Business Review

   

Overview

The Group performed commendably despite the challenges in 2013, with a strong domestic growth more than offsetting the slight contraction in the export business to affiliates.

To support and sustain the growth momentum from the previous year, Nestlé increased its marketing and promotional activities in 2013.

This has resulted in strong domestic sales with several product categories such as Confectionery, Liquid Drinks and Food registering double-digit growth. The Group has also strengthened its market share position in the Food and Beverage category with this overall good domestic performance.

The export business represent sales to affiliated companies in other countries which distribute Nestlé products locally. The contraction in exports was largely due to lower demand from affi liated companies owing to the global economic environment which has become more challenging as well as a softening in demand for some export categories. The lower export volumes, however, created opportunities for the domestic market to grow as the extra capacity available supported the higher local demand.

Within the domestic business, some of the product categories grew faster than anticipated, requiring the Group to focus its efforts in increasing production capacity to ensure the uninterrupted supply of these products.

This was reflected in the Group’s investments during the year, which amounted to RM214 million, mostly dedicated to increase the production capacity of the Liquid Drinks, Confectionery and Noodles categories.

One of the key investments to further increase capacity was the construction of the Sri Muda Factory, a new manufacturing facility in Shah Alam, which will initially produce a variety of ready-to-drink liquid beverages, a category which has seen a sharp increase in demand in recent years.

The construction of this new plant started in mid-2013 and is expected to start commercial production in the fourth quarter of 2014.

The strong performance during the year was also enabled by the continued application of the Nestlé Continuous Excellence (NCE) – a global framework to improve working processes and effi ciencies within Nestlé.

As a result of the improvements, the Nestlé factories collectively have increased their productivity by 3.3% while successfully reducing the conversion cost up to 10.0% of some key product items.

In addition to the increased productivity, Nestlé also managed to reduce energy consumption with a saving of 2.3% of energy usage per tonne product recorded for the year under review, surpassing the annual target of 2.0% reduction.

The on-going internal improvements spurred by NCE have also resulted in a reduction of consumer complaints by 9.0% in 2013.

The Supply Chain performance also continued to rise this year, with its customer service level registering a 40 bps improvement. In addition to that, the accuracy of its demand planning sustained its upward trajectory, whilst at the same time successfully reducing stocks of raw and semi-fi nished materials, as well as fi nished products.

On-going efforts by the Group’s logistics arm helped reduce CO2 emissions, which not only resulted in a reduction in distribution expenses per kilogramme of delivery, but was also successful in minimising its impact on the environment.

This achievement in overall carbon footprint reduction was acknowledged as the Group received the Notable Achievement in Environmental Performance and the Selangor State Award at the Prime Minister’s Hibiscus Award 2013.

The retail operation, meanwhile, was further enhanced as the Sales Team continued its focus on ‘Being Brilliant at the Basics’ through activities such as the GPS coding exercise, where new outlets were identifi ed and included in coverage plans. This resulted in an increase of direct coverage of 4,000 retail outlets, which improved the availability and representation of Nestlé products in these stores.

Working closely with selected partners, the Sales Team also implemented the ‘Perfect Store’ concept in several stores across the country to improve sales. This involved the remodeling of fl oor plans, display areas and shelves to leverage shopper traffi c and purchase patterns, which were derived from shopper insights.

A major highlight during the year was the Bonanza Hari Keluarga Malaysia Nestlé – a nationwide contest to encourage consumers to purchase Nestlé products with an opportunity to win prizes worth up to a total of RM2.6 million.

The contest was promoted through a comprehensive and integrated marketing campaign that included extensive on-ground activities with more than 25,000 multi brand displays in stores nationwide, above-the-line support with over 140 print advertisements and more than 3,000 television commercial spots, and digital communication.

The extensive activities supporting this campaign clearly paid off, as the response from consumers was overwhelming with almost 800,000 entries nationwide, resulting in a signifi cant uplift in sales in the month of September.

To maintain the continuous success of the business, the Group also focused on recruiting and nurturing the best talents. Nestlé partnered with top universities and relevant agencies, such as TalentCorp Malaysia, and also took part in career fairs at local and overseas universities.

Through these engagements, undergraduates had the opportunity to learn more about Nestlé and in return Nestlé was able to build a network of top young talents.

To nurture these young talents, Nestlé has in place various programmes designed to support their personal development and create a pool of talented future leaders. The Nestlé Internship programme provides an aspiring experiential learning platform for undergraduates to gain hands-on exposure and mentoring in their fi eld of study, while the Nestlé Management Trainee programme helps develop fresh graduates in the areas of Sales & Marketing, Finance, Supply Chain, Human Resource and Technical & Production.

In 2013, Nestlé recruited 20 new Management Trainees from a total of 1,500 applicants.

As an employer that cares for the wellbeing and development of not only its employees, but also their families, Nestlé awarded 20 students whose parents are Nestlé employees and retirees with the Nestlé Scholarship Awards, doubling the number of scholarships awarded from the previous year.

Through this initiative, selected students will receive RM7,000 annually for the entire period of their degree programme. They will also be given priority in the practical internship programme and work opportunities at Nestlé.

Due to the Group’s important investment in its people, Nestlé is widely acknowledged as a leading employer and a great place to work.

This is confirmed by Nestlé winning the Most Popular Graduate Employer Award 2013 for the FMCG/Retail category. Nestlé is also currently ranked as one of the top 10 companies in Malaysia’s 100 Leading Graduate Employers – a huge improvement from the 23rd position in the year before.

DAIRY

MILO

In 2013, the number one chocolate malt beverage brand in the country, MILO continued to leverage on its brand by reaching out to all Malaysians, advocating healthy and active lifestyles.

It launched the MILO Breakfast Movement, a campaign that emphasised the importance of breakfast, through a series of interactive and educational activities, which culminated with the Malaysia Breakfast Day celebration at University Putra Malaysia on 19 May 2013.

Having successfully engaged with more than 200,000 Malaysians through this campaign in 2013, MILO plans to continue to host the Malaysia Breakfast Day celebrations annually, as it is committed to further cultivate good breakfast habits amongst Malaysians.

Additionally, in its effort to drive the true value of sports and develop young local athletes, MILO in partnership with the Olympic Council of Malaysia launched the MILO Fuel for Champions campaign.

The aim of this campaign is to obtain support for Malaysian’s contingent in the 27th SEA Games in Myanmar, which was offi ciated by Y.B. Encik Khairy Jamaluddin, Minister of Youth and Sports Malaysia in August 2013. MILO successfully collected 2.7 million MILO Flames to support the Malaysian contingent.

This campaign will be more than just a one-time sponsorship, as it aims to empower young athletes to further develop their talent, and inspire parents to encourage their children to participate in sports from a young age.

MILKS

In 2013, NESTLÉ OMEGA PLUS collaborated with retail partners and the Heart Foundation of Malaysia (HFM) to drive higher heart health awareness, through initiatives such as the Go Red Campaign.

Through this campaign, more than 100,000 cholesterol checks and sampling activities were carried out in selected shopping malls and supermarkets. It was well received by shoppers, which led to a higher trial rate and increased sales for the brand.

Together with the HFM, NESTLÉ OMEGA PLUS also organised several health related activities, such as Walk A Mile and Heart Health Screenings, in conjunction with the World Heart Day on 29 September 2013. The Walk A Mile event was also attended by Tun Dr. Mahathir Mohamad and Tun Dr. Siti Hasmah Mohamad Ali.

BEVERAGES

NESCAFÉ

Celebrating its 75th year anniversary in style, NESCAFÉ carried out a series of fantastic in-store promotions, on ground engagements and roadshows, which excited consumers throughout 2013.

The theme of the celebrations, ‘75 years of great coffee and counting’ aptly reflects the brand’s legacy in the history of coffee around the world, as well as its promise to continue providing the best tasting and quality coffee to consumers.

True to this commitment, NESCAFÉ Dolce Gusto launched a new variant, Caramel Latte Macchiato especially for those who love the taste of rich coffee with milk and caramel flavour. This new product has been popular with online consumers.

It also introduced a new coffee machine, Melody, which has the capacity to produce six cups of drinks, thus making it more convenient for entertaining friends and strengthening NESCAFÉ Dolce Gusto’s promise of delivering café style beverages at home.

To further enhance its brand image and value proposition, the NESCAFÉ Classic and NESCAFÉ 3in1, were both re-packaged.

To deliver a better coffee experience, the NESCAFÉ 3in1 was reformulated to enhance its overall richer coffee taste and creaminess.

Demonstrating its position as the coffee of choice, 7 out of 10 consumers chose NESCAFÉ Menu Ipoh White Coffee over a competitor’s, during a taste challenge.

FOOD BUSINESS

MAGGI

The Food business sustained a double-digit growth and boosted market share, through focussed support for the noodles and cooking aids categories. Operational savings generated across the value chain fuelled increased investments in brand communication and product improvements.

MAGGI started the year with the launch of MAGGI Magic Meals, an innovative cooking solution that allows the preparation of delicious homemade meals alongside rice in a rice cooker. This revolutionary approach to cooking is currently gaining traction in the modern trade channels.

MAGGI Cukup Rasa, the leading all-in-one seasoning saw incredible growth and rise in market share, following better media support and the launch of its 25g pack, which increased its availability in top-up shops.

Responding to consumers’ demand, MAGGI Big Kari 101g was launched through an integrated marketing campaign, which included celebrity endorsements, in-store displays and exciting promotions. The launch successfully generated a strong buzz in the market and increased MAGGI’s share in the noodles market.

MAGGI capitalised on positive consumer sentiments towards its culinary products through affi nity programmes that promoted the goodness of home cooking amongst youth. In its secondary school cooking competition, which is in its 17th year, students from 16 states prepared signature homemade dishes and participated in cooking and nutrition workshops.

NESTLÉ PROFESSIONAL

Nestlé Professional teamed up with the Chefs Association of Malaysia, to produce the ‘Amazing Inspirations’, a recipe book that highlights the nation’s best chefs’ culinary skills and creative recipes that use MAGGI, to inspire aspiring young chefs in the industry.

Designed specifi cally for local and fusion cafés, MAGGI Oriental Barbecue Sauce, a unique barbecue sauce with a touch of Asian spice was launched in 2013. Its distinctive fl avour of spices allows it to be used in a marinade or as a glazing, stir-frying or dipping sauce.

In 2013, an international QSR (Quick-Service Restaurant) chain introduced NESCAFÉ Milano as part of their beverage menu. They ran several campaigns such as the Breakfast with Coffee campaign to encourage their customers to choose NESCAFÉ Milano.

NESTLÉ LIQUID DRINKS

In 2013 the Nestlé Liquid Drinks business achieved double-digit growth for the fourth consecutive year and gained market share in both MILO and NESCAFÉ Ready-To-Drink categories.

One of the key reasons for this was the strengthened route to market thanks to improved distribution coverage and increased nationwide visibility.

Additionally, several creative campaigns were implemented to excite consumers and drive sales. For example, MILO UHT Packet drinks ran the Fuel for Champions campaign, which featured popular Malaysian footballer, Nazmi Faiz; and NESCAFÉ Can launched a creative campaign based on music, which featured popular artist Shaheizy Sam.

These campaigns received positive feedback and strong online following, thus helped to increase market share and enticed new consumers.

To provide more choices for consumers, NESCAFÉ Smoovlatte and BEAR BRAND were launched in 2013.

NESCAFÉ Smoovlatte is a café style latte that has a strong aromatic blend of NESCAFÉ coffee and milk, whilst BEAR BRAND is sterilised milk, which has a strong brand presence in East Malaysia.

NESTLÉ ICE CREAM

Confectionery maintained strong double-digit growth in 2012 driven by both the domestic business and direct exports. KIT KAT strengthened market leadership in the count lines segment and continues to be the main growth driver.

KIT KAT remains successful with its digital communication programs and in-store activities while Nestlé Wafer, which is targeted at the mass market, stays driven by strong marketing support and distribution extension.

CONFECTIONERY

2013 was another great year for the Confectionery business, as it successfully maintained its double-digit growth. This commendable performance is largely attributed to the robust sales of its domestic and export businesses.

A key brand under this category, KIT KAT, reaffirmed its position as the brand leader with a strong share in the confectionery market. This success is driven by the brand’s innovative and exciting campaigns throughout the year.

CHILLED DAIRY

Nestlé Chilled Dairy business continued to deliver growth during the period under review. Nestlé BLISS, the leading yogurt drink brand in Malaysia continues to recruit new consumers while increasing consumption amongst its light and medium users.

In addition to that, the Nestlé Natural Set yogurt maintained its double-digit growth, thus strengthening its position as the market leader in the segment.

An exciting new range of Nestlé Greek Yogurt was introduced in 2013, targeted at the premium yogurt segment. The new range comprises of three variants - Natural Variant, Strawberry Field and Peach Harvest. These new varieties are creamier in taste and more nutritious, as they are a source of protein and calcium, with low fat content and no added sugar.

MATERNAL & INFANT NUTRITION

2013 has been a year of continued product innovations for the Maternal & Infant Nutrition business, in line with its START WELL STAY WELL commitment to nurture a healthier generation.

The Nestlé CERELAC Yogurt, which comes in two variants – Yogurt Cherry Apple and Yogurt Mango Orange – were introduced, offering the goodness of yogurt, BIFIDUS BL probiotics and cereals, true to its promise to provide Big Nutrition for Small Tummies.

The new LACTOGEN 3 Honey launched this year provides good nutrition added with active friendly bacteria, Lactobacillus Comfortis. This product is especially for those young children with developing taste buds who desire variety in their milk consumption.

The business unit also introduced a new and attractive packaging for NAN Grow 3 and NAN Kid 4. These great products provide 100 million BIFIDUS BL probiotics every day to increase the number of good bacteria in a child, thus supporting their immune system.

HEALTHCARE NUTRITION

The HealthCare Nutrition business’ continued double-digit growth in 2013, largely attributed to the performance of NUTREN Untuk Diabetik, a strong number two brand in the diabetes nutrition category.

This established brand had successfully reached out to more than 40,000 diabetic consumers throughout the country, through a series of educational campaigns organised in collaboration with Non-Governmental Organisations and business partners.

To further strengthened its position in the diabetes nutrition category, the HealthCare Nutrition business launched ISOCAL DM, the first affordable and great tasting diabetes beverage, targeting the middle-income diabetics and pre-diabetics.