Nestlé (Malaysia) Berhad has an almost fortress-like moat. It is a brand that consumers trust unless they lose their Halal certification which is unlikely. They also sell a wide variety of products ranging from dairy and coffee to confectionery and ice-cream. Their products are almost available anywhere across cities and towns in Malaysia. This reflects their wide distribution network.
Listed on Bursa since 1989, Nestlé Malaysia operates six factories and one distribution centre in Malaysia. It owns more than 30 brands and exports its products to more than 50 countries worldwide. Its business is deep-rooted in Malaysia as observed by MILO celebrating its 70th anniversary in Malaysia in 2020. In fact, Nestlé Malaysia has been operating in the country for more than a century since 1912.
Here are six things I learned from the 2021 Nestlé Malaysia AGM.
1. Revenue dropped marginally by 1.9% year-on-year to RM5.4 billion in 2020 because of the impact of COVID-19 on the company’s out-of-home segment. Ready-to-drink sales in places like restaurants and highway rest stops declined because of the various forms of movement restrictions implemented across 2020.
Net profit excluding one-off items suffered a larger drop at 14.9% year-on-year to RM548.6 million because of additional COVID-19 related expenses. Seventy-five million ringgit was spent on workforce protection and pandemic relief efforts. In 2020, 20.3% of its revenue came from the overseas market. Dividend per share dropped from RM2.80 in 2019 to RM2.32 in 2020.
2. Revenue from e-commerce channels grew 26% year-on-year in 2020 due to the lockdowns, according to CEO Juan Aranols. Its revenue contribution to remained small at 4% in 2020, compared to 3% in 2019.
Nestlé Malaysia continues to collaborate with artists and social influencers to reach out to more consumers (especially youngsters). It has ramped up its digital presence to actively engage consumers through social media. Nestlé was the best-selling brand among F&B players on Singles’ Day in 2020 across Lazada and Shopee. Its partnership with these platforms including FoodPanda will continue to stay.
Offline retailers like supermarkets, coffee shops, mamak shops, and eateries remain important to Nestlé Malaysia as they made up more than 90% of its total revenue in 2020. It donated RM5 million to these retailers to help keep their businesses afloat during the crisis.
3. Nestlé Malaysia continues to release new products that capture consumers’ hearts. To support local farmers, the company launched Kopi Kedah — is a limited-edition product that contains only Malaysia-grown coffee beans. It also released new product variants with less added sugar and more fibre content like MILO ACTIV-GO Plus Fibre to satisfy the needs of health-conscious consumers.
4. In 2020, the company recorded a capital expenditure of RM295 million, the highest since 2015. Approximately RM150 million was incurred on its recently launched pioneering plant-based meal solutions manufacturing facility in Shah Alam, Selangor. The facility has an annual production capacity of 8,000 MT. The expansion is to capture the growing niche demand for alternative meat. The vegan-friendly product is positioned as a healthier choice since it is cholesterol-free and has low fat content.
Company secretary Tengku Ida Adura Tengku Ismail shared that the revenue contribution of the product will grow but likely remain small over the next five years. The company has also concluded its expansion of its MAGGI noodles manufacturing line in Batu Tiga, Selangor as domestic and overseas demand for the products grow.
5. Nestlé Malaysia has pledged to make its packaging 100% recyclable or reusable by 2025 instead of being landfilled. Plastics packaging currently makes up of 20% of its total packaging while two-thirds of the plastic packaging is fully recyclable. For all of its ready-to-drink UHT products, plastic straws have been replaced by paper ones. It has also eliminated certain empty spaces in its product packaging to save materials and costs. The management believes much can be done in terms of promoting responsible use of packaging given its vast base of consumers.
The company also partnered with the Petaling Jaya City Council to organise a kerbside collection recycling programme for two townships in Petaling Jaya, Selangor. That shows how popular Nestlé products are among Malaysian consumers and households. It is the leader in the fast-moving consumer goods segment and the F&B industry in Malaysia with a 15% market share, dwarfing its closest competitor that has half Nestlé’s market share.
6. The management does not intend to downsize its Malaysian business operations. The business affirms its long-term commitment in Malaysia by investing about RM300 million in capital expenditure in 2021 and providing more job opportunities to people.
The fifth perspective
Nestlé Malaysia is one of the top five Malaysian stocks that has paid a growing dividend between 2010 and 2019. However, its business is not immune to the challenging environment, and the company trimmed its dividend in FY2020 due to the pandemic.
At the same time, Nestlé Malaysia remains a fundamentally sound company with strong brand equity and wide distribution network across Malaysia and the region. The company will almost certainly be able to weather the uncertain climate given its dominant position in the consumer staples industry.
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