BUSINESS

Nestlé registers 2.4% organic growth in 2017

February 19, 2018

NESTLÉ reported 2.4% organic growth, trading operating profit margin up 50 basis points in constant currency for 2017.

Total reported sales increased by 0.4% to CHF 89.8 billion (2016: CHF 89.5 billion). Net divestments had a negative impact of 1.9% (mainly due to the creation of the Froneri joint venture).

Trading operating profit margin decreased by 60 basis points on a reported basis to 14.7%, in line with our October 2017 expectations. This included a CHF 900 million increase mainly in restructuring and related costs to CHF 1.5 billion.

Underlying trading operating profit increased by 2.9% to CHF 14.7 billion. The underlying trading operating margin was up 50 basis points in constant currency, and up 40 basis points on a reported basis to 16.4%. This improvement puts us on track to meet our 2020 target.

Margin expansion was supported by operating efficiencies and successful execution of ongoing restructuring initiatives. These cost savings largely offset the increase in commodity costs of around CHF 900 million.

Restructuring expenditure and net other trading items increased by CHF 900 million to CHF 1.5 billion due to the acceleration of restructuring projects. As a consequence, trading operating profit decreased by 3.4% to CHF 13.2 billion. The trading operating profit margin decreased by 60 basis points on a reported basis to 14.7%, in line with our guidance.

However, net profit decreased by 15.8% to CHF 7.2 billion and earnings per share decreased by 15.8% to CHF 2.32. This was mainly due to an impairment of goodwill related to Nestlé Skin Health, which was taken to reflect the current prospects of the business.

Underlying earnings per share increased by 4.7% in constant currency and by 4.6% on a reported basis to CHF 3.55.

For 2018, organic sales growth is expected between 2% and 4%, underlying trading operating margin improvement in line with our 2020 target. Restructuring costs are expected at around CHF 700 million. Underlying earnings per share in constant currency and capital efficiency are expected to increase.

Mark Schneider, Nestlé CEO, said: "Our 2017 organic sales growth was within the guided range but below our expectations, in particular due to weak sales development towards the end of the year. Sales growth in Europe and Asia was encouraging while North America and Brazil continued to see a challenging environment. Our cost reduction initiatives delivered margin improvement ahead of 2017 expectations, in spite of considerable commodity price increases.”

“During the past months, we have completed initial portfolio adjustments with very favorable results. We will continue this active portfolio management approach in a disciplined manner and fully in line with our strategy. Regarding our core portfolio, accelerating our growth through product innovation and renovation is high on the agenda. Organic sales growth is expected to improve in 2018 and we are firmly on track for our 2020 margin improvement target."

Zone EMENA saw positive growth across all sub-regions and categories, with petcare and coffee the main contributors. Petcare’s performance was supported by very strong growth in Russia and other emerging markets. Nescafé had good growth in Western Europe, the Middle East and North Africa, following price increases taken during the year. Confectionery, culinary and dairy all delivered improved growth, helped by successful product launches. The United Kingdom returned to solid growth after a challenging start to the year, with positive RIG and pricing.

The Zone’s underlying trading operating profit margin increased by 80 basis points, despite higher commodity costs. This improvement was driven by price increases, portfolio management, operational efficiencies and structural cost savings. — SG


February 19, 2018
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