Good morning, ladies and gentlemen. Welcome to our full year results conference here in VIVE. This conference will be held in English, but you can also follow it in French or German using the headsets provided. If you're watching the webcast, you can choose the right language by clicking on the respective link on the webcast page. I take the Safe Harbor statement as read.
Now let's start. Paul, you have the floor.
Good morning, everybody, and also welcome to our 2014 full results conference. I, first of all, want to thank you for your interest. I want to also say hello to the people who are following us. We have one thing Martello, our CFO. In the room, we have also in the 1st row my colleagues of the Executive Board and also Greg Behar, who is leading and heading Nestle Health Science and Umberto Antunes who is heading Nestle Skin Health.
They're here in the room also available for the questions that you may have the end of our speeches. You saw we have published our results for 2014 a few minutes ago and I would say they are solid. They are solid in the sense that, first of all, they are delivering on top and bottom line. Secondly, also they have been built upon delivering over the years, also over the last years. And they have also been delivered in a soft trading environment.
There's enough talk about that in the press. And but also and very importantly, they have outperformed the market. And I would say they show something that they're going to come later on which is some intrinsic, I would say, differentiating strength of our company. And the first thing I want to say there is the commitment and of our people, everywhere in the world. Our people, how they are committed, our line behind our strategy is an intrinsic very, very strong element of our continuous success, I would say.
Then also our global print. We have truly we are truly a global company that have enhanced activities, integrated activities in every part of the world and that is definitely a strength. And then also our portfolio and our brands and the complementarity of the different categories we're working in is also very important. And then what is driving this portfolio is our R and D and our innovation drive. These are four elements that I would say are at the base of the success of last year and the years before and will be also at the base for the future.
And I'm going to go a little bit more in detail. You saw the figures and I want to ask now Wanling to walk us a little bit more through the details of what's behind these figures. So Wanling, please the floor is yours.
Thank you, Paul. Good morning and good afternoon. I would like to first start by wishing all my Chinese friends and colleagues a very happy Chinese New Year. It is today. So, not to worry, I'm not doing this session in Chinese.
So You've
seen I put my red tag.
I know. He did something for me today, just today. Looking back at 2014, it was indeed not an easy year. I have to say that I am proud of the group's results. So let us start by taking a look at our highlights slide.
We have sales totaling over CHF91 1,000,000,000. Our 2014 organic growth is made up of 2.3% rig and 2.2% pricing. This is good performance and represents 2 things. First, our ability to sustain growth, like Paul said year after year in very difficult markets. We focus on the value of our brands, driving innovation, premiumization and engaging effectively with our consumers.
2nd, the group's ability to offset areas of weaker performance, areas that we're keenly aware of and are in the process of addressing, something I will cover more in our zone review. In addition, this growth has been delivered while improving our trading operating profit, up 30 basis points in constant currency. Our operating cash flow of CHF 14,700,000,000 has to be viewed with the comments I made in 2013 as well as in 2014. We have had 2 years of remarkably strong performance, so 2014 was again a good year. Finally, our underlying profits, our underlying earnings per share were up 4.4% in constant currencies.
With that in mind, I would like to now turn to the details behind our performance, starting with our regional growth. Our regional organic growth that is our zone and globally managed business together was 5.4% in Americas, 1.9% in Europe and 5.7% in Asia, Oceania and Africa. Real internal growth was 2.3% in Americas, 2.4% in Europe and also 2.4% in AOA. This performance is representative of a whole host of factors affecting our markets around the world, whether it's the deflation affecting pricing in Europe, a moderate improvement in North America and more subdued Latin America or the slowdown we've seen in the Middle East and China affecting AOA in the latter growth, sales totaling CHF 40,200,000,000 which is about 44% of our group. This solid 8.9% growth is slightly below where we were last year.
It reflects the challenges we face in some key emerging markets. Developed markets delivered 1.1 percent organic growth, sustaining a performance that quite frankly is very good. Let's now turn to our performance from Europe, with sales of CHF 15,200,000,000, OG of 1.5% with 2.2 percent rig. I know we have said this before, but the strength of the zone comes from innovations and premium products we have brought to the market. This is clearly reflected in market share improvements.
I don't need to tell you that the trading environment in Europe remains quite intense. With deflationary pressures making it very difficult for pricing and consumer confidence continuing to be fragile. Having said that, both Western and Eastern Europe continued to grow. Pet Care, Nescafe Dolce Gusto and Frozen Pizza had good performances across zone. In the West, France, Austria and the Netherlands had good growth, all three markets benefiting from Nescafe Dolce Gusto.
In France, Hertha and chilled culinary and our frozen pizza business and Fresh Up and Butoni Fiesta varieties both had a good year. We also had a successful launch of Reset De La Atelier chocolate, I was afraid I might mispronounce this, so show and tell here. Very good product, very good chocolate. So that's doing really well, especially in a challenging confectionery category. It's also worth calling out that Spain and Portugal, we saw some recovery.
Coffee, particularly let the growth, no surprise, with frozen pizza and snack noodles in ambient culinary doing well too. The Great Britain region, Germany, Italy and Greece remain challenging markets for us. In Central and Eastern Europe, the growth was driven by Russia, although we did see a slight slowdown towards the end of the year. The largest categories office, confectionery and ambient culinary all had very good performances. Net Cafe Gold, KitKat and the launch of Fakir's Cooking Papers being standout performers.
Ukraine also delivered good growth despite the challenges that the market is facing, driven by confectionery, especially KitKat. Overall, across the zone, pet care remains the strongest growth driver. As a category, it is one of the best examples where differentiated, value added, premium products can sustain growth in tough market conditions. Some of the strongest performance comes from brands like Felix, Purina 1, Gourmet and our snacks range. The zone also continue to invest in the future.
A few examples include expansion of our Nescafe Dolce Augusta factory in Totbury, U. K, a capsule factory in Germany and a pet care factory in Poland. Dazone's trading operating profit margin was 15.3%, up 30 basis points. This reflected Dazone's ongoing efficiencies and the general reduction in structural costs. Looking now at Zone Americas, the zone achieved 5% organic growth with 1.1% various indicators do show an improvement in consumer sentiment in North America towards the end of 2014.
In addition, the lower oil prices may help the consumers. We will have to see how this plays out in 2015 and how any improvements actually translates into the F and B sector. In comparison, Latin America's economic environment continues to slow down. Now looking at our performance in North America, our growth was slow. We had relatively good performances in pet care, coffee creamers and super premium ice cream.
This growth was offset by the continuing contraction of the some time. Now for those of you who have seen what we presented at our investor seminar in Boston just a few months ago, what we discussed there remains relevant. Building on that, I'd like to share with you some more specificity of the plans we discussed in Boston, particularly for Lean Cuisine. We are systematically changing all the elements. We are improving the segmentation of the ranges with new consumption occasions like snacking.
We're making the portfolio more relevant and reflecting the needs and wants of our consumers, so more natural, organic, gluten free, more protein. We're fully embracing digital across all of our communications. And more importantly, the changes we've been working on for several months will make our Nutrition, Health and Wellness Promise, NHW consumer relevant, producing as fresh and natural as it's possible and keeping the recipes as simple as possible. Now of course, this re launch comes with investment, both in our operations and particularly in consumer marketing spending. Let me be clear, there's a lot of work to be done here.
Our expectations are that we should see some recovery over the course of 2015. In frozen pizza, the category dynamics in addition to our pricing led to disappointing slowdown. This was despite the innovations we brought to the market. Our California Pizza Kitchen brand premium segment did well with Haagen Dazs Gelato. Our snacks business that includes drumstick and outshine bars recovered nicely also.
In confectionery, the growth had a slow start due to the tough comparisons and general trading conditions. The ongoing successful rollout of Butterfinger peanut butter cups continued to be one of the key drivers of growth. Coffee Made maintained its growth momentum, helped largely by seasonal flavor innovation. Natural Bliss, our all natural dairy based creamer had another good year and remains a platform for future growth. We also had a successful launch of Coffee Made to Go, concentrated creamer in handy pocket sized bottles.
Innovation also ensured the pet care business in North America to continue to grow well. Dog Chow, Pro Plant and Lightweight Cat Litter were some of the highlights. The brand Beyond was an important had an important launch in the fast growing natural segment. Now moving on to Latin America, there was good organic growth helped by pricing that's reflective of inflationary pressure. Consumer sentiment varied across the region and yet most markets did well.
All of Nestle Brazil's categories grew. Double digit growth in coffee largely thanks to Nescafe Dolce Gusto, Nino in Growing Up Melts, Kit Kat in confectionery, Nesfit in biscuits and Neskow in Cocoa and Malt Beverages also made very strong contributions to the market's performance. In Mexico, the changes in fiscal legislation did affect consumer sentiment. Nido, Nescafe 3 in 1 mixes, Nescafe Dolce Gusto and Carnation were some of the biggest growth drivers. Across the Latin America region, pet care delivered a broad based growth.
It is now a meaningful size business for us in the region. Dog Chow Pro Plan were again the main drivers of growth. We also had a successful launch of our Rivina Nashville dog food in the specialist channel in Brazil. In terms of trading operating profit, despite higher input costs, the zones margin improved by 60 basis points to 18.8%. This improvement was thanks to many factors, lower restructuring costs, the non recurrence of the Wagon Train withdrawal in 20 13, if you recall, and ongoing operational and structural efficiency gains in pricing.
Altogether, this offset input cost increases. Moving to Zone, Asia, Oceania and Africa. At the 9 months, we talked about a slowdown in AOA compared to half year structural costs. Lower input costs were partly offset by higher distribution costs. Moving on to Nestle Nutrition with a 7.7% organic growth and a 3.6% rig, a strong result given the tough comparisons in 2013.
From a geographic perspective, there was double digit growth in AOA despite disruptions in many markets due to political unrest. Latin America also had a good year with many markets contributing to a solid growth rate. North America and Europe were more challenging, resulting in relatively flat growth. Infant formula continued to be the key driver with double digit growth. We continue to invest behind our brands.
Our super premium line, ILLUMA and the premium products NAN and S26 were again the highlights. Many markets delivered very strong growth including China, the Middle East, Indonesia and the South Asia region. Happy to report that Wyeth infant nutrition had another good year. In baby food, infant cereal saw a steady recovery in the U. S.
With strong contributions also coming from Brazil, Central West Africa and Pakistan. The organic fruit puree pouches for infants combining good nutrition and convenience were a highlight for meals and drinks in the U. S. Despite pressures coming from higher input costs trading 80 basis points to 20.8 percent and this was driven by a combination of active portfolio management, a solid performance in YS Nutrition and efficiencies across the value chain. Moving on to other businesses, we achieved 7.1% organic growth and a 5.6% rig.
Neste Professional had relatively good growth, especially when you consider the very challenging out of home environments in both Western Europe and North America that together represent over half of our business. Not surprisingly then, the growth was driven by the emerging markets with China, Philippines, the Indochina region, the Middle East and Russia. The beverage solutions continue to perform well and this was helped by the rollout of new technologies behind our Nescafe Alegria and Nescafe Milano machines. Dessert Solutions also had a good growth. Moving on to Nespresso.
Nespresso grew in all regions. Our ongoing focus on quality and the many investments we made and continue to make in products, machines and services delivered strong results. As I reported at our last call, the successful launch of the virtual line system in North America is creating a new premium coffee segment and we're very happy with the progress so far. Nestle Health Science growth was primarily driven by strong performances in Europe. We continue to drive new innovations across the portfolio.
For example, new products in our Vida Flow business in the U. K, a new Boost bottle in Canada and the Meriten range in Europe. Last but not least, Nestle Skin Health had double digit growth with strong performances in all businesses and geographies particularly in the Americas and in Asia. The trading operating profit of other businesses increased by 140 basis points to 19.1%. The drivers of this were good performance across all other businesses and an exceptional contribution from Nestle Skin Health.
I have to say that it is a business whose profitability is traditionally weighted towards the second half. I've talked a lot about our product categories as I've gone through the zones, but this slide does serve to highlight where we have challenges and successes from a category perspective. Powdered and liquid beverages had good growth driven by both coffee and cocoa and malt beverages, highlights being Nescafe Dolce Gusto, premium soluble coffee, Milo and Nescao. Both coffee, cocoa and mold beverages contributed to the trading operating profit improvement of 40 basis points. Waters was covered as a GMV.
The milk products and ice cream results reflect the challenges we've had in peanut milk in China and relatively flat growth in ice cream. The 90 basis points improvement in trading operating profit margin was driven by lower structural costs and pricing more than offsetting increased input costs. The performance of Nutrition and Health Sciences clearly demonstrates the growth pillars we have here. All elements contributed to the 2 10 basis increase in trading operating profit margin coupled with exceptional contribution from Nestle Skin Health. Prepared dishes and cooking aids performance is no surprise affected by the challenges we're having in frozen despite a strong ambient culinary performance driven by emerging markets.
The profit improvement here is mainly thanks to cost savings from all areas of the product group and strong growth in ambient. Confectionery is a similar story to the first half. As you can see, the growth is driven by pricing and response to inflation. A growth highlight remains Kit Kat in emerging markets. Some larger markets, particularly developed markets have seen intense competition.
So the 2 out of 10 basis points decline in profitability is driven by much higher input costs and difficulty to take pricing in developed markets. We continue to see good growth in pet care in both emerging developed markets. The profit improvement is mainly due to the non recurrence of the Wagon Train withdrawal in 2013. That ladies and gentlemen covers our business review. Let's now take a closer look at our income statement.
The trading operating profit margin was up was 15.3%, up 10 basis points as reported and up 30 basis points in constant currencies. As you can see a driver of this improvement was the cost of goods sold. They decreased by 30 basis points, a reflection of the ongoing benefits from product mix, our efficiencies and pricing actions more than offset increases in input costs. Distribution costs for the group as a whole remained relatively unchanged for 2014, although we did see some variability in the different parts of the world as I mentioned in my previous comments. For marketing and administration, the 2013 structural efficiency gains including in our pension plans gave us some tough comparisons, but we made good progress in reducing our overheads.
We also continue to drive greater efficiency in our marketing, while reinvesting behind our brands. Our consumer facing media spend was up 5.8% in constant currencies. Digital continues to be a core part of our marketing strategy and now represents roughly 20% of our media spend. It has been a major it has become a major influencer in the way we engage with consumers. Our R and D investment increased by 20 basis points.
Some of this is related to the inclusion of Nestle Skin Health. The strong Swiss franc had an impact as about half of our R and D culture in Switzerland. Net other trading items were broadly in line with 2013. Next up is the income statement from trading operating profit to net profit. As I've said, the group trading operating profit margin increased to 15.3% reported, up but up 30 basis points in constant currencies.
Net income and expenses includes an impairment of goodwill of CHF1.8 billion. Now this mainly relates to the direct store delivery system as a cash generating unit for both frozen pizza and ice cream in the U. S. As I explained in my Zone Americas review, we've seen continuous declines in these categories. So this has meant that the cash flow projections needed to cover the asset base as required under IFRS impairment test could not be sustained.
Therefore, we had to take a goodwill impairment for DSD. Net financial income and expenses were comparable to last year. Reported taxes have been affected by one off items. Underlying rate is broadly in line with last year. Income from associates and JVs has changed following the L'Oreal Guldurma transaction.
Net profit increased 4.90 basis points due to the revaluation of the 50% of Galderma and the proceeds of the partial disposal of our L'Oreal stake. As a consequence reported earnings per share were CHF4.54 up 44.6%. Here it is important to bear in mind that we have a drag on the net operating expenses mainly due to currencies has affected our reported earnings per share. Our underlying EPS as reported decreased by 1.7% to CHF3.44. This is on the base of a strong 2013 comparison.
In constant currencies, underlying EPS increased 4.4 percent. The group's free cash flow remained strong at CHF14.1 billion. While this figure includes the proceeds from the partial disposal of our L'Oreal stake, it is also a reflection of our ongoing focus on capital discipline, including all elements of working capital, capital expenditure and a continuous focus on efficiencies and profitable growth. Working capital remains an area of focus. While we have not seen the same results as last year's strong performance, our efforts have delivered another year of improvements.
I'm sharing this slide with you as you can see here the way we track our working capital internally. Working on a quarterly average gives a much more accurate picture than simply a snapshot at year end. Another important aspect of the free cash flow our CapEx where we have stayed the course. If you recall, Paul back in said back in 2013 that we would reduce our CapEx as a percentage of sales. I'm happy to report that with the help of our portfolio tool, not only have we delivered what you see in this chart, but we've also driven a more discerning allocation of our resources driving value for the group.
The next slide, the group's net debt fell from CHF14.7 billion to CHF12.3 billion reflecting our strong free cash flow during the year at CHF14.1 billion. More than offsetting the payment of the dividend of CHF6 900,000,000 and the initial phase of the current share buyback program. The strong Swiss franc has again had an important impact on our financial KPIs. In fact, the cumulative impact of currencies has amounted to around 40% of sales since 2008. Please bear in mind that the Swiss National Bank announcement we saw in January has created further uncertainty to face in 2015.
Importantly, even in this volatile times, we remain committed to a sustainable Swiss franc dividend. As you can see on the next slide, this chart starts in the 1980s, but in fact since 1959, we have never decreased our dividend in absolute Swiss francs. For 2014, we have again proposed an increase in absolute dividend. The proposed dividend in Swiss francs is CHF2.20 per share. And so to wrap up my part of the call, like I said at the beginning of this presentation, 2014 was indeed a challenging year.
And I have to say I am very proud of the group's results. We have delivered both on the top and bottom line. Our growth was broad based in emerging and developed markets. There were ongoing improvements in operational and capital efficiencies. Our portfolio has continued for tomorrow.
With that, we expect 2015 to be similar to 20 14 and we aim to and capital efficiency?
Well, thank you, Wendell. You really gave us the whole story. But let me in the next charts to share with you a few thoughts, highlight a few things that actually explain how we want to drive the delivering of results in an easy environment, soft trading conditions, you name it, volatility and stability in many areas. And I always say we have selective memory because there's never an easy year. But what's happening today may induce people or companies to really go and shorten their perspective in time and start to focus and conditioning actually all what they do towards delivering today.
Well, we do and focus on delivering today, but never we will do that with losing out of sight our strategic direction, the long term perspective of this company. And I want to walk you through a few things that I already mentioned to you that is actually linked with certain strength, competitive advantages we can call it, but intrinsic strengths that are so characteristic for what I see in Nestle. So the quality of our performance, the quality not only the course of our strategic direction that in a few words is this whole agenda about nutrition, health and wellness and all the growth potential, all the added value that comes out of it, we are continuing to take the decisions I would say of the decision and the strategic considerations that will build this company also for the future. You see here, we are definitely combining always the short term and long term. And that has promises, but that has obligations.
And we can do that because of what you see here. It is because of our intrinsic strength and we're going to walk you very rapidly through them. It is also to be aware of certain challenges that we have today. Be aware of them, acknowledge them and do something about them and build again solutions for these. And also then also to do and to invest today because also before people have invested for us so we can do and continue doing that for the future.
The first thing is our intrinsic strength. And I must say there and I have mentioned them before, our intrinsic strength that gives us that resilience, that consistency over time. These are definitely what I see strengths and competitive advantages of our company. And you have the first thing is our people. I have mentioned it before.
And every time I travel and every time I go wherever in the world, it is that strength that radiates and motivates. It is not only the strong commitment to our an alignment behind what we have been sharing with you in many, many occasions of a road map that how are we going to organize how are we going to organize ourselves efficiently and effectively, that alignment behind us. That talking of the same language is one thing. Also the capabilities and professionalism that we have, the fact that people that are knowing so well the realities of all parts of the world and in a very volatile world definitely an advantage. How we can rewire our organization operations everywhere, it's people.
But then it's the attitude too. The values they live and the way they go about the business, how they go about their business actually reflecting so much what we say Nestle is all about. It is about creating shared value. That's a strength. That's a strength that is even more relevant in turbine times.
Then the other one, it is translates into having today the results of investments made before. Nestle is going to have 150 years of existence next year. 150 years. Actually it started 150 years ago with one of these products that we're still selling today Cidilac. And it has been a story of every time repeating, it's reinventing new dimensions for the future And that's the strength that we are building upon now and that it is our obligation also to do it for the future and the next generation.
That is why we are extending the boundaries of nutritional value and wellness. That is why we are investing in countries and taking it for the long term. That is where our strong portfolio comes out. That's where our global footprint comes out and that is what we do further. And then how we are organized.
This combination of how you combine local with global. We are privileging as an operational structure having the decision making, the operational decision making as close as possible where the action, where the consumer is, where the reality is, Yet at the same time not losing out on global inspiration, we call it, on global ideas, rolling it out, having a common agenda, alignment behind the same song sheet, the road map and yet translate that in actions and in results in every market. These are 3 intrinsic strengths that I want to highlight here that we have to build. It's not for free. You have to build it permanently, but it's something that we have to leverage too.
And that is at the base of our consistency today and in the future. Then we have challenges and we do have very strong challenges. And while Link has walked you through quite a few of them already, and it's first of all an knowledge of them. Accept them as a challenge. And we have not done everything right.
And we have failed in connecting with new realities and we have to see them as opportunities by correcting them and bringing the right actions and strategies in place. The first one is something that is not so much of over making. It is the Swiss francs and Van Link walked you through that. It is something that came to life all of a sudden a few weeks ago when the Swiss National Bank decided to unlock this or unpin the Swiss franc from the euro. But actually it's something we have lived with for so many years already.
You mentioned 40% in the last 5, 6 years. And even if you take further back into the deposits even more. We have lived with a strong Swiss franc and it has impact. Although Nestle has a natural hedge, we call it, because we do almost all of our production and sales in local in the regions where we operate. So we have that natural hedge between revenues and costs.
We do actually less than 2% of our turnover in Switzerland. Switzerland. We have also our debt and financing that is basically 85% in dollars and euros because again there we have that on where we have our operations. But it has an impact. You cannot just pencil that away.
We do export soda system. We have 10 factories here and 2 thirds of what we produce in these factories are exported. Nespresso is a very good example of that. It impacts the added value that is generated in Swiss francs definitely. We have structural costs.
We have D. And give and take almost well over 50%, 2 thirds of our R and D is based here in Switzerland. So paid in Swiss francs. We have translational risk and through the consolidation and we always mention that. Why we say constant currency because over the last years it has had although limited but still has an impact.
Now that calls for action. And we have to take that action further. Not something new, but we have to continue revisiting and rewiring supply chain logistics, renegotiate contracts with suppliers that do have import elements in their operations. So we have to have transparency in our supply chains and go after these dimensions. That is what we have done.
We have a call for intensity there to go faster. We have to look for productivity gains. The factories we have and actually we're going to inaugurate in a few months' time a new factory for Nespresso here in Switzerland. They were all calculated on productivity. And now we have to an additional challenge and look for productivity gains in these.
That is possible. That is something a strength of Switzerland where you are able to do that and that is the base on of our optimism to be able to do that in the future too. And then we have structural costs something that is not linked with the Swiss francs, something we're going after permanently, be it here or in the world. And the actual recent strength of the Swiss franc is just inducing us to do it even faster. That's the Swiss franc.
But then we have other challenges. And we have gone through this already. And one thing I've given you already many points that highlights all our plans we have in place China. And China is definitely the land of opportunity. And we have invested in China, but China has seen some changes.
First of all, slowing of growth, still growth though, but slowing of growth with all what comes with it. And it is our 2 biggest market now, 2nd biggest market. And so what happens in China is very close to our heart and we are really involved there to see how we can swing growth back into high gear. You have to say Nestle in China has grown last year. You say Nestle in China.
So what comes out of the Zone AOA is specifically a part of the range, but in total we have grown in China. So it is a mixed bag when you see these figures. There is good performance. We have mentioned it. We have good growth in ambient culinary almost double digit growth.
Ice cream double digit growth. RTD coffee the new way of drinking coffee in China KitKat as a brand, double digit growth and that's a brand that we have been building upon for a long time. Dolce Gusto just starting and really up for a very, very good start. Intondform Nutrition, very strong performance last year. Neste Professional that was a little bit suffering before last year is back on a very good growth path.
But we do have many underperformers. And the underperformers are definitely below other chocolates, coffee as a category I'd say, Yinlu the whole brand and all the products linked with that brand, Shufu Xi. Indeed what we have seen slowing environment, but what we have seen is 2 fundamental things and you see them here: a fast moving and fast changing consumer landscape and a fast changing trade landscape. And we lost touch. And we have identified that now for quite a while.
We are working on plans to reconnect. You see in China the consumer never in the world at least from what I have seen has the consumer so fast fundamentally changed as in China. His expectations, his awareness of health, his digital drive that really jumps many changes, The fact of clear label, the awareness of so many dimensions, how he combines traditional and really gives value to that and yet at the same time lives with a combination of modern, new, how he works with and embraces the local brands and yet also combines that with the international brands. The fact that e commerce is offering new platforms, new products, new categories and are kind of wrong for the traditional dimensions of our portfolio. That is what has impacted us.
We didn't recognize that at the time and we have to reconnect there. And that touches the whole marketing mix and we have done that. And that is now in the process of being rolled out. It's going to be taking momentum over the months to come and specifically as from the 2nd part of this year. Nescafe back to 60%, 40% preference in all products we have.
YINLOO, nutritional arguments and clean labels and having more protein arguments. Shufu Shi, how we how we go for digital and increase our PFME or product fixed marketing expenses, our support behind the brands through digital. China, the fact is in the national world, the most advanced already in digital and yet having so many opportunities. Another part is the trade, a fast moving trade landscape. The word that is used is destocking.
What happens is if you have a trade that is multilayer, multidifferent layers of distributors, distributors selling to distributors. And then you have another dimension of 1st tier, 2nd tier, 3rd tier cities. When you have a slowing down, you have still a push model, well then you have a disbalance. And that's the balance we have to strike again between pull and push and going for the new trade channels to us e commerce. That is linked with restructuring and re mentalizing also your grocery sales organization.
It is to organize around the e commerce and combine that with digital and social media. It is linked with product differentiation and I have for each channel the adapted products. It is embracing out of home and Nestle Professional more deeply and that is what we are doing. So that has to give back this wind in the sails of good growth in China, something a country we are believing in, a country we have invested in and a country where we're going to see growth coming back shortly. Another challenge and I think Wanling walked through quite a lot of details already there in U.
S. Frozen food. It is a category and a business for us that is challenged and it is a fantastic category. It is a fantastic category because first of all it is part of the North American landscape. It has huge infiltrations Nestle and our brands too.
It is a sizable business 23,000,000,000 business and it is growing projected to be growing for the next years to come, 3% to 2%. The category has decreased over the last years 2% to 3% every year. Why? Because the consumer has changed also the expectations that was not given through that category. Expectations again very much very many points in common.
Fresh and how fresh is perceived and how frozen is not perceived fresh, although it has all the intrinsic freshness in there. And we have to get that across less processed, natural, gluten free, the high protein drive that we see. Also the way people want to eat and not going from the 3 classical menus, but having more healthy snacking throughout the day. So these are new trends that the category, because of its success was locked into not delivering or not understanding or not making these links and we have to connect that category again and our brands with it. We have spoken in the Boston Investor Seminar about that and you referred to that.
It is linked with touching the whole portfolio mix. So it is a fundamental work to be done, something we started already a year and a half, 2 years ago. It is linked to the quality and the freshness of the products, the ingredients we put in there. It is also going for the intrinsic quality of the category and that's why we have this campaign Freshly Made Simply Frozen. It is to also go digital to get the right messages across.
It is to support our brands much more. The category was a little bit starved of brand support. You may remember we spoke about the fact that this category was driven into being on deal. And there, all efforts were just pricing. And people don't buy prices, they buy value.
And we have to get that back in there. And that is what is being done. So there's also repositioning lean. We have seen whole lean market not only in frozen in general is challenged. People don't want to go only for diet.
They want to go for healthy lifestyles and that's where lean has to move into and is moving into. It is also capabilities and we are integrating also in Solon and Productivity a product Technology Center to really go about these new dimensions and to bring that added value into that category. So you see there quite a lot of initiatives happening. It's happening as we speak, rolling out. It started last year.
These are fundamental changes that need some time to roll in to hit and to connect with consumers. The trade has a very high acceptance of all the plans we have. That is boding well for the acceptance also of consumers. So we see that accelerating throughout the year as from the second quarter of this year in a much more meaningful part. Then these are just to show we have other challenges.
We have things that's going well and others. But these are the major ones that you have also identified. I just wanted to share with you that we accept them as a challenge. We acknowledge that. We are working on that.
And we have plans that are rolling being rolled out as we speak. Another point and the last point I want to touch is how we position ourselves for the future. I mentioned that Nestle is a company that, yes, we do have short term intensity. We are there to drive results today. We're living day in day and delivering that behind a platform and a common strategy.
Yet at the same time, we are investing. Part of the P and L is going for investments that we're going to enjoy later on. We can do that because this company has been driving this rolling building platform dimension. And we can do that because they did it for us in the past, building strong arguments, building strong portfolios and brands, well, for us to do that also. And that's why we are building on our nutrition and family strategy in a very meaningful way.
And the best example of that is our expansion of the boundaries. We are building through our food and beverage, which is the foundation of this company, our nutrition and health and wellness agenda. That is where the biggest part of our R and D goes to. Yet at the same time, that is what are delivering the results today. At the same time, we have to build and make complementary growth platforms that have that has a lot of promise.
Hence, there are the Nestle House signs that we started in 2011 that we started to build. And then also last year, by bringing Calderma in the establishment of Nestle Sign and Skin Health. These businesses are small and yet sizable. They do already over €4,000,000,000 and that's just a start. They have and entail a promise of profitable growth for the future.
Nestle House signs 3, 4 years working on that. We have selected or identified the selection of opportunities, growth opportunities that will differentiate and where we invest in science. I'm not going to walk you through the details. We're going to have opportunities later on for that anyhow. So but we have shared and structured also that company behind these 3, I would say, businesses: Consumer Care, specifically more intensively organized around healthy aging and all what comes with that and all the brands that already play there.
Medical Nutrition, a very scientifically driven dimension for specific inborn error metabolism, urea there, pediatric care, also metabolism metabolic care and so on. And then we have this novel therapeutic nutrition that really looks for development of transformational nutritional therapies. This is really building the future. And that's where also we have taken stakes in sales health for example that really goes about exploring home nutrition can be linked with the microbiome and giving there also good answers. And we have engaged in venture funds to keep our ear close to the ground because there's so much happening in that field that entails so much from us.
Same with Nestle Skin Health, where we brought it in last year through Galderma, an existing business. We have a very strong setup with leadership in the specific areas that they are playing in. You see there also we have defined the business and structured the business also behind 3 businesses. You see them, prescription that is basically health care professionals handling our leading brands like Epiduo or Oracea, self medication over the counter, day long setup. We have very strong brands that we have there that are increasingly also fueled by more deeper science and research and development and then aesthetic and corrective.
Well, these are definitely building blocks for the future. We're going to talk over time how we evolved there, but they really entail an amazing promise of profitable growth. Another thing and that's one last point I want to share with you is that a few months ago here in the fall, I was sharing with you the establishing of Nestle Business Excellence and to give that really the right level under the leadership of Chris Johnson on the executive board level. It is by bringing together Nestle Continuous Excellence Globe and Nestle Business Services. Each of them were initiatives that do have and have had a major impact in our organization.
Globe dates back from 2 1,000 where we really went for harmonizing the business processes, standardizing data management and also systems and technologies. In 2008, we had Nestle Business Services. We have now in 5 markets 5 business services. We have one central one here that are servicing all markets and yet there is huge opportunity there to go deeper. Nestle Business Excellence, this whole mindset change of locking into the each person, the 340,000 people of Nestle, this whole drive and awareness of doing things more efficiently, many projects that are converging to our savings that we have been communicating every year.
We are a fundamentally decentralized company. I've mentioned that, the local global dimension. I'm a true believer of that part of our DNA. Yet at the same time, we have a size. We have a size that we have to translate into scale and into competitive advantage.
If we do and see just as an example the benchmark, we benchmark how deeply we are scaling up certain services be it finance and control services or be it HR service or procurement, there's upside. And that is what this whole thing is all about, to really see how can we leverage our scale, our size into scale competitive advantage and unlock resources so we can invest for the future. And that is going to translate on or it's going to be done on 3 basic principles. It is all about simplifying. It is all about standardizing where we can and it is all about sharing and leveling it up where we can.
So that is going to give us then these highly efficient support structures and it's going to go deep. This is going to touch the whole dimension of our company, every part of our company. We're all involved there and it's going to be a fantastic story because it's going to give us the speed and quality of execution and everything we do with the only purpose to have the resources to invest for our future, to have the resource to invest behind our brands. And I think that is what gives to Nestle what I would say with some pride definitely these characteristics: Nestle to be resilient, good times by time, resilient, strength, industry strength, be innovative, be groundbreaking, have this vision on and anticipate future dimensions and build for them. And then also this Quality, I feel, in our operations is dependable.
You can count on the people. You can count on the company consistency. Well, with that, I think I come to the end of my little part where I really wanted to stress a few intrinsic dimensions that are sometimes not mentioned with the right attention. I have said that one of our strengths is our people. I want to do this again say how important I feel people are.
They are at the end bringing all these results and I want to thank them for that. So with that, thank you very much for your attention. We are open now, yes, for questions and answers.
So Thanks, Paul. The first question is from James Targett at Berenberg. Please go ahead.
Good morning, everyone. Two questions from me. Firstly, just on the U. S. I wonder if you could give me a pricing color on the magnitude of improvement that you saw in the second half or the Q4.
And you have clearly communicated the need for repositioning of some of your brands to make it relevant to consumer. But now how satisfied are you with the portfolio you have in the U. S, particularly in frozen? They've been under review now for is there still some pruning to come or bolt ons? And then secondly, just in terms of China, again, you flagged you need to reposition some of the zone categories in China.
That still needs to be done. But is the destocking element that's impacted in 2014 broadly over now? Or do you expect that to be a drag again in 2015? Thank you.
Well, on frozen, I think we have been quite explicit there. This is something that we're not rolling out now only. We are touching each. And you saw we have 4 categories there where we have the leading brands and we have been working on them now for quite a while. There is an acceleration of of launches because when you start reformulating brands repositioning not fully, but repositioning redesigning brands also, revisiting your communication.
These are fundamental shifts. It's clear that we're not going to have them all at the same time. We have been doing already certain things in handheld and in pizzas quite a lot. But we do see for lean cuisine and and stores the relaunches being done as we speak with connection with the trade, some to come on in the second part. That is going to have to get traction.
I think we have compelling plans, but that is going to have to get traction over the months to come. It is clear that momentum is going to be built up over the months, I would say, a second quarter and then further on. If you compare versus the years before, we had decreases. So we definitely speak about vigorous growth again. And it's good timing because North America per se is again consumer confidence is taking some additional colors and there is openness for it.
So I'm really optimistic to see good results coming off of all the efforts we're going to do. It is clear we have to have the trade first with the new offerings and before we really start to support these new IDs and new brands. And that's going to be also a little bit later on. So but it is something that is going to take momentum definitely. And in China, the destocking, it is clearly destocking.
I spoke about the change in consumer. That is at the end of the day, that is what drives the sales. Yet at the same time you have these buffers. There was definitely a system in China where through the and I mentioned it through the different layers and different dimension of cities the first, second, and you add quite a lot of stock in the trade. You get the softer growth environment, a softer pull of takeoff.
And you don't identify that as a company or as an industry. And actually the whole mindset was pushed because it was growing and there was nothing too much. And all of a sudden that's definitely counting. All of a sudden you slow down and it pushes back upstream. And that is what we have been doing now for quite a while because you don't do it abruptly.
There are still some remnants to be done. But we have definitely now embraced also again this whole pull model where you go really for the consumer, but then with the right offerings and hence the whole reformulation of the marketing mix. These are not done overnight. But that's again coincidence maybe in the timing, but that's again something that has to gain momentum. Also the launches are coming in, are being rolled out.
Again, not all at the same time. They're going to have a phasing because there is also efforts and people involved there that have our sales forces have to be linked to that. But I definitely believe there is a good I saw that. We're going to go there in a few weeks' time again to see it in situ. I see good things happening.
And there is very, very, very good arguments linking again our brands with the consumer. That is what matters and that is what done. That doesn't have the same, I would say, impact in time as, for example, destocking. So we go to bad all at once. We're going to have the good rolling out and gaining momentum over the next months.
Thanks, Paul. The next question from the call, John Cox, Kepler. John, you have the floor.
A couple of questions for you. Just on the Paul, you seem to be talking quite a lot about sort of the cost base in Switzerland. And obviously, in 2014, we saw a 30 basis point impact on the margin from that sort of slightly overexposed Swiss cost base. Given the fact the currencies at the moment seem to be pointing to a minus 6% similar to what you had in 2014, would you anticipate another 30 basis point basis point impact as a result of what's happening with the currencies? Or are some of these measures you're talking about you will think that maybe there'll be a reduction in that impact?
That's the first question. And then a second question maybe for both of you and your thoughts on dividend and buyback. Obviously, again, you've increased your dividend, which obviously is good news in this environment. You have the buyback going. What should we expect going forward?
You seem to have maybe moved the mix back to buyback plus dividend from say dividend from the previous CFOs. I'm just wondering what you think of that. And I just want a quick sneaky number 3 question if I can just to come back to that China situation and the destocking. Am I right in understanding that it's because a lot of the products now moving to e commerce and you haven't actually been there so exposed and that is the issue for you in China at least partly? Thank you.
Well on the cost base and I may give some of the answers to you and Lain. But on the cost base in Swiss francs, I have to remind you, for example, a few years ago, we had a ForEx impact of almost 12%, I think, or was it over the year versus our basket of monies there. And that was an impact of 30 basis points. But I don't see and I'm not going to express because that would be very anticipative that the Swiss franc is going to have that impact. That's why we're going to work on that to see how can we soften the impact of the Swiss franc revaluation.
We have all year to do that. It's something that is not new. As I mentioned, we have been going after that now for many years. We just feel there is a little bit of an acceleration or visibility from all sides. But that's going to be done.
Again, I actually have done it over time. There's productivity gains basically. And that is there are still upsides and that's what we're going to work on. At the end of the day, also NBE is part of that solution too in the sense of how can we really have support functions being better and more efficiently given. On the dividend and the buyback maybe when you were laying, I think in dividend policy have shown quite a nice history and we want to have some traditional qualities too.
So but for you maybe China before you answer then the dividend China the destocking I would not say there's e commerce taking over. There is traditional trade people go to stores, etcetera. There is e commerce. But I feel what in China it is reconnected with consumers in general. We still have very good growth and very strong brands there going well in many areas.
Some have weakened. They're still connected with consumers. We just have to add that additional new expectation from the consumer and build it in our brand architecture. E commerce has gained a lot of traction. It's true.
E commerce has different portfolios that are offered that may wrong foot the traditional dimensions of the consumer product landscape. That's where we want to reconnect. These are adjustments, some deeper than others, adjustments that we are making. But we are engaging definitely in e commerce as a trade channel in China. And what I do see and I have mentioned that before, I think e commerce in all its expression forms is going to actually I think proportionally more important in developing and younger markets where you don't have such a strong retail base yet.
A little bit like the cell phone hope these markets or these countries are jumping stages. And that's why we engage in digital, be it social media, because they're intimately linked to each other and e commerce. And that is also part of the answer we give in China, building these capabilities in an accelerated way and engaging with the big e commerce players proactively and in certain dimension partnerships. On dividend and buyback maybe you're willing.
Yes. Hi, John. On dividend, we have made it we've repeatedly said that it's going to be a sustainable dividend policy for 50 years. We've never reduced it in absolute terms. So that has not changed and will not change.
In terms of share buyback, you've seen on our cash flow statement, we've done $1,500,000,000 of the $8,000,000,000 program that we announced last year. To date, we've done $2,500,000,000 and that is a program that we intend to complete by the end of 2015. And so it's so that should answer the questions on both.
Thanks. The next question from the call is from Alan Erskine of UBS. Alan? Alan Erskine? So we don't seem to be able to get that call.
We're going to have a question from the room. John?
Hi. John Lebl, Wall Street Journal. A couple
of points. In your guidance Mr. Volker, you say you're guiding for around 5% organic growth for next year. Does that mean you're preparing the way to go lower than your 5% to 6% next year as well after 2 years of missing it? And the second point is, you described these results as solid, but they are actually your lowest your weakest growth in 5 years.
So is this solid compared to your peers? Or how would you describe that? And just a final cheeky one as well. Just give us a bit more color about China in terms of the destocking? If you had the wrong products before and you've replaced them now or just give a bit more color on what's happened in China?
Thank you.
Thank you, John. You're always so nice to me. In advance if we can talk later still. This around 5% is actually the best expression of a sense of reality. And answers your second question too, you said that we have weakest growth and etcetera.
You look at the world and you see what the growth environment is of the world, we're part of that. What we did though is again building growth on growth and do that also by outperforming the market and combining top line and bottom line at the same time. That is what I call consistency. I think that's what I meant with solid. I didn't say they are excellent, they are good.
I said solid. And that I think is what it is. I didn't fail the Nestle model per se. I explained that here quite explicitly last time. The Nestle model is something we're aiming at for the long for the medium term and that is built upon.
And sometimes we go over it and we don't excuse ourselves for that. Sometimes we're under it. But you see it over a medium term it is right there 5% to 6%. Why? Because that's what we feel we are working for, we are conditioning the company for, and that is what the environment over time should allow us to be doing.
We are aiming again at 5% because that's how we are. We actually believe sometimes I say to myself we are arrogant because we that is what we're aiming for. We have all reasons to soften. But we're not asking a low weight on our shoulders. We are struggling to strengthen our shoulders and say we're going to do whatever it takes to get to 5%.
That's our aim. That is what helped us, for example, last year to overperform because we aim to 5 percent. Around 5% is a term that I feel is appropriate for what we feel is in there for this year.
So now we'll
What is the typical color on
the China situation?
Oh, the destocking. I do believe when I said in China and there is always this dimension of destocking. I don't feel this is that is right to explain. That's actually an effect. That's a result of something softer environment, softer this models of push balancing push pull.
I feel it is much more important to understand, I feel, as a company, are we still connected? And we are. We are very hard on ourselves because we go what doesn't work. What works let it go on. But certain I mentioned certain brands and certain parts of our brands Yindu connects with the Chinese consumers millions of times a day.
Yet there is a movement a shift and that shift we should translate into that brand to be able to connect with that shift too. That's what we're talking about. And destocking is what you see. That's the effect. That's what hurts on the figures.
But there's underlying something more important that we are working for. So we do
one, but basically
what matters is the
other one. And I feel that is what we that has a softer impact. Once you reconnect, you reposition, you reformulate, takes time. All these things they have a longer time line to really impact and let's wait for that now.
So yes, there won't products in some places and now you're replacing
them? Sorry?
Yes, there were products in some
places No. Again, We're not going to throw that away. That has value. Yet at the same time, we have to build behind this brand that also without disturbing the tradition, the new dimensions, the new expectations. So it's not wrong or right.
That is evolving. And that is what we're doing. We're not throwing things out and restarting. There's no rebooting of certain brands in China. There's this evolution connecting in different dimensions.
Brand do have different faces to the consumer. We add them so that they respond to the new expectations.
Okay. So let's take that next question from the call from Alan Erskine of UBS. Alan, please go ahead.
Good morning. Can you hear me?
Hello?
Yes. Do you hear us?
Yes. Okay. Perfect. Okay. Just two questions for me, technical questions really.
Firstly, Wang Ling you mentioned that the margin performance of the other division was helped by the fact that Galderma is seasonally weighted to the second half. My question is, can you give us an indication if Galderma had been there for the whole year, what the difference would have been to the margin? And my second question was with regard to the performance of Nutrition in the Q4. If I've got my numbers right, it was a very strong performance on lapping a very strong performance in Q4 of 2013. So I wonder could you just give us some color as to what were the main features for Nutrition in the 4th quarter?
Thank you.
Well, on the margin, I think you can answer, but you did it already because you said the business of Nestle Skin Health Cadema is weighted to the 2nd part of the year. So as we had it only in the 2nd part, we have an advantage there that's going to be soft. If we would have taken it full year and that's what we're going to have this year. Basically I feel this is the answer. I wouldn't like to go in more details there.
And then on Nutrition 4th quarter maybe you Heiko on Nutrition you can give us some light of why is Nutrition going well and specifically in the Q4. You want to say something first?
Yes. I just want to add too. Hi, Ellen. On the Golderma impact, it's obviously not something that we published because it's part of our other businesses. But if you look at our annual report, you can very easily calculate the impact.
So you just have to it's there.
It looks like.
It's there. We don't publish it.
So you have it, but we don't give it. Okay. I go now just to highlight a little bit what is because nutrition has gone well for us. And in for nutrition in certain areas, in certain geographies really well for us. And we saw some acceleration.
Why is that?
Yes. If you look at the performance of Nutrition
Is there mic on?
If you look at the performance of Nutrition in the 4th quarter, it's I would say more continuation of also the quarters before. It particularly grow more in the Q4 than in the previous quarter, but it's true that last year in quarter 4, we had a very high so we had a high comp to compare with. I would say similar to what Wanning and Paul were highlighting is that very strong performances in Asia across the board, yes in China, but also in the rest of Asia, particularly on our formula and our gum business. And that's kind of a continuation. And I would say on e commerce is an area which there were some questions about.
We have certainly also accelerated our performance there. So that's maybe something that throughout the year we're seeing quarter by quarter an acceleration of our business
there. Thank
you. So the next question from the call is from Alex Houssens of Jefferies. Alex, go ahead.
Good morning, everybody. It's Alex Houssens from Jefferies here. Can I just confirm how you've treated the organic growth of Galderma and other acquired skin care skin health assets this year? Have you included these within the group organic growth number or within the M and A number? And if you have included it within the organic, could I ask how many basis points contribution it's made to the group number?
And then on a separate tack, could you give a little more on how the Vertuo line launch in the U. S. Has progressed? You say you're pleased with it, but perhaps you could flesh out what's been achieved to date with the launch and if it has driven a materially higher rate of growth in espresso in North America.
Maybe, Hugo, although we have given already on Galderba some answer on that. But on the virtual line, I must say it is really going well. You know that also in the special classical is going well. It gets quite a good traction. The acceptance of virtual line is going very well.
Also what is very important to us is the usage of it. So there's a high throughput on the people who bought that new machine. It is really giving very good marks on acceptance of the product. So that is very important again. It is something that starts in the biggest coffee market.
So it has a lot of promise. We are very happy with how the Vertu line together with the Nespresso brand in general is going in the United States and would leave it there. On Galderma?
Yes. On Galderma in terms of organic growth, yes, the organic growth for Galderma 6 months in the second half when after we bought we finished this transaction is included in our OG. And so that is included and the estimate the impact is about 10 to 20 basis points.
The next
question from the call is from Jerry Gallagher of Deutsche Bank. Gerry, go ahead.
Good morning, everybody. Thanks for the question. Just want to come back on the guidance, if I may. I couldn't help but notice the inclusion of the words we aim to achieve organic growth of around 5%. And I think those 2, 3 words we aim to achieve are new.
I appreciate all that you've made a comment in the past, excuse to miss numbers. And that's why you've said the 5% around 5%. But firstly, is this a way of giving yourself additional room around the 5%? And secondly, aligned to that, can you give us a sense of the impact of hyperinflation on that in American countries in terms of contribution to organic growth? Thank you.
To read around 5 percent is quite a few words to get it appropriate. I mean, into a tax an organization like Nestle and saying let's adjust a little bit over the targets now and let's go for yes, 3% to 5% span so you can actually choose then. I think it's, yes, maybe arrogant. They should maybe not be so arrogant. What it does though, it aligns an organization and Nestle.
And actually, the around 5% is only for me because everybody has another figure. And that is linked to the potential of the reality, the potential of the business he is responsible for. And I think that's actually the way we work. And the internal targets to a certain extent is what we pronounce to the outside world. We don't play around with we go for this, but we so hope we can and the other question I'm going to answer that later on.
Okay. So the next question from the call is from Warren Ackerman of Societe Generale. Warren, please go ahead.
Good morning, Paul. Good morning, Wang Ling. Stefan, it's Warren Ackermann here at Societe Generale. I hope you can hear me. It's not been a great line.
The first question for me is around confectionery margins down 2 10 basis points in the year. Some of your peers pointed out that Nestle has taken no pricing in chocolate in Europe in 2014. And I'm just a bit surprised by this despite your comment about the difficulty to pass that on given the intense retail backdrop. I mean you've clearly been hit by much higher cocoa costs as we conceding operating margin in stability in confectionery. And is your Can
you please tell us what is your raw material your cost expectation for 2016 and whether that effectively is driving the pricing lower? My second question, while I will propose to
FX, could you I can't
hear you very well. Celine, could you repeat the second part of your question? We couldn't hear
it. Yes. So my first question was about weakening pricing as well as the raw as well as the raw material outlook for 2015. My second question?
Okay. Yes. Second question.
Yes. It was on FX. At current rate, what should we expect in terms of impact on top line? And am I right from what you said on the first question that the impact on margin will be less than 30 basis points?
FX, yes. Well, I think you
Yes. Let me hi, Celine, it's Wanleng here. First of all, we do not guide pricing. Pricing is something that we do locally and we don't do it on a sort of like at a group level. But having said that, our expectation is no different going into 2015, which is emerging markets and hyperinflationary countries, we should be able take pricing, developed markets, Western Europe, North America.
North America, we might be able to do something in Q4. We were able to take some pricing in terms of frozen actually. So but Western Europe more of the same. And so the dynamics will be going into 2015 will be more or less the same as 20 14. In terms of input costs, our guidance is the same as 2014 in the low single digit for input costs.
And in terms of FX, we do not again, same thing, we don't guide in terms of FX impact on our results. But one thing to bear in mind, there's a translation and there's the transaction from a transaction standpoint, Paul talked about it in his presentation, almost between 80%, 90%. There's not a mismatch between sales and cost because where we produce where we sell. And so 2% of our sales is basically in Switzerland. But so from a translation standpoint, yes, but we don't guide on that.
From a transaction standpoint, it's not there's not a significant miss match because like I said between 80% to 90% is there's natural hedge.
So the next question is from the room over here please.
Bernd Beel, Hello, Mr. Buhlke. You talked about business excellence and an impact of 10 or 20 basis points. But we are talking about efficient consumer response and value chain management for 20 years now. Don't you have higher impact in your company with all these efforts you drive internally?
Or do you give it away to your customers, to your retailers or to your end consumers?
Giving away is a bad term. I mean, because it sounds like for free. First of all, NBE is we bring together already initiatives and dimension in our company that are already there. And that is what has helped us also to really drive our performance over all these years. We speak about Globe who is an enabler.
We're speaking about our Nestle business excellence Nestle continuous excellence efforts at really driving a lean thing into the whole organization. It is always many things coming together that allows you to deliver. And the results are part of what we deliver. Other part is we have increased our R and D over the last few years. We have increased also our as we call it PFME or support behind our brands because we have every year more added value products that we have to communicate deeper for.
So we're building the platforms for the future. Also that takes resources like the Institute of Nestle Health Science that is supporting Nestle Health Science as a business and that has a lot of promise. But these are upfront investments. So what we do with our whatever comes out in more efficiencies and more effectiveness is to really use that as a fuel for growth. That's how actually we are calling Nestle Business Excellence by bringing these three dimensions together.
By going deeper into the organization, there's going to be resources that and we do it for that, resources to fuel growth. And part of that goes to the bottom line. Part goes there to customers, yes indeed, to keep on being competitive in our relationships with them versus the others. So it's a matter of resources. And we take them where we have upsides and I think we have still upsides there.
I don't think I spoke about 10 basis points. The 10 basis points or increasing margin, we say, is a target that we again, that is something we set ourselves for. That is, if we go as a company and leverage our scale better, if we do Nestle Continuum's excellence well, if we are smart and driving added value to our products that should have an effect on margin. That's why we say we go for more margin. But what we get in resource additional resources, much of that goes behind supporting our future.
Do we have another question from the room? Yes, Harassan.
Hello. Thank you very much. I just have two questions. To Lotte's question, I'm Valle Erbognier from Le Tourn in Geneva. My first question is you will propose Patrick Evicher to be elected at the next Annual General Meeting.
I would like to know if you could just comment on what you think you can bring Nestle. And my second question, sorry, you said the productivity in Switzerland must be raised because of the Swiss francs on your 10 factories. And I wanted to know how very concretely do you think you can raise the productivity and if it will have an impact on your employees here in Switzerland? Thank you very much.
Well, I think if you see the track record of Patrick Ebersher, can he bring something to Nestle? If you then see Nestle bring increasingly on a drive if you see what we want to stand for, it is to drive quality of enhance quality of life of people through nutritional awareness based upon increasingly science based innovation. And he is somebody who has a passion for exactly that and how nutrition is part of a healthy lifestyle and science etcetera. I think it's a very strong addition to a Board of a company that has the same agenda. So I see that as very positive.
Now on productivity in Switzerland, what we say is that doesn't mean taking people out. These kind of factories are growing and we have to be effective in competing even with the Sysfran of having these factories having more production. So we are going to absorb that with the same people definitely. We have a natural outflow of people. Should we replace them?
I don't know. We're going to have to see. Definitely, there we are in direct discussion with our employees to see how can we be more productive. Now the easy part what I see a little bit of too easy for us would be we take 10% people out. That's not the answer.
We have invested. We I have mentioned our people here before. They are driving results of this company. Now there are productivity gains to be made together and that's what we're going to do. We start to have saying also should we increase our salaries?
Well, I don't think so. If you see that Nestle alone has reduced price of $600 while inflation in Switzerland should at least if there is one effect that we would expect of having the strength the strength of the Swiss franc coming in is that quite a few products should go down in price because there's still quite a lot of imports here. So we have to see that altogether and that is what we will do.
The next question from the room, Hara san.
Hello. Katahiko Hara from Nikkei. I have two questions. The first one is about the Swiss francs. In the actions that you will take to encounter the situation, you did not mention moving the the immigration as well?
And my second question is about Japan. Since you're doing so well with the innovations, do you have anything in mind that you want to take out to the world and expand?
Let me first answer on Japan. Japan is a good story. And that's in spite of all, if you see there's an environment that would induce or help you to have all the other elements to say, well, I'm not growing because look at it and then there you go. But do we have vigorous growth in Japan? And why is that?
Because of creativity, very innovative ways of going about the business, bringing new elements in. And actually, we have been speaking about Mr. Pepper, which is a small computer. These are well, not any of those, it really makes an impact. But these are all ideas that came out of a market that are I do believe are totally useful for many other markets.
It's an attitude. It's just not accepting a no as an answer and finding new ways digital going deep in there, new systems, adding value to the base products we have and build value around that for the consumer. So actually, I think we're going to have one of these Doctor Pepper's here when you go out a little bit later of 2. So you can't really shake hands with them. It's very cute.
But you see it's again quite a few things that falls together. But there's one common denominator on that thing. It's entrepreneurship going after. There's so much value to be created even in countries that don't have that natural, I would say, pull effect of growth. That's induced growth definitely.
You see KitKat again last year, very good growth. KitKat that was already a sizable brand in Japan. Well, it is growing like it just started. Nescafe, very strong growth there too. So on your second question of moving, these are the questions that you get then.
Is Nestle going to move? Well, we are a Swiss company. We have our headquarter here. We have R and D and de facto R and D grows and then you have tendency of growing. We have factories.
We're going to integrate Enronomont and a special factory. It's clear that's a decision taken a few years ago. Would we take the same decision? I don't know. We have to see.
It is clear that decisions are made taking into account many, many dimensions. And there are so many good dimensions here in Switzerland. You have just to see would that be the same equation today. And it is not only the strength of the Swiss francs, it's part of and I would say it's the minimal part, it's more that framing condition that. I'm saying we're going to translate or bring or export parts of our activities to the outside world.
I'm not saying that. What I'm saying is, if we would have to expand something here, well, I would think twice. That's another way of saying it. But I think we and we are part of Switzerland. We in Switzerland have to think about that.
We have a next question from over e mail from Johannes Fritter of the Frankfurt Allgemeine. Two questions. If Ferrero was for sale, would you be interested? And the second one is, why did the operating profit as a percentage of sales fall in 2014?
You answer this. The first one, I'm sorry. I'm not going to answer that. And actually, this family is in a special moment, and I respect that. So I'm not going to have comment on that.
On this did operating profit as a percentage of sales fall in
2014? Yes. Trade operating profit was up both on a reported and constant currency basis.
Okay. So it didn't fall and end up.
Yes. It was up in constant currency by 30 basis points.
Okay. We have time for one last question from the room. So perhaps well, 2. So let's Uli and then Nathalie here.
Uli Roach, AWP. Two questions from my side. First on acquisition, is acquisitions actually becoming more of an issue if the Swiss francs should stay on this higher level we've seen in the last weeks? And secondly, on financing, we've seen negative rates on some of your bonds in the last couple of weeks. Does this have any impact on your financing policy?
Thanks.
This is clearly a very interesting time, Dorian. And as a company, Nestle, we're going to leverage whatever favorable condition that's out there. And so that we will continue. In terms of M and A, we don't guide in terms specific transactions. Clearly, we as a company, our first focus is on growth and investing for our future.
So to the extent that there are interesting acquisition possibilities out there, we're always looking at them. But we don't guide in terms of specific with specific names. Yes.
And also the Swiss franc, the Swiss franc is stronger. If you buy something in another country, the natural hedge plays again. So I don't think this is an impact. That's not part of our consideration per se to do acquisitions. Okay.
And
perhaps the last question to Nathalie.
Nathalie Lacoste from JFP. I just like to come back on the pruning of your portfolio. Back in 2013, you said you were starting a major review of the underperforming brand. Could you let us know where you stand now in the process? Shall we expect some form of acceleration on this?
And my second question would be around artificial flavoring. 2 days ago, you announced that in the U. S. You would remove artificial flavoring from confectionery. And could you let us know if you intend to extend that to Europe or to other categories?
And what that says about consumer trends? Thank you.
On portfolio management pruning, portfolio management is not only about pruning. Portfolio management pruning is part of it. But portfolio management is to have insight and to make that shared with people who decide on what we expect from ourselves as we call categories or products or brands and markets what we expect from them. And by defining that very explicitly and build that into your whole planning process, you create an awareness that each cell has to earn its place. And when it does, then we invest even more.
So it is also a tool that is not only pruning, it is also to decide where we allocate our resources because we have higher possibility of winning. It is driving better profitability and growth, a higher prospect of having our agenda and lead that category, etcetera. SKU management is one of them where we really prune because there we take out what is really more balanced than enjoyment. So and what's important is we say we're going to accelerate portfolio management. We had portfolio management.
What we did is actually make that awareness much more visible and explicit in the decision criteria and also make that decision criteria much more felt through the whole organization. And that is now built into the planning process, strategic planning process in a very, very fundamental way. Artificial flavoring is something we have been working on for quite a while. This is not because of those. What we did in the United States, we said at the end of the year, it's over.
And that's a little bit linked with the commitments that we have publicized on many other areas. You may remember in our annual report, we said, look, instead of having these internal objectives and all transparency, why are we not putting them outside and share them and say that's what we're going to do. That's what we're aiming for. That's what we will do. And we report and you're going to see now in the annual report of this year again, we report on last year and how we're doing and commit for the next years to come on many of these issues too.
And one of the biggest chunks of this commitment is what we want to be as a company, nutritional and environmentalist. Well, artificial players with consumer that although fully safe and all, but that's the sensibility that consumer has, we answer to that. We have done that already in all products that go specifically to kids like Smarties and all that. They don't have that for many years already. Well, we commit to the outside world to do it in a whole range of triplets and convictionally in the United States.
And that's a move that is in Europe too. We don't say we do it in we do something in the United States, but in your opinion, we don't care. Because the insights, the way to do it, all that we apply then worldwide over.
So that was the last question. Perhaps your concluding words?
Well, my
concluding words is I just want to stress that reserves are coming because of certain qualities that you have to build. It's not for free. And this combination of building and yet at the same time delivering, that balance, strike that balance, is what I see as one of our my personal objectives to keep that balance going, to invest yet at the same time to deliver. We aim around, etcetera. That is what guides 140,000 people.
That's what we altogether want to deliver. We're going to work for that, and we're going to do that. Again, in this consistency, I would say, and balance that Nestle has been characterized for, we will keep that. A lot of energy going into that too. So with that, I want to thank you all for having shared this time with us and show interest in our company.
And well, and see you then in next occasion. So thank you very much.
Thank you,
Paul. As usual, we're happy to take any follow-up questions via e mail or Twitter. I'm sure you know the addresses. Thank you very much.