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

Nestlé is an integral part of the daily lives of millions of people around the world. For many of them, 2023 has not been an easy year. Together, last year, we had to face record inflation, a volatile economic environment, a changing geopolitical landscape and a general sense of uncertainty. And it's easy, I think, to let these challenges overshadow the positive things that happened last year and the many opportunities that we still have, we have right now. Nestlé is agile and able to adapt. We're always in a position to address the short-term challenges without at that time losing sight of our long-term goals and how to achieve them. We always have a clear view of our purpose and our beliefs. In 2023, we once again demonstrated what it means to be a resilient and forward-looking food and beverage company. We continued to provide consumers with the products that they love and rely on. As the Good Food, Good Life company, we remain convinced that the future holds great promise and great opportunities. And there's, perhaps, no better way to illustrate this and illustrate what this means in the world at large as a short video. [Presentation]

Ladies and gentlemen, that video captures not only Nestlé's global impact, but also conveys the very essence of who we are. Nestlé wants to make a positive difference around the world. I hope you saw in those images in the video you saw the passion, the creativity and the commitment that drive our 300,000 employees, wherever they may be in the world. I would like to warmly thank the Executive Board and all of Nestlé's employees around the world for the hard work that they do day in day out. They tackle new challenges every day. And I can say, of course, there are plenty of challenges. They innovate and drive our business forward no matter whether the circumstances are favorable or more difficult. They also what they're doing where necessary, and they seize opportunities as they arise. The dedication shown by the Nestlé team at all levels and all around the world is really remarkable. And on behalf of the Board of Directors, and I'm sure on behalf of each and every one of you, I would like to pay tribute to them today. Our Chief Executive Officer, Mark Schneider, will be talking in greater detail about the results from 2023 in a moment. Let me just say this though. We remain steadfast in times of uncertainty. We continued to grow in a profitable manner. And on the basis of those results, the Board of Directors is today proposing to you a dividend of CHF 3 per share. That represents an increase of CHF 0.05 compared to last year. And if it's approved, we'll be able to celebrate the fact that our dividend will have increased every year for almost 30 years. Ladies and gentlemen, we're looking to the future with confidence. We see many opportunities for our business. We have a compelling strategy, and we know how to implement it with conviction. Our strategy is all about nutrition, health and wellness. This has been the source of our success, and it will underpin our continuing success as we go forward. Looking at the world today, we can see many reasons to be confident. First of all, consumer trends are changing rapidly. And thanks to our research and development network, we are very well equipped to provide solutions for these evolving needs. Consumers are becoming ever more health conscious and more aware of the benefits of a balanced diet. And we have the expertise that's needed to support them on this journey. Next, of course, the global population is aging rapidly all around the world and older people have specific nutritional needs. We can see this need, and we can see people's desire to age healthily and we also feel that, that's a big opportunity for us. In many countries, moreover, the middle classes continue to expand. We want to be there for those people. The world is digitalizing ever more rapidly and we're embracing the opportunity that this presents across all our activities. Ensuring that we can harness the full potential of digital technology, for instance, in our operations, but also in our communications and across our supply chain. And finally, sustainability. Sustainability is a key decision driver for many consumers. They want to give preference to products that respect people, communities and our planet. And Nestlé this is part of our long-term thinking. In fact, it's absolutely in our DNA. These are just a few of the opportunities that we see, and Mark Schneider will elaborate on them further in a moment. Nestlé is well positioned to unlock these opportunities because we believe in the power of good food, food that's part of a balanced diet; food, which can help people who have specific nutritional and health needs. This is what motivates us. This belief in the power of good food to improve quality of life for everybody today and tomorrow. That's our purpose. It's the whole reason why we, as a company, exist. Our direction is clear, therefore, to offer high-quality food and beverages, which we complement with our attractive growth platforms such as Nestlé Health Science, and our nutritional health products. Our Nutrition Health and Wellness strategy is very robust and holds great promise. It allows us to be a part of every stage of people's lives from the time before conception right through to old age, encompassing childhood, adolescence and adulthood along the way. Now to achieve all this, we are constantly innovating and renovating, renewing our products, and we're doing so with increasing speed and agility. We're investing in research and development to strengthen our brands and to differentiate ourselves in terms of taste, nutritional value and sustainability. We recognize that people consume food and beverages, not only for nourishment but also for pleasure. And we strive to offer the right product for all occasions while encouraging a more balanced diet. We aim to be successful right across all the segments of our portfolio while ensuring that we address the diverse needs and preferences of our consumers in a responsible manner. Ladies and gentlemen, the way in which we conduct our business is also important. And we do that by creating shared value. This is based on the fundamental conviction in order to succeed over time, the company must be able to create value, not only for its shareholders, of course, but also for all our stakeholders in our society. Food systems are under pressure. And in order to ensure that we can continue creating long-term value, we want to help make these systems more regenerative, supporting farmers and their communities. We are focusing our energy and resources on making a large scale positive impact in this field. These, ladies and gentlemen, are not just empty words. These are concrete things that we're doing on a daily basis, day after day. We're making good progress, for instance, we can say, and celebrate the fact that peak carbon and peak virgin plastic usage are already behind us. And at the same time, our business is continuing to grow. Our business model is based on providing exceptional products whilst ensuring sustainability and added value. In other words, it's good for you, it's good for consumers and it's good for the planet. Creating shared value isn't something that's reserved for developing countries. Let me give you specific example from here from Switzerland. As part of our Nestlé needs YOUth Program for young people, we're joining forces with the NextStep program, which is run by the cantons of Vaud and Zürich. This is an initiative which offers Swiss apprentices the opportunity to gain some professional experience in other countries. Nestlé will be offering internships in countries such as Brazil, India and the United States for these young people. Shareholders today will be able to vote on our 2023 Creating Shared Value and Sustainability Report. This document provides you with detailed information on our nonfinancial performance. Now publishing reports on our commitment to society and sustainability is nothing new for Nestlé. In fact, we published our first report on the subject more than 20 years ago. The version of this report that you'll be voting on this year fulfills all the requirements of the new Swiss corporate legislation and has also been verified by Ernst & Young. This makes it an invaluable resource for obtaining firsthand quality information about your company, about Nestlé. the publication of this comprehensive annual nonfinancial report is already stipulated in our Articles of Association. And we want to thank you for the unfailing support you gave to this revised Articles of Association at last year's Annual General Meeting because you enabled us to amend and revise our Articles of Association in order to comply with the new Swiss corporate legislation 1 year ahead of it coming into force. Our report also covers other topics, including detailed information on our social impact, our approach to regenerative agriculture as well as the nutritional value of our portfolio and our ambitions in this area. And on that last point, in other words, the nutritional value of our portfolio, I can assure you that we offer a pioneering level of transparency. Ladies and gentlemen, so many of the challenges that the world has faced in recent years, be they COVID, inflation, conflicts or instability have put additional demands on us and could have distracted us from what's most important, that being providing delicious, nutritious, affordable, sustainable and convenient food and beverages for everyone, everywhere and at any time. Against this backdrop, it is more important than ever for us to remain focused on the basics of our business. It is more important than ever to execute our strategy with excellence. We continue to focus on our relationship with our consumers on our innovation, distribution and communications, our operations and on all the other forces that drive our company. It's about focusing on the fundamentals going forward to basics, if you like. Before I close, allow me please to briefly say something about the governance of our company. In these uncertain days and in a fragmented world that's full of ambiguity, governance plays an even more crucial role in delivering sustainable value. Our Board of Directors ensures that our company, your company, has a clear strategic vision, has strong values and a long-term approach while supporting the management team in addressing short-term challenges. We pay particular attention to the composition of the Board of Directors and its regular renewal. We continuously strive to find the correct balance between diversity, experience and different points of view that will strengthen our ability to understand and anticipate the changes that are going to impact our industry and our company. The Board of Directors that we are presenting to you today for election and re-election, is a Board of Directors that provides a holistic assessment of the context and the environment in which Nestlé is operating. It's able to do this, thanks to its in-depth understanding of our company, including its understanding of our history and our culture. This Board of Directors will be able to ask the right questions at the right time from all societal angles. Ladies and gentlemen, let me repeat. We look to the future with confidence because we are confident that we have a sound strategy and we know how to implement that strategy. Throughout our history, we have built solid foundations in the form of our products, our brands, our research and development activities, our global presence and above all our employees. These are the foundations on which we build our long-term success. Our strategy is clear. As I've said before, it's all about nutrition, health and wellness. It's our past, but it's also our present and our future. Shareholders, when I think of Nestlé, I think of a dependable and consistent company, I think about a company that's relevant today and in the future. And I think of a company that's moving forward with agility, determination and care. So thank you dear shareholders for your trust and for your ongoing support. And I would now like to invite our Chief Executive Officer, Mark Schneider to share some further details with you about your company's performance in 2023.

[Foreign Language]. Please allow me to continue in English for our global audience. It's a pleasure to welcome everyone to this year's Annual General Meeting. 2023 demanded a lot from Nestlé. We had to be flexible, we had to be agile and we had to stay focused on providing the foods and beverages that people want and depend on. In doing all of this, we delivered. Our focus continues to be on delivering for consumers around the world and for you, our shareholders. Yet I know there are questions. I know some of you are concerned about the recent challenges we have faced. I want to assure you that we are tackling them. Most of all, our management team is confident in where Nestlé is headed. We have a concrete plan to accelerate our growth. We have a strategy that focuses on providing nutritious foods and beverages to people at all life stages. We have industry-leading R&D that enables us to take advantage of new trends and opportunities, and we are deeply committed to operational excellence. Today, I want to preview the exciting road ahead. But before we look forward, let's take a quick look back at 2023. Inflation continued to present challenges. Many consumers around the world were squeezed. And Nestlé also felt it, in particular in the prices of our raw materials. Supply chain issues have lingered and geopolitical tensions, as we all know, have continued. We also faced challenges unique to Nestlé. In our Nestlé Health Science business, we experienced an IT integration issue when implementing highly automated systems in our U.S. packaging sites. This led to short-term supply constraints in our vitamins, minerals and supplements business, which we regret. Our recovery plan for this business is on track. We have boosted the leadership team, so we can address all the underlying problems and position ourselves for future growth. We are confident that our intense efforts will deliver long-term stability and success for Nestlé Health Science, a business that continues to show great promise. We have seen impressive growth over the past decade and I have a strong, and we have a strong Nestlé Health Science portfolio. Our team has the nutritional expertise and technologies to build on it further. We are well positioned to deliver on consumers' increasing desire for health and nutrition. Now I'd like to spend a few moments on the financials. Nestlé's total reported sales were down in 2023, largely due to the Swiss franc strength against other currencies. Organic growth was solid. But volume and mix were impacted by softer consumer demand, a trend seen across our industry. Our margins improved. Net profit increased by more than 20% compared with the previous year when one-off items affected our earnings. And as a result, earnings per share were up to over CHF 4. Underlying earnings per share also increased by 8.4%, well within our target range of 6% to 10%. Over the past few years, we have consistently delivered within this range. Our financial performance in 2023 was resilient. I would like to thank everyone at Nestlé for your hard work and steadfast dedication. We all deeply appreciate your focus and commitment. Thank you. Dear fellow shareholders, despite all that hard work, our share price performance has been disappointing for all of us. We had our own challenges I talked about, and it mainly reflects the historical inflation spike that has impacted our sales. We are now prioritizing growth that is increasingly driven by higher sales volume and mix. We are looking to return to strong levels in 2024. How will Nestlé deliver this consistent, dependable financial performance? Let me explain. We're stepping up our innovation and marketing initiatives, and our focus will be on our biggest and most iconic brands. Think of our Purina pet care brand, our Nespresso and Nescafé coffee brands or our Maggi cooking aid brand. By concentrating on fewer and bigger brands, we have better growth potential. We are also acting on the significant opportunities coming from the growing out-of-home consumption trend. Paul said before that we're moving forward to basics. This means seamless execution in supply chain management, in order fulfillment rates, in in-store execution, in marketing and branding and in food safety. Nestlé is known for getting these essentials right. This will continue to be a priority. Now let's look beyond 2024. We are strategically positioning ourselves so that we can support people at every stage of life. Paul mentioned this, and I'd like to expand on it. We have nutritionally advanced products for everyone. We also see substantial opportunities with shifting demographics around the world. Many of you in this room may remember the history of Nestlé. Our founder started the company by creating the first infant formula during a time of high birth rates and significant infant mortality. Our nutritional products helped to address a unique need of that period. We do something similar today. As the population in many parts of the world ages, people are interested in living longer, and they also want to live better and healthier. They're leading active lifestyles and want to enjoy the latter years of their lives. We have the science, the know-how and the products to support them. A big part of aging well is maintaining a healthy weight. This is an area that has received a lot of attention lately with the introduction of new drugs that help with this goal. And as people eat less, they need to be mindful of nutritional gaps. Our foods, drinks, vitamins, minerals and supplements can help fill those gaps and boost people's energy levels. They support mobility and improve well-being. This is the space where our Nestlé Health Science business is leading the way. Our pioneering research and development can help us realize business opportunities across all our categories. We are finding new ways to fill the nutritional needs of people at every stage of life. We are also leaning into premium products across our categories and geographies. These products contribute significantly to our growth and are a key pillar of our strategy moving forward. Through all of this, I'm proud to say that Nestlé stands for proper nutrition. Our nutrition efforts have been significant and we continue to make great strides in our offerings. We aim to bring tasty, balanced diets to people around the world. As part of that, we have reduced sugar, salt and saturated fat. We have added ingredients such as whole grains to existing products, and we continue to develop new nutritious offerings. This includes further expanding our micronutrient fortification efforts, our affordable offerings and our plant-based products. How confident is Nestlé in all that we're doing in the nutrition space? Last year, we became the first company to make the nutritional value of our entire global portfolio transparent. This is an industry-leading step forward and something we're proud of. In 2023, we also introduced a new target to grow the sales of our more nutritious products by CHF 20 billion to CHF 25 billion by the year 2030. That's about a 50% increase over 2022 sales. We have already seen growth in this space in recent years. With this plan, our growth journey will continue. A significant portion of our innovation and marketing efforts will be directed to these products. I know of no other company in the industry with such bold ambitions. What about the more indulgent parts of our portfolio? The reality is food is about exploration and a bit of wonder. Joy is part of this experience. This reflects how people eat. We remain committed to this part of our portfolio, but with an eye towards responsible consumption. That's why we have strengthened our responsible marketing practices and now voluntarily restrict our marketing to all young people under the age of 16. We are one of just 2 major food companies to do so. We are limiting portion sizes for our children's confectionery and ice cream products. We provide clear serving size guidance on our packaging, and we offer information so that people can make informed decisions as part of a balanced diet. Ladies and gentlemen, Nestlé will always advocate for the joy that food can bring. We provide everyday nutrition for all stages of life, but also the occasional indulgence. I mean who doesn't enjoy the square of Cailler Schoggi, our beloved Swiss chocolate brand with a Nespresso after a healthy lunch. So that's what we stand for, good nutrition and tasty balanced diets. Before I close, I would like to highlight that we have also made significant progress on our sustainability goals and continue to help tackle global climate change. Last year, in fact, we achieved a net reduction of 13.5% of greenhouse gas emissions compared with our 2018 baseline. As Paul said, we passed peak carbon some time ago. Importantly, we have continued to grow while still reducing our emissions. Dear fellow shareholders, we want you to leave today with confidence, confidence that Nestlé is in the right categories, confidence that Nestlé is capturing consumer trends, confidence that Nestlé has the innovation capabilities to deliver added value, confidence that Nestlé's overcoming operational challenges and operates with excellence and confidence that Nestlé is doing this in a sustainable way that respects people, communities and the planet. Ladies and gentlemen, Team Nestlé is geared for growth. We have the capabilities and people needed to make big things happen. And our goal is to provide you, our shareholders, with consistent, dependable performance. Thank you for your continued trust in all that we do.