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Nestlé sees healthy growth in 2019, unsure of impact of coronavirus

From the February 2020 issue.

Nestlé experienced organic growth of 3.5 per cent in 2019, with real internal growth (RIG) of 2.9 per cent and pricing of 0.6 per cent.

Year-on-year organic growth acceleration was supported by strong growth in the United States and Brazil, as well as improved momentum in Western Europe. Asia, Oceania, and sub-Saharan Africa saw solid growth despite softness in some categories in China and Pakistan. Organic growth accelerated to 2.6 per cent in developed markets and remained largely unchanged in emerging markets at 4.7 per cent.

"We saw strong progress in 2019, with key operating and financial metrics improving significantly for the second consecutive year, Nestlé CEO Mark Schneider says.

“Profitability improved again and reached our guided range one year ahead of plan. Cash flow was strong, while underlying earnings per share and returns to shareholders reached record levels.”

Total reported sales increased to CHF 92.6 billion (about US$94.33 billion), up 1.2 per cent from CHF 91.4 billion in 2018. Net acquisitions had a negative impact of 0.8 per cent and foreign exchange reduced sales by 1.5 per cent.

Free cash flow grew by 10.9 per cent to CHF 11.9 billion. The increase resulted from stronger operating performance and improved capital discipline. Cash flow is expected to remain at around 12% of sales, with working capital trending to zero.

“In 2019, we made significant progress in our portfolio transformation. We did what we said we would do and more. We are not done yet. We will respond to rapid changes in the industry and fast-evolving consumer preferences to position our portfolio for higher growth,” Schneider says.

“Nestlé will continue to focus on fast innovation. The launch of our premium Starbucks products, for example, has been a great success. We are very pleased with the speed of the product rollout and the positive response by consumers.”

Nestlé’s beverages category saw high single-digit growth in North America, based on strong demand for Starbucks, Coffee mate and Nescafé products.

Latin America, Brazil, and Mexico posted mid-single-digit growth, thanks to strong demand for Nescafé among other products.

Nespresso maintained mid-single-digit organic growth, with positive growth across all regions. North America grew at a strong double-digit rate, outpacing market growth.

The Vertuo system was the main growth contributor as it continued to gain traction globally. The out-of-home segment also saw good momentum, particularly in France and the United States.

“In 2020, we expect continued organic sales growth improvement as we take further steps to decisively address underperforming businesses,” Schneider says.

“We have also reaffirmed our sustainability leadership at a time when society is increasingly looking to business for solutions to the major environmental problems we are facing. In addition, we have made significant progress in making our workplace even more diverse and inclusive. New initiatives, such as our enhanced parental leave policy, reaffirm Nestlé’s status as an employer of choice around the world.”

Nestlé says it is too early to quantify the financial impact of the coronavirus outbreak in China – its second largest market, representing about 8 per cent of global sales – at this time.

“In the past few weeks, the spread of the coronavirus has required extraordinary effort from our team in China. We have focused on ensuring the safety of our people and their families and introducing protective measures for all our facilities,” Schneider says.

"We are working closely with the Chinese authorities as they take measures to contain this epidemic, building on our significant experience and expertise on the ground. Our immediate thoughts are with the people directly impacted by this global health emergency. We stand in solidarity with the Chinese people and are working hard to ensure our nutritious food and beverages continue to be widely available, particularly those for the most vulnerable, the youngest and the oldest in society.”

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