Case Study: Nestle - Industry Analysis, Business Model, and Strategy

This case study provides a comprehensive analysis of Nestle, a Swiss multinational food and beverage company. It begins with an introduction and a historical overview, tracing Nestle's evolution from its inception in 1866 to its current global presence with over 2,000 brands. The study then delves into an industry analysis, examining the challenges and sales evolution of the food and beverage sector, including a SWOT analysis and competitor landscape. The business model is explored, covering Nestle's mission, distinctive factors, corporate governance, and corporate social responsibility, along with product segmentation. The case study includes financial statements (balance sheet, income statement, and cash flow statement) and relevant financial ratios. Finally, the study addresses specific questions related to Nestle's performance and concludes with a bibliography and annexes containing key financial data.

CASE STUDY OF NESTLÉ1
INDEX
PART A
1. Introduction 3
2. History 3
3. Industry Analysis and Competitors 5
3.1 Challenges of the food and beverage industry 6
3.2 Sales evolution of the industry 6
3.3 Qualitative Analysis: SWOT industry 8
3.4 Main competitors 9
3.5 Market Share 9
4. Business Model 10
4.1 Mission 10
4.2 Distinctive Factors 10
4.3 Corporate Governance 11
4.4 Corporate Social Responsibility 11
4.5 Segmentation of products 13
5. Questions 13
6. Bibliography 13
7. Notes 14
1 Case written by Clara Aguilar, Cristina Hey, Laura Plaza and Sara Zayas and supervised by Oriol
Amat, BSM Universitat Pompeu Fabra, 2018

8. Annex 14
8.1 Balance Sheet 14
8.2 Income Statement 17
8.3 Cash Flow Statement 18
8.4 Ratios 20
PART B
1. Answer to the Questions Raised 22
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PART A
1. INTRODUCTION
“Nestlé” is a Swiss multinational food and beverage company whose business started in 1866.
It is one of the largest food companies in the world, with presence in 191 countries, and more
than 2,000 brands. Some of these are globally iconic while others are just regional, presenting
a great variety of products, such as tea, coffee, bottled water, medical and baby food, breakfast
cereals, and lots more. It is a well-known company world-wide, specially because of Nestlé
milk chocolate bar, which is one of the most famous products.
The company focuses on the production and supply of great quality and healthy food products.
Nestle has a huge portfolio and is seen as an enormous competitor across the food industries.
Nevertheless, although nowadays their revenues keep increasing, its growth rate is decreasing.
In this case study, we will focus on the food industry where the majority of Nestlé products are
present. The following information about the history and context of this company will be based
on the data from Nestlé’s web page (“The Nestlé Company History, Nestlé”).
2. HISTORY
It all started in 1867 when a German pharmacist named Henri Nestlé launched his “farine
lactée”, a breakthrough infant food to deal with high mortality rates among the infants who
cannot be breastfed. In 1875, he sold the firm to 3 businessmen who helped expand production
and sales. Later on, the firm merged (1905) with their rival, the Anglo-Swiss Milk company,
with whom they competed by selling rival versions of the other’s original products. Once these
two big companies became one, they lived a period of prosperity (1905-1913), and just before
the World War I, they became a global dairy company, with more than 20 factories around all
continents. Once the WW1 broke, the industry was able to survive thanks to their condensed
milk, which became really popular in the armed force, as it lasted for long and it was easy to
transport. Moreover, this demand prevailed after the war from warring nations. At the end of
the decade, they already had 40 factories
The company was rocked by the Wall Street Crash in 1929 after being recovered of a declined
demand for canned milk which led to falling prices. During this period and after all the
difficulties, the power was centralized, and they consolidated their research only at one
laboratory.
World War II affected every market. To protect the company, Nestlé & Anglo-Swiss relocated
some managers to a new office in Stamford (USA). To fight the war, the firm started supplying
and expanding to Africa, Asia, Australia and Latin America. Later on, due to the entering of
the US into the war, Nestlé rapidly gained popularity among the American population, and
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even though the war slowed down Nescafé sales, when the war ended the product was included
in aid supplies in Japan and Europe.
In 1947, they merged with Alimentana (Maggi Soups) and they renamed the company to Nestlé
Alimentana. The merger meant the growth of new segments for the company, such as the
launch of more canned and prepared foods.
The post-war was marked by a diversification in the production. Firstly, as people started
spending money on machines such as freezers, Nestlé started launching new products like ready
meals, canned foods and also, they acquired firms related to coffee and milk.
In 1977, the firm was renamed Nestlé S.A. They continued with their strategy of diversification.
However, during that period the company was criticized because of the declining breast-
feeding rate, so people started boycotting its products believing that their baby food was one
of the causes.
The 80s and 90s decade were of growth. They had a new ambition they named “Nutrition,
Health and Wellness” and for achieving it they disposed of unprofitable brands just to satisfy
the health-conscious consumers. They targeted a global leadership in water, ice cream and
animal food. Moreover, Nestlé was one of the first companies to develop breast-milk
substitutes.
Finally, during these last years, Nestlé articulated its Creating Shared Value approach to
business and launches different plans to further develop sustainable supply chains such as in
coffee. Its position in traditional segments gets stronger and they also focus on medical
nutrition in order to make this segment stronger too.
In the following table (Figure 1), it can be appreciated the most important launches and
acquisition of Nestlé since 1866, ordered chronologically.
MOST IMPORTANT LAUNCHES AND ACQUISITIONS
1937 Nescafé was launched (powder extract of pure coffee that could be prepared with hot water).
1947 Merged with Alimentana (firm that created the Maggi Soups).
1948 Nestea (a soluble tea) was launched. Nesquik was launched this year too and it was a top seller in the
United States. Moreover, canned raviolis were launched under Maggi brand.
1977 Minority shareholder with L’Oréal.
1985 Carnation and Coffee-Mate are acquired by Nestlé.
1986 Nespresso story started.
1998 Nestlé bought mineral waters business Sanpellegrino group.
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2001 Nestlé buys US pet food business Ralston Purina, and merges it with Nestlé Friskies Petcare to
establish the new market leader in pet care, Nestlé Purina Petcare.
2002 Nestlé acquires the licensing rights to premium producer Häagen-Dazs in the US and Canada.
2006 Nestléacquires weight management business Jenny Craig and Australian breakfast cereals company
Uncle Toby’s.
2007 Nestlé acquires Novartis Medical Nutrition since they started focusing on medical nutrition. They
also bought the baby food company Gerber and Swiss mineral water.
2009 Creation of a foodservice business division.
2010 Acquisition of Kraft Foods’ frozen pizza business.
2012 Acquisition of Wyeth Nutrition to strengthen its position in infant nutrition.
2013 Purchase of Pamlab specialized in medical nutrition for patients with conditions including mild
cognitive impairment and depression.
2014 Full control of the Galderma dermatology (it was created with L’Oréal) with the creation of Nestlé
Skin Health.
Figure 1: The most important launches and acquisitions of Nestlé.
3. INDUSTRY ANALYSIS AND COMPETITORS
The food and beverage industry is one of the most rapidly growing industries. People cannot
live without food. It is a complex industry and a global collective of diverse businesses that
supplies most of the food consumed by the world’s population. This industry is defined by a
powerful competition forcing them into a mode of endless improvement in most of the areas
of the business as well as continuous new product introductions. It is also a really diverse
industry but most companies in it are trying to find ways to drive down costs, streamline
operations and monitor food safety.
The global food and beverage industry represents more than 10% of the world’s GDP according
to a report from Plunkett Research; it is worth over US$ 8 trillion. Despite the sluggish
economy and plunging food and beverage prices experienced by some of the major markets
over recent years, the overall of the industry is still growing at a steady pace, led by some of
the world’s largest companies inside this area.
Nestlé is the second largest food and beverage company in the world according to the Forbes
Global 2000 list, as it was displaced from the first place by Anheuser-Busch InBev company,
who is now taking the lead. Another important company in the sector is PepsiCo which did not
make its best, but still came in third in the food and beverage category.
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3.1. CHALLENGES OF THE FOOD AND BEVERAGE INDUSTRY
The industry has experienced massive changes over the last decade owing to increasing
consumer demand and industry innovation. Driven by the changing in global trends, this
industry has some challenges to face.
People nowadays are more nutrition-friendly, they prefer fat-free products, and are generally
more inclined towards maintaining robust health. This means that products are not only judged
based on quality, but also by the nutritional content. Some of the other challenges are the raw
material quality or product traceability.
Regarding these challenges, Nestlé is also concerned on how to develop new eye-catching
products, and improving the quality of their goods, and consequently building a better and
stronger reputation. Concerning of what was previously mentioned, the final business model
of Nestlé will focus on how to reblossom the firm again.
3.2. SALES EVOLUTION OF THE INDUSTRY
The Food & Beverage industry belongs to a standard consumer segment, which is a key element
concerning the level of sales and revenues it produces. Moreover, the fact that it is a non-
cyclical industry, based on basic products, makes it more appealing for investors. The
aforementioned means that the products inside this area will always be on demand, no matter
the financial situation of each individual, or how well the economy is performing at the
moment. In the graph below (Figure 2), it can be appreciated the evolution of sales inside the
industry, which clearly has followed a steady state despite the year 2012.
Figure 2: Sales evolution of the industry.
Source: Amadeus
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If we focus on the expected growth of its sales and revenues, represented in figures 3 and 4, it
can be seen that in 2018, the total revenue in millions of Euros was 84.743, with a revenue
growth of 16,6%. Total revenues are supposed to continue growing throughout the years as we
can observe in these graphs. However, this growth rate is supposed to decrease.
Figure 3: Revenue Growth in the food and beverage market (in percent).
Source: Statista, September 2018; Selected region only includes countries listed in the Digital Market
Outlook Outlook.
Figure 4: Revenue in the Food & beverage market (in million €).
Source: Statista, September 2018; Selected region only includes countries listed in the Digital Market
Outlook Outlook.
In particular, Nestlé’s sales and revenues will be deeply analyzed jointly with the financial
statements. However, we could mention that due to the sale in 2014 of part of its stake in the
cosmetics business l’Óreal, the company suffered a decline in sales. Moreover, Nestlé and other
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companies of the sector are facing “a difficult environment since profit margins are under
pressure as companies are not able to raise prices, while productivity is edging lower” (Koen
De Leus, senior economist at KBC in Brussels).
3.3. QUALITATIVE ANALYSIS: SWOT OF THE INDUSTRY
The different weaknesses, strengths, opportunities and threats of the industry are analyzed in
the following figure.
Helpful for achieving objectives Harmful for achieving objectives
STRENGTHS WEAKNESSES
INTERNAL
ORIGIN
(attributes of
the
organization)
● Consumer staples → no matter
the financial situation of the
individuals, food and drinks
will always be demanded
● Unmatched research and
development capability
● Ability of innovation.
● Strong geographic presence
● Environmental sustainability
efforts
● Ownership of some of the most
recognizable brands in the
world.
● Clear and accurate labelling
● Transparency in material
sourcing.
● Overly reliant on commodity
products with limited progress
on the value-added chain.
● It has to respond to market
trends through product
replenishment, new product
introductions and consumer
targeting.
● Many similar products in the
market, make them compete in
price
● Ultra-Processed food is really
criticized nowadays
● Contaminated food recalls
OPPORTUNITIES THREATS
EXTERNAL
ORIGIN
(attributes of
the
environment)
● With the economy
strengthening, the industry’s
future looks bright.
● Worldwide recognition and
expansion (189 countries).
● Growing number of small
Silicon Valley based food
startups.
● Growing ready-to-drink (RTD)
tea and RTD coffee markets.
● Consciousness about the
environment
● Pricing competition is seen as a
major industry challenge
● Under-utilization of social
media inside this era of
millennials
● Increased competition in the
beverage and food industries
● The price of coffee beans could
significantly rise due to major
weather disasters
Figure 5: SWOT of the industry.
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3.4 MAIN COMPETITORS
Nestlé operates in a lot of different markets and therefore it has several important competitors.
There are companies with a very diversified portfolio that represent an important competition
for Nestlé, but there are also more specialized companies that compete with it.
We have chosen five of these companies basing our decision on several ratings and reports.
We will study, as we have stated before, the food and beverage industry, basically the chocolate
market. The five companies we will base our analysis on since they are the main five
competitors of Nestlé are: Danone, Mondelez, Unilever, Mars and Pladis.
The production of Danone focuses on the production and sale of healthy and delicious food
that is custom-made for the requirements of people of all ages. Mondelez produces various
products like chocolate, cookies, and confectionary. Unilever is a consumer goods producer
company and their products include food and beverage. It has an extensive distribution channel.
Mars is a famous food industry and is the topmost producer of confectionary products. Pladis
Ltd is a global biscuit, chocolate and confectionery company.
In each specific market Nestle operates, it has also to face the presence of very specialized
companies which are more focused and therefore experienced on that market. If we take the
Coffee market as an example, we can see that Starbucks, Keurig and Maxwell House appear
as the main competitors. However, we have focus our analysis oN the big competitors on a
general level.
3.5. MARKET SHARE
Nestlé has a very large business portfolio that include products such as water, cafe, health,
chocolate, among others. A big percentage of Nestlé’s sales are related to chocolate products,
so because of this the analysis of the market share will be focused on the global chocolate
market. However, to analyze how’s the company doing, and to know its strengths and
weaknesses, it will be considered Nestlé as a whole, in order to have a more general view and
understanding.
Regarding the global chocolate market, the Nestle market share from year 2012 to 2016 is
shown in the following figure 6. As it can be seen, the market share is decreasing over the
years, even if Nestle still represents a huge part of the market. This is an important factor for
investors and analysts, therefore the company should try to avoid this decreasing trend in order
to achieve a greater competitiveness.
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Figure 6. Market share of Nestlé on Global Chocolate market.
Source: Statista. Wall Street Journal.
4. BUSINESS MODEL OF NESTLÉ
4.1. MISSION
“Nestlé" is a world-wide company which impacts on the every day’s life of millions of people
by improving their quality of life and contributing for a more healthy future. It has a great
impact on people from the farmers with whom they work to the families who enjoy its products.
It supports the achievement of the sustainable development goals of the United Nations by:
- Helping more than 50 million children to have a more healthy lifestyle.
- Improving the living conditions of 30 million people directly related to their business
activities
- Working for achieving a null impact in the environment by their activities.
4.2. DISTINCTIVE FACTORS
The company gives its support to health development, breastfeeding, actions to stop children
exploitations, and environmental issues.
- “Nestlé” Spain does not use genetically modified raw materials: Although in many
countries the safety of genetically modified organisms, commonly referred to as
transgenic, is increasingly accepted, not only by authorities but also by consumers, in
Spain their safety continues to be questioned, that is why if at any time it uses them it
would indicate this in the labeling of its products.
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- Palm oil: Nestlé guarantees that these and all its products are totally safe for health.
The use of palm oil is made for sensory reasons such as texture. Compared to
conventional oils (olive, sunflower), it is more resistant and keeps the product much
better.
- Support to the breastfeeding: It supports the recommendations of the World Health
Organization to feed babies with breast milk the first six months of life and continue
breastfeeding later with complementary foods.
- Against children exploitation: The company has recruited 18 controls and correction
agents to raise awareness of child labor and inform in order to determine if interventions
are needed.
- Actions in order to stop the climate change.
Nestlé wants to position itself as part of the solution, and strives every day to reduce its
emissions and improve the management of resources.
- They do not test their products with animals.
- The world's largest private research network in nutrition and food: Nestlé
Research has the largest private R & D global network which aims to investigate the
benefits of nutrition for health in order to apply them to Nestlé products.
4.3. CORPORATE GOVERNANCE
The Board of Directors of Nestlé is highly engaged in the long-term value creation and the
investment for the future development of the company. The Board is really concerned about
the growth and efficiency, thus it stated commitments to margin expansion, streamlining the
portfolio, a prudent capital allocation and moreover, they approved a share buyback
programme of CHF 20 billion for strategic opportunities. All these subjects show how the
governance is involved with the sustainable growth of Nestlé.
Ulf Mark Schneider is the executive member of the Board of Directors of Nestlé and the CEO
of the company since 2017. The financial analyst Paul Bulcke is the chairman of Nestlé and
has certain responsibilities for the direction and control of the group.
4.4. CORPORATE SOCIAL RESPONSIBILITY
The Nestle Corporate Business Principles have been developing for over 150 years and they
are the basis of the company culture.
These principles try to adapt to the world that keeps changing but the basic fundamentals have
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not change since the company first was created. Moreover, they reflect the idea of honesty,
fairness and concern for people.
All these points are important for all the countries and they take into account each country and
their religion and culture:
1. Nutrition, Health and Wellbeing
Nestle objective is to offer food and drinks that are tasty and healthy and that promote
a healthy lifestyle. (“A gusto con la vida”).
2. Quality assurance and product safety
It assures that their products are safe and that have a high quality.
3. Communication with the consumer
They are committed to maintain reliable and responsible communication. Consumer
privacy is respected.
4. Human rights in their business activity
Nestle supports the United Nations Global Compact on human rights and they try to
offer an example of good human practices in all the activities.
5. Leadership and personal responsibility
For Nestle, the staff are really important, they say they are the key of their success.
Employees are professional and motivated people. They ensure the employees privacy
and they do not tolerate any form of discrimination.
6. Safety
Nestle protects their employees and tries to prevent accidents and injuries.
7. Relations with suppliers and customers
They ask for agents, suppliers and employees to work and act with honesty, fairness
and integrity. These same aspects apply to the clients.
8. Agriculture and rural development
From the environmental point of view, Nestle contributes to improve the production
system, the economic level of farmers and the agricultural production.
9. Environmental sustainability
They aim to use natural resources in the life cycle of the production and their goal is to
have “zero waste”.
10. Water
Nestle wants to improve the administration of water.
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4.5. SEGMENTATION OF PRODUCTS
● Bottled water
● Animal feeding
● Infant feeding
● Drinks
● Cereals
● Chocolates
● Out of home
● Healthcare nutrition
● Dairy products
● Ready meals
5. QUESTIONS
1. Prepare a qualitative analysis of Nestlé including the main strengths and
weaknesses.
2. Analyze the Balance Sheet, Income Statement and Cash Flow Statement and
identify the main strengths and weaknesses and the reasons and purposes you
would make in order to solve those weaknesses.
3. Analyze the ratios of Nestlé and compare them with the main competitors.
4. Does Nestlé have capacity to grow?
5. Prepare the Cause and Effect diagram.
6. Which measures would you recommend to the company in order to improve their
performance?
7. What could be purpose to the company in order to increase profits in the long-
term?
6. BIBLIOGRAPHY
Bhasin, Hitesh. “Top 18 Nestle Competitors - Nestle Competitors Analysis.” Marketing91, 16
Aug. 2018, www.marketing91.com/top-nestle-competitors-across-the-world/.
Bureau Van Dijk. “Information on Companies across Europe.” Amadeus, bvdinfo.
“Homepage.” Nestlé, www.nestle.com/.
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“Nestle Competitors, Revenue and Employees - Owler Company Profile.” Owler: Competitive
Intelligence to Outsmart Your Competition, www.owler.com/company/nestle.
“Nestlé's Market Share of the Global Chocolate Market from 2012 to 2016.” Statista.
Major Challenges in Food and Beverage Industry to Watch out For. Global Market Insights,
2017, Major Challenges in Food and Beverage Industry to Watch out For,
www.gminsights.com/blogs/challenges-in-food-and-beverage-industry.
7. NOTES
- Average was build with the top 5 competitors of Nestle:
- MONDELEZ, using GAAP and unconsolidated accounts
- MARS, using GAAP and unconsolidated accounts
- PLADIS, using IFRS and consolidated accounts
- DANONE, using IFRS and consolidated accounts
- UNILEVER, using IFRS and consolidated accounts
- For the term “Sales”, it was used “total turnover” for constructing the average
- Operating working capital includes other current assets and other current liabilities
- For constructing the average, as the result was in € and Nestle’s data is in the Swiss
Franc, we used the following exchange rate for comparing them 1:1,13054. This was
because the Swiss currency is really stable and the difference between periods was
really small.
8. ANNEX
8.1 BALANCE SHEET:
Average
(%)
2017 2017
(%)
2016 2016
(%)
2015 2015
(%)
2014 2014
(%)
ASSETS 100 130.380 100% 131.901 100% 123.992 100% 133.450 100%
Non-current
assets
74% 98.190 75% 99859 76% 94.558 76% 99.489 75%
Property, plant
and equipment
27.775 21% 27.554 21% 26.576 21% 28.421 21%
Goodwill 29.748 23% 33.007 25% 32.772 26% 34.557 26%
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Intangible assets 20.615 16% 20.397 15% 19.236 16% 19.800 15%
Investments in
associates and
joint ventures
11.628 9% 10.709 8% 8.675 7% 8.649 6%
Financial assets 6.003 5% 5.719 4% 5.419 4% 5.493 4%
Employee
benefits assets
392 0% 310 0% 109 0% 383 0%
Current income
tax assets
62 0% 114 0% 128 0% 128 0%
Deferred tax
assets
1.967 2% 2.049 2% 1.643 1% 2.058 2%
Current assets 26% 32.190 25% 32.042 24% 29.434 24% 33.961 25%
Cash and cash
equivalents
8% 7.938 6% 7.990 6% 4.884 4% 7.448 6%
Short-term
investments
655 1% 1.306 1% 921 1% 1.433 1%
Inventories 9.061 7% 8.401 6% 8.153 7% 9.172 7%
Trade and other
receivables
12.422 10% 12.411 9% 12.252 10% 13.459 10%
Prepayments and
accrued income
607 0% 573 0% 583 0% 565 0%
Derivative assets 231 0% 550 0% 337 0% 400 0%
Current income
tax assets
919 1% 786 1% 874 1% 908 1%
Assets held for
sale
357 0% 25 0% 1430 1% 576 0%
LIABILITIES
AND EQUITY
100% 130380 100% 131901 100% 123992 100% 133450 100%
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EQUITY 29% 62.777 48% 65.981 50% 63.986 52% 71.884 54%
Share capital 311 0% 311 0% 319 0% 322 0%
Treasury shares -4.537 -3% -990 -1% -7.489 -6% -3.918 -3%
Translation
reserve
-19.433 -15% -18.799 -14% -21.129 -17% -17.255 -13%
Other reserves 989 1% 1.198 1% 90.637 73% 90.981 68%
Retained earnings 84.174 65% 82.870 63% 1.648 1% 1.754 1%
Non-controlling
interests
1.273 1% 1.391 1%
LIABILITIES 72% 67.603 52% 65.920 50% 60.006 48% 61.566 46%
Non-current
liabilities
39% 31.549 24% 28.403 22% 26.685 22% 28.671 21%
Financial debt 15.932 12% 11.091 8% 11.602 9% 12.396 9%
Employee
benefits liabilities
7.111 5% 8.420 6% 7.691 6% 8.081 6%
Provisions 2.445 2% 2.640 2% 2.601 2% 3.161 2%
Deferred tax
liabilities
3.559 3% 3.865 3% 3.063 2% 3.191 2%
Other payables 2.502 2% 2.387 2% 1.729 1% 1.842 1%
Current liabilities 33% 36.054 28% 37.517 28% 33.321 27% 32.895 25%
Financial Debt 10.536 8% 12.118 9% 9.629 8% 8.810 7%
Trade and other
payables
18.872 14% 18.629 14% 17.038 14% 17.437 13%
Accruals and
deferred income
4.094 3% 3.855 3% 3.673 3% 3.759 3%
Provisions 863 1% 620 0% 564 0% 695
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Derivative
liabilities
507 0% 1.068 1% 1.021 1% 757 1%
Current income
tax liabilities
1.170 1% 1.221 1% 1.124 1% 1.264 1%
Liabilities
directly
associated with
assets held for
sale
12 0% 6 0% 272 0% 173 0%
Figure 7. Balance Sheet of Nestlé and the average of the industry.
8.2 INCOME STATEMENT
% Average 2017 2017 (%) 2016 2016 (%) 2015 2015 (%) 2014 2014 (%)
Sales 100% 89.791 100% 89.469 100% 88.785 100% 91612 100%
Other revenue 330 0% 317 0% 298 0% 253 0%
Cost of goods sold -44.923 -50% -44.199 -49% -44.730 -50% -47.553 -52%
Distribution expenses -8.205 -9% -8.059 -9% -7.899 -9% -8.217 -9%
Marketing and
administration expenses
-20.540 23% -21.485 -24% -20.744 -23% -19.651 -21%
Research and
development costs
-1.724 -2% -1.736 -2% -1.678 -2% -1.628 -2%
Other trading income 111 0% 99 0% 78 0% 110 0%
Other trading expenses -1.607 -2% -713 -1% -728 -1% -907 -1%
Trading operating profit 13.233 15% 13.693 15% 13.382 15% 14.019 15%
Other operating income 379 0% 354 0% 126 0% 154 0%
Other operating expenses -3.500 -4% -884 -1% -1.100 -1% -3.268 -4%
Operating profit 15,45% 10.112 11% 13.163 15% 12.408 14% 10.905 12%
Financial income 152 0% 121 0% 101 0% 135 0%
Financial expenses -771 -1% -758 -1% -725 -1% -1%
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Profit before taxes,
associates and joint
ventures
13,95% 9.493 11% 12.526 14% 11.784 13% 10.268 11%
Taxes -2.779 -3% -4.413 -5% -3.305 -4% -3.367 -4%
Income from associates
and joint ventures
824 1% 770 1% 988 1% 8.003 9%
Profit for the year after
taxes
10,96% 7.538 8% 8.883 10% 9.467 11% 14.904 16%
of which attributable to
non-controlling interests
355 0% 352 0% 401 0% 448 0%
of which attributable to
shareholders of the
parent (Net profit)
7.183 8% 8.531 10% 9.066 10% 14.456 16%
Trading operating profit 14,70% 15,30% 15,10% 15,30%
Net Profit: Profit for the
year attributable to
shareholders of the
present
10,96% 8% 9,40% 10,20% 15,80%
Basic earnings per share 2,32 2,76 2,9 4,54
Diluted earnings per
share
2,32 2,75 2,89 4,52
Figure 8. Income Statement of Nestlé and the average of the industry.
8.3 CASH FLOW STATEMENT
2017 2016 2015 2014
OPERATING ACTIVITIES
Operating profit 10.112 13.163 12408 10905
Depreciation and amortization 3.227 3.132 3178 3058
Impairment 3.557 640 576 2067
Net result on disposal of businesses 132 - 422 509
Other non-cash items of income and expense -185 35 172 689
Cash flow before changes in operating assets and liabilities 16.843 16.970 16756 17228
Decrease/(increase) in working capital -243 1.801 741 -114
Variation of other operating assets and liabilities 393 54 -248 85
Cash generated from operations 16.993 18.825 17249 17199
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Net cash flows from treasury activities -423 -327 -93 -356
Taxes paid -3.666 -3.435 -3310 -2859
Dividends and interest from associates and joint ventures 582 519 456 716
Operating cash flow 13.486 15.582 14302 14700
INVESTING ACTIVITIES
Capital expenditure -3.934 -4.010 -3.872 -3.914
Expenditure on intangible assets -769 -682 -422 -509
Acquisition of businesses -696 -585 -530 -1.986
Disposal of businesses 140 271 213 321
Investments (net of divestments) in associates and joint ventures -140 -748 -44 3.958
Inflows/(outflows) from treasury investments 593 -335 521 -844
Other investing activities -134 -34 -19 -98
Investing cash flow -4.940 -6.123 -4.153 -3.072
FINANCING ACTIVITIES
Dividend paid to shareholders of the parent -7.126 -6.937 -6.950 -6.863
Dividends paid to non-controlling interests -342 -432 -424 -356
Acquisition (net of disposal) of non-controlling interests -526 -1.208 - -49
Purchase (net of sale) of treasury shares -3.295 760 -6.377 -1.617
Inflows from bonds and other non-current financial debt 6.406 1.695 1.381 2202
Outflows from bonds and other non-current financial debt -2.489 -1.430 -508 -1.969
Inflows/(outflows) from current financial debt -1.009 1.368 643 -1.985
Financing cash flow -8.381 -6.184 -12.235 -10.637
Currency retranslations -217 -169 -478 42
Increase/(decrease) in cash and cash equivalents -52 3.106 -2.564 1.033
Cash and cash equivalents at beginning of year 7.990 4.884 7.448 6.415
Cash and cash equivalents at end of year 7.938 7.990 4.884 7.448
Figure 9. Cash flow statement of Nestlé and the average of the industry.
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8.4. RATIOS
Average* 2017 2016 2015 2014
DEBT AND CAPITALIZATION
Debt = Liability / Assets 0,715 0,518 0,499 0,483 0,461
Equity (parent) = Equity attributable to
shareholders of the parent / Assets
0,472 0,490 0,503 0,526
Debt quality = Current liabilities/Total liabilities 0,456 0,533 0,569 0,555 0,534
Repayment capacity = cash flow / loans 0,870 0,528 0,529 0,427 0,682
Repayment capacity (years) = 1 / repayment
capacity
1,150 1,895 1,889 2,342 1,467
Cost of debt = financial expenses / loans 0,140 0,029 0,032 0,034 -0,036
Financial expenses = financial expenses / sales 0,025 0,008 0,008 0,008 0,008
LIQUIDITY
Liquidity = Current assets / Current liabilities 0,812 0,892 0,854 0,883 1,032
Treasury= (debtors + cash)/current liabilities 0,436 0,564 0,543 0,514 0,635
Acid test = Cash / Current liabilities 0,241 0,220 0,212 0,146 0,226
Z (UPF) = -3,9 + 1,28 CA/CL + 6,1 E/A + 6,5
NI/A + 4,8 NI/E
0,791 1,087 1,285 1,533 2,377
Working capital (real) = Current assets - current
liabilities
-1.544.256,58 -3864 -5475 -3887 1066
Operating working capital (WC needed) =
Operating current assets - operating current
liabilities
916.652,396 2.729,400 2.652,700 3.609,100 5.289,500
Working capital deficit/ surplus -2.460.908,98 -6.593,4 -8.127,7 -7.496,1 -4.223,5
ASSETS MANAGEMENT
Non-current assets turnover = sales / non-current
assets
1,018 0,914 0,895 0,938 0,920
Current assets turnover = sales / current assets 2,824 2,789 2,792 3,016 2,697
Assets turnover = sales / assets 0,748 0,689 0,678 0,716 0,686
TERMS
Inventories days = stocks / daily cost of sales 50,134 73,620 69,376 66,529 70,401
Days receivable (days) = clients / daily sales 30,995 50,495 50,632 50,368 53,623
Days payable (days) = suppliers / daily cost of
sales
134,495 153,335 153,840 139,0312 133,840
GROWTH
Sales growth = (year 2- year 1) / year 2 4,50% 0,36% 0,77% -3,09% -0,59%
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Asset growth = (year 2- year 1) / year 2 1,60% -1,15% 6,38% -7,09% 10,80%
Debt growth = (year 2- year 1) / year 2 5,17% 2,55% 9,86% -2,53% 9,35%
Net profit growth = (year 2- year 1) / year 2 23,67% -15,80% -5,90% -37,29% 42,69%
PROFITABILITY, SELF-FINANCING AND GROWTH
Return on Investment = EBIT / Assets 0,116 0,078 0,100 0,100 0,082
Return on equity = Net income / Equity 0,287 0,120 0,135 0,148 0,207
ROE (without minority shareholders) 0,117 0,132 0,145 0,206
Cash flow / Sales 0,154 0,150 0,174 0,161 0,1604
Net profit / Sales 0,110 0,084 0,099 0,107 0,163
Cash flow / Assets 0,115 0,103 0,118 0,118 0,110
G (Higgins) 0,38% 2,04% 3,04% 9,54%
STOCK EXCHANGE RATIOS
Pay out: Dividends / Net profit 0,957 0,802 0,740 0,466
Dividend profitability: Dividends / Net equity 0,114 0,108 0,109 0,096
Dividend / Share price 2,32 2,76 2,9 4,54
PER = share price / earnings per share 34,019 26,639 24,405 15,104
WEIGHT OF THE PARENT COMPANY IN THE GROUP
Assets parent company / Assets group 0,314 0,318 0,340 0,364
Liabilities parent company / Liabilities group 0,090 0,078 0,095 0,093
Sales parent company / Sales group 0,137 0,119 0,139 0,098
Net profit parent company / Net profit group 1,139 0,726 0,827 0,772
Figure 10. Analysis of ratios of Nestlé and the average of the industry.
*Average of the top 5 competitors (Pladis, Mondelez, Mars, Danone, Unilever) in 2016.
Source: Amadeus
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