VEVEY, Switzerland – Nesté reported on Thursday its first-half results. Sales totalled CHF 42.8 billion (US$43.89 billion), with 4.5% of organic growth and 1.7% real internal growth. Trading operating profit margin rose 15.0%, up 20 basis points in constant currencies.
Underlying earnings per share were up 7.3% in constant currencies
Paul Bulcke, Nestlé CEO stated: “The first half results were in line with our expectations, broad-based across categories and geographies, solid even in difficult circumstances, and consistent with our strong performance over time.
They reflect the relevance and strength of our Nutrition, Health and Wellness strategy and our discipline in execution. Our investments in the new growth platforms Nestlé Health Science and Nestlé Skin Health are delivering and complement the good momentum in our food and beverages businesses. This allows us to confirm the outlook for the full year.”
Group results
In the first half of 2015 organic growth was 4.5%, composed of 1.7% real internal growth and 2.8% pricing. Total sales of CHF 42.8 billion were impacted by foreign exchange (-5.8%). Acquisitions, net of divestitures, contributed 1% to sales.
• Growth was broad-based across categories and geographies.
• Organic growth in the developed markets accelerated to 2.2% while in the emerging markets strong organic growth of 7.3% was achieved.
• Organic growth was 6.6% in the Americas (AMS), 3.4% in Europe, Middle East and North Africa (EMENA) and 2.2% in Asia, Oceania and sub-Saharan Africa (AOA). Real internal growth was 1.7% in AMS, 2.4% in EMENA and 0.6% in AOA.
• The continuous efforts to drive cost efficiencies, and the consolidation of Nestlé Skin Health, led to a 160 basis points drop in the cost of goods sold. The effect from input costs was neutral.
• Cost reductions were partly reinvested in increased consumer facing marketing support. The trading operating profit margin rose by 20 basis points in constant currencies. Trading operating profit was CHF 6.4 billion with a margin of 15.0%.
• Net profit was CHF 4.5 billion and reported earnings per share were CHF 1.43. Underlying earnings per share rose 7.3% in constant currencies.
• The group’s operating cash flow was CHF 3.9 billion reflecting the appreciation of the Swiss Franc, lower dividend income from L’Oréal due to their reduced shareholding and the timing of tax payments.
Zone AMS
Sales of CHF 12.0 billion, 5.2% organic growth, 0.1% real internal growth; 18.0% trading operating profit margin, +10 basis points
• The Zone delivered good organic growth, driven by improvements in the business in North America and positive momentum in Latin America. Nescafé Dolce Gusto, creamers and petcare continued to be significant growth drivers.
• In North America Nestlé relaunched their frozen meals brands with the new Lean Cuisine Market Place and Stouffers Fit Kitchen ranges. The first signs are promising and indicate that they are meeting the fast-changing expectations of consumers. New additions to the Snack Bites range helped deliver solid growth for Hot Pockets, and some improvement was seen in frozen pizza. In ice cream, new products delivered solid growth for Haägen Dazs in super premium and Outshine for snacks. Coffee-mate grew well, supported by innovations like Natural Bliss and Coffee-mate 2GO. Petcare showed good growth, in spite of the negative impact from the Beneful case. Among the drivers were Fancy Feast cat food, the Pro Plan platform for dog food, and cat litter.
• Nestlé continued to grow the business in Latin America in what is still a volatile environment. Investment behind the growth platforms drove performance in Brazil. Nescafé Dolce Gusto and KitKat both delivered strong double-digit growth, as did soluble coffee. Nescau achieved good growth for cocoa and malt beverages while Passatempo and Nesfit did well for biscuits. Mexico grew during the first half, led by Nescafé and Coffee-mate. Petcare continued to be a growth driver for Latin America and will benefit from new production capacity in Argentina and Mexico.
• The Zone’s trading operating profit margin benefited from operational efficiencies and positive pricing.
Zone EMENA
Sales of CHF 7.9 billion, 3.8% organic growth, 2.0% real internal growth; 16.2% trading operating profit margin, +80 basis points
• After a strong start to the year the different geographies of the Zone continued to grow in spite of the volatile and challenging environment. The solid growth was broad-based with Nescafé Dolce Gusto, soluble coffee, petcare and frozen pizza among the highlights. Organic growth was also driven by price increases for coffee and some inflationary pressures in Russia, Ukraine and Turkey, compensating for the deflationary environment in Western Europe.
• Innovation and premiumisation continued to drive the growth in Western Europe. Single-serve cat food, Nescafé Dolce Gusto and frozen pizza were the main contributors. France, Benelux and the Nordics did well in the deflationary environment. Consumer confidence in Southern Europe was subdued, with Greece having an impact.
• Growth in Eastern Europe was strong, driven by petcare, soluble coffee and systems, and by chocolate with KitKat. Careful management of pricing in Russia has protected competitiveness in an inflationary environment. The business in Ukraine continued to deliver growth, despite the difficult economic situation. There were also solid performances from the Adriatic region, Bulgaria and Hungary.
• The Middle East and North Africa region delivered solid growth with soluble coffee and confectionery the highlights. Turkey had strong growth and there were solid performances across the Middle East, compensating for the challenges in Iraq and Yemen.
• The improvement in the Zone’s trading operating profit margin was driven by product mix and lower input costs that allowed for increased investment in consumer facing marketing support.
Zone AOA
Sales of CHF 7.1 billion, 0.8% organic growth, -0.8% real internal growth; 18.2% trading operating profit margin, -60 basis points
• There were strong results in the Zone’s developed markets and a gradual improvement in emerging markets, however the underlying improvement in the Zone’s performance was overshadowed by the issue in India.
• In India, the withdrawal of Maggi noodles resulted in negative organic growth which will continue into the second half. Nestlé is engaging fully with the authorities as they work to relaunch the product.
• The efforts in China to adapt the product portfolio to the changing consumer demand and the lower growth environment led to a gradual improvement across the categories, with ambient dairy, confectionery and soluble coffee all contributing. Ready-to-drink beverages, including Nescafé, delivered double-digit growth and ambient culinary made a solid contribution.
• In the developed markets Japan continued to perform well thanks to innovation in KitKat and in Nescafé which launched the premium Nescafé Gold Blend in the ready-to-drink format. Despite the intensely competitive trading environment in the Oceania region, the business there contributed to the Zone’s positive growth, thanks mainly to confectionery with KitKat.
• Vietnam, Indonesia, South Africa, Pakistan and the Philippines were among the highlights in the other emerging markets, delivering good growth. Sub-Saharan Africa continued to show good growth with Central West Africa Region regaining momentum after a slower start to the year.
• The trading operating profit margin of Zone AOA was affected by the withdrawal and destruction costs of the returned products in India which have already had a material impact in the first half of the year.
Nestlé Waters
Sales of CHF 3.8 billion, 5.3% organic growth, 5.6% real internal growth; 11.5% trading operating profit margin, +110 basis points
• Nestlé Waters delivered solid broad-based growth across both emerging and developed markets, reflecting rising demand for healthy beverages. The business has a strong presence across the different channels globally. Nestlé Pure Life again delivered double-digit growth, and there was good single-digit growth for premium international brands, Perrier and S.Pellegrino. The local brands also performed well with Poland Spring in the US, Levissima in Italy, Erikli in Turkey, Al Manhal in Saudi Arabia and Buxton in the United Kingdom all making good contributions.
• The trading operating profit margin was driven mainly by the solid organic growth, rigorous cost management and lower input costs, allowing for increased investment in consumer facing marketing support.
Nestlé Nutrition
Sales of CHF 5.3 billion, 3.9% organic growth, 1.3% real internal growth; 23.0% trading operating profit margin, +140 basis points
• Nestlé Nutrition delivered growth across geographies and brands despite difficult comparisons, especially in Asia. The well-supported innovation pipeline continued to deliver new products for the Nido, Nan and Cerelac brands. Wyeth Infant Nutrition delivered good growth, in particular in Asia where the premium brands S-26 and Illuma expanded their e-commerce footprint. The South Asia Region, Mexico and the Philippines performed well for Nestlé Infant Nutrition. In North America innovation in the Gerber infant cereals range continued to support growth and there were new product launches in meals and drinks.
• The strong improvement in the trading operating profit margin was the result of the portfolio management and underlying margin improvement along with strict control of fixed costs and more favourable input costs. This allowed to increase investment behind our brands.
Other businesses
Sales of CHF 6.8 billion, 8.1% organic growth, 4.9% real internal growth; 15.8% trading operating profit margin, -250 basis points
• Nestlé Professional is regaining growth momentum, with good acceleration in the strategic growth platforms of culinary flavours and beverage solutions. Emerging markets were the main drivers, particularly Latin America, Eastern Europe, Indonesia, Turkey, and Indochina and there was good growth in the culinary business in North America, compensating for the poor trading environment in Western Europe.
• Nespresso continued to grow globally, capitalising on the significant development of the portioned coffee segment. It further expanded its Grands Crus range, opened 20 new boutiques around the world, launched a Nespresso Café in Vienna and continued the roll-out of the Nespresso Cube, an automated retail outlet. Also the VertuoLine system in North America performed well.
• Nestlé Health Science delivered good growth across all regions and all three business areas. In Consumer Care, growth was supported by new product launches for Boost in the US, the continuation of the Meritene roll-out in Europe and continued strong growth of Nutren in Brazil. In Medical Nutrition, the allergy portfolio delivered good growth across all geographies, in particular Alfamino. Novel Therapeutic Nutrition also did well.
• Innovation drove a good performance for Nestlé Skin Health. Prescription products achieved very good growth supported by the success of the rosacea treatments Soolantra and Oracea and the acne treatment Epiduo. Aesthetic & Corrective continued to do well with Restylane Skinboosters, and the launch of Restylane Lyft in the US. The Consumer business delivered a strong performance with Cetaphil cleanser and moisturiser, and in the US, Benzac over-the-counter was launched.
• The trading operating profit margin was impacted by high coffee prices for Nespresso and Nestlé Professional and there was also a dilutive impact on the trading operating profit from the inclusion of Nestlé Skin Health in the first half.
Outlook
“The results of the first half allow us to reconfirm our outlook for the full year – says Nestlé in the report – we aim to achieve organic growth of around 5% with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency.
