Nestlé’s net profits tumble as infant nutrition sees double-digit growth
Nestlé revealed this morning (Thursday, February 16) that net profits for 2022 tumbled to CHF 9.3.bn, down 45.2% from 2021’s CHF 16.9bn.
Net profit margin also decreased by 960 basis points (compared to an increase of 490 basis points in 2021), with net debt sitting at CHF 48.2bn, up CHF 15.3bn on 2021 and mostly driven by share buy-backs of CHF 10.5bn following the disposal of L’Oreal shares and a temporary increase in working capital. Net financial expenses also increased, by 19.2% to CHF 1bn, on the back of higher average net debt. The underlying trading operating profit also decreased to 17.1%, 30 basis points down on a reported basis and 40 in constant currency. Trading operating profit margin remained at 14%.
Explaining the dip in net profits, a Nestlé spokesperson said: "We had a strong one-time jump in net profit last year due to the sale of part of our L’Oréal stake, so 2022 shows a decrease in comparison, as the sale was a one-off in 2021."
The CPG's total reported sales increased by 8.4% and organic growth stood at 8.3% (of which 8.2% was pricing-driven and 0.1% accounted for real internal growth). Emerging markets, including Latin America, the Middle East, South Asia and Greater China, had a higher organic growth of 10% compared to developed markets (North America, Europe, Australia, Japan and Korea), where growth was 7.1%.
The company reported ‘strong growth across most categories’, with organic sales of milk products and ice cream up 5.4% driven by coffee creamers, affordable fortified milks and home baking products. Milk and ice cream contributed 12% of all sales, ahead of confectionery (9%) and water (4%) but behind prepared dishes (13%), nutrition (16%), pet care (19%) and powdered & liquid beverages (27%).
Infant nutrition saw double-digit growth, with broad-based contributions across geographies and brands according to the company. There was a marked increase in Greater China sales, where infant nutrition recoded high single-digit growth, with improved market share trends for NAN and illuma.
“Our infant nutrition business reported 10.1% organic growth, with a strong recovery and market share gains across all markets, particularly China. This was supported by demand for HMO powders, which grew at a double-digit rate.” - Francois-Xavier Roger, chief financial officer at Nestlé
Nestlé CEO Mark Schneider added that ‘fixing underperforming businesses’ was a key factor to the return to growth in China’s infant nutrition sector. “We’ve done exactly what we told you that we were going to do and that is take a very deep, hard look at our operations [in China] and in particular, our distribution channels. And within a year, that resulted in very significant improvements.” In 2021, the CPG saw a decline in infant nutrition sales in China, though dairy reported mid single-digit growth led by strong demand for premium and fortified milks.
How dairy performed by zones
Milk products and ice cream sales totalled CHF 11.289m, with an underlying trading operation profit of CHF 2.5m and an underlying trading operation profit margin of 22.7%. Real internal growth (RIG) was down 4.3% and pricing was up 9.6%.
In North America, Gerber Good Start infant formula ‘recorded string demand’ amidst the infant formula crisis in the US, while beverages, including Starbucks at-home products, Coffee mate and Nescafé, posted high single-digit growth.
In Europe, infant nutrition sales grew at a double-digit rate, based on ‘strong momentum’ for premium formula including HMO products.
In Asia, Oceania ad Africa, infant nutrition reached high single-digit growth ‘based on innovation and increased distribution’.
Dairy reported high single-digit growth in Latin America, based on strong sales developments for fortified milks and home-baking products. Infant nutrition also recorded high single-digit growth thanks to Nido and NAN.
And Greater China saw improved market share trends for NAN and illuma, with high single-digit growth for Nestlé’s infant nutrition products.
‘No clear evidence of downtrading’
Despite higher pricing across the company’s portfolio, Francois-Xavier Roger insisted Nestlé has seen ‘no clear evidence of downtrading’, although he admitted that the CPG carried out some ‘portfolio pruning’, particularly on some dairy products in the Middle East and Brazil.
Health Star and environmental results
During his presentation, CEO Mark Schneider unveiled Nestlé’s plans to improve transparency around nutrition across its global portfolio by introducing an ‘external, internationally recognized model for reporting’ called the Health Star rating.
“To our knowledge we are the first company that would provide on its entire global portfolio a consistently-applied Health Star rating so you can see what our entire global portfolio is made up of when it comes to the credation of the Health Star rating system,” he said, adding: “Health Star rating is also used by the Access to Nutrition Initiative and we felt that this is a rating system that is globally respected and understood.”
The new rating system will begin to be applied across Nestlé’s global portfolio from next month. The company will also report on its regional portfolios across 14 countries, using local external benchmarks.
On its environment actions, Schneider announced that the CPG is ‘on track towards the -20% intermediate target for 2025,’ and its emissions are now below 2018 levels based on SBTi standards. “In the year 2023, we stand to benefit from some of the early steps that we placed, that would give us a continued greenhouse gas reduction.’ He suggested that this would be come from initiatives such as tree-planting, which take several years to take effect in terms of providing carbon reductions.