Muscat: Nutrition, health, and wellness company Nestlé has reported an organic growth of 2.8 per cent for the first half of 2018, which it says is in line with its expectations and guidance for the year.
The company’s real internal growth (RIG) stood at 2.5 per cent and remained at the high end of the food and beverage industry, with pricing contributing a measly 0.3 per cent, reflecting the challenging environment in Europe and lower inflation in some emerging markets.
Positive growth was reported in all categories, led by coffee, pet care, and Nestlé Health Science. Infant nutrition sales growth accelerated, with a broad-based improvement across all geographies, helped by recent product launches such as HMOs (Human Milk Oligosaccharides) infant formula.
“Our first half results confirmed that our strategic initiatives and rigorous execution are clearly paying off," said Nestlé CEO Mark Schneider. “Nestlé has maintained the encouraging organic revenue growth momentum we saw at the beginning of the year. In particular, the United States and Chinese markets showed a meaningful improvement and we are also pleased by the enhanced organic growth in our core infant nutrition category.”
"Our margin development is fully consistent with our 2020 target,” he added. “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, particularly in Zone EMENA and at our Corporate Centre."
"As we look towards the second half of 2018, we expect further improvement in our organic revenue growth,” explained Schneider. “Margin improvement is expected to accelerate with further benefits from our efficiency programmes and more favourable commodity pricing.”
The company's acquisitions and divestments had a net neutral impact on reported sales, with the acquisition of Atrium Innovations and other deals being offset by divestments, mainly US confectionery. Foreign exchange had a negative impact of 0.5 per cent, while total sales increased by 2.3 per cent on a reported basis to CHF43.9 billion.
Nestle's underlying trading operating profit increased by 3.5 per cent to CHF7.1 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 per cent.
Margin expansion was supported by operational efficiencies and the successful execution of ongoing restructuring initiatives. These cost savings were partially offset by higher commodity and packaging costs of CHF90 million, amounting to a headwind of 20 basis points. 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 programmes and more favourable commodity prices.
Restructuring expenditure and net other trading items increased by CHF323 million to CHF672 million. As a consequence, trading operating profit decreased by 1.3 per cent to CHF6.4 billion, while the trading operating profit margin decreased by 50 basis points on a reported basis to 14.6 per cent.
Net profit increased by 19.0 per cent to CHF5.8 billion and earnings per share (EPS) increased by CHF21.4 to CHF1.92. The increase was mainly the result of income from the disposal of businesses, lower taxes, and improved operating performance.
Underlying earnings per share increased by 9.2 per cent in constant currency and by 10.4 per cent on a reported basis to CHF1.86. Nestlé’s share buyback programme contributed 1.5 per cent to the underlying earnings per share increase, net of finance costs.
Free cash flow increased by 52 per cent, from CHF1.9 billion to CHF2.9 billion. This was mainly driven by an improvement in working capital, lower taxes, and increased operating profit.
Nestlé has made further progress in terms of actively evolving the 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 $2 billion. The agreement is expected to close at the end of August 2018.
Meanwhile, the process of exploring strategic options for Gerber Life Insurance business is on track, with completion expected in 2018.