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TRANSCRIPT
May 19, 2006
Nestle India Limited
Financial Analysts’ Meet - May 19, 2006
Nestlé India Limited
Financial Analysts’ Meet
May 19, 2006
May 19, 2006
Agenda
Introduction & Overview Martial Rolland
Financials Shobinder Duggal
Chocolates & Confectionery Stewart Dryburgh
Business
Questions & answers ALL
May 19, 2006
This presentation may contain statements reflecting Management’s current views and estimates, that may be construed as forward looking statements. Actual results might differ materially from those either expressed or implied in the statements, depending on the circumstances.
Responses can only be given to questions, which are not price sensitive.
May 19, 2006
INTRODUCTION &OVERVIEW
May 19, 2006
Few key and “recent” “environmental changes”
May 19, 2006
22,499 24,77327,758
31,198 33,298
5.24.6
8.3
6.2
7.9
-
10,000
20,000
30,000
40,000
50,000
2001 2002 2003 2004 2005 2006
-
2.0
4.0
6.0
8.0
10.0
GDP at current prices Real GDP growth
Past FutureINR Billion %
7.5 – 8.0
Overview of India’s GDP
A period of greater wealth creation…..
Source: EIU, RBI Forecast
May 19, 2006
3,9723,457 3,262 3,245 3,377 3,607
5,839
4,795
6,6037,194
9,398
12,043
0
2,500
5,000
7,500
10,000
12,500
Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Apr-06
Sensex
-7.8 % +39.8 % +57.1 %CAGR
2,645 points increase from Dec 05 to Apr 06!
Performance of Sensex
…reflected in greater optimism…
May 19, 2006
USD
28.5 27.6
19.3
25.5
29.4 30.7 32.2
38.0
43.3
56.359.4
62.9
10
20
30
40
50
60
70
Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Mar-06
Crude Oil prices
Monthly average rates per barrel
Source: Dow Jones & Company
…however with its share of issues….
May 19, 2006
8,381
33,878
1,222
5,320
18,083
2,218
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FMCG Companies Brands Skus
2001 2005
Numbers
Source: A.C.Nielsen
87%
58%
82%
Increasing FMCG clutter
… and challenges….
May 19, 2006
So there are challenges but overall
environment seems positive
and there are strong opportunities
for our Company
May 19, 2006
� Maintain our strategic focus towards leadership in Nutrition, Health and Wellness.
� Leverage our strong brands and drive harder our superior research-based concept/product delivery.
� Leverage our new organisational structure
� Leverage our greater consumer and customer intimacy
� Drive few but big innovations
� Work towards improving further availability
� Maintain focus on cost efficiency and effectiveness
� Move with greater speed.
Directionally we will
May 19, 2006
Over to SHDOver to SHD
May 19, 2006
FINANCIALS
May 19, 2006
Continued focus on the 7 value drivers
VALUE DRIVERS
1. SALES GROWTH
2. PROFIT MARGIN
3. WORKING CAPITAL INTENSITY
4. FIXED CAPITAL INTENSITY
5. INCOME TAX RATE
6. COST OF CAPITAL
7. VALUE GROWTH DURATION
May 19, 2006
SALES GROWTH
May 19, 2006
Sales Evolution
16.7 18.7 20.9 22.2
1.8
1.91.5
24.7
1.7
2.5
12.2
11.3
10.4
4.4
7.9
0
5
10
15
20
25
30
2001 2002 2003 2004 2005
Gross Sales (INR Bio) .
0
2
4
6
8
10
12
14
RIG (%) .
Third Party Sales Affiliated Exports RIG
20.5
22.823.7
26.4
19.2
(RIG in relation to 3rd Party sales basis international accounting standards)
May 19, 2006
Sales Evolution (contd.)
6.1 6.9
0.3
0.4
3.7
9.3
4
5
6
7
8
Q1-05 Q1-06
Gross Sales (INR Bio) .
0
2
4
6
8
10
RIG (%) .
Third Party Sales Affiliated Exports RIG
7.26.5
(RIG in relation to 3rd Party sales basis international accounting standards)
May 19, 2006
Sales Decomposition
Sales Growth:
Selling prices = 3.1%
RIG = 9.3 %
Q1’06
(Basis international accounting standards)
Selling prices = 2.1%
RIG = 3.7 %
Q1’05
+5.8% +12.4%
May 19, 2006
Volume (Tons) – Q1 Value@ (Mio) – Q1
2006 2005 Var% 2006 2005 Var%
Domestic 53,337 48,708 9.5 6,703 5,906 13.5
Exports 3,440 4,537 -24.2 508 648 -21.7
Total 56,777 53,245 6.6 7,210 6,554 10.0
Channel-wise Sales
@ Gross Sales including excise duty
May 19, 2006
1,226 1,043
1,088
1,472 1,468
1,320
2,9543,193
Q1 06 Q1 05
Choc./Conf. Prep. Dishes & Cooking Aids
Beverages Milks/Nutrition
INR Mio. 7,210 6,554
44.3% 45.1%
18.3%
22.4%20.4%
16.6%
17.0% 15.9%
Gross Sales including excise duty
A Balanced Portfolio
Contribution Contribution
May 19, 2006
Brand Volume (Tons) – Q1 Value@ (INR Mio.) – Q1
2006 2005 Var % 2006 2005 Var %
Milk Products & Nutrition
26,004 25,318 2.7 3,193 2,954 8.1
Beverages
5,525 6,415 -13.9 1,472 1,468 0.3
Prepared Dishes & Cooking Aids
16,917 14,571 16.1 1,320 1,089 21.2
Chocolate & Confectionary
8,332 6,941 20.0 1,226 1,043 17.5
Total
56,777 53,245 6.6 7,210 6,554 10.0
Sales by Product Categories
@ Gross Sales including excise duty
May 19, 2006
OPERATING MARGINS
May 19, 2006
3.1
4.04.4
5.2
4.5
16.4
19.519.5
19.719.0
14.1
17.117.5
16.9
17.6
0.0
1.5
3.0
4.5
6.0
2001 2002 2003 2004 2005
8
10
12
14
16
18
20
Percentage (%) .
EBITDA EBITDA as % of Gross Sales EBITA as % of Gross Sales
Evolution of Operating Margins
INR Bio.
May 19, 2006
1.4 1.4
21.2
18.919.2
16.8
0.0
0.3
0.6
0.9
1.2
1.5
Q1 05 Q1 06
10
12
14
16
18
20
22
Percentage (%) .
EBITDA EBITDA as % of Gross Sales EBITA as % of Gross Sales
INR Bio.
Evolution of Operating Margins (contd.)
May 19, 2006
INR Mio.
Description Q1 06 % Net Sales
Q1 05 % Net Sales
Var. %
Tot. Expenses -of which
5,394 79.8 4,748 77.4 13.6
Materials 3,098 45.8 2,711 44.2 14.3
Staff Cost 516 7.6 444 7.2 16.2
Advt + sales Promotion
391 5.8 348 5.7 12.3
Distribution 306 4.5 285 4.6 7.7
Power & Fuel 279 4.1 246 4.0 13.8
Total Expenditure
May 19, 2006
113
117
100
113
120
107
124
120
115
109
106
117
114
100
105
110
115
120
125
Q 1 Q2 Q3 Q4
Period
Rs. Per KG (Indexed)
2004
118
Current
2005
Evolution – Milk Solid Prices
2006
2003
May 19, 2006
100
120
106
114
107
124
113113115
117
120
110
117
90
100
110
120
130
2003 2004 2005 2006
Ind
ex
ed
Pri
ce p
er
kg
.
Q1 Q2 Q3 Q4
Evolution - Milk Fat Prices
May 19, 2006
157 152
120113
151
10099 100 100100 100 100 100
80
100
120
140
160
180
Q 1 Q2 Q3 Q4
Period
Rs per KG (Indexed)
180
Current
Evolution – Green Coffee Prices
2003
2004
20052006
May 19, 2006
Evolution - HVF Prices
96
100
9696
100
108
112110
116
98102
96
103
90
95
100
105
110
115
120
Q 1 Q2 Q3 Q4
Period
Rs. Per KG (Indexed)
2004
2005
2003
2006 105
Current
May 19, 2006
144148 150
158
100 99
110106
112
124127 129
145
80
90
100
110
120
130
140
150
160
170
Q 1 Q2 Q3 Q4
Period
Rs per KG (Indexed)
2004
168
Current
2003
Evolution - Sugar Prices
2006
2005
May 19, 2006
108109
116
128
101
108
100100
108
116
107
112
111
95
100
105
110
115
120
125
130
Q 1 Q2 Q3 Q4Period
Rs per KG (Indexed)
2004
Current2006
2003
Evolution – Wheat Flour Prices
2005
126
May 19, 2006
NET PROFIT MARGIN
May 19, 2006
1.7 2.0 2.6 2.5 3.1
10.6
11.7
11.4
9.7
8.9
1.5
2.0
2.5
3.0
3.5
2001 2002 2003 2004 2005
8
9
10
11
12
Perc
en
tag
e (
%)
.
Amount % of Gross Sales
Evolution of Net Profit Margins
INR Bio.
May 19, 2006
0.8 0.9
12.3
11.9
0.5
1.0
Q1 05 Q1 06
9
11
13
Perc
en
tag
e (
%)
.
Amount % of Gross Sales
Evolution of Net Profit Margins (contd.)
INR Bio.
May 19, 2006
WORKING CAPITAL INTENSITY
May 19, 2006
Operating Working Capital
INR Mio
4.8%6.2%As % of Gross Sales
1,2681,819Net capital tied up
1,8201,806Less: Trade Payables #
2,5893,163Inventories
500462Trade receivables
31-Mar 2005
31-Mar 2006
Basis International Accounting Standards
# Excludes any exceptional payable, if any
May 19, 2006
21.8
25.2
27.7
34.8
18.5
28.0
4
8
12
16
20
24
28
32
36
2001 2002 2003 2004 2005
Rotation of Operating Working Capital
Times
Basis International Accounting Standards &
average of two period ends
Adjusted
May 19, 2006
24.8
23.5
20
22
24
26
28
Q1 05 Q1 06
Rotation of Operating Working Capital
Basis International Accounting Standards &
average of two period ends
Times
May 19, 2006
FIXED CAPITAL INTENSITY
May 19, 2006
INR mio. % of Gross Sales
589 596
681742
823
257
3.12.9
3.03.1 3.1
3.6
0
200
400
600
800
1000
2001 2002 2003 2004 2005 Q1 06
2.0
3.0
4.0
Dep. 435 494 463 491 498 131
Investment in Tangible Fixed Assets
May 19, 2006
5.4
6.26.3
6.6
4.9
4.0
4.4
4.8
5.2
5.6
6.0
6.4
6.8
2001 2002 2003 2004 2005
Rotation of Tangible Fixed Assets
Times
Basis International Accounting Standards &
average of two period ends
May 19, 2006
6.8
7.0
6.4
6.5
6.6
6.7
6.8
6.9
7.0
7.1
7.2
Q1 05 Q1 06
Rotation of Tangible Fixed Assets
Basis International Accounting Standards &
average of two period ends
Times
May 19, 2006
INCOME TAX RATE
May 19, 2006
35.7 35.9
36.6
32.9
34.734.4
35.0
33.3
34.5
36.8
30
32
34
36
38
2001 2002 2003 2004 2005
Marginal Rate Effective Rate
Evolution of Tax(as % of pre-tax profit)
May 19, 2006
36.6
37.9
35.3
33.7
32
34
36
38
40
Q1 05 Q1 06
Marginal Rate Effective Rate
Evolution of Tax(as % of pre-tax profit)
May 19, 2006
COST OF CAPITAL
May 19, 2006
10.59.4 9.7
9.0
7.2
5.3
6.6
14.2
16.0
11.0
0.0
3.0
6.0
9.0
12.0
15.0
18.0
2001 2002 2003 2004 2005
WACC Risk Free Bond Rate
Evolution of WACC - %
Basis International Accounting Standards
May 19, 2006
9.6
6.6
7.2
10.8
4
6
8
10
12
Q1 05 Q1 06
WACC Risk Free Bond Rate
Evolution of WACC - %
May 19, 2006
VALUE GROWTH DURATION
May 19, 2006
Value Growth Duration
Effective & Efficient Operations
People
Availability
Innovation and Renovation
Consumer Communications
GLOBEStructure
Nu
trit
ion
,He
alt
h,W
ell
ne
ss
for
all
ag
es
May 19, 2006
QUESTIONS
Thank You