Nestle S A : TRANSCRIPT 382KB

NESTLÉ S.A.

2022 THREE MONTH SALES INVESTOR CALL TRANSCRIPT

21st April 2022, 14:00 CEST

Speakers:

Mark Schneider, Chief Executive Officer, Nestlé S.A.

François-Xavier Roger, Chief Financial Officer, Nestlé S.A.

Luca Borlini, Head of Investor Relations, Nestlé S.A.

This transcript may have been edited for clarity, and the spoken version is the valid record. This document is subject to the same terms and conditions found athttp://www.nestle.com/info/tc

Luca Borlini, Head of Investor Relations, Nestlé S.A.

Slide: Title slide

Good afternoon, and good morning to everyone. Welcome to the Nestlé three-month 2022 sales webcast. I am Luca Borlini, Head of Nestlé's Investor Relations. Today, I am joined by our Chief Executive Officer, Mark Schneider, and our Chief Financial Officer, François Roger. Mark will begin with our usual the key messages and discuss the full year 2022 guidance. François will follow with a review of the three-month 2022 sales figures. We will then open the lines for your questions.

Slide: Disclaimer

Before we begin, please take note of our disclaimer. Now I hand over to Mark.

Mark Schneider, Chief Executive Officer, Nestlé S.A.

Slide: Title

Thank you, Luca, and a warm welcome to our conference call participants today. As always, we appreciate your interest in our company.

Slide: Key messages

We are pleased to report another strong start to the year. We reached 7.6% organic sales growth in Q1, with increased pricing and resilient Real Internal Growth. Building on the strong starts in 2020 and 2021, this brings our three-year compound annual organic sales growth rate to 6.5% for Q1. It is literally a story of growth on growth on growth.

In a year that saw significant and increasing input cost inflation, we stepped up pricing in a responsible manner. At the same time, we launched meaningful innovations and saw strong growth in our affordable offerings, which ensures that consumers retain access to our products.

The Nestlé team did a superb job navigating continued supply chain challenges, taking mitigating actions to offset cost increases and staying focused on mid-to-long term business and sustainability priorities. This is the third year in a row where the entire team has to operate under external crisis conditions, and I tip my hat in admiration for their commitment, energy and perseverance.

The war in Ukraine brought unspeakable human suffering. It also exacerbated supply chain disruptions and inflationary pressures in the food industry. Our values as a food company are more needed than ever to avoid unintended consequences and unnecessary suffering and shortages. I am particularly proud of all the help and support that the Nestlé Team has been providing on the ground in Ukraine and to Ukrainian refugees in neighboring countries.

Turning to business development, I am pleased to confirm that our acquisition of a majority stake in Orgain closed on April 1st. We had announced this transaction on February 2nd and are pleased with the prompt closing which creates strong momentum for the integration in

Nestlé Health Science. We welcome Orgain's founder, Dr. Andrew Abraham, who will continue as CEO of Orgain, to our team. We share a common vision of what healthy and nutritious food can do and look forward to learning from each other.

Slide: 2022 Guidance confirmed

Before handing it over to François, let me turn to our guidance. As you can see on slide 5, we are confirming our full-year guidance for 2022. Obviously, a lot has happened since our full-year 2021 publication on February 17th.

Our start into the year was stronger than expected and we believe that our organic sales growth guidance is conservative at this point. At the same time, inflationary pressures have increased a lot since then and in ways that were not foreseeable at that time. As a result of this changing context, our guidance range of 17.0% - 17.5% for the Underlying Trading Operating Profit Margin has become more challenging than before when we described it as conservative.

With this, I would like to hand it over to François for the detailed financials. I look forward to answering your questions later.

François-Xavier Roger, Chief Financial Officer, Nestlé S.A.

Slide: Title slide

Thank you, Mark, good morning or good afternoon to you all.

Slide: Three-month sales growth

Let me start with the highlights for the first quarter of 2022.

Organic growth was 7.6%. Pricing stepped up to 5.2% to reflect significant cost inflation. RIG was resilient at 2.4%.

We now exclude the Russia region from organic growth, given disrupted trading conditions and our decision to focus on essential food in Russia, as announced on March 23rd. This is a conservative approach, as our organic growth would have been higher if we had included the Russia region.

Net divestitures reduced sales by 1.3%, largely related to the Nestlé Waters North America transaction, which closed on March 31, 2021. Divestitures were partially offset by acquisitions, including the core brands of The Bountiful Company.

The negative impact on sales from foreign exchange moderated to 0.8%.

Total sales for the first three months were CHF 22.2 billion, a 5.4% increase versus last year on a reported basis.

Slide: Strong growth across developed and emerging markets

Turning to the distribution of growth between developed and emerging markets.

Organic growth in developed markets was 6.7%, based on increased pricing and resilient RIG.

Growth in emerging markets reached 8.8%, with balanced contribution from RIG and pricing. Growth was supported by strong momentum for affordable offerings, particularly in AOA.

Slide: Strong momentum in retail and further recovery in out-of-home

Let's now consider the breakdown of sales by channel.

Organic growth for retail sales remained strong at 5.9%, with a high base of comparison in 2021. Growth remained well above pre-COVID levels.

Within retail, e-commerce sales grew by 5.0%, building on very strong growth of 39.6% in the first quarter of 2021.

Organic growth in out-of-home channels reached 35.6%, with sales now exceeding 2019 levels.

Slide: Increased pricing reflects significant cost inflation

Pricing stepped up to 5.2% in Q1. We expect further price increases over the course of the year to reflect significant cost inflation. Increases will continue to be implemented in a progressive and responsible manner.

The impact from cost inflation is expected to be significantly higher in 2022 versus 2021. Compared to when we talked to you in February, we now expect an even greater inflationary impact as a result of the war in Ukraine.

Slide: 2-year average real internal growth (RIG)

So far, we have not seen any material evidence of negative RIG elasticity linked to price increases. We expect to see some going forward as we increase pricing further following higher levels of inflation. Market share trends continue to evolve favorably.

RIG was 2.4% in Q1-2022, following a high base of comparison. Just as a reminder, RIG was exceptionally high at 6.4% in Q1-2021, based on strong COVID-related demand.

This chart shows the 2-year average RIG, which provides a more meaningful view of our underlying performance as it reduces the volatility of COVID-related demand. The 2-year stack for RIG was 4.4% in the first quarter, which is broadly in line with the trend we have seen over the last few quarters and higher than pre-COVID levels.

Slide: Zone North America

Let's now look at the results of our seven operating segments, beginning with Zone North America, where we saw 9.9% organic growth.

Growth was supported by increased pricing, strong momentum in e-commerce and premium products, as well as a further recovery of out-of-home channels. The Zone saw continued broad-based market share gains, led by Pet food, Coffee and Creamers.

By product category, Purina PetCare, Nestlé Professional, Starbucks out-of-home products and Water posted double-digit growth. Within Water, Essentia posted close to 40% growth.