including expenses for bonuses paid to frontline workers, employee safety protocols, donations and other staff and customer allowances. Around CHF 260 million of these costs impacted underlying trading operating profit, partially offset by savings such as travel expenses. In addition, the Group absorbed costs of CHF 170 million related to staff and facilities made idle due to lockdown measures. Overall COVID-19-related costs decreased in the second half of the year, as movement restrictions eased. Underlying Trading Operating Profit Underlying trading operating profit decreased by 8.3% to CHF 14.9 billion. The underlying trading operating profit margin reached 17.7%, an increase of 20 basis points in constant currency and 10 basis points on a reported basis. Margin expansion was supported by structural cost reductions, portfolio management and slightly lower consumer-facing marketing expenses(1) which more than offset commodity inflation and COVID-19-related costs. In the second half of the year, consumer-facing marketing expenses(1) returned to a normalized level and increased versus the same period of 2019. Restructuring expenses and net other trading items decreased by CHF 1 916 million to CHF 670 million, reflecting lower asset impairments and COVID-19-related delays to restructuring programs. As a result, trading operating profit increased by 4.1% to CHF 14.2 billion. The trading operating profit margin reached 16.9%, an increase of 220 basis points in constant currency and 210 basis points on a reported basis. Net Financial Expenses and Income Tax Net financial expenses decreased by 14.0% to CHF 874 million, reflecting a reduction in average net debt and a lower cost of debt. The Group reported tax rate increased by 320 basis points to 24.2%, due to exceptional items in 2019, including the divestiture of Nestlé Skin Health. The underlying tax rate decreased by 50 basis points to 21.1%, mainly due to the evolution of the geographic and business mix. Net Profit and Earnings Per Share Net profit decreased by 3.0% to CHF 12.2 billion. The net profit margin increased by 90 basis points to 14.5%, due to one-off items related to gains on disposals, asset impairments, restructuring costs and revaluation of equity investments. 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 was unchanged at CHF 4.30 on a reported basis. Divestitures had a negative impact of 3.5%. Nestlé's share buyback program contributed 1.4% to the underlying earnings per share increase, net of finance costs. Cash Flow Free cash flow decreased from CHF 11.9 billion to CHF 10.2 billion. The reduction was mainly due to the appreciation of the Swiss franc against most currencies and the impact of divestitures. Free cash flow margin decreased by 80 basis points to 12.1%. Free cash flow is expected to remain at around 12% of sales. Working capital(2) decreased by 60 basis points to 0.0% of sales, marking 9 consecutive years of improvement. This reduction came even as the company increased inventory levels materially to meet COVID-19-related demand. _______ (1) Excluding the divestiture of Nestlé Skin Health (2) Calculated on a 5-quarter rolling average Dividend At the Annual General Meeting on April 15, 2021, the Board of Directors will propose a dividend of CHF 2.75 per share, an increase of 5 centimes. If approved, this will be the company's 26th consecutive annual dividend increase. The company has maintained or increased its dividend in Swiss francs over the last 61 years. Nestlé is committed to maintaining this long-held practice to increase the dividend in Swiss francs every year. The last trading day with entitlement to receive the dividend will be April 16, 2021. The net dividend will be payable as from April 21, 2021. Shareholders entered in the share register with voting rights on April 8, 2021 at 12:00 noon (CEST) will be entitled to exercise their voting rights. Share Buyback Program During 2020, the Group repurchased CHF 6.8 billion of Nestlé shares as part of the three-year CHF 20 billion share buyback program that began in January 2020. Net Debt Net debt increased to CHF 31.3 billion as at December 31, 2020, compared to CHF 27.1 billion at the end of 2019. The increase largely reflected share buybacks of CHF 6.8 billion completed during 2020. Return on Invested Capital (ROIC) The Group's ROIC increased by 240 basis points to 14.7%, as a result of disciplined capital allocation and improved operating performance. Portfolio Management Nestlé completed acquisitions and divestments with a total value of around CHF 8.4 billion in 2020. -- Divestments: In January, Nestlé completed the sale of its U.S. ice cream business for USD 4 billion to Froneri. In June, the Group closed the sale of a 60% stake in its Herta charcuterie business to Casa Tarradellas. On December 31, 2020, Nestlé completed the sale of the Yinlu peanut milk and canned rice porridge businesses in China to Food Wise Co., Ltd. -- Acquisitions: In April, Nestlé completed the acquisition of Lily's Kitchen, a premium natural pet food business. Nestlé also expanded its presence in direct-to-consumer meal delivery services through the acquisition of Freshly in the United States in November and the purchase of a majority stake in Mindful Chef in the United Kingdom in December. Nestlé Health Science continues to build its presence and leadership in the field of nutritional science. The Group completed the purchase of the Zenpep business in May, the acquisition of a majority stake in Vital Proteins in July and the purchase of Aimmune Therapeutics in October. On February 17, 2021, Nestlé announced that it had reached an agreement to sell its regional spring water brands, purified water business and beverage delivery service in the U.S. and Canada to One Rock Capital Partners, in partnership with Metropoulos & Co. for USD 4.3 billion. The transaction is expected to close in spring 2021. Zone Americas (AMS) -- 4.8% organic growth: 4.1% RIG; 0.7% pricing. -- North America saw mid single-digit organic growth, with strong RIG and negative pricing. -- Latin America reached high single-digit organic growth, with positive RIG and pricing. -- The underlying trading operating profit margin increased by 40 basis points to 20.5%. Sales Sales Organic UTOP UTOP Margin Margin 2020 2019 RIG Pricing growth 2020 2019 2020 2019 CHF CHF CHF CHF Zone 34.0 37.8 7.0 7.6 AMS bn bn 4.1% 0.7% 4.8% bn bn 20.5% 20.1% Organic growth was 4.8%, with robust RIG of 4.1% and pricing of 0.7%. Divestitures reduced sales by 5.0%, largely related to the divestment of the U.S. ice cream business. Foreign exchange had a negative impact of 9.9%, reflecting broad-based currency depreciations against the Swiss franc. Reported sales in Zone AMS decreased by 10.1% to CHF 34.0 billion. North America posted mid single-digit organic growth, with strong RIG across most product categories. The largest growth contributor was Purina PetCare, which saw strong momentum in e-commerce. Its science-based and premium brands Purina Pro Plan, Purina ONE and Fancy Feast all grew at a double-digit rate. Beverages, including Starbucks products, Coffee mate and Nescafé, posted double-digit growth, supported by a strong innovation pipeline. Frozen food reported high single-digit growth, led by Stouffer's, DiGiorno and Hot Pockets. Home-baking products, including Toll House and Carnation, saw elevated consumer demand. Gerber baby food posted positive growth, based on strong sales development in e-commerce and for the organic range. Water and Nestlé Professional reported a sales decrease, reflecting reduced demand in out-of-home channels during lockdowns. Latin America reported high single-digit organic growth, with positive contributions across geographies and most product categories. Brazil posted double-digit growth, with strong broad-based demand, particularly for Ninho, NAN and Nescafé. Growth in Chile reached a double-digit rate, led by dairy, confectionery and ice cream. Mexico saw mid single-digit growth, supported by La Lechera and Nescafé. By product category, dairy, Purina PetCare, coffee and culinary all posted double-digit growth. Led by Brazil, confectionery reported positive growth reaching a high single-digit rate in the second half. Sales in Nestlé Professional decreased, with growth turning almost flat in the fourth quarter led by delivery businesses and on-the-go products. The Zone's underlying trading operating profit margin increased by 40 basis points. Operating leverage, portfolio management and structural cost reductions more than offset commodity inflation and COVID-19-related costs. Zone Europe, Middle East and North Africa (EMENA) -- 2.9% organic growth: 3.3% RIG; -0.4% pricing. -- Western Europe saw low single-digit organic growth with solid RIG, partially offset by negative pricing. -- Central and Eastern Europe reported mid single-digit organic growth, with strong RIG and negative pricing. -- Middle East and North Africa posted low single-digit organic growth, entirely driven by pricing. -- The underlying trading operating profit margin grew by 50 basis points to 18.6%. Sales Sales Organic UTOP UTOP Margin Margin
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February 18, 2021 01:15 ET (06:15 GMT)