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Nestlé has targeted margin improvement in 2023 despite ongoing cost inflation after soaring input costs dented profitability in 2022.

The world’s largest food group posted organic growth of 8.3% in the year, almost wholly driven by price hikes as volumes grew by just 0.1%.

Organic growth was 7.1% in developed markets, driven by pricing, while growth was 10% in emerging markets, supported by pricing and volume growth.

By product category, Purina Petcare was the largest contributor to organic growth.

Sales in coffee grew at a high single-digit rate, with broad-based growth across brands and geographies, supported by a strong recovery of out-of-home channels. Sales of Starbucks products grew by 12.9% to reach CHF3.6bn.

Infant Nutrition saw double-digit growth, with broad-based contributions across geographies and brands. confectionery posted high single-digit growth, dairy reported mid single-digit growth, water recorded double-digit growth, while prepared dishes and cooking aids posted low single-digit growth.

Sales in vegetarian and plant-based food grew at a mid single-digit rate. Garden Gourmet in Europe continued to see double-digit growth, while sales for Sweet Earth in North America were impacted by SKU optimisation.

Total reported sales increased by 8.4% to CHF94.4bn, with net acquisitions having a positive impact of 1.1% and foreign exchange decreasing sales by 0.9%.

Underlying trading operating profit increased by 6.5% to CHF16.1bn during the year.

Underlying trading operating profit margin decreased by 30 basis points to 17.1% on a reported basis and by 40 basis points in constant currency, reflecting significant cost inflation.

Gross profit margin decreased by 260 basis points to 45.2%, following significant broad-based inflation for commodity, packaging, freight and energy costs. The impact of cost inflation increased in the second half, reflecting higher costs for dairy, cereals and energy. Pricing, growth leverage and efficiencies helped to partly offset the impact of cost inflation.

For 2023 the group expects organic sales growth between 6% and 8% and underlying trading operating profit margin between 17% and 17.5%.

By 2025 it expects growth to have stabilised to “sustainable mid single-digit organic sales growth”, while underlying trading operating profit margin will have improved to a range of 17.5% to 18.5%.

Mark Schneider, Nestlé CEO, commented: “Last year brought many challenges and tough choices for families, communities and businesses. Inflation surged to unprecedented levels, cost of living pressures intensified, and the effects of geopolitical tensions were felt around the world.

“The entire Nestlé team demonstrated dependability, as we navigated this difficult environment. Organic growth was solid, margins continued to be resilient, and our underlying earnings per share development was strong. At the same time, we ensured access to nutritious products and affordable offerings globally.

“During 2022, we also confirmed our long-standing nutrition strategy, with Good for You, Good for the Planet at its heart. We took important actions to further strengthen our industry-leading responsible marketing practices and to provide transparency on the nutritional value of our global portfolio. At the same time, we also advanced the implementation of our climate roadmap.

“Looking to 2023, we expect another year of robust organic growth, with a focus on restoring our gross margin, stepping up marketing investments and increasing free cash flow. Nestlé’s value creation model puts us in a strong position to achieve our 2025 targets and to generate reliable, sustainable shareholder returns.”

The group’s shares have fallen 0.7% to CHF109.94 this morning.

Morning update

UK and European Coke bottler Coca-Cola Europacific Partners has posted a strong rebound in annual sales growth as out of home consumption recovered post-Covid.

Comparable volume was up 9.5% in the year (and up 3.5% against pre-Covid-19) driven by solid recovery of away from home and continued growth in home across the group’s markets.

Comparable volumes were up 18.5% out of home to recover to broadly the same level as pre-pandemic 2019, with the recovery reflecting fewer restrictions, increased mobility, the return of tourism and favourable weather in Europe.

Home was up 4% (up 6.5% again 2019) supported by recovery of immediate consumption packs and sustained growth in key future consumption packs.

Revenue per unit case was up 6%, reflecting positive pack and channel mix driven by the recovery of out of home, promotional optimisation and favourable headline price following the successful implementation of dynamic pricing strategies across its markets.

On a reported basis sales were up 26% to €17.3bn, boosted by the May 2021 acquisition of Coca-Cola Amatil.

In the fourth quarter comparable volumes were up 1.5% despite disruption related to a customer negotiation in the home channel and cycling tougher comparables.

In GB Q4 volume reflected sustained trading momentum in the away from him channel. The solid recovery of this channel, supported by favourable weather & increased domestic tourism and further growth in the Home channel supported double-digit full-year volume growth versus 2019.

Coca-Cola Zero Sugar, Fanta, Monster & Dr Pepper outperformed versus 2019 in both Q4 & full year.

Overall recent trading has indicated no significant change in underlying consumer demand, the group said.

Comparable operating profit of €2.14bn was up 12.5%, reflecting increased revenue and the benefit of ongoing efficiency programmes (with over 90% delivered of multi-year €375m programme).

CEO Damian Gammell said: “2022 was a very successful year, our first as Coca-Cola Europacific Partners. This is testament to the hard work of our colleagues to whom we are extremely grateful. Our focus on well invested and winning brands across our broad pack offering, great in-market execution and price and promotion strategy served us well.

“We benefited from the continued recovery of the away from home channel and the return of travel and tourism with further growth in the home channel. Combined with our ongoing focus on efficiency, this delivered strong top and bottom-line growth, value share gains and generated solid free cash flow.

“We continue to be a great partner for our customers, a great place to work for our colleagues whilst making further progress against our sustainability commitments – more of our sites went carbon neutral, we switched logistics to lower carbon alternatives and invested in recycling facilities.

“We remain confident in the future, despite a dynamic outlook, and we continue to invest for the longer-term, evidenced by the minority buyout of our exciting Indonesian market. Our clear strategy, strong brand partner relationships and great people will ensure we continue to create sustainable value for all our stakeholders. We have the platform and momentum to go even further together for a greater future.”

French spirits group Pernod Ricard has posted organic sales growth of 12% (19% reported) in the first half of its financial year to €7.12bn.

It said organic sales growth was broad-based across all regions, with Americas up 7% driven by the US and favourable phasing in Brazil and Canada.

Asia-RoW was up 18%, with excellent growth driven by India, Turkey, Travel Retail and South East Asia recovery.

Europe was up 6% thanks to a very strong performance with Western Europe and travel retail.

All spirits segments are growing double-digit, with strategic international brands up 13%, strategic local brands 13%, specialty brands 14%, but strategic wines down 2% with softness seen mostly in the UK.

Strong broad-based was up 10%, thanks to strong brand equity. Further price increases are planned in second half.

First half operating profits reached €2.4m, organic growth of 12% with broadly stable organic operating leverage.

For the rest of the year Pernod guided to broad-based net sales growth, albeit in a normalising environment, and a continuing focus on revenue growth management and operational efficiencies to offset cost pressure.

Alexandre Ricard, chairman and CEO stated: “Our first-half performance was very strong, marked by broad-based and diversified growth across all regions and categories. In addition, particularly strong pricing dynamic illustrates the attractiveness of our portfolio of premium brands and enabled us to sustain margins in an inflationary context.

“We will continue to invest behind our brands, our group-wide transformation and S&R strategy, deliver operational efficiencies and prepare for exciting future growth opportunities. I expect this dynamic growth to continue through FY23 albeit in a normalising environment, demonstrating the strength of our strategy and the agility, dedication and exceptional engagement of our teams around the world.”

Kerry Group has reported doublt-digit revenue and profit growth as pricing and volume growth boosted performance.

Sales for the year increased by 19.3% to €8.8bn, reflecting volume growth of 6.1%, increased pricing of 11.7%.

Headline results also reflect favourable transaction currency of 0.2%, favourable translation currency of 6.8% and contribution from business acquisitions of 4.3%, partially offset by the impact of business disposals of 9.8%.

Group EBITDA increased by 12.9% to €1.2bn, with an EBITDA margin of 13.9% down from 14.7% last year, as the dilution from the impact of passing through input cost inflation was partially offset by accretion from portfolio developments, operating leverage, mix and efficiency initiatives.

The overall demand environment remained robust through the year despite the macroeconomic backdrop. Consumers continued to seek new taste experiences, cleaner labels and added functional benefits through food and beverages.

The cost of living crisis has resulted in many consumers looking for relative value options to meet their purchase preferences, depending on their available resources, Kerry said.

Looking forwards, while market conditions are currently uncertain, Kerry said it remains strongly positioned for growth ahead of its markets.

The group will continue to manage input cost fluctuations with its well-established pricing model as well as continuing to invest capital aligned to its strategic priorities and strategically evolve its portfolio.

In 2023, the group expects to achieve 3% to 7% adjusted earnings per share growth on a constant currency basis, before an expected 2% dilution in the year from the potential sale of its sweet ingredients portfolio.

CEO Edmond Scanlon commented: “As we marked Kerry’s 50th year in 2022, we achieved record organic revenue growth against the backdrop of an exceptionally dynamic operating environment. I am proud of the broad-based volume growth we delivered across our end use markets, channels, regions and emerging markets despite the macroeconomic conditions. Our teams worked closely with our customers to actively manage through the inflationary environment, while continuing to innovate and develop their offerings to meet evolving marketplace needs.

“We made good strategic progress in the year through development of our innovation platforms, footprint expansion and continued portfolio development. We completed a number of acquisitions aligned to our strategic priorities of Taste, Nutrition and Emerging Markets, and since year-end we announced the potential sale of our Sweet Ingredients Portfolio, as we continue to enhance and refine our business to areas where we can add most value.

“While recognising the current market uncertainty, we believe we are strongly positioned to continue to grow our business through this period.”

Finally this morning, travel food specialist SSP Group has issued a trading update for the first four months of its 2023 financial year up to 31 January 2023.

It said its new financial year had started well with group sales of £871m representing a strengthening of performance to 103% of 2019 levels and with revenues tracking above 2019 levels in North America, Continental Europe and the Rest of the World.

This revenue performance includes the benefit from net contract gains as the group accelerates the mobilisation of its significant contract pipeline, in addition to price increases compared to the same period in 2019.

The “encouraging” revenue performance has been driven by a further recovery in passenger numbers, led by strong leisure travel demand over the extended holiday season.

Momentum continued through the autumn and into the winter, demonstrating a resilience to the broader pressures on consumer spending. Business and commuter travel also continued to recover, albeit at a slower pace.

The group said it has also continued to make progress extending and renewing contracts as well as winning new business, including in North America as well as in India, Malaysia and Thailand.

Approximately two thirds of sales from net new business openings in its secured pipeline are expected to come from the North America and Rest of World regions.

Despite the impact of industrial action in the UK rail network, strong trading across our other regions means group performance remains on track against the planning assumptions outlined for 2023.

It is on course for revenues to be in the region of £2.9bn-£3.0bn with corresponding EBITDA in the region of £250m-£280m.

Patrick Coveney, CEO of SSP Group, said: “The strong momentum in performance that we saw across the business in the second half of last year has continued into the new financial year, demonstrating the high quality of our business model. We are making excellent progress against our strategic ambitions and are on track to deliver against the planning assumptions we set at the beginning of the financial year.

“We have headroom for further growth and returns in multiple markets across the world. In particular, we see significant momentum and potential to accelerate expansion across the North America and Rest of World markets where revenues are now growing rapidly and which together are expected to account for approximately 40% of the Group by 2025. In addition to this we continue to expand in a targeted way in the UK, Europe and the Middle East.

“The long-term structural growth in the air and rail travel sectors and the ongoing demand from clients and customers around the world for our brands and food concepts leave us well-placed to create significant value for shareholders for many years ahead. I would like to thank our colleagues, clients and brand partners across the world for the enormous contribution that they make to SSP each and every day.”

On the markets this morning, the FTSE 100 is up another 0.3% to 8,022.6pts.

Risers include Kerry Group, up 3.6% to €90.58, Naked Wines, up 2.4% to 122.8p and PayPoint, up 1.7% to 498.5p.

Fallers include Science in Sport, down 6.7% to 12.6p, Imperial Brands, down 2.8% to 1,994.5p and SSP Group, down 2.3% to 263.3p. 

Yesterday in the City

The FTSE 100 broke through 8,000pts for the first time in its history yesterday, before settling back slightly to close 0.6% up at 7,997.8pts.

Risers yesterday included Just Eat Takeaway.com, up 3.1% to 1,918.8p, Deliveroo, up 2.6% to 91.3p, Pets at Home, up 2.4% to 379p, Ocado, up 2.3% to 634.6p and Bakkavor, up 2.2% to 111p.

The day’s fallers included McBride, down 3.6% to 23p, Naked Wines, down 2.8% to 120p, PZ Cussons, down 2.6% to 188.4p, C&C Group, down 1.4% to 151.9p and Hotel Chocolat, down 1.4% to 220p.

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