Nestlé Reports Slowdown in Volume Sales But Expects Performance to Improve in Second Half

The world’s biggest food company reported first half profits of 4.1bn Swiss francs ($4.3bn) to the end of June, down 9 percent on the year while sales in the first half came in at 43.2bn Swiss francs ($45bn).

 

While analysts said that underlying sales were worse than they had expected in Europe and Asia, Nestlé said it expects its performance to improve in the second half of the year.

 

Nestlé, whose brands include Kit Kat and Maggi Noodles, pointed to problems in China in the period where there was no growth and where it is looking to turn around the fortunes of its peanut milk business Yinlu.

Speaking on a conference, call, Nestlé chief financial officer Francois-Xavier Roger said Nestlé was "not satisfied” with its Yinlu business and that it "needed to fix a number of issues”.

 

"We need to improve in terms of execution capability. We have already started to address most of these issues. We are actively working on the Yinlu turnaround which will take some time. Will we see results in 2017? Yes probably. But it's going to take a little bit of time,” he added.

 

Nestlé, which was forced to recall its Maggi noodles in India last year, reported stronger organic growth in the US of 4.7 percent than other key markets of Asia, Europe and Africa.

 

Nestlé said that its marketing spend had increased significantly from 2015 and 2016, pointing out that it had increased 12 percent last year and was up eight percent in the first half of this year.

 

Roger said Nestlé was content with the efficiencies of its marketing spend.

 

He said: "This is what drives the fact that we are delivering a strong RIG (real internal growth) which is at the top end of the industry."

 

Despite being hurt by weaker pricing in the first half, Nestlé is hoping to push price increases through in the second half.

 

Questioned about Nestlé’s commitment to investment into the UK following Brexit, Roger said: "We don't see any direct impact in the short term expect apart from the fact that obviously the transition of our UK business into our group accounts has reduced a little bit because the currency has devalued."

 

"In the UK, so we continue to be committed to the market."

 

Across Nestlé Waters sales came in at 3.9bn Swiss francs ($41.1bn) in the period, up 4.7 percent, driven by double-digit growth in emerging markets and high single-digit growth in sparkling water brands S Pellegrino and Perrier.

 

In Europe, growth was hurt by poor weather conditions in comparison with a very hot summer last year, particularly in France and Italy but Spain, the UK and Poland performed well.

 

Across its nutrition business, Nestlé Nutrition, which it is looking to expand, sales came in at 5.2bn Swiss francs ($5.4bn), up 1.3 percent amid a challenging market in China and the US which offset strong momentum in Latin America and South East Asia.

 

The unit is likely  to be earmarked as a key area of opportunity, under the leadership of new CEO Ulf Mark Schneider, the boss of German
health care company Fresenius SE, who is replacing Paul Bulcke, who is to become chairman.

 

Across it key markets, in the US, Coffee-mate, helped by new packaging, and frozen meals performed well. Petcare also performed well in the US.

 

In Western Europe, Petcare and Nescafé Dolce Gusto were revenues drivers while petrcare also performed well in Central and Eastern Europe.

 

Bulcke said "The first half of 2016 was in line with our expectation with growth almost entirely driven by volume and product mix, yielding further market share gains.”
 
“While we continued to address challenges in China, we enjoyed good performances across the US, Europe, South East Asia and Latin America and expect this to continue in the second half. We also expect pricing, which reached historically low levels in the first half, to recover somewhat in the coming months.”
 
“We grew our gross margin and trading operating profit through further premiumization, continuous cost discipline and input cost tailwinds. This allowed us to significantly enhance our free cash flow.”
 
“In these times of rapid change, we keep our focus on profitable growth by further investing in innovation, R&D, brand support and digital to engage with our consumers, meeting their changing needs.”
 
“Overall our first half performance allows us to reconfirm our outlook for the full year."