Nestlé S.A. (NESN) Earnings Call Transcript & Summary

[Foreign Language]

Thank you, Paul. Dear fellow shareholders, I'm pleased to speak to you today to give you an update on our business and some of our important sustainability topics. As Paul mentioned, we considered it prudent to again hold the Annual General Meeting without shareholder presence, but we look forward to meeting with you in person next year. Regarding the tragic war in Ukraine, please allow me to add a few words in addition to what Paul has already said. When Russia invaded Ukraine, we were all deeply shocked. Our immediate response was to do everything possible to keep our own employees safe and to support them as well as the Ukrainian people. We mobilized our teams across the region to get food and essential supplies to the people, those in the country as well as refugees in neighboring countries. We provided financial support, and we're continuing all of these efforts today. Companies have faced calls to take a firm stand and go well beyond international sanctions. We found ourselves thrust into global politics like no other moment in recent history. To some, it may have appeared that Nestlé was not listening closely enough or that we were not acting quickly enough in response to current events. But even in times of war, we believe universal values and principles should continue to apply. For us, as a food company, the basic right of access to food is key. We're always trying to live up to our values and do the right thing, and that has driven our response to date. In Russia, we scaled back our operations to focus on providing essential food such as infant food and medical nutrition. We are suspending the production of most of our brands. We halted all nonessential imports into and exports out of Russia. We stopped all advertising. We suspended all capital investments in the country. And we continue to fully comply with all international sanctions on Russia. Our remaining presence in Russia is not because of profits but because our role is to bring food to people. While we do not expect to make a profit in the country or pay any related taxes for the foreseeable future, any profit will be donated to humanitarian relief organizations. Our priority continues to be the safety of our colleagues in Ukraine. We stand with the people of Ukraine, with our 5,800 employees in the country and with the international community in the call for peace. Moving now to 2021. We had a very strong year. In a year when we had to navigate significant supply chain constraints and fast rising input costs, we delivered. We limited the impact of exceptional cost inflation for our consumers through diligent cost management and responsible pricing, and we didn't lose sight of our long-term goals. Paul mentioned that we stayed focused on executing our strategy, on increasing our growth investments and on evolving our portfolio. With the acquisitions of Nuun and the core brands of The Bountiful Company, we continue to build Nestlé Health Science into a leading global nutrition and health business. And we further sharpened our focus on international premium and mineral water brands as well as healthy hydration products through the acquisition of Essentia Water and the divestment of mainstream water brands in North America. We demonstrated Nestlé's dependability even in difficult times. Our efforts resulted in strong organic sales growth of 7.5%. This was supported by strong at-home consumption during the pandemic as well as a steady recovery of our business with restaurants and cafeterias. But the key message is that we're now solidly positioned to achieve sustained mid-single-digit organic sales growth. We have the portfolio and the innovation capabilities to achieve this. Our organic growth rate was the result of strong performance in most geographies and categories. Three categories stood out: PetCare, Nestlé Health Science and coffee. PetCare and Nestlé Health Science both saw double-digit organic growth. Coffee came in just shy of double-digit organic growth at 9.7% and remained the biggest contributor to the group's overall organic growth rate. Sales of Starbucks products reached CHF 3.1 billion. This is over CHF 1 billion higher than in 2018 when we made our agreement with the company. The mid- to long-term future for these 3 categories also looks very promising. Rising pet adoption rates around the world will translate to a greater need for pet food. Flexible home office working models will mean people continue to drink more coffee at home. And the renewed interest in personal health and in boosting the immune system will bolster the need for vitamins, minerals and supplements. In 2021, we also saw double-digit growth in our vegetarian and plant-based products even at a time when others in the category were lagging. Our early entry into specialties, such as plant-based alternatives to tuna, shrimp or egg, has given us an advantage, and we will continue to invest in R&D in this space. Our plant-based offering is revitalizing Nestlé's food business. E-commerce sales grew by 15.1%, reaching 14.3% of total group sales, largely related to the pandemic. We believe that this trend is here to stay as people have discovered the convenience and benefits of shopping for food and beverage products online. Our ambition is to drive this number to 25% of total group sales by the year 2025. Our underlying trading operating profit margin was slightly lower versus 2020 at 17.4%, reflecting time delays between cost inflation and pricing actions. Net profit attributable to shareholders grew by 38.2%. This was related to the gain on the disposal of L'Oréal shares, which more than offset higher asset impairments and other one-off items. Earnings per share also increased by 41.1% to CHF 6.06. The entire Nestlé team stepped up, remained agile and delivered solid results in a challenging environment. I would like to take this opportunity to thank all employees for their tremendous efforts. They went over and above what was expected. 2022 is not requiring any less. An extremely challenging environment is now exacerbated by the effects of war. We must stay flexible and remain focused as we continue to execute on our long-term objectives. We will deliver further meaningful consumer-driven innovations at an ever faster pace, and we will advance our digitalization capabilities to enhance efficiency and growth. We will only make acquisitions to support our portfolio development if they fit with our well-defined strategy. As always, we will make such decisions with financial prudence. Creating value for you, dear shareholders, as well as all our stakeholders is our ambition in the short and the long term. To sustain long-term success, however, we must also help to tackle the most defining issues of our time. As the world is reeling from the consequences of war, all other challenges seem to have faded away. But climate change is still very much with us. Nestlé remains committed to its ambitious sustainability goals. At last year's AGM, we presented our detailed climate road map and asked for your support through an advisory vote. Let me use this opportunity to give you an update on where we stand. I'm pleased to report to you today that we have passed peak carbon. Since 2019, our greenhouse gas emission levels have been going down even as our business volume has grown substantially. This is significant. We hear about many companies' plans and promises to deliver carbon reductions in 20 or 30 years. But ultimately, what counts is whether those companies are acting now, whether their emissions are trending down already today. Here, Nestlé is on the right track. As you know, our ambition is to achieve net zero emissions by 2050. We have also set ourselves intermediate targets in line with the Science Based Targets initiative to reduce emissions by 20% over the next 3 years and by 50% over the next 8. In 2021, we achieved an absolute reduction of 4 million tonnes of CO2 equivalents, for example, by switching to renewable electricity or encouraging the use of natural fertilizers in farming. Reductions will be our primary path to net zero emissions. To address the remaining emissions, we are implementing nature-based solutions to remove CO2 equivalents. As a company with a large land footprint, it makes sense that we take measures within our value chain to remove emissions from the atmosphere and sequester them. We have already initiated removals of 9.7 million tonnes of CO2 equivalents. The development and implementation of regenerative agriculture is key to our climate strategy. We are investing CHF 1.2 billion by 2025 to help farmers introduce practices that will improve soil health, restore water cycles and increase biodiversity. We are providing them with state-of-the-art science and technology, offering investment support for equipment and paying premiums for regenerative agriculture products. Protecting and restoring forests and natural ecosystems is also an essential part of Nestlé's net zero pledge. We have committed to achieving and maintaining 100% deforestation-free supply chains, growing 200 million trees by 2030 and supporting 15 sustainable landscape initiatives by 2023 to transform the key landscapes we source from. I encourage you to take a look at our Creating Shared Value and Sustainability Report as well as our Climate Risk and Impact Report. These offer more concrete examples of the real work we are undertaking to achieve our climate goals. As we strive to make products that are good for the planet, so too do we aim to produce products that are good for people. As Paul laid out, we will make our portfolio healthier and help people enjoy a tasty, balanced diet. We are adding whole grains, fiber as well as essential vitamins and minerals. Last year, for example, we delivered more than 196 billion servings of food fortified with vitamins and minerals to address nutritional deficiencies in low- and middle-income countries. And of our affordable accessible products, 83% are now fortified with at least one essential micronutrient often lacking in people's diets, for example, iron, zinc, vitamin A and iodine. Between 2017 and 2021, we also reduced the added sugars in our foods and beverages by 5%. And we made a new global commitment to further reduce sodium in key categories of frequently consumed products by 2025 and 2030. Nestlé takes a scientific approach to nutrition, promoting a balanced diet that leaves some space for indulgent products when consumed in moderation. We help people eat healthier by developing new products and by continuously reformulating existing products to create healthier meals. For example, we are expanding our plant-based offering and are using more natural ingredients in all of our products. We also provide transparent information on product packaging to help people make informed choices. Nestlé supports the mandatory implementation of the Nutri-Score nutrition label across all EU countries. Nutri-Score encourages the continuous improvement of products. We also fully support appropriate rules related to marketing to children and have been recognized for our industry leadership and commitment in this important endeavor. And of course, we ensure that we're fully compliant with all applicable regulation around the world. In 2021, Nestlé placed first for the second time in a row in the ATNI ranking of the world's 25 largest food and beverage manufacturers. We also placed second overall in the World Benchmarking Alliance's ranking of the 350 world's most influential food and agriculture companies. Our hard work in 2021 allowed us to achieve strong results. It was a difficult year, but the entire team persevered and stayed focused on our priorities, including more products in our portfolio that are good for our consumers, good for the environment and make good business sense. We are continuing on the same path in 2022. Your confidence in us gives us the space to act with decisiveness. For that, we are grateful. We wish you and your families all the best for the remainder of the year, and we look forward to speaking in person again next year. Stay healthy and stay safe.