Nestlé S.A. : Half-Year 2016: good growth based on volume, with margin improvement
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Nestlé S.A. : Half-Year 2016: good growth based on volume, with margin
improvement
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2016 Half-Yearly Report (pdf)
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Vevey, 18 August 2016
Half-Year 2016: good growth based on volume, with margin improvement
* Sales of CHF 43.2 billion with 3.5% organic growth and 2.8% real internal
growth
* Trading operating profit margin of 15.3%, up 30 basis points
* Underlying earnings per share up 5.7% in constant currencies
* Free cash flow at CHF 3.3 billion, up 41%
* Full-year outlook confirmed: organic growth in line with 2015, with
improvements in margins and underlying earnings per share in constant
currencies, and capital efficiency
Paul Bulcke, Nestlé CEO: "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
premiumisation, 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."
Group results
Sales
* In the first half of 2016 Nestlé's organic growth was 3.5%, composed of
2.8% real internal growth and 0.7% pricing. Pricing has reached a
historically low level owing to deflationary environments across a number of
developed markets and low commodity prices.
* Total sales of CHF 43.2 billion, with a foreign exchange impact of -2.0%.
The net result of acquisitions and divestitures reduced sales growth by
-0.8%.
* Organic growth was broad-based across geographies and categories.
* 4.7% in the Americas (AMS)
* 2.5% in Europe, Middle East and North Africa (EMENA)
* 2.3% in Asia, Oceania and sub-Saharan Africa (AOA)
* Real internal growth was solid and balanced.
* 2.8% in AMS
* 2.8% in EMENA
* 2.9% in AOA
* Continued strength in developed markets with organic growth of 1.9%, in
spite of deflationary pressures, and in emerging markets with 5.4%.
Trading Operating Profit
* Trading operating profit was CHF 6.6 billion, with a margin of 15.3%, up 30
basis points on both a reported basis and in constant currencies.
* This was driven by a gross margin expansion of 130 basis points through
continuous cost discipline, active portfolio management, premiumisation and
an input cost tailwind.
* We delivered this margin improvement whilst continuing to significantly
increase our investment in brand support, digital, research and development,
and in our new nutrition and health platforms. Consumer facing marketing
spend increased by 8.5% in constant currencies.
* We are rolling out several key initiatives that are focused on structural
efficiencies. One-off costs in 2016 will be off-set by savings.
Net Profit
* Net profit was CHF 4.1 billion. The reduction of CHF 0.4 billion versus last
year was due to a one-off, non-cash adjustment to deferred taxes.
* Reported earnings per share at CHF 1.33 was down by -7.2% for the same
reason.
* Underlying earnings per share in constant currencies increased by 5.7%.
Cash Flow
* The Group's operating cash flow was strong at CHF 4.9 billion and free cash
flow increased year on year by 41% to CHF 3.3 billion. These improvements
were primarily the result of our focus on margins, discipline in capital
expenditure and working capital.
Zone AMS
Sales of CHF 12.1 billion, 5.1% organic growth, 2.5% real internal growth;
17.8% trading operating profit margin, -20 basis points
* The Zone maintained good growth momentum, with broad-based market share
gains.
* Good growth in North America was underpinned by strong real internal growth,
whilst deflationary pressures weighed on pricing.
* The successful growth of the frozen meals business continued, supported
by innovations and marketing investment, particularly for Lean Cuisine
and Stouffer's.
* Coffee-mate maintained its good growth trajectory, driven by new
packaging and flavour extensions.
* Petcare delivered solid growth, with very strong contributions from ONE,
Pro Plan and Beyond in dry dog. First results of the Beneful re-launch
were promising, with the product now back in positive territory.
* In Latin America we saw good performances in many markets despite the
volatile environment, with positive real internal growth and pricing.
* In Brazil our business grew mid single digit, outperforming the market
in a recessionary context. The key drivers were ambient dairy and
Nescafé Dolce Gusto. We began to implement selective price increases
towards the end of the period.
* Mexico's strong performance continued across the entire portfolio.
Nescafé Dolce Gusto, Nescafé soluble coffee and ambient dairy remained
the growth drivers.
* Petcare's positive momentum continued, with double-digit growth in most
markets.
* The Zone's trading operating profit margin contracted slightly as the impact
of currency depreciation in Latin America was not yet fully off-set by price
increases. Ongoing operational efficiency savings were largely re-invested
behind an increase in consumer facing marketing spend across the Zone.
Zone EMENA
Sales of CHF 8.1 billion, 2.6% organic growth, 3.0% real internal growth; 16.9%
trading operating profit margin, +70 basis points
* Good real internal growth drove market share gains across the Zone. Pricing
had a negative impact of -0.4% due to the deflationary environment in many
parts of the Zone.
* The strong performance in Western Europe, driven by product innovations,
continued despite the difficult low-growth environment.
* Petcare accelerated, supported by the wet cat single serve segment as
well as dry cat and dog snacks.
* Nescafé Dolce Gusto continued to be a growth driver while ambient
culinary was impacted by the competitive retail environment and softness
in the category.
* France, Spain, Portugal and Benelux were the highlights.
* Solid growth in Central and Eastern Europe was driven by Russia and the
Czech / Slovak region.
* Double-digit growth in petcare resulted from innovation, premiumisation
and category expansion.
* Russia's performance was solid in most categories, particularly in
Nescafé soluble coffee.
* The Middle East and North Africa was resilient in an unstable environment.
* Nescafé and ambient culinary enjoyed good growth while dairy remained
challenged.
* Turkey continued to grow well, driven by Nescafé soluble coffee and
chocolate.
* The Zone's trading operating profit margin improved nicely, whilst we also
increased consumer facing marketing investments. This was achieved through
portfolio management, better product mix and lower input costs.
Zone AOA
Sales of CHF 7.1 billion, 2.3% organic growth, 2.4% real internal growth; 19.6%
trading operating profit margin, +140 basis points
* Most of the Zone's businesses saw their growth accelerating, with South East
Asia, sub-Saharan Africa and Japan the highlights. India kept gaining
momentum one year after the start of the Maggi noodle withdrawal.
* In China, growth in the food and beverage market slowed down significantly.
In this context our core food and beverage business outperformed the market
with Nescafé and Shark wafers, driven by product renovation and improved
retail execution. However, Yinlu still weighed on the overall performance
while we continued to execute our turnaround plan based on a portfolio
upgrade and new product developments.
* Growth in India turned positive in June due to good progress with the Maggi
noodle relaunch and favourable comparables. We regained a leading market
share position.
* The strong growth momentum in South East Asia continued across all markets,
with double-digit growth in Vietnam and Indonesia and high single-digit
growth in the Philippines. Milo drove growth across the region and the newly
launched Nescafé Blend and Brew had an encouraging start.
* Sub-Saharan Africa continued to grow strongly across all categories,
especially in ambient culinary with Maggi. Nigeria, Ghana and the Ivory
Coast were the highlights.
* Japan did well in developed markets, building on product, business model
innovation, premiumisation and digital engagement both for Nescafé and
KitKat. We had more challenging results in Oceania where competitive
intensity amongst retailers combined with low commodity prices has driven
deflation in a number of categories.
* The Zone's trading operating profit margin improved alongside a significant
step up in consumer marketing spend to support new product launches. The
improved profitability was driven by efficiency gains and lower input costs
- particularly in dairy commodities. The Zone also incurred fewer one-off
expenses as the withdrawal costs related to Maggi noodles in India impacted
the first half of last year.
Nestlé Waters
Sales of CHF 3.9 billion, 4.2% organic growth, 4.7% real internal growth; 12.4%
trading operating profit margin, +90 basis points
* Nestlé Waters' performance was driven by double-digit growth in emerging
markets and high single-digit growth in our premium sparkling brands
S.Pellegrino and Perrier. Developed markets continued to grow despite the
deflationary environment.
* Growth was solid in the US, driven by our international premium brands
and Poland Spring. However, the regional brands were negatively impacted
by the tornado which severely damaged a plant in Texas at the end of
April.
* The growth momentum in Europe was impacted by poor weather conditions in
comparison with a very hot summer last year, particularly in France and
Italy. Spain, the UK and Poland performed well.
* Zone AOA showed a good performance, with double-digit growth in
Thailand, Egypt and Vietnam. Competitive intensity in China remained
high.
* Latin America delivered good growth, with Mexico the highlight.
* The increase in trading operating profit margin was driven by improved
product mix through premiumisation. We achieved cost efficiencies across
manufacturing, procurement and distribution, as well as some benefit from
lower input costs.
Nestlé Nutrition
Sales of CHF 5.2 billion, 1.3% organic growth, 1.1% real internal growth; 23.2%
trading operating profit margin, +20 basis points
* Nestlé Nutrition was challenged in both the US and China, offsetting strong
momentum in other geographies, particularly Latin America and South East
Asia.
* Pricing remains very limited in the category as a result of low dairy
commodity prices and competitive intensity, notably in China.
* In China, category growth overall slowed, mainly affecting the premium
and mainstream brands NAN and S-26 GOLD. At the same time we continued
to outperform in the faster growing super premium segment, primarily
through our leading brand illuma. The recently launched S-26 Ultima also
saw positive progress.
* In the United States, the exit from some regional WIC contracts, the
transition to new packaging formats and some temporary supply
constraints in pouches impacted growth.
* Latin America saw very good growth in both Brazil and Mexico, with both
cereals and infant formula doing well. Innovations drove strong
performances in South East Asia - particularly in the Philippines and
Indonesia.
* Trading operating profit margin increased whilst we simultaneously stepped-
up consumer marketing investments. Both infant formula and infant cereals
businesses improved their profitability. Positive mix and lower input costs
were the primary drivers of the margin growth.
Other businesses
Sales of CHF 6.8 billion, 4.2% organic growth, 4.2% real internal growth; 16.4%
trading operating profit margin, +60 basis points
* Nestlé Professional delivered positive growth driven by good performances in
emerging markets, particularly Mexico and Russia. There were solid results
in the USA, whilst Western Europe continued to be challenged by the
difficult trading environment. The strategic platforms of beverage solutions
and savoury flavour solutions were key growth drivers.
* Nespresso continued its good growth, with a solid performance in Europe and
good momentum in AMS and AOA. The success of the VertuoLine system and
increased marketing investment in North America drove positive results.
Global growth was supported by the ongoing geographic expansion, including
16 new boutique openings, and limited edition Grands Crus coffees.
* Good results in Nestlé Health Science continued to be driven by strong
double-digit growth in Consumer Care, especially in the United States where
Boost and Carnation Breakfast Essentials had strong momentum. Medical
Nutrition maintained its good performance, led by the allergy portfolio and
its geographic expansion.
* Nestlé Skin Health maintained good real internal growth, with solid
performances in emerging markets, particularly Latin America, Middle East
and North Africa. The prescription business delivered solid growth, driven
by Epiduo Forte in the US, as well as Soolantra in EMENA. The consumer
business performed well with Cetaphil cleansers and moisturisers and Daylong
sun protection.
* The trading operating profit margin increased whilst there was also higher
marketing spend across all businesses. Portfolio management, cost discipline
and lower input costs also drove improved profitability in both Nestlé
Health Science and Nestlé Professional.
Outlook
We confirm our full-year outlook: organic growth in line with 2015, with
improvements in margins and underlying earnings per share in constant
currencies, and capital efficiency.
Contacts
Media: Robin Tickle Tel.: +41 21 924 22 00
Investors: Steffen Kindler Tel.: +41 21 924 3509
Annex
Half-year sales and Trading operating profit margins overview
+--------------------+---------------+--------------+--------------------------+
| | | |Trading operating profit |
| | | |margins |
| | | +------------+-------------+
| |Jan.-June 2016 |Jan.-June 2016|Jan.-June |Change vs |
| | | |2016 |Jan.-June |
| |Sales |Organic Growth| |2015 |
| |in CHF millions|(%) |(%) | |
| | | | | |
| | | | | |
+--------------------+---------------+--------------+------------+-------------+
|By operating segment |
+--------------------+---------------+--------------+------------+-------------+
| | | | | |
| | | | | |
|· Zone AMS |12'106 |+5.1 |17.8 |-20 bps |
+--------------------+---------------+--------------+------------+-------------+
|· Zone EMENA |8'091 |+2.6 |16.9 |+70 bps |
+--------------------+---------------+--------------+------------+-------------+
|· Zone AOA |7'099 |+2.3 |19.6 |+140 bps |
+--------------------+---------------+--------------+------------+-------------+
|Nestlé Waters |3'937 |+4.2 |12.4 |+90 bps |
+--------------------+---------------+--------------+------------+-------------+
|Nestlé Nutrition |5'171 |+1.3 |23.2 |+20 bps |
+--------------------+---------------+--------------+------------+-------------+
|Other businesses |6'751 |+4.2 |16.4 |+60 bps |
+--------------------+---------------+--------------+------------+-------------+
|Total Group |43'155 |+3.5 |15.3 |+30 bps |
+--------------------+---------------+--------------+------------+-------------+
|By product |
+--------------------+---------------+--------------+------------+-------------+
|Powdered and liquid |9'653 |+5.2 |22.7 |+20 bps |
|beverages | | | | |
+--------------------+---------------+--------------+------------+-------------+
|Water |3'680 |+4.7 |12.5 |+60 bps |
+--------------------+---------------+--------------+------------+-------------+
|Milk products and |6'991 |+0.7 |17.4 |+70 bps |
|ice cream | | | | |
+--------------------+---------------+--------------+------------+-------------+
|Nutrition & Health |7'364 |+2.5 |18.5 |-50 bps |
|Science | | | | |
+--------------------+---------------+--------------+------------+-------------+
|Prepared dishes and |5'903 |+2.7 |15.1 |+300 bps |
|cooking aids | | | | |
+--------------------+---------------+--------------+------------+-------------+
|Confectionery |3'735 |+3.1 |10.3 |-80 bps |
+--------------------+---------------+--------------+------------+-------------+
|Petcare |5'829 |+5.6 |20.6 |-40 bps |
+--------------------+---------------+--------------+------------+-------------+
|Total Group |43'155 |+3.5 |15.3 |+30 bps |
+--------------------+---------------+--------------+------------+-------------+
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Unternehmensinformation / Kurzprofil:
Datum: 18.08.2016 - 07:17 Uhr
Sprache: Deutsch
News-ID 489815
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