 32

Brent Crude
USD per barrel

Source: Intercontinental Exchange

Slide 33

Robusta
USD per Ton
London Exchange

Slide 34

Arabica
US Cent per Pound
New York Exchange

Slide 35

Palm Oil
MYR per Ton
Malaysia Exchange

Slide 36

Sugar
US Cent per Pound
New York Exchange

Slide
Slide 37
37