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Good food, Good life
NHI Group
Annual Financial Report
December 31, 2022
2 Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022
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Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022 3
4 Management Report
9 Responsibility Statement
10 Report of Independent Auditors
Consolidated Financial Statements
16 Consolidated income statement for the year ended December 31, 2022
17 Consolidated statement of comprehensive income for the year ended December 31, 2022
18 Consolidated balance sheet as at December 31, 2022
20 Consolidated cash flow statement for the year ended December 31, 2022
21 Consolidated statement of changes in equity for the year ended December 31, 2022
Notes
22 1. Accounting policies
24 2. Scope of consolidation, acquisitions and disposals of businesses,
and acquisitions of non-controlling interests
28 3. Analyses by segment
32 4. Net other trading and operating income/(expenses)
33 5. Net financial income/(expense)
34 6. Inventories
7. Trade and other receivables/payables
36 8. Property, plant and equipment
41 9. Goodwill and intangible assets
45
10. Employee benefits
52 11. Provisions and contingencies
54 12. Financial instruments
66 13. Taxes
69 14. Associates
15. Cash flow statement
71 16. Transactions with related parties
72 17. Events after the balance sheet date
4 Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022
Management Report
Nestlé Holdings, Inc. (“NHI”) (hereinafter, together with its subsidiaries, referred to as the
“NHI Group”) incorporated in the State of Delaware, United States, is a wholly owned subsidiary
of NIMCO US, Inc., which is an indirect wholly owned subsidiary of Nestlé S.A., incorporated
in Switzerland, which is the holding company of the Nestlé Group of companies (hereinafter,
referred to as the “Nestlé Group”). NHI is the holding company for Nestlé S.A.’s principal
operating subsidiaries in the United States, which include, among others, Nestlé USA, Inc.,
Nestlé Purina Petcare Company, and Gerber Products Company. The NHI Group engages
primarily in the manufacture and sale of food products, pet care products, premium waters,
beverage products as well as nutrition and health science products. These businesses derive
revenue across the United States and in international markets.
Key Figures
In millions of Dollars
2022 2021 Change
Sales 29 848 26 945 10.8%
Cost of goods sold (17 490) (15 303) 14.3%
as a percentage of sales (58.6%) (56.8%)
Underlying Trading operating profit 2 466 1 295 90.4%
as a percentage of sales 8.3% 4.8%
Trading operating profit 2 067 1 100 87.9%
as a percentage of sales 6.9% 4.1%
Net financial expenses (114) (174) (34.5%)
Taxes (461) 60
Profit for the period attributable to shareholders
of the parent (Net profit) 1 127 689 63.5%
as a percentage of sales 3.8% 2.6%
Operating cash flow 1 535 2 044 (24.9%)
as a percentage of sales 5.1% 7.6 %
Capital additions 2 433 2 788 (12.7%)
as a percentage of sales 8.2% 10.3%
The NHI Group has delivered year-over-year improvements in sales in a highly challenging
macroeconomic environment. We are committed to continued execution of cost control and
reduction initiatives and improved operational efficiencies through rationalization of the
underlying structures. We continue to invest in our core brands, enhancing the usage of digital
media. We have made significant progress towards key initiatives related to portfolio
optimization including acquisitions and divestments.
Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022 5
Sales
For the years ended December 31, 2022 and 2021, consolidated sales totaled $29.8 billion and
$26.9 billion, respectively, representing an increase of 10.8%. All segments were favorably
benefited by the list price increases throughout the year to mitigate the adverse impact of
higher commodity prices and steep inflation. The main factors per segment are as follows:
Nestlé USA Brands sales were $12.3 billion and $11.5 billion for the years ended
December 31, 2022 and 2021, respectively. The Beverages category performed well including
Starbucks at-home products, liquid creamers and Nesquik Ready-to-Drink products.
Premium waters experienced positive growth across both the imported international brands
and Essentia. Moderate growth across the baking and frozen prepared meals categories as
a result of tight supply constraints.
PetCare sales were $11.5 billion and $10.0 billion for the years ended December 31, 2022
and 2021, respectively. The sales growth was driven by continued growth in premium dry
dog and wet cat food brands, such as Purina Pro Plan, Fancy Feast, Friskies, and Purina
ONE.
Other businesses sales were $6.0 billion and $5.4 billion for the years ended December 31, 2022
and 2021, respectively. The sales increase was driven by market share recovery for baby food
and the positive impact of Abbott recall for infant formula. Nestlé Professional continued to
experience out-of-home recovery post easing of COVID-19 related restrictions.
Profitability
Trading operating profit was $2.1 billion and $1.1 billion for the years ended December 31, 2022
and 2021, which equaled 6.9% and 4.1% of sales for each year, respectively.
Cost of goods sold was $17.5 billion and $15.3 billion for the years ended December 31, 2022
and 2021, which equaled 58.6% and 56.8% of sales for each year, respectively. The increase
in costs was driven primarily by higher input costs, freight costs, and manufacturing labor
challenges.
Distribution expenses were $3.0 billion and $2.8 billion for the years ended December 31, 2022
and 2021, which equaled 9.9% and 10.4% of sales for each year, respectively. The increase was
mainly attributed to higher fuel cost and was largely offset by savings and favorable product
mix.
Marketing, general and administrative expenses were $3.8 billion and $3.8 billion for the
years ended December 31, 2022 and 2021, which equaled 12.6% and 14.0% of sales for each
year, respectively. Higher employee wages and inflationary increases were mitigated by cost
optimization programs and a higher revenue base.
Royalties to affiliated company were $3.2 billion and $3.8 billion for the years ended
December 31, 2022 and 2021, respectively. 2021 included a one-time payment related to prior
period true ups as a result of revisions to the General Licensing Agreement.
Net other trading expenses were $399 million and $195 million for the years ended
December 31, 2022 and 2021, respectively. The increase was driven by higher impairments,
litigations and onerous contracts and net movement in company-owned life insurance related
investments.
Management Report
6 Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022
Net Profit Margin – Other Items of Note
The net profit was $1.1 billion as compared to $689 million for the years ended December 31, 2022
and 2021 respectively, primarily driven by an increase in operating profit, net of taxes.
Tax expense was $461 million in 2022 as compared to tax income of $60 million in 2021. Taxes
increased mainly due to an increase in profit before taxes. The results of 2021 were favorably
impacted by a reversal of prior years’ tax provisions no longer required.
Cash Flow
Operating cash flow was $1.5 billion and $2.0 billion for the years ended December 31, 2022
and 2021, respectively. The increase in operating profit was offset by a build up of inventory to
support the business growth and a one-time payment related to royalty, resulting in adverse
working capital movements.
Principal Risks and Uncertainties
Risk Management
At the Nestlé S.A. level, the Nestlé Group Enterprise Risk Management (ERM) framework is
designed to identify, assess and mitigate risks in order to minimize their potential impact on
the Nestlé Group, including the NHI Group.
A top-down assessment is performed at the Nestlé Group level once a year to create
a robust understanding of the Nestlé Group’s most significant risks, and to allocate ownership
to drive specific actions. A bottom-up assessment occurs in parallel resulting in the aggregation
of individual assessments by all Nestlé markets and globally managed businesses of the
Nestlé Group. These different risk mappings allow the NHI Group to make sound decisions
on its future operations.
Risk assessments are the responsibility of business line management; this applies equally
to a business or a function, and any mitigating actions identified in the assessments are the
responsibility of the individual line management. If Nestlé S.A. intervention is required,
responsibility for mitigating actions will generally be determined by the Nestlé Group Executive
Board.
The results of the ERM are presented annually to the Nestlé Group Executive Board, half-
yearly to the Audit Committee of Nestlé S.A., and reported annually to the Board of Directors
of Nestlé S.A.
Factors Affecting Results
Maintaining high levels of trust with consumers is essential for the NHI Group’s success. Any
major event triggered by a serious food safety or other compliance issue could have a negative
effect on the NHI Group’s reputation or brand image. The NHI Group has policies, processes,
controls and regular monitoring to ensure high-quality products and prevention of health risks
arising from handling, preparation and storage throughout the value chain.
The success of the NHI Group depends on its ability to anticipate consumer preferences and
to offer high quality, competitive, relevant, and innovative products. The NHI Group’s Nutrition,
Health and Wellness strategy aims to enhance people’s lives at all stages through access to
industry-leading research and development to drive innovation and the continuous
improvement of the NHI Group’s portfolio.
Prolonged negative perceptions concerning health implications of processed food and
beverage categories could lead to an increase in regulation of the industry and may also
influence consumer preferences. The NHI Group has long-term objectives in place to apply
scientific and nutritional know-how to enhance nutrition, health and wellness, contributing to
healthier eating, drinking and lifestyle habits, as well as improve accessibility of safe and
affordable food.
Changing customer relationships and channel landscape may inhibit the NHI Group’s
growth if the NHI Group fails to maintain strong engagements or adapt to changing customer
needs. The NHI Group’s strategy is to maintain and develop strong relationships with
Management Report
Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022 7
customers across the United States to help them win in their respective prioritized categories
where the NHI Group operates.
The NHI Group is dependent on the sustainable supply of a number of raw and packaging
materials. Issues relating to longer-term changes in weather patterns, water shortages, shifts
in production patterns, economic and social inequality in supply chains, etc. could result in
capacity constraints, as well as reputational damage. The NHI Group has policies, processes,
controls and regular monitoring in place which are intended to allow the NHI Group to
anticipate such events and adequately take actions to mitigate the adverse impacts.
The NHI Group manages risks related to climate change and water resources.
The NHI Group is subject to environmental regulation regimes and has controls in place to
comply with legislation concerning the protection of the environment, including the use of
natural resources, release of air emissions and waste water, and the generation, storage,
handling, transportation, treatment, and disposal of waste materials.
The NHI Group is reliant on the procurement of materials, manufacturing and supply of
finished goods for all product categories. A major event impacting input prices, or in one of the
NHI Group’s key plants, at a key supplier, contract manufacturer, co packer, and/or warehouse
facility could potentially lead to a supply disruption. Active price risk management on key
commodities and business continuity plans are established and regularly maintained in order
to mitigate against such events.
The investment choices of the NHI Group evolve over time and may include investments in
emerging technologies, new business models, and the creation of, or entry into, new
categories. This may result in broader exposures for the NHI Group, e.g. a more highly regulated
environment for the healthcare segment. The NHI Group’s investment choices are aligned with
its strategy and prioritized based on the potential to create value over the long-term.
The NHI Group, as part of its strategy, undertakes business transformations such as large
scale change management projects, mergers, acquisitions, and divestitures. To ensure the
realization of the anticipated benefits of these business transformations, they receive executive
sponsorship with aligned targets as well as appropriate levels of resources to support
successful execution of them.
The ability to attract and retain skilled, talented employees is critical to the success of the
NHI Group’s strategy. The NHI Group’s initiatives and processes aim to sustain a high-
performance culture, supported by a total awards approach and people development that
emphasizes diversity, innovation and growth.
The NHI Group is subject to health and safety regimes and has procedures in place to comply
with legislation concerning the protection of the health and welfare of employees and
contractors, as well as long-term initiatives to promote safe and healthy employee behaviors.
The NHI Group depends on accurate, timely data along with increasing integration of digital
solutions, services and models, both internal and external. Disruption impacting the reliability,
security and privacy of the data, as well as the information technology infrastructure, is a threat
to the NHI Group’s business. Contingency plans along with policies and controls are in place
aiming to protect and ensure compliance on both infrastructure and data.
The NHI Group’s liquidity/liabilities (currency, interest rate, hedging, cost of capital, pension
obligations/retirement benefits, banking/commercial credit, etc.) could be impacted by any
major event in the financial markets. The NHI Group, along with its ultimate parent company,
Nestlé S.A., has the appropriate risk mitigation measures in place with strong governance to
actively manage exposures and long-term asset and liability outlook.
Security, political instability, legal and regulatory, fiscal, macroeconomic, foreign trade,
labor, conflict and/or infrastructure risks could potentially impact the NHI Group’s ability to do
business. Major events caused by natural hazards (such as flood, drought, infectious disease
pandemics, etc.) could also impact the NHI Group’s ability to operate. Any of these events
could lead to a supply disruption and impact the NHI Group’s financial results. Regular
monitoring and ad hoc business continuity plans are established in order to mitigate against
such events.
Management Report
8 Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022
Outlook
The NHI Group is committed to supporting the Nestlé Group in achieving its financial
objectives including organic sales growth towards a mid single-digit rate, underlying trading
operating margin with continued moderate improvement, an increase in underlying earnings
per share in constant currency and capital efficiency.
Management Report
Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022 9
Rui Barbas, Chief Financial Officer, confirms that to the best of his knowledge:
(a) the Consolidated Financial Statements of the NHI Group for the annual period ended
December 31, 2022, which have been prepared in accordance with IFRS as issued by the
International Accounting Standards Board (IASB), give a true and fair view of the assets,
liabilities, financial position and profit or loss of NHI Group, and the undertakings included in
the consolidation taken as a whole; and
(b) the management report includes a fair review of the development and performance of the
business and the position of NHI Group and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and uncertainties that they
face.
February 28, 2023
Responsibility Statement
10 Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022
Report of Independent Auditors
To the Board of Directors of Nestlé Holdings, Inc.:
Opinion
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Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022 11
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classified at the reporting date, resulting in a
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accounting policies, including the recognition and
classification criteria for trade spend.
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policies.
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We considered the aging of trade spend accruals
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assessed whether recorded in the correct period.
We assessed the adequacy of the disclosures
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relation to the relevant accounting standards.
12 Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022
Responsibilities of Management and Those Charged with Governance
for the Financial Statements
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process.
Auditor’s Responsibilities for the Audit of the Financial Statements
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Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022 13
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continue as a going concern.
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14 Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022
Other information
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Consolidated
Financial Statements
Nestlé Holdings, Inc. and Subsidiaries – Annual Financial Report 2022 15
16 Consolidated Financial Statements of the NHI Group 2022
In millions of Dollars
Notes
2022
2021
Sales
3
29 848
26 945
Cost of goods sold
(17 490)
Distribution expenses
(2 950)
(2 792)
Marketing and administration expenses
(3 750)
(3 761
Royalties to affiliated company
16
(3 192)
(3 794)
Other trading income
4
60
61
Other trading expenses
4
(459)
(25 6)
Trading operating profit
3
2 067
1 100
Other operating income
4
1 19
505
Other operating expenses
4
(46 6)
(803)
Operating profit
1 720
802
Financial income
5
68 7
4 80
Financial expense
5
(8 01)
(65 4)
Profit before taxes and associates
1 606
628
Taxes
13
(4 61)
60
Loss from associates
14
(18)
Profit for the year
1 127
688
of which attributable to non-controlling interests
(1)
of which attributable to shareholders of the parent (Net profit)
1 127
6 8 9
Consolidated income statement
for the year ended December 31, 2022
Consolidated Financial Statements of the NHI Group 2022 17
In millions of Dollars
Notes
2022
2021
Profit for the year recognized in the income statement
1 127
688
Changes in cash flow hedge and cost of hedge reserves, net of taxes
(13)
64
Items that are or may be reclassified subsequently to the income statement
(13)
64
Remeasurement of defined benefit plans, net of taxes
10
46
157
Items that will never be reclassified to the income statement
46
157
Other comprehensive income for the year
33
221
Total comprehensive income for the year
1 160
909
of which attributable to non-controlling interests
(1)
of which attributable to shareholders of the parent
1 160
9 10
Consolidated statement of comprehensive income
for the year ended December 31, 2022
18 Consolidated Financial Statements of the NHI Group 2022
In millions of Dollars
Notes
2022
2021
Assets
Current assets
Cash and cash equivalents
12
41 2
493
Short-term investments
12
46
3 212
Inventories
6
3 710
3 056
Trade and other receivables
7/12
2 627
2 654
Loans to parent and affiliates
12/16
25 709
20 947
Prepayments
44
57
Derivative assets
12
25
42
Total current assets
32 573
30 461
Non-current assets
Property, plant and equipment
8
9 434
8 178
Goodwill
9
14 773
15 110
Intangible assets
9
4 585
4 619
Investments in associates
14
18
Financial assets
12
1 337
1 350
Loans to parent and affiliates
12/16
1 588
1 000
Employee benefits assets
10
48
2 01
Total non-current assets
31 765
30 476
Total assets
64 338
60 937
Consolidated balance sheet
as at December 31, 2022
Consolidated Financial Statements of the NHI Group 2022 19
In millions of Dollars
Notes
2022
2021
Liabilities and equity
Current liabilities
Financial debt
12
3 064
2 764
Derivative liabilities
12
26
1 26
Trade and other payables
7/12
3 574
4 581
Loans from affiliates
12/16
2 565
3 068
Accruals
2 459
2 242
Provisions
11
143
104
Current income tax liabilities
56 6
40 4
Total current liabilities
12 397
13 289
Non-current liabilities
Financial debt
12
25 087
22 329
Derivative liabilities
12
5 09
Employee benefits liabilities
10
1 413
1 736
Provisions
11
85
55
Deferred tax liabilities
13
1 217
1 029
Other payables
10
41
Total non-current liabilities
28 321
25 190
Total liabilities
40 718
38 479
Equity
Share capital, $100 par value. Authorized, issued and outstanding 1,000 shares
Additional paid-in capital
5 680
5 680
Other reserves
(91 2)
(9 4 5)
Retained earnings
18 852
17 723
Total equity attributable to shareholders of the parent
23 620
22 458
Non-controlling interests
Total equity
23 620
22 458
Total liabilities and equity
64 338
60 937
Consolidated balance sheet as at December 31, 2022
20 Consolidated Financial Statements of the NHI Group 2022
In millions of Dollars
Notes
2022
2021
Operating activities
Operating profit
15
1 720
8 02
Depreciation and amortization
15
807
7 71
Impairment
15
48 7
56 9
Net result on disposal of businesses
4
7
24
Other non-cash items of income and expense
60
(4 55)
Cash flow before changes in operating assets and liabilities
3 081
1 711
Decrease/(increase) in working capital
15
(1 336)
582
Variation of other operating assets and liabilities
15
56
262
Cash generated from operations
1 801
2 555
Interest paid
(90 5)
(825)
Interest received on loans to affiliates, net
729
4 8 0
Taxes paid
(90)
(16 6)
Operating cash flow
1 535
2 044
Investing activities
Capital expenditure
(1 9 08)
(1 841)
Expenditure on intangible assets
9
(6 0)
(79)
Acquisition of businesses, net of cash acquired
2
(2 0)
(708)
Disposal of businesses, net of cash disposed of
2
95
(13)
Investments in associates
(49)
(61)
Inflows/(outows) from treasury investments
3 166
(3 194)
Other investing activities
43
22
Investing cash flow
1 267
(5 874)
Financing activities
Loans from/(to) parent and affiliates, net
16
(5 853)
1 916
Acquisition of non-controlling interest
2
(184)
Inflows from bonds and other long term financial debt
12
5 153
8 249
Outflows from bonds, lease liabilities and other long term financial debt
12
(1 974)
(3 048)
Outflows from short term financial debt
12
(25)
(3 144)
Financing cash flow
(2 883)
3 973
Increase/(decrease) in cash and cash equivalents
(81)
143
Cash and cash equivalents at beginning of year
493
35 0
Cash and cash equivalents at end of year
15
4 1 2
493
Consolidated cash flow statement
for the year ended December 31, 2022
Consolidated Financial Statements of the NHI Group 2022 21
In millions of Dollars
Total equity
attributable
Additional to Non-
paid-in Other Retained shareholders controlling
Share capitalcapitalreservesearningsof the parent
interests
Total equity
Equity as at January 1, 2021
5 705
(1 166)
17 030
21 569
42
21 611
Profit for the year
68 9
68 9
(1)
688
Other comprehensive income for the year
221
221
221
Total comprehensive income/(loss) for the year
22 1
689
91 0
(1)
90 9
Distributions paid to non-controlling interests
(8)
(8)
Other movements in equity for the period
Changes in non-controlling interests
4
4
(33)
(29)
Capital distribution
(25)
(25)
(25)
Equity as at December 31, 2021
5 680
(945)
17 723
22 458
22 458
Equity as at January 1, 2022
5 680
(945)
17 723
22 458
22 458
Profit for the year
1 127
1 127
1 127
Other comprehensive income for the year
33
33
33
Total comprehensive income for the year
3 3
1 127
1 160
1 160
Distributions paid to non-controlling interests
Other movements in equity for the period
2
2
2
Changes in non-controlling interests
Capital distribution
Equity as at December 31, 2022
5 680
(91 2)
18 852
23 620
23 620
(a)
(b)
(c)
(a)
(a) Related to changes in cash flow hedge and cost of hedge reserves, net of taxes and remeasurement of defined benefit plans,
net of taxes.
(b) Movements reported under retained earnings include put options for the acquisition of non-controlling interests.
(c) Related to transfer of net liabilities of BBC Intermediate Holdings to the NHI Group (see Note 16).
Consolidated statement of changes in equity
for the year ended December 31, 2022
22 Consolidated Financial Statements of the NHI Group 2022
1. Accounting policies
Accounting convention and accounting standards
The Consolidated Financial Statements comply with International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB).
They have been prepared on a historical cost basis, unless stated otherwise. All consolidated
companies and associates have a December 31 accounting year-end. The Consolidated
Financial Statements 2022 were authorized for issuance by NHIs directors on February 28, 2023.
Accounting policies
Accounting policies are included in the relevant Notes to the Consolidated Financial
Statements and are presented as text highlighted with a grey background. The accounting
policies below are applied throughout the financial statements.
Key accounting judgements, estimates and assumptions
The preparation of the Consolidated Financial Statements requires management to exercise
judgment and to make estimates and assumptions that affect the application of policies,
reported amounts of revenues, expenses, assets and liabilities and disclosures. Estimated
climate impacts, current and probable stated regulatory changes and Nestlé’s environmental
commitments have been taken into account. These estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable
under the circumstances. The estimates and underlying assumptions are reviewed on an
ongoing basis. Information about potential impacts under alternative scenarios (including
among others the policies aligned with the Paris ambition and Nestlé environmental
commitments) on the medium and long term, aligned with the Task Force on Climate-related
Financial Disclosures (TCFD) methodology, have been considered. Management believes that
Financial Statements as of December 31, 2022, reflect the most reasonable view of the value of
the assets and liabilities at this date. The implications for the NHI Group and the global
economy of the war in Ukraine as well as potential escalations are highly uncertain, and remain
difficult to predict or quantify. Actual results and outcomes could differ from the judgments
and estimates taken into account in these Consolidated Financial Statements.
Those areas that involved a higher degree of judgment or uncertainty are explained further
in the relevant Notes, including:
assessment of control and estimating the fair value of net assets acquired in business
combinations (see Note 2);
re
cognition and estimation of revenue (see Note 3);
pr
esentation of additional line items and subtotals in the income statement (see Note 4);
• id
entification of a lease and lease term (see Note 8);
identification of cash generating units (CGUs) and estimation of recoverable amount for
impairment tests (see Note 9);
as
sessment of useful lives of intangible assets, including assessment as finite or indefinite
(see Note 9);
measurement of employee benefit obligations (see Note 10);
recognition and measurement of provisions (see Note 11);
estimation of current and deferred taxes, including uncertain tax positions (see Note 13).
Foreign Currency
The functional currency of the NHI Group’s entities (as defined herein) is the currency of their
primary economic environment, which is the “US Dollar”.
In individual companies, transactions in foreign currencies are recorded at the rate of
exchange at the date of the transaction. Monetary assets and liabilities in foreign currencies are
translated at year-end rates. Any resulting exchange differences are taken to the income
statement, except when deferred in Other comprehensive income as qualifying cash flow hedges.
Notes
Consolidated Financial Statements of the NHI Group 2022 23
Expenses
Operating expenses are presented in the income statement using the function of expense
method, as this is the method used by management to analyze performance and is commonly
used in the consumer goods industry, and thus provides more relevant information.
Cost of goods sold is determined on the basis of the cost of purchase or of production
(comprised of the costs of raw and packaging material, direct labor, energy, manufacturing
overheads and depreciation of factory assets, which are allocated to products using activity-
based drivers), adjusted for the variation of inventories. It includes the cost of royalties due to
third party licensors for the use of their intellectual property, which are accrued in accordance
with the respective agreement. Cost of goods sold also includes maintenance and depreciation
of equipment used in the sales process like coffee machines.
All other expenses, including those in respect of advertising and promotions, are recognized
when the NHI Group receives the risks and rewards of ownership of the goods or when it
receives the services. Government grants that are not related to assets are credited to the
income statement as a deduction of the related expense when they are received, if there is
reasonable assurance that the terms of the grant will be met.
Distribution expenses encompass the costs of storing products and transporting products
between factories, warehouses and customer locations. It includes the costs of outsourced
transportation services, salaries and wages of drivers, warehouse employees and customer
service staff, as well as depreciation and running costs of warehouses and related storage,
transportation and handling equipment.
Marketing and administration expenses include the costs of advertising and consumer
promotion activities, merchandising, sales teams and head office functions such as finance,
human resources, legal, information technology, supply chain and general management. It is
primarily comprised of salaries, depreciation and maintenance of real estate, and the costs of
third-party services.
Additional details of other trading income and expenses and other operating income and
expenses are provided in the respective Notes.
Changes in Accounting Standards
Several amendments apply for the first time in 2022 including among others Property, Plant and
Equipment: Proceeds before Intended Use (Amendments to IAS 16), Onerous Contracts – Cost
of Fulfilling a Contract (Amendments to IAS 37), Updating a Reference to the Conceptual
Framework (Amendments to IFRS 3) and Fees in the “10 per cent” Test for Derecognition of
Financial Liabilities (Amendment to IFRS 9). None of these had a material impact on the NHI
Financial Statements.
Changes in IFRS that may affect the NHI Group after December 31, 2022
There are no standards that are not yet effective and that would be expected to have a material
impact on the NHI Group in the current or future reporting periods.
1. Accounting policies
24 Consolidated Financial Statements of the NHI Group 2022
2. Scope of consolidation, acquisitions and disposals of businesses,
and acquisitions of non-controlling interests
Scope of consolidation
Nestlé Holdings, Inc. (“NHI”) (herein, together with its subsidiaries, referred to as the “NHI
Group”) incorporated in the State of Delaware, United States, is a wholly owned subsidiary
of NIMCO US, Inc., which is an indirect wholly owned subsidiary of Nestlé S.A., incorporated
in Switzerland, which is the Parent company of the Nestlé Group of companies (hereinafter,
referred to as the “Nestlé Group”). The NHI Group’s registered office is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801,
United States and its principal place of business is located at 1812 North Moore Street,
Arlington, Virginia 22209, United States.
The Consolidated Financial Statements comprise those of Nestlé Holdings Inc. and of its
subsidiaries (the NHI Group). Companies which the NHI Group controls are fully consolidated
from the date at which the NHI Group obtains control. The NHI Group controls a company
when it is exposed to, or has rights to, variable returns from its involvement with the company
and has the ability to affect those returns through its power over the company.
As part of the Consolidated Financial Statements, the list of principal subsidiaries are included
below:
Ge
rber Products Company
Nespresso USA, Inc.
Ne
stlé Capital Corporation
Nestlé HealthCare Nutrition, Inc.
Nestlé Insurance Holdings, Inc.
Nestlé Purina PetCare Company
Ne
stlé Regional Globe Office North America, Inc.
Nestlé USA, Inc.
Business Combinations
Where not all of the equity of a subsidiary is acquired, the non-controlling interests are
recognized at the non-controlling interest’s share of the acquiree’s net identifiable assets.
Upon obtaining control in a business combination achieved in stages, the NHI Group
remeasures its previously held equity interest at fair value and recognizes a gain or a loss in
the income statement.
2. Scope of consolidation, acquisitions and disposals of businesses, and acquisitions of non-controlling interests
Consolidated Financial Statements of the NHI Group 2022 25
2.1 Modification of the scope of consolidation
Acquisitions
There were no acquisitions in 2022 and correspondingly, no related cash outflows.
During 2021 the only acquisition and associated cash outows were related to the acquisition
of Essentia Water.
Disposals
There were no significant disposals during 2022 and 2021. Among other non-significant
disposals, are Freshly (a healthy prepared meals business) and the Infant Formula Business.
Before each disposal, impairment charges have been recorded during the year, in Other
trading and operating expenses (see Note 4).
Cash inflows during 2022 and 2021 are related mainly to these non-significant disposals.
2.2
Acq
uisitions of businesses
The fair value of the major classes of assets acquired and liabilities assumed at the acquisition
date are:
In millions of Dollars
2022
2021
Total
Total
Inventories, prepaid inventories and other assets
25
Property, plant and equipment
22
Intangible assets
310
Financial debt
(20)
Other liabilities
(20)
Deferred taxes
(3)
Fair value of identifiable net assets
314
(a) Related mainly to Essentia Water acquisition.
(a)
The goodwill arising on acquisitions and the cash outows are:
In millions of Dollars
2022
2021
Total
Total
Fair value of consideration transferred
709
Subtotal
709
Fair value of identifiable net assets
(314)
Goodwill
395
Fair value of consideration transferred
709
Cash and cash equivalents acquired
(1)
Payment of consideration payable on prior years acquisitions
20
Cash outflow on acquisitions
20
708
(a) Related mainly to Essentia Water acquisition .
(a)
2. Scope of consolidation, acquisitions and disposals of businesses, and acquisitions of non-controlling interests
26 Consolidated Financial Statements of the NHI Group 2022
Essentia Water
On March 5, 2021, the NHI Group acquired 100% of the ownership interests of Essentia Sub, LLC
(“Essentia”) from Essentia Water, LLC, with consideration paid in cash. Essentia is a premium
ionized alkaline bottled water. This transaction brings together NHI Group’s expertise in the
water business with Essentia’s premium products and distribution network to fuel growth
opportunities within the Nestlé Premium Waters business and across NHI Group’s portfolio.
The goodwill arising on this acquisition includes elements such as market share and growth
potential in premium water as well as leveraging the Nestlé Group’s expertise and research
and development. This goodwill is expected to be deductible for tax purposes.
2.3
Di
sposals of businesses
2022
2021
Total
Total
Cash, cash equivalents and short-term investments
3
Inventories
37
9
Other assets
4
3
Deferred tax assets
8
Property, plant and equipment
81
Goodwill and intangible assets
14
Financial liabilities
(16)
Other liabilities
(26)
(1)
Net assets disposed of
105
11
Loss on disposals, net of disposal costs
(7)
(24
Total disposal consideration, net of disposal costs
98
(13 )
Cash and cash equivalents disposed of
(3)
Cash inflow/(outflow) on disposals, net of disposal costs
95
(13)
(a)
(a) Relates to true-up of previous disposals.
2. Scope of consolidation, acquisitions and disposals of businesses, and acquisitions of non-controlling interests
Consolidated Financial Statements of the NHI Group 2022 27
2.4 Acquisitions of non-controlling interests
Acquisitions and disposals of non-controlling interests
The NHI Group treats transactions with non-controlling interests that do not result in loss of
control as transactions with equity holders in their capacity as equity holders. For purchases
of shares from non-controlling interests, the difference between any consideration paid and
the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded
in equity. The same principle is applied to disposals of shares to non-controlling interests.
In 2022, there were no transactions with non-controlling interests.
In 2021, the NHI Group increased its ownership interests in Freshly and Vital Proteins leading
to a decrease of non-controlling interests amounting to $33 million. The consideration to
non-controlling interests in 2021 was in the form of cash of $72 million and the recognition of
a payable of $181 million (settled in 2022). Part of the consideration was recorded as a liability
in previous years for $196 million.
2. Scope of consolidation, acquisitions and disposals of businesses, and acquisitions of non-controlling interests
28 Consolidated Financial Statements of the NHI Group 2022
3. Analyses by segment
Segment reporting
Basis for segmentation
Operating segments reflect the NHI Group’s management structure and the way financial
information is regularly reviewed by the chief operating decision maker (CODM). The CODM
has been defined as a body comprising the members of the Nestlé Group Executive Board to
whom the various operating segments report, since this is the level at which resources are
allocated and results are assessed.
The NHI Group’s management structure is aligned with the Nestlé Group management
structure and is organized around products.
Th
e Nestlé USA Brands segment forms part of the Nestlé Group Zone Americas segment.
It consists primarily of beverages, snacks, frozen prepared foods, pizza, and other food
products.
The PetCare segment also forms part of the Nestlé Group Zone Americas segment and
sells products for domestic pets.
Th
e Other businesses segment category comprises other operating segments that do not
meet the criteria for separate reporting, such as the Nutrition segment (forming part of the
Nestlé Group Zone Americas segment) and consists primarily of infant and baby food
products; Nestlé Professional (forming part of the Nestlé Professional Regionally Managed
Business (RMB) within Nestlé Group Zone Americas), which sells products for the food
services industry; and Nestlé Health Science which provides pioneering science based
nutritional solutions to deliver improved personalized health care for people with medical
conditions, and the Nespresso business unit.
Revenue and results by segment
Segment results (Trading operating profit) represent the contribution of the different segments
to the trading operating profit of the NHI Group. In addition to the Trading operating profit,
Underlying Trading operating profit is shown on a voluntary basis because it is one of the key
metrics used by the Company to monitor the performance of the NHI Group.
Depreciation and amortization include depreciation of property, plant and equipment
(including right-of-use assets under leases) and amortization of intangible assets.
Invested capital and other information by segment
No segment assets and liabilities are regularly provided to the CODM to assess segment
performance or to allocate resources and therefore segment assets and liabilities are not
disclosed. However, the NHI Group discloses the invested capital, goodwill and intangible
assets by segment on a voluntary basis, and uses the assets directly allocated to the
segments to determine if a segment is reportable.
Invested capital comprises property, plant and equipment, trade receivables and some
other receivables, assets held for sale, inventories, prepayments, less trade payables,
accruals and some other payables, liabilities directly associated with assets held for sale, and
non-current other payables.
Goodwill and intangible assets are not included in invested capital since the amounts
recognized are not comparable between segments due to differences in the intensity of
acquisition activity and changes in accounting standards, which were applicable at various
points in time when the NHI Group undertook significant acquisitions. Nevertheless,
allocations of goodwill and intangible assets by segment and the related impairment
expenses are provided.
Invested capital and goodwill and intangible assets by segment represent the position at
the end of the year.
3. Analyses by segment
Consolidated Financial Statements of the NHI Group 2022 29
Capital additions represent the total cost incurred to acquire property, plant and
equipment (including right-of-use assets under leases), intangible assets and goodwill,
including those arising from business combinations.
Revenue
Sales represent amounts received and receivable from third parties for goods supplied
and for services rendered to customers and affiliates (outside of the NHI Group). Sales are
recognized when control of the goods has transferred to the customer, which is mainly upon
arrival at the domestic customer and in accordance with International Commercial Terms
(“incoterms”) for exports.
Revenue is measured as the amount of consideration which the NHI Group expects to
receive, based on the list price applicable to a given distribution channel after deduction of
returns, sales taxes, pricing allowances, other trade discounts and couponing and price
promotions to consumers. The level of discounts, allowances and promotional rebates is
recognized as a deduction from revenue at the time that the related sales are recognized or
when the rebate is offered to the customer (or consumer if applicable). They are estimated
using judgments based on historical experience and the specific terms of the agreements
with the customers. Payments made to customers for commercial services received are
expensed. The NHI Group has a range of credit terms that are typically short term, in line
with market practice and without any financing component.
The NHI Group does not generally accept sales returns, except in limited cases mainly in
the Infant Nutrition business. Historical experience is used to estimate such returns at the
time of sale. No asset is recognized for products to be recoverable from these returns, as
they are not anticipated to be resold.
Trade assets (mainly coffee machines) may be sold or leased separately to customers.
Arrangements where the NHI Group transfers substantially all the risks and rewards
incidental to ownership to the customer are treated as finance lease arrangements.
Operating lease revenue for trade asset rentals is recognized on a straight-line basis over
the lease term.
3. Analyses by segment
30 Consolidated Financial Statements of the NHI Group 2022
3. Analyses by segment
3.1 Operating segments
Revenue and results
In millions of Dollars
2022
Brands
PetCare
Other
Total
Sales
12 323
11 464
6 061
29 848
Underlying Trading operating profit
1 384
1 056
26
2 466
Trading operating profit/(loss)
1 239
973
(145)
2 067
Net other trading expenses
(d)
as per Note 4.1
(145)
(84)
(170)
(399)
Of which impairment of property, plant and equipment
(70)
(17)
(64)
(151)
Of which restructuring costs
(17)
(31)
(4)
(52)
Depreciation and amortization
(284)
(320)
(203)
(807)
2021
Brands
PetCare
Other
Total
Sales
11 490
9 980
5 475
26 945
Underlying Trading operating profit
648
633
14
1 295
Trading operating profit (loss)
608
616
(124)
1 100
Net other trading expenses
(40)
(18)
(137)
(195)
Of which impairment of property, plant and equipment
(10)
(65)
(75)
Of which restructuring costs
(9)
(39)
(48)
Depreciation and amortization
(266)
(300)
(205)
(771)
(a)
(a)
(b)
(c)
(a)
(a)
(b)
(c)
(d)
(a) Nestlé USA Brands primarily consists of Nestlé Coffee Partners, beverages, prepared foods, snacks, and other food products.
Other primarily consists of Nutrition, Nestlé Professional, Nespresso, and Nestlé Health Science, which do not meet the criteria
for separate disclosure.
(b) Trading operating profit before Net other trading income/(expenses).
(c) The NHI Group determines trading operating profit by allocating corporate expenses to its operating segments based on
activity-based cost drivers.
(d) Included in Trading operating profit.
Invested capital and other information
In millions of Dollars
2022
Brands
PetCare
Other
Total
Invested capital
2 661
5 715
1 573
9 949
Goodwill and intangible assets
9 040
8 877
1 441
19 358
Impairment of goodwill
(336)
(336)
Capital additions
540
1 433
460
2 433
2021
Brands
PetCare
Other
Total
Invested capital
1 569
4 458
1 536
7 563
Goodwill and intangible assets
9 057
8 888
1 784
19 729
Impairment of goodwill
(494)
(494 )
Capital additions
1 119
1 401
268
2 788
(a) Nestlé USA Brands primarily consists of Nestlé Coffee Partners, beverages, prepared foods, snacks, and other food products.
Other primarily consists of Nutrition, Nestlé Professional, Nespresso, and Nestlé Health Science, which do not meet the criteria
for separate disclosure.
(a)
(a)
(a)
(a)
Consolidated Financial Statements of the NHI Group 2022 31
3.2a Reconciliation from Underlying Trading operating profit to Profit before taxes and
associates
In millions of Dollars
2022
2021
Underlying Trading operating profit
(a)
as per Note 3.1
2 466
1 295
Net other trading expenses as per Note 4.1
(399)
(195)
Trading operating profit as per Note 3.1
2 067
1 100
Net other operating expenses
(347)
(298)
Operating profit
1 720
802
Net financial expense
(114)
(174)
Profit before taxes and associates
1 606
628
(a) Trading operating profit before Net other trading income/(expenses).
3.2b Reconciliation from invested capital, goodwill and intangible assets to total assets
In millions of Dollars
2022
2021
Invested capital as per Note 3.1
9 949
7 563
Liabilities included in invested capital
5 957
7 058
Subtotal
15 906
14 621
Intangible assets and goodwill as per Note 3.1
19 358
19 729
Other assets
29 074
26 587
Total assets
64 338
60 937
3.3 Customers
The NHI Group has one customer contributing 20% to the total sales in both years across all
segments.
3. Analyses by segment
32 Consolidated Financial Statements of the NHI Group 2022
4. Net other trading and operating income/(expenses)
4. Net other trading and operating income/(expenses)
Other trading income/(expenses)
These comprise restructuring costs, impairment of property, plant and equipment and
intangible assets (other than goodwill), litigation (related legal, advisory, and other
professional fees) and onerous contracts, results of disposal of property, plant and equipment,
and specific other income and expenses that fall within the control of operating segments.
Restructuring costs are restricted to dismissal indemnities and employee benefits paid to
terminated employees upon the reorganization of a business or function.
Other operating income/(expenses)
These comprise impairment of goodwill, results on disposals of businesses (including
impairment and subsequent remeasurement of businesses classified as held for sale, as well
as other directly related disposal costs like restructuring costs directly linked to businesses
disposed of and legal, advisory and other professional fees), acquisition-related costs, and
income and expenses that fall beyond the control of operating segments or relate to events
such as natural disasters including extreme weather events linked to climate change, as well
as expropriation of assets.
4.1 Net other trading income/(expenses)
In millions of Dollars
2022
2021
Return on company-owned life insurance
53
Reversal of unused restructuring provisions
7
Result on deferred compensation
37
Miscellaneous trading income
23
1
Other trading income
60
61
Return on company-owned life insurance
(77)
Restructuring costs
(52)
(56 )
Impairment of property, plant and equipment and intangible assets
(151)
(75)
Litigations and onerous contracts
(146)
(61)
Result on deferred compensation
(51)
Miscellaneous trading expenses
(33)
(13)
Other trading expenses
(459)
(256)
Total net other trading expenses
(399)
(195)
(a) Relating principally to a number of separate legal cases, liabilities linked to voluntary product withdrawals and various separate
onerous contracts.
(a)
Consolidated Financial Statements of the NHI Group 2022 33
4.2 Net other operating income/(expenses)
In millions of Dollars
2022
2021
Re-measurement of contingent consideration and other compensation liabilities
22
378
Miscellaneous operating income
97
127
Other operating income
119
505
Loss on disposal of businesses
(7)
31
Impairment of goodwill
(336)
(494 )
Miscellaneous operating expenses
(123)
(340
Other operating expenses
(466)
(803)
Total net other operating expenses
(347)
(298)
(a) Mainly related to Freshly items.
(b) Miscellaneous operating income mainly consists of transitional services provided to disposed businesses. Miscellaneous
operating expenses include mainly expenses of transitional services provided to disposed businesses and natural disasters.
2021 also included COVID-19 expenses related primarily to safety related costs (gloves, masks, cleaning and sanitizing,
screening, and vaccines among others). COVID-19 costs are part of the underlying trading profit in 2022.
(c) See disposals of businesses (refer to Note 2.3).
(d) See goodwill and intangible assets (refer to Note 9).
(a)
(b)
(c)
(d)
(b)
5. Net financial income/(expense)
Net financial income/(expense) includes net financing cost of net financial debt and net
interest income/(expense) on defined benefit plans.
Net financing cost comprises the interest income earned on cash and cash equivalents,
short- term investments and loans to parent and affiliates, as well as the interest expense on
financial debt (including leases), and loans from affiliates, collectively termed “net financial
debt. These headings also include other income and expense such as exchange differences
on net financial debt and results on related foreign currency and interest rate hedging
instruments. Certain borrowing costs are capitalized as explained under the section
Property, plant and equipment (see Note 8).
In millions of Dollars
Notes
2022
2021
Interest income
666
464
Interest expense
(761)
(621
Net financing cost of net financial debt
(95)
(157)
Interest income on defined benefit plans
10
21
16
Interest expense on defined benefit plans
10
(40)
(33)
Net interest expense on defined benefit plans
(19)
(17)
Other financial income
Net financial expenses
(114)
(174)
Interest expense on amounts due to affiliated companies, and bonds and commercial paper
guarantee fees to Nestlé S.A. amounted to $131 million and $89 million in 2022 and 2021,
respectively. Interest income on amounts due from parent and affiliated companies amounted
to $660 million and $464 million in 2022 and 2021, respectively.
4. Net other trading and operating income/(expenses)
34 Consolidated Financial Statements of the NHI Group 2022
6. Inventories
Raw materials are valued at the lower of purchase cost calculated using the FIFO (first-in,
first-out) method and net realizable value. Work in progress, sundry supplies and finished
goods are valued at the lower of their weighted average cost (including an allocation of
factory overheads and depreciation) and net realizable value. The cost of inventories includes
the gains/losses on cash flow hedges for the purchase of raw materials and finished goods.
In millions of Dollars
2022
2021
Raw materials, work in progress and sundry supplies
1 229
845
Finished goods
2 561
2 261
Allowance for write-down to net realizable value
(80)
(50)
Total
3 710
3 056
Inventories amounting to $17 094 million (2021: $15 000 million) were recognized as an expense
during the year and included in Cost of goods sold. No inventories were pledged as security for
financial liabilities during 2022 and 2021.
7. Trade and other receivables/payables
7.1 Trade and other receivables
Recognition and measurement
Trade and other receivables are recognized initially at their transaction price and subsequently
measured at amortized cost less loss allowances.
Expected credit losses
The NHI Group applies the IFRS 9 simplified approach to measuring expected credit losses
(ECLs) for trade receivables at an amount equal to lifetime ECLs. The ECLs on trade receivables
are calculated based on actual credit loss experience over the preceding three to five years
on the total balance of non-credit impaired trade receivables, adjusted considering forward-
looking information where relevant (such as significant deterioration in the economic
environment). The NHI Group’s credit loss experience has shown that the aging of receivable
balances is primarily due to negotiations about variable consideration.
The NHI Group considers a trade receivable to be credit impaired when one or more
detrimental events have occurred such as:
significant financial difficulty of the customer; or
it i
s becoming probable that the customer will enter bankruptcy or other financial
reorganization.
Impairment losses related to trade and other receivables are not presented separately in the
consolidated income statement but are reported under the heading Marketing and
administration expenses.
6. Inventories
Consolidated Financial Statements of the NHI Group 2022 35
In millions of Dollars
2022
2021
Gross carrying Expected credit Gross carrying Expected credit
amount
loss allowance
Total
amount
loss allowance
Total
Trade receivables (not credit impaired)
2 517
(10)
2 507
2 415
(7)
2 408
Other receivables (not credit impaired)
117
117
245
245
Credit impaired trade and other
receivables
4
(1)
3
2
(1)
1
Total
2 638
(11)
2 627
2 662
(8)
2 654
Trade receivables includes a balance from related parties for 2022: $219 million (2021: $214
million).
The five major customers represent 51% (2021: 45%) of trade and other receivables,
none of them individually exceeding 25% in either year.
Based on the historic trends and the expected performance of the customers, the NHI Group
believes that the above expected credit loss allowance sufficiently covers for the risk of default.
7.2 Trade and other payables by type
Recognition and measurement
Trade and other payables are recognized initially at their transaction price and subsequently
measured at amortized cost.
Supplier finance arrangements
The NHI Group participates in supplier finance arrangements under which suppliers may elect
to receive early payment from financial institutions by factoring their receivables from the NHI
Group. The arrangements avoid concentration of liquidity risk, since the due dates of the
payments by the NHI Group are based on the agreed trade terms with the suppliers, are
compliant with the applicable regulations and remain consistent with the normal operating
cycle of its business.
The NHI Group continues to present invoices eligible to be settled through these programs
as Trade payables considering that the original liability is neither legally released nor
substantially modified on entering into such arrangements. Related payments are included
within operating cash flows because they remain operational in nature.
In millions of Dollars
2022
2021
Due within one year
Trade payables
3 574
4 383
Other payables
198
Total
3 574
4 581
Trade payables include a balance from related parties for $939 million (2021: $2 009 million).
7. Trade and other receivables/payables
36 Consolidated Financial Statements of the NHI Group 2022
8. Property, plant and equipment
Property, plant and equipment comprises owned and leased assets.
In millions of Dollars
2022
2021
Property, plant and equipment – owned
8 629
7 407
Right-of-use assets – leased
805
771
Total
9 434
8 178
8.1 Owned assets
Owned property, plant and equipment are shown on the balance sheet at their historical cost.
Depreciation is assessed on components that have homogenous useful lives by using the
straight-line method so as to depreciate the initial cost down to the residual value over the
estimated useful lives. The residual values are up to 30% on the head office and nil for all
other asset types. The useful lives are as follows:
Buildings 2040 years
Machinery and equipment 10–25 years
Tools, furniture, information technology
and sundry equipment 3–15 years
Vehicles 3–10 years
Land is not depreciated.
Useful lives, components, and residual amounts are reviewed annually. Such a review takes
into consideration the nature of the assets, their intended use including but not limited to the
closure of facilities and the evolution of the technology and competitive pressures.
Depreciation of property, plant and equipment is allocated to the appropriate headings of
expenses by function in the income statement.
Borrowing costs incurred during the course of construction are capitalized if the assets
under construction are significant and if their construction requires a substantial period to
complete (typically more than one year). The capitalization rate is determined on the basis of
the short-term borrowing rate for the period of construction.
Government grants are recognized as deferred income, which is released to the income
statement over the useful life of the related assets.
8. Property, plant and equipment
Consolidated Financial Statements of the NHI Group 2022 37
In millions of Dollars
2022
Tools,
furniture, Information
Land and Plant and and technology Assets under
buildings machinery
sundry
Vehicles
equipment
Construction
Total
Net carrying amount
At January 1, 2022
2 396
2 449
203
11
69
2 279
7 407
Additions (a)
60
70
97
(7)
10
1 812
2 042
Acquisitions through business combinations
Reclassification from assets under construction
178
365
13
15
(571)
Depreciation
(130)
(353)
(69)
(4)
(33)
(589)
Impairments
(38)
(84)
(4)
(126)
Disposals
(2)
(14)
(4)
(1)
(17)
(38)
Classification to held for sale and disposals
of businesses
(34)
(28)
(2)
(1)
(2)
(67)
At December 31, 2022
2 430
2 405
234
59
3 501
8 629
Gross value
3 868
6 718
862
90
275
3 501
15 314
Accumulated depreciation and impairments
(1 438)
(4 313)
(628)
(90)
(216)
(6 685)
In millions of Dollars 2021
Tools,
furniture, Information
Land and Plant and and technology Assets under
buildings machinery
sundry
Vehicles
equipment
Construction
Total
Net carrying amount
At January 1, 2021
2 190
2 313
195
6
84
1 180
5 968
Additions
144
96
77
3
1 659
1 979
Acquisitions through business combinations
48
8
1
57
Reclassification from assets under construction
136
378
11
11
24
(560)
Depreciation
(121)
(336)
(68)
(6)
(40)
(571)
Impairments
(1)
(6)
(3)
(3)
(13)
Disposals
(4)
(12)
(16)
Classification from held for sale and disposals
of businesses
3
3
At December 31, 2021
2 396
2 449
203
11
69
2 279
7 407
Gross value
3 772
6 495
786
88
335
2 279
13 755
Accumulated depreciation and impairments
(1 376)
(4 046)
(583)
(77)
(266)
(6 348)
(a) Including borrowing costs.
(a)
There were $1 479 million and $909 million in commitments for future capital expenditures as
of December 31, 2022 and 2021, respectively.
8. Property, plant and equipment
38 Consolidated Financial Statements of the NHI Group 2022
Impairment of property, plant and equipment
Reviews of the carrying amounts of the NHI Group’s property, plant and equipment are
performed when there is an indication of impairment. An indicator could be technological
obsolescence, unfavorable development of a business under competitive pressures or
severe economic slowdown in a given market as well as reorganization of the operations to
leverage their scale. Planned retirement of property, plant and equipment due to the
tra nsition to a low carbon economy, Nestlé’s commitments regarding recyclable or reusabl e
packaging, reduction to virgin plastic and Nestlé’s Net Zero Roadmap on greenhouse gas
emissions are also considered as triggers for impairment.
In assessing value in use, the estimated future cash flows are discounted to their present
value, based on the time value of money and any risks specific to the assets location. The
risks specific to the asset are included in the determination of the cash flows.
Impairment of property, plant and equipment arises mainly from the plans to optimize
industrial manufacturing capacities by closing or selling inefficient production facilities as well
as underperforming businesses (see Note 4.1). As the majority of Nestlé emissions are
classified in Scope 3 (i. e. indirect emissions that occur across the Nestlé’s value chain and
outside of the Nestlé’s direct control), property, plant and equipment are not materially
exposed to climate transition risks, and no other significant climate-related triggers for
impairment have been identified.
8.2 Leases – Group as a lessee
The NHI Group assesses whether a contract is or contains a lease at inception of the contract.
This assessment involves the exercise of judgment about whether it depends on a specified
asset, whether the NHI Group obtains substantially all the economic benefits from the use of
that asset, and whether the NHI Group has the right to direct the use of the asset.
The NHI Group recognizes a right-of-use (ROU) asset and a lease liability at the lease
commencement date, except for short-term leases of 12 months or less which are expensed
in the income statement on a straight-line basis over the lease term.
The lease liability is initially measured at the present value of the lease payments that are
not paid at the commencement date, discounted using the interest rate implicit in the lease.
If this rate cannot be readily determined, the NHI Group uses an incremental borrowing rate
specific to the country, term and currency of the contract. Lease payments can include fixed
payments; variable payments that depend on an index or rate known at the commencement
date; and extension option payments or purchase options which the NHI Group is reasonabl y
certain to exercise. The lease liability is subsequently measured at amortized cost using the
effective interest rate method and remeasured (with a corresponding adjustment to the
related ROU asset) when there is a change in future lease payments in case of renegotiation,
changes of an index or rate in case of reassessment of options.
At inception, the ROU asset comprises the initial lease liability, initial direct costs and the
obligations to refurbish the asset, less any incentives granted by the lessors. The ROU asset
is depreciated over the shorter of the lease term or the useful life of the underlying asset.
The ROU asset is subject to testing for impairment if there is an indicator for impairment, as
for owned assets.
ROU assets are included in the heading Property, plant and equipment, and the lease
liability is included in the headings current and non-current Financial debt.
8. Property, plant and equipment
Consolidated Financial Statements of the NHI Group 2022 39
8. Property, plant and equipment
8.2a Description of lease activities
Real estate leases
The NHI Group leases land and buildings for its office and warehouse space and retail stores.
Lease terms are negotiated on an individual basis and contain a wide range of different terms
and conditions. Leases are typically made for a fixed period of 5–15 years and may include
extension options which provide operational flexibility. If the NHI Group exercised all extension
options not currently included in the lease liability, the additional undiscounted payments
would amount to $969 million at December 31, 2022 (2021: $613 million).
Vehicle leases
The NHI Group leases trucks for distribution in specific businesses and cars for management
and sales functions. The average contract duration is 6 years for trucks and 3 years for cars.
Other leases
The NHI Group also leases Machinery and equipment and Tools, furniture and other equipment
that combined are insignificant to the total leased asset portfolio.
8.2b Right-of-use assets
In millions of Dollars
2022
Land and
buildings
Vehicles
Other
Total
Net carrying amount
At January 1, 2022
721
21
29
771
Additions
273
23
35
331
Depreciation
(112)
(13)
(15)
(140)
Impairments, net
(25)
(25)
Classification to/from held for sale and change of scope of
consolidation, net
Derecognition of sub-leased right-of-use assets and others
(129)
(3)
(132
At December 31, 2022
728
28
49
805
2021
Land and
buildings
Vehicles
Other
Total
Net carrying amount
At January 1, 2021
609
28
28
665
Additions
126
7
17
150
Depreciation
(101)
(14)
(17)
(132
Impairments
(62)
(62
Classification to/from held for sale and change of scope of
consolidation, net
149
1
150
At December 31, 2021
721
21
29
771
40 Consolidated Financial Statements of the NHI Group 2022
8. Property, plant and equipment
8.2c Other lease disclosures
A maturity analysis of lease liabilities is shown in Note 12.2b.
The NHI Group incurred interest expense on lease liabilities of $18 million (2021: $25 million).
The expense relating to short-term leases and variable lease payments not included in the
measurement of lease liabilities is not significant. The total cash outflow for leases amounted
to $148 million (2021: $129 million).
During the year, there was a net impairment of $25 million in relation to leases that are not
likely to be used in the forseeable future considering the current and future 2 to 3 years
demand and expansion needs, net of reversals of impairments for subleases executed during
the period. The NHI Group continues to explore alternative avenues for impaired facilities, such
as renegotiation of more favorable lease terms or subleasing.
There are no significant lease commitments for leases not commenced at year-end.
Consolidated Financial Statements of the NHI Group 2022 41
9. Goodwill and intangible assets
Goodwill
Goodwill is initially recognized during a business combination (see Note 2). Subsequently it is
measured at cost less impairment.
Intangible Assets
This heading includes intangible assets that are internally generated or acquired, either
separately or in a business combination, when they are identifiable and can be reliably
measured. Internally generated intangible assets (mainly management information system
software) are capitalized provided that there is an identifiable asset that will be useful in
generating future benefits in terms of savings, economies of scale, etc.
Indefinite life intangible assets mainly comprise operating rights which can be renewed
without significant cost and are supported by ongoing marketing activities. They are not
amortized but are tested for impairment annually or more frequently if an impairment indicato r
is present. Any impairment charge is recorded in the income statement under Other trading
expenses. The assessment of the classification of intangible assets as indefinite is reviewed
annually.
Finite life intangible assets are amortized over the shorter of their contractual or useful
economic lives. They comprise mainly management information systems, rights and
customer relationships. They are amortized on a straight-line basis assuming a zero residual
value. Useful lives are as follows: management information systems over 3 to 8 years; other
finite intangible assets over the estimated useful life or the related contractual period,
generally 5 to 25 years. Useful lives and residual values are reviewed annually. Amortization
of finite life intangible assets starts when they are available for use and is allocated to the
appropriate headings of expenses by function in the income statement under Other trading
expenses.
9. Goodwill and intangible assets
42 Consolidated Financial Statements of the NHI Group 2022
In millions of Dollars
2022
Goodwill
Intangible assets
Net carrying amount
At January 1, 2022
15 110
4 619
Expenditure
60
Acquisitions through business combinations
Amortization
(79)
Impairments
(336)
Disposals
(1)
(3)
Classification to held for sale and disposals of businesses
(12)
At December 31, 2022
14 773
4 585
of which indefinite useful life
4 198
At December 31, 2022
Gross value
19 062
5 792
Accumulated amortization and impairments
(4 289)
(1 207)
(a)
(b)
(d)
2021
Goodwill
Intangible assets
Net carrying amount
At January 1, 2021
15 209
4 572
Expenditure
79
Acquisitions through business combinations
395
423
Amortization
(68)
Impairments
(494)
Disposals
(387)
At December 31, 2021
15 110
4 619
of which indefinite useful life
4 198
At December 31, 2021
Gross value
19 063
5 753
Accumulated amortization and impairments
(3 953)
(1 134)
(a) Includes intangible assets received from common control business combinations. See Note 16.
(b) Mainly related to Freshly (refer to Note 9.1.1).
(c) Includes the sale of a trademark to a Nestlé Group affiliate. See Note 16.
(d) Of which $4 195 million (2021: $4 195 million) are perpetual rights to market, sell and distribute certain consumer and
foodservice products from Starbucks Corporation globally.
(a)
(b)
(c)
(d)
9. Goodwill and intangible assets
Consolidated Financial Statements of the NHI Group 2022 43
Impairment of goodwill and intangible assets
Goodwill and intangible assets with an indefinite life or not yet available for use are tested for
impairment at least annually and when there is an indication of impairment. Finite life
intangible assets are tested when there is an indication of impairment.
The annual impairment tests are performed at the same time each year and at the cash
generating unit (CGU) level. The NHI Group defines its CGU for goodwill impairment testing
based on the way that it monitors and derives economic benefits from the acquired goodwill.
For indefinite life intangible assets, the NHI Group performs the test at the level of the
smallest identifiable assets or group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets.
The impairment tests are performed by comparing the carrying value of the assets of
these CGU with their recoverable amount, usually based on their fair value less costs of
disposal, but occasionally on their value in use.
An impairment loss in respect of goodwill is never subsequently reversed.
9.1 Impairment
9.1.1 Impairment charge during the year
The impairment charge of goodwill during the year ended December 31, 2022 relates mainly to
the Goodwill associated with the Freshly CGU, which is included in “Other” segments. Further
deterioration in market conditions led to sales and operating profit well below projections
during 2022 and challenges in acquisition of customers due to regulatory changes, have
resulted in lower performance expectations during 2022 and beyond. The business has since
been disposed of (see Note 2.1). Consequently, a goodwill impairment charge amounting to
$311 million has been recognized for the year ended December 31, 2022 in net other operating
expenses of the income statement using the net selling price as the highest CGU recoverable
amount.
The impairment charge in 2021, related to the Freshly CGU, is included within “Other
segments. The Freshly CGU is comprised of the net assets related only to the Freshly
acquisition. As a result of the prolonged continuation of COVID-19, Freshly experienced a
change in market conditions resulting in sales and the operating profit delivering below
projections during the year. These factors, along with increasing competitive pressures and net
cost of customer acquisition, resulted in downward revision of projected cash flows and a
recoverable amount of the CGU lower than its carrying amount. Consequently, a goodwill
impairment charge amounting to $494 million was recognized for the year ended December
31, 2021 in net other operating expenses of the income statement. The recoverable amount
was determined based upon a fair value less costs of disposal calculation as follows:
2021
Freshly
Key assumptions
Sales growth
Low double digit
Margin evolution
Moderate improvement
Terminal growth rate
3.0%
Discount rate
8.5%
Financial impact (in millions)
Impairment
494
Recoverable amount after impairment
311
9. Goodwill and intangible assets
44 Consolidated Financial Statements of the NHI Group 2022
9.1.2 Annual impairment tests
Impairment reviews have been conducted for ten Cash Generating Units (CGU). Impairment
reviews on intangible assets with indefinite useful life (“IAIUL) were performed at the level of
the smallest identifiable assets or group of assets.
The following table sets out the key assumptions for CGUs that have significant Goodwill or
IAIUL allocated to them.
Average
Goodwill IAIUL Period of annual Annual Terminal
carrying carrying cash flow sales margin growth Discount
2022 CGU amount (a) amount (a) projections growth evolution rate rate
PetCare
8 814
5 years
6.7%
Stable
2.0%
5.9%
Food
3 059
5 years
3.8%
Stable
2.0%
5.9%
Beverages
1 133
4 195
5 years
3.1%
Stable
2.0%
5.9%
Subtotal
13 006
4 195
Other CGUs
1 767
3
Total Goodwill
14 773
4 198
2021 CGU
PetCare
8 814
5 years
5.1%
Improvement
1.5%
5.4%
Food
3 059
5 years
3.8%
Stable
1.5%
5.4%
Beverages
1 134
4 195
5 years
2.6%
Improvement
1.5%
5.4
Subtotal
13 007
4 195
Other CGUs
2 103
3
Total Goodwill
15 110
4 198
(a) In millions of Dollars
For each CGU the recoverable amount is higher than its carrying amount. The recoverable
amount has been determined based upon a fair value less costs of disposal calculation.
Generally, no directly observable market inputs are available to assess the fair value less costs
of disposal. Therefore, the calculation is based on net present value techniques (fair value
measurements categorized within Level 3 of the fair value hierarchy). Cash flows for all CGUs
have been projected over 5 years. They have been extrapolated using a steady terminal growth
rate, as applicable for each CGU.
The following has been taken into account in the impairment tests:
The cash flows have been discounted at post-tax weighted average rates. The discount
rates have been computed based on external sources of information and reflect the time
value of money and the risks specific to the CGU.
The cash flows were based upon financial plans approved by NHI Group’s management
consistent with the strategy for this period. They are based on past performance and
current initiatives. The business risk was included in the determination of the cash flows.
Climate change risks, including transition and physical risks, over the medium to longer
term have been taken into account in assessing the risks of the cash flows. Impacts on the
underlying assumptions on future forecasts of CGUs and their portfolio strategy have been
considered. Sales growth, margin evolution and terminal growth have been adjusted if
necessary, considering the resilience of the CGUs to climate change risks as well as Nestlé’s
commitments to tackle climate change (including the Nestlé Group’s “Net Zero Roadmap”).
The terminal growth rates have been determined to reflect the long-term view of the nominal
evolution of the business taking into account the latest outlook for long-term inflation.
The cash flows, the discount rates and the terminal growth rates include inflation.
9. Goodwill and intangible assets
Consolidated Financial Statements of the NHI Group 2022 45
The NHI Group assesses the uncertainty of these estimates by performing sensitivity analyses.
Management believes that no reasonably possible material change in any of the above key
assumptions would cause the CGU’s recoverable amount to fall below the carrying value of the
CGUs.
10. Employee benefits
10.1 Employee remuneration
The NHI Group’s salary expenses of $2 657 million (2021: $2 499 million) and welfare expenses
of $1 186 million (2021: $1 099 million) represent a total of $3 843 million (2021: $3 598 million).
In addition, certain NHI Group employees are eligible to receive long-term incentives in the
form of equity compensation plans, for which the cost amounts to $49 million (2021: $112 million).
Employee remuneration is allocated to the appropriate headings of expenses by function (see
Note 1, section Expenses).
10.2 Post-employment benefits
The liabilities of the NHI Group arising from defined benefit obligations, and the related
current service cost, are determined using the projected unit credit method. Actuarial advice
is provided both by external consultants and by actuaries employed by the NHI Group who
perform valuations on an annual basis. Such plans are externally funded or unfunded. The
deficit or excess of the fair value of plan assets over the present value of the defined benefit
obligation is recognized as a liability or an asset on the balance sheet.
Pension cost charged to the income statement consists of service cost (current and past
service cost, gains and losses arising from curtailment and settlement) and administration
costs (other than costs of managing plan assets), which are allocated to the appropriate
heading by function, and net interest expense or income, which is presented as part of net
financial income/(expense). The actual return less interest income on plan assets, changes in
actuarial assumptions, and differences between actuarial assumptions and what has actually
occurred are reported in Other comprehensive income. Some benefits are also provided by
defined contribution plans. Contributions to such plans are charged to the income statement
as incurred.
Pensions and retirement benefits
In the USA, Nestlé’s primary pension plan is a pension equity design, under which members
earn pension credits each year based on a schedule related to the sum of their age and service
with Nestlé Group. A members benefit is the sum of the annual pension credits earned
multiplied by an average earning payable as a lump sum. However, in lieu of the lump sum,
members have the option of converting the benefit to a monthly pension annuity. With the
exception of certain Nestlé Purina hourly employees, the Nestlé Pension Plan was closed to
new entrants at the end of 2015 and replaced by a defined contribution scheme. The
contributions paid to the plan in 2022 amount to $64 million and expected contributions for
2023 will be approximately $89 million. In August 2022, a buyout transaction with a third party
insurance company was completed and $819 million of defined benefit obligation was
removed from the balance sheet. This transaction did not change the pension benefits
provided to pensioners.
9. Goodwill and intangible assets
46 Consolidated Financial Statements of the NHI Group 2022
10. Employee benefits
Post-employment medical benefits and other employee benefits
The NHI Group maintains medical benefit plans, classified as defined benefit plans under IAS
19, which cover eligible retired employees. The obligations for other employee benefits consist
mainly of post service healthcare benefits, which do not have the characteristics of pensions.
Multi-employer pension plans
The NHI Group entities are collectively members of four multi-employer defined benefit
pension plans, including the Central States Southeast and Southwest Areas Pension Fund
(“Central States”), the Western Conference of Teamsters Pension Trust Fund, the Stationary
Engineers Local 39 Pension Trust Fund and the Central Pension Fund of the International
Union of Operating Engineers and Participating Employers.
The NHI Group makes contributions to these plans based on a rate per hour as agreed
under collective bargaining arrangements with the applicable Unions.
No entity under the NHI Group was listed on available plan tax filings as an entity that provides
more than 5 percent of any of the plans’ contributions.
These plans are managed by an independent trustee board typically appointed in equal
number by employers and unions. The trustees, not The NHI Group or its entities, are
responsible for the investment of plan assets and the administration of the plans, including
maintenance of participant records.
The actuarial risks of participating in multi-employer pension plans are different from
single-employer plans. Assets contributed to a multi-employer plan by one employer may be
used to provide benefits to employees of other participating employers. If a participating
employer ceases contributions to a plan, the unfunded obligations of the plan are allocated to
the remaining participating employers.
Information about a participating employers allocation of a plan’s unfunded actuarial
liability is only made available upon request to the trustees. The Central States plan has
a Pension Protection Act (PPA) zone status of “Red” as of the most recent publicly available
tax form filing. A PPA red zone status means that the plan is generally less than 65 percent
funded. The remaining plans in which the NHI Group participates are in a green PPA zone
status as of their most recent government form filings. A PPA green zone status means that
the plan is at least 80 percent funded. In January 2023 the Central States plan received $36
billion of Special Financial Assistance (“SFA”) as a result of its application to the PBGC as
defined under The American Rescue Plan, passed by Congress in March 2021. The SFA will
substantially improve the funded status of the Central States plan once updated funded status
information that includes the SFA is published by the Central States administrators.
If an entity under the NHI Group were to cease participation in any of the multi-employer
pension plans, that entity would be allocated a portion of the plan’s unfunded actuarial liability,
otherwise known as withdrawal liability. A cessation of participation in a multi-employer plan
would most commonly be triggered through negotiation with the union. The NHI Group
entities have no current existing negotiated withdrawals from any of the named multi-
employer pension plans.
Consolidated Financial Statements of the NHI Group 2022 47
10. Employee benefits
Risks related to defined benefit plans
The main risks to which the NHI Group is exposed in relation to operating defined benefit plans
are:
ma
rket and liquidity risks: these are the risks that the investments do not meet the expected
returns over the medium to long term. This also encompasses the mismatch between asset s
and liabilities. In order to minimize the risks, the structure of the portfolios is reviewed and
asset-liability matching analyses are performed on a regular basis when relevant.
mortality risk: the assumptions adopted by the NHI Group make allowance for future
improvements in life expectancy. However, if life expectancy improves at a faster rate than
assumed, this would result generally in greater payments from the plans and consequently
increases in the plans’ liabilities. In order to minimize this risk, mortality assumptions are
reviewed on a regular basis.
As certain of the NHI Group’s pension arrangements permit benefits to be adjusted in the case
that downside risks emerge, the NHI Group does not always have full exposure to the risks
described above.
Plan amendments and restructuring events
Plans within the NHI Group are regularly reviewed by management as to whether they are
aligned with market practice in the local context. Should a review indicate that a plan needs to
be changed, prior agreement with the local governing body, the regulator and, if applicable,
the members, is sought before implementing plan changes.
During 2022, there were plan amendments and restructuring activities (among others risk
transfers of pensioners’ liabilities and medical cost sharing) leading to curtailments and
settlements, individually not significant, amounting to net related settlement and negative past
service costs of $6 million (2021: $7 million).
Asset-liability management and funding arrangement
Governing bodies are responsible for determining the mix of asset classes and target
allocations of the NHI Group’s plans with the support of investment advisors and/or local asset
management firms. Periodic reviews of the asset mix are made by external parties to assess
the portfolio structure adequacy. Such analyses aim at comparing dynamically the fair value of
assets and the liabilities in order to determine the most adequate strategic asset allocation.
The overall investment policy and strategy for the NHI Group’s funded defined benefit plans
is guided by the objective of achieving an investment return which, together with the contributions
paid, is sufficient to maintain reasonable control over the various funding risks of the plans. As
those risks evolve with the development of capital markets and asset management activities,
the NHI Group addresses the assessment and control process of the major investment pensio n
risks. In order to protect the NHI Group’s defined benefit plans funding ratio and to mitigate
the financial risks, protective measures on the investment strategies are in force, considering
sustainability, social and climate factors. To the extent possible, the risks are shared equally
amongst the different stakeholders.
48 Consolidated Financial Statements of the NHI Group 2022
10. Employee benefits
10.2a Reconciliation of assets and liabilities recognized in the balance sheet
In millions of Dollars
2022
2021
Post Post
employment employment
medical benefits medical benefits
Defined benefit and other Defined benefit and other
retirement plans
benefits
Total
retirement plans
benefits
Total
Present value of funded obligations
2 344
2 344
4 147
4 147
Fair value of plan assets
(2 352)
(2 352)
(4 348)
(4 348 )
Excess of assets over funded obligations
(8)
(8)
(201)
(201)
Present value of unfunded obligations
426
466
892
532
582
1 114
Net defined benefit liabilities
418
466
884
331
582
913
Other employee benefit liabilities
481
622
Net liabilities
1 365
1 535
Reflected in the balance sheet as follows:
Employee benefit assets
(48)
(201 )
Employee benefit liabilities
1 413
1 736
Net liabilities
1 365
1 535
10.2b Movement in the present value of defined benefit obligations
In millions of Dollars
2022
2021
Post Post
employment employment
medical benefits medical benefits
Defined benefit and other Defined benefit and other
retirement plans
benefits
Total
retirement plans
benefits
Total
At January 1
4 679
582
5 261
4 963
630
5 593
of which funded defined benefit plans
4 147
4 147
4 398
4 398
of which unfunded defined benefit
plans
532
582
1 114
565
630
1 195
Service cost
153
9
162
176
10
186
of which current service cost
147
9
156
169
10
179
of which past service cost and losses
arising from settlements
6
6
7
7
Interest expense
125
14
139
115
13
128
Actuarial losses
(940)
(105)
(1 045)
(147)
(34)
(181)
Benefits paid on funded defined benefit
plans
(1 194)
(1 194)
(366)
(366)
Benefits paid on unfunded defined benefit
plans
(56)
(34)
(90)
(65)
(37)
(102)
Plan mergers
3
3
3
3
At December 31
2 770
466
3 236
4 679
582
5 261
of which funded defined benefit plans
2 344
2 344
4 147
4 147
of which unfunded defined benefit
plans
426
466
892
532
582
1 114
(a) Including the buyout transaction as described in Note 10.2, section Pensions and retirement benefits.
(a)
Consolidated Financial Statements of the NHI Group 2022 49
10. Employee benefits
10.2c Movement in fair value of defined benefit assets
In millions of Dollars
2022
2021
Defined benefit Defined benefit
retirement plans retirement plans
At January 1
4 348
4 577
Interest income
118
109
Actual return on plan assets, excluding interest income
(983)
29
Employer contributions
118
64
Benefits paid on funded/unfunded defined benet plans
(1 249)
(431)
At December 31
2 352
4 348
(a) Including the buyout transaction as described in Note 10.2, section Pensions and retirement benefits.
(a)
The major classes of plan assets as a percentage of total plan assets:
In millions of Dollars
2022
2021
December 31:
Equities
14%
23%
Debts
63%
63%
of which government debts
38%
36%
of which corporate debts
25%
27%
Alternative investments
(b)
23%
14%
(a)
(b)
(a) Almost all have a quoted market price in an active market.
(b) Almost all are either not quoted or are quoted in a market which is not active.
Equities and government debts represent 52% (2021: 59%) of the plan assets. Almost all of
them are quoted in an active market. Corporate debts, real estate and hedge funds represent
48% (2021: 41%) of the plan assets. Almost all of them are either not quoted or quoted in a
market which is not active .
10.2d Expenses recognized in the income statement
In millions of Dollars
2022
2021
Post Post
employment employment
medical benefits medical benefits
Defined benefit and other Defined benefit and other
retirement plans
benefits
Total
retirement plans
benefits
Total
Service cost
153
9
162
169
10
179
Net interest expense
5
14
19
5
12
17
Administration expenses
16
16
12
12
Defined benefit expenses
174
23
197
186
22
208
Defined contribution expenses
129
120
Total
326
328
The expenses for defined benefit and defined contribution plans are allocated to the
appropriate headings of expenses by function.
50 Consolidated Financial Statements of the NHI Group 2022
10. Employee benefits
10.2e Remeasurement of defined benefit plans reported in other comprehensive income
In millions of Dollars
2022
2021
Post Post
employment employment
medical benefits medical benefits
Defined benefit and other Defined benefit and other
retirement plans
benefits
Total
retirement plans
benefits
Total
Actual return on plan assets, excluding
interest income
(983)
(983)
29
29
Experience adjustments on plan liabilities
(50)
4
(46)
(65)
9
(56)
Change in demographic assumptions on
plan liabilities
11
2
13
Change in financial assumptions on plan
liabilities
979
99
1 078
212
25
237
Remeasurement of defined benefit plans
- actuarial gains/(losses)
(43)
105
62
176
34
210
10.2f Principal financial actuarial assumptions
The principal financial actuarial assumptions are presented below. Each item is a weighted
average in relation to the relevant underlying component.
In millions of Dollars
2022
2021
Discount rates
5.4%
2.8%
Expected rates of salary increases
4.0%
3.5%
Medical cost trend rates
4.5% - 6.5%
4.5%-6.0%
10.2g Mortality tables and life expectancies
Expressed in years
Life expectancy at age 65 for a male Life expectancy at age 65 for a female
member currently aged 65 member currently aged 65
2022
2021
2022
2021
Mortality table
Pri-2012
20.6
20.9
22.6
22.9
Life expectancy is reflected in the defined benefit obligations by using the best estimate of the
mortality of plan members. When appropriate, base tables are adjusted to take into consideration
expected changes in mortality e.g. allowing for future longevity improvements.
Consolidated Financial Statements of the NHI Group 2022 51
10.2h Sensitivity analyses on present value of defined benefit obligations
The table below gives the present value of the defined benefit obligations when major
assumptions are changed.
In millions of Dollars
2022
2021
As reported
3 236
5 261
Discount rates
Increase of 50 basis points
3 093
4 974
Decrease of 50 basis points
3 395
5 581
Expected rates of salary increases
Increase of 50 basis points
3 284
5 300
Decrease of 50 basis points
3 212
5 227
Medical cost trend rates
Increase of 50 basis points
3 238
5 263
Decrease of 50 basis points
3 234
5 259
Mortality assumption
Setting forward the tables by 1 year
3 196
5 153
Setting back the tables by 1 year
3 276
5 354
All sensitivities are calculated using the same actuarial method as for the disclosed present
value of the defined benefit obligations at year-end.
10.2i Weighted average duration of defined benefit obligations
At December 31, 2022, the weighted-average duration of the defined benefit obligation
was 9.6 years (2021: 12 years).
10. Employee benefits
52 Consolidated Financial Statements of the NHI Group 2022
11. Provisions and contingencies
Provisions
Provisions comprise liabilities of uncertain timing or amount that arise from restructuring
plans, environmental, litigation, and other risks. Provisions are recognized when a legal or
constructive obligation stemming from a past event exists and when the future cash outows
can be reliably estimated. Provisions are measured at the present value of the expenditures
unless the impact of discounting is immaterial. Obligations arising from restructuring plans
are recognized when detailed formal plans have been established and when there is a valid
expectation that such plans will be carried out by either starting to implement them or
announcing their main features. Obligations under litigation reflect management’s best
estimate of the outcome based on the facts known at the balance sheet date.
Contingent assets and liabilities
Contingent assets and liabilities are possible rights and obligations that arise from past events
and whose existence will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not fully within the control of the NHI Group.
11.1 Provisions
Provisions are as follows:
In millions of Dollars
Restructuring
Environmental
Legal
Other
Total
At January 1, 2022
53
22
16
68
159
Provisions made during the year
62
2
51
149
264
Amounts used
(49)
(6)
(16)
(112)
(183)
Reversal of unused amounts
(10)
(2)
(12)
At December 31, 2022
56
18
49
105
228
of which expected to be settled within 12 months
54
4
33
52
143
Restructuring
Environmental
Legal
Other
Total
At January 1, 2021
44
23
10
56
133
Provisions made during the year
56
23
71
150
Amounts used
(40)
(1)
(17)
(58)
(116)
Reversal of unused amounts
(7)
(1)
(8 )
At December 31, 2021
53
22
16
68
159
of which expected to be settled within 12 months
52
10
42
104
(a)
(a)
(a) Including discounting of provisions.
Restructuring
Restructuring provisions arise from a number of projects across the NHI Group. These include
plans to optimize production, sales, and administration structures. Restructuring provisions are
expected to result in future cash outflows when implementing the plans (usually over one to
three years).
Environmental
Situations where the NHI Group is found liable for remediation or cleanup efforts by the U.S.
environmental Protection Agency (“EPA) or other governmental agencies on specific sites
represent known liabilities.
11. Provisions and contingencies
Consolidated Financial Statements of the NHI Group 2022 53
In these instances, it is the NHI Group’s policy to accrue for environmental cleanup costs
when they are assessed. As assessments and cleanups proceed, these liabilities are reviewe d
and adjusted as additional information becomes available regarding the nature and extent of
contamination, methods of remediation required, other actions by governmental agencies or
private parties, and the amount, if any, of available coverage by the NHI Group’s insurance
carriers.
Legal
Legal provisions have been set up to cover legal and administrative settlements that arise in
the ordinary course of the business. They cover numerous separate cases whose detailed
disclosure could be detrimental to the NHI Group interests. The NHI Group does not believe
that any of these cases will have a material adverse impact on its financial position. The timin g
of outflows is uncertain as it depends upon the outcome of the cases. Management does not
believe it is possible to make assumptions on the evolution of the cases beyond the balance
sheet date.
Other
Other provisions are mainly constituted by onerous contracts and various damage claims
having occurred during the year but not covered by insurance companies. Onerous contracts
result from termination of contracts or supply agreements above market prices in which the
unavoidable costs of meeting the obligations under the contracts exceed the economic
benefits expected to be received or for which no benefits are expected to be received.
11.2 Contingencies
Litigation
The NHI Group is exposed to a number of asserted claims and unasserted potential claims
encountered in the normal course of business. In the opinion of NHI Group management, the
resolution of these matters will not have a material impact on the NHI Group’s consolidated
financial position.
Exposure for environmental matters
The NHI Group has contingent liabilities related to environmental matters where the NHI Gro up
has received “Notices of Potential Liability” from, or has been identified as a “Potentially
Responsible Party” by, the EPA or other government agencies regarding the alleged disposal
of hazardous material at various sites around the country that allegedly require environmental
cleanup.
These proceedings are being vigorously defended or resolutions are being negotiated.
Although the outcome of these proceedings is unknown, NHI Group management does not
believe that any resulting liability would be material to the financial position of NHI Group.
11. Provisions and contingencies
54 Consolidated Financial Statements of the NHI Group 2022
12. Financial instruments
Financial assets – Classes and categories
The classification of financial assets is generally based on the business model in which
a financial asset is managed and its contractual cash flow characteristics. The NHI Group
classifies financial assets in the following categories:
measured at amortized cost;
measured at fair value through the income statement (abbreviated as FVTPL, fair value
through profit or loss); and
measured at fair value through Other comprehensive income (abbreviated as FVOCI).
For an equity investment that is not held for trading, the NHI Group may irrevocably elect to
classify it as measured at FVOCI. This election is made at initial recognition on an investment
by investment basis.
Financial assets – Recognition and derecognition
The settlement date is used for initial recognition and derecognition of financial assets as
these transactions are generally under contracts whose terms require delivery within the
time frame established by regulation or convention in the marketplace (regular-way purchase
or sale). Financial assets are derecognized when substantially all of the NHI Group’s rights to
cash flows from the financial assets have expired or have been transferred and the NHI Group
has transferred substantially all the risks and rewards of ownership.
Financial assets – Measurement
Financial assets are initially recognized at fair value plus directly attributable transaction
costs. However, when a financial asset measured at FVTPL is recognized, the transaction
costs are expensed immediately. Subsequent remeasurement of financial assets is
determined by their category, which is revisited at each reporting date.
Commercial paper and time deposits are held by the NHI Group’s treasury unit in a separate
portfolio in order to mitigate the credit risk exposure of the NHI Group and provide interest
income. The NHI Group considers that these investments are held within a business model
whose objective is achieved by collecting contractual cash flows. The contractual terms of
these financial assets give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding. These assets have therefore been
classified as measured at amortized cost.
Investments in equities, debt funds, equity funds as well as other financial assets not
giving rise on specified dates to cash flows that are solely payments of principal and interest
are classified at FVTPL. These investments are mainly related to liquidity management and
self-insurance activities.
Financial assets – Impairment
The NHI Group assesses whether its financial assets carried at amortized cost and FVOCI
are impaired on the basis of expected credit losses (ECL). The analysis requires the
identification of significant increases in the credit risk of the counterparties. Considering
that the majority of the NHI Group’s financial assets are trade receivables, the analysis also
integrates statistical data reflecting the past experience of losses incurred due to default,
as well as any relevant forward-looking information. See Note 7.1 for impairments related to
trade receivables.
The NHI Group measures loss allowances for investments in debt securities and time
deposits that are determined to have low credit risk at the reporting date at an amount equal
to 12 monthsexpected credit losses. The NHI Group considers a debt security to have low
credit risk when the credit rating is ‘investment grade‘ according to internationally
recognized rating agencies.
12. Financial instruments
Consolidated Financial Statements of the NHI Group 2022 55
To assess whether there is a significant increase in credit risk since initial recognition, the
NHI Group considers available reasonable and supportive information such as changes in
the credit rating of the counterparty. If there is a significant increase in credit risk the loss
allowance is measured at an amount equal to lifetime expected losses.
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as
the present value of all cash shortfalls due to a credit default event of the counterparty (i.e.
the difference between cash flows in accordance with the contract and the cash flows that
the NHI Group expects to receive).
Loss allowances for financial assets measured at amortized cost are deducted from the
gross carrying amount of the assets.
Impairment losses on other financial assets related to treasury activities are presented
under Financial expense.
The model and some of the assumptions used in calculating these ECLs are key sources
of estimation uncertainty.
Financial liabilities at amortized cost
Financial liabilities are initially recognized at the fair value, net of transaction costs incurred.
Subsequent to initial measurement, financial liabilities are recognized at amortized cost.
The difference between the initial carrying amount of the financial liabilities and their
redemption value is recognized in the income statement over the contractual terms using t he
effective interest rate method. This category includes the following classes of financial
liabilities: trade and other payables; commercial paper; bonds; lease liabilities and other
financial liabilities.
Financial liabilities at amortized cost are classified as current or non-current depending
whether these will fall due within 12 months after the balance sheet date or beyond.
Financial liabilities are derecognized (in full or partly) when either the NHI Group is
discharged from its obligation, they expire, are canceled or replaced by a new liability with
substantially modified terms.
12. Financial instruments
56 Consolidated Financial Statements of the NHI Group 2022
12.1 Financial assets and liabilities
12.1a By class and by category
In millions of Dollars
2022
2021
At fair At fair value At fair At fair value
At value to Other At value to Other
amortized to income comprehensive Total amortized to income comprehensive Total
Classes cost statement income categories cost statement income categories
Cash at bank and in hand
412
412
493
493
Bonds and debt funds
337
337
3 557
93
3 650
Equity and equity funds
176
96
272
255
3
258
Other financial assets
182
587
5
774
53
595
6
654
Liquid assets
(b)
and non-current
financial assets
594
1 100
101
1 795
546
4 407
102
5 055
Trade and other receivables
2 627
2 627
2 654
2 654
Loans to parent and affiliates
27 297
27 297
21 947
21 947
Derivative assets
25
25
42
42
Total financial assets
30 518
1 125
101
31 744
25 147
4 449
102
29 698
Trade and other payables
(3 584)
(3 584)
(4 597)
(25)
(4 622)
Financial debt
(28 151)
(28 151)
(25 093)
(25 093)
Loans from affiliates
(2 565)
(2 565)
(3 068)
(3 068)
Derivative liabilities
(535)
(535)
(126)
(126)
Total financial liabilities
(34 300)
(535)
(34 835)
(32 758)
(151)
(32 909)
Net financial position
(3 782)
590
101
(3 091)
(7 611)
4 298
102
(3 211)
of which at fair value
590
101
691
4 298
102
4 400
(a) Carrying amount of these instruments is a reasonable approximation of their fair value. For bonds included in financial debt, see
Note 12.1d.
(b) Liquid assets are composed of cash and cash equivalents and short-term investments.
(c) Include derivatives held in hedge relationships and those that are undesignated (categorized as held-for-trading), see Note
12.2d.
(a)
(a)
(c)
(c)
12. Financial instruments
Consolidated Financial Statements of the NHI Group 2022 57
12.1b Fair value hierarchy of financial instruments
The NHI Group classifies the fair value of its financial instruments in the following hierarchy,
based on the inputs used in their valuation:
Level 1: the fair value of financial instruments quoted in active markets is based on their
quoted closing price at the balance sheet date. Examples include exchange-traded
commodity derivatives and financial assets such as investments in equity and debt
securities.
Level 2: the fair value of financial instruments that are not traded in an active market is
determined by using valuation techniques using observable market data. Such valuation
techniques include discounted cash flows, standard valuation models based on market
parameters for interest rates, yield curves or foreign exchange rates, dealer quotes for
similar instruments and use of comparable arm’s length transactions. For example, the fair
value of forward exchange contracts, currency swaps and interest rate swaps is determined
by discounting estimated future cash flows.
Level 3: the fair value of financial instruments that are measured on the basis of entity
specific valuations using inputs that are not based on observable market data (unobservable
inputs). When the fair value of unquoted instruments cannot be measured with sufficient-
reliability, the NHI Group carries such instruments at cost less impairment, if applicable.
In millions of Dollars
2022
2021
Derivative assets
10
39
Bonds and debt funds
3 200
Other financial assets
2
2
Derivative liabilities
(26)
Prices quoted in active markets (Level 1)
(14)
3 241
Derivative assets
15
3
Bonds and debt funds
321
340
Equity and equity funds
268
348
Investments in life insurance company general accounts
586
595
Derivative liabilities
(509)
(126)
Valuation techniques based on observable market data (Level 2)
681
1 160
Financial assets
24
24
Financial liabilities
(25)
Valuation techniques based on unobservable input (Level 3)
24
(1 )
Total financial instruments at fair value
691
4 400
(a)
(a) Contingent consideration on acquisition.
There have been no significant transfers between the different hierarchy levels in 2022 and
in 2021.
12. Financial instruments
58 Consolidated Financial Statements of the NHI Group 2022
12.1c Changes in liabilities arising from financing activities
In millions of Dollars
2022
2021
At January 1
(25 219)
(22 928)
Changes in fair values
12
86
Changes arising from acquisition and disposal of businesses
17
(129)
Increase in lease liabilities
(304)
(189)
Inflows from bonds and other long term financial debt
(5 153)
(8 249)
Outflows from bonds, lease liabilities and other long term financial debt
1 974
3 048
Outflows from short term financial debt
25
3 144
Other movements
(2)
At December 31
(28 648)
(25 219
of which current financial debt
3 064
(2 764)
of which non-current financial debt
25 087
(22 329)
of which derivatives hedging financial debt
497
(126)
12. Financial instruments
Consolidated Financial Statements of the NHI Group 2022 59
12. Financial instruments
12.1d Bonds
In millions of Dollars
Effective Years of issue/
Comments
Coupon
interest rate
maturity
2022
2021
USD 800
2.38%
2.55%
2017-2022
799
USD 650
2.38%
2.50%
2017-2022
650
USD 300
2.25%
2.35%
2017-2022
300
EUR 850 (a)
0.88%
0.92%
2017-2025
904
959
CHF 550 (a)
0.25%
0.24%
2017-2027
595
602
CHF 150 (a)
0.55%
0.54%
2017-2032
162
164
USD 600
3.13%
3.28%
2018-2023
600
599
USD 1500 (b)
3.35%
3.41%
2018-2023
1 500
1 499
USD 900 (b)
3.50%
3.59%
2018-2025
898
897
USD 1250 (b)
3.63%
3.72%
2018-2028
1 244
1 243
USD 1250 (b)
3.90%
4.01%
2018-2038
1 233
1 233
USD 2100 (b)
4.00%
4.11%
2018-2048
2 062
2 062
USD 1150 (b)
0.38%
0.49%
2020-2024
1 149
1 147
USD 750 (b)
0.63%
0.77%
2020-2026
747
746
USD 1100 (b)
1.00%
1.06%
2020-2027
1 097
1 096
USD 1000 (b)
1.25%
1.37%
2020-2030
992
990
GBP 600 (a)
0.63%
0.75%
2021-2025
723
808
GBP 400 (a)
1.38%
1.46%
2021-2033
478
535
USD 300
1.13%
1.19%
2021-2026
299
299
USD 1500 (b)
0.61%
0.66%
2021-2024
1 499
1 498
USD 1000 (b)
1.50%
1.58%
2021-2028
996
995
USD 1000 (b)
1.88%
1.91%
2021-2031
997
997
USD 500 (b)
2.50%
2.55%
2021-2041
497
496
USD 500 (b)
1.15%
1.22%
2021-2027
499
498
USD 500 (b)
2.63%
2.69%
2021-2051
493
493
CAD 2000 (a)
2.19%
2.23%
2021-2029
1 476
1 571
GBP 300 (a)
2.13%
2.25%
2022-2027
360
GBP 600 (a)
2.50%
2.53%
2022-2032
722
USD 750 (b)
4.00%
4.07%
2022-2025
749
USD 500 (b)
4.13%
4.20%
2022-2027
498
USD 500 (b)
4.25%
4.31%
2022-2029
498
USD 1250 (b)
4.30%
4.38%
2022-2032
1 242
USD 1000 (b)
4.70%
4.76%
2022-2053
990
Other Bonds
98
179
Total carrying amount
26 297
23 355
of which due within one year
2 143
1 828
of which due after one year
24 154
21 527
Fair value
(*)
of bonds, based on prices
quoted (level 2)
23 785
24 255
(*)
Carrying amount and fair value of bonds exclude accrued interest.
(a) Subject to an interest rate and currency swap that creates a U.S. dollar asset or liability at fixed rates.
(b) Sold in the United States only to qualified institutional buyers and outside the United States to non-US persons.
(*)
Several bonds are hedged by currency and/or interest derivatives. The fair value of these
derivatives is shown under derivative assets of $12 million (2021: $0 million) and under
derivative liabilities of $509 million (2021: $126 million).
60 Consolidated Financial Statements of the NHI Group 2022
12. Financial instruments
12.2 Financial risks
In the course of its business, the NHI Group is exposed to a number of financial risks: credit
risk, liquidity risk, market risk (including foreign currency risk and interest rate risk, commodity
price risk and equity price risk). The Note presents the NHI Group’s objectives, policies and
processes for managing its financial risk and capital.
Financial risk management is an integral part of the way the NHI Group is managed. The
Board of Directors determines the financial control principles as well as the principles of
financial planning. The Chief Executive Officer organizes, manages, and monitors all financial
risks, including asset and liability matters.
A Nestlé S.A. Asset and Liability Management Committee (“ALMC”), chaired by the Chief
Financial Officer of Nestlé S.A., is the governing body for the establishment and subsequent
execution of Nestlé S.A.’s Financial Asset and Liability Management Policy, to which NHI is
subject. It ensures implementation of strategies and achievement of objectives
of the Nestlé S.A.’s financial asset and liabilities management, which are executed by the
Centre Treasury, the Regional Treasury Centres, and in specific local circumstances, by the
subsidiaries. Approved treasury management guidelines define and classify risks as well as
determine, by category of transaction, specific approval, execution, and monitoring procedures.
The activities of the Centre Treasury and of the Regional Treasury Centres are monitored by
an independent Middle Office, which verifies the compliance of the strategies and/or operations
with the approved guidelines and decisions taken by the ALMC.
12.2a Credit risk
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations
resulting in financial loss to the NHI Group. Credit risk arises on financial assets (liquid,
non-current and derivatives) and on trade and other receivables.
The NHI Group aims to minimize the credit risk of liquid assets, non-current financial assets
and derivative assets through the application of risk management policies. Credit limits are set
based on each counterpartys size and risk of default. The methodology used to set the credit
limit considers the counterpartys balance sheet, credit ratings, risk ratios and default
probabilities. Counterparties are monitored regularly, taking into consideration the evolution of
the above parameters, as well as their share prices and credit default swaps. As a result of this
review, changes on credit limits and risk allocation are carried out. The NHI Group avoids the
concentration of credit risk on its liquid assets by spreading them over several institutions and
sectors.
Trade receivables are subject to credit limits, control, and approval procedures in all the
subsidiaries. Due to its large number of customers, the NHI Group is not exposed to material
concentrations of credit risk on its trade receivables (see Note 7.1). Nevertheless, commercial
counterparties are constantly monitored following the similar methodology used for financial
counterparties.
The maximum exposure to credit risk resulting from financial activities, without considering
netting agreements and without taking into account any collateral held or other credit
enhancements, is equal to the carrying amount of the NHI Group’s financial assets.
Consolidated Financial Statements of the NHI Group 2022 61
12. Financial instruments
Credit rating of financial assets
This includes liquid assets, non-current financial assets and derivative assets. The credit risk of
the financial assets is assessed based on the risk of the counterparties including the associated
country risk. The NHI Group uses an internationally recognized credit scale to present the
information. The NHI Group deals mainly with financial institutions located in United Kingdom,
the European Union, and North America.
In millions of Dollars
2022
2021
A- and above
1 300
4 593
BBB+, BBB and BBB-
64
76
BB+ and below
13
19
Not rated
1 031
409
2 408
5 097
(a)
(a) Mainly equity securities and other investments for which no credit rating is available.
12.2b Liquidity risk
Liquidity risk management
Liquidity risk is the risk that a company may encounter difficulties in meeting its obligations
associated with financial liabilities that are settled by delivering cash or other financial assets.
Such risk may result from inadequate market depth or disruption or refinancing problems. The
NHI Group’s objective is to manage this risk by limiting exposures in financial instruments that
may be affected by liquidity problems and by maintaining sufficient back-up facilities.
62 Consolidated Financial Statements of the NHI Group 2022
12. Financial instruments
Contractual maturities of financial liabilities and derivatives (including interest)
In millions of Dollars
2022
After Contractual Carrying
1st year
2nd year
3rd to 5th year
the 5th year amount amount
Trade and other payables
3 584
3 584
3 584
Loan from affiliates
2 565
2 565
2 565
Commercial paper
547
547
547
Bonds
2 788
3 224
8 956
18 852
33 820
26 297
Lease liabilities
175
149
386
453
1 163
1 110
Other financial debt
197
197
197
Other financial liabilities
Total financial debt
3 707
3 373
9 342
19 305
35 727
28 151
Financial liabilities (excluding derivatives)
9 856
3 373
9 342
19 305
41 876
34 300
Non-currency derivative assets
10
10
10
Non-currency derivative liabilities
(25)
(1)
(26)
(26)
Gross amount receivable from currency
derivatives
107
77
2 792
2 878
5 854
4 865
Gross amount payable from currency
derivatives
(164)
(136)
(3 107)
(3 207)
(6 614)
(5 359)
Net derivatives
(72)
(60)
(315)
(329)
(776)
(510)
of which derivatives under cash flow hedges
72
60
315
329
776
510
2021
After Contractual Carrying
1st year
2nd year
3rd to 5th year
the 5th year amount amount
Trade and other payables
4 581
4 581
4 581
Loan from affiliates
3 068
3 068
3 068
Commercial paper
512
512
512
Bonds
2 316
2 596
7 487
16 449
28 848
23 355
Lease liabilities
154
113
285
431
983
953
Other financial debt
237
237
237
Other financial liabilities
44
17
61
61
Total financial debt
3 263
2 726
7 772
16 880
30 641
25 118
Financial liabilities (excluding derivatives)
10 912
2 726
7 772
16 880
38 290
32 767
Non-currency derivative assets
(42)
(42)
(42)
Non-currency derivative liabilities
Gross amount receivable from currency
derivatives
(36)
(16)
(1 806)
(773)
(2 631)
(2 595)
Gross amount payable from currency
derivatives
79
59
1 956
770
2 864
2 721
Net derivatives
1
43
150
(3)
191
84
of which derivatives under cash flow hedges
3
42
150
(3)
192
84
(a)
(a)
(a) Bonds of $895 million (2021: $951 million) have maturities of less than three months.
Consolidated Financial Statements of the NHI Group 2022 63
12. Financial instruments
12.2c Market risk
The NHI Group is exposed to risk from movements in foreign currency exchange rates, interest
rates and market prices that affect its assets, liabilities and future transactions.
Foreign currency risk
The NHI Group is exposed to foreign currency risk from transactions. Transactional exposures
arise from transactions in foreign currency. They are managed within a prudent and systematic
hedging policy in accordance with the NHI Group’s specific business needs through the use of
currency forwards, futures, swaps and options.
Value at Risk (VaR) based on historic data for a 250-day period and a confidence level of
95% results in no VaR in 2022 and 2021.
The NHI Group cannot predict the future movements in exchange rates, therefore the above
VaR number neither represents actual losses nor considers the effects of favorable
movements in underlying variables. Accordingly, the VaR number may only be considered
indicative of future movements to the extent the historic market patterns repeat in the future.
Interest rate risk
Interest rate risk on financial debt is managed based on duration and interest management
targets set by the ALMC through the use of fixed rate debt and interest rate swaps.
Taking into account the impact of interest derivatives, the proportion of financial debt
subject to fixed interest rates for a period longer than one year represents 89% (2021: 89%).
Price risk
Commodity price risk
Commodity price risk arises from transactions on the world commodity markets to secure
supplies of green coffee, cocoa beans, cereals and grains and other commodities necessary for
the manufacture of some of the NHI Group’s products.
The NHI Group’s objective is to minimize the impact of commodity price fluctuations and
this exposure is hedged in accordance with the Nestlé Group policy on commodity price risk
management. The Global Procurement Organization is responsible for managing commodity
price risk based on internal directives and centrally determined limits, generally using exchange-
traded commodity derivatives. The commodity price risk exposure of future purchases is
managed using a combination of derivatives (mainly futures and options) and executory contracts.
This activity is monitored by an independent Middle Office. Given the short product business
cycle of the NHI Group, the majority of the anticipated future raw material transactions
outstanding at the balance sheet date are expected to occur in the next year.
Equity price risk
The NHI Group is exposed to equity price risk on investments. To manage the price risk arising
from these investments, the NHI Group diversifies its portfolios in accordance with the
guidelines set by the Board of Directors of Nestlé S.A.
64 Consolidated Financial Statements of the NHI Group 2022
12.2d Derivative assets and liabilities and hedge accounting
Derivative financial instruments
The NHI Group’s derivatives mainly consist of currency forwards, options and swaps;
commodity futures and options and interest rate swaps. Derivatives are mainly used to
manage exposures to foreign exchange, interest rate and commodity price risk as described
in section 12.2c Market risk.
Derivatives are initially recognized at fair value. They are subsequently remeasured at fair
value on a regular basis and at each reporting date at a minimum, with all their gains and
losses, realized and unrealized, recognized in the income statement unless they are in a
qualifying hedging relationship.
Hedge accounting
The NHI Group designates and documents the use of certain derivatives and other financial
assets or financial liabilities as hedging instruments against changes in fair values of
recognized assets and liabilities (fair value hedges) and highly probable forecast transactions
(cash flow hedges). The effectiveness of such hedges is assessed at inception and verified at
regular intervals and at least on a quarterly basis to ensure that an economic relationship
exists between the hedged item and hedging instrument.
The NHI Group excludes from the designation of the hedging relationship the hedging
cost element. Subsequently, this cost element impacts the income statement
at the same time as the underlying hedged item.
For the designation of hedging relationships on commodities, the NHI Group applies the
component hedging model when the hedged item is separately identifiable and measurable
in the contract to purchase the materials.
Fair value hedges
The NHI Group uses fair value hedges to mitigate foreign currency and interest rate risks
of its recognized assets and liabilities, being mostly financial debt.
Changes in fair values of hedging instruments designated as fair value hedges and the
adjustments for the risks being hedged in the carrying amounts of the underlying
transactions are recognized in the income statement.
Cash flow hedges
The NHI Group uses cash flow hedges to mitigate a particular risk associated with
a recognized asset or liability or highly probable forecast transactions, such as anticipated
future export sales, purchases of equipment, and goods, as well as the variability of
expected interest payments and receipts.
The effective part of the changes in fair value of hedging instruments is recognized in
Other comprehensive income, while any ineffective part is recognized immediately in the
income statement. Ineffectiveness for hedges of foreign currency and commodity price risk
may result from changes in the timing of the forecast transactions than originally foreseen.
When the hedged item results in the recognition of a non-financial asset or liability, including
acquired businesses, the gains or losses previously recognized in Other comprehensive
income are included in the measurement of the cost of the asset or the liability. Otherwise
the gains or losses previously recognized in Other comprehensive income are recognized in
the income statement at the same time as the hedged transaction.
Undesignated derivatives
Derivatives which are not designated in a hedging relationship are classified as undesignated
derivatives. They are used in the framework of approved risk management policies.
12. Financial instruments
Consolidated Financial Statements of the NHI Group 2022 65
Derivatives by hedged risks
In millions of Dollars
2022
2021
Contractual Contractual
Fair value Fair value or notional Fair value Fair value or notional
assets liabilities amounts assets liabilities amounts
Cash flow hedges
Currency risk on future purchases or sales
3
30
20
Foreign currency and interest rate risk on net financial debt
12
509
3 111
125
2 537
Commodity price risk on future purchases
10
26
416
42
1
165
25
535
3 557
42
126
2 722
Conditional offsets
Derivative assets and liabilities
(2)
(2)
(3)
(80)
Balances after conditional offsets
23
533
39
46
(a) Represent amounts that would be offset in case of default, insolvency or bankruptcy of counterparties.
(a)
A description of the types of hedging instruments by risk category is included in Note 12.2c
Market risk.
The majority of hedge relationships are established to ensure a hedge ratio of 1:1.
Impact on the consolidated income statement of fair value and cash flow hedges
The majority of fair value hedges are related to financing activities and are presented in Net
financing cost. Ineffective portion of gains/(losses) of fair value and cash flow hedges is not
significant.
12.2e Capital risk management
The NHI Group‘s capital risk management strategy is to maintain a sound capital base to
support the continued development of the NHI Group’s operations, utilizing various funding
sources available to it. Substantially all of the NHI Group’s debt is guaranteed by Nestlé S.A.,
which allows the NHI Group to borrow from third parties at lower interest rates. In order to
ensure that the return on invested capital is optimized, the NHI Group establishes strict limits
on annual additions of property, plant and equipment.
12. Financial instruments
66 Consolidated Financial Statements of the NHI Group 2022
13. Taxes
The NHI Group files a consolidated return with Nestlé US Holdco Inc. However, the NHI Group
also records its own tax expense and liability as if it filed on a standalone basis. Taxes and
fiscal risks recognized in the Consolidated Financial Statements reflect NHI Group
management’s best estimate of the outcome based on the facts known at the balance sheet
date. These facts may include but are not limited to changes in tax laws and interpretations
thereof in the United States. They may have an impact on the income tax as well as the
resulting assets and liabilities. Any differences between tax estimates and final tax
assessments are charged to the income statement in the period in which they are incurred,
unless anticipated.
Taxes include current and deferred taxes on profit and tax adjustments relating to prior
years. Income tax is recognized in the income statement, except to the extent that it relates
to items directly taken to equity or other comprehensive income, in which case it is recognized
against equity or other comprehensive income.
Deferred taxes are based on the temporary differences that arise when taxation authorities
recognize and measure assets and liabilities with rules that differ from the principles of the
Consolidated Financial Statements. They also arises on temporary differences stemming
from tax losses carried forward.
Deferred taxes are calculated under the liability method at the rates of tax expected to
prevail when the temporary differences reverse subject to such rates being substantially
enacted at the balance sheet date. Any changes of tax rates are recognized in the income
statement unless related to items directly recognized against equity or other comprehensive
income. Deferred tax liabilities are recognized on all taxable temporary differences excluding
non-deductible goodwill. Deferred tax assets are recognized on all deductible temporary
differences provided that it is probable that future taxable income will be available.
13. Taxes
Consolidated Financial Statements of the NHI Group 2022 67
13. Taxes
13.1 Components of taxes recognized in the income statement
In millions of Dollars
2022
2021
Current taxes
(296)
223
Deferred taxes
(165)
(163)
Total tax (expense)/benefit
(461)
60
13.2 Reconciliation of taxes recognized in the income statement
In millions of Dollars
2022
2021
Expected tax expense at average applicable tax rate
(413)
(157)
Tax effect on non-deductible amortization and impairment of goodwill and other intangible assets
(78)
(125)
Permanent differences on company-owned life insurance policies
(17)
16
Tax effect of non-deductible or non-taxable items
105
34
Prior years’ taxes
(5)
275
Transfers from unrecognized deferred tax assets
(43)
18
Other
(10)
(1)
Tax (expense)/benefit at effective tax rate
(461)
60
The components of deferred tax (expense)/benefit by type are as follows:
In millions of Dollars
2022
2021
Tangiblexed assets
(9)
(37)
Goodwill and other intangible assets
(131)
(104)
Employee benefits
(68)
1
Inventories, receivables, payables, accruals, and provisions
49
25
Net operating losses
(35 )
Other
(6)
(13)
Deferred tax expense
(165)
(163)
Taxes recognized in other comprehensive income/(loss):
In millions of Dollars
2022
2021
Tax effect relating to:
Fair value adjustments on cash flow hedges
4
(22 )
Defined benefit plan actuarial losses
(16)
(53 )
Total taxes recognized
(12)
(75 )
68 Consolidated Financial Statements of the NHI Group 2022
13. Taxes
13.3 Reconciliation of deferred taxes by type of temporary differences recognized
on the balance sheet
Deferred tax assets by types of temporary differences are as follows:
In millions of Dollars
2022
2021
Employee benefits
366
450
Inventories, receivables, payables, accruals, and provisions
222
176
Net operating losses
20
22
Others
10
10
Total deferred tax assets
618
658
Deferred tax liabilities by types of temporary differences are as follows:
In millions of Dollars
2022
2021
Tangiblexed assets
678
639
Goodwill and other intangible assets
1 127
1 023
Financial instruments
2
5
Others
28
20
Total deferred tax liabilities
1 835
1 687
Deferred tax is presented as a net deferred tax liability in the 2022 consolidated balance sheet
at an amount of $1 217 million (2021: $1 029 million).
13.4 Unrecognized deferred taxes
At December 31, 2022 and 2021, deferred taxes were recognized for all temporary differences,
unless an exception from the general principal applied. At December 31, 2022, these
unrecognized deferred tax assets totaled $43 million which have no expiration date (2021: $0
million).
Consolidated Financial Statements of the NHI Group 2022 69
14. Associates
14. Associates
Associates are companies where the NHI Group has the power to exercise a significant
influence but does not exercise control. Significant influence is the power to participate in
the financial and operating policy decision of the investee, and the determination of whether
the NHI Group has significant influence requires the exercise of judgment. It may be
evidenced when the NHI Group has 20% or more of the voting rights in the investee or has
obtained representation on the Board of Directors or otherwise participates in the policy-
making process of the investee.
Associates are accounted for using the equity method. The net assets and results are
adjusted to comply with the NHI Group’s accounting policies. The carrying amount of
goodwill arising from the acquisition of associates is included in the carrying amount of
investments in associates.
In % and in millions of Dollars
Ownership interest
Net book value
2022
2021
2022
2021
GANADO SOLAR Holdings, LLC
36%
TE Taygete Energy Holdco LLC
48%
48%
18
Total investments in associated companies
18
In December 2020, the Company acquired a minority interest of 48% in TE Taygete Energy
Holdco LLC and in November 2022, the Company acquired a minority interest of 36% in
Ganado Solar Holdings, LLC. Both of these investments are related to renewable energy
projects in the U.S.
15. Cash flow statement
15.1 Operating profit
In millions of Dollars
2022
2021
Profit for the year
1 127
688
Loss from associates
18
Taxes
461
(60)
Financial income
(687)
(480)
Financial expense
801
654
Total
1 720
802
70 Consolidated Financial Statements of the NHI Group 2022
15.2 Non-cash items of income and expense
In millions of Dollars
2022
2021
Depreciation of property, plant and equipment
728
703
Impairment of property, plant and equipment
151
75
Impairment of goodwill
336
494
Amortization of intangible assets
79
68
Net result on disposal of businesses
7
24
Net result on disposal of assets
20
(2)
Non-cash items in financial assets and liabilities
40
(453)
Total
1 361
909
15.3 Decrease/(increase) in working capital
In millions of Dollars
2022
2021
Inventories
(691)
(447)
Trade and other receivables
39
(301)
Prepayments and accrued income
12
(25)
Trade and other payables
(799)
1 345
Financial Assets
(6)
Accruals
109
10
Total
(1 336)
582
15.4 Variation of other operating assets and liabilities
In millions of Dollars
2022
2021
Variation of employee benefits and liabilities
(144)
109
Variation of provisions
74
26
Other
126
127
Total
56
262
15.5 Cash and cash equivalents at end of year
Cash and cash equivalents include cash at bank and in hand and other short-term highly
liquid investments with maturities of three months or less from the initial recognition.
15. Cash flow statement
Consolidated Financial Statements of the NHI Group 2022 71
16. Transactions with related parties
16. Transactions with related parties
Compensation of key management personnel
Key management personnel comprise five high-ranking officers in each of the following
subsidiaries: Nestlé USA, Inc., Nestlé Purina PetCare Company, and Gerber Products
Company. These officers hold the positions of Chief Executive Officer, Chief Financial Officer,
Head of Human Resources, General Counsel, and Head of Sales or Sales/Marketing. The Chief
Executive Officer and the Chief Financial Officer of Nestlé USA, Inc. are directors of NHI. There
is one non-executive director.
The compensation paid or payable to key Company management for employee services is
shown below:
In millions of Dollars
2022
2021
Salaries and other short-term employee benefits
17
17
Share-based payments
11
12
Post-employment benefits
1
2
Total compensation
29
31
Loans with related parties
In millions of Dollars
2022
2021
Loans to NIMCO US, Inc. (Parent) and NUSHI (NIMCO Parent):
At January 1
17 596
14 963
Loans granted during year
1 204
2 937
Loan repayments
(302 )
Adjustments due to scope change
(2)
At December 31
18 800
17 596
Loans to affiliates:
At January 1
4 351
6 105
Loans granted during year
4 344
2 185
Loan repayments
(198)
(3 715 )
Adjustments due to scope change
(224)
At December 31
8 497
4 351
Total loans to parent, NIMCO and affiliates
27 297
21 947
Of which current
25 709
20 947
Of which non-current
1 588
1 000
Loans from affiliates:
At January 1
3 068
442
Loans received during year
112
3 047
Loan repayments
(615)
(421)
Total loans from affiliates at December 31
2 565
3 068
72 Consolidated Financial Statements of the NHI Group 2022
Transactions under common control
On November 18, 2022, the NHI Group sold Freshly, a healthy prepared meals business to a
Nestlé Group affiliate for its fair value of $27 million. The total fair value of the assets transferred
was $67 million with associated liabilities amounting $40 million.
BBC Intermediate Holdings, high-end specialty coffee roaster, was acquired by the Nestlé
Group and transferred to the NHI Group by NIMCO (Parent of NHI) in July 2021 at book value
with net liabilities of $25 million contributed. Included in these net liabilities are $113 million of
intangible assets, $115 million of ROU assets and $64 million of property, plant and equipment.
In 2021, the NHI Group sold its participation in two BBC Intermediate Holdings subsidiaries to a
Nestlé Group affiliate for a net gain of $55 million.
On March 5, 2021, the NHI Group sold the Essentia trademark to a Nestlé Group affiliate for
its provisional fair value of $278 million, in consideration thereof, the NHI Group had a loan due
from the Nestlé Group affiliate for $278 million. As of December 31, 2021, the final value of the
trademark sold was $273 million with a loan due from the Nestlé Group affiliate of $273 million.
Royalties to Nestlé Group
The NHI Group is granted use in the United States of licensed brands and other intellectual
property and obtains technical assistance from a Nestlé Group affiliated company via a general
license agreement. In 2022, the NHI Group incurred royalties of $3 192 million to the Nestlé
Group affiliated company (2021: $3 794 million).
17. Events after the balance sheet date
The Company is not aware of any specific events or transactions occurring after December 31,
2022 and up to February 28, 2023, that could have a material impact on the presentation of the
accompanying Consolidated Financial Statements.