Good morning, ladies and gentlemen. Welcome to our full year results conference here in Vevey. This conference will be held in English, but you can also follow it in French or German using the headsets provided, or if you're watching the webcast, you can choose the right language by clicking on the respective link on the webcast page. Let's start. As usual, we will take this slide as read. Paul, you have the floor.
Thank you, Paul. Thank you. Good morning, all. Welcome to our full year results conference. I must say thank you for your interest in our company, for the people here in person, also the people listening in via the phone and also the webcast. Good morning to you all. I have here on the podium with me, Wan Ling Martello, our Chief Financial Officer, who shares this podium with me. I have also the whole Executive Board here in front in the first row. For the first time, for the full year results conference, we have Stefan Catsicas, our new Chief Technology Officer, and also Marco Settembri, Head of Nestlé Waters, who took over in December of last year. Peter Vogt, also the first time for the full year results, Head of Human Resources, and Martial Rolland, who is responsible for Nestlé Professional.
They will join us for the question and answers. You have seen the results this morning, Wan Ling is going to give more details. Let me very fast give some comments on them. These are a good set of results. They're a solid set of results, operational results for the year. We can talk about the macro environment that was soft, of soft growth, actually below recent levels in emerging markets, and I would say minimal or no growth at all in the developed markets. Our response to that has been to accelerate actually our innovation drive. I have been speaking about innovation every time I have been talking to you, but we have accelerated that, and in fact, 2013 has seen an incredible number of new products and the rollouts worldwide over. We have increased, combined with that, our brand support, that's very important.
We have considerably increased our brand support because that's the link with consumers, and in difficult times, that's the right way to do it. Also, we have assured that our pricing was reflecting the consumer needs in this environment. We had a substantial softer pricing. That all gave us impetus. What you're seeing is that our real internal growth has gotten more momentum. That together, combined with our structural and cost savings efficiencies, has enabled us to, yes indeed, again, to deliver margin improvement and also very strong cash flow. We also intensified our portfolio management. We have been talking about that in recent times, and more specifically, last time I was sitting in front of you.
We have done that by, yes indeed, putting the right resources and the people behind the right ideas, but also by defining and reinforcing our strategic direction. That is all about nutrition, health, and wellness. A few years ago, we have also started with Nestlé Health Science, where we spoke about extending the boundaries of nutrition. A few days ago, we communicated to you, we have shared with you also the creation of Nestlé Skin Health S.A. by bringing in the 50% stake of L'Oréal of Galderma into Nestlé. That's again, a very important step in that definition of enhancing quality of life, which is all about nutrition and wellness. What we are doing there is, for Nestlé, is extending the boundaries of health and wellness. We can talk about that later. It's a major platform of growth for the future.
That is a few introductory remarks. Wan Ling, I hand over to you to comment on our results of last year.
Thank you, Paul. Happy Thursday to everybody here, as well as those listening in. I am going to touch on those highlights Paul has just mentioned, adding more detail. I will take you through our income statement, our cash flow, and operational performance before handing it back. On this slide, which is 2013 full year highlights, you will see that it was a challenging year around the world. Our strong RIG of 3.1% reflects our commitment to be competitive in an environment of generally soft commodity costs and also of subdued consumer sentiment. We have grown. We have grown thanks to keeping in touch with our consumers, delivering products that are not only nutritious, great tasting, but also affordable. We have done so by focusing on efficient operations and profitable growth reflected in our increasing trading operating profit.
This margin improvement was delivered while we sharpen our competitive edge by increasing our investment behind our brands. You will see on this following slide how our continued investment in marketing, paired with innovations and excellent execution in the markets, contributed to our 2013 performance. Our operating cash flow remained very strong at CHF 15 billion. This was a great year with a further reduction in working capital, especially coming on top of the exceptional performance in 2012. Finally, our underlying earnings per share were up 11% in constant currencies. I will now take you through some of the key elements that helped deliver this. Let's first take a look at the evolution of margin in more detail. As I said at the half year, we have experienced a soft cost environment, generally in our raw materials, we have been disciplined in delivering efficiencies from our operations.
NCE, Nestlé Continuous Excellence, once again delivered over CHF 1.5 billion and contributed to a 70 basis points decline in the cost of goods sold. Distribution costs fell by 10 basis points. Admin costs also fell by 40 basis points, reflecting structural efficiencies, including in our pension plan. We continue to invest substantially behind our brands, increasing the total marketing spend by 60 basis points with consumer-facing spend up 16% in constant currencies. Our digital spend was also up 40%. Our net other trading expenses increased by 40 basis points. This was mainly due to restructuring. We compensated for the many external events around the world that are expected to be part of doing businesses in about 190 countries. We increased our brand support and had a higher level of restructuring while also increasing our margin.
Our trading operating profit was CHF 14 billion. The margin was 15.2%, up 20 basis points reported and up 40 basis points in constant currency. As a footnote, I know many of you still benchmark us on the previous EBIT margin level. There is a better improvement at that level, 60 basis points before currency impacts. Moving on to the next slide to complete the income statement. Can see here the net other operating expenses were up by 90 basis points. This was due to what Paul mentioned, our intensified portfolio management. Taxes were in line with our guidance of 27%-28% with the underlying tax rate at 27%. Underlying earnings per share in constant currencies were up 11%. The group's operating cash flow remained very strong at CHF 15 billion.
As we commented in February 2013, the remarkably strong performance we saw in 2012 was likely not to be repeated. The discipline across the organization in managing all aspects of working capital contributed to the positive trend, as you can see on this chart. Completes my review of the group numbers. Me now move to the review of the businesses, starting with our regional growth. Let me highlight that we have again achieved growth in both our emerging and developed markets. Emerging markets had an organic growth of 9.3%, now representing 44% of the group's sales. Developed markets grew organically at 1%, but our RIG was in fact higher at 1.9%, which I think is very impressive.
Despite the differences in trading environments across the three regions, our markets have performed well and have delivered a positive, and in many cases, accelerating RIG performance. On to the growth story in more detail, let's have a look at the zones and globally managed businesses. All delivered positive organic growth, as you can see here, with most also having a solid RIG performance. More specifically at the Americas, the region finished the year broadly in line with how it started. Key part of this was the steadily improving RIG momentum in the second half, especially in Latin America. Zone's growth was delivered in an environment that remained subdued in the north and in an environment that deteriorated in Latin America. North America, there was a continued decline in the frozen food category. Our portfolio, Lean Cuisine suffered the most.
Having said that, Stouffer's had a positive growth benefiting from our focus on improved ingredient quality. We dramatically reduced our SKUs in Hot Pockets while driving the brand's growth. Both DiGiorno and Jack's Pizza brands were able to gain share in the declining category. We have worked hard to strengthen our whole portfolio through innovations such as DiGiorno Pizzeria!, Butterfinger Cups in confectionery, and salad additions for Lean Cuisine. Equally, there have been innovations on the premium side, start creating moments of affordable luxury. Häagen-Dazs Gelato Ice Cream for me and you, which I can personally vouch is super yummy, as well as things like Fancy Feast for cats. You should try the gelato on our U.S. Fancy Feast on our U.S. road show.
The gelato ice cream, not the thing for cats. Not Fancy Feast. Pet care in North America came under pressure, not only because of our Waggin' Train withdrawal, which we talked about during the year, but also due to intensified competition in some dog segments. Even with those two headwinds, pet care delivered positive, well-balanced growth. Moving on to Latin America. Dairy had good momentum throughout the year. I've talked about ActiCol, if some of you remember in our previous calls. It's a cholesterol-reducing product in dairy, and I'm happy to say it continues to do well. Chocolate, which is our second biggest category in Latin America, ended the year with double-digit organic growth. Nescafé Dolce Gusto was a particular highlight across the region. In Mexico, we have adjusted our coffee portfolio to remain in touch with our consumers' needs with the rollout of 3 in 1.
By ensuring affordable price points across the Nescafé range. Brazil continued to be a highlight for the region, with good performances in adult cereals and Nescau. Pet Care had double-digit organic growth in Latin America, well-balanced between pricing and RIG. Dog Chow and Pro Plan were among the main highlights. Moving on to Europe, trends there were unchanged, but we delivered positive RIG. Our negative pricing reflected the deflationary environment seen across the region and our commitment to be price competitive for our consumers. Looking at the zone from east to west, the standout performer was Russia, with double-digit RIG. This was driven by soluble coffee, confectionery, especially KitKat. Ice cream, mainly due to PPP, which is our peelable banana, Mövenpick, and our premium cones. The rest of Central and Eastern Europe faced difficult economic conditions, especially Ukraine and Poland.
Western Europe saw standout performance from Britain, the Netherlands, Belgium, and Austria. The continued investment behind innovations such as Nescafé Dolce Gusto, Nesquik Opti-start, and in the Maggi range contributed to our growth. Germany did have a difficult year, especially in ambient culinary. France faced tough comparatives from last year and sluggish market conditions. Southern Europe remained difficult as consumer confidence continued to be low. To finish Europe on a high note, Pet Care delivered strong growth across the zone, driven by Felix, Pro Plan, Purina ONE, and Dorame. The highest growth rates were in Russia, in France, as well as in Germany for Pet Care. Next up is Zone AOA. It ended the year stronger than the first half. This was mainly due to the continued rollout of innovations together with brand support. Increased momentum in both RIG and price contributed to organic growth of 5.6%.
This performance is good given the political and natural challenges the zone faced in 2013, on top of the economic slowdown across the emerging markets. It also reflects our ability to build competitiveness in a deflationary environment, demonstrated by overall market share gains. Many emerging markets delivered double-digit growth, most notably in Africa and Middle East. China did slow down, but held or grew market share in most categories. Ambient dairy delivered excellent results, including adult and senior nutrition in China. There were good performances from Nesvita, YiLiang, and the premium Yinlu Congee, and Indonesia with Bear Brand. Returning to the zone, KitKat and Milo had double-digit growth, and Nescafé Dolce Gusto continued to be one of the biggest growth drivers in the zone. Soluble coffee saw intense competition throughout the year.
Our response has been to invest behind innovation and to continue our brand support, to make sure we win the 60/40+. In those developed markets, we saw trade pressure in Australia. Japan, though, continued to be the bright spot, where KitKat and our coffee systems are doing especially well. This was due to innovative market execution and the way they have embraced digital. Moving now to our globally managed businesses, starting with Nestlé Waters. Nestlé Waters delivered growth across the world despite pricing pressures in Europe and North America and a market slowdown in AOA. Our international sparkling brands, including Perrier and S.Pellegrino, gained share. Nestlé Pure Life, which is now the world's biggest water brand, continued to grow well in the emerging markets. Nestlé Nutrition. Nestlé Nutrition grew at 8.2%, the main driver being double-digit growth in infant formula.
The integration of Wyeth Nutrition has gone extremely smoothly and the business performed well. Our infant cereal business also had a good year, a highlight being Brazil with our Mucilon brand. In our other activities, Nestlé Professional did have a challenging year, that's because of out-of-home environment in both Western Europe as well as Asia. Nespresso had another strong year of growth. All its core European markets and the Americas contributed. Nestlé Health Science had a great year, had a good growth. It also continued to build on its ambition to offer nutritional solutions that address disease and health conditions. The acquisition of Pamlab strengthened its capabilities in the areas of both brain and metabolic health. Let us now turn to trading operating profit.
The zone's margins reflect an increased level of restructuring as well as a higher level of brand investment, partly compensated by NCE, which is Nestlé Continuous Excellence. There was good margin improvement in our globally managed businesses. Nestlé Waters' improvement came mainly from efficiencies in manufacturing and packaging. Nutrition, on the other hand, benefited from a mixed effect of strong growth in the accretive infant formula, cereals, among other categories. Now, a very quick look at the product groups. The profile of RIG and pricing, as you can see here, is similar to that of our zones, with the exception of prepared dishes and cooking aids, where RIG remained flat. Powdered and liquid delivered a RIG in line with what we've seen earlier in the year. Here, I'd like to take a moment and highlight the 75th anniversary of Nescafé, today present in over 180 markets.
We are investing significantly in this celebration, including a new logo, new communication. Consumer-focused innovation has always been central to Nescafé's success, and we have a strong plan of rollout in 2014. Following that commercial break, let's continue with our other categories. Dairy and ice cream saw improvements in both RIG and pricing during the year, delivering its strongest RIG performance since 2011. Prepared dishes continues to have its challenges, and its RIG remained flat. Ambient remains our strongest performer, with frozen under pressure. Confectionery's RIG was driven by Europe, with particular highlights in Russia and the U.K. and Latin America. The RIG for pet care accelerated with especially strong performance in Europe and Latin America. Looking now at the product group margins for 2013, powdered and liquid beverages margins was up 70 basis points. The category benefited from a soft input cost environment, as well as operational efficiencies.
It also increased its brand investment. This category has been called out by some of you for its low growth in 2013. This was partly because the category had no need to take any price. Here you see the other side, the flip side of that coin, a big increase in the margin. Milk products and ice cream had higher commodity costs in the second half, and we continue to invest behind our brands. Ice cream continued to improve its margin. Prepared dishes and cooking aids margin was down 90 basis points as we increased consumer-facing marketing spend on a global basis and implemented restructuring in North America as well as in Europe. Confectionery's margin decline of 100 basis points was mainly due to increased marketing spend as we discussed in the first half. Finally, pet care. The 60 basis points decline is entirely due to Waggin' Train impact.
We also discussed this at the first half. The impact was somehow mitigated by a good operational performance. To recap, despite the many headwinds we faced in 2013, we grew. We grew in all of our businesses and regions. We increased our brand support. We intensified our portfolio and our cash management. We delivered an improvement in our trading operating profit margin. We improved working capital and delivered strong operational cash flow. We increased our underlying earnings per share in constant currencies. Finally, we are proposing a dividend increase to CHF 2.15 a share, which is up CHF 0.10. With that, I would like to hand it back to Paul, who will give you the strategic context of our 2013 performance, as well as talk about how we're shaping the company for the future.
Well, thank you, Wan Ling, and as promised, we're going to have a gelato next week when we're over there in the U.S.A. I would say these are good results, solid results, and they come on top of good results in the past. I want to walk you through what is actually driving, what has driven, is driving, and will drive our performance over time, and what did it also last year. It is linked with, I would say, a very strong strategic direction that you see actually here in this chart. A strong strategic direction that is aligning all organization behind the right drivers and initiatives, and that converges then into solid results over time. It creates value for our company. You see it first, and I have shared this roadmap with you for several years, and that's the strength of the roadmap.
We always challenge it to check it over time, but it is consistent over time. It is valid over time, and that is what strategic direction should be. We have also defined our priorities, and the priorities are guiding us basically to face the tough environment we have been living in for five years, each year with its own characteristics. Last year it was, yes, indeed, softer growth and less pricing potential, but there, each year had its challenge, and we have picked up our priorities. It is linked with making choice. It is linked with seeing opportunities in the market, in spite of being hidden behind lots of challenges. It is linked with also, and defining very clearly in commercial and marketing terms what the consumer values, means also taking out what consumer doesn't value. It is linked with also engaging with society.
The link with the company and society that we have structured in a way that is really meaningful and is captured by society in a meaningful way. Hence, also the value that the society and the different stakeholders give to many initiatives, be it the Cocoa Plan, be it the Nestlé Creating Shared Value concepts, be it how we link up with the local communities, is increasingly important in a society that is asking from companies to link up with them in a constructive way. We have embraced digital and what digital does in all aspects of our commercialization, and also how we handle our relationship with consumers. Then also having the best people, and I think that's taken for a given. It is not given how we drive our attracting, retaining, training, motivating our people, and also aligning them behind the right things.
The last year, we spoke about focus areas. Focus areas that we felt, considering the intensity of the actual new reality that we have to focus on, and that is linked to strengthening our portfolio. We have been talking and sharing with you this portfolio management, how we go about that. It's not only management, but also doing something with that. We have done quite a few of these things, and also allocating resources and mastering complexity. It is this combination, this consistency of a roadmap, but this combination of priorities and focus areas, and driving that through the organization with the same discipline that we have here in the executive board, but driving that through to all ranks of the organization, to all geographies, is the strength of this company, and is what is behind strong figures.
Let me now share with you a few dimensions of it. That is actually, in my eyes, the most relevant drivers of success in the days of today. The first one is, de facto, the Nutrition, Health, and Wellness agenda. It is the core of our strategy. It is what we are all about as a company. It is one of the strongest value drivers, as explained and expressed in profitable growth that is behind our success and our results. It is actually driving competitive advantage for our brands. You see how we go about this Nutrition, Health, and Wellness. It goes through our food and beverage portfolio of products with specific aim at nutrition, Nestlé Nutrition, that is translating specific nutritional needs of people, like infants, et cetera, into meaningful products.
It is linked with our setting up of Nestlé Health Science a few years ago, as I mentioned before. Now again, it is linked with setting up Nestlé Skin Health through the taking of Galderma. It is indeed the most strongest and most valuable value driver expressed in profitable growth, and margin increases that we have, Nutrition, Health, and Wellness. That is linked with also trends in society, the population growth, middle class building up in the emerging markets. It is linked with aging population, and it is linked with consumers that are more aware of the nutritional dimensions in their lives and what it means for their quality of life. That linking up of all these different dimensions is what Nutrition, Health, and Wellness is all about. We are indeed about giving our consumers best-tasting products with nutritional profiles in each of its categories.
That is driven through different dimensions. It is driven through products and R&D. I cannot stress enough the importance of our 60/40+. It is something we have been talking about for quite a while, and sometimes we forget. That is the most important tool and mindset that drives the Nutrition, Health, and Wellness agenda in this company. It is bringing to what we are and the brands we have and the products we have everywhere in the world, these arguments and these benefits. It is something that touches quite a lot of our portfolio. I have been saying that we want to churn our portfolio, each product, each brand, everywhere, wherever in the world, through that process of checking on taste and be preferred in taste, and yet at the same time, having arguments on Nutrition, Health, and Wellness.
That is a tremendous effort, where quite a lot of our R&D is going at. It is this permanent momentum that gives the arguments to our product portfolio and our brands, and that gives our competitive advantage. Last year, we have reformulated, just like that, 8,000 products, just last year. If you add it all up, one-third of our products is actually in that process. We have spoken about micronutrient fortification. It is going on continuously. Last year alone, we have delivered 170 billion servings of microfortified products in the world. Again, because we have all these products that are potential carriers of these micronutrients. It is a part, an intrinsic part of our agenda, and of also creating shared value as being positive part of society where you have these deficiencies. We can do it in a normal, in a natural way.
We can build it in the normal diets of the people wherever they are. We have also redefined our commitments to the levels of salt, sugar, trans fatty acids, and also saturated fats. You find them on the website. They're very public. That is something that is committing us towards society, is committing our portfolios towards these targets, and it is actually driving. Again, it is conditioning us. A commitment is to be fulfilled, and that is driving also quite a lot of innovation, quite a lot of research and development to deliver these dimensions. It is framing our portfolio quite drastically. What we have started also, and very important for the future surely, is studies. Knowing what people eat. More specifically, knowing what kids, infant eat. Because a healthy life starts with a healthy childhood. We have done studies in the past. We're extending that now.
We call it the FIT study, which is Feeding Infants and Toddlers Study that we did in the U.S., which is going after what do kids from zero to four eat, really. We have extended now these studies, who are standardized so that we really can use it and also share it with authorities. We have now rolled it out in Poland, Russia, the United Arab Emirates, China, Mexico, and rolling it further out. That's going to give us a mapping of knowledge that we're going to share. It is also something that is going to learn how we can also gear our portfolio towards that part of such an important part of our society. We are additioning and complementing now these FIT studies, as we call them, with the Kids Nutrition and Health Study that goes to children from four to 12, and rolling that out.
Last year was the first year where we rolled it out in the U.S. We are in preparation now for Mexico. China and Australia and France and the Philippines. There's a complementary study to the FIT study, where we're going to know then from zero to 12, what do kids eat? What are their behaviors? What is their diet? It's different in each country and each region. It is to be mapped worldwide, but it's going to give us a very broad view. It's going to give us also a bridge of relationship with authorities who are caring for health in society. We do care, too. That is going to be shared also then in our R&D system to really guide our innovation that is gearing products that are more specific to the specific nutritional needs of this part of the population.
Another part of nutritional wellness is communication. Again, they're very simple, straightforward things. We have been talking about our nutritional compass, which is pulling together different dimensions like the nutrition table, the ingredients list, et cetera, in a meaningful way so that our consumers can connect with us. That is almost on all our products now, rolled out worldwide. We combine that also with the Guideline Daily Amounts, the famous GDAs, that we do have now in more than half of our products worldwide. GDAs are basically framed in certain areas or certain geographies or are regulated, or we are rolling them out because we feel it's a meaningful way, again, of connecting with consumers and allowing them to have responsible, meaningful choices for their diets. That is now worldwide rolling out, and we have the intention to roll it out to 100% of our products.
We have websites, we have intensified our call centers linked to digital too, social media apps are rolling out all this to connect with consumers so that they can know what our products are, how they can fit them in their normal diets. It is definitely the nutritional wellness, our strongest profitable growth platform that we are embracing. Another growth platform that is combined then with this is premiumization. Premiumization is expressed in defining more nutritional benefits. It is defining permissible taste that is linked with systems, it is linked with services. It is increased personalization. It is premiumization in different aspects that creates value also for our company. It is clear that Nespresso is our best example.
It is used and abused, it is going well, we are pushing very hard to roll out worldwide of this fantastic concept that is indeed, through its success, inviting quite a lot of other players, that is what is motivating to us. We had exactly last year again, a very good growth, we are all focusing on continuing doing that. Other examples, though, are pet care. Actually, the whole pet care success that we have, that we see now reflected also in Europe and Latin America starting to gain momentum in Asia and Oceania and Africa too. It is innovation based on premiumization, it is really linking the proposition of Purina towards added value nutritional benefits. We have also Perrier. 150 years of Perrier was celebrated with bringing Andy Warhol back and having a limited edition of pop art bottles and cans.
That is a certain way of premiumization on premiumization. Perrier is a premium brand. We have also Kit Kat Japan, for example, is a good story. Japan is a country where we are growing quite vigorously this year. It is not an environment where growth is natural, we are growing, that is thanks to seeing our business from different angles. Kit as in Kit Kat is not a Kit Kat, they have really premiumized this product very strongly in Japan, it is growing. It is part of the Japanese landscape. They opened a boutique where you have to queue for three blocks to get in. Just this intrigue of a brand and how you can make a brand that we all know for over 75 years, how you can really re-energize that through premiumization.
Also normal other products, Nestlé Nesquik, which has been reformulated with less sugar with also the Opti-start, which is a new brand adaptive benefit that is combining vitamins and minerals to give nutrition and nutrient support to kids, has been relaunched in Europe has been growing very vigorously. It is part of the growth in Europe as ideas like that combined with others. The nice thing about premiumization is this is not only for the big mega cities in the developed world. This is also working very well in the developing world. Remember, an emerging middle class is allowing premiumization in these areas of the world, too. That is why we spoke about managing the extremes, premiumization and also the emerging consumer. With that, we have this nutritional fundamentals and our premiumization.
It is the combination of things that helps us to have the dynamics in our results. It is the combination of nutritional fundamentals combined with premiumization, rolling that out through the whole portfolio of Nestlé. That combination, the whole portfolio of Nestlé, with which we can be part of people's lives everywhere in the world, every moment of the day, every moment of his life. That is what drives the success of this company. That is why we are decentralized, because these portfolios have to be managed locally, translated locally, although with global concepts, but translated locally. The strength of that portfolio and these brands is combined with the innovative drive behind nutritional fundamentals and premiumization is what drives it. Innovation, I spoke about innovation. I am going to not drag long on this.
Our R&D set up that we have, we have reinforced it last year. R&D is where we do not save money for saving money or cutting costs. We have invested more. We have invested in our PTCs and research centers all over the world. Stronger beat in Solon,[ Aarup] here with our system technology center in Singapore and others. As I mentioned before, 2013 has been the year of record for innovation. Many of them have still to be rolled out much broader and getting more noise. We have things like Maggi Papillote in Europe, one of these other elements why Europe is growing. A new concept, a special cooking paper where you do not need to add fat and oil to cook very tastefully. We have, for example, Nescafé Arabiana in Middle East, which is a typical Arabic coffee projection, an instant coffee.
How you combine localness again with global ideas. We have special tea that we start launching now also in Japan, I really see there a lot of upside. Rolling out of good ideas. We have Butterfinger Cups that we launched over a few weeks and got quite a lot of noticeability. 30% of our sales last year was actually linked with innovation renovation in the last two, three years. Innovation renovation is again very strongly behind that. Our portfolio has also managed through merger and acquisitions, you saw Wyeth Nutrition that we bought a little bit over a year, has been now embedded very well into the Nestlé organization. It has delivered on its promise. It has delivered on its promise, you remember that we said also always acquisitions are linked with, it has to make strategic sense. Definitely it is complementary on platforms.
It has delivered on business, it has actually outperformed our expectations there nicely. It has also delivered in being so compatible with our value cultures of this company. Very good experience there and really motivating. We have others. We had also Petfinder, the world's largest website for pet adoption, which is showing again Purina of being not poor. Purina is not about pet food, it is about pet care. How we, again, through added value services, are creating premium on top of the normal offerings. Pamlab is another acquisition that we did that gives us capabilities in the U.S. to connecting through offerings of medical food with a world that we are exploring in an intensified way. Sometimes you have to depart from certain brands, certain products, we have done that, too.
When they don't really fit strategically or they don't give us a business enjoyment, we said we have several dimensions, but we have them to divest. We have done that with Jenny Craig, which was sizable one, also with PowerBar, that was announced. That allows us then to put really the people and resources behind the right things that are working for us. That is what we did. De facto, our SKU management is the same thing. Getting rid of SKUs that don't work. Last year, again, we did a cleaning of more than 10% of our SKUs so that we can really put right resource behind the good SKUs, that work well for us, also the innovation.
Again, speak about a strong portfolio that is driven by innovation, that is driven by putting resource behind the right things, that is driven by merger and acquisitions, has to be combined also, again, with our geographic footprint. A strong portfolio, a broad portfolio has to be combined with a strong geographical presence. We do have that portfolio, not by adding parts worldwide. We do have a strong portfolio everywhere. That is, again, a strength that we have, how we link up with our consumers everywhere. We have been there for many years. Linking up with consumers as brand links is emotional. It works and accumulates over years, and we have been there for so many years. It allows us also to be so decentralized because we do have momentum, we do have minimal sizes in all the markets we are operating in. You see that.
We are indeed a company, it's a combination, as I said before, of added value through nutrition and wellness, driven by innovation renovation, having a broad portfolio of brands and products, having the geographical presence that we have. That combination allows us to grow everywhere in the world. You see it again, we have grown in the emerging markets, which is 44%-45% of our total Nestlé sales. Has grown 9.3% last year, that has been We have de facto as a fast-moving consumer goods, the biggest absolute presence in the markets allows us to have organizations and operations that can be leveraged. We have indeed the biggest presence, I call it navy presence, in the developing markets, which gives us also this important platform of growth together with the emerging middle class. We have also grown in the developed markets.
Developed markets cannot be stressed enough how important that is to us. We always said we're not going to back off on the emerging markets when we really got into trouble a few years ago. We embraced the opportunities. We looked for them. We've pulled the resources. We increased our brand support, that has been showing up in 1% organic growth. The price was actually negative in the developed markets, in Europe specifically, quite dramatically. We have grown 1% organically. We have actually grown 1.9% real internal growth, volume growth, gaining market shares. Actually, in Europe, it was close to 2% real internal growth that we had. It cannot be stressed how actually proud but also motivated we are by seeing growth and where we don't have the growth tailwind. That is linked again with lot of innovation.
De facto, the developed world is sometimes, or in many instances, the cradle of innovation renovation. Many concepts that are born in these countries are then rolled out worldwide, and we have quite a few examples of that. Look, it is again, this, and I come back to this chart. The alignment that it gives. The pulling resource behind the right things, the discipline over time that it gives cannot be stressed enough. It allows Nestlé to be really uniquely positioned for the profitable growth in the future, for creating value in the future. We continue our nutrition, health and wellness journey. That is what guides us. That is what really motivates us. We continue to building and constructing and positioning ourselves for future growth. I have said before, three years ago, we are all about nutrition, health and wellness.
We have our food and beverage category. That is what good food, good life stands for. A few years ago, we extended the boundaries of nutrition with the creation of Nestlé Health Science that is backed with the Nestlé Institute of Health Sciences. What we have done and communicated to you this week with the creation of Nestlé Skin Health, is exactly the same direction. It is really extending the boundaries of health and wellness. Do that by bringing in Galderma and really going after specialized medical skin treatments. Do that, again, on the same premises that Nestlé has been driving growth in the past, and the future, and will do in the future. It is to be science-driven, R&D-driven, innovation, that you can have really building in intrinsic differentiators into your portfolio, but that also creates value for consumers, and by doing that, also for society.
We are all about enhancing the quality of life, and that is what we are looking for. That is what that stands for. That is what we are also constructing for the future. Definitely Nestlé Skin Health is a very strong, profitable growth platform for the future, and we are happy that we're starting to expand in a meaningful area there, too. All these dimensions are behind delivering results. To do that continuously. The results have been there for so many years, and 2013 has just been one of these years that, in spite of all, has been an intrinsic building block again of what we call the Nestlé model. Which is, yes indeed, in creating and delivering in a consistent way, profitable growth, and to do that with a good mind on resource efficiency.
Yes, we have a band of 5%-6%, and that is what we delivered in the past. That is what we deliver and will deliver in the future. Last year was actually a very firm building block that allows us to do that over time. I feel, dear ladies and gentlemen, that we, for 2014, foresee a year that's going to have quite a lot of the same challenges. The developed world and the Europes of this world are not out of the woods yet, and they're going to have to work hard to bring natural growth back. We are growing there. Also, in spite of all, we're going to grow also in 2014. It's going to be in line with 2013. We see an acceleration of growth coming during the year, we are going to, again, outperform the markets.
It could be similar as 2013. We're going to do that with around 5% of organic growth, with improvement of margins, because also all the efforts that we have started to do so many years ago are continuously repeated each year. We're going to have an underlying earnings per share in constant currencies and also capital efficiency. That's the model. That's what we delivered in the past. That's what we're going to deliver in the future. 2014 is the first year of the future. Thank you very much. We are open now for questions and answers.
Thank you, Paul. For those of you on the call, if you want to ask a question, please press star one on your phones to join the queue. If you want to withdraw your question, please press star two. Please limit yourself to two questions. Now let's take the first question from the room. Yes, Uli Hoch. Uli? Hi.
Mr. Bulcke, I like your word premiumization. Does that mean if you have, for instance, KitKat and you premiumize it, is it going to be the same price, or is everything going to be a bit more expensive?
I wouldn't express it like expensive. What we do with premiumization is creating more value. It can be more expensive, if you see it like that, it's going to be still a good deal because you get more from it. KitKat success in Japan has not been because of premiumization and pricing. It has done by creative ideas of linking up KitKat, for example, with special moments of, in the Japanese world, school-going people. KitKat means actually good luck or something like that. We have used that sound bite that sounds like good luck. We have used that for students going and doing their exams. We created an emotional links. That's premiumization, too. Premiumization is not only adding costs. It is seeing different angles, adding more value for the consumer.
If that is linked with more cost, well, we may reflect that in the price, but that's not what I mean by premiumization per se. You see, a cup of Nespresso, people say, "What else?" Because there's a relationship of value, because the people, they value what they get for it and so on. I must say, that is the whole drive about, for example, if we build micronutrients, we add something. It doesn't per se cost something, but we add something. That is what I mean by premiumization. Sometimes it is linked with, yes, indeed, higher price, but not always.
Yes, Uli Hoch over there, please.
Thank you. Holger Alich from German business daily, Handelsblatt. Two questions from me. First of all, about expanding the boundaries of health, expanding the boundaries of nutrition. With Galderma, some commenters say that this is really out of your core business because it's really more in the business of pharmaceutical companies. I'd like to know, what is for you something beneath that new boundary? For example, Novartis, just to quote one example, is one to say perhaps this OTC business. Would that be something we will say, "Okay, this is really out of our boundaries." You could tell it's knowledge business, it's enhancing the health of people. It's quite, well, imprecise, that boundary, I would just like to know for you, where's the red line? Where do you say, "This is something we won't go in?" First question.
Second question concerning the restructuring of your portfolio. There's been lots of action in the last couple of weeks. Will that continue at that pace into 2014? Are we yet quite advanced? Just a little bit count on how far we are in that process. Just coming back to in that question on L'Oréal, Mr. Lemaitre said L'Oréal, the participation is strategic but financial. Does that mean now after this transaction, you won't sell any more stocks of L'Oréal in the next 12 months? Just to have a clear answer on that. Thank you.
Well, first of all, We are about enhancing the quality of life. We have said we want to be the nutrition, health, and wellness company. We have focused on our food and beverage business, and we have brought in this whole nutrition, health, and wellness dimension through many areas, but 60/40+, I have used the mindset we have there. That is what brings it, to really drive nutritional arguments that bring health and wellness through food and beverages. That is what we are, that is what we were, that is what we're going to be also in the future, and that is what we embrace. Now, we have said also with new science, new technologies, new needs in society, you have to see the opportunity of these trends.
That's why we have built a few 3 years ago, Nestlé Health Science. Why did we build it only 3 years ago and not 20, 100 years ago? Because the conditions were not there. Society was not there. The healthcare system was not really starting some signs of fatigue in the sense of how do you finance it all? Is corrective therapeutic health, is that the right equation for societies at large, or can we start embracing more inducive health? Which is by lifestyles, by having more knowledge about healthy nutrition, by knowing also and using science to give and to make relationships that were not possible to make in the past because the science was not there.
That is why we have set up Nestlé Health Science 2 years ago, because we felt the conditions were there, the need of society, the awareness of inducive health and how it can help to be a much more efficient and cost-efficient way of having healthy societies, is not to get sick, is to keep people healthy. That is what we have been looking into. That is what we are building. That is linked with science, a lot of science, that do have certain elements of, yes, maybe the healthcare sector, because you're going about personalization, well, then you have to have diagnostics. If you want to understand how nutrients interact with the human body, well, then you have to have other platforms that we were not so close to. We're bringing them closer, and it makes sense. The same goes for the skin.
It is the biggest organ of the people, and it is how you interact with society. It is how you feel quality of life. There are medical conditions on the skin that are having, yes, indeed, some therapeutical dimensions that need a lot of deep R&D because Galderma is a very R&D-driven organization with a good part of their sales linked with R&D. It is clear that we as a company are increasingly through these dimensions, through deepening our R&D, even food and beverages, as a company that starts to be more and more R&D-driven. I see an upside there in the sense of knowledge gives answers give solutions are valuable profitable growth platforms. That is what we see in this whole extending the boundaries of health and wellness through Galderma, through Nestlé Skin Health.
It is, yes, indeed, looking behind the corner and see value coming, and a society that is increasingly defining other needs. You see in the world, the skin and skin health coming up very prominently as one of the biggest growth drivers in that area. We want to be part of that. That is playing with the same equations of R&D, innovation, seeing a little bit further than the nose, and seeing these platforms. There's a lot of strategic compatibility there. On the portfolio restructuring, we have intensified, I must say. Yes, we have brought discipline with our portfolio tool, call it, this management tool framing. We have created discipline behind it. We have some more visible dimensions and expressions, and we have mentioned them, that are creating to the outside world a much deeper intensity. Yes, we go quite intense behind it.
We have done that, I would say, cleansing to a certain extent permanently. I say SKU management per se is a very close action that is very close to portfolio management. It is portfolio management. We have been doing that. 2014, we keep on going. We always said we're going to maintain. This is not a one-shot tool that we once utilize, use, see what comes out, and then we park it. It's going to be intrinsically built into our business planning. Locally and globally. It's going to be something that we're going to use then permanently, and it's going to have the same consequence. We are testing each product in a defined geography, and we have defined 1,800 product sales, we call it, which is a category in the market.
We are testing them, 1,800 of them. That is something that drives our decision-making, which is: good category, we invest, or we fix it, or we divest. These are the three equations that came out, and that's going to be a permanent thing. You speak specifically about L'Oréal. It has been said, and you see, the figures are out. I'm not going to get into the details of the specific deal. We stay with 23.3%. In L'Oréal, that is a sizable participation, and it has been said very clearly. We are 40 years-plus linked with that company, and that is a very interesting financial but also strategic participation we have there. We have been a very loyal and very constructive partner in this company, and that is projected to continue like that.
Yes, Uli.
Hello? [Uli Hoch], AWP. Could you give us a bit more color on how the political turmoil in some emerging market countries, and turmoil in some emerging market currencies as well in the last few weeks, did or do affect your business?
First of all, when you have a devaluation, we consolidate in CHF, you have less CHF. That's an impact that we have. We see so much of the color coming back of the famous periods in the 1970s, 1980s of certain continents, like Latin America, inflation. You see some of that coming back to a certain extent, you saw it, there's lots of volatility and nervousness on currencies with the Turkish and the Brazilian and the Indian rupee, et cetera. You see that as soon as coming back. Again, how we handle that is so much linked with, again, we are decentralized. We have basically our factories in every country. Give and take, 90%-95% of what we sell locally is normally produced regionally or locally.
We have a certain natural hedge there on cost base in the sense of local raw materials that we have been, et cetera. That's reality if you go local by local. When you add it all up, yes, indeed, you consolidate less when you have some currency fluctuations and all, but that's how it is. Last year, it was the foreign exchange had an impact of 3.7% negative, again, in consolidation. It has some shifts. It affects us in margin sometimes. It depends on the mix and where it happens. Last year, it was 20 basis points affecting our margin, if you would. That's why we had actually constant currency, 40 basis points plus. These are the impacts on consolidation.
What we have to see, though, is the volatility and also the turmoil, as you mentioned it, politically, and how the drive of what we have been mentioning of the emerging markets are emerging. How that may soften that emerging, and the middle class in many countries that are starting and that we have embraced, the 1 billion emerging consumers that we have embraced, how fast that's going to continue, how solid that's going to be. Again, and that's why I said also, that's our strength. We are present in all countries with operations, with local decision-makers, and that are aligned but are adapting our offerings, are sensitive to what's happening in these countries. We can change and profile our portfolios and shift priorities, and that's how we react on these things. I remember so well in Latin America, we had inflations.
I lived in a country that had an inflation of 1,000% a month. We were there, and we were successful, and we were linking up consumers, and we were adapting. That's what I mean by our geographic footprint definitely is, I call it competitive advantage. With an adapted portfolio, not one product that is global, that is not adapted to. We have adapted portfolios and a combination of products. That's the strength we have. It's tough sometimes. I must say, when our anchor factory in Syria, last year, February was it, was blown apart, and it's not operational. We had in that country, we were 600, 700 people. It was an anchor factory, means a factory that was also serving a region. In one day, it falls apart. We stayed until the factory was blown up, but we stayed. Many would leave.
We stayed because we are local. We had people who are staying and rewiring, readapting, taking a living in a very unhealthy environment, but they stay. There's 600, 700 people. Their livelihood depends on it was blown. These are setbacks that are very important. Then again, that is rewiring, investing in compatible factories close by. That's how it is. If you add it all up, we have a little bit of what I said, a natural hedge of diversity in portfolio and therefore diversity in geographies combined with fantastic people in the front lines.
I think the other thing too that Paul touched on, I know it's top of mind for a lot of investors, is you said that you've been in Latin America for so many years. People forget, we are a company that's about to celebrate 150 years in a few years' time. We've been in many of these markets many years. We celebrated 90 years in Brazil a couple years ago. We've been there, done that, got the T-shirt for it. Yeah, is it an issue? Of course. Is it something that our people have dealt with? Absolutely. The sky's not falling. Rome is not burning. We're going to be okay.
It doesn't help, though.
Let's take one more question from the room, Tom, before we take a question from the call.
Thomas Mulier from Bloomberg News. Morning. Regarding your forecast for organic growth, where do you see, or what's going to improve in the second half compared to the first half? My second question is, in terms of mergers and acquisitions, what areas would be the most interesting?
You're really curious there, huh? No, on organic growth, we just see certain comparative base, the dynamics of where we have programs, we have promotions, we have innovations, timelines. When you add up our internal projection for us, is that we see it more geared towards, we have to deliver good growth in the first half, too. We see it with more momentum because of actions, because of comparatives, and again, it is accumulation of all these different geographies and initiatives that gives us that impression, and we want to be aligned there. That's why.
Will it be more volume driven or more price?
Well, the pricing is very soft. We have said that, and that's why the 4.6% that we have last year is basically because there was no pricing need. Although if you see our raw material basket, it was still something that went up because we have down coffee and all that, but we have milk that went up, so and if you add it all up. Much less than, and in certain region, we had negative pricing, which was translating the needs of the consumer and the sensitivity to that and the dynamics of the market like in Europe was negative. It was low, and we may see some momentum coming back there, too. That helps, and we don't see it coming now. We see it coming in the latter part of the year.
It is a combination again of all that, but pricing is part of it, yes. On M&A, look, again, M&A is something that is part of our equation and tools that we have and dimension that we use to grow and to prepare or to invest in profitable growth platforms. Look, we have always said we have this dimension of bolt on that we're always going to be looking for. Again, we are present in the world, and in the world you have many smaller and bigger opportunities, and the small ones are as important as the big ones. More than that, I cannot say, and I will not say, but this part of our growth dimension. I privilege, definitely, the internal growth of this company because we are present in all these categories. We have all these initiatives going on.
We have already expressed a new platform of growth that brings in a world leader already. It is for us to grow these platforms internally, but with an eye for possibilities outside, too.
Yes.
Thanks, Paul. Now we will take a question from the conference call. We have Celine Pannuti of JPMorgan. Please go ahead.
Yes, good morning. Thank you. My first question, it's to rebound on the pricing commentary. One thing you said, talking about Asia, there was a deflationary environment. I know it's going to be difficult maybe on a global basis, but can we have a bit of a feel for what the pricing environment is? Maybe can we differentiate between Europe, North America, and the other part of emerging market? I would say also in the light of the FX weaknesses that you have seen in these countries, how quickly you think you can absorb that. My second question would be on, sorry to come back on the Galderma question, but 50% of what they do is a prescription drug. Does that mean that you are comfortable with acquiring these kind of businesses? Thank you so much.
Thank you, Celine. In terms of pricing, we've always said this, right? Pricing is something that's taken locally. We do not sit here in Vevey and sort of dictate what pricing action needs to be taken. Depending on categories, depending on geographies, it very much vary. You see the dichotomy, especially at H1 last year, where we were able to take pricing in Latin America because of the currency situation, even though the underlying raw material cost went down. If you're specifically interested in pricing in Asia, I can ask Nandu to give you some color.
Not only just pricing in Asia, but overall, your ability for pricing in the current economic environment, I would say many region of the world where you operate are seeing lower currencies and whether you have the ability to pass on higher prices.
Celine, let me take this question. I think Wan Ling's answer was pretty accurate, and indeed, the specifics of what you're referring to over the last 10-12 weeks, we have seen a lot of currency devaluations across Asian markets and Middle Eastern markets. We have seen also, at the same time, a lot of cost inflation, specifically in milk solids. Both of these indeed put cost pressures. The amount of the pressure is different market to market, and depending on the competitive situation, the decision on how to increase prices, how to manage price points, how to make sure that the consumer shock is minimized, and we keep the underlying growth momentum, is a case to case decision, market by market. I can confirm that across many of our markets in Asia and the Middle East, we have indeed taken price increases where relevant and where required.
You go down.
All right, in developed market?
Developed markets? Sorry.
In developed.
In developed market, because I think there were some price cuts last year. Is that something that will remain for 2014?
Yeah. If you look at developed market, you look at Europe, we see that it's a deflationary environment. You saw in 2013, there was negative pricing, and we anticipate the same thing going into 2014. U.S. might not be as severe as Europe, but its pricing is not going to be easy in a deflationary environment.
On Galderma. The Nestlé Skin Health is a platform, or is a company that's going to provide a portfolio of science-based innovative products that meet the full spectrum of people's skin health needs over the course of their lives. If you define it like that, and there is indeed quite an important part of that business that is done by prescription. We don't have a strategy that says we want to stay out of prescription. Prescription is a platform, is a way of getting to serve some specific needs that need some professional assistance, and that's what prescription is about. Well, actually, it is the best expression of some proprietary, more deeper science driven and science-based innovation potential. The same thing is going to happen with Nestlé Health Science, where we're going to have a prescription dimension in our channel.
That is again, the best expression of we are an and company, and it is, yes, indeed, it brings complexity. At the same time, I have the fortune not to have to handle it all myself. You have specialists doing that, and they know what they do, and we embrace these channels and embrace these ways of connecting with consumers. Somebody who has to have a prescription treatment for his skin is a consumer, and we want to be part of enhancing the quality of his life. I see that totally compatible with the science driven, R&D driven mindset of this company.
Thank you.
We have another question from the call. Alain Oberhuber, MainFirst. Please go ahead.
Good morning, everybody. I have two questions. The first question is about, again, the organic growth. Probably you could give us a little bit more why it is geared into the second half, because given the base effect, is it because we currently see more competition, or is it because your product iteration will be geared more to the second half? The second question is about waters. Could you give us a little bit more information about the development of waters in North America, in particular about the local brands and the premium products, what was the development, and also if these products had margin improvement as well?
Where is the world? Organic growth, second half.
Yeah. You're exactly right. A couple of things. There are a couple of dynamics going on beyond just if you look at the quarterly split, our expectation is there is some shift in terms of Easter in Q1. In terms of product launches, we are anticipating some product launches that will sort of pick up pace in H2. In terms of water, do you want Marco?
I would say, Marco, you're going to take up there. Water again, and North America specifically, there is indeed a price war going on, and you can engage in price wars, and sometimes you have to be price sensitive, but you don't jump in a price cliff. We didn't engage there, and that has affected us. It kept our margins safe. Marco on the specific local brands too.
Yeah, you answered already the question. In reality, the second part of the question was about the premium brand, international brands. Perrier and S.Pellegrino are doing extremely well in the United States. The development of these two brands in the United States has been extremely good. Double-digit growth. That's a very good element of the improvement that we have in North America. In terms of regional brands, it's exactly what Paul is commenting. We look for profitable growth. When there is a situation in which there is a real price war, we try to keep market share or to have a profitable growth in order not to lose market share. We don't just seek growth for that. The situation of the market is also it's growing, but not growing at the level that was growing in the past.
Thank you, Marco.
We have a question via email from Wole Famurewa, CNBC Africa in Lagos. What is your growth target of your business in West Africa, and are you considering expanding your West Africa product portfolio to skincare?
Well, look, Nandu, you're quite requested today. Let me first say on this skincare and all, Galderma's presence in 70 countries and has 5,000 collaborators, employees all over the world. They have already worldwide presence. Now, I have to see how specific they are there. If there is a market there, they must be there, but we have to see a little bit later on. That's not the highest priority, I would say now there. Are we growing? West Africa is a fantastic good region. I don't know if you want to give some more color, Nandu, but it is clear that West Africa, we have a very deep footprint there. We have factories, and we are in Ghana. We have actually our shared service center in Ghana, serving the whole region, actually extending to whole of Africa over time.
We have a very many years there. We have fantastic management team over there. I remember when Ivory Coast was under trouble and all, how we had the right people there in place to really rewire the whole business. I think we definitely are in there for growth together with the countries. Other question?
Excuse me. Sorry, John. Yeah.
John Revill, Wall Street Journal. A couple of questions. I'd like a bit more sort of color on your portfolio review in terms of how far are you through it, and how many more kind of divestments or sales do you expect? Linked to that, what's the plan that you're going to do with the money from it? You got some money from the L'Oréal sale, and also you said you're going to have a buyback. Is the buyback going to be limited purely to the cash from the L'Oréal sale or more, and when would that be?
You want to take it?
Yeah. Hi, John. In terms of portfolio management, I want to first of all take a step back. It's not just about divestiture. It's also about where to accelerate. It's important to be doing both. When people think about portfolio management, the first thing they always think about is, oh, you're going to sell more. What we've done last year is not only walking away from businesses that we are no longer the best owner for it, but also to accelerate investment behind products or categories or geographies where we can win, and we can really win, do much better than others. The other thing also, when we look at portfolio management with the leadership in our strategic business unit, it's not just looking at businesses as a whole, but even within that business. It's looking at how can we resource the allocation CapEx.
It's R&D. It's people resources. It's back to one of the six priorities that Paul had outlined last year or 2 years ago in making choices. It's a broader context and not just saying we're divesting. It's an ongoing thing, and it's something that needs to be and has been embraced by our market, our people on the front line, people who run a category in a certain market. It's not us sitting here or the executive board dictating where we need to sell and et cetera. In terms of cash, we had in our press release on the Galderma transaction indicated that it's our intent to, with the cash proceeds from this transaction, it's our intent to launch a share buyback program. We have not obviously communicated the specifics in terms of how much and when.
We'll wait to see when the transaction closes, and we'll come out with an announcement then.
Yes, another question from the floor, please.
Janit here from Swiss newspaper, "SonntagsBlick." I've got a question concerning the outcome of the Swiss vote on Sunday. What consequences do you expect for Nestlé?
Well, Nestlé is a company that is worldwide present, and actually we do under 2% of our activity is in Switzerland. We have here in this headquarter quite a lot of foreigners. That's the vote of the people. We have to respect that. We're going to see, and I'm confident that they're going to translate that in a workable framing, legal framing. We have to see, but it is indeed a dimension that creates for the time being uncertainty. We are looking to the evolution of that very closely. That's what I can say. We respect the vote, but it has created some uncertainty, and I would invite to neutralize that uncertainty as soon as possible, and I hope it's going to be wisely.
Thanks, Paul. We have another question from the call. Jon Cox of Kepler. Please go ahead.
Yeah, good morning, guys. Congratulations on that cash flow statement, looked very impressive. Just following up from John Revell's question. You seem to have indicated you don't really want to go back to a AAA credit rating. That seems to have indicated that you don't really need net debt to go below 1 time EBITDA. Obviously, net debt now is at below CHF 15 billion. EBITDA's around CHF 18 billion on 2013. I think some people are probably scratching their heads wondering why you didn't announce some sort of buyback today, particularly after you've raised CHF 3 billion from the L'Oréal disposal. I wonder if you just give us some sort of clarity on that?
Is it because you want to go back to a AAA credit rating, or is it because you want to keep hold of that cash because you see M&A, or should we expect buybacks in the future as you've indicated? That is the first question. The second question, just on the organic sales growth, and I understand what you're saying, but it seems that actually organic sales growth accelerated in Q4. The emerging market sales actually accelerated in Q4. I'm just still not sure why you think you'll be weighted towards H2, given the comparable base in emerging markets and your organic sales growth is actually going to be a bit tougher. I'm just wondering why you've been somewhat subdued in your outlook saying it'll be similar to 2013, given the fact you are seeing this acceleration in Q4. Thank you.
The first question, you want the money now, you have to first have it. We announced the deal, we don't have the money yet. Maybe you can on the triple A.
No, John, we are not going back to the triple A. We are very happy and very proud. We are the only one in our peer group company that is in a double A rating. That is something we are very proud of, but no intention of going back to the triple A. No, we will be announcing something on the share buyback. We realize we are very proud of what the organization has been able to do in terms of the cash flow performance from 2013. Like Paul said, people want the money now or just have to wait a little longer. We will announce it soon.
That is also why we have announced it. We have expressed the intent to have a buyback later on. That is just showing that we are sensitive to the asks of our investors. I think we have always been very mindful and respectful to our shareholders, and we would maintain that relationship of respect. It is good to have your feedback on this, that there is some urgency. On the organic growth, as I said, yes, indeed, we saw some acceleration coming at the end of the year. They are still in proportion. It is volume driven, so it is good to feel that RIG is having strength. We do have plans, we do have innovations, we do have launches. We do have also competitive basis and see the dynamics of the different paces of the different geographies in the world. We pull that together.
That is what we call a dynamic forecast, that gives us a more pronounced, it is not dramatically, but a more pronounced growth dynamics in the latter part of the year. That is why. We don't speak from minus to plus, we speak from softer to stronger. That is linked with many dimensions that are linked with our operations and launches, et cetera.
Thanks, Paul. We have another question from the room. This gentleman over here.
I'm Ishiguro from Yomiuri Shimbun, Japanese newspaper. My question was the same as it was relating to the last Sunday's vote on mass immigration. It is a follow-up that you talked about uncertainty created by this decision, by this result. If this uncertainty continues without being solved, do you think that it is having an important impact on the decision of investment of Nestlé here in Switzerland?
These are hypotheses. You have to see how they're going to translate that vote into law and how that then may affect. It is clear that we are setting up a new factory in Romont for Nespresso. We projected 350 people. Okay, are we going to find them? We have people coming in here to help shape and to gain experience here, permits. These are already all speculations from my side. I respect the vote. It shows something underlying and worries of a society. You have to respect that. You have to actually read what does it mean, this vote, and how do you translate it? That's the uncertainty we have. It's not the first time we live in uncertainty, but I would like to see that landed pretty fast. It's not only that. There's also what is Europe going to do?
That's part of the uncertainty. We have said more than half of the production of all these factories of Nestlé here in Switzerland, creating all in all, over 10,000, 11,000, 12,000 jobs. Half of that is exported, and the biggest export market for quite a lot of these categories is Europe now. Europe is linking free flow of people and goods, they like in the same line. That's the uncertainty I speak about. As I said, too, I'm confident we're going to be wise.
Thanks. We have another question from the call. Dieter Bachmann of the Basler Zeitung. Dieter, go ahead.
Good morning. I have a question concerning the change in the board. You have stated that you will remain committed to L'Oréal. Does this mean that you will continue the cross involvement by replacing Mr. Meyers with somebody else from the L'Oréal or the Meyers Bettencourt family?
What we have communicated is that Jean-Pierre Meyers is leaving our board. We didn't say more than that.
That's why I'm asking whether there will be a replacement from somebody else coming from L'Oréal or the family.
We said what we said because we didn't want to give an answer to your question.
Okay.
It is what it is and what you read. Jean-Pierre Meyers, who has been a very constructive board member of Nestlé, is leaving of many years the board of Nestlé.
Did he give a reason for that?
Well, there's actually many reasons. First of all, he has been over many years. Governance is dictating also limits of age, of number of years, et cetera. It is also a decision he has taken.
Okay.
Good. Thank you. We have another question by email, again from Lagos, asking about the prospects for the region in 2014, in the context of consumers' buying power, which is expected to drop.
Okay. Africa. It's nice to see so many questions from Africa. I say hello to Africa.
Thank you, Paul. Look, in 2013, as Wan Ling mentioned earlier, Africa had excellent double-digit growth, also the Middle East. We see in the foreseeable future, Africa continuing to grow and continuing to be an important growth engine for us. We continue to invest. What you say about purchasing power and inflation is very true. This is not new. These are conditions we have faced before. We have overcome these conditions, and we hope to do so again as we go forward. We do not make specific forecasts by region, as you know. The only forecasts we make are corporate, which were made by our CEO already.
Thank you, Nandu.
Thank you. We have another question from the call, Eileen Khoo from Morgan Stanley. Irene, go ahead.
Hi. Morning, Paul and Wan Ling. Couple of questions from me. The first one is on nutrition. Impressive acceleration in the fourth quarter, almost 13%. How much of this was driven by Jenny Craig no longer being a drag, as well as your performance in China? Can you just update us on trends in China specifically? I understand you've introduced new SKUs at higher price points. Can you also tell us what Wyeth's organic growth was in the quarter? Secondly, in terms of the U.S. business, clearly the whole packaged food space has been under pressure for some time, there appears to be no improvement despite macro indicators getting slightly better, and you're seeing this particularly in your frozen business. Could you give us your view on what you think is driving this weakness?
Is it the economy, or is it a somewhat structural shift towards healthy/natural foods? If so, do you think you have the right portfolio in the U.S. to address this shift? What are your plans to improve category growth? Thanks.
Irene, I try to formulate the question because we didn't have a good hearing here of your question. The first question was, nutrition has shown an acceleration of organic growth in the latter part of the year, in the last months. Is that also because Jenny Craig went out, and was it also because Wyeth came in? What is the organic growth of Wyeth? First of all, we don't give all the details on organic growth of individual parts of it. It is clear that Jenny Craig not being in the comparative base is helping there. It is specifically the strong growth of our nutrition business worldwide, and in specific areas even more, that is coming more through because they didn't have this dimension that was dragging them a little bit down. The figures are really coming out that are now comparative to some competitors.
We don't normally give the figures specifically on each of the underlying parts of the business. I think we can go to the U.S.A. U.S.A. frozen food is like not getting callers back in the category of frozen food in general. What are we doing? There are different trends, but maybe you, Chris, can
Sure. Well, if we speak of the U.S. overall, Wan Ling talked about it earlier, Irene, also, you mentioned, the overall environment there is challenging. Demand is subdued. If we look at our portfolio in the U.S., we were fortunate last year as well as this year to grow both real internal growth and organic growth because of the breadth of the portfolio we have. Wan Ling first mentioned about PetCare, which is the largest single category that we have there, again, through good innovation in a number of areas, gaining good share in cat food and litter as well. The second biggest area in the U.S. is the one you alluded to, which is frozen food. There we participate in 4 segments, and each of those segments have different dynamics. We can say overall that frozen food is subdued as a category.
Starting with the biggest one that we participate in, which was in frozen pizza, which we, as you know, acquired from Kraft in 2010, saw this year actually an improvement. Category 2 years ago had declined, I think around 4%. This last year was fairly stable. We were able to actually grow share, as we mentioned earlier, in DiGiorno and Jack's. If you look at the second biggest area is Stouffer's, the frozen prepared meals. There we grew share. We grew both in volume and value, and there we did it through good value, good products in this particular segment. Hot Pockets was mentioned earlier. Snacks as a category is growing. We also grew in that category. There we did it actually by rationalizing SKUs. I think we cut out around 50% of the SKUs in that category and still grew.
The challenge is the fourth one that is in Lean Cuisine, where both that segment and our participation in that segment, our share and our volume actually declined. There, we're taking a number of actions to deal with that. One is, we started last year, making sure we have the price value relationship correct in this segment. We're also addressing this segment through a lot of innovation. Innovation, for example, last year we had kicked off with the salad additions, which is value-added components to salad. This year, we're complementing that with wrap additions. Also getting into the breakfast category, another segment that Lean Cuisine has not participated in a segment in frozen that is growing. Last year also, we participated and started to participate in this more natural segment with Honestly Good, which we're continuing now to roll out.
It's still early days, but this is a way that we're also looking at that particular growth area in frozen. Again, just to follow up on the U.S. If you looked at, we saw water, we had growth in water, we had growth in nutrition, if you factor out Jenny Craig. Good growth in coffee, Coffee-mate, Nesquik, and confectionery, as we've mentioned earlier, also showed some good promise. Overall, to summarize, difficult environment in the U.S., we don't see this necessarily changing as we move ahead. Our opportunity to grow, even in these difficult environments, I think we have the opportunity to do.
Thank you, Chris. You want to say, Wan Ling?
Just to go back, Irene, your question about you're trying to get some more color in terms of nutrition growth. Paul is exactly right. We do not provide the breakdowns, but I just want to share with you that the Jenny Craig, the stub period, whereby the time we sold Jenny Craig, the impact is not material on nutrition's performance. Equally for Wyeth Nutrition, remember, we only started to have an impact on organic growth starting only in December. Yeah.
Thanks. We have another question from the call. Warren Ackerman of Société Générale. Warren, please go ahead.
Good morning, Wan Ling, good morning, Paul. It's Warren Ackerman here at Soc Gen. I've also got 2 questions. The first one is for Paul. It's just going back to the Nestlé model. Obviously, the Nestlé model is 5%-6% organic growth, but you've guided to around 5% for the last 2 years. I'm just kind of wondering whether 5% is the new Nestlé model. I'm looking at my own model of Nestlé, and I can't remember 2 consecutive years, even going back more than a decade, where growth could be lower than the Nestlé model. That's the first question. Secondly, could you talk about the competitive environment in coffee, specifically pricing, where we've been seeing a decelerating trend. What are you seeing in single-serve coffee following the Mondelez launch in Europe?
What was the Nespresso growth in 2013? Did you add the CHF 500 million to the revenue base that you usually target? Thank you.
Well, first of all, the Nestlé model. You didn't find 2 years in a row in the last 10 years, we didn't ever have a situation and an environment like this in the last 10, 20 years either. We can all dream. We have to be realistic. There is no pricing need. We're not going to price for getting 2 levels up. The model is something over time. I've said that over and over again. It is a band that we want to walk in over time. In the last 10 years, we did 6.1%, and nobody came and say, "Oh, you didn't do right. You went over the 6%." It was an average of 6.1%. That's the model.
It is to go and aim and gear the organization, go for the growth platforms, invest in where you have to have the 5%-6% happen over time with a huge sense of reality. That's the Nestlé model. To do that holistically, the & company. It is top line and margin improvement. That combination is a strength. To do that efficiently in resources, resource efficiency. Actually, it is what the company should do over time. It is to go for profitable growth and do that resource efficiently. That's the 5%-6% because we felt that worldwide perspective of time, over time, the world is going to grow 3%, 4%. We want to have a creative value on that normal growth because we are a worldwide company.
You're flourishing and going with an environment, we want to outperform that environment, and that's how we get to 5%-6%. That's the model over time. I feel 2013 was exactly that. Considering the environment, considering the soft pricing needs and intensity, that is what comes out. That is what allows us to construct the Nestlé model over time. That is what we did. That's why I feel last year was exactly a good year in line with the Nestlé model over time, and this year keeps course of the same. We're going to do whatever it takes, and that's why we say we're going to go around 5%. It would not be realistic to push an organization like this, I would say unhelpfully, to just be in a range when the pricing or whatever it is not there. That's the health.
That's I feel also the guiding health of the Nestlé model. It guides you, and then you have expectations, but it guides also an organization to reality. It's a challenging reality that we want to create for ourselves over time. It is a challenge. It is a target. It is something we work for. It is guiding, and it is something that we do with acute sense of reality, and also relative to the market, outperforming. Without jeopardizing the near future. You can always force the near future. We do maintain long-term perspective on things. We are investing heavily, pushing something back on our margins. We are investing heavily for things we're going to enjoy in 5, 10, 20 years' time, like people did before us, and that we are having now that enable us to do that. That's the Nestlé model.
There is a band, there is a focus on a possibility of 5%-6% growth with a permanent margin increase. Why permanent margin increase? We are getting more and more added value, more research-based, more argument-based, and a more volatile environment needs more return. That's also a logical thing. I'm really confident, and I'm very, not at ease, we are very intense, but I'm very honestly relaxed into the nervousness of getting to 5 or 5.5 average. Actually, we have done 6.1 over the last 10 years. The coffee environment, the Mondelez, Nespresso Portion coffee. It's a fantastic market. I may give that to Patrice Bula, who has a global view on these things. It's a fantastic dynamic market, I must say. Patrice?
I think you have said it. Coffee is probably one of the category where we operate in and in the food industry that has been the most dynamic, creative, innovating, and premiumizing over the last 10 years. Of course, we are very proud to be in the forefront of this through Nespresso, which is now 25 years old, but also Nescafé Dolce Gusto, but also in soluble coffee. To paint the picture, coffee is a buoyant, growing, and premiumizing category in all dimension of the depths of these categories. To start with soluble coffee, we have seen and we have had, we have talked about success of Japan, but also in some European market.
In a difficult environment where we have had price pressure on coffee, we have been able also to premiumize with new technology, a product called Azera in the U.K. and Koumi Baisen in Japan, and getting growth through better cup of coffee and bringing people there. We have also developed specialties product, cappuccino and so on. You will see in 2014 even more innovation to continue to drive this very dynamic category. Capsule coffee is, of course, where it's been the more visible part of this premiumization of coffee. You have talked briefly about Mondelez. We don't want to comment about competitor, just to give you an idea, today we have more than 130 system competing in capsule coffee, of which 90 do claim to be compatible with Nespresso. I would just say Mondelez is one of it.
While this is a reality, it's a reality that has stimulated Nespresso. We have grown strongly. Last year, we have grown in proportion in CHF at the same level as before. We have opened new market. We have opened 48 new boutiques. We have opened new distribution channel. We continue to compete on our unique business model of unique blends, unique distributions channel, unique machines, and outstanding services. Some of these 90 companies and brands will fight on the shelf of a supermarket. We are in direct relationship with our consumer, I have to say that all of them seem to be extremely satisfied with us. Look out for more growth. This is a category, the capsule coffee will continue to grow.
I will say also that if you have seen result of some important brand launching also system in the U.S., you will see that it's not so easy to succeed. It's not easy to succeed. You can have a brand, you need also the technology and the system. We are leading in there. We have extraordinary program in R&D to continue to deliver better product system and services to clients.
Thank you, Patrice.
The other thing that Warren asked, Warren, credit to you for not asking the growth rate of Nespresso because you know very well two years ago we stopped doing that. To your question about did Nespresso deliver against our commitment a few years ago for growing the business at CHF half a billion a year, we are very much on track.
Okay. We have another question from the call, Robert Waldschmidt of Merrill Lynch. Robert, you go ahead, please.
Yes, thank you very much. Excuse me. Two questions. One, you mentioned pension efficiencies as a source of gain this year. If we look through the footnotes in the annual report there, it looks like the service costs have gone down. In particular, just wondering if you could give some more clarity about that boost to your earnings this year. Secondly, when we think about the growth, in terms of second half weight, you've clearly given some reasons on that.
If we just take the first half versus the second half, I mean, clearly with lower comparators in the first half, normalizing out Easter, it would still seem to imply that you're expecting some further slowdown in markets, I'm wondering if you could call out which markets in particular you might be expecting to slow down given it sounds like you're expecting similar growth trends in the U.S. and Europe. Thank you.
This is the pension?
Yeah, you can answer the pension.
Hi, Robert. You can actually see it on the financial statements that we released today, this morning. You will see in terms of pension, there are actually two components. There is the Swiss and the Swiss pension plan, where we switch it from defined
Benefit
benefit to defined contribution. We also had a one-time benefit in terms of the U.S. medical plan. That's what's driving it. You can catch all the details in our financial statements that were released this morning.
It's definitely a change from one plan to another that has reduced the liabilities, that's why. On growth, you referred to the fact, Robert, that I have explained already why and all that. Do we see a further slowdown? I see more stabilizing on growth. Europe is not getting better, doesn't get cars back very fast. It starts to smell like deflationary. You have to see what's happening there. I hope it doesn't go in that spiral. North America, that we always said is rebounding faster back, doesn't do that this time. It is way too structural, way too profound a problem to have a very fast turnaround there. The emerging market is growing slower. I think they got to a pace that is possible to maintain. I speak in general. Country by country can be different.
We see some headwinds in certain countries of Latin America, also in Asia. You saw the projections again of China, 7-plus %, is there. We're going to see, we don't see Africa slowing down, it's going to be different in different areas. I don't see our comment coming from a feeling that the world is going to slow down in the second half of the year. No, definitely not. It is more the combination of pricing needs, then inflation in certain countries that are going to go for pricing needs in the latter part of the year, a combination of launches and marketing plans that are going to get on stream in the latter part. Basically, that's a combination of factors that induces us to say more geared to the latter part of 2014.
Thanks, Paul. We have one last caller, Patrik Schwendimann of Zürcher Kantonalbank. Patrik, please go ahead.
Good morning, Paul. Good morning, Wan Ling. What's your best guess expectation for input costs for 2014? That's my first question. Secondly, regarding the confectionery margin was down 100 basis points last year. You were mentioning increased marketing investments. What should we expect here for the future for the confectionery margin? Some margin improvements from this lower level? Thank you.
On raw materials, you want to
Yeah. Hi, Patrik. It's on raw material, our guidance is low single digit for 2014.
On confectionery, your question, just to make sure that I have the right question, you said that the margin went down?
100 basis points last year, in 2013. You were mentioning increased marketing investments.
Huh?
What will we expect here for the future? Any more pressure coming from marketing investments, or shall we expect some margin improvements from this lower level now?
Yeah. In 2013, a big part of it was in Brazil, where we were investing in marketing, especially ahead of I'm not a sports person, so it's the World Cup. That should obviously not be repeated in 2014. We had prepaid spending, that's obviously for this year.
Again, it's a combination of things. First of all, there was indeed a heavy marketing spend, specifically Brazil, but also cocoa prices went up. There again, the dynamics of pricing, costing, efforts, and marketing plans. Fact is, the confectionery has, in the last years, been driving up its margin dramatically in the last years, and this is another setback. That is a reflection of investment, which is a reflection of trust in the category.
Okay, thanks, Paul. We have time for last-
Right. Thanks, Paul.
Sorry. Patrik?
No.
Okay, we have time for a last question from the room. Nathalie, over there, please. Thanks.
Hi, Nathalie Olof-Ors from the AFP. Two question. I want to come back on the immigration vote. I think you've got over 90 nationalities represented here in Switzerland. Could you let us know how the immigration quotas are going to affect your recruitment policy? Second question, in emerging markets, some of your competitors have mentioned a rebound during the fourth quarter. Could you give us an indication of how emerging markets have performed with Nestlé and whether the competitive environment is getting tougher in these regions?
On the rebound of the emerging markets, I must say first, what you saw was quite a. We were very early on to see that. You may remember in 2012, in the nine-month result, we really felt the emerging markets slowed down a little bit. It looks like we are a very good barometer. Before others were talking about that, we really felt that. What you saw then is like the pendulum over, and it comes back, but it's not vigorous growth coming back to the. We get used to positive things so easily. High growth rates. I was the first to say too that a country that is growing 15% year after year, the engine overheats. Why? Because first of all, it's growth on growth, but also social structures, the mindset, the fabric of the country cannot hold 15%.
Many markets are going back to normal, what I say, sustainable growth levels. We see that combined with some crises, be it political, social, political, in certain areas that affect. Again, it's a basket of things. What you saw, though, is an overreaction of slowing, and there's some confidence coming back in certain emerging markets. That could give some, I would say, better figures coming in, not on the same level as it was, but better than we would expect. Your second question was immigration again. It was last Sunday, that's why we're asking. We are indeed 90 nationalities. We don't from here, going to the countries and taking people in. It's people working in operation in Nestlé somewhere who come here, who had their experience, and who then go back to the market. We have a flux of people, just like me.
I'm an immigrant. Ask all the question, maybe next year I'm not here. You understand. That's why I said, considering the dynamics we have, hundreds of people. Peter, how many per year? It must be hundreds and hundreds of people coming in and going back into the markets. We have factories with quite a lot of people who are coming in from over the border to work in our factories, too, I must say. We're going to see how that sorts out. Look, if I trust in the wisdom of the Swiss people to see through the short term and see what is at stake here. Also in the votes, whatever they're going to do in the future, the votes that they see what is at stake, that they see the underlying interrelationships of things.
Also in the regimentation that they're going to have now to set up on this, that they see, and to do that wisely so that we don't actually break something that has gone so well for this country. I'm really confident that's going to be the case. It's actually a good note to say I'm confident on many things, and I think with that, we basically dare. I want to thank you all first of all for your presence, also for listening in and seeing in, for your questions. Yes, indeed, 2013 was not an easy one, but the bigger the challenge, the greater the glory. 2014 is not going to be easy either. Again, I feel we have invested in the right things. We have focused on the right things.
We have defined the right things, we have understood the challenges ahead, I think we're going to answer them. Once again, thank you very much, well, all of you have a good year. Thank you very much.
Thank you, Paul. As usual, we're happy to take any follow-up questions via email or Twitter. I'm sure you know the addresses. Thank you very much.