Nestlé reports full-year results for 2022

During 2022, we also confirmed our longstanding nutrition strategy, with Good for You, Good for the Planet at its heart. We took important actions to further strengthen our industry-leading responsible marketing practices and to provide transparency on the nutritional value of our global portfolio. At the same time, we also advanced the implementation of our climate roadmap.

Looking to 2023, we expect another year of robust organic growth, with a focus on restoring our gross margin, stepping up marketing investments and increasing free cash flow. Nestlé’s value creation model puts us in a strong position to achieve our 2025 targets and to generate reliable, sustainable shareholder returns."

Group Results

^*2021 figures restated following the creation of Zone North America (NA) and Zone Greater China (GC) as of January 1, 2022. Zone AOA includes Middle East and North Africa (MENA) previously included in Zone EMENA
^**RIG, pricing and organic growth figures exclude the Russia region, with a corresponding impact on the M&A and foreign exchange lines

Group sales

Organic growth was 8.3%. Pricing increased to 8.2%, reflecting significant cost inflation. RIG was positive at 0.1%, following a high base of comparison in 2021, supply constraints and portfolio optimization actions.

Organic growth was 7.1% in developed markets, driven by pricing. In emerging markets, organic growth was 10.0%, supported by both pricing and RIG.

By product category, Purina PetCare was the largest contributor to organic growth, with continued momentum for science-based and premium brands Purina Pro Plan, Purina ONE and Fancy Feast, as well as veterinary products. Sales in coffee grew at a high single-digit rate, with broad-based growth across brands and geographies, supported by a strong recovery of out-of-home channels. Sales of Starbucks products grew by 12.9% to reach CHF 3.6 billion, generating over CHF 1.5 billion of incremental sales compared with 2018. Infant Nutrition saw double-digit growth, with broad-based contributions across geographies and brands. Confectionery posted high single-digit growth, reflecting particular strength for KitKat, seasonal products and key local brands. Dairy reported mid single-digit growth, with continued momentum for coffee creamers, affordable fortified milks and home-baking products. Water recorded double-digit growth, with a sales decrease in the fourth quarter as a result of temporary capacity constraints. Prepared dishes and cooking aids posted low single-digit growth, following a high base of comparison in 2021, with continued strong demand for Maggi. Sales in vegetarian and plant-based food grew at a mid single-digit rate. Garden Gourmet in Europe continued to see double-digit growth, while sales for Sweet Earth in North America were impacted by SKU optimization. Nestlé Health Science reported mid single-digit growth, driven by Medical Nutrition and healthy-aging products.

By channel, organic growth in retail sales remained robust at 7.2%. E-commerce sales grew by 9.2%, reaching 15.8% of total Group sales. Organic growth of out-of-home channels reached 23.5%, with sales exceeding 2019 levels. In the fourth quarter, RIG for out-of-home channels moderated to a mid single-digit rate as a result of post-pandemic normalization.

Net acquisitions increased sales by 1.1%, largely related to the acquisitions of the core brands of The Bountiful Company and Orgain. The impact on sales from foreign exchange was negative at -0.9%. Total reported sales increased by 8.4% to CHF 94.4 billion.

Underlying Trading Operating Profit

Underlying trading operating profit increased by 6.5% to CHF 16.1 billion. The underlying trading operating profit margin decreased by 30 basis points to 17.1% on a reported basis and by 40 basis points in constant currency, reflecting significant cost inflation.

Gross profit increased by 2.5% to CHF 42.7 billion. Gross profit margin decreased by 260 basis points to 45.2%, following significant broad-based inflation for commodity, packaging, freight and energy costs. The impact of cost inflation increased in the second half, reflecting higher costs for dairy, cereals and energy. Pricing, growth leverage and efficiencies helped to partly offset the impact of cost inflation.

Distribution costs as a percentage of sales benefited from the divestment of the Nestlé Waters North America brands.

Marketing and administration expenses decreased by 2.6% to CHF 16.8 billion. Consumer-facing marketing spend decreased temporarily, following a lower level of promotion and marketing activities in the context of supply constraints. Consumer-facing marketing spend increased in the second half of the year compared to the first half. Administrative expenses as a percentage of sales benefited from very disciplined cost control.

Restructuring expenses and net other trading items were CHF 2.9 billion, slightly below the prior year. As a result, trading operating profit increased by 8.5% to CHF 13.2 billion and the trading operating profit margin was unchanged versus the prior year on a reported basis at 14.0%.

Net Financial Expenses and Income Tax

Net financial expenses increased by 19.2% to CHF 1.0 billion, reflecting higher average net debt. Our average cost of net debt increased slightly to 2.2%, compared to 2.0% in 2021.

The Group reported tax rate increased by 330 basis points to 24.2% as a result of one-off items. The underlying tax rate was relatively stable at 20.9%.

Net Profit and Earnings Per Share

Net profit decreased by 45.2% to CHF 9.3 billion. Net profit margin decreased by 960 basis points to 9.8%, reflecting the gain on disposal of L'Oréal shares in 2021. As a result, earnings per share decreased by 43.5% to CHF 3.42 on a reported basis.

Underlying earnings per share increased by 9.4% in constant currency and by 8.4% on a reported basis to CHF 4.80. The increase was mainly the result of strong organic growth. Nestlé’s share buyback program contributed 1.8% to the underlying earnings per share increase, net of finance costs.

Cash Flow

Cash generated from operations before changes in working capital increased from CHF 16.8 billion to CHF 18.4 billion, up 20 basis points as a percentage of sales.

Free cash flow decreased from CHF 8.7 billion to CHF 6.6 billion, reflecting a deliberate and temporary increase in inventories in the context of supply chain disruptions and the energy crisis in Europe. Capital expenditure remained at an elevated level due to increased demand, particularly for PetCare.

Dividend

At the Annual General Meeting on April 20, 2023, the Board of Directors will propose a dividend of CHF 2.95 per share, an increase of 15 centimes. If approved, this will be the company’s 28th consecutive annual dividend increase. The company has maintained or increased its dividend in Swiss francs over the last 63 years. Nestlé is committed to maintaining this long-held practice to increase the dividend in Swiss francs every year.

The last trading day with entitlement to receive the dividend will be April 21, 2023. The net dividend will be payable as from April 26, 2023.

Shareholders entered in the share register with voting rights on April 13, 2023, at 12:00 noon (CEST) will be entitled to exercise their voting rights.

Share Buyback Programs

In 2022, the Group repurchased CHF 10.6 billion of Nestlé shares as part of the three-year CHF 20 billion share buyback program, which began in January 2022. At the upcoming Annual General Meeting, the Board of Directors will propose to reduce the share capital by 80 million shares from CHF 275 million to CHF 267 million through the cancellation of shares purchased, as part of the share buyback program.

Net Debt

Net debt was CHF 48.2 billion as at December 31, 2022, compared to CHF 32.9 billion at December 31, 2021. The higher level of debt largely reflected share buybacks of CHF 10.5 billion, mostly financed by the disposal of L'Oréal shares in December 2021, and a temporary increase in working capital.

Return on Invested Capital (ROIC)

The Group's ROIC was unchanged versus 2021 at 12.2%. Excluding significant impairments, ROIC increased by 10 basis points to 14.3%.

Portfolio Management

Nestlé completed acquisitions and divestments with a total value of around CHF 1.9 billion in 2022.

On April 1, 2022, Nestlé Health Science completed the acquisition of a majority stake in Orgain, a leader in plant-based nutrition. Orgain complements Nestlé Health Science's existing portfolio of nutrition products that support healthier lives.

On September 1, 2022, Nestlé Health Science completed the acquisition of Puravida, a premium Brazilian nutrition and health lifestyle brand. The acquisition will enable Nestlé Health Science to expand its consumer health portfolio in Latin America.

On September 1, 2022, Nestlé Health Science completed the acquisition of The Better Health Company. The acquisition includes the GO Healthy brand, New Zealand's leading supplement brand, and New Zealand Health Manufacturing, an Auckland-based manufacturing facility for vitamins, minerals and supplements. The acquisition will expand Nestlé Health Science's portfolio of vitamins, minerals and supplements in AOA.

On October 19, 2022, Nestlé announced the acquisition of Seattle's Best Coffee from Starbucks. This transaction is part of Nestlé's focus on driving sustained profitable growth in the coffee category and strengthens the Global Coffee Alliance by allowing both companies to focus on their core strengths. The transaction was completed on January 13, 2023.

On November 1, 2022, Nestlé completed the sale of the Gateway infant formula plant in Eau Claire, Wisconsin, along with U.S. and Canadian rights to the Gerber Good Start infant formula brand to Perrigo.

On November 15, 2022, Nestlé and L Catterton created a partnership that brings together Freshly and Kettle Cuisine, a leading manufacturer of fresh food products for retail and foodservice customers. The combined company focuses on offering a wide assortment of fresh food products to customers across geographies and a variety of channels. L Catterton is the majority owner, with Nestlé holding a minority stake.

On November 29, 2022, the Group announced the decision to explore strategic options for Palforzia, the peanut allergy treatment, following slower than expected adoption by patients and healthcare professionals. The review is expected to be completed in the first half of 2023.

Zone North America

• 10.3% organic growth: -1.3% RIG; 11.6% pricing.
• The Zone's underlying trading operating profit margin increased by 70 basis points to 21.0%.

Organic growth was 10.3%, with pricing of 11.6%. RIG was -1.3%, following pricing activities, a high base of comparison in 2021 and supply constraints. In the fourth quarter, RIG was -4.9%, largely impacted by portfolio optimization actions, a growth moderation in out-of-home channels and temporary capacity constraints for water. Net divestitures reduced sales by 3.8%, mainly due to the divestment of the Nestlé Waters North America brands. Foreign exchange had a positive impact of 4.7%. Reported sales in Zone North America increased by 11.1% to CHF 26.3 billion.

Zone North America saw broad-based growth across brands and categories, driven by pricing, strong operational execution and continued momentum in e-commerce. Nestlé gained market share in the Zone, led by pet food, portioned coffee and baby food.

By product category, Purina PetCare was the largest growth contributor with strong momentum across channels, particularly in e-commerce and pet specialty stores. Purina Pro Plan, including veterinary products, Purina ONE and Fancy Feast all saw strong double-digit growth, supported by innovation. Sales in Nestlé Professional and Starbucks out-of-home products grew at a strong double-digit rate. Beverages, including Starbucks at-home products, Coffee mate and Nescafé, posted high single-digit growth, helped by new product launches. Prior to the divestiture of Gerber Good Start infant formula in November, the brand recorded strong demand following supply constraints in the market. Baby food reported robust growth, led by healthy snacking. Frozen food saw low single-digit growth, with robust sales developments for Hot Pockets frozen snacks and DiGiorno pizza. Premium water posted mid single-digit growth, with a sales decrease in the fourth quarter mainly due to temporary capacity constraints. Ready-to-drink Nesquik in the U.S. and KitKat in Canada reported strong growth, supported by new product launches and execution.

The Zone's underlying trading operating profit margin increased by 70 basis points. Pricing, growth leverage and portfolio management more than offset significant cost inflation.

Zone Europe

• 7.2% organic growth: 0.9% RIG; 6.4% pricing.
• The Zone's underlying trading operating profit margin decreased by 190 basis points to 16.4%.

^*RIG, pricing and organic growth figures exclude the Russia region, with a corresponding impact on the M&A and foreign exchange lines

Organic growth was 7.2%, with pricing of 6.4%. RIG was resilient at 0.9%, following a high base of comparison in 2021 as well as supply constraints. Foreign exchange negatively impacted sales by 7.6%, reflecting the appreciation of the Swiss franc against the Euro. Reported sales in Zone Europe increased by 1.8% to CHF 19.1 billion.

In a challenging environment, Zone Europe demonstrated resilience and a commitment to invest for the long-term. In Ukraine, Nestlé announced a CHF 40 million investment for a new production facility in the Volyn region.

The Zone saw market share gains in confectionery, pet food and Infant Nutrition. By product category, the key growth driver was Purina PetCare, fueled by premium brands Gourmet, Felix and Purina Pro Plan. Growth was strong across all channels, particularly in e-commerce and pet specialty stores. Sales in Nestlé Professional grew at a strong double-digit rate, helped by new growth platforms and increased distribution, particularly for beverages. Water saw double-digit growth, with a sales decrease in the fourth quarter mainly due to temporary capacity constraints. Coffee posted mid single-digit growth, led by Nescafé soluble coffee and continued strong sales developments for Starbucks by Nespresso. Confectionery reported mid single-digit growth, with strong demand for KitKat and seasonal offerings. Sales in Infant Nutrition grew at a double-digit rate, based on strong momentum for premium infant formula, including human milk oligosaccharides (HMOs) products. Culinary recorded a sales decrease, impacted by negative growth in pizza and noodles. Garden Gourmet plant-based products continued to see double-digit growth, reflecting new product launches.

The Zone's underlying trading operating profit margin decreased by 190 basis points. Significant cost inflation and the impact of war-induced supply chain constraints outweighed pricing, growth leverage and cost efficiencies.

Zone Asia, Oceania and Africa (AOA)

• 8.2% organic growth: 0.1% RIG; 8.1% pricing.
• The Zone's underlying trading operating profit margin decreased by 110 basis points to 22.9%.

Organic growth reached 8.2%, with pricing of 8.1%. RIG was 0.1%, impacted by a high base of comparison in 2021 and portfolio optimization actions. Foreign exchange reduced sales by 4.9%. Reported sales in Zone AOA increased by 3.3% to CHF 18.5 billion.

Growth in Zone AOA was driven by pricing, continued recovery of out-of-home channels and innovation. The Zone saw market share gains in coffee, culinary and Infant Nutrition.

South-East Asia saw mid single-digit growth, led by Nescafé, Maggi and Milo. South Asia posted double-digit growth, with market share gains and continued momentum for Maggi, KitKat and Nescafé. Sales in the Middle East and Africa grew at a double-digit rate, based on strong momentum for affordable offerings across Maggi and Milo as well as broad-based demand for Infant Nutrition products. Despite portfolio optimization, Japan reported low single-digit growth, supported by Nescafé, Starbucks and Purina PetCare. Sales in South Korea grew at a double-digit rate, driven by Starbucks products and increased demand for KitKat. Oceania recorded high single-digit growth, with particular strength for Nescafé, Maggi and KitKat.

By product category, culinary was the largest growth contributor, led by Maggi cooking aids and noodles. Sales in Nestlé Professional grew at a strong double-digit rate across geographies and categories, fueled by increased distribution. Coffee saw high single-digit growth, with continued strong demand for Nescafé and Starbucks products. The Zone launched Starbucks ready-to-drink products in seven markets. Infant Nutrition reached high single-digit growth, based on innovation and increased distribution. Cocoa and malt beverages posted high single-digit growth, driven by Milo. Sales in confectionery grew at a double-digit rate, led by KitKat. Purina PetCare reported high single-digit growth, with continued momentum for Purina ONE, Felix and Purina Pro Plan. Ambient dairy saw a slight sales decrease, largely due to portfolio optimization actions.

The Zone's underlying trading operating profit margin decreased by 110 basis points. Significant cost inflation more than offset pricing, growth leverage and disciplined cost control.

Zone Latin America

• 13.1% organic growth: 1.5% RIG; 11.6% pricing.
• The Zone's underlying trading operating profit margin decreased by 70 basis points to 21.2%.

Organic growth was 13.1%, with pricing of 11.6%. RIG was 1.5%, following a high base of comparison in 2021. Foreign exchange had a positive impact of 4.0%. Reported sales in Zone Latin America increased by 17.2% to CHF 11.8 billion.

Zone Latin America saw sustained broad-based growth, supported by pricing, strong operational execution and continued momentum of out-of-home channels. The Zone saw market share gains in Infant Nutrition, pet food and culinary.

Sales in Brazil grew at a strong double-digit rate, reflecting high demand for confectionery and Infant Nutrition as well as cocoa and malt beverages. Mexico saw double-digit growth, with strong sales developments for Purina PetCare, Nescafé and Carnation. Sales in Chile grew at a double-digit rate, led by confectionery, coffee and Purina PetCare. Colombia and the Plata Region continued to see strong double-digit growth.

By product category, confectionery was the largest growth contributor, based on strong demand for key local brands and KitKat. Sales in Purina PetCare grew at a double-digit rate, led by Dog Chow, Cat Chow and Purina Pro Plan, as well as the continued expansion of Purina ONE across the Zone. Coffee posted broad-based double-digit growth, supported by Nescafé soluble coffee, Nescafé Dolce Gusto and Starbucks products. Dairy reported high single-digit growth, based on strong sales developments for fortified milks and home-baking products. Infant Nutrition recorded high single-digit growth, based on continued momentum for Nido and NAN. Sales in Nestlé Professional grew at a strong double-digit rate, significantly exceeding 2019 levels, with growth fueled by new digital platforms. Water also posted strong double-digit growth. Plant-based products saw strong growth, helped by the expansion of dairy alternatives for La Lechera and by Nature's Heart.

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