The largest food company in the world, headquartered in the Swiss city of Vevey, presented business results for the first six months of 2020.
- Organic growth reached 2.8%, with real internal growth (RIG) of 2.6% and pricing of 0.2%. Growth was supported by sustained momentum in the Americas, Purina PetCare and Nestlé Health Science.
- Divestitures and foreign exchange reduced sales by 12.3%. Total reported sales decreased by 9.5% to CHF 41.2 billion (6M-2019: CHF 45.5 billion).
- The underlying trading operating profit (UTOP) margin reached 17.4%, up 30 basis points. The trading operating profit (TOP) margin increased by 140 basis points to 16.9%.
- Earnings per share increased by 22.2% to CHF 2.06 on a reported basis. Underlying earnings per share increased by 0.5% in constant currency and decreased by 5.9% on a reported basis to CHF 2.01.
- Free cash flow decreased by 19.1% to CHF 3.3 billion, largely due to a delayed dividend payment from an associate company and lower reported sales.
- Portfolio management is fully on track. Nestlé is exploring strategic options, including a potential sale, for parts of the Waters business in North America
- 2020 Outlook: We expect full-year organic sales growth between 2% and 3%. The underlying trading operating profit margin is expected to improve. Underlying earnings per share in constant currency and capital efficiency are expected to increase. This guidance is based on our current knowledge of COVID-19 developments and assumes no material deterioration versus present conditions.
Mark Schneider, Nestlé CEO, commented: “COVID-19 continues to impact people around the world. We stand with all those affected and are committed to helping where we can. I would like to thank every member of the Nestlé team for their dedication and hard work in the face of incredible challenges. Our priorities remain the same; keeping our people safe, assuring the continued supply of essential food and beverages to consumers and caring for our communities and business partners through financial and in-kind support. Nestlé has remained resilient in a rapidly changing environment, delivering solid organic growth and improved margins in the first half. These results demonstrate the agility of our business and the strength of our diversified portfolio across geographies, product categories and channels. With consumer behavior evolving faster than ever, we are adapting to this new reality by strengthening our innovation, leveraging our digital capabilities and executing with speed. Our engaged teams and their commitment to deliver business results while driving progress against our societal and environmental commitments make us a stronger company every day.”
The business impact of the COVID-19 crisis
The COVID-19 crisis has led to profound changes in operating environments across markets. The global economy has entered a recession, supply chains have been tested and consumer behavior has changed at a rapid pace. Nestlé quickly deployed effective measures to address this new reality.
The company’s supply chain has proven resilient, as manufacturing and distribution facilities continued to operate without significant disruptions. With shifting consumer habits, Nestlé has been developing solutions to meet the increased demand for at-home consumption, products that support health and boost the immune system as well as affordable offerings. The company has also accelerated the development of its digital capabilities and expanded e-commerce and online communication.
In the first half, the effects of COVID-19 on organic growth varied materially by geography, product category and sales channel, depending on the timing of outbreaks, the scope of restrictions and consumer behavior:
- Geographies: The majority of markets saw slower growth in the second quarter. This trend reflected the full effect of out-of-home channel closures and consumer destocking after pantry building in March. North America remained resilient. China posted a double-digit sales decline, with growth improving to almost flat in the second quarter as movement restrictions eased.
- Product categories: Demand for at-home consumption, trusted brands and personal health products increased. Purina PetCare, dairy, culinary, coffee at-home and Nestlé Health Science products reported strong growth. Water and confectionery posted sales declines, reflecting a high exposure to the out-of-home channel, on-the-go consumption and impulse buying. Most categories saw consumer destocking in the second quarter.
- Sales channels: All markets saw a significant shift from out-of-home and on-the-go products to at-home consumption. Retail sales significantly accelerated. Out-of-home channels posted negative growth, with significant sales declines for Nestlé Professional, water and Nespresso boutiques. E-commerce sales grew by 48.9%, reaching 12.4% of total Group sales.
In the first half, COVID-19 related costs were CHF 290 million, including expenses for bonuses paid to frontline workers, employee safety protocols, donations and other staff and customer allowances. In addition, the Group absorbed costs of CHF 120 million related to staff and facilities made idle due to lockdown measures.
The exact financial impact of COVID-19 for the full year remains difficult to quantify and will depend on the duration and economic consequences of this crisis as well as the speed of recovery in the out-of-home channel.
Nestlé helps the communities in which it operates
In the emergency caused by the COVID-19 epidemic, Nestlé has focused on helping the communities in which it operates. Both globally and in Serbia, employees were provided with safety equipment, home-based work was enabled and partners were given relief in their responsibilities. Nestlé’s decision is also a waiver of subsidies and benefits granted by the Republic of Serbia due to the economic consequences of the COVID-19 virus. On this way, the company has decided to further help the community, expressing its sincere hope that funds intended to consolidate its financial position will be directed to those who need help in the new circumstances.
Also, in cooperation with the Republican Health Insurance Fund, Nestlé donated its products to doctors from children hospitals – the Institute for Mother and Child, the University Children Clinic in Tirsova, the Pediatric Hospital “Dr Olga Popovic Dedijer” and the Hospital for Pediatric Pulmonary Diseases and Tuberculosis KBC “Dr Dragisa Misovic”, and numerous Nestlé products have arrived at the City Institute for Emergency Medical Services, at the Institute for Public Health ”Milan Jovanovic Batut”, as well as Institute for Orthopedic and Surgical Diseases “Banjica”. In addition, in cooperation with the City of Belgrade and the Serbian Chamber of Commerce, Nestlé has donated over 35,000 soups to the over 65 years old citizens and other vulnerable groups. Also, a donation was made to the Institute for Public Health of Northern Macedonia and the Clinical Center of Montenegro.
Nestlé will continue to help by donating its products and medical equipment and being together with the community in which it operates.