Our portfolio is always evolving to meet consumer demands. Our long-term strategy is centered around respect for the future. We shape our portfolio with products that are right for consumers and set goals that contribute to a healthier environment.
Making strategic choices
We focus our energy and resources where unlocking the power of food can make the greatest positive impact on the lives of people and pets, the environment, and our shareholders and other stakeholders. Products that are healthy for consumers and the planet make for good business. That is why we take the following actions:
- Apply our expertise in nutrition, health and wellness - developed over more than 150 years - to help people, families and pets live happier, healthier lives.
- Bring distinctive, premium innovations to market fueled by creative exploration and consumer insights, pioneering nutrition science and culinary excellence.
- Meet the needs of the modern consumer with healthy, delicious, convenient products for conscious, time-constrained lifestyles.
- Offer more plant-based food and beverage options to be consumers' first choice as they diversify their diets.
- Produce affordable, safe and high-quality nutrition for everyone, regardless of their income level, taking advantage of our long-standing presence around the world.
- Strive to package and deliver our products in ways that are safe and protect the environment.
- Commit to ambitious sustainability goals to advance the health of the planet, drive societal progress and support sustainable, healthy food systems.
Our long-term value creation model is based on the balanced pursuit of top- and bottom-line growth as well as improved capital efficiency. We create value guided by three strategic pillars:
- Growth through continuous innovation.
- Operational efficiency.
- Resource and capital allocation with discipline and clear priorities, including through acquisitions and divestitures.
Sustaining mid single-digit organic sales growth
Our success is built on maintaining a diversified portfolio, both in terms of geography and category. Our agility in changing environments and cultivation of our high-quality global, regional and local brands contribute to long-term financial performance. Our objective is to sustain a mid single-digit organic growth rate through rapid innovation, market share gains and portfolio management.
We compete in attractive and growing categories and prioritize investments to stay relevant and win in every segment and market in which we operate. Our digital technologies help us identify emerging consumer needs and business model opportunities so we can bring differentiated innovation to market fast. We partner with customers across the retail landscape to adapt our product portfolio and channel strategies, leveraging our global brands to customize new products for local tastes and preferences. In 2021, our investment in strategic drivers yielded the following:
- High-growth categories of coffee, pet care, nutrition, water and nutritional health science, together representing 63% of sales, grew by 8.2%.
- Plant-based food products generated sales of around CHF 800 million with organic growth of 16.8%.
- 31 of our trusted brands, including Maggi, Milo and Nido, generated over CHF 1 billion each in annual sales at the retail level.
- E-commerce sales represented 14.3% of sales and grew by 15.1%, and our digital spend increased to 51%.
- Direct-to-consumer businesses represented 8.7% of sales and grew by 8.7%.
- Our premium offerings represented 35% of sales and grew by 12%.
- Emerging markets represented 41% of sales and grew by 7.8%.
- Sales of affordable, accessible products - many nutrient-fortified - grew by 7.1% and accounted for 18.9% of emerging market sales.
We focus on categories and geographies with attractive dynamics where Nestlé has an ability to win. Since 2017, we have completed or announced more than 85 transactions (acquisitions and divestitures) with annual sales equivalent to around 20% of 2017 Group sales. In 2021, we completed the following:
- Divestment of our Nestlé Waters North America brands.
- Acquisition of the core brands of The Bountiful Company, including Nature's Bounty, Solgar, Osteo Bi-Flex, Puritan's Pride, Ester-C and Sundown.
- Acquisition of Essentia, a premium functional water brand.
- Acquisition of Nuun, a leader in functional hydration through effervescent tablets.
We take decisive action to restore growth and profitability when businesses underperform. In 2021, we implemented a turnaround plan for our Wyeth infant nutrition business in China.
Enhancing operational efficiency
We fuel our growth agenda through disciplined cost management, improving operational efficiency at all levels of the business. In combination with sales growth, this approach enables us to free up resources for reinvestment in product innovation, brand building, digitalization and sustainability initiatives, while creating value for our shareholders.
We continued to adapt our organization to be more agile, flexible and digitalized. In manufacturing, we continued to upgrade our operational footprint. In 2021, we reduced factory fixed overheads by 1.0%. In procurement, increased global buying combined with a reduced number of product specifications helped us reduce costs and complexity. Global buying through our three purchasing hubs was 63% in 2021. In our administration, we continued to simplify and standardize processes. The penetration of our shared service centers increased for the sixth consecutive year. Our five-quarter average working capital in % of sales was essentially stable at 0.1% at the end of 2021.
Allocating capital prudently
Our priorities are to invest in the long-term growth and development of our business, while increasing shareholder returns and creating shared value. We take a disciplined approach to capital allocation, with prudent financial policies designed to strike the right balance between growth, returns and flexible access to financial markets.
Investing for the long term takes the form of R&D investment, brand support and capital expenditure to support organic profitable growth. We allocate these resources discerningly, focusing on projects with the highest potential to create economic profit. We are accelerating our capital expenditure plans for our fast-growing categories, particularly coffee and pet care.
We are disciplined when it comes to mergers and acquisitions in order to protect our Return on Invested Capital (ROIC). We have a thorough project governance in place, with clear accountability and targets. Potential acquisitions must have a good strategic and cultural fit with our organization and offer attractive financial returns. We look for creative ways to structure transactions and build partnerships that enhance our strategic options.
We have demonstrated our commitment to maintaining a high level of reinvestment into the business while at the same time continually increasing capital returns to shareholders. We do this by increasing our dividend year after year. Based on our 2021 performance, the Board of Directors has proposed a dividend increase of 5 centimes to CHF 2.80 per share to be paid in April 2022. This will be our 27th consecutive annual dividend increase. As a result of our strong free cash flow generation and business disposals, we continued to return excess cash to shareholders through share buybacks. The company's existing share buyback program terminated on December 31, 2021. In 2020 and 2021, Nestlé repurchased 123.1 million of its shares for a total amount of CHF 13.1 billion at an average price of CHF 106.08 per share, almost two-thirds of the anticipated CHF 20 billion existing program volume. A new plan commenced on January 3, 2022. Under this new program Nestlé plans to repurchase CHF 20 billion of its shares over the period 2022 to 2024. The company expects to buy around CHF 10 billion of shares in the first twelve months.
Investing in strategic and high-growth regions
Additional capacity for Nespresso Vertuo and Nestlé Professional coffee ranges
2022: site extension ready for production
CHF 270 million investment
Over 80 countries served by this Nespresso production facility
2022: site extension ready for production
CHF 117 million investment
New facility to produce up to 8,000 tonnes of plant-based food a year, supplying both food service and retail with Harvest Gourmet
2021: fully operational
CHF 35 million investment
New facility on 20 hectares of land to produce Bear Brand, Milo and Nescafé beverages
2023: ready for commercial production
CHF 115 million investment
Creating Shared Value: The way we operate
We build for the long term, act with focus and combine global resources with local know-how to create value for both society and our shareholders at a meaningful scale. We do so because we believe that business should act as a force for good. That is why we are making a promise to advance regenerative food systems at scale. This requires a transformative change. Nestlé is embarking on a journey toward regeneration to help restore the environment, improve the livelihoods of farmers, and enhance the resilience and well-being of communities and our consumers. This promise builds on our commitment to half greenhouse gas emissions by 2030 and to achieve net zero greenhouse gas emissions by 2050.