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NECIC STEERING COMMITTEE MEETING
March 9th, 2010 - Geneva
Minutes
Welcome and Introduction
K. Hoffmann – co-chairman - opened the meeting and welcomed the participants. He mentioned that the agenda was mutually agreed and that a few questions – not included in the agenda as such – would be taken up under “miscellaneous”.
L. Freixe, in turn, welcomed the participants to this first meeting in 2010. He extended a special welcome to Jeff Hamilton, Generating Demand Director Nestlé Purina Petcare Europe and SargeCarlson, GNBS Employee Services Manager, who will both be presenting during the meeting. He also welcomed Enrique Rueda, Manager Labor Relations at Corporate level, attending for the first time.
Preliminary comments
L. Freixe made some preliminary comments on the recent management changes, i.e. :
France : the Market Head in France - Eugenio Minvielle - left Nestlé to pursue other interests outside the Group. Martial Rolland succeeding him.
F&C Zone Europe Vevey : Philippe Blondiaux, currently Head of F&C in Zone Europe, will take up the position of Head of Group Control. He will be replaced by the current market head in Adriatic Region – Simon Smith – having strong financial background. S. Smith will join Zone Europe team in Vevey early April.
Nestlé Adriatic Region : Marco Travaglia will take over from S. Smith the responsibility for the Adriatic Region from April 2010 onwards.
Key points – NECIC November 24th, 2009 Meeting
A. Silva went through the key points of the NECIC plenary meeting of November 24th, 2009 – charts attached.
K. Hoffmann thanked for this snapshot – this being important to recall what happened in the last meetings. The subject referring to “Retailers’ Brands” will be covered at the next meeting, this being an important and useful subject for the employee representatives.
The offer to visit a factory and look at NCE implementation has been accepted. (Factory, timing, arrangements will be confirmed in due course).
2009 Business Results
L. Freixe commented the 2009 business results (charts provided). Good results compared to competition. One of the key performance elements is the OG – 4,1% achievement – ahead of all competitors, managed in a very challenging environment. Also improved EBIT margins and in the same time increasing investments behind the brands.
Profits improved, helped by low milk and commodity prices - ahead of our key competitors.
Profitability is flat in Europe. There is a negative impact of pension costs (50 to 60 bps on margins).
There is an improvement in all categories with important investments behind Nescafé Dolce Gusto brand – more than 100 mio CHF for PFME. Good performance for Petcare across the world.
Important achievements in SKU reduction, helping to drive efficiency in our factories and showing the discipline the company was able to maintain during challenging times.
Guidance given to the markets for 2010:
Focus on internal growth
Improve OG over 2009 level
Improve EBIT margin
Focus areas :
In the low inflation environment, there is little place for price increases. RIG will be critical for growth.
Cocoa prices are climbing – chocolate prices could increase.
Trade Spend increase to be managed carefully.
Protect margins and ensure right balance between first and second half of year 2010.
Maintain the discipline which was already a focus area in 2009 and which was well observed.
Questions and Answers
K. Hoffmann thanked L. Freixe for his presentation. No specific comments regarding the presentation on 2009 results. Nestlé did very well particularly considering the economic crisis. If companies do well, workers do well. In terms of economics, OOH more affected as customers are staying home due to shortage of work and unemployment. Apart from that, with a few exceptions, Nestlé is doing well compared to competition.
He commented on the suggestion to have Nutrition on the agenda. Nutrition shows positive results. However he raised his concerns regarding the Infant Food sector (NaturNes and baby food in jars) which is a source of great concern – particularly in Germany and in France. There is in Germany a decrease of 15,7% in baby food in jars. Nestlé is suffering a severe loss in market share in France – around 10%. Factories producing these products are affected. The German factory is no longer maintaining the level of production in order to come through. He wondered what Nestlé was doing in order to find a way out and promote this sector.
L. Freixe commented on the situation regarding Nutrition in Germany and France. Although Nutrition is improving – performance remains under expectations, this is indeed a concern for Nestlé. The Company has decided to change the organisational set up and change the management of both businesses. The Head of Infant Nutrition business Nandu Nandkishore will take up direct responsibility for France and Germany. The manager currently responsible for Europe will be responsible for the rest of Europe (outside France and Germany). Responsibility of France under Pierre Detry and Germany under StefanKukacka – two high performing managers. Nestlé wants to succeed and thus will ensure that people and resources are in place for reaching success.
J. Baroncini referred to the Danone model focusing on volumes. This is seen as an important factor in securing level of employment. Now Nestlé will be focusing more on volumes. How does the company plan to balance increased focus on volumes with the Nestlé model of increasing value growth?
Regarding the competition with retailers’ brands and connection with the economic crisis - competition will not go away soon. Nestle - while not being immune to crises - is in a better position to prevent crises (contaminated cheese in Lidl) as there is a difference between levels of control that multinational companies have over their supply chain. This needs to be pushed as well in the strategy of competing against retailers brands.
In the uncertain economic environment, the Company offered dividends to shareholders and additional buybacks. But what is Nestlé offering to Nestlé workers? She referred to the discussions held in November 2009 about pay increases, about the pay freeze that was announced in the UK and along with this the performance pay bonus proposals, about the fact that the same is happening in Hungary, where the spread of percentages proposed is based on performance indicators over which workers and unions have no influence. Any kind a pay freeze is rejected. Nestlé UK has shown considerable growth - how is this growth returned to the workers?
L. Freixe commented on the focus on RIG. Price decreases following the new trade law “LME” in France will not be supportive anymore. Prices will go up again. We will not decrease our prices and will have to find the right balance between volume and value. Looking at 2010, we see very little opportunities to raise our prices. In Petcare some plans have already been postponed as there is a big push back from the retail trade. We have however anticipated this and it does not impact our business. We will grow through volume growth and we will organise accordingly.
There are 2 reasons behind the “Retailers’ Brands phenomenon” : differentiations and source of profitability for the retailers. It is clear that the fundamental of our company is to never compromise on security and on quality. Focusing on low cost and low prices does not take same measures and people are more and more aware of this. We cannot compromise on what our brands stand for : security, quality, keeping leadership in the consumers’ mind.
Regarding remuneration, the principles are clear. We want to be competitive, to make sure that what we do offer to our employee is competitive in the market place.
A. Silva particularly referred to the situation of the UK – not intention to cannibalize the negotiations that have to take place at the local level. He however mentioned that the UK has been affected by the crisis in 2009 (Negative COL of -1,2%). For 2010 – COL expected to remain flat. This means that with this and with the fact that the UK comes from a strong recovery of the confectionery business, it is important to understand terms and conditions in the UK and to consider the alignments that could be done, trying in most of the locations to make a link between remuneration and performance. There is a clear focus on performance and not only on increases of base salary according to cost of living. These were the main points included in the salary increase communication sent out on Nov. 5th in the UK. There is a need to reduce complexity and cost in the UK market – this has been well managed. Considering the good relationships maintained in the UK with the unions, no doubt it will be possible to align terms and conditions in the various locations in the UK.
B. Golding pointed out that the inflation in the UK over the last two months is rated at 3,7%. Want a base pay raise affecting pension, sick pay, etc. We want to have meaningful negotiations. Cannot have only increases based on performance. Messages are not clear.
Zone Europe 2010 Key Priorities
L. Freixe commented on the key priorities in Zone Europe in 2010 (chart provided). He mentioned that there is no space for price increases into 2010. The challenge is to grow within a retail-reduced frame. Field left to manufacturers’ brands is shrinking.
We have to gain distribution with discounters – key brands to be listed in discounters. New products are now listed in Migros in Switzerland. We are also listed in Lidl in Germany with key products. Have to grow our share of the cake through innovation. Third pillar of the strategy is develop alternative trade channels. There are a lot of good examples (Nespresso, etc.). Business to grow as well out of retail.
It is important to strengthen our brands, invest in marketing mix modeling, drive efficiencies behind our investment, build the brands the Nestlé way so that all marketers apply our principles in the same way, reinvest in marketing support. This is the model that we try to implement in the Zone, getting efficiencies to allow for additional investments, to grow the volumes in order to improve profitability. There is no shortcut between efficiencies and margin improvements.
Our portfolio has to be well managed and strengthened. We have just concluded the acquisition of a leading culinary company in Ukraine (TECHNOCOM) with an interest in the MIVINA brand of TECHNOCOM (Asian noodles) that could be introduced in the rest of Europe. Discussions well advanced regarding the acquisition of Café Mocay in Spain and Portugal.
Customer management is critical for success. Want to grow with our top 10 customers – growing faster than the average.
Investing behind key priorities, i.e. Nescafé Dolce Gusto, Juicy Chicken (big success, building up capacity in the production lines in Germany and in Slovak Republic, extension of capacity in Poland), KitKat Senses, Nescafé Green Blend, Unlock (shape for the chocolate tablets). CHF600 mio investment is foreseen in the next 3 years behind the key initiatives.
Strong discipline in execution and in creating competitive gaps – Continuous Excellence. Zone model should give sustainable and profitable results.
Alternative business models to be considered.
Zone Roadmap (chart provided attached).
The Zone Roadmap that has been spread out throughout Europe has been presented.
J. Banfi referred to the alternative business ordering and mentioned that it is worth securing ordering system in an unstable and difficult environment. Regarding SKU, she mentioned that it is due to the requirements and wishes of the distributors that the company is increasing the SKUs.
L. Freixe mentioned that there is a new drive with Nescafé Dolce Gusto. It is a priority to consider the Nescafé Dolce Gusto sales through internet. Resources have been mobilised in order to upgrade the current solution – implementation ongoing in a number of countries. Performance not yet at the expected level – but in progress. This is a priority for GLOBE Centre Europe.
Regarding the SKUs, the company wants to innovate, renovate, adapt to the client, be close to the consumers and be ready to manage complexity which is adding value. At the same time, room for further improvement remains.
Nestlé Purina PetCare Business update
J. Hamilton made a presentation of the situation of the PetCare business in Europe (charts provided).
In terms of strategy, the overall vision is to be recognized the best petcare company in Europe.
The 3 key ambitions by 2017 : to be leader in the industry, become strong number 2 and specialist channel, strategic player in care.
How to drive the strategy going forward : concentrate on “Must Win Battles” – brands creating growth today – on marginal contribution through premiumisation and adding value to brands consumers pay more for, building stronger brands, expanding existing businesses and developing new businesses to become new growth engines, ensuring strong presence in CEE in specialist channels.
B. Golding asked if there will be enough capacity for the volumes which will be generated
J. Hamilton : No, there will not be enough capacity, thus the need to continue to expand capacities in the areas of single serve. True on the dry side as well but less dramatic.
Ijmuiden Factory (Netherlands) - Update
J. Hamilton provided an update of the situation of Ijmuiden factory in the Netherlands (charts provided). Tried to find best possible solution for the future of Ijmuiden. Solution was to sell to Cats and Dogs, based in Ireland, subject to consultation with works council.
K. Hoffmann thanked for the presentation. He mentioned that the closing has been discussed with his Dutch colleagues. Was good to have the update, to look at the business interest and understand the background of the closure.
No questions were raised from the floor.
Payroll update 2009
S. Carlson gave an update of the situation regarding payroll (charts attached). In a nutshell :
Efforts deployed particularly in France and Germany in the communication, for the pay slips, putting information on the intranet.
5 to 6 focus items are showing significant progress based on the action plans that were put in place.
The remaining issue – SAP technical issues, is also being addressed but taking longer given the nature of the technical work that must be done.
Escalation with France (2008) and with Germany (2009)
Regarding the market’s update –there are facts and perception driven by employees.
Situation ok for the main KPIs looked at over the past months. A few cases still to be improved.
A continuous improvement project has been put into place to focus on the employee customer satisfaction related to the employee contact center. There is still a lack of trust in the system as some employees still prefer a face-to-face discussion with a payroll specialist. This is one of the reasons we have provided training opportunities to the employees and improved the communication (how to contact, who to contact, etc.). Further to the escalation process in Germany, there will be a contact person in the Hamburg NSP centre in Germany who will be at the employees’ disposal for questions which will not be resolved by the call centre.
Questions and Answers
J. Banfi mentioned having checked the situation with her colleagues in France. Situation proved to be better than previous year. There are however still some communication problems as it seems difficult to explain and/or understand the situation, there are still language problems as people in the Centre do not speak enough French. It is necessary to have a reference person on site. Also worth mentioning that there are still problems in capturing variable elements of the remuneration, i.e. holidays, RTT, paternity leave, sick leave longer than 6 months, etc.
S. Carlson took good note of the language problem and will revert back to the Centre in Poland to see how we can make sure that the language skills are improved. Regarding the need to have a person on a site, this need to be further examined.
A.Silva mentioned he will continue to closely work with S. Carlson and that good improvement has been shown during 2009. Some of the problems are of the responsibility of HP but can also be of the responsibility of Nestlé particularly looking at the quality of the e-forms that are sent to the HP centre. Situation is closely followed up with the markets in view of a positive evolution over time.
D. Brard expressed her satisfaction for the improved situation and mentioned that problems for capturing variables are also due to internal problems. Situation improving however. It is important to analyse the problems and ensure putting tools in place for the time control. A single process should be found and used. A workshop is going to be held to look at how best we can use “Kronos” (time management system – selected by Nestlé) and interface with payroll – stopping doing things manually.
K. Hoffmann thanked the teams for the efforts deployed. This subject has been discussed for more than a year and it is understood that we want this to be part of the ground and things are moving as originally planned. There is a need to look at the organization at plant level, having a person trained in this respect. There are however cases of dissatisfaction which create insecurity amongst employees. It is not only a question of the money – but a question to recognize the error and to trace it as it is often difficult to understand where the error is coming from.