Nestle: Announces Half-Year 2015 Organic growth of 4.5%

Vevey / CH. (nsa) Swiss Nestle S.A. announced its financial results for the First Half 2015. Headings: Sales of 42.8 billion CHF, 4.5 percent organic growth, 1.7 percent real internal growth. Trading operating profit margin 15.0 percent, up 20 basis points in constant currencies. Underlying earnings per share up 7.3 percent in constant currencies. 2015 outlook: we aim to achieve organic growth of around 5 percent with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency.

Paul Bulcke, Nestlé CEO: «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 percent, composed of 1.7 percent real internal growth and 2.8 percent pricing. Total sales of 42.8 billion CHF were impacted by foreign exchange (-5.8 percent). Acquisitions, net of divestitures, contributed 1 percent to sales.

• Growth was broad-based across categories and geographies.
• Organic growth in the developed markets accelerated to 2.2 percent while in the emerging markets we achieved strong organic growth of 7.3 percent.
• Organic growth was 6.6 percent in the Americas (AMS), 3.4 percent in Europe, Middle East and North Africa (EMENA) and 2.2 percent in Asia, Oceania and sub-Saharan Africa (AOA). Real internal growth was 1.7 percent in AMS, 2.4 percent in EMENA and 0.6 percent 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 6.4 billion CHF with a margin of 15.0 percent.
• Net profit was 4.5 billion CHF and reported earnings per share were 1.43 CHF. Underlying earnings per share rose 7.3 percent in constant currencies.
• The group’s operating cash flow was 3.9 billion CHF reflecting the appreciation of the Swiss Franc, lower dividend income from L’Oréal due to our reduced shareholding and the timing of tax payments.

Zone AMS

Sales of 12.0 billion CHF, 5.2 percent organic growth, 0.1 percent real internal growth; 18.0 percent trading operating profit margin, +10 basis points

• The Zone delivered good organic growth, driven by improvements in our 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 we relaunched our frozen meals brands with the new Lean Cuisine Market Place and Stouffers Fit Kitchen ranges. The first signs are promising and indicate that we are meeting the fast-changing expectations of consumers. New additions to the Snack Bites range helped deliver solid growth for Hot Pockets, and we saw some improvement 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.
• We continued to grow our business in Latin America in what is still a volatile environment. Investment behind our 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 7.9 billion CHF, 3.8 percent organic growth, 2.0 percent real internal growth; 16.2 percent 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 Türkiye, 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 our competitiveness in an inflationary environment. Our 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. Türkiye 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 7.1 billion CHF, 0.8 percent organic growth, -0.8 percent real internal growth; 18.2 percent 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, our withdrawal of Maggi noodles resulted in negative organic growth which will continue into the second half. We are engaging fully with the authorities as we work to relaunch the product.
• The efforts in China to adapt our 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.

Outlook

The results of the first half allow us to reconfirm our outlook for the full year: we aim to achieve organic growth of around 5 percent with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency (Imgage Source: Nestle SA / Title: Research at Nestle – 2007-02-14).