Nestle S A : TRANSCRIPT 325KB

NESTLÉ S.A.

2021 THREE MONTH SALES INVESTOR CALL TRANSCRIPT

22 April 2021, 14:00 CET

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 at https://www.Nestle.com/info/tc

Nestlé 2021 Three-month sales

Thursday, 22nd April 2021

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

Slide - Title slide

Good afternoon, and good morning to everyone. Welcome to Nestlé's First Quarter Sales Conference Call and 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 start with the key messages. François will follow with a review of the first quarter 2021 sales performance. 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 an exceptionally strong quarter to you today. In a nutshell, we saw a rebounding level of business in China, based on a very low level of comparison last year, gradual recovery in our out-of-home business and continued strong demand for retail and in- home consumption around the world.

I was particularly encouraged by our progress in pricing as many of our input costs are increasing. It was reassuring to see that these pricing steps did not stand in the way of a positive market share development. In line with our expectations, e-commerce continued to thrive with a growth rate of 39.6%, bringing our e-commerce sales to 14.5% of total Nestlé sales in Q1. My sincere thanks go to the entire Nestlé team.

The challenges related to COVID-19 and global supply chain pressures are daunting, and the team navigated the situation in an outstanding manner to deliver this exceptional growth.

Just like in operations and sales, we did not miss a beat in our strategic projects, from research and development to digitalization to portfolio management. Regarding portfolio management, in particular, I would like to point your attention to the new strategic direction of

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our Nestlé Waters business, which is becoming quite visible now.

With the sale of Nestlé Waters North America and the acquisition of Essentia, the sharpened focus on international premium brands, local natural mineral waters and differentiated healthy hydration products, such as functional water, is taking shape. From a smaller and more focused base, our Nestlé Waters business is now well positioned to capture growth opportunities with discerning consumers around the world.

Regarding financial metrics, we are confirming our 2021 guidance today. In light of the exceptional growth in Q1, our guidance may appear to be conservative to you. Our confidence level of getting to an organic sales growth rate of more than 4% has certainly increased on the back of our Q1 performance. We are not aware of any material items that might stand in the way. Our cautious revenue growth guidance at this point is mainly based on two reasons: first, the level of comparison for the second half of the year is going to be significantly higher; and second, we wanted to have one more quarter of visibility with regards to the COVID recovery before we revisit our 2021 growth guidance.

While we will not discuss cost and margin items in this Q1 conference call, I would like to caution against excessive margin growth expectations based on this strong sales growth. We now see broad-based inflation across our various commodities, packaging materials and transportation costs. Not all of these items can be hedged, and our hedging cover for a number of commodities will run out over time. We are raising prices where appropriate, but usually there's a time lag associated with pricing. We are on top of the situation and my raising of this issue should not give you alarm.

I just wanted to caution against excessive expectations on the margin front. So please stay close to our guidance level during this turbulent time.

Slide - Our business as a force for good: COVID-19 vaccination support

Before turning it over to François, I would like to comment on how Nestlé is supporting COVID-19 vaccination efforts. As you know community support has been a key priority for us from the beginning of this crisis, right next to keeping our workplace safe and maintaining business continuity. From the onset of the pandemic, we have provided community support around the world in many different ways. The focus of this work has now shifted from addressing immediate emergencies and needs, to providing help and support on

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Thursday, 22nd April 2021

vaccinations. There is an urgent need to advance equitable access to vaccines, particularly in low-income countries.

We're not a medical firm, but we have unparalleled logistics and geographical reach to offer in addition to direct financial contributions and donations. Needless to say, all of this has been, and will be, in strict compliance with all applicable health care regulations and in close coordination with government authorities. Widespread vaccinations are the best way to overcome this pandemic and we advocate for everyone getting vaccinated in line with public health priorities. With this, let me hand it over to François for a detailed review of our Q1 results.

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

Slide - Title

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

Slide - Three-month sales growth

Let me start with the highlights for the first quarter of 2021.

Organic growth was 7.7%, with increases from all three components, volume, mix and pricing. Real internal growth was strong at 6.4%. Pricing contributed 1.2%, strengthening significantly versus the prior year. Net acquisition reduced growth by 1%. This largely relates to the divestments of Herta Charcuterie, Yinlu and U.S. Ice cream, which were partly offset by the acquisitions of Freshly, Vital Protein, Lily's Kitchen and Essentia Water, to name a few.

Foreign exchange had a negative impact of 5.3%, reflecting the continued appreciation of the Swiss franc against most currencies. The exchange rate dynamic improved during the quarter with the impact turning neutral in the month of March. Sales for the first three months were CHF 21.1 billion, a 1.3% increase versus last year on a reported basis. Overall, the acceleration in organic growth in the first quarter was driven by four main reasons: early signs of recovery in out-of-home channels, increased contribution from pricing, reflecting input cost inflation, further market share gains across most categories, particularly in Coffee and Pet food; and finally, a rebounding level of business in China due to a low base of comparison last year.

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Slide - Broad-based growth

This slide illustrates the development of our sales by geography and includes both our Zones as well as our globally managed businesses. Organic growth was strong in all geographies. Growth in AOA was helped by low base of comparison in China. Pricing was positive, particularly in the Americas and EMENA, reflecting our ability to offset currency appreciation and input cost increases.

Slide - Strong growth across developed and emerging markets

Turning to the distribution of growth between developed and emerging markets, we returned to a more typical pattern compared to last year, with significantly higher growth in emerging markets. Organic growth in developed markets increased to 5%, reflecting strong RIG across all regions. Pricing turned positive. Growth in emerging markets accelerated to 11.4%, supported by broad-based improvements with BRIC markets and Mexico individually and collectively growing at a double-digit rate.

Slide - Strong momentum in retail, easier comps in out-of-home

Let's now look at the breakdown of sales by channel. Organic growth for retail sales was strong at 9.2%, reflecting sustained demand for at-home consumption. Going forward, retail sales are expected to moderate, but remain at higher levels than in 2019. We believe that some changes in consumer behavior are here to stay, such as increased working from home, pet parenting and the search for health and immunity benefits.

Within retail, e-commerce saw sustained growth of 39.6%. E-commerce now accounts for 14.5% of total sales. This growth is built on solid foundations of investments over the course of several years. The recent acceleration in e-commerce penetration reflects our ability to adapt to rapidly evolving consumer needs.

Sales declines in out-of-home channels moderated with significant improvements in Asia and Latin America. A recovery of out-of-home back to 2019 levels is expected at the earliest in 2022.

Slide - Zone AMS

Let's now look at the results of our operating segments, beginning with Zone AMS, where we saw high single-digit growth with a high base of comparison.

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