Nestlé Primer
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Nestlé Description Primer Nestlé is the world's largest Primer food & merbeverage manufacturer with operations in more than 80 countries and employs nearly 250,000 people worldwide. September 17, 2020 Nestlé has 34 brands that generate each over CHF 1bn annually in 190 countries for a total of CHF 93bn. It has launched new 1,300 products last year. It offers a wide range of food products with more than 2,000 brands produced Name Nestle SA Sector Consumer Staples at more than 400 factories globally. It includes global, regional, and local Segment Packaged Food favorites such as Nescafé, Haagen-Dazs ice cream, Kit-Kat chocolates, and Mkt Cap ($bn) 347.9 Perrier bottled water. The US accounts for 45% of sales, Europe, Middle East and North Africa for 30%, and Asia, Oceanic and Africa for 25%. Price 110.26 1Y Range 83.37 - 112.62 Nestlé’s brands are divided into 7 product segments: 200 D Histo Volatility 24% (in CHF MM) o Powdered and Liquid Beverages – 25% of revenues Revenue 92'865 . Includes Nescafe, Nespresso, and Nesquik. EBITDA 19'791.0 o Nutrition and Health Science – 15% EBITDA Margin 21.3% . Sells baby food, infant nutrition, and skin care products under 1 Year Fwd. P/E 24.8 Dividend Yield 2.45% brands including Gerber, Illuma, and Cerelac. o Milk Products and Ice Cream – 15% 5 Year Price Action . Covers brands including Haagen-Dazs, Coffee Mate, and 117 Dreyer’s. 112 o PetCare – 15% 107 102 . Under Purina sub-brands, including Felix and Pro Plan. 97 o Prepared Dishes and Cooking Aids – 15% 92 . 87 Includes DiGiorno pizza, Buitoni pasta, Thomy and Maggi. 82 o Water – 10% 77 . Consists of San Pellegrino water and soft drinks, Vittel, Perrier, 72 67 Pure Life, and Poland Spring. janv.-16 janv.-17 janv.-18 janv.-19 janv.-20 o Confectionery – 10% . Includes Kit-Kat and Cailler. Source : Bloomberg The Swiss company was created in 1905 and grew significantly during the 20th Union Securities Research Team century, expanding its offerings beyond its early condensed milk and infant [email protected] formula product. It quickly diversified to include a variety of products including chocolate, coffee, soup, yogurt, water and frozen foods. Nestlé‘s success has Union Securities Switzerland SA been driven by a combination of product innovation and business acquisition. 11 Cours de Rive 1204 Geneva, Switzerland Nestlé has been the second biggest shareholders of L'Oréal (after the https://unionsecurities.ch Bettencourt family) for 45 years and controls 23.2% of the cosmetics company. They benefited from their cooperation through 2 joint ventures as well as joint efforts in research. 1 Nestlé Continuous strategic reviewEnEnPrimer of its brand portfolio Nestlé’s main strategy isPrimermer to create value through a continuous review of its brand portfolio. Recently, it has increased its portfolio transformation towards attractive high-growth categories with higher margins. Recent company acquisitions have illustrated Nestlé’s strategic decision to become a nutritional health company. Nestlé has consistently sold businesses where it believes growth opportunities are challenged, or acquired new companies or made agreements in high margin businesses. This strategy will continue, with the resulting proceeds reinvested into core business areas that offer fresh growth opportunities. Continuous business review Invest in high-growth segments and sell non-core business Source : Nestlé 2020 presentation 2 Nestlé Recent Events EnEnPrimer Recent acquisitions Primermer and divestitures have showed that Nestlé continued to shift its portfolio toward higher growth categories in a disciplined way to maximize the value of its assets. o In 2018, Nestlé and Starbucks closed a deal for the perpetual global license of Starbucks Consumer Packaged products, in order to significantly strengthen Nestlé’s portfolio in the US premium roast and ground coffee business. o In 2019, it sold its Skin Health business for CHF 10.2bn as it was no longer core to the Nutrition, Health and Wellness strategy. It also sold its US ice cream business to Froneri for $4bn and sold a 60% stake of Herta (meat-based products) to the Spanish company Casa Tarradellas. o In 2020, Nestlé took the decision to migrate its Waters business to its 3 geographic Zones. The move is expected to increase responsiveness and competitiveness, as Nestlé Waters generates around 60% of its sales through local brands. This structure change follows the successful migrations of Nestlé Nutrition into the Zones. o Nestlé is also exploring potential sales for US Waters and the peanut milk Yinlu in Asia. Both reviews, expected to be completed in early 2021, are key developments because they could remove two of the main drags on group growth. o In 2020, Nestlé is continuing its investment in medical nutrition toward specialized solutions that can help consumers with certain conditions, through some acquisitions. It bought the nutritional health company Altrium for $2.3bn, the gastrointestinal medication Zenpep, and Aimmune, a company developing treatments for food allergies. 2020 results o Nestlé’s 1Q 2020 organic growth reached 4.3%, driven by the good momentum of Starbucks products. o Due to the lockdown, the 2Q organic sales growth slowed at 1.2%, still supported by momentum in the US, Purina PetCare and Nestlé Health Science. Petcare was the largest contributor in 2Q and grew strongly to 11%. o In 1H 2020, organic growth reached 2.8%, but divestitures (sales of Nestlé Skin Health and the US ice cream business) reduced sales by 5.3% and FX reduced sales by 7%. In result, total sales decreased by 9.5%. o Nespresso reported mid-single-digit organic growth with strong growth in US and Asia-Africa regions. Sales in Europe decreased, reflecting reduced demand in the out-of-home channel and boutique closures. 3 Nestlé Investment Case EnEnPrimer In 2017, Nestlé has put Primermer into place a 5-year transformation program to raise the organic growth at a sustainable 4% annual rate (i.e adding $4bn to sales every year) and to improve operational efficiency (increasing operating profit margin to 17.5-18.5% level). One example is its alliance with Starbucks that addressed some of its key weaknesses in roast and ground coffee and a lack of scale in the US Indeed, it expects the global coffee market to expand by more than 5% annually to 2023. It has quickly launched 24 new products six months after the deal closed, and now leads the US coffee market with a total market share of 18.9%, and the double- digit sales increase for coffee at home outweighed a sharp decline in the out-of-home channel. Nestlé has dominant global positions in the core categories of coffee, pet care, nutrition and water. Its leading position in Asia, Oceania and Africa is key to growth, with the location of 68% of the world's population and 80% of newborns. The group has a wide range of brands, with many blockbusters with annual sales higher than CHF 1bn, which offer an important resilience of sales, especially during the lockdown period. The company is also trying to improve its prepared-meal (13% of sales) with vegetarian, vegan and better-quality meal offering to embrace the potential to replace delivered food with frozen options. Nestlé has already a 6.4% share of the US frozen ready-meal market, nearly double of its direct competitors (Kraft 3.4%, ConAgra 2.8%). Nestlé is also focusing its efforts to develop its e-commerce that accounted for over 12% of sales in 1H (vs 8.5% in 2019), or about $10bn on an annual basis. E-commerce is a key for better margins as 64% of the group’s portfolio has better online market share vs offline. We believe that Nestlé will achieve its reorganization plan in the next few years, despite inevitable hits from the pandemic. The FY20 2-3% organic sales growth range guidance given in August (3.5% before Covid) is prudent and shows that the company delivers growth even during the lockdown period. Nestlé is an attractive long term investment offering a high visibility on its business model. The world's largest food manufacturer is a core holding in European portfolio as it has a leading position in many markets and focus towards attractive higher growth categories. Bullish Case Bearish Case Continuous growth and dividend stability with an Long-term sales growth below target as the consumer important 3-year share buyback program environment remains challenging Takes market shares from distressed smaller Premium products suffer a sharp decline in demand competitors Strengthening of CHF vs Nestlé's major currencies, High-growth acquisitions and recovery of Waters and particularly USD Asia region support delivery of top-line growth. Cost savings and improving mix resulting in better than expected margins Petcare growth continues and acquisitions of Altrium and Zenpep deliver new growth opportunities 4 Nestlé SWOT Analysis EnEnPrimer Strengths Primermer Weaknesses Leading position in many food segments Operates in a highly competitive industry in some of o World leader in the food industry Nestlé's core businesses, such as Coffee, Pet Care and o Attractive portfolio of leading global brands and Nutrition a defensive growth profile vs. peers Over-ambitious growth target o Relative safety of its dividend/buyback o Dependent of the success of its continuous Good brand management transformation through efficient acquisitions and o Owns 2,000 brands including global and local divestitures favorites o Its growth is recently mainly driven by the o High visibility of its business model PetCare segment only o Migrate the decision of brand management at Needs to market the brands effectively to justify higher the region level to increase responsiveness prices for premium brands o Has positive pricing power in all 3 zones in Q2.