Nestle reports 2.8% organic growth despite 9.5% decline in half year sales

SWITZERLAND – Nestle has reported an organic growth of 2.8% on its half-year results for its financial year 2020, where it saw real internal growth (RIG) of 2.6%.

According to the Swiss multinational food and drink company the growth was supported by sustained momentum in the Americas and positive sales development in Zone EMENA (Europe, Middle East and North Africa.)

In its Zone America, the company’s organic growth reached 5.3%, supported by robust RIG of 5.1%. North America grew at a mid-single-digit rate, supported by strong RIG in most product categories while Latin America maintained mid-single-digit growth, with positive contributions from most geographies and product categories.

At its Zone EMENA, Nestle registered organic growth of 2.4%, with solid RIG of 2.8%.

In this zone Western Europe saw low single-digit growth with solid RIG, partially offset by slightly negative pricing. Central and Eastern Europe had mid-single-digit organic growth, with strong RIG but negative pricing. Middle East and North Africa posted low single-digit organic growth. RIG and pricing were positive.

At its third zone, AOA, comprising of Asia, Oceania and sub-Saharan Africa, organic growth was -2.2%, with RIG of -2.7% and pricing of 0.5%.

Zone AOA reported negative organic growth, as a double-digit decline in China outweighed mid-single-digit growth in the other regions.

The Zone returned to positive growth in the second quarter, helped by improved trading conditions in China.

By product category, the largest group’s growth contributor was Purina PetCare, led by its premium brands Purina Pro Plan and Purina ONE.

Dairy saw high single-digit growth, based on strong demand for fortified milks such as Nido and Bear Brand, as well as Coffee mate.

Prepared dishes and cooking aids grew at a mid-single-digit rate, with strong momentum in frozen foods. Vegetarian and plant-based food products grew by 40%, supported by further expansion of Garden Gourmet in Europe and increased growth for Sweet Earth in the United States.

Coffee remained resilient, with low single-digit growth, as a double-digit sales increase for coffee at home outweighed a sharp decline in the out-of-home channel.

Nestlé Health Science reported double-digit growth, reflecting elevated demand for products that support health and the immune system.

Water and confectionery saw negative growth, due to their high exposure to the out-of-home channel and on-the-go consumption.

After a stronger-than-expected start to the year, organic growth moderated in the second quarter to 1.3%, reflecting the severe impact of movement restrictions on out-of-home businesses and some consumer destocking.

The COVID-19 crisis has led to profound changes in operating environments across markets. Nestlé quickly deployed effective measures to address this new reality.

“With consumer behaviour evolving faster than ever, we are adapting to this new reality by strengthening our innovation, leveraging our digital capabilities and executing with speed,” stated Mark Schneider, Nestlé CEO.

The company’s underlying trading operating profit during the period under review decreased by 7.9% to CHF 7.2 billion (US$7.8b) with its margin reaching 17.4%, an increase of 30 basis points in constant currency and on a reported basis.

Net profit grew by 18.3% to CHF 5.9 billion (US$6.4b), benefiting from one-off income related to divestitures and improved operating performance.

However, divestitures decreased sales by 5.3%, largely related to the divestment of Nestlé Skin Health and the U.S. ice cream business.

Total reported sales decreased by 9.5% to CHF 41.2 billion (US$45b) coupled by a 7% reduction in sales due to appreciation of the Swiss franc versus most currencies.

Nestle revealed that during the interim priod, it completed the sale of its U.S. ice cream business in January for US$ 4 billion to Froneri, the successful global joint venture with PAI Partners.

The group also closed the sale of a 60% stake in its Herta charcuterie (cold cuts and meat-based products) business to Casa Tarradellas in June.

In April, Nestlé completed the acquisition of Lily’s Kitchen, a premium natural pet food business.

In May, the Group completed the purchase of the Zenpep business from Allergan. In July, Nestlé completed the acquisition of a majority stake in Vital Proteins, America’s leading collagen products brand.

The owner of Pure-life brand is exploring strategic options, including a potential sale, for the majority of the Waters business in North America.

As part of this process, the Group agreed to sell the Canadian Nestlé Pure Life business to Ice River Springs in July.

The strategic review of the Yinlu peanut milk and canned rice porridge businesses in China is ongoing. Both reviews are expected to be completed in early 2021

Its Earnings per share during the period increased by 22.2% to CHF 2.06 on a reported basis. Underlying earnings per share increased by 0.5% in constant currency, and decreased by 5.9% on a reported basis to CHF2.01.

Divestitures and lower contributions from associates and joint ventures are said to have had a negative impact of 4.4%.

The company is expecting full-year organic sales growth between 2% and 3% as the underlying trading operating profit margin is expected to improve.

Underlying earnings per share in constant currency and capital efficiency are expected to increase. This guidance is based on our current knowledge of COVID-19 developments and assumes no material deterioration versus present conditions.

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