Solid First Half Performance By Nestlé
Nestlé has reported a 2.3% increase in total sales to SFr43.9 billion (€37.8 billion) and 19.0% jump in net profit to SFr5.8 billion for the first half of 2018, as the global food and beverage group continued to make progress with its value creation model. The increase in net profit was mainly the result of income from the disposal of businesses, lower taxes and improved operating performance.
Organic sales growth of 2.8% in the first half was in line with expectations and within Nestlé’s guidance for 2018. RIG was 2.5% and remained at the high end of the food and beverage industry. Pricing contributed 0.3%, reflecting the challenging environment in Europe and lower inflation in some emerging markets.
Organic growth in the first half improved materially in North America and China. All categories reported positive growth, led by coffee, petcare, and Nestlé Health Science. Infant nutrition sales growth accelerated, with a broad-based improvement across all geographies, helped by recent product launches, including HMOs (Human Milk Oligosaccharides) infant formula.
Underlying trading operating profit increased by 3.5% to SFr7.1 billion. The underlying trading operating profit margin increased by 20 basis points in constant currency, and by 20 basis points on a reported basis to 16.1%. Margin expansion was supported by operational efficiencies and successful execution of ongoing restructuring initiatives. These cost savings were partially offset by higher commodity and packaging costs of SFr90 million, amounting to a 20 basis point headwind. Distribution costs also increased.
The underlying trading operating profit margin is expected to improve further in the second half of the year, driven by further benefits from efficiency programs and more favourable commodity prices.
Restructuring expenditure and net other trading items increased by SFr323 million to SFr672 million. As a consequence, trading operating profit decreased by 1.3% to SFr6.4 billion and the trading operating profit margin decreased by 50 basis points on a reported basis to 14.6%.
Nestlé made further progress during the period to actively evolve its portfolio towards high-growth, high-margin categories and brands. On May 7, 2018, an agreement was announced granting Nestlé the perpetual rights to market Starbucks consumer and foodservice products globally, outside of Starbucks coffee shops. As part of this transaction, Starbucks will receive an up-front cash payment of US$7.15 billion for a business which generated annual sales of US$2 billion. The agreement is now expected to close at the end of August 2018. The process of exploring strategic options for the Gerber Life Insurance business is on track with completion expected in 2018.
Mark Schneider (pictured), chief executive of Nestlé, comments: “Our first half results confirmed that our strategic initiatives and rigorous execution are clearly paying off. Nestlé has maintained the encouraging organic revenue growth momentum we saw at the beginning of the year. In particular, the United States and China markets showed a meaningful improvement. We were also pleased by the enhanced organic growth in our core infant nutrition category.”
He continues: “Our margin development is fully consistent with our 2020 target. We are creating value by pursuing growth and profitability in a balanced manner. In line with this approach, we have accelerated our product innovation efforts to drive future growth and initiated significant cost reduction efforts, in particular in Zone EMENA and at our Corporate Center.”
Nestlé has confirmed it full-year guidance for 2018 with organic sales growth expectation narrowed to around 3% and underlying trading operating profit margin improvement in line with its 2020 target.
