Press Release: Nestle: Nestlé reports full-year -2-

Underlying trading operating profit increased by 1.4% to CHF 15.1 billion. The underlying trading operating profit margin decreased by 30 basis points to 17.4% in constant currency and on a reported basis, reflecting time delays between cost inflation and pricing actions. The one-off integration costs related to the acquisition of The Bountiful Company's core brands had a negative impact of around 10 basis points.

Gross margin decreased by 130 basis points to 47.8%, reflecting significant broad-based inflation for commodity, packaging, freight and energy costs. The impact of cost inflation, which increased strongly in the second half, was partly offset by price increases, operating leverage and efficiencies.

Distribution costs as a percentage of sales decreased by 20 basis points, mainly as a result of the disposal of the Nestlé Water brands in North America.

Marketing and administration expenses decreased as a percentage of sales by 80 basis points, based on strong operating leverage and efficiencies. At the same time, the Group continued to invest for growth and increased its consumer-facing marketing expenses in constant currency.

Restructuring expenses and net other trading items increased by CHF 2.3 billion to CHF 3.0 billion, largely reflecting impairments related to the Wyeth business. As a result, trading operating profit decreased by 14.6% to CHF 12.2 billion and the trading operating profit margin decreased by 290 basis points on a reported basis to 14.0%.

Net Financial Expenses and Income Tax

Net financial expenses were unchanged at CHF 873 million, as a lower cost of debt offset higher average net debt.

The Group reported tax rate decreased by 330 basis points to 20.9%, mainly as a result of one-off items in 2020, including the divestment of the U.S. ice cream business. The underlying tax rate decreased by 40 basis points to 20.7%, mainly due to the geographic and business mix.

Reduction of L'Oréal stake

On December 15, 2021, Nestlé sold 22.26 million of L'Oréal shares for a total consideration of CHF 9.3 billion. Following the transaction, Nestlé owns 20.1% of L'Oréal and remains fully supportive of the company's value creation strategy.

Net Profit and Earnings Per Share

Net profit grew by 38.2% to CHF 16.9 billion. Net profit margin increased by 490 basis points to 19.4%. The gain on the disposal of L'Oréal shares more than offset higher asset impairments and other one-off items.

Underlying earnings per share increased by 5.8% in constant currency and by 5.1% on a reported basis to CHF 4.42. Sales growth was the main contributor to the increase. Nestlé's share buyback program contributed 1.3% to the underlying earnings per share increase, net of finance costs. Earnings per share increased by 41.1% to CHF 6.06 on a reported basis.

Cash Flow

Cash generated from operations decreased from CHF 17.2 billion to CHF 16.6 billion, mainly due to slightly higher working capital at year-end. In the context of significant supply chain disruptions, the Group increased its inventory levels temporarily. Free cash flow decreased from CHF 10.2 billion to CHF 8.7 billion, mainly due to a temporary increase in capital expenditure to meet strong volume demand, particularly for Purina PetCare and coffee.

Dividend

At the Annual General Meeting on April 7, 2022, the Board of Directors will propose a dividend of CHF 2.80 per share, an increase of 5 centimes. If approved, this will be the company's 27th consecutive annual dividend increase. The company has maintained or increased its dividend in Swiss francs over the last 62 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 8, 2022. The net dividend will be payable as from April 13, 2022.

Shareholders entered in the share register with voting rights on March 31, 2022 at 12:00 noon (CEST) will be entitled to exercise their voting rights.

Share Buyback Programs

During 2021, the Group repurchased CHF 6.3 billion of Nestlé shares.

On December 30, 2021, Nestlé terminated its existing CHF 20 billion share buyback program initiated on January 3, 2020. Between January 3, 2020 and December 30, 2021, the Group repurchased 123.1 million of its shares for a total consideration of CHF 13.1 billion at an average price of CHF 106.08 per share.

Nestlé initiated a new share buyback program of up to CHF 20 billion on January 3, 2022. The company expects to buy around CHF 10 billion of shares in the first twelve months. The new share buyback program shall be completed by the end of December 2024.

Net Debt

Net debt increased by CHF 1.6 billion to reach CHF 32.9 billion as at December 31, 2021. The dividend payment, share buybacks and the net cash outflow from acquisitions and divestitures more than offset proceeds from the disposal of L'Oréal shares and free cash flow generation.

Return on Invested Capital (ROIC)

The Group's ROIC decreased by 250 basis points to 12.2%, as a result of impairments related to the Wyeth business. Excluding Wyeth business impairments, the Group's ROIC was 14.2%.

Portfolio Management

Nestlé completed acquisitions and divestments with a total value of around CHF 9.9 billion in 2021.

Nestlé is transforming its global water business, sharpening its focus on international premium and mineral water brands and healthy hydration products. In March, Nestlé completed the acquisition of Essentia Water, a premium functional water brand in the U.S., and the sale of its regional spring water brands, purified water business and beverage delivery service in the U.S. and Canada.

Nestlé Health Science continues to focus on building the leading global nutrition and health platform. In July, Nestlé completed the acquisition of Nuun, a leading company in the fast-growing functional hydration market, and entered into an agreement with Seres Therapeutics to jointly commercialize SER-109, an investigational oral microbiome therapeutic in the U.S. and Canada. In August, Nestlé completed the acquisition of the core brands of The Bountiful Company for USD 5.75 billion. The Bountiful Company is the number one pure-play company in the highly attractive global nutrition and supplement category.

Building on the successful global coffee alliance, Nestlé continues to expand the reach of Starbucks branded coffee and tea products outside Starbucks retail stores. In July, Nestlé and Starbucks announced a new collaboration to bring Starbucks ready-to-drink coffee beverages to select markets across South-East Asia, Oceania and Latin America.

New Zone structure

As of January 1, 2022, the company is organized into five Zones: Zone North America, Zone Latin America, Zone Europe, Zone Asia, Oceania and Africa, and Zone Greater China. Nestlé will report the sales and growth numbers of the new Zone structure for the first time on April 21, 2022.

The new structure will strengthen the company's market-led approach and enhance Nestlé's ability to win in a rapidly changing environment. It also underscores the company's deep commitment to succeeding in all parts of the world, including its two top markets North America and Greater China.

Zone Americas (AMS)

-- 8.5% organic growth: 4.8% RIG; 3.7% pricing.

-- North America posted high single-digit organic growth, with robust RIG

and positive pricing.

-- Latin America reported double-digit organic growth, with both strong RIG

and pricing.

-- The underlying trading operating profit margin increased by 30 basis

points to 20.8%, mainly due to the divestment of the Nestlé Waters

North America brands.

Sales Sales Organic UTOP UTOP Margin Margin

2021 2020 RIG Pricing growth 2021 2020 2021 2020

CHF CHF CHF CHF

Zone 33.8 34.0 7.0 7.0

AMS bn bn 4.8% 3.7% 8.5% bn bn 20.8% 20.5%

Organic growth was 8.5%, with strong RIG of 4.8%. Pricing increased to 3.7%, reaching 5.2% in the fourth quarter. Net divestitures reduced sales by 6.6%, as the divestment of the Nestlé Waters North America brands more than offset the acquisitions of Freshly and Essentia Water. Foreign exchange had a negative impact of 2.5%. Reported sales in Zone AMS decreased by 0.7% to CHF 33.8 billion.

Zone AMS reported high single-digit organic growth, building on a strong sales development in 2020. Increased pricing, continued innovation, strong momentum in e-commerce and a further recovery of out-of-home channels supported growth. The Zone saw continued broad-based market share gains, led by coffee, pet food, frozen food and ambient culinary.

North America posted high single-digit growth in the context of continued significant supply chain constraints. Sales in Purina PetCare grew at a double-digit rate, led by Purina Pro Plan, Fancy Feast and Purina ONE. Scienced-based innovations continued to support growth, with new launches including Pro Plan Cardio Care and new varieties of Sensitive Skin & Stomach formula. Nestlé Professional and Starbucks out-of-home products saw strong double-digit growth, helped by further recovery in out-of-home channels. Sales in the beverages category, including Starbucks at-home products, Coffee mate and Nescafé, grew at a mid single-digit rate. Frozen and chilled food reported mid single-digit growth, supported by strong sales developments for Stouffer's, Lean Cuisine and Hot Pockets. Pizza saw a sales decrease following a high base of comparison in 2020, with a return to positive growth in the fourth quarter. Water reported mid single-digit growth, led by strong growth for the recently acquired Essentia Water business. Sales in confectionery in Canada grew by close to 10%, driven by KitKat. Home-baking products, including Toll House and

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February 17, 2022 01:15 ET (06:15 GMT)