Nestle SA – Risk Profile
- As per GlobalData's proprietary risk methodology, Nestle's overall risk score is 3.62, signifying a strong risk profile
- The company's operational and country risk pillars have boosted the overall risk profile of the company
- Low liquidity and over-reliance on equity have negatively impacted the financial risk scores
Nestle SA (Nestle) has a strong risk profile and is one of the leading companies based on our proprietary risk assessment of the food sector in the consumer industry. Its operational and country risk scores fare better, given its diversified territorial presence, strong R&D capabilities, and well-known brands. However, low liquidity is a cause for concern, affecting the financial risk scores.
About the Company
Nestle is a manufacturer and marketer of food products and beverages. The company's product portfolio comprises baby foods, bottled water, cereals, chocolates and confectionery, coffee, culinary products, chilled and frozen foods, dairy products, nutritional products, ice cream, and pet products. Its major brands include Aero, Alpo, Milkybar, Nestle Ice Cream, Cerelac, Nescafe, Nespresso, Nestea, Milo, Maggi, Buitoni, Cailler, Movenpick, Freshly, Purina, Boost, Gerber, and KitKat.
Nestle is one of the leaders in the food industry, with reported revenue of $95 billion in 2021, which declined 3.56% over 2020. Net income increased 41.91% in 2021 compared to 2020.
Risk Pillars
Our proprietary risk assessment uses a combination of four risk pillars – Country, Industry, Operational, and Financial. Scores are based on a scale of 1 to 5, 1 being the lowest risk and 5 being the highest.
Nestle is one of the top fifteen companies in the food sector, while companies like Dali Foods Group Co Ltd, Calbee Inc, and Foshan Haitian Flavoring Food Co., Ltd. lead the sector.
Country Risk: The company has a presence in diverse territories which insulates it from the risk associated with economic and political factors of a specific region. The company's majority of the revenue is from the Americas (44.73%), followed by Europe and MENA (29.10%), and Asia, Oceania, and Sub-Saharan Africa (29.10%). By country, the US generates the highest revenue (30.84%), followed by China (7.10%). The company's country risk score stood at 4.09.
Industry Risk: The company's primary exposure is to the food sector, followed by non-alcoholic beverages. More than half of Nestle's revenue comes from food (66%), and the rest from non-alcoholic beverages. Low-profit margins and weak growth projections characterize the food and non-alcoholic beverage sectors, resulting in an average industry risk score of 3.
Operational Risk: The scale sub-pillar drives the operational risk score, given the company's large scale of operation with more than 2,000 branded products in 186 countries. The strong brand portfolio and worldwide recognition result in customer loyalty and enable the company to retain customers in a highly competitive environment. Strong profitability margins also drive the operational score.
Financial Risk: Low liquidity due to high inventory days have impacted the overall financial scores. The company has increased its raw and packaging material inventories to ensure sales and production continue despite potential disruptions. The company is also over-relying on its equity, given its low debt-to-equity ratio, which can be costly and inefficient. The same has also impacted the financial risk scores.
About our Methodology:
GlobalData risk scorecard for a sector provides the analysis of various risks a company is vulnerable to. Our risk framework comprises four pillars – country, industry, operational and financial. The country risk for an entity signifies the risk of operating in a particular country. GlobalData's proprietary country risk assessment framework is used to calculate the risk for individual countries. Industry risk is an integral part of risk analysis, and it implies the riskiness and stability of the industries in which a company operates. The operational and financial risk profile comprises a company's risk and returns potential based on its critical operational and financial metrics. Our scores are based on an average of the latest three fiscal year data.
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