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Nestlé has reported strong annual growth in 2021, driven by continued retail growth and a recovery in out of home, though profit margins were hit by cost inflation. 

The globe’s largest food group said organic growth in its full year reached 7.5%, with internal volume growth of 5.5% and pricing of 2%.  

It said overall growth was supported by continued momentum in retail sales, steady recovery of out-of-home channels, increased pricing and market share gains. 

Although pricing was outstripped by volume, pricing increasing 3.1% in the fourth quarter to offset significant cost inflation. 

Total reported sales increased by 3.3% to CHF87.1bn, with foreign exchange reducing sales growth by 1.3% and net divestments by 2.9%. 

Nestlé said growth was broad-based across most geographies and categories. Organic growth reached 7.2% in developed markets, the highest level in more than a decade, based mostly on organic growth with positive pricing.  

Organic growth in emerging markets was 7.8%, with robust volume growth and positive pricing. 

By product category, the largest contributor to organic growth was coffee, fuelled by strong momentum for the three main brands Nescafé, Nespresso and Starbucks. Sales of Starbucks products grew by 17.1% to reach CHF 3.1bn, generating over CHF1bn of incremental sales compared with 2018.  

Purina PetCare posted double-digit growth, led by science-based and premium brands Purina Pro Plan, Fancy Feast and Purina ONE, as well as veterinary products.  

Prepared dishes and cooking aids reported high single-digit growth, based on strong sales developments for Maggi, Stouffer’s and Lean Cuisine.  

Sales in vegetarian and plant-based food grew at a double-digit rate, reaching around CHF 800m, while Nestlé Health Science recorded double-digit growth reflecting strong demand for vitamins, minerals and supplements, as well as healthy-aging products.  

Dairy saw mid single-digit growth, sales in confectionery grew at a high single-digit rate and water posted high single-digit growth, driven by premium brands and a recovery in out-of-home channels.  

Only infant nutrition reported negative growth, impacted by a sales decline in China and lower birth rates globally. 

By channel, organic growth in retail sales was 6.4%. E-commerce sales grew by 15.1%, reaching 14.3% of total group sales, with strong momentum in most categories, particularly Purina PetCare, coffee and Nestlé Health Science. Organic growth in out-of-home channels reached 24.5%, helped by a low base of comparison due to the pandemic. 

However, underlying trading operating profit increased by a more modest 1.4% to CHF15.1bn as underlying trading operating profit margin decreased by 30 basis points to 17.4%, reflecting time delays between cost inflation and pricing actions.  

Gross margin decreased by 130 basis points to 47.8%, reflecting significant broad-based inflation for commodity, packaging, freight and energy costs. The impact of cost inflation, which increased strongly in the second half, was partly offset by price increases, operating leverage and efficiencies. 

Looking forward, Nestlé expects organic sales growth around 5% and underlying trading operating profit margin between 17.0% and 17.5%.  

It forecast more sustained mid single-digit organic sales growth accompanied by moderate underlying trading operating profit margin improvements.  

Mark Schneider, Nestlé CEO, commented: “In 2021, we remained focused on executing our long-term strategy and stepping up growth investments, while at the same time navigating global supply chain challenges. Our organic growth was strong, with broad-based market share gains, following disciplined execution, rapid innovation and increased digitalization. We limited the impact of exceptional cost inflation through diligent cost management and responsible pricing. Our robust underlying earnings per share growth shows the resilience of our value creation model. The entire Nestlé team demonstrated exemplary perseverance and agility in a challenging environment. 

“The evolution of our portfolio continued, focusing on categories with attractive growth opportunities and differentiated offerings. Recent examples include the acquisition of the core brands of The Bountiful Company and the divestiture of the mainstream water brands in North America. 

“We continued to create value for our shareholders through disciplined capital allocation, steadily increasing dividends and significant share buybacks. Going forward, we are confident in the strength of our value creation model.” 

The group’s shares are up 0.2% to CHF117.48 so far this morning.

Morning update 

Ocado Group and French grocery giant Groupe Casino have announced the an agreement to extend their partnership to create a new joint ventre to support the development and management of single or multi-tenanted CFCs in France. 

Underpinned by the success of their partnership and expanding operations in Ile-de-France, the pair said they believe there is significant and growing demand for online grocery services across the French market, creating a “huge opportunity to leverage their combined expertise”. 

The JV will draw on the combined strengths of Ocado and Groupe Casino to provide logistics services for future CFCs, including project management for CFC construction and set-up, as well as the recruitment and operations management of personnel. 

Alongside the JV, Ocado Solutions will offer its automated fulfilment and software solutions to all grocery retailers in the French market, with OSP capacity in the future CFCs available to multiple grocery retailers, including Groupe Casino itself.  

Alongside the creation of the new JV, Groupe Casino will shortly expand its deployment of Ocado’s solutions to include the use of Ocado’s in-store fulfilment software across the Monoprix store estate. 

Additionally, Ocado will integrate Octopia, the marketplace platform launched by Cdiscount into the Ocado Smart Platform, bringing new flexibility and functionality to its global partners.  

The agreement between Ocado and Cdiscount also provides a preferential option for Ocado to buy Octopia shares in the event of future fundraising.  

Ocado CEO Tim Steiner said: “The online grocery channel in France has reached an inflection point, with a huge rise in demand for compelling, affordable and efficient grocery ecommerce propositions. Our growing partnership and live operations in Ile-de-France have set the highest bar for the experience French consumers can expect in online grocery.” 

 “This announcement marks a deepening of the relationship between Groupe Casino and Ocado Group, and it will further support the capital light expansion of our partnership into other French regions. For the first time, it will also open up the whole of the French grocery market to Ocado’s solutions.” 

“Additionally, by integrating the Octopia marketplace into our end-to-end smart platform, we are bringing more proven, market-leading flexibility to our partners’ online ecosystems.” 

Jean-Charles Naouri, Groupe Casino, added: “Casino Group is pleased to announce this new agreement with Ocado Group. This partnership illustrates our ability to once again revolutionize the way of disrupting the online grocery market. 

“After having experienced the success of the Ocado solution with Monoprix Plus, Casino Plus and Naturalia Marché Bio, the French consumers will be able to benefit from new, even more efficient e-commerce services, making their daily needs even easier.” 

Elsewhere this morning, Reckitt Benckiser has grown full year sales, but margins have been hit by “unprecedented” inflationary pressures. 

Group net revenue for 2021 was up 3.5% on a like for like basis to £13.2bn, reflecting volume growth of 0.6% and price/mix improvements of 2.9% and excluding its infant nutrution business, which it agreed to sell in June last year. 

In the fourth quarter it grew by 3.3% on an LFL basis, driven by 17.5% growth in its health business and over 40% in its OTC portfolio, with a strong start to the ’flu season, a continued strong performance from our Intimate Wellness portfolio and stabilisation in Dettol. 

Total annual net revenue at actual exchange rates was down 5.4%, reflecting net M&A impact of -3.8% and foreign exchange headwinds of 5.1%. 

Overall organic growth was driven by strong growth in hygiene, particularly in North America.  Lysol saw good growth off the back of an outstanding 2020, as core consumption remained strong, and we gained further penetration in the laundry sanitiser segment. 

The two-year stacked like for like net revenue growth for 2021 for the group was 17.4% compared to pre-Covid 2019, driven by two year 27% growth in hygiene, and 12% and 6% in health and nutrition, respectively. 

During the year, COVID continued to impact net revenue. Around 70% of Reckitt’s portfolio, representing brands less sensitive to COVID dynamics, grew mid-single-digits.  The remaining 30% of the portfolio which includes Lysol, Dettol and our cold and flu brands (Mucinex, Strepsils and Lemsip) have been more volatile reflecting fluctuations in COVID related demand. 

However, adjusted gross margin (excluding IFCN China) fell b back to 58.5% from 60.5%, with the 200bps reduction in gross margin principally driven by 11% cost inflation, partially mitigated by productivity initiatives and pricing and mix. 

Adjusted operating profit (excluding IFCN China) was down to £2.9bn from £3.2bn at an adjusted operating margin of 22.9% - in line with our guidance. 

CEO Laxman Narasimhan commented: “Our journey to rejuvenate sustainable growth is well on track as evidenced by strong LFL growth of 3.5% in 2021, building on the outstanding growth in 2020, for a two-year stack of 17.4%. 

“Over the last two years, we’ve significantly strengthened our business. Our innovation pipeline is 50% larger, our brands are stronger and more relevant, and our ability to serve our customers and consumers is greatly improved. We’ve taken Reckitt’s strong performance-driven culture, with its unique sense of ownership, and are evolving it for the better. We’ve also been active in managing our portfolio, repositioning for faster growth. 

“The business is showing positive momentum with 62% of our core CMUs holding or gaining share, underpinned by the investments we have already made.  We are therefore targeting both growth in LFL net revenue and an increase in adjusted operating margin in 2022, despite an unprecedented inflationary environment and ongoing uncertainties created by COVID. 

“We have a unique portfolio of trusted, market-leading brands in structurally attractive categories with significant headroom for growth. This, combined with our progress to date, gives me the confidence in both our near term and medium-term prospects.” 

On the markets this morning, the FTSE 100 is down 0.4% to 7,570.2pts so far.

Early risers include Reckitt Benckiser, up 5% to 6,097p, Deliveroo, up 2.8% to 140.9p and Just Eat, up 2.6% to 3,385p.

Fallers include Imperial Brands, down 3.2% to 1,748.2p, C&C Group, down 1.6% yo 217p and SSP Group, down 1.3% to 293.3p. 

Yesterday in the City 

After Monday’s heavy falls and Tuesday’s rebound, the FTSE 100 settled yesterday, edging down 0.1% to 7,603.8pts. 

The day’s fallers included Bakkavor, down 5% to 121p, THG, down 2.6% to 119p, Deliveroo, down 2.5% to 137p, Virgin Wines, down 2.3% to 147.5p, Diageo, down 2.1% to 3,605p and Compass Group, down 2% to 1,779p. 

Risers included Hilton Food Group, up 4.3% to 1,068p, Just Eat, up 2.1% to 3,298p, Tate & Lyle, up 1.8% to 769.2pp, Glanbia, up 1.8% to €12.60 and Kerry Group, up 1.6% to €109.30.