Nestlé first half results: Pros and cons

By Rod Addy

- Last updated on GMT

Related tags North america Netherlands Western europe Developed country Europe

Nestlé's Pure Life range was a star performer for Nestlé Waters
Nestlé's Pure Life range was a star performer for Nestlé Waters
Europe and North America were the worst performing regions for Nestlé according to its first half (H1) results, while Asia, Oceania, Africa and emerging markets delivered double digit growth.

North America and Europe clocked up positive organic growth as a whole for the six months to June 30, although as a group Portugal, Italy, Greece and Spain, saw organic sales fall by 0.7%. And in terms of real internal growth, sales were flat in Europe at 0.1%, where beverages and ice cream had mixed success, and down 0.1% in North America. In the latter region, frozen food and weight management products had a tough period, Nestlé said.

Ice cream saw good growth in Greece, Russia and Italy, but the season had a poor start in Northern Europe. In addition, the company’s Cereal Partners Worldwide division achieved weaker performance in Europe, while continuing to deliver strong growth in emerging markets.

Operating profit margin fell by 100 basis points in Europe as well in comparison to the first half of 2011, despite increases in operational performance and efficiencies. This was mainly due to grappling with pensions issues and restructuring.

In Europe as a whole, billionaire brands such as Nescafé, KitKat and Herta and innovation platforms such as Nescafé Dolce Gusto continued to drive growth in their categories. And popularly positioned products, such as Nescafé 3-in-1 soluble coffee and the peelable ice cream Pirulo Jungly, grew well above the average growth for the region.

In Western Europe, France, Great Britain and the Benelux countries delivered the strongest growth, with KitKat and Nescafé leading growth in the UK & Ireland.

Hard fought numbers

Commenting on Nestlé’s performance in the Western world in the H1 results presentation, chief financial officer Wan Link Martello said: “This is not a walk in the park, these are hard fought numbers.”

According to the world’s biggest food and drink manufacturer, Nestlé Waters struggled in Europe, hit by a slow start to the season in contrast to 2011. That said, there had been double digit percentage sales growth in the UK, driven by Nestlé Pure Life and Buxton brands.

Overall, sales for the division were up, driven by North America and emerging markets, where the star performer had been Nestlé Pure Life. International brands San Pellegrino and Perrier had also performed strongly.

Other winners

Among other winners, Infant Nutrition achieved double-digit growth across emerging markets, a performance which resulted in share gains in many markets. In spite of slower category growth in developed markets, the infant formula business delivered double-digit growth globally.

A refocus on high performance athletes combined with successful product launches contributed to good growth in the Performance Nutrition division.

Nestlé Health Science delivered a solid performance, with double-digit growth in North America and the emerging markets.

China and Japan

In China, there was a strong performance in ready-to-drink with Nescafé Smoovlatté, in ambient culinary with Totole, and in confectionery with Shark wafer.

Japan’s growth accelerated during the year with innovations such as Nescafé Barista and Nescafé Dolce Gusto. KitKat also had a strong first half.

Total group sales increased by 7.5%, from €32.31bn in 2011 H1 to €36.61bn in the same period this year. Trading operating profit rose from €4.89bn to €5.48bn. In H1 2012, Nestlé more than doubled the cash flow it had in the same period in 2011. It also boosted pre-tax profit from CHF 5.84bn (€4.86bn) to CHF 6.35bn (€5.29bn).

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