Nestle S.A

Good morning and welcome to Nestlé's three-month 2025 sales conference call. I am David Hancock, Head of Investor Relations. Today I'm joined by Laurent Frex, CEO, and Anna Manns, CFO. Laurent and Anna will provide a short update on our progress in the first quarter before we open up for Q&A. Before we get started, please take a moment to read the disclaimer on page two. With that, I will hand over to Laurent.

Thank you, David, and good morning, everyone. Before Anna takes you through the financials, let me share some highlights on our progress in the first quarter. Despite a challenging consumer environment, we delivered resilient and broad-based organic growth of 2.8% in the first quarter. I would like to thank our team for their efforts as we navigate the first full year under our new strategy. Over the last year, we have seen unprecedented cost inflation in coffee and cocoa. We have been proactive on pricing and our team navigated the negotiations with customers well with limited disruptions. My priority is to accelerate our growth. There is no growth without investment. So generating the resources to invest is critical. That is why we launched the Fuel for Growth Savings Programme. We are making good progress and we are on track to deliver 700 million Swiss francs incremental cost savings in 2025 on top of over 1.2 billion of savings from ongoing efficiency initiatives. Alignment and focus of the teams is critical to delivering performance. Following the rapid actions on the organization we took last year, we are further simplifying to support effective execution. This includes steps to harmonize our structure in zone Europe and enhance our capabilities in R&D. We are driving these savings and improving organizational alignment to support growth, both accelerating our categories and improving our market share. Let's turn now to how we have done that in Q1. We are making good progress on actions which will accelerate our growth. I want to touch on a few in each of our growth pillars over the quarter. Firstly, expanding winners. We continue to invest behind winning brands like KitKat and Maggi. KitKat tablets were rolled out to 12 markets in Europe during Q1 with strong marketing support. Early indicators have been positive both with customers and consumers. In MAGI, we have been investing further behind the brands and in strengthening our digital platform, which provides access to modern recipes, peer-to-peer sharing, and a personalized user experience. In Q1, we added new functionalities in several markets. Between the MAGI and Resetas platform, we will roll out enhancements across around 50 markets during this year. E-commerce is another area of progress, and we continue to deliver strong growth in Q1. This is supported by the rollout at scale of innovative AI tools, allowing us to better optimize our digital shelf and significantly improve the generation of personalized content. Next, scaling big bets. At the full year results and Cagney, we talked about the rollouts of Nescafe Espresso Concentrate and our Gourmet Wet Cat Pyramids. Early traction in the market has been good for both. During Q1, we also rolled out Choco Bakery, and this has now scaled to 13 markets in Latam as well as markets in Hawaii. Given the pricing dynamics from cocoa inflation, it is a great time to be scaling these chocolate with biscuit products. Third, addressing underperformance. I've talked before about diagnosing the issues across our 18 key underperforming cells, and we are taking action. It is still early days, but I'm encouraged that we are seeing signs of improvement in the majority of the cells. Finally, we are moving ahead with building new growth platforms. In nutrition, we want to play in each stage of life, and women's health is one of the most promising new agro areas. With Materna, we already have a great brand, well established in Latam and Canada. This year, we are expanding globally, including in China and India, and we are developing our range with premium science-led innovation. So this is a small snapshot. Overall, lots of focus and good progress, giving us confidence that even in this uncertain environment, we can continue to accelerate our growth. And with that, I will hand over to Anna to take you through the Q1 figures in more detail.

Thanks, Laurent, and good morning. As Laurent said, we delivered 2.8% organic sales growth in the quarter. with rig of 0.7% and pricing of 2.1%. Sales were negatively impacted by foreign exchange movements. The impact this quarter was much less than last year, but the recent strengthening of the Swiss franc means we'll see an increased impact again looking forward. Looking next at the quarterly movement of sales over time. And you can see that pricing has picked up in the first quarter as we respond to the input cost inflation in coffee and cocoa. I want to spend a moment on our pricing approach. We typically aim to price for the absolute dollar increase in input costs. Given the significant moves in coffee and cocoa, It's critical that we price to the fullest extent possible to provide the margin for future investment behind our brands. And our goal is to do that whilst maintaining medium-term consumer penetration. As we price, we have to consider the customer as well as the consumer. In some markets, particularly Europe, customer negotiations are predominantly in the first quarter each year. These are now largely concluded, and as Laurel said, there's been only limited customer disruption. From a consumer perspective, it's still too early to get a clear read on elasticities. Where pricing has been significant, there's initially been some impact on RIG. We're monitoring this closely as consumers and the competitive environment adjusts and stabilises. RIG also continues to be dampened by soft consumer demand. Consumer confidence in many geographies was already fragile, even before the increasing macroeconomic and political uncertainties. Now let's look at the performance of our segments in the quarter. In zone Americas, macroeconomic uncertainty has made for a challenging environment with consumer confidence fragile. In that context, flat organic growth with positive rig in North America was a very solid performance and we grew nicely in Latin America. Growth for the zone was driven by strong pricing actions in confectionery and coffee. This was supported by high single-digit growth in our professional business. The main drags on the zone's first quarter delivery were infant nutrition and frozen foods. On the latter, we're making progress in restoring competitiveness. There are recent indications of improving market share developments, although it's too early to call this a sustained trend. In Zone AOA, we delivered positive growth across all categories and most regions. The highlight was our confectionery business. Here we achieved positive rig and market share gains even while we took significant pricing. We also made good progress in the areas we've identified as being a strategic focus. This includes double digit growth in Maggi cooking aids and in emerging market pet care. Across the zone, consumer sentiment remains subdued. This is particularly true in China. In that context, our organic growth in China was driven by sales phasing with the build-up of inventories, rather than by underlying consumption. Consumer demand remains broadly flat in the quarter. Turning to zone Europe, we generated broad-based growth across markets and categories, with improving market share trends across most country category combinations. A priority during the quarter was our annual price negotiations, and as we've said, we navigated these with relatively limited disruption. We now need to see the impact of price increases on consumer demand in coffee and confectionery, which we're watching carefully. Beyond these categories, the zone's growth continues to be supported by solid, rig-led growth in pet care. In Nesse Health Science, performance was mixed. In H2 last year, we had double digit growth as we were getting back on shelf after the resolution of our supply issues. Moving into this year, growth has decelerated. In some areas, we're performing very well. For example, growth continues to be double digit in our premium VMS brands and in Organe. Offsetting that, there's been areas of weaker performance. In Nature's Bounty, we're now back on shelf, but consumer uptake has been slower than expected. And Vital Proteins has been weak, in a category that's seen an increasing number of entrants. So we've got work to do on competitive positioning, promotional strategies and strengthening our brands and product line-ups through innovation and marketing. Finally, a comment on pricing, which was negative. In part, this reflects a return to more normal levels of promotional activity in our VMS business. Pricing was also impacted by changes to the reimbursement model of our Zempep gastrointestinal product as a consequence of the US Inflation Reduction Act. Nespresso had a strong first quarter. Growth was largely driven by the US, but we also saw reducing share loss in Europe. Across the business, we've been progressively taking price. In many markets, this took effect towards the end of the quarter, and we did see a benefit from some sales pull forward ahead of price increases. As you look ahead, keep in mind that our consumers purchase Nespresso less frequently than our other categories, so it will take a while to see the consumer impact of the price increases. All of that said, it was a good quarter for Nespresso. And this is also true of the broader Nespresso ecosystem, including Starbucks by Nespresso, where we continued strong momentum and added a further 130 basis points to growth. Finally, Nestlé waters and premium beverages. we rapidly implemented the new organisational structure and progressed with our strategic evaluation while staying focused on operational execution. Growth improved and was broad-based across markets, mainly driven by recent product launches in the San Pellegrino and Maison Perrier range. Our waters business posted low single-digit growth as Perrier was impacted by ongoing supply constraints. Turning to categories, I'll be brief as we've covered much of this already. The group's first quarter growth was driven by powdered and liquid beverages, specifically coffee, and by confectionery, pet care and health science. In powdered and liquid beverages, growth was price-led. On average, pricing was mid-single digit. This varied across markets and products as our actions were tailored to the specific dynamics of different markets. On pet care, category growth has come down from a year ago but is now stabilising. First quarter organic growth of 1.6% was similar to the growth we saw in the second half of last year. RIG continues to be positive across all regions, led by cat food and therapeutics. Negative pricing reflects input costs and a return to a more normal promotional environment. Within nutrition and health science, I've talked about health science already. Nutrition saw a decline in infant nutrition, impacted by our underperformance in Gerber baby food and in Nido. On prepared dishes and cooking aids, flat organic growth overall was a function of growth in cooking aids led by Maggie and offset by frozen food. Milk products and ice cream organic growth was slightly positive, with growth in ambient culinary offset by coffee creamers. In confectionery, pricing was double-digit, with LATAM the highest, followed by Europe and AOA. As noted, this had some impact on demand. And waters, we've covered already. Performance in the first quarter was in line with our expectations and our 2025 guidance remains unchanged. And this is based on our assessment of the direct impact of current tariffs and our ability to adapt. Organic sales growth is expected to improve versus 2024 and strengthen over the year as we deliver on our growth plans. We expect our UTOP margin to be at or above 16% as we invest for growth. And as you've heard from Laurel, in a complex external environment, we remain focused on execution of our strategy. And with that, I'll hand you back to David for the Q&A.