Message to Shareholders

Dear shareholders,

Without a doubt, the COVID-19 pandemic has been a highly disruptive force, throwing the world into turmoil in 2020. In this context, Nestlé Malaysia reassessed and redefined our priorities, to weather the business through the storm, whilst making a difference for many by responding as a caring pillar of society.

Through this time of crisis, the Company adopted three non-negotiable priorities: To keep our people and business partners safe; to ensure stable supply of nutritious foods and beverages (F&B) for Malaysians; as well as to actively support the community through an extensive relief programme. While we have not been immune to the challenging environment, our ability to pivot and remain responsive to the needs of Malaysians has enabled us to stand firm, maintain our momentum and deliver on our promise to be a force for good, while delivering a resilient performance.

NAVIGATING AN UNPRECEDENTED LANDSCAPE

The upheaval caused by COVID-19 was indeed extensive, as countries around the world instituted lockdowns to contain the pandemic. These containment measures had a significant impact on global markets and economies, particularly in the first half of the year as many sectors and industries essentially ground to a halt.

In Malaysia, stringent restrictions were enforced under the Movement Control Order (MCO) implemented by the Government to curtail the spread of the pandemic. While F&B manufacturers were considered essential businesses and were allowed to operate under a strict set of safety protocols, consumer demand was disrupted.

Out-of-home F&B channels had to stop operations and suffer a dramatic decline in activity. On the other hand, some categories experienced a boom in in-home consumption which caused tensions on the supply side. The impact to livelihoods was considerable, especially for B40 households and vulnerable communities, with loss of employment and some sectors forced to impose salary reductions to stay afloat.

Out-of-home F&B channels among the most affected by the COVID-19 pandemic.

Given the bleak backdrop, it was crucial for individuals, communities and corporations in Malaysia to unite in a collective effort to ease the burden on those most impacted by the pandemic.

REDEFINING PRIORITIES

In order to protect the Company in an increasingly tough operating environment, while safeguarding the workforce and supporting the community, we rapidly realigned our business strategies in 2020 around three key priorities.

We invested over RM60 million to safeguard our employees and business partners and ensure operational continuity. This comprised provision of personal protective equipment, temporary attendance allowances for employees working onsite during the most critical phase of the first MCO, implementing additional safety protocols and undertaking a proactive COVID-19 antigen testing programme recognised as a best-in-class approach to protect employees even if it came at a high cost.

In our role as an essential supplier of foods and beverages, we put measures in place to ensure our operations remained uninterrupted, in line with the strict guidelines of the Government. This allowed us to continue supplying our consumers with the brands and products that have always been a part of Malaysians’ daily lives.

To help alleviate the socioeconomic burden on Malaysians, we pledged to contribute RM15 million in COVID-19 relief efforts. This included partnering with the Malaysian Red Crescent Society and other organisations to donate food and other necessities to frontliners and people in need, in addition to spearheading a wide range of programmes to uplift the B40 and lower income communities, as well as local F&B operators.

ADAPTING TO THE NEW NORMAL

As we faced evolving market dynamics and shifting consumer needs during the pandemic, our ability to quickly pivot was crucial to maintaining business resilience. This allowed us to respond in meaningful ways and capture new growth opportunities. Adapting to the new normal, we strengthened our engagement with consumers by amplifying our presence leveraging digital communication and engagement for our brand campaigns. Our strong online presence allowed us to capture the shift of consumers into e-commerce, and our brands found multiple creative ways to uplift the spirits of many Malaysians while they stayed home. In addition, we continued to introduce new innovations catering to the preferences of increasingly health-conscious consumers.

ACCELERATING OUR SUSTAINABILITY JOURNEY

We accelerated also our journey towards a greener and more sustainable future while addressing the pandemic’s socioeconomic repercussions. This includes partnering with like-minded public and private stakeholders to achieve transformational changes, innovating new packaging solutions and engaging with communities to promote positive behavioural changes, encouraging collective actions to make a meaningful impact.

EXPANDING OUR PRESENCE

Through 108 years in Malaysia, we take pride in having grown together with the nation. Malaysia also contributes significantly to the Nestlé group and today, we continue to build for the future having invested nearly RM1 billion over the past five years and in 2020, recorded a capital expenditure of RM295 million, marking a six-year high. On top of expanding our manufacturing capacity, we are investing into new categories that are well in tune with consumer trends and will further contribute to a more sustainable future, such as the establishment of a Plant-Based Meal Solutions facility in Malaysia.

[From left] YBhg. Dato’ Mohd Sayuthi bin Bakar, Mayor of Petaling Jaya and Juan Aranols, CEO, at the MoU signing ceremony between Nestlé Malaysia and Petaling Jaya City Council for a pioneering kerbside recycling initiative launched in August 2020.

FINANCIAL PERFORMANCE

2020 constantly tested the mettle and adaptability of companies through a global crisis. Nestlé Malaysia was not immune and our results reflected the crisis in the very important out-of-home sectors, as well as the cost impacts derived from SOPs and other COVID-19 protection measures. We take pride in having protected jobs and income for all our workforce. While financial results were impacted compared to previous years, they remained remarkable on absolute levels, with sales reaching RM5.4 billion as well as solid bottom-line and cash flow performance.

DIVIDEND

Our commitment to delivering shareholder value remained steadfast and we confirmed in 2020 again a healthy dividend payout. The Board of Directors proposed a third interim dividend of RM0.92 per share for the financial year ended 31 December 2020, bringing total dividends for the year to RM2.32 per share, a solid dividend payout despite the volatile climate of 2020.

CORPORATE GOVERNANCE

As we strive to uphold best practices in corporate governance, we welcomed two new Independent Non-Executive Directors to the Board during the year. The appointment of Dato’ Hamidah Naziadin and Datin Sri Azlin Arshad broadened the depth of expertise and brought further diversity to the Board. In light of the MCO situation and the directive by regulatory authorities, we conducted our first virtual Annual General Meeting (AGM) in 2020. This enabled us to fulfil our fiduciary responsibilities while providing an effective digital platform for our shareholders to participate in the AGM from the safety of their homes.

As we made progress towards a greener and more sustainable future, the Group achieved important milestones that both contributed to our environmental commitments as well as made a positive impact on society.

KEY ACHIEVEMENTS

Supporting Malaysians in the wake of COVID-19, we fulfilled our pledge to contribute RM15 million towards pandemic relief efforts undertaken by the Company, including from our brands who adopted a number of community programmes, reaching directly or through charity organisations, over 200,000 Malaysians and their families.

Our largest nationwide campaign to date, Peraduan Nestlé Gaji Seumur Hidup (Nestlé Salary for Life Contest), offered Malaysians amazing prizes to lift spirits in challenging times. We also extended this to vulnerable communities affected by the pandemic, with 17 charitable organisations receiving total cash contributions of RM684,000 from Nestlé Malaysia.

The Malaysian Red Crescent Society was among our key partners engaged to distribute our product donations to families and communities in need throughout the year.

We are pleased to make tangible progress in our sustainability journey, specifically in our mission to reduce our plastic footprint, successfully implementing 100% paper straws across our entire UHT range. This breakthrough achievement can eliminate more than 200 million plastic straws per year. We also reduced the empty space in the packaging of many products in our portfolio, and made progress in the education of the public through a number of pioneering initiatives.

We continued to invest in Malaysia, venturing into an exciting new frontier in the F&B industry by setting up our pioneering manufacturing facility for Plant-Based Meal Solutions. Malaysia will be the host for one of only two Nestlé facilities of this kind in Asia, catering to both domestic and export markets.

The Company was also honoured to be the recipient of several prestigious awards, namely the Graduates’ Choice Award (Employer of Choice for the FMCG category), the M100 Leading Graduate Employers Awards (Employer of Choice for the FMCG category) as well as the National Annual Corporate Report Awards (Platinum Award for Best Sustainability Report).

OUTLOOK

The year 2021 began on an encouraging note, with COVID-19 vaccines progressively being rolled out. While this will certainly have a positive bearing on the solution to the pandemic, we also expect that COVID-19 will weigh significantly throughout the first half of 2021. We also foresee a significant rebound in the prices of many key commodities that anticipates margin tensions which we will continue to do our best to manage.

In the above context, we will continue to focus on ensuring the safety of our people, the continued supply of our products to our customers and will again support vulnerable communities through different programmes and reach new heights in our sustainability journey. We remain focused on driving our business with long term goals and always delivering safe, high-quality nutritional products meeting the taste and other expectations of all Malaysians.

We are truly thankful for the unwavering support of our employees, customers, suppliers, business partners and shareholders. In a turbulent year, the fact that our bond with Malaysians has remained strong is reflective of the trust they continue to place in the Company and our brands, for which we are grateful.

Our gratitude as well goes to the members of the Board, the Management Team and our entire Nestlé family for their dedication to our purpose and values, and for remaining resilient and united through a watershed year.