Well, Welcome to our full year press conference here in Vevey. Just a few practical points before we start. This conference will be held in English, but you can also follow in French and German on the headsets provided. For those who are following the conference via webcast, you can ask questions by email over the website, stating your name and the media you represent, or for the very first time, via our Twitter account @NestleMedia. Should you wish to interview a member of the executive board after the conference, if you could see my colleague Melanie, who is over there. And finally, you are warmly invited to the stand-up lunch after the conference, which is a good opportunity to network with attending managers. Thanks. Paul, you have the floor.
Well, from my side, good morning, ladies and gentlemen, and Welcome to our 2012 annual result press conference. I welcome also all who is following us via the webcast. It is Valentine's Day, so there is love in the air. I thank you all for your presence and your interest in our company and the results of 2012. On the podium with me, I have Wan Ling Martello, our CFO, my co-pilot, and also Robin Tickle, Head of Corporate Media Relations. Also here today is, sitting in the front row, the executive board of Nestlé, and joining us for the first time in his present capacity or responsibility, again, is Luis Cantarell, Executive Vice President, who is in charge now of Nestlé Nutrition, and also at the same time, President and CEO of Nestlé Health Science.
He took over Nestlé Nutrition in December, actually back to Nestlé Nutrition, because also Luis was responsible for the Nutrition strategic business division at the time in 2001 to 2005, and actually had set up Nestlé Nutrition, so he knows nutrition very well, has a very wide experience of the whole nutrition industry. So these are two organizations that are reporting in to Luis Cantarell now. They are not merged. Also joining us for the last time is Marc Caira. Marc, Deputy Executive Vice President, responsible for Nestlé Professional. It is Marc who is retiring at the end of April. It is Marc also who has forged the strategy that we have been commenting in the last presentations, that is these branded beverage solutions and also these customized branded food solutions, which is driving the platform now for Nestlé Professional in the world.
So Marc, all the best to you, and thank you for all what you have done. Also leaving the executive board, not Nestlé, but leaving the executive board is Jean-Marc Duvoisin. Jean-Marc, who is Deputy Executive Vice President for Human Resources, who is going to take up the role of CEO of Nespresso, a very interesting and enjoyable business. So that from the 1st of March. So also to you, Jean-Marc, thank you for having been part of this team for these years and what you have done. Now, let me go to the agenda of today. First of all, we are going to walk you through and give some color to our performance of 2012. I am going to give the floor to Wan Ling.
Then afterwards, I want to go and dig a little bit more into this nutrition, health, and wellness agenda strategy that we have, the strategic direction that we have defined in so many colors already over the years. I want to share with you how that is really the dynamics that creates value for our company in the past and will do also in the future. And how we are continuing to invest in that platform and that agenda over time. Then we open the floor for questions and answers. But before I give the floor to Wan Ling, let me give some color to the results of 2012. I would say we have delivered on our commitment. Our commitment that was growth and broad-based performance and building that performance upon profitable growth and profitable performance over the years. So this is performance on performance on performance.
It has been also results driven in all businesses and all geographies. As I mentioned already before, it is definitely the nutrition, health, and wellness agenda. It is all nutrition and how we go about that is driving that value creation. First of all, it enhances the nutritional benefits that we give to consumers that has value. It also differentiates very clearly our brands versus competitors in the marketplace. At the end, it really is the base of value creation for our shareholders. At the same time, we also have continued to invest upfront for the future. We have increased, for example, the support behind our brands. We have also extended our R&D network with iterations of centers in India and China. We have also integrated our Nestlé Institute for Health Sciences that is backing up our new platform of Nestlé Health Science.
We further build our capabilities there, too. We acquired Wyeth Nutrition from Pfizer, and we have invested, I would say, responsibly and sustainably in our manufacturing footprint all over the world. We are focusing also in reducing permanently our environmental footprint and impact of our business on the world. We are indeed an and company. So delivering now 2012 and at the same time investing for the future. We do that in every part of the world, developed markets and also emerging markets. We are an and company linking up intensity on the short term and at the same time maintaining the perspective on the long term permanently. But let me now give the floor to Wan Ling to give you some closer look to our financial results and some highlights of 2012. So Wan Ling, please, the floor is yours.
Thank you, Paul. Good morning, everyone. Having just come from our investor webcast that ended not even an hour ago, I assume that most of you have seen that, have watched that. So I will not go through all the numbers again, but let's remind ourselves of what we set out to do in 2012. So in terms of financial performance, the commitment was to deliver the Nestlé model. We have done so. One of our priorities was to improve our working capital performance. This we did, with a resulting big improvement also in cash flow. In terms of efficiencies, our target was to deliver at least CHF 1.5 billion. We did so. We have increased the dividend to CHF 2.05 per share.
I would describe 2012 as a good year for Nestlé, especially because of the way we got there, in which we delivered our results. We have delivered our 2012 commitments while laying the foundation to win in 2013 and beyond. Let us now look at the highlights. Sales increased by CHF 8.6 billion in 2012. Organic growth was 5.9%, and RIG 3.1%. To deliver this, we had to overcome tough 2011 comparables of 7.5% organic growth and 3.9% RIG. The trading operating profit was up CHF 1.5 billion to CHF 14 billion. Margin was up 20 basis points to 15.2%. Operating cash flow was up CHF 5.5 billion to CHF 15.8 billion. Next, the geographic perspective. Our growth is truly broad based, like Paul just said, achieved on the back of growth in previous years. This is key.
I said in the webcast earlier, a global company can truly claim to be winning only if it can grow everywhere, both in developed markets as well as in emerging, year after year after year. A couple quick comments. In the Americas, we grew both in North America with improving momentum through the year and in Latin America. In Europe, we continued to grow in the West, even despite the macro issues in the region. This was truly a very impressive performance by our European team. Russia has maintained its improved momentum seen earlier in the year to end with high single-digit growth. In AoA, we ended with double-digit growth in the emerging markets. Japan also had a good year. Kit Kat became the number one chocolate brand in Japan. Next slide, you see our Billionaire Brands. As usual, they have outperformed the group with 7% organic growth.
Highlights this year include Kit Kat, Nescafé, Nespresso, Nestlé Pure Life, Milo, the infant nutrition and milk brands, as well as Purina ONE and Dog Chow. To sum up, we delivered a good broad-based set of numbers, delivering on the top line once again and on the margin. We delivered on the earnings and on cash flow. We delivered in emerging markets as well as the developed world. We have grown the portfolios across all segments. We know, like I said this morning, there is no room for complacency, which is why we have continued to invest for the future in our people and brands, in R&D, and as Paul will highlight shortly, in our capacities as well as our capabilities. This sets us up really well to win in our markets around the world in 2013 and beyond.
To deliver the Nestlé model and to continue to drive the consistent growth, the performance improvement, to drive the brand investment that is the Nestlé DNA. At this point, I will turn it over back to Paul.
Now, thank you very much, Wan Ling. So good results for your first year, I must say. So congratulations. These good results are also coming because it is actually the efforts of more than 330,000 people that makes Nestlé in the world that are so aligned and also so dedicated to our agenda that is bringing these results. I commend the 330,000 people that make Nestlé in the world. In previous years, I have shared with you in several occasions, first of all, our roadmap. I spoke about alignment. It is this roadmap that aligns this whole company. It is defining what we want to be as a company, strategic direction, nutrition, health, and wellness.
It is defining what we are going to leverage as competitive advantages, where we are looking for growth specifically, how we are going to organize our company effectively and efficiently, and how we want to link up with society at large to create and share value. I spoke about this roadmap. I have then also shared with you how strong, how important innovation is for our company, and how instrumental they are in driving value and growth, and how we are leveraging our competitive advantages, even more relevant so when the crisis came in. We call that the new reality. We also shared with you the importance and our commitment and engagement in the developing markets. Today, actually, I want to go back to basics. It is talking about nutrition, health, and wellness. Nestlé is all about nutrition. With that comes then also health and wellness.
It is the core of what we do. It has been on the onset, almost 150 years ago. We started about nutrition. It drives also very much competitive advantages in our brands. It addresses also the specific nutritional needs of the local needs of consumers all over the world. It drives also, and very importantly, it drives also our profitable growth. It is the execution behind this agenda that gives all the dynamics and the arguments for profitable growth, and as a result, it drives shareholder value. It also drives our meaningful positive relationship as a company and society at large because we are part of driving solutions to the specific needs, evolving needs of society on a nutritional level and also on the specific conditions and problems of society at large. Yes, indeed, Nestlé is all about good food, good life.
Our ambition, and we have shared that with you, is to be the pre-eminent leading nutrition, health, and wellness company. It is to, by doing so, also delivering and to be a reference of financial performance. It is linked with how we want to build trust with all stakeholders in society. As a leading nutrition, health, and wellness company, we are really aiming at enhancing people's lives by offering tastier and healthier choices, food and beverage choices, and that at all stages of life, at every moment of the day. In so doing so, we are helping our consumers to care for themselves and their families. As I said, Nestlé is all about nutrition and what it means for quality of life. Nestlé has been that, as I said, from the start, almost 150 years ago.
We have adapted by the society and change of society. Nutrition and the role of nutrition and insights and the knowledge about nutrition has changed over time. Through these developments, nutrition health and wellness strategy has basically three aspects. First of all, we have the food and beverage, where we, through normal food for normal people in normal days, want to bring more nutritional arguments into our product portfolio. It is about taste combined and pleasure combined with nutritional profiles. Specifically in food and beverage, we have these specific needs. That is why Nestlé Nutrition was set up. It is an important part of the agenda in the sense that it goes and organizes itself towards specific needs, particular nutritional needs of consumers like infant nutrition performance or weight management.
We have this new platform that we are building where we have done already quite a few advances, and it is Nestlé Health Science, which is really looking for science-based nutritional solutions for specific medical conditions because that relationship about nutrients and the human body over time is something that is really very promising. Even more so if you consider that with society and healthcare costs, et cetera. Our strategy, the nutrition health and wellness strategy is not new. As I mentioned it, actually we started almost 150 years ago because of a nutritional argument by saving the life of a child. We have been building, reinforcing, strengthening that over the years. We do that through three big dimensions. First of all, the products, our portfolio. Bringing products that are part of a nutritional and health life. Products, definitely. That is where R&D and our development comes in.
The second pillar is communication. I am going to go into some more detail there because you have to connect with society over this and linking up with society is definitely the third part because nutrition has an increased understanding and importance in society considering also some challenges society has like non-communicable diseases and obesity. Let me walk you very fast through products. We want our brands to win on taste, but also on nutritional profile. That is what we have there. We are really using all our experience, all our insights, all our knowledge to bring that agenda through the 60/40+ that we have shared with you as an approach that combines two dimensions. First, the 60/40. We want and we are convinced that food has to be pleasurable. It has to taste well. If not, it is not part of people's diets.
So we are really looking into and spending many resources into driving that taste profile and preference in our products. 60/40+. We want to have a 60 win in blind test versus competition. But the plus stands also for nutritional profiling. We have to have nutritional arguments, positive arguments, not only relevant towards the competitors. We have to be better on nutrition, but we have to give also in absolute terms nutritional arguments. We have been driving that agenda, and that is a very heavy agenda over the years. For example, last year, we have in general permanent one-third of our portfolio in that pipeline being checked or being reformulated or being confirmed as such. Last year, for example, we had CHF 32 billion equivalent of sales in that process.
In that sense, over the last five years, for example, we have renovated, reformulated, given more nutritional profiles and taste improvements on 38,000 products. A very silent but very sizable effort. Last year, for example, we have introduced with additional nutritional innovation more than 7,000 products. Another way of helping there is, for example, the micronutrient fortification. We have shared that with you on several occasions. It is also taking normal food who are part of normal diets and where we are already active and fortify them accordingly to the specific needs. We know there's a mapping about these specific needs of the world and today there are 2 billion, one-third of the world population almost, that suffer from deficiencies in iron, iodine, vitamin A or zinc, or a combination of these. We have carriers.
We are selling billions of products a day that are potentially carriers of these micronutrient fortifications. We build them in the natural diets of people. For example, the iodine fortification in more than 860,000 tons of Maggi products in the world, or the Golden Morn Family Cereals in Nigeria was fortified with vitamin A and iron, or almost all our milk products that we have are in some way or another fortified with vitamins or minerals. All in all, Nestlé, for example, last year has delivered 160 billion servings of fortified products in the world. We do that also in collaboration with governments and non-governmental organizations. It's part of our daily business, yet at the same time, it drives agendas specifically where we connect with society at large.
Another example is our internal initiative of really framing inside Nestlé, our going about reduction of salt, sugar, trans fatty acids, or saturated fats. I think we are the first company. We are the first company that really to put in place a comprehensive policy framework, nutrition policy framework in place to systematically reduce in our portfolios these elements or these ingredients. We had a policy of trans fatty acids in place as from 1999 and re-updated that in 2003 with salt policy that we actualized in 2005, sugar 2007, saturated fats 2009. These policies are constantly updated and are reframing, again, all operations, all portfolios everywhere in the world because there we use our global knowledge of how to do that, how to reduce without affecting taste, et cetera, worldwide over.
For example, in salt, we have reduced over the last years 13,000 tons of salt in our products. We have reduced over the last years 30% of the average sugar content of our products, 30% reduction without affecting or actually also enhancing taste. That said, products 60/40+, this agenda is a heavy agenda. Fortification and all what it means, internal ingredient policies, these are relative silent actions. They are not really so strongly visible, yet at the same time, they have a huge positive effect, first of all, of really bringing better nutrition and being part of our agenda. Secondly, also in driving value for this company. A second pillar I said of our agenda is communication. You have to connect and communicate with consumers and best taste, best nutrition is only half the battle. You have it in your product is only half the battle.
You have to connect and the consumer has to be informed. You have to create a dialogue, and there are different ways of doing that. The first one was a few years ago, we started with portion guidance framework. It is a base to really assure that our people that are driving our connections with consumers, driving our portfolios are really inducing the right amounts and the right, I would say, frequency of consumption of our products. in 2005, we introduced a nutrition compass that is now on almost 100%, 97%, 98% of all our products have a nutrition compass where the consumer can really connect. There is some information directly, but also the links, how they can really inform them better about our products. We have also the Guideline Daily Amounts, the GDAs that started in Europe, and we have rolled that out worldwide over almost. No.
We have today almost 50% of our packaging already worldwide with GDAs. I think a good framing of data that allows good choices. We go beyond packaging, clearly via different media, websites, social media. We have apps that can be downloaded. We have call centers to start really this dialogue about people that are interested in our product and how they can make them part of their healthy diet. The effort still goes further, I must say. Not only it is what we do ourselves, it is also how we can collaborate with public health bodies, governments, and other organizations towards healthier societies. As a leading nutrition, health, and wellness company, Nestlé is definitely part of that. We are gearing ourselves up being part of the solution. A central role, I think, of a healthier society is education.
Education is, in my eyes, one of the base elements and the base drivers of a healthier society. It is making consumers, the persons, knowledgeable about how nutrients and food is part of their life and how it should be managed to be positive part of their lives. That is why we have the Nestlé Healthy Kids program that we started actually to formalize in 2009. It started actually earlier, but 2009, we formalized it as the Nestlé Healthy Kids program that aims to raise the nutrition, health, and wellness awareness, and also to promote physical activity specifically with children because they are so open to learn the right things from the start. We are doing that with governmental. It is not a Nestlé program that goes to the school. We induce it, organize it for its governments and educational responsibilities that are organized in the respective countries.
We are working with also the International Association of Athletic Federations to promote together with knowledge and about nutrition, also the physical activity. We have programs running in over 65 countries now. We do that with 250 partners. We have touched over the last two years, 15 million children already. This is a continuous effort as we are really, truly believing that you can only connect meaningfully in communication about nutrition when there is a minimum of education about nutrition. We continue doing these efforts. This is what we have been doing, and this is what we continue to do. It is something that we have been doing many years ago. We intensified that quite dramatically the last years, and we have invested in 2012 in these platforms too.
Indeed, the understanding of how food and nutrition evolves is very important, and that is why we have strengthened our R&D footprint. We have deepened our insights because they are the base of delivering these added value and innovative products and technologies. Our R&D networks now spans over 34 centers in Nestlé alone with the addition in 2012, as I mentioned before, of India and China. They are going to have specific areas where they are going to focus on. We also had established our clinical development center in Lausanne here where we are going to do our clinical trials more effectively and efficiently to evaluate the impact of food and ingredients on the human, I would say, biology and health.
We also have quite hundreds of millions of CHF invested in venture funds where we really have close to what is out there outside our own company, our own knowledge to be part of that, to explore the new initiatives that are happening there, the new scientific insights that can be aggregated and complemented with ours. We have also 300 research partners with whom we do research programs like suppliers or universities. Indeed, R&D delivers breakthroughs nowhere more than in Nestlé Health Science is important. In Nestlé Health Science, as I mentioned before, it is science-driven nutritional solutions. Science is at the core of it, and we have established Nestlé Health Science now two years ago. Last year, we started with the institute to look for these solutions, specifically in aging, critical care, pediatrics, metabolic health, brain health, gastrointestinal.
We have defined also our platforms we are going to focus on. We have also accelerated our engagement there through joint ventures and acquisitions like in the last year's Vitaflo, Prometheus in the U.S. Diagnostic capabilities were built up there. Now last year, we have taken a stake in Accera. That goes about brain health, Alzheimer, and also we have been starting our partnership with Nutrition Science Partners there in China. That gives us this whole dimension of food and how the Chinese see food as an integral part of health in their diets. We bring access to that in these insights. 2012 was also the year that we bought from Pfizer Wyeth Nutrition, an acquisition that enhances and expands our maternal and infant nutrition footprint. Great brands, great people. Also very complementary to our portfolio, to our geographic footprint too.
We are convinced of the importance of the first 1,000 days. It is if food is very important for health and in life, well, it starts actually before birth. That is what we all say: true Start Healthy, Stay Healthy. It is really these first 100 days are setting the foundation for better lives, better health in later life. That with Wyeth, we are just expressing that, how we are truly believing in these first early years. Nestlé's ambition, as I said, is to be the leading nutrition, health, and wellness company. That is what we embrace. That is at the core of what we stand for. That is what profiles and aligns all the people in Nestlé. We want to be doing that also at the same time to stay as reference in constant financial performance year-over-year and be trusted by all stakeholders.
These three elements are intimately intertwined. It is the focus on nutrition and wellness. It is the focus on nutrition that brings this health and wellness that drives our agenda, that drives our value. It brings value for the consumer, definitely: better, more nutritional products. It brings by doing so also the engagement of Nestlé on these issues together with a broader public that drives the positive connection with Nestlé and society at large and at the end, that creates value for our company or for the shareholders. As I mentioned, that is the alignment of 330,000 people behind this. We have an internal nutrition education program because I do not believe that a company that wants to be nutrition and wellness can have people who do not know about nutrition and wellness. So the 330,000 people, they are educated on nutrition, and they stand behind it.
They do that effectively and efficiently. That is what has delivered the results of 2012, and that is what will deliver the value and the profitable growth in 2013 and beyond. 2013 does look different from the last years we had. Challenging years, interesting years, passionate years, but difficult years. 2013 will have its difficulties, definitely. It will have also many opportunities to leverage our competitive advantages again, to deliver value growth. Therefore, again, we expect in 2013, once again, to deliver organic growth of 5%-6%, together with improved trading profit margins and underlying earnings per share, and doing that also while we improve capital efficiency. That is our commitment, and it is commitment of all of us, 330,000 people in Nestlé. Now I open up the floor for your questions. Thank you very much for your attention.
Thanks, Paul. Could you please wait for the microphone and state your name and the media you represent when you ask the question? Thank you.
Hello? Hello?
Yeah.
Hi. John Revill, Wall Street Journal. Looking at your figures today, it seems emerging markets are slowing quite a bit. I was wondering what concern this is for the company, and do you think this is a trend that is here to stay? Ultimately, do you think the days of really easy gains in emerging markets are over?
Oh, they are definitely not. Hello? They are definitely not over, I must say. If you see, the emerging markets had growth of 11% last year, so this is very commendable growth. We are not really guiding our dynamics and our beliefs on quarters, as you know. There are dynamics. But the traction and the reason of growth of the emerging markets is as valid as ever. You just have to travel through the world to just feel the energy of that 80% of the world population really working for a better tomorrow. That is what we are looking for.
That is what is driving us. I do not see this really slowing down. It is a little bit like, I was in India this year, and this whole discussion in India, the authorities, and yes, indeed, they had 5%, 6%, 7% growth. That was dramatic because you are used to 12% growth.
I do not believe 12% growth is something you can sustain as one country. Because then your engine heats up and all that, so 5% - 6% is too low, too. They find new balances in these countries. They have accelerations and these accelerations, but 5%, 6%, 7% in huge countries like that, having a broader footprint as a company is part of that 5% to 6% growth that we, as a global company worldwide, are committing for. You see Africa. Africa has an average of 5%, 6%, 7% growth the last, I would say seven, eight years. Well, it was not 5%, 6%, 7%. It was a range of percentages that changes over time. That is the dynamics. I would say there we have a little bit of a natural hedge. By our broad footprint that we have worldwide, one balances out.
That is why we are actually committing to this line of growth, 5% - 6%. We see some acceleration coming in other markets that were depressed before. That is the line and the reason why we think about the 5% - 6% to continue that over time.
But do you see sort of slowing emerging market growth next year, sort of lower than this 11% that's today's build, is it kind of behind, it's still strong, but less?
That's a challenge I give to Nandu. No, that's okay. He said yes.
Any further questions? Yes, Emma, if you could have the
Emma Thomasson from Reuters. Can you give us any more update on the progress of integrating Wyeth Nutrition and divestments, and also, what your M&A plans are for this year? Any more big acquisitions on the horizon?
Well, it is very early days. You know that we have acquired, well, on December 1, it started to be part of us. Actually, there are more details Luis can give. Let me give a heads-up on this. It is going very well. As I mentioned, we have very good people there. We do not integrate completely the whole business. We keep it as a standalone. As we said, it is complementary. It has its own dynamics, et cetera. We are not going to destroy the value we have paid for by just trying to integrate it completely on the first day. We are coordinating actions there definitely now as from. We always mention we have now South Africa and Oceania, Australia, that we have now a decision from the authorities and a decision we agreed upon.
That is in the process now, and we are still awaiting other countries like Latin America. I must say that we have foreseen that. We knew that certain businesses were compromised. That, I would say, as authorities are acting and deciding, is totally in line with what we expected. The third question?
Was M&A.
Well, M&A.
Acquisitions.
Well, I must say, when opportunities like Wyeth comes by, we engage, but our policy stays the same, that we go for bolt-on acquisitions where it makes sense, where the opportunities are in line with our strategy and also where it makes business sense and also cultural sense. I must say in Wyeth Nutrition, that is definitely the case, cultural sense. John?
John Heilprin, Associated Press. You had by far the slowest growth in Europe. I am wondering if you see the same conditions this coming year, if you see that changing at all. Is there anything that you might be able to do to improve that performance? Thank you.
Well, you see there is a strength of relativism. It is the slowest growth in Nestlé. I would not say it is the slowest growth in Europe, but it is growth. Europe is not growing, and as I mentioned, we do not allow ourselves to use the GDPs to explain. So we are not selling on the numbers of GDPs, but it is growth, and it is good growth. It is quality growth. Actually, it is growth all over Europe. It is not one part of Europe compensating for the other. If you think that, for example, we are so proud also that we have growth in Greece, for example. We have very good figures in Spain, in spite of all the downturn there and the consumer confidence so low. So we have a very interesting growth in Europe that is also value and volume growth.
That is linked again with what we explained over time. First of all, we do not allow ourselves to have the explanations. Second, we have dramatic acceleration in innovation, creating relevant value for consumers at large. I still believe that food and beverages, good food and beverages, good taste and all that, is integral part of happiness in society at a cheap price. So that is what we sell, and it looks like the consumers in Europe are understanding that. So it is the slowest in Nestlé, definitely not the slowest in the market.
Romeo Regenass from Tages-Anzeiger. Under other key activities, you have quite different branches like Nestlé Professional, Nespresso, Nestlé Health Science. Can you give some more detailed numbers to the different categories?
Sorry, I did not. What categories are you talking?
It is in the other category, Nestlé Health Science. We do not break that out.
Yes.
In the other category, we have got Nestlé Health Science, Professional, Nespresso, and I would say that all three businesses grew. We do not provide the breakout in terms of each business or organic growth, but we are very pleased with all three businesses.
Hello, my name is Hiroyuki Maegawa. I am a Japanese correspondent working for the Asahi Shimbun Japanese newspaper. I have a question on currency. Given the fact that Nestlé is a Swiss company and delivering results in CHF, and given the fact that there has been one and a half year passed since the Swiss National Bank has been adopting this unlimited intervention, does this currency stabilization policy affected the result, especially in purely Swiss products like Nespresso? Thank you.
Well, in general, stability is a good thing because you can frame what you want to do, you can frame your priorities. A more stable Swiss franc was a good thing because you could do that. You may remember that the last years, the Swiss franc has gained quite dramatically. We always said that as we are doing, and we are so decentralized, we are actually hedged against whatever Swiss franc strength is. The problem was more the aesthetics of consolidation, that you are growing, but with smaller numbers, but Swiss francs. What you are saying now is that stabilization for products like Nespresso or others that we export, you may know that more than 60% of all what produce in Switzerland is exported, or more even.
I must say that is a strength also of Switzerland, that it has been able to compensate the strength of the Swiss franc with more productivity and added value, and that is what we have been doing also. We are exporting, and it affects you, but it should not be the reason why you would do short-term reaction on this. A stable Swiss franc has helped us to calm the nervousness down and the uncertainty down. Definitely that was, I would say, a very positive evolution.
Ulrich Rotzinger from Blick. I wonder how long Nestlé would be capable to deliver the world with Nespresso mainly produced in Switzerland. Maybe you can give a focus on Romont or Fribourg. What about the Nespresso sales in 2012? To give a little bit an idea, do you pass the CHF 4 billion frontier? Last question, do you see an end to double-digit growth rates with Nespresso?
No, we don't. But anyhow Nespresso has given us again, a lot of joy. We passed the CHF 4 billion. Well, that is what we committed to a few years ago, and we normally try to deliver on our commitments. I'm not going to say we did it, though. But also Nespresso in Switzerland, it is true that, and we have evaluated where to put the new factory, and the decision came out in Romont. That was done by professional people who know how to do that. And I must say, good for Switzerland. I hope we keep it as productive as it is and as creative of finding solutions to compensate. The Swiss franc didn't help us, but the Swiss franc was part of the equation. And Romont came out as the place, or Switzerland first came out, and then Romont specifically as the place to build a new factory.
How long can we go? And I don't know. We're just starting to build this third factory. And so we're going to see, but it is a good element to have a triangle, three factories of Nespresso close by because there's so much knowledge, experience, and expertise linked with Nespresso. This is not just something simple. Quality needs quality to produce, and we have that here. So these are very strong arguments. That's why we are here, and we're going to see how it evolves. You say also, how long can it go on and on? Well, if you think that something like 75%-80% of all what is Nespresso is Europe, I think that's an answer. We are just starting. That is what Jean-Marc Duvoisin believes in, and I believe in that too.
It is really the strength of this offering, this quality offering is just really starting to roll out in the world. There's lots of competition because success invites success. But it has made this whole category very dynamic. And so we like competition because it gives the dynamics of the category. We like competition. Not too much though, but we like good competition.
Melanie, we have some questions from the web, I think.
Yes. We have a question from Côte d'Ivoire, from Mariam Coulibaly from the Ivorian Press Agency. She is asking, the numbers presented today are very satisfactory, but after 150 years, which are the areas where you are not satisfied, and where do you still want to improve?
Oh, there are many areas, I must say. We are never satisfied. First of all, you have to drive a business or a company like Nestlé on all levels permanently because you always challenge. There is always new things coming up. There are always new opportunities. There is that permanent drive. It is not a company that, okay, we can park a few things and we have to focus on. We focus on all levels, all categories, all geographies. We are also focusing on what is not there yet, and that is the whole R&D. There is a really high level of adrenaline and tension, a healthy tension in the organization to go after all. Now, we have certain dimensions where we can say we should be able to be happier, and it is not global categories. It is specific parts of categories and specific geographies.
We do have challenges like weight management, very promising, but it has a challenge, and we have mentioned that. We have certain dimensions in certain areas that although we have now sorted that out and momentum comes back, but we have frozen food in the U.S., for example, where we are really deliberately backed off from doing too many promotions to be in that category because we felt that category was really losing its value. So we backed off on being on deal. Then you have to drive innovation to compensate for that. That takes a little bit of time, but it is coming back. We have certain areas of ice cream where we are not happy at all.
We are going to have to tackle quite a minute things, and that is actually also the base of committing to further improvements because we see these upsides of tackling these problems, and that is quite motivating.
Hello. My name is Katsuhiko Hara. I am a News Writer for a newspaper called Nikkei in Japan. I understand that in the past few years that you are encountering a problem with imitation of your product as in Kit Kat or Nespresso.
That is right.
Do you feel that protecting your intellectual property is becoming more of a burden? As you grow your business in China, do you think you will face more of this in the near future?
You speak about copycats. It has been a problem for always, I must say. When I started in Latin America, we had some of that. We see some intensification. Also, that is linked because the world is more present worldwide. You see lots of, I would say, wrong initiatives, and it is clear that that is very dear to us, very important to us. We work with all the authorities, and we take all actions to go against that because it touches the soul of what I mentioned before, the trust. The trust people put in our brands. It should be in our products and our brands. When you start touching that is very bad.
And I must say, we have all over the world, in China and everywhere, very good collaboration of the authorities because they understand too that that may destroy a very important part of society. As long as you have the wrong initiatives and the wrong entrepreneurship, you may have these issues, but it is by fighting them that you go and frame it better.
Is it costing you more than it used to?
As I said, it is more present because the world is more present in the world, and the world is more interconnected. There are more opportunities.
Ueli
Ueli Hoch, AWP. I would like to come back to your organic growth rate targets. You reached nearly 6% in a year with big challenges. You see big challenges this year as well. Does it mean you have organic growth rate near 6% again? Or in other words, shouldn't you lift the target range a bit to maybe 6%-7% as some people expect?
You're hungry. Yes.
We continue to guide based on our Nestlé model, which is 5%-6% organic growth.
Let me give some philosophical background to this. We would have something like 10%, and why not? Is that not what has all conditioning to much of our society? Because growing 5%, 6% is a line we want to walk. 5% to 6%, the size of our company, that's a lot of people. That's a lot of capacity to build, and that's a lot of relationships to build up. If you do want to do that with quality, with consistency, part of quality is also consistency over time. You have to pace things out. I do believe that we can force for one year. We can force, but the word force is already conditioning the result over time. I think there is wisdom in consistency, in what I call the mountaineer coming up the mountain, and we're in Switzerland.
Many people in this room here understand what I'm saying. Just pacing things out. You have to train your people to have the right way of working, to do it safely, to do it hygienically, to do this, to do that. You have to train each time and to do it wisely with relationships that are continuing over time. That's why we say also the 5% - 6% is a line that we feel in the frame of things, the world growing, be it 3%, 4%, 5%, to be part of that, and that reflects, but being sharper and so growing faster than the environment that we live in. That's why we come to 5% to 6%. We have over-delivered in certain years because there was some more pricing, et cetera. I think in one or two occasions, maybe we may have got to 4.9.
We were actually then also questioned, "What's happening with" Nothing. It is that line, that continuity that is important. It has to be something that walks in, I will not say harmony, I speak about a lot of intensity, but it walks on a line that is sustainable, that is important to me.
I think we have some more questions from the web.
We have a question from Keren Lentschner from Figaro, she is asking about our growth map for Eastern Europe, especially about PPPs in Europe.
Well, I may give that maybe to you, Luis Cantarell. Eastern Europe, the growth there, PPP in Europe, you have been driving that initiative. A few years ago, we started when indeed the PPP in Europe was something that was more seen in the developed markets. Luis started the whole project there with a certain commitment, so you may comment on this, please. Mic.
Yes. Thank you, Paul. There is a focus, obviously, on driving growth in Central Eastern Europe, which is the emerging part of Europe, especially Russia, which accounts for half of our business there, offers great opportunities going forward. So we have put a lot of emphasis on driving growth, building up capabilities, putting new manufacturing facilities in place to drive business performance, and we have seen phenomenal growth with categories like pet care, coffee. Dolce Gusto had a great start also in Russia and so on and so forth. Obviously, PPP is a big part of the story because if you look at emerging consumers in the pyramid of the consumers, that's a sizable share of the consumer landscape, up to 40% in a country like Ukraine, so the opportunity is there. But what I would like to highlight always is that we drive both PPP and premium, super premium.
What is happening is that the markets are polarizing. Mainstream is squeezed. PPP is growing, affordable is growing, but also premium, super premium is growing as well in those countries. Now, to be a bit more specific on PPP, lots of initiatives across categories, and in Europe, we have been growing PPP 2.8 x faster than the average of the categories. So that's the outcome. I cannot resist underlining that to the question on the growth in Europe, that many companies are not achieving worldwide the growth that we achieve in Europe. The 2.4% growth this year is on top of a 5% growth last year. So that to put things in perspective. Thank you.
Well said.
Regenass from Tages-Anzeiger again. In the beginning of March, Switzerland will have an important votation about compulsory votes on general assembly for management compensation. Now, what is the position of Nestlé regarding this? Will Nestlé leave Switzerland if this will pass, as it is quite possible?
You are very curious. We are definitely always welcoming societal discussions on things that make the society better. We are against the Minder initiative. Why? First of all, it wants to give some criminalization of the commercial law to start with. Second, it is not deceptive in the sense that it says it goes towards compensation and all, but it does not. It touches the commercial law in such a sense that it takes power away from the governing body of an organization, the board, towards shareholders. You have to think things through. What does it mean? It means that maybe, and many of these shareholders, not all of them, many are not, but maybe short term. We know, and you know that how we think about long-term perspectives of companies to be healthy. If you give more power to short-termism, well, you may end up with surprises.
On the other side, you give us also, and I want to touch a little bit the Swiss pride. You should be proud of your country. It is a light in darkness. You are going to also give more power to foreigners. You have to see the shareholder base of Nestlé. Well, we may be surprised again there. We are against it definitely. Also because that is going to affect the interest or the attractiveness of Switzerland for companies to be or to come, and that is jobs. It is not only the big companies, because it looks like an initiative that goes against big companies. It is not. If you would say now how many people are indirectly linked with our activity and our presence in this country, there are many small and medium companies linked with that, and that is not expressed.
That is why I am saying it is deceptive. It goes about a popular title, and you can discuss, that is another discussion. It is worthwhile having that discussion. But then using a population towards voting for something that has results that are not inspected or not discussed, I feel is deceptive. Even more so because the initiative, when none voted, it does not fall in emptiness. It goes straight to a counter-initiative or a proposal that has thought through these things and that has taken into account many of these arguments in a much more balanced way, without destroying the strength of this country and this country as an attractive place to be. So, that is why I am saying what I am saying, because we want to stay here.
James Shotter from the FT. Can I just ask about the horse meat scandal that is roiling Europe at the moment, and whether that has affected you in any way, whether you have had to withdraw any products or whether you have ramped up your own testing as a result? Then secondly, on the same issue, what you think is behind it? Are the supply chains of big food companies now too complicated? Thank you.
Well, it has affected us because the whole industry is in question again, and that is unfortunate and really bad. Because a few actions, a few initiatives, a few bad things, and bang, the whole industry again is questioned. That is bad, I feel. This is really bad for so many people working hard to continue to give safe and good food. De facto today we have safe and good food, but these initiatives or these things affect the whole food and beverage industry. Are we affected directly? No. The Findus brand is not ours in the rest of Europe. It is only here in Switzerland that we own the Findus brand. We do have very stringent and very disciplined policies with our suppliers. We check them permanently, and we have built relationships over time that has created that trust relationship, but checked, and that costs money.
Also, quality has a price. That is why we sometimes also a little bit more expensive maybe, but because these things, they cost money. We are continuing to do that. It is clear that after when such a thing occurs, we intensify dramatically and check everything double and triple. We have been doing that. I can say for what we know, everything what is under our labels and what Nestlé produces is not affected. Definitely Findus here in Switzerland is not affected. We have been priding ourselves to have local ingredients with all the cost included. That's an advantage that we have there. Now, you say, is that showing that the industry is this or that?
I must say, I think the knowledge, the way we go about food, the new insights that we have, et cetera, is definitely allowing better and safer food, and more tastier and all that. Definitely, that is possible, and that is what we are striving for as a company. Now, you have the interconnectivity of the world, too, and the traceability. We have been investing very heavily as a company on traceability because we know that in a world that is so interconnected as it is today, that traceability is of utmost importance for creating that relationship of trust to know what's in there. So we have invested heavily. Definitely, this is not one initiative. This is linked with many initiatives that we had. But the transparency, for example, that GLOBE has given us is just that.
It gives us with a push of a button, we know where things come from and all that. We have to intensify, though, because you can go deeper and deeper upstream, and that is what we are aiming at. Because the world of today, yes indeed, is more interconnected, yet at the same time, is more exposed. As I said, one of our three aims is to be trusted by all stakeholders. That is built upon these in efforts from Nestlé's side.
Christina Gniadke from BILANZ. I just have a question to Nestlé Health Science. I would like to know what kind of products you will focus on in the future there, and how will that business contribute to your numbers if you are looking forward? The third one would be on that, is it possible, and maybe how to combine parts of that business with other parts of your business?
Look, what kind of products? I mentioned it already. We have already close to CHF 2 billion there. We have mentioned that, and that is growing. We have products specifically like Resource Senior Plus, or in the U.S., BOOST. Specific products that are geared to specific parts of the population that have specific medical conditions. These are bases. We are investing for platforms that would give other dimensions of products that are aiming at specific medical conditions like gastrointestinal or brain health and all, et cetera. We are already engaging there. These are the kinds of products. I have mentioned six platforms, basically, these are the platforms that we want to focus on because there is a myriad of possibilities. You have to pick your interest areas. Contribution to the numbers I mentioned already as sales, but you have to see the potential.
This is not a short term. We would not expect in one year, two years' time, that to be a very substantial part of Nestlé. I do believe it is going to be a snowball. If you just see the proportion of things, I think the healthcare cost in the world is trillions and exploding. You have all the emerging markets fading in and structuring their societies, getting more affluent. They have this alternative of healthcare systems that are not financed anymore and exploding in the Western world. They are not going to jump to that and copy that. They want to see the alternatives. I do believe nutrition, inductive health, true nutrition, is one of these, I would say one of the most important drivers of a better balanced, healthy society instead of corrective health. That is what this whole thing is about.
You speak about trillions on one side. We do not say it is going to be trillions, but there is an area that really is promising, and that is why we invest. That is the strength of our company. We have delivered in 2012 results, but we have invested hundreds of millions already on the new platforms. They are covered with the results of the rest of the business because these are future platforms that are promising. That is the story of Nespresso, 25 years. We are talking a lot about Nespresso today, but during 20 years, that was silent investment, and that is what I would say one of our strengths. Nutritional health science is definitely one of these areas. We opened an institute where we have, I would say, professors and doctors of the best of the best working together there to create these platforms for the future.
I am very enthusiastic and upbeat for it. I definitely believe that is going to have value that is not tomorrow or after tomorrow, yes. In the meantime, Luis Cantarell is working and driving this business very successfully and profitably, per se, because we have a base to build upon. Frédéric?
Hello, I am Frédéric Burnand for swissinfo. I have two questions. First, it seems that there is a trend in some Western companies to take back some production unit from China to their homeland or other countries. Is it a trend, a strong dynamic, or are you not concerned as a Western company but also a world company? My second question, due to your consideration about health and food, when will you merge with Novartis? Thank you.
I consider the second question answered because I do not see any plausible answer there. Western companies taking back, et cetera, we should not be confusing two things here. First of all, there are many companies who went there to produce for the world as a production center. Then they see and they recalculate. They are not going to make their accounts. We are engaged in China, as Nestlé is engaged in many markets, for the Chinese consumer. We are a decentralized company that has activities, production, food is local, et cetera. We are engaged for the long term in this country. We do not move production units and reproduce because it is cheap, and then whenever the conditions are a little bit changed, we change. Our factories, our brands, our people, our management is in China for China and for the long term.
I would make that differentiation between what we stand for, at least, and what other companies may do.
We have an additional question from the web.
This time it's concerning the Americas. The question comes from Michelle Russell from Just Food, and she's asking how you view your performance in North America in the last year and what you're trying to do to improve it.
Well, I'm never satisfied. I think North America was a very, very good platform, has driven and was accretive to the group and all that. On growth, it has been softening. We know I have mentioned it already, a few platforms that are like frozen food that we really disengaged from certain dimensions that would have given growth, but at the price that we didn't want to pay was bad in the long term. We have very many good spots of growth there. But the importance of frozen and some other dimensions there is big. But maybe you, Chris, can add something more than that, but
Well, no, it's true. North America is the most important market for Nestlé, and as Paul has mentioned, has been facing some challenges over the last few years. But we're optimistic looking ahead. We have very good results, again, in the pet care category. Pet care in North America is the largest category that we have continued to grow in, both in value and in share. Also, we're very encouraged about the frozen food business, as was mentioned, a big business for us, where again, we're seeing, especially toward the end of the year, some good momentum coming ahead, driven by some good innovations that are coming out, the end of last year, as well as some good plans coming into this year. So overall, North America is and will continue to be an important market for us.
Any further questions? Okay, last one. John?
Just a follow-up. Dolce Gusto, I wondered if you could just tell us how that's faring. Last year you said that was on course to be a Billionaire Brand, but I actually didn't see its logo on your Billionaire Brands this time around, so it seems to have missed it. So how's that progressing? Secondly, just going back to developing markets again, you said this year, obviously, you were hit by obviously typhoons and one-offs like that, but surely that's the nature of where you are in these countries. So what's the sort of plan to kind of improve the performance out there this year?
Well, Dolce Gusto is like it says, it's dolce. It's fairing well. You didn't miss it. It was not there because you have to earn it. It's closing in very fast, but it's not there. So we didn't want to spoil the value of being part of the Billionaire Brands. You have to really earn it. But I must say Dolce Gusto has had a fantastic year again. It has grown where it has grown before already, which is good. It's not only a rollout. Europe has grown very interestingly, and it's part of that story in Europe. Only part, but an important part. So it is growing where it has grown already, and it is starting to grow very, very handsomely in many, many markets. I think we are now in 50 markets or something like that now already and going.
This is definitely something that is dolce. Now in the developing market to say is it going to gain some new colors and where? I don't feel it has lost color. Yes, indeed, we are living in a world, and when you have operations all over, I must say, you have this intrinsic risk of presence, and you see, but we're proud because one of our strength is in spite of that all, we continue on going. That is linked also with our, I would say, decentralization. If you just think, I'm so proud on this, that for example, in Syria, in Damascus, we have one factory. We're still working. That is not because we are sitting here on the Lake of Geneva thinking about solutions. It's definitely not here that we do that. It is there.
In spite of headwinds, we have the people with enough drive and creativity and ingenuity to really relink things. There is one underlying thing, again, the developing world, and is it going to grow as fast as, in general speaking, as it did in the past? Again, I am quite okay with what we have to foresee there. It is going to be steady growth because there is an intrinsic dynamics in these countries that is linked with people. It is parents for the children and all that. There is a dynamics that I think also because of a little bit of turbulence in the Western world, is fueling that auto drive of the developing world in a very handsome way.
If you see what is happening in Africa, many times considered as the last continent, but you see spots of good governments going about framing their countries in a meaningful way. It has grown 5, 6, 7%, and we have increased our footprint there. There is so much positive happening also, I would say not fancy, but positive happening in certain countries in Latin America. Others are a little bit more turbulent. There is so much happening in China. We see how we engage in China, and we have been growing very handsomely there, too, together with the country. They are saying, "Well, 7, 8% is no growth." Well, it is still 7, 8%, and we do not work on GDPs. We want to grow above that.
I am upbeat and that line of growth definitely is going to be a combination of engaging in the developed world as we do with creativity initiatives. There is so much to be done still in these countries, so much opportunities for a company like ours, and so we grow there. At the same time, we are an end-to-end company. We also want to grow in the developing markets, as we have done in the past, by being there, by being part of society, by creating value for the company and for society at large. It is a fascinating journey, what is happening in the world. So many dynamics that are starting to be continuous with a prospect of continuous development that is actually motivating us. You have seen it. We have invested heavily. Our capital expenditures went up.
It is sizable and quite geared towards where the volume growths are without losing out on the Western world. Best example is our factory here in Switzerland, and we have so many others. Dolce Gusto is investing in two other areas, U.K. and Germany and other areas. Again, so we are engaging. Our best expression of how we believe in the developing markets is our capital expenditures. That is the best expression of we trust that the underlying positive trends in these countries is to stay over a certain time, definitely.
Could you give anything like percentage growth rate for Dolce Gusto at all?
No, it's Dolce. It's very, very attractive.
I did say this morning at the webcast that we are expecting Nescafé Dolce Gusto to be part of the Billionaire Brands sooner than later.
That's clear.
Okay, if there are no other questions, I invite you to lunch just outside the meeting room over there. Thank you very much.