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Nestlé reports half-year results for 2018

From the August 2018 issue.

Nestlé released its half year 2018 results on 27 July, showing volume growth driven by on-trend new products, sales to China and positive core category performance.

The report shows continued progress for Nestlé’s value creation model and that the company is on track to meet its full-year guidance target, supported by increased momentum in the United States and China, as well as in infant nutrition.

Nestlé saw organic growth of 2.8 per cent for the first half of 2018, with 2.5 per cent real internal growth (RIG) and pricing of 0.3 per cent.

Total sales increased by 2.3 per cent to CHF 43.9 billion (US$44.1 billion) and acquisitions and divestments netted to zero. Foreign exchange reduced sales by 0.5 per cent.

“Our first half results confirmed that our strategic initiatives and rigorous execution are clearly paying off. Nestlé has maintained the encouraging organic revenue growth momentum we saw at the beginning of the year,” says Mark Schneider, Nestlé CEO.

“Our margin development is fully consistent with our 2020 target. 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, in particular in Zone EMENA and at our Corporate Center.”

In the second half of 2018, Schneider predicts further improvement in Nestlé’s organic revenue growth (2.8 per cent for the first half of 2018) and accelerated improvement in its margin with further benefits from its efficiency programs and more favourable commodity pricing.

Organic growth in the first half improved in North America and China. All categories reported positive growth, led by coffee – supported by the relaunch of Nescafé Gold – petcare, and Nestlé Health Science.

Melanie Felgate, Senior Analyst at GlobalData, a leading data and analytics company, says Nestlé’s half year results show continued positive volume growth performance for the group, although relatively weak pricing growth indicates a greater need for Premiumisation to build value in the long-term.

She adds that China has seen strong performance in coffee as Nestlé has taken advantage of growing demand for convenience and quality with the introduction of its premium Dolce Gusto and Nespresso at-home coffee machine brands in this market.

'‘Opportunities for Nestlé in the coffee space, in China and globally, are likely to grow even further going forward following a deal signed in May for the perpetual rights to market Starbucks-branded food and beverage products in the retail space,” Felgate says.

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 US$2 billion. The agreement is now expected to close at the end of August 2018.

Organic sales growth expectation has narrowed to around 3 per cent, underlying trading operating profit margin improvement in line with Nestlé’s 2020 target.

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