Growth forecasts for 2022 exceed expectations

Vevey in the sweat

The turnover of the manufacturer of Nespresso, Maggi, KitKat or Perrier climbed to 94.4 billion francs in 2022.

(Photo: imago/IP3press)

Zurich The Swiss food group Nestlé grew last year mainly through price increases. Sales increased by 8.3 percent to 94.4 billion francs (around 95 billion euros), as the company announced on Thursday. At 8.2 percent, higher prices for products such as Nespresso, Maggi, Kitkat or San Pellegrino accounted for the largest part of the increase in sales.

Profits, on the other hand, collapsed by 45.2 percent to 9.3 billion francs. However, in 2021 the sale of a block of shares in the cosmetics group L’Oreal inflated the profit at the time. According to a survey conducted by Nestlé itself, analysts had expected an average profit of CHF 11.6 billion and sales of CHF 95 billion for 2022.

Jean-Phillippe Bertschy, analyst at Vontobel, sees no problem in the missed sales forecast: “That doesn’t worry us.” Most of the market regions and divisions have developed as expected.

The food giant’s margins came under pressure last year due to higher commodity prices, transport costs and wages. Gross margin fell 2.6 percentage points to 45.2 percent. This decline is a sign that Nestlé has not been able to pass higher production costs on to customers on a one-for-one basis. Nestlé CEO Mark Schneider was able to stabilize the operating margin at 17.1 percent through austerity measures. This corresponds to a decrease of only 0.4 percentage points – significantly less than the gross margin.

Nestlé boss Schneider said with a view to 2022: “Inflation reached an unprecedented level, the cost of living was troubling many people, and the consequences of geopolitical tensions moved the whole world.” good result: “Our organic growth has been solid and our margins have remained robust. At the same time, we have ensured access to nutritious and affordable products worldwide.”

Nestlé wants to keep profitability targets

Schneider sees the group on the right track to achieving its medium-term profitability targets. For the current year, the CEO has forecast organic sales growth of six to eight percent and an operating profit margin of 17.0 to 17.5 percent. He has set a target corridor for the margin of 17.5 to 18.5 percent by 2025. Nestlé is also planning a dividend increase of around five percent to CHF 2.95 per share. At the current price, this corresponds to a return of 2.6 percent. This is a “strong sign of management’s confidence,” said Vontobel analyst Bertschy.

In North America, the market with the highest sales, Nestlé had to cope with a drop in sales after deducting price increases. In the second most important market, Europe, Nestlé found it increasingly difficult to pass the increased prices on to end customers. Even after deducting the price increases, sales growth was positive. But the margin fell by 1.9 percentage points to 16.4 percent. Europe is thus below the target margin.

Marc-Aurel Boersch, head of Nestlé Germany, said: “We are lagging behind when it comes to price increases.” In tough negotiations with retailers, 60 percent of the increased additional costs in purchasing have so far been able to be passed on. According to Boersch, these amounted to 200 million euros in Germany alone. For the current year, he expects further additional costs of 100 million euros. “We are fighting to keep sales stable,” says Boersch.

However, he observes that in the current environment, consumers are increasingly turning to discounters’ own brands instead of premium brands. In order to stabilize the margin, Nestlé is making savings in areas such as marketing and research and development. “We turn every cent three times over,” says Boersch.

The food giant wants to grow primarily with health products and dietary supplements. With three acquisitions with a total value of over one billion Swiss francs, Nestlé has therefore strengthened its Health Science division.

The group is also appointing two new board members: Rainer Blair from the US conglomerate Danaher and Marie-Gabrielle Ineichen-Fleisch, a lawyer specializing in trade and long-time head of the Swiss State Secretariat for Economic Affairs.

More: Nestlé and Unilever raise prices sharply – but pay no inflation premium

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