Message to Shareholders (Annual Report 2015)

Alois Hofbauer & Dato Sri Dato' Seri Syed Zainol Anwar Jamalullail From left: Y.A.M Tan Sri Dato' Seri Syed Anwar Jamalullail, Chairman and Alois Hofbauer, Chief Executive Officer - Nestlé (Malaysia) Berhad
Thank you to our people for delivering our commitments




On behalf of the Board of Directors, we are pleased to present the Annual Report of Nestlé (Malaysia) Berhad for the financial year ended 31 December 2015.

PERFORMANCE OVERVIEW

The year 2015 was indeed challenging, with various market conditions weighing down Malaysia’s economy and impacting consumers. This included the implementation of Goods and Services Tax (“GST”) and rising living costs, as well as the depreciation of the Ringgit and the sluggish overall global economy. Amidst this tough economic backdrop, the Company was able to leverage on our solid fundamentals and resilient nature to deliver growth in 2015.

Despite the adverse environment, we started off on a strong note and continued to record stable results throughout the year, propelled by the domestic market which was driven by various consumer-oriented initiatives and campaigns. Coupled with our well-established portfolio of Nestlé brands, we were able to reinforce our role as a leader in Nutrition, Health and Wellness in the Malaysian market.

As a proactive step to mitigate uncertainty over price movements prior to the implementation of GST, the Company launched the ‘Lebih Nilai, Lagi Hebat’ nationwide promotional campaign during the first quarter of the year. As the biggest promotion in the Company’s history, this was part of our ongoing efforts to reward our consumers with greater value for their favourite Nestlé products, even during difficult times. The campaign was a key contributor, delivering solid growth for major product categories.

Following this, due to the implementation of GST in April 2015, the second quarter saw a slowdown as turnover was impacted on the back of softened consumer sentiment, leading to a marginal drop of 2.0% in domestic sales. This was expected as consumers underwent a period of adjustment following the on set of GST. Overall however, we recorded an improved operating profit in the first half of the year, indicating the healthy development of the Group’s profit structure.

The third quarter also saw improved turnover and profitability on the back of our successful ‘Lagi Sihat, Lagi Happy’ consumer campaign, along with other marketing and promotional activities. Reflecting the Company’s core mission to bring ‘GOOD FOOD, GOOD LIFE’ to all, the ‘Lagi Sihat, Lagi Happy’ campaign was part of our ongoing drive to provide even greater value to Malaysians while promoting healthier lifestyles.

In tandem with this, we implemented other initiatives including the MILO Malaysia Breakfast Day Run across three cities – Kuching, Ipoh and Putrajaya. Activities such as these further strengthened the Group’s position as the overall market leader.

Along with consumer campaigns, the Company also continued to invest in the innovation and renovation of our product portfolio. New product innovations in 2015 were key business drivers, contributing to the Company’s overall turnover development. Significant achievements for Nestlé Malaysia during the year include MILO NUTRI G drink, the world’s first MILO drink with healthy whole grains, NESCAFÉ BLEND & BREW coffee, the first in the world to offer consumers a perfect combination of freshly brewed café-style coffee with milk, as well as the world’s first Halal-certified KIT KAT Green Tea.

Other new products that were successfully launched in 2015 included NESTLÉ OMEGA PLUS Ready-to-Drink milk with ACTICOL plant sterol to help Malaysians better manage cholesterol, NESCAFÉ MOUNTAIN WASH coffee, MAT KOOL BUTTERFLY ice confection, MAGGI LETUP noodles, MAGGI Mi Kolo noodles, and new additions to the MAGGI ROYALE premium range, Johor Seafood Laksa and Sarawak Sambal Laksa.

In the domestic market, our marketing and promotional initiatives in tandem with new product launches resulted in market share growth and drove our performance in the third quarter, despite tough external conditions and subdued consumer sentiment.

From an input cost perspective, commodities prices in 2015 were more favourable overall compared with the previous year. Together with our proactive and sustainable cost management along the value chain via the Nestlé Continuous Excellence platform, we were able to strengthen market position for our brands.

For the financial year ended 31 December 2015, the Company recorded an improved Profit After Tax of RM591 million, a 7.3% increase compared with last year. The total turnover of RM4.8 billion represents a 0.6% increase against the previous year.

OPERATIONAL DEVELOPMENTS

Nestlé is committed to scaling up our operational capabilities in the Malaysian market, in order to tap into the country’s long-term prospects. As testament to this, in October 2015, we launched our eighth factory in the country, the Sri Muda Factory, producing Ready-to-Drink (“RTD”) products such as MILO NUTRI G drink, NESCAFÉ coffee and NESTLÉ OMEGA PLUS UHT Milk.

Boosting our RTD capacity by 60%, Sri Muda is part of our long-term growth strategy to enable us to tap into the fast growing area of RTD in the domestic and export market. This latest factory makes the Nestlé Shah Alam Manufacturing Site one of the largest in the country and in the Nestlé world.

We also launched the MAGGI high output noodle line, which is an expansion of our existing Batu Tiga factory. Incorporating advanced technology for end-to-end automation, the new line has a production capacity of 20,000 metric tonnes per year, extending our existing capacity by approximately 30%. It is also the biggest noodle factory in Malaysia.

CORPORATE GOVERNANCE

In line with Main Market Listing Requirements (“Listing Requirements”) of Bursa Malaysia Securities Berhad (“Bursa”) and Malaysian Code on Corporate Governance 2012 (“MCCG”), good governance enables us to uphold the trust of our stakeholders. Towards this end, our Corporate Governance &
Financial Report 2015 highlights the Company’s Board of Directors (“Board”) responsibilities towards ensuring good governance as per Bursa Malaysia’s standards and regulations, as well as established best practices within the Nestlé (Malaysia) Berhad group of companies (“Group”).

As a responsible corporate citizen, we believe that transparency is an important value across our organisation, including activities related to corporate social responsibility, known as, Creating Shared Value (“CSV”), which is our way of doing business. Over the past four years, we are pleased to note that our standalone CSV reports and the accompanying Nestlé in Society Report 2015 have been externally verified; reflecting our commitment to providing full disclosure and transparency throughout our reporting process.

CREATING SHARED VALUE

As a leading Nutrition, Health and Wellness company, we believe that in order for us to create long-term value for our shareholders, it is imperative that we create value for the communities in which we operate.

The Company focuses on three pillars which have the greatest potential for joint value creation with society: Nutrition, Water & Environment and Rural Development. As fundamental areas which are core to our business strategy and operations, these pillars are also part of our sustainability commitments which we aim to uphold and protect for generations to come.

In line with Nestlé’s commitment to encouraging healthier eating and active lifestyles among children, we established the Nestlé Healthy Kids Programme (“NHK”). NHK consists of two components: the primary school programme, known as the Nestlé Healthy Kids Programme and the secondary school programme, Program Cara Hidup Sihat (“PCHS”).
In 2015, the Company held its second year of its NHK Trainthe- Trainer workshop. This workshop educated teachers and wardens from primary day-boarding schools in Sabah and
Sarawak on early age inculcation, with various modules on nutrition and physical activity. The teachers are then able to implement these modules in their respective schools.

During the year, we also commemorated the official conclusion of PCHS, a three-year intervention programme which was held with the aim of improving knowledge, attitude and practice of healthy lifestyles among secondary school students through Healthy Eating & Be Active Among Teens (“HEBAT”) modules. With the official conclusion of PCHS, the top 10 best-performing schools were rewarded with an outdoor gym set installation worth RM15,000. To date, the NHK Programme in Malaysia has benefitted approximately 10,000 students nationwide.

As part of our dedication to environmental sustainability, the Company made the commitment to purchase 100% renewable electricity energy within the shortest practical time in 2015. This is aligned with the 21st Conference of the Parties (“COP 21”) to the United Nations Framework Convention on Climate Change in December 2015.

In addition, we also believe in empowering rural communities, as reflected through the Nestlé Chilli Club (“NCC”) contract farming scheme. The NCC was established with the aim of improving yields and quality of crops among local farmers to meet global standards, while alleviating poverty among the local farming community. In 2015, we launched Kebun Dapur MAGGI, an expansion of the NCC. The one-acre farm dedicated to innovative research and development initiatives was established to encourage sustainable and holistic farming practices. A more detailed account of our CSV initiatives can be found in the accompanying Nestlé in Society Report 2015.

RECOGNITION AND AWARDS

Throughout the year, our firm commitment to making a positive difference in society via our CSV initiatives has earned the Company recognition and accolades from the industry. Among the awards which the Company received include Runner-Up in PricewaterhouseCoopers’ (“PwC”) inaugural Building Trust Awards and ‘Exceptional Achievement in Environmental Performance’ in the Prime Minister’s Hibiscus Awards. In addition, our popular brands such as NESCAFÉ, MILO and MAGGI won several awards in the Putra Brand Awards 2015, under the People’s Choice category.

DIVIDENDS

We are committed to delivering the best value to our shareholders via consistent dividend payments. In line with this, the Board of Directors proposed a final dividend of RM1.10. A special dividend of RM0.20 per share was also proposed. Including the interim dividends paid, this will bring total dividends for the year to RM2.60 per share.

OUTLOOK FOR 2016

In the face of tough economic headwinds during the year under review, the Group recorded a solid performance in 2015, building on our strong foundation. Moving into 2016, we have adopted a cautious approach given that market conditions are set to remain volatile, coupled with reduced consumer confidence as a result of the GST implementation. Furthermore, commodity prices are expected to see an increase and prices of raw materials could also be further impacted by the depreciation of the Ringgit.

While we do not foresee an easy year ahead, as a resilient Group with a proven track record, we are well-positioned to weather these challenges. Malaysia is one of the top five markets for Nestlé in Asia, and we remain positive on the middle to long-term prospects for the country.

As we move forward, we will continue to innovate and renovate our product portfolio to cater to evolving consumer preferences, providing Malaysians with great value for our wide range of great-tasting, high quality, nutritious products. The launch of our Sri Muda Factory will also enable us to explore new opportunities in the growing Ready-to-Drink segment, which bodes well for the Group.

We have been successful as a company in Malaysia for over a hundred years, and next year will mark the 150-year milestone for Nestlé, globally.  Ultimately, we are committed towards maintaining our business strategy of prudent cost management, coupled with proactive investments for the future. Through steady and continuous investments over the long-term and delivering solid results over the short-term, we are confident that we will able to capitalise on the vast opportunities in Malaysia.

APPRECIATION

The Board would like to extend its deepest appreciation to the management team for their dedication and commitment in driving the Company forward. Our sincere thanks also goes to all employees as well for playing an important role in ensuring that the Company continues to be the nation’s leading Nutrition, Health and Wellness Company. We would also like to express our gratitude to our consumers, partners, distributors and customers or their support and loyalty to our Company and brands.


Thank you.

Tan Sri Dato' Seri Syed Zainol
Anwar Jamalullail

Chairman

Alois Hofbauer
Chief Executive Officer - Nestlé (Malaysia) Berhad