Letter to our shareholders

U. Mark Schneider and Paul Bulcke

Nestlé is the Good food, Good life company. We believe in the power of food to enhance quality of life. We constantly explore and aim to push the boundaries of what is possible with food, beverage and nutritional health solutions to contribute to a healthier future. We focus on making a difference to the lives of people and pets, on protecting and enhancing the environment, and on generating value for our shareholders and other stakeholders alike.

 

We continue to make progress on our value creation model based on a balanced pursuit of top-line and bottom-line growth with capital efficiency.

Our ability to continuously deliver profitable growth demonstrates the consistency and dependability of our company. We achieve this by:

  • Maintaining our strategic focus
  • Investing for the long term
  • Driving innovation
  • Enhancing our digital capabilities

We believe that our company can only be successful in the long term by creating value both for our shareholders and for society.

Read our full letter to shareholders below.

 

 

Demonstrating dependability and agility

2020 was a challenging year. COVID-19 severely impacted every aspect of our lives and created much uncertainty. At Nestlé, we responded immediately and with clear priorities by putting measures in place to keep our employees safe; by ensuring supply of essential food and beverages to consumers; by caring for our communities and providing financial and in-kind support to our business partners.

While the COVID-19 crisis has caused volatility, we made further progress on our value creation model based on a balanced pursuit of top-line and bottom-line growth with capital efficiency. Highlights include:

  • Organic growth reached 3.6%, with real internal growth of 3.2% and pricing of 0.4%. Growth was supported by strong momentum in the Americas, Purina PetCare and Nestlé Health Science.
  • Foreign exchange reduced sales by 7.9% due to the continued appreciation of the Swiss franc against most currencies. Divestures had a negative impact of 4.6%. As a result, total reported sales decreased by 8.9% to CHF 84.3 billion (2019: CHF 92.6 billion).
  • Underlying trading operating profit (UTOP) margin reached 17.7%, up 10 basis points on a reported basis and up 20 basis points in constant currency. The trading operating profit (TOP) margin increased by 210 basis points to 16.9% on a reported basis.
  • Underlying earnings per share increased by 3.5% in constant currency and decreased by 4.5% on a reported basis to CHF 4.21. Earnings per share stayed unchanged at CHF 4.30 on a reported basis.
  • Free cash flow reached CHF 10.2 billion, accounting for 12.1% of sales.

Our results demonstrate the consistency and dependability of our company. Our resilience is based on the agility of our business and the strength of our diversified portfolio across geographies, product categories and channels. Our decentralized model enables our local teams to make quick decisions, act autonomously and respond with speed to rapid shifts in consumer needs and customer demands.

 

Sharpening our strategic focus

We continued to make significant progress in our portfolio transformation toward attractive, high-growth businesses in 2020.

We took the decision to sharpen our water focus on iconic international, premium mineral and functional brands, while exploring strategic options for parts of the Waters business in North America. We also sold the Yinlu peanut milk and canned rice porridge businesses in China to Food Wise Co., Ltd.

We completed the divestment of our U.S. ice cream business to Froneri and the sale of 60% of our stake in Herta to create a joint venture with Casa Tarradellas.

We continued to build Nestlé Health Science into a nutritional powerhouse through a combination of strong organic growth and targeted acquisitions. Examples include Zenpep, Vital Proteins, IM HealthScience and Aimmune Therapeutics. With Aimmune's PALFORZIA, we acquired the first and only FDA- and European Commission-approved treatment for peanut allergy. We also expanded our presence in direct-to-consumer meal delivery services through the acquisition of Freshly in the United States and a majority stake in Mindful Chef in the United Kingdom.

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Investing for the long-term

We continue to invest in research and development (R&D) and in our brands, and we made further investments behind key growth platforms. Purina PetCare unveiled plans to extend its production network in the Americas, Europe, China and Australia. Nespresso announced a CHF 160 million investment in the expansion of its production center in Romont, Switzerland to meet growing consumer demand worldwide. To accelerate the development of nutritious and environmentally friendly plant-based products, we expanded production and R&D facilities, and extended our supply chain partnerships.

 

Developing solutions to meet fast-changing consumer needs

Most of the long-term trends we have been working on still apply. Some have accelerated, particularly, e-commerce, digital engagement and demand for nutrition, health and wellness. One major change, brought on by the pandemic, has been the rapid shift toward at-home consumption. With consumer behavior evolving faster than ever, we are adapting to this new reality by strengthening our innovation, leveraging our digital capabilities and executing with speed. For example, we rolled out our Smart Recipe Hub across 48 markets to inspire families with healthy recipes that can be customized using nutritional balance scores and meal planners. As the economic consequences of the pandemic have intensified, we have also revitalized our affordable nutrition offerings, particularly in emerging markets.

The events of 2020 were unprecedented, and the pandemic is not over. The health crisis had an enormous impact on every aspect of our lives. In a volatile environment, Nestlé employees stepped up to the challenge. Our people brought our purpose and values fully to life.

 

 

Boosting innovation to drive growth

Our relentless dedication to innovation allows us to deliver on consumer preferences time and time again. We focus on exploring trends, rapidly converting ideas into products and testing their relevance with consumers and customers. We continued to enhance our speed and reduced our average time to market by a further 10% on our top priority projects in 2020.

Our ability to build a pipeline of meaningful innovations fuels our growth. We continually develop and deploy breakthrough technologies to create new growth opportunities. We leverage these technologies across categories, brands and markets to scale growth. In 2020, we increased the number of multi-market launches by 23%.

We continue to evolve our approach to innovation with an emphasis on encouraging entrepreneurialism and fueling creative ecosystems. We further expanded our innovation capabilities in 2020 and opened a new R&D Accelerator focused on plant-based dairy alternatives in Konolfingen, Switzerland.

Pro Plan LiveClear. The introduction of Purina Pro Plan LiveClear came on the back of more than a decade of research and coincided perfectly with the trend for increased pet ownership. Pro Plan LiveClear is the first and only cat food that reduces the allergens in cat hair and dander, improving the quality of life for cats and their owners. In 2020, it was launched in seven countries and has seen very high consumer ratings.

Coffee. Among the numerous innovations in our coffee category, we developed drought- and disease-resistant coffee varieties using our expertise in plant science. We expanded Nescafé Black Roast, our strongest, darkest soluble coffee, building on our expertise in flavor and aroma extraction. And as part of our commitment to minimize waste and maximize reuse, we introduced Nespresso coffee capsules using 80% recycled aluminum. We also continued to create new growth opportunities for the Starbucks brand by expanding its range of products to include seasonal, at-home coffees for the holidays, non-dairy coffee creamers and premium instant coffee. Sales of Starbucks products reached CHF 2.7 billion, generating incremental sales of over CHF 400 million in 2020.

Plant-based. We introduced many new plant-based foods, including sausages, mince and Sensational Vuna, a plant-based alternative to tuna. We continued to upgrade our plant-based offering in terms of taste, texture, flavor and nutrition. We also leveraged our expertise in plant protein to expand our dairy-alternative offerings.

We are putting our resources and scale to work on being part of the development of the countries and communities where we are present and on tackling issues such as climate change, packaging waste and biodiversity. We believe in being transparent about the challenges we face, the progress we are making and the trade-offs that we have to manage over time. Ultimately, continuing to achieve commercial and financial success is what will allow us to finance this sustainability agenda.

 

 

Enhancing our digital capabilities

Our ongoing digital transformation was a powerful catalyst for consumer engagement and growth in 2020. Our digital marketing and direct-to-consumer business models enabled us to meet the sudden acceleration in demand for online shopping. E-commerce sales grew by 48.4% to account for 12.8% of total Group sales.

At the same time, our disciplined, forward-looking approach to digitalizing our operations proved vital to increasing agility and flexibility. For example, we accelerated the use of remote assistance and augmented reality technologies across our production and R&D networks. These innovative technologies enabled our experts to support critical activities such as the set-up of new production lines that ensured on-time product launches.

We see enhancing digital capabilities as a key driver of our evolution. Across each of our categories, we are developing digital ecosystems and partnering to unlock new avenues for insight, innovation and sustainable, profitable growth.

 

Taking a leadership role in sustainability

Consumers rightfully expect companies, as well as individual brands and products, to act as a force for good in full respect of human rights and the environment. We are putting our resources and scale to work on being part of the development of the countries and communities where we are present and on tackling issues such as climate change, packaging waste and biodiversity. We believe in being transparent about the challenges we face, the progress we are making and the trade-offs that we have to manage over time. Ultimately, continuing to achieve commercial and financial success is what will allow us to finance this sustainability agenda.

In 2020, we made substantial progress. On climate and biodiversity, we laid out a detailed, time-bound climate change roadmap setting out our course to net zero greenhouse gas emissions by 2050. We will transform the way we operate, exploring new business models and addressing the biggest challenges in our food supply chain. That includes advancing regenerative agriculture, scaling up our reforestation program, making our products more sustainable, using more renewable energy and reducing waste.

On packaging, we continued to introduce more recycled and recyclable formats, and we are now increasing our emphasis on the areas of reduce and reuse, particularly in areas where recycling capabilities are not available or foreseeable. We want to scale up the use of reusable and refillable systems to eliminate the need for disposable packaging. We continue to work with many partners, make smart investments and drive new behavior to build up waste management infrastructure globally.

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Enhancing Board oversight of Nestlé's environmental and social agenda

Our Board of Directors continued to provide valuable guidance on our strategy and our approach to Creating Shared Value. We maintained our practice of adding diverse experience and fresh perspectives through the appointment of a new independent director. In recent years, we have strengthened the digital and food and beverage expertise of our Board in particular.

During the year, the Board reviewed and revised its governance framework to make its risk and environmental, social and governance (ESG) responsibilities more explicit. Additionally, it agreed to expand the mission of its Nomination and Sustainability Committee. It will now review all aspects of Nestlé's ESG agenda, including overseeing the Group's efforts on climate change, human rights and people management, including diversity and inclusion.

 

Living our purpose

The events of 2020 were unprecedented, and the pandemic is not over. The health crisis had an enormous impact on every aspect of our lives. In a volatile environment, Nestlé employees stepped up to the challenge. Our people brought our purpose and values fully to life. We take this opportunity to thank you, our employees, in particular our frontline workers, for your outstanding commitment and hard work. We thank our consumers and the communities in which we operate for their support. And we thank you, our shareholders, for your confidence in us.

 

Downloads

The Annual Report contains our Annual Review including Creating Shared Value highlights, the Corporate Governance & Compensation Reports and our Financial Statements

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