Good morning, ladies and gentlemen, and welcome to the Nestlé 2011 Full-year Results Conference Call hosted by James Singh, Chief Financial Officer, and by Roddy Child-Villiers , Head of Investor Relations. As usual, there will be first a presentation, then we will open the call for questions and answers. My name is Janice, and I'll be your coordinator this morning. Throughout the conference, you will remain on listen only. If you need assistance at any time during the call, please key star zero on the touch-tone phone, and a coordinator will be pleased to assist you. I would like to advise all parties this conference is being recorded, and now I'd like to hand the conference over to Mr. Singh.
Good morning. Welcome to our Full-year Results Conference Call. I will take the safe harbor as read and move to some introductory remarks. 2011 was a year of continued momentum in a particularly challenging environment. The focus of our discussion this morning will be on the continuing business, which is indicative of our performance following the sale of Alcon in August last year. Overall, our progress is aligned and coherent with the Nestlé roadmap, which we have shared with you many times. This demonstrates that our roadmap is as relevant as ever in today's new reality to drive improved performance. Our growth drivers, including our products with nutrition foundations and nutrition competitive advantages, our Billionaire Brands, premiumization, our PPPs in emerging markets, and Nestlé Professional, all delivered at or above group-average organic growth.
We continue to make significant capital investments on a global basis, satisfying the need for capacity, delivering value-added innovations, improving quality and safety within our operations, enhancing our capabilities, and advancing or creating shared value strategies. Investments in emerging markets in 2011 were approximately 1.5x the ratio to sales in developed markets. We have been scaling up in categories where we already have good positions and high returns, and at the same time, building capabilities for new categories, further enhancing our returns in the future. 2011 was another year of growth for Nestlé in the developed markets. We have continued to invest there in support of winning innovations and business models to increase our presence in high value-added categories, also drivers of future returns.
We have used our capital strategically via M&A to accelerate the development of Nestlé Health Science through four investments in 2011 and to transform our business in China with two partnerships. Including Yinlu and Hsu Fu Chi, our sales in China are now approaching CHF 5 billion . Equally, we have used our working capital tactically to drive growth in countries around the world, improving customer service to record levels globally in spite of political turmoil, natural disasters in many parts of the world, and disruption of global logistics. Our market positions globally are strong and improving, with about 65% of sales gaining share for our Billionaire Brands. This reflects also our continued investment in our brands and innovation capabilities. We are winning inside by driving out waste, improving operating efficiency, leveraging our scale, and investing in our people.
Our people have remained focused, committed in a year that had its fair share, more than its fair share, of turbulence and delivered unexpected performance. Let's now look at the results, starting with the highlights. Sales were CHF 83.6 billion, the organic growth of 7.5%, including real internal growth of 3.9%. This was growth- on- growth, upon 6% organic growth in 2010 for the continuing operations. The trading operating profit was CHF 12.5 billion, with a margin of 15%, up 60 basis points or 90 basis points in constant currencies. On the all EBIT basis, the margin was up 10 basis points in constant currencies. The net profit was CHF 9.5 billion, up 8.1% compared to the 2010 continuing operations. The margin at 11.3% was up 130 basis points. Our underlying earnings per share at CHF 3.08 were up 7.8% in constant currencies.
We are proposing an increase in the dividend to CHF 1.95/ share. I repeat that, CHF 1.95/ share, reflecting our confidence in the business to continue its performance trends. On the next slide, you can see the currency impact on sales, earnings, cash flow, and the balance sheet. With double-digit increases in 2011 in the value of the Swiss franc against many currencies, there are some major adverse impacts: 13.4% on sales, 15% on underlying earnings per share, and CHF 1.6 billion impact on operating cash flow as examples. Next is our usual margin bridge. It was clear from the outset that the battle for 2011, in addition to currency effects, was going to be about input cost recovery. Consequently, all levers of cost management had to be relied on to ensure compensating adjustments were made to make progress sustainably.
As you can see, the cost of goods was up 190 basis points even after our saving programs, growth leverage, and pricing. Administrative costs also benefited from efficiencies, as well as our ongoing restructuring of post-retirement plans. I'll look at marketing in a bit more detail on the next slide, but this is the overview of how we delivered the 60 basis points improvement or 90 basis points in constant currencies at a trading operating profit level. The group's marketing spend was down by 100 basis points. There are a number of elements here. First, we continue to take out costs that don't touch consumers. Second, the consumer-facing spend was slightly down in constant currencies, reflecting some good marketing mix decisions, which drove better value and higher returns on our marketing investment. The obvious example for this is digital, which increases the percentage of total media costs.
Third, and perhaps more importantly, we continue to increase the sales-generating power of our brand communication messages. Last year, more than half of all TV ads performed in the top quartile of the databases of our copy-testing suppliers. This is up from 40% in 2010 and 30% in 2009. How much we spend in media, of course, matters, but what matters more is the ability of our advertising creative to drive sales and to get shared by consumers with other consumers, and on this basis, our performance is improving dramatically. Another element is that a number of big innovations have now reached critical mass, such that their consumer-facing spend is being leveraged as a percentage of sales. Nescafé Dolce Gusto is a good example, which grew over 60% in 2011 to have near CHF 600 million . Obviously, marketing spend is not also growing over 60%.
Some of you will remember that consumer-facing spend was up in constant currencies at the first half. This has a lot to do with launch timings. Let me give you some examples. As I mentioned on the first half call, Nespresso had its first-ever global machine launch in the first half of 2011 for the usually successful Pixie. PetCare had some big launches in the first half, both in North America and Central and Eastern Europe. You saw the growth momentum building in that business throughout the year, partly in response to those launches. Brazil celebrated its 90th anniversary in the first half with major corporate and brand-based marketing drive. Nestlé in the Philippines celebrated 100 years. These are just three examples. Paul Bulcke is going to talk about trends in our consumer communication and e-commerce activities on his roadshow presentation.
It is clear that the way we invest in our brands is changing, as is the way we measure the return on our investment. Here, I would like to draw your attention to the fact that our marketing strategies and their initiatives are delivering solid growth momentum. On this slide is an overview of the group's growth in 2010 and 2011. As you can see, it has been a picture of consistent growth upon growth. The final quarter of 2011 was strong, with 3.5% RIG and 8.4% organic growth, demonstrating both the strength of our brands and how well our communication is engaging with consumers. Coming back to the income statement for some comments on the net audit trading items. We benefited in this line from both low restructuring charges and asset impairments in 2011.
We remain at a normalized level of litigation and onerous controversies after a high level last year. During 2011, focus has been on executing projects for which provisions were made in 2010, and there was no need for further material asset impairments. On the next slide, you have the rest of the income statement down to earnings per share. As you have seen, the trading operating profit increased to 15%, up 60 basis points, 90 basis points in constant currency. The net financial income and expense shows a decrease in expenses of 40 basis points. This was due primarily to lower average net debt levels and the funding structure weighted to short-term debt. Taxes have decreased by 10 basis points due to the changes in business mix. The share of results of associates is down 20 basis points, mainly due to currency effects on the results of our associates.
The net profit attributable to non-controlling interests increased by 10 basis points. The net profit margin is up 130 basis points, and the underlying earnings per share in constant currencies increased by 7.8%. As you will recall, underlying earnings per share in constant currency is now part of our enhanced Nestlé model and was discussed at our London roadshow in February last year. On this slide, you can see both the original Nestlé model and the enhanced model. In 2011, we delivered again the former version on which we guided the market in 2011. As you have already seen, our organic growth was 7.5%, and we delivered improvement in both the underlying EBIT in constant currency and trading operating profit margins. In addition, with regard to capital efficiency, we have improved across the dynamics of the business.
An example being ROIC on total invested capital was 14.1%, up 10 basis points, excluding the impact of Alcon, Hsu Fu Chi, and Yinlu. The transition year of 2011 has now formally entrenched the enhanced Nestlé model, and the move to net net sales has been implemented across the business. The group's 2011 operating cash flow was CHF 9.8 billion. The big impacts relative to 2010 cash flow of CHF 13.6 billion were a currency impact of CHF 1.6 billion, the lack of any Alcon cash flow of CHF 1.9 billion, and if you take these two non-performing items totaling CHF 3.5 billion, the comparable gap between 2010 and 2011 operating cash flow is CHF 300 million, after considering an increase in working capital in 2011 of CHF 1.4 billion. I'll give you our perspective on working capital. Firstly, we can do better and are planning to do so.
We do tightly monitor our working capital, but we look at it in the context of the overall business performance, and we use it strategically to drive and protect performance. For example, even in 2011 when conditions have been incredibly volatile, ranging from the Arab Spring to the Japanese tsunami, political turmoil in Africa, earthquakes in New Zealand, and floods in Australia and Thailand, we have averaged over 98% customer service levels for the group as a whole. When all is said and done, that is what this business is about: having product on shelf 24/7, making the sale 24/7. If it takes some additional working capital to achieve that in this environment, then in my mind, that is capital put to good work.
Our 13.3% organic growth in emerging markets this year stands out with comparison with our peers and demonstrates my point: we have used our working capital to drive growth above industry. Nestlé does not have an ambition to have negative working capital. We do not believe this is either in our best interest or in the best interest of our business partners, but we will improve from current levels. We will attack the growth in working capital sensibly, not by focusing on absolute value, which last year was impacted by double-digit inflation, but by targeting days cover for inventory, accounts receivable, and accounts payable. On this slide, you have our net debt bridge.
As you can see, we have closed the year with a group net debt of CHF 14.3 billion and on target to meet our expectations of a net debt of CHF 15 billion-CHF 18 billion by the end of 2011, 2012, and 2013 in the normal course. In 2011, we made investments in capital expenditure of CHF 4.8 billion, around 50% of which was in the emerging markets. 60% of our capital expenditures are for increasing capacity and new products. Spending in 2011 was slightly below our guidance at the beginning of the year. This concludes my run through the group numbers. Let's now do a quick business review. Most of the trends were already well established and discussed at the nine months, so I will do this quickly. You can always pick up on the themes in the discussion afterwards.
Here, you can see our growth by geographic region, including all our businesses. We have continued to deliver positive growth in all areas of the world, with slight acceleration in the last quarter in Europe and the Americas. I'll go into the detail in my zone review. We have pulled out a few areas of specific interest to you. The emerging markets grew at 13.3%, slightly up from the nine months, and I'd like to highlight that, including our recent Chinese partnerships, our emerging markets now represent 41% of sales. We expect our emerging markets businesses will contribute 50% of sales by 2020. The BRIC markets had organic growth of over 11%, developed markets over 4%, while Portugal, Italy, Greece, and Spain combined were near 4%. This broad-based geographic growth performance puts us in a good position to manage global risks. The Billionaire Brands grew above the group average.
Some highlights include Nespresso, Nescafé, Milo, Pure Life amongst beverages, Dog Chow, ONE in PetC are, Maggi and Herta in culinary, the Nestlé brand in dairy, and NAN in nutrition. The great majority of our brands are delivering strong growth, aligned with our growth drivers. The performance of our brands in the frozen prepared meals and ice cream in the U.S. reflects challenge in the categories there. Now, a quick look at the zone, starting with the Americas. Latin America achieved double-digit growth, with good growth across the region and in most categories. In North America, trading conditions remain tough, but the final quarter saw improved rate and increased pricing, with all key categories positive for the year. PetC are continued to pick up pace after a slow start to the year. Frozen prepared meals remain subdued, though pizza is growing and gained share. Lean Cuisine held share.
Ice cream performed well in cones, while Häagen-Dazs bars grew 10%. The zone's margin was down 30 basis points. It maintained a good level of brand investments while driving efficiencies in all areas. Input cost pressure was severe, particularly in the large Latin American milk business. In Europe, growth was evenly spread between West and Central and Eastern Europe, and the zone finished the year ahead of the nine-month level. All major markets in Western Europe grew in 2011, reflecting the continued benefit of a strong series of innovations across the categories. Central and Eastern Europe was more mixed, ranging from double-digit growth in the Ukraine to flat performances in Russia and Poland. All categories contributed to the zone's growth except ice cream, which, even despite the worst July in memory, was down only 1%. I would highlight coffee, pet care, chilled food, and frozen pizza among good performances.
The margin was up 230 basis points. The key impact here was the benefit of growth leverage and pricing, focused market spend on high-return launches and initiatives, returns from earlier restructuring, and the impact of the ongoing efforts to restructure post-retirement benefit plans, which had already benefited the first half. Zone Asia, Oceania, and Africa had a really good year. It overcame challenges, including civil war in Côte d'Ivoire, the tsunami in Japan, and the recent floods in Thailand and Indochina to deliver double-digit growth at 11.9%, a 90 basis point improvement in the margin. It achieved this while implementing record levels of capital investment to secure future growth opportunities in India, China, and Africa, among others, and signing two key partnerships in China. The partnerships with Yinlu and Hsu Fu Chi would transform our business there to reach about CHF 5 billion in sales in 2012.
Their combined margin is below that of the zone, 18.9%. Most countries in the zone continue to grow at the levels seen earlier in the year, some even accelerating. Our biggest categories all performed well, with four of them achieving double-digit growth. The zone's margin was up largely due to innovation across all areas and initiatives such as distribution, manufacturing, and procurement, supported by Nestlé's Continuous Excellence. Nestlé Nutrition's growth driver was infant nutrition, which achieved double-digit growth and share gains globally in both infant formula and infant cereals. The meals and drinks business, more weighted to developed markets, also delivered growth. Jenny Craig remained under pressure in a highly competitive market in a tough economic situation in the U.S. Both it and performance nutrition had good growth internationally. The margin was down mainly due to weakness at the smaller divisions.
Nestlé Waters had a strong finish to the year, particularly in North America, where demand had been impacted early in the year by pricing. The European business had a good year with shared gains in the markets that returned to growth. Emerging markets, now over CHF 1 billion in sales, grew double-digit. Perrier and Nestlé Pure Life grew double-digit, and performance was also strong for San Pellegrino. The margin benefited from growth in Europe, pricing and efficiencies, as well as lower restructuring costs. Nestlé Professional achieved high single-digit growth, helped by double-digit growth in its emerging markets, as well as positive growth in Europe and North America. Innovations across beverages and food are driving the growth. Margins were down, reflecting high input cost and investment behind innovations focusing around value-added machines such as Milano and Viaggi, all of which will, over time, distance the business from raw material volatility.
Nespresso achieved over 20% growth, continuing to grow double-digit in well-established markets such as France, as well as in those markets it entered more recently. Margins recovered in the second half after the very first half weighted media spend. Nestlé Health Science had a very successful first year, laying down its strategic foundations, enabling its structures, and making four investments, including three acquisitions. At the same time, the business performed well with good growth and margin performance. The food and beverage and pharma joint ventures also delivered good growth. The product groups continued the trends seen at the nine months, all delivering positive growth. Let's have a quick run-through. Powdered and liquid beverages had a really good 2011 with double-digit organic growth. All categories played their part. I'd highlight Nescafé.
Soluble coffee grew 12%, off a base in excess of CHF 9 billion, whilst the ready-to-drink variant is also performing well, double-digit in a host of emerging markets. It's all about innovation, whether on the retail side with Green Blend, the relaunch of Nescafé Gold, the continuing expansion of Dolce Gusto, or the choice of RTD offerings. On the B2B side, Viaggi and Nescafé Milano. Growth in milk products and ice cream was unchanged from the first nine months. Milk continued to perform well, delivering double-digit growth both in ambient and chilled dairy. Ice cream growth was positive for the year. Yinlu is part of the category from 2012. In prepared dishes and cooking aids, Maggi delivered double-digit growth globally, a really strong performance from a business that has a significant portion of its sales in Europe.
Again, it's about innovation, with Juicy delivering dynamic growth both in developed and emerging markets, whilst Maggi flavor-world range benefited from locally tailored innovations, meeting particularly cultural flavor preferences and addressing regional nutritional requirements, an example being the Juicy's success. You know that the U.K. isn't an established Maggi market, but Maggi Juicy is number one in its segment there, despite competition from local brands. The frozen prepared meals segment continued subdued in North America. Pizza performed well both there and in Europe. In chilled in Europe, I would highlight the high single-digit growth in Herta. The chocolate business achieved share gains in the U.K., had a strong year in many countries, including China, India, Brazil, Japan, and France. As Hsu Fu Chi will be part of the category in 2012, the confectionery business will have about 60% of its sales in emerging markets.
PetCare had a good final quarter, increasing its organic growth to 4.3%. Margins were up 20 basis points, despite the more difficult raw material environment in 2011. Its share performance was good around the world, with, for example, share gains in every category and channel in the U.S. The emerging market business grew double-digit, with Russia and Latin America as highlights. To summarize, it was a good year for Nestlé, with good growth in all regions and all businesses. We also improved our trading operating profit margin by driving growth and achieving significant benefits from our savings program and pulling all levers to create value. In view of our earnings in 2011 and our confidence in the prospects for the future, we have proposed to the board and to the General Assembly a dividend of CHF 1.95/ share tabled in April this year.
We believe that we are well placed to build in this performance in 2012 and to deliver the enhanced Nestlé model. That concludes my presentation. Now, let's open up to discussion, and Roddy will join the parties.
Ladies and gentlemen, your question and answer session will now begin. If you wish to ask a question, please key star one on your touchtone phone. If you change your mind and decide to withdraw your question, simply key star two. All questions will be answered in the order received, and you will be advised when to ask your question. All other lines remain on listen only. I would like to remind you to restrict yourself to two questions per person. Thank you. Your first question is from Warren Ackerman with Société Générale. Please ask your question.
Good morning, Jim. Good morning, Roddy. It's Warren here at Société Générale . Two questions. The first question is just on your performance in Europe. I think Nestlé is one of the few consumer companies seeing an improved performance in Europe in the fourth quarter, both volume and pricing improving. Obviously, Jim, you mentioned innovation in your speech, the big reason behind that. I was wondering whether you can maybe just outline some of the trends that you're seeing in the Western European markets, the food retail trends, the promotional trends, some of the kind of macro drivers behind that improved performance in Europe. The second question, just looking at the cost of goods sold line, I was just wondering how you expect the COGS line to trend from here, and is it realistic to think it might be positive by the time we get to the second half of 2012?
As commodities stand today, what is your thoughts and guidance for 2012? Thank you.
Thank you, Warren. First of all, in Europe in general, and particularly in Western Europe, in Western Europe last year, all our large markets had good organic growth and good real internal growth performance. I think the key to our progress and our continued progress in Europe is innovations, smaller innovations, large, very impactful innovations. Over the last three years, we started about four years ago with an objective to have in Europe CHF 1 billion coming from innovations. I could tell you that at the end of last year, that number was CHF 1.2 billion, and it is the innovation that is really driving our performance in Europe, in addition to continuing to innovate and renovate around established brands like Maggi in terms of the core proposition of those brands.
Our active innovation program and our efficiencies, very active efficiencies across the value chain, are really helping us to manage commodity cost inflation and the general competitive trade environment. Looking forward, I think innovation will continue to make a difference in Europe. I don't necessarily see that the competitive trade environment will change materially. I think we will continue to see competitive intensity within the trade environment. I think the cost of goods sold, I would say that 2011 was a difficult year because we had severe volatility at the start of the year. We talked about this in the first half with the results, where we had the impact of cost coming in immediately in January and our price realization during the course of the year. Next year, we're not going to have the 10, 11% inflation.
I think we're looking at low single digits, and yeah, there may be a correction at the gross margin. As you know, we don't depend on gross margin as such. We have to manage our costs throughout the piece, the P&L, to make sure that we don't rely only on pricing to deal with cost inflation and deliver margin growth. I think we have a more moderate view in terms of what inflation commodities or input cost basket will be. There is going to be some volatility continuing. We start to see it already, but the peaks and the lows may be lower. We'll have volatility, which will also help us to be better able to predict the trend of commodities during the course of the year.
Okay, James, thank you very much.
You're welcome.
I think also, Warren, in terms of the Q4 trend in Europe, a lot of the improvement was due to the increased pricing, particularly in Soluble coffee. Picking up on Jim's comment about raw material cost pressure, a lot of the improvement was due to pricing.
What kind of pricing have you taken already in coffee in Europe?
I haven't got the precise percentage, but we are quite significantly. It's enough to move the dial for a slightly little bit. Yeah.
Okay, cheers. Thanks.
Thank you for your question. Your next question comes from Jon Cox from Kepler. Please ask your question.
Morning, James. Congratulations. I think the top line took some of us by surprise there, the organic growth acceleration in Q4. I have a question on that. Basically, in the Americas, you alluded to it somewhat, but it appears that you accelerated by a couple of points in Q4. I'm just wondering on the environment in North America specifically, please see signs of an improvement there. That's my first question. You should just basically maintain your net debt level. I'm just wondering what I'm missing, particularly if you're looking to actually cut and sort of working capital as a proportion of sales. I wonder if you could just give us a bit more clarity on that, or are you including some maybe bolt-ons in that figure? Thank you.
Thanks, Jon. First of all, in North America, I think the business picked up in the fourth quarter. We have seen coming into the third quarter some expectation that the consumer was becoming a little more confident towards the end of the year with the festivities, Thanksgiving, and Christmas, and so on. Putting that aside, I would say that the innovations in pet care, pet care had a very strong quarter based on the innovations that were launched during the first half. We also had reasonably good performance in water. Nestlé Waters did fairly well, whereas the other businesses were more or less flat during the course of the year. I would say that, yeah, there are some bright spots in the U.S., but generally, the North American economic environment will remain subdued for this year. That's the way we're seeing it, with some slight improvement.
I think the macro-economic numbers seem to point to a slow but gradual improvement rather than more of the downside. We're hopeful that this year we will see a better performance in that part of the world. On the net debt, I think, yeah, we do include some bolt-on, but you know we have talked about this before. I'm not going to give you a number because we'd respond to the opportunities in the marketplace. In the normal course, I would say that our targets of CHF 15-CHF 18 billion, 2012, 2013, we're on track to achieve that. Last year, of course, we had the significant impact on our cash flows because of exchange. I do not think that we're going to see the same depths.
You will note that since the Swiss franc took action relative to the Euro in August last year, the Swiss franc has weakened considerably against many of the currencies around the world. We hopefully will avoid that significant impact on currencies on our cash flow in 2012. We feel very confident that what we told you about 18 months ago that we're on track to deliver those numbers.
Just a couple of additions, Jon. I mean, in North America, it's worth pointing out that most of the non-zone businesses, so Waters, Professional, Nestlé Health Science, Nespresso, were all a group who performed at a higher level than the Zone North America businesses did. The overall Nestlé North America business was quite strong. Just a reminder on this expectation on net debt, this is not supposed to be some firm guidance number. It's just the expectations that we gave you when we got all the Alcon cash in. Don't worry about it if you can't get it to the nearest billion. It's only an expectation.
Okay. And Jim, can I just say all the best for your retirement and hope you enjoy it? Thanks.
Thank you, Jon. Thank you very much.
Thank you for your question. Your next question comes from David Hayes with Nomura. Go ahead. You may.
Gentlemen, just first on the marketing spend. Obviously, you talked about the improvement in efficiency allowing you to be slightly down on consumer-facing spend. I just wonder whether you can give a little bit of detail whether there's an element of phasing or timing in that and that you get a bit of a catch-up in the first half of 2012 or whether those efficiencies will continue and therefore this is a new trend, a new theme, a new benefit for the numbers moving forward. Secondly, just on the cash flow, obviously you talked about the working capital in detail, but the variation in other assets and liabilities line I see is still a big outflow relative to history, about CHF 1.2 billion. I just wonder whether you can talk about the drivers there and whether again in 2012 that could reverse quite substantially.
I'll ask a cheeky third because I suspect it's a no comment, but obviously there's lots of reports about the Pfizer situation and you being at the table for that situation. I just wonder whether you can confirm that you have got interest and what that might be, and if there's any timing outlook in terms of that deal potential coming to a head. Thank you very much.
Thanks, David. I'll start with your last question because that's easy. I think you're absolutely right. We would not comment on what's happening at Pfizer. On the marketing spend, I think the efficiencies, and I do not want to discuss this in great detail because Paul is going to talk about this in London in a very focused way. Essentially, what we're trying to do is to make sure that the money we spend has a greater impact directly with the consumer. We're taking a very critical view of those expenses that don't. The other area is that we are changing the way we spend our marketing or media money with respect to the choice of media. Paul again will talk about it.
As you see, as I mentioned, our digital has gone up, is now a double-digit percentage of our total media spend, and it in itself has increased double- digits. In addition to that, media spending, like every other area of operations, is subject to NCE. We are looking at areas where we can get the greatest productivity of our spend. That is something that is going to continue. There's no need to change direction there because within Nestlé, we are looking to eliminate waste. It's one of the central features of Nestlé's Continuous Excellence. On the cash flow, on the other assets and liabilities, I think these are basically the changes in provisions. Last year we made a fair amount of provisions, and this year we spend a fair amount of that. Essentially, those are numbers net of spending. I think the base, the comparable base was high.
I think we'll be back to more normal levels during the course of 2012. Does that answer your question, David?
Yeah, it's just flatter rather than a reversal on that last point. That should be the assumption.
I think the base in 2011 is more or less a normalized base. You know, we will have to see as the year progresses.
Okay, perfect. Thank you very much. Cheers, James. Thank you.
Thanks.
Thank you for your question. Your next question is from Simon Marshall with Jefferies. Please ask your question.
Yes, good morning, gentlemen. Just a quick question on the machine-based offer. Could you give us some sort of updates on Nestea, BabyNes, some of the smaller offers at this point, Viaggi machine, and the non-Nespresso sort of machine-based offer at this point?
Okay, Roddy will respond to it.
Yeah, good morning, Simon. Thanks very much.
Morning.
I'll start with the big one, I think. I can't ignore it. Nespresso, as we said, has continued to perform very well, still double-digit in its early markets and making great progress internationally. 2011 is the first year where we've gone over 15% of our Nespresso sales outside Europe. The international, if you like, international business is really building emphasis. Now, going down in order of sales, Nescafé Dolce Gusto, over 60% organic growth. It's in over 50 markets and continuing to take share. I think it's, I think for memory, 360 basis points of share gain in 2011, so performing very well. We have the professional machines. The premium machine is Milano. That's now in several thousand restaurants, so it is really starting to build some critical mass.
Viaggi, obviously super premium, is, as you would expect, having a slower build, but is also meeting our expectations or even beating our expectations. Special.T, we are planning to increase the number of markets, whereas present is doing very well. It did very well in 2011. Baby Nes, it's still very, very early days. It's only effectively six months on the market. Again, we're looking at opportunities for international expansion. It has been received extremely well by the moms and dads, so we're very pleased with that too. They're all going very well. I think you have to think about Viaggi and Baby Nes as very much more niche offerings than Nespresso or specialty.
Can you give any guidance on Special.T in terms of size of business at this point and the number of markets it's in?
It is a very long way from being material. The growth is ahead of our expectations, but it's not a number we're going to disclose. It's just not material at this stage.
Thank you.
All right. Thanks, Simon.
Simon, both Nestea, Nestlé Special.T, and Baby Nes are ahead of our targets that we set for the business going into last year.
Next question, please.
Thank you for your question. Your next question is from Alain Oberhuber. Please ask your question.
Hello, Alain Oberhuber. Name, sir. Good morning, Jim. Good morning, Roddy. Two questions. The first is about the Continuous Excellence program. Could you talk through a little bit what exactly you've done for 2012 to this year again, CHF 1.5 billion of cost savings? The second question is about the margin development in the Americas. Wasn't the decline in Latin America similar to Italy? If so, was it primarily because of the input cost? Based on that, what could be the effects on margin development for North as well as Latin America for 2012?
Thanks, Alain. First of all, I just want to make it clear that NCE is not only about cost savings. The cost savings surely is one of the outcomes of NCE as we focus on driving out waste and just doing things that matter. It is a program that is enabling us to change our mindset with respect to gaining the value chain, the most effective and efficient operations supported by business processes and systems. It is about how it's about a mindset change focusing and driving out waste in the company. I believe that in terms of a guidance for next year, we feel very comfortable that our savings plan, which is significantly linked to NCE, but our savings plan per se will continue to deliver a total cost improvement of about CHF 1.5 billion. That's on NCE.
On the margins in America, you know one thing we have to think about is that the currency impact on the group also impacts the businesses in the various parts of the world. A lot of the impact there also has to do with price relative to cost from a margin point of view, because as you know, you have to take more pricing than cost to maintain your margin. The 30 basis points decline in trading operating profit was a combination of cost pressures on the business in that part of the world, in addition to the weak U.S. dollar performance relative to the Swiss francs. The other point is that you know Latin America or Zone Americas as a whole, they also subscribe intensely to the Nestlé model.
We expect all our businesses, all our zones to deliver on the Nestlé model, which is, among other things, top line growth and bottom line improvement in constant currency.
Thank you for your time.
Thank you, and thank you very much.
Thank you for your question. Your next question comes from Patrik Schwendimann from ZKB. Please ask your question.
Patrik Schwendimann from Zürcher Kantonalbank . Good morning, Jim. Good morning, Roddy. Firstly, regarding your strong finish in the organic growth, which was more or less 8.1% in quarter four, was there anything extraordinary in there? Bearing in mind what we expect for quarter one, is this then a little bit lower than usual? That's my first question. Secondly, regarding pricing, you were mentioning raw material increases as low single- digits. What did it mean in terms of your pricing for 2012? Could you give us here a best guess estimate? Thank you.
As Roddy indicated on an earlier question, I think part of the pickup in the fourth quarter was the increased realization of our pricing. With the continual innovations of our brands, new business, and new business models, we did not have any material impact on our RIG performance. Our RIG performance held up pretty well, and our pricing improved. That is basically the reason for a very good fourth quarter. In terms of the outlook, the outlook we said was the organic growth this year, again, will be somewhere between 5% and 6%. I'm not in a position to give you any quarterly guidance, Patrik, but I think that is our guidance for the year. I hope that answers your question.
There was no January impact. We expect that it could be even above the 5%- 6% in quarter one, offering strong quarter four.
No, I would say that our guidance is 5%- 6% for the year. I don't see any reason to change that at this time, Patrik.
There are no specific one-offs in the final quarter. There are always timing differences. As an example, Chinese New Year is much later in 2013 than it was in 2012. There are always going to be different timing differences. The other thing to remember, of course, is that the pricing we took accelerated over the course of 2011 and therefore will carry through into 2012. It's not just about our incremental 2012 pricing. Okay.
What do you mean? I think it could be again above 2% in 2012.
As Jim says, we don't guide on the pricing, but just remember that it's also the last year's pricing that has an impact.
Okay, what about new price increases for 2012?
As I said, Patrik, we expect there's going to be some inflation in cost. We don't necessarily depend only on pricing, but wherever we need to take more pricing, I mean, we will. I do not rule out the need to take additional pricing in 2012. Given where we are today, I really can't give you any more specifics on that. If our forecasts on materials are correct, there is going to be the need for more pricing in 2012.
Right. Thanks a lot. All the best, James.
All right, Patrik. Take care.
Thank you for your question. Next question comes from Pedro Gil from Santander Bank. Please ask your question.
Good morning and congratulations on the great results. Just a couple of questions. I'm not sure if this was mentioned earlier. Any specific guidance as to the input cost inflation outlook as we stand today for 2012? That's the first question. The second question, any plans to perhaps more aggressively expand Nespresso and Dolce Gusto single-serve concepts in North America? Thank you.
Unfortunately, I didn't get your name. Could you repeat your name, please?
Pedro Gil with Santander Bank and Markets.
Hello, Pedro. First of all, we did say earlier that we expect inflation on our raw materials, especially our traded materials, will be low single digit. I can't give you any more specific than that, but it's likely going to be below 5%. That's basically all I could say at this time. Hopefully, we will fine-tune that as the year progresses. I think that's our expectation around that level. In terms of expansion, yes, Dolce Gusto is now in North America. It's going to be launched in different markets in Latin America, and so is Nespresso. I mean, these business models and the innovations are globally oriented, but we implement them as much as we can possibly do and do them well. The expectations are that these businesses continue to grow global. We're going to add more stores, more Nespresso boutiques around the world in 2012.
Dolce Gusto will go into many more markets as they are being expanded as we speak.
Nespresso is, of course, already well established in North America. It's been for quite some years now and has a pretty meaningful presence in a number of the bigger cities. As you will appreciate, we're not pursuing a mass strategy as are some of the other players. It's very much a niche super premium business targeted to a particular consumer group.
Great. Thanks a lot.
Thanks for your question. Your next question is from Jane Gelfand from Barclays Capital . Please ask your question.
Hi, good morning, Jim and Roddy. Two quick questions. First, in the nine-month results, you referenced some signs of competitive price pressure in Waters, and in today's release, we also see reference to intensified competition. It's not necessarily surprising given the medical conditions around the world, but I was just wondering whether you can comment on if you're seeing signs of competitors actually decreasing prices or in light of the expectation of lower inflation starting to push more in the promotional lever. Finally, just a small kind of housekeeping question. You mentioned that margins in Zone AOA will be somewhat subdued given the addition of Yinlu and Hsu Fu Chi. How much can we expect that to move into 2012 given their inclusion? Thank you very much.
Thank you, Jane. The nine months, your comment on your question on Waters. I think Waters in general, the pricing remains very competitive. We are seeing periodic deep discounting in different areas. What is driving our performance is Nestlé Pure Life, which is a PPP product, a good price for good value, and our global brands, Perrier, San Pellegrino. These brands continue to do very well. We do not expect the pricing pressure will ease up, but I must say that over the last four months or so, we're seeing some of our competitors taking some pricing. I do not forecast any letting up of the competitive pricing pressures, especially in the developed markets. Your question on host, you know we said that at the time when we made these relationships, when we entered these partnerships, that there would be a slight negative margin impact on these acquisitions.
I don't want to give you the guidance by region, but I would say globally, it's going to be about 10 basis points, and it's something we'll have to manage.
Perfect. Thank you very much.
Thank you for your question. Your next question is from Jeremy Fialko at Redburn. Please ask your question.
Good morning. I've got a question on the kind of restructuring and sort of litigation line of your P&L. You had very low restructuring in 2011, and you're guiding for that to be around 40 basis points of sales in 2012. You're implying that the sort of litigation and onerous contract line should be much lower than it was this year. I just wanted you to basically confirm that that's the case. Thank you.
Thank you, Jeremy. First of all, restructuring, as I said, in 2010, we made significant restructuring provisions because of the plans we have. This year, we didn't make significant additional provisions because this year being last year, we didn't make additional significant provisions because we are executing those programs for which we had provided. That is why we said into the future, we believe that restructuring and similar activities would be around 40 basis points. On the litigations, what we said is that the litigations after last year are now back to the normal level. That is what we said. We didn't say it will go down or go up, but relative to last year, where we had slightly higher provisions, this year is back to the normal level.
Right. You're still going to be in those kind of covered a few hundred million Swiss francs is what you would see as the normal level then, I think.
I would think so, yes.
Okay, thank you.
Thank you for your question. Your next question is from Jeff Stent form Exane . Go ahead. Please ask your question.
Good morning. Just a quick technicality. On the margin guidance, you're now getting to an improvement in constant trading margin. Are you still getting to an improvement in constant underlying margins? That's the first question. Secondly, will you still be reporting in the financial statement the net?
Other trading income expense included in trading operating profit in 2012. Thanks.
Could you repeat the last question, please? I didn't necessarily get that.
Okay. Any financial statements, Jim? When you go through 2012, will you still be sort of breaking out the net other trading income expense items that you're including in the trading operating profit?
Let me go back to your first question. Last year in February, we introduced you to the new refreshed Nestlé model where we changed our sales recognition to net net sales. We said that our margins will be now at a trading operating margin. That's our guidance. The guidance we're giving for 2012 is organic growth at the top line based on net net sales as we reported this year and trading operating profit. On the next question, yes, we will continue to give you the breakout of the other trading income and expense.
Okay. Just to confirm then, you're not committing anymore to an improvement in underlying constant margins?
We are giving guidance at a trading operating profit level.
Okay. That's clear. Thank you.
Thanks.
We have also added the underlying earnings per share constant currency as part of the Nestlé model. It is organic growth, trading operating profit margin, and underlying earnings per share constant currency.
Okay. Thanks, Roddy.
Thanks.
Thank you for your question. Your next question is from Marco Gulpers, ING. Please ask your question.
Yes, good morning, James. Good morning, Roddy. Two questions. First, could you elaborate a bit further on those billionaire brands that are basically performing below zero on Stouffer's, Hot Pockets, Dreyer's, and Lean Cuisine, but especially in a market context? Are you losing or are you gaining market share? The second is on PPP. Could you elaborate again on what the growth was in 2011? I missed that.
Thanks, Marco. I wonder why you start at the bottom of the chart. You should start at the top of the chart with Nespresso. Anyhow, I'll answer your question. I think, as we said during the course of last year, the frozen categories in the U.S. have been depressed, not growing, in some cases declining. With innovations, we have been able to hold our competitive positions. We have maintained share in Lean Cuisine, for example. Pizza business is doing very well and gaining share. Our frozen prepared meals business, that is where, especially on the Stouffer's side, the category and our business within it is severely constrained. We believe we have plans in place to hopefully make that better this year. During the last two years, that category has suffered because of the very difficult economic environment in the U.S. The same thing for ice cream.
Ice cream, I think we've done reasonably well to hold our leadership positions, and especially our novelty businesses and our super premium businesses continue to do well there. Now, on PPP, our growth is between 14% and 15%. We did report it in our schedule. It continues to do well not only in the emerging markets, but here in Europe, we have high single-digit growth in PPP. It is a model for emerging consumers globally. It's not only a model for the emerging markets. We have high hopes of that continuing to grow on a global basis.
I think just a small follow-up question, James. On nutrition, your peer has reported to become a bit more aggressive in the weaning food side of things. What are your plans actually for the coming year in terms of weaning food? What are your expectations there? Thank you.
You want the question?
I was just going to, on the previous question, just going to remind you that on the billionaire brands, Dreyers is only referring to the Dreyers brand, not to the total Dreyers business. The Dreyers brand, which obviously competes quite significantly in the premium or in European parlance, mass category, was down. Equally, we had some highlights. Häagen-Dazs up 10% in bars, about 7% overall. Some of the other snacks and cones also doing mid to high single-digit growth. On the weaning business, we've had very strong performance in emerging markets, double-digit. The plan is what it was in 2011, which is to continue to roll out the new innovations that we've got there. I don't think that anything will change for somebody else's ambitions. We've got a very strong innovation pipeline. We're rolling it out across multiple markets, literally dozens of markets very rapidly.
Thank you very much. Jim, have some good times there. Thank you.
Thank you, Marco.
Thank you for your question. There are no more questions in the queue. I will hand you over to Mr. Singh.
First of all, I'm sure I'll see many of you in the coming weeks in Europe as we go through the opportunity. I want to take this time to say thank you for the relationship over the last four to five years, which has become reasonably intense, but always very productive, always very friendly and respectful. I'm truly grateful for your engagement and your interest in our company and the support you have given me through your questions, through your challenge, and through your openness. It has been a good journey. I want to thank you for your support. We're going to see most of you, hopefully, in London and on the road shows in the coming weeks, both in the U.S. and here in Europe. Thanks again. Our press conference starts at 10:00 A.M. Swiss time. If you're interested to listen, it's webcast. Thanks again.
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The Milkyb ar kids are strong and tough on their first taste of the whitest bar. Or a good taste of the Milkyb ar. Nestlé's Milkyb ar. The Milkyb ar. Be the kid yourself at milkybar.co.uk. New Milkyb ar, Brisbane. Come on and grow up.
Coffee can be fun. Coffee can be an art. Coffee can be a classic or a discovery. Coffee can be more exciting. When can coffee be seen in a totally new way? Nescafé in Dolce Gusto. Coffee is not just black.
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This is about how you, Naimi, feel, how you inspire me 24/7, 365. It's how you lift me up. No matter what, no matter where, smooth and irresistible, I dedicate this to you.
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Coffee can be an art. Coffee can be a classic or a discovery. Coffee can be more exciting. Why can coffee be seen in a totally new way? Nescafé in Dolce Gusto. Coffee is not just black.
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This is about how you, Naimi, feel, how you inspire me 24/7, 365. It's how you lift me up, stir me up, pick me up. No matter what, no matter where. Smooth and irresistible. I dedicate this to you.
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Coffee can be fun. Coffee can be an art. Coffee can be a classic or a discovery. Coffee can be more exciting. Why can coffee be seen in a totally new way? Nescafé and Dolce Gusto. Coffee is not just black.
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This is about how you, Naimi, feel, how you inspire me 24/7, 365. It's how you lift me up, stir me up, pick me up. No matter what, no matter where. Smooth and irresistible. I dedicate this to you.
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Coffee can be fun. Coffee can be an art. Coffee can be a classic or a discovery. Coffee can be more exciting. Why can coffee be seen in a totally new way? Nescafé and Dolce Gusto. Coffee is not just black.
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This is about how you, Naimi, feel, how you inspire me 24/7, 365. It's how you lift me up, stir me up, pick me up. No matter what, no matter where. Smooth and irresistible. I dedicate this to you.
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Welcome to our affiliate press conference here in Vives. The press conference will be held in English, and you can also follow it in French or German if you use the headsets which are provided. For those of you who are following this by video webcast, you can also ask questions by email in real time, and we will read them out on your behalf and answer them in writing if we don't have time. Should you wish to have an interview afterwards with a member of our Executive Board, please consult my colleague, Chris, over there. You're obviously welcome to participate in the stand-up lunch afterwards, which is a good opportunity to network with the members of the management present here. Paul, you have the floor.
First of all, welcome and good morning, everybody. Ladies and gentlemen, thank you very much for being here in our 2011 Annual Results Press Conference, also to the people who are following us through the webcast. Sharing the podium with me is first James Singh, our CFO, and he does that for the last time. He's going to come back to that. Also, Wan Ling Martello is sharing the podium with me. Wan Ling, who comes from Walmart and who has a very long-standing financial experience and career, was responsible at the end in Walmart for global e-commerce emerging markets. Wan Ling is an experienced professional, and as I mentioned, very strongly in the financial part and also very strongly in food and beverage and the fast-moving consumer goods industry. She has seen that from different angles, from manufacturing to services to also then in retail.
She has seen that in many, many parts of the world, which is a very strong experience bringing to Nestlé. She has been with us a few months, and she's got acquainted with our company, our values, our structures, our operations in the markets. Also sharing the podium is Robin Tickle, Head of Corporate Media Relations. In the front line here, we have all members of the Executive Board. I'm not going to mention them one by one, but a few that are in with new responsibilities or have joined the Executive Board last year. Patrice Bula, who is responsible for all the Strategic Business Units, also for Marketing and Sales and Nespresso. Patrice. Nandu Nandkishore, who has changed responsibilities from Nutrition now to the responsibility of the Zone Africa, Oceania, and Asia. Kurt Schmidt, who is responsible for Nestlé Nutrition.
We also have Luis Cantarell, who is President and CEO of Nestlé Health Science. You have seen the results this morning, and James is going to comment on them in more detail. Let me give you some brief comments on them. I think they are good, strong performance. They showed performance on top and bottom line again, also in the developed, but also in the emerging markets on both levels. 2011 has been a very challenging year. We don't think that 2012 is going to be any easier, though. In the meantime, we have continued investing for our future. We have invested in our capabilities, capacities, so that we have continuous strong platforms for going after the opportunities. For example, very meaningful platforms that we have built or acquired in China with Yinlu and Hsu Fu Chi, very strong brands. We are going to come back to that later.
Also, Nestlé Health Science that we started last year, that went through its first year, was off for a very, very good start. I think the keyword of our performance lies in innovation. Innovation in many ways, products specifically, but also in ways of how connecting with the consumer, how we bring our brands to the new.