Press Release: Nestle: Nestlé reports half-year -2-

-- 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.

Consumer-facing marketing expenses* decreased. In many markets in-store

activation could not be implemented during COVID-19 related lockdowns.

Nestlé increased media spend, particularly in digital channels, to

support brand building and consumer engagement. Lower media rates

allowed for increased consumer reach.

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.

_________

*In constant currency, excluding divestitures of Nestlé Skin Health

and the U.S. ice cream business.

Underlying Trading Operating Profit

Underlying trading operating profit decreased by 7.9% to CHF 7.2

billion. The underlying trading operating profit margin reached 17.4%,

an increase of 30 basis points in constant currency and on a reported

basis.

Margin expansion was supported by portfolio management and stronger

operating performance. Reduced in-store activation during lockdowns and

lower structural costs more than offset COVID-19 related costs and

commodity inflation.

Restructuring expenses and net other trading items were CHF 186 million.

Trading operating profit decreased by 1.2% to CHF 7.0 billion. The

trading operating profit margin reached 16.9%, an increase of 140 basis

points in constant currency and on a reported basis.

Net Financial Expenses and Income Tax

Net financial expenses decreased by 11.3% to CHF 447 million, largely

reflecting a reduction in average net debt.

The Group reported tax rate decreased by 40 basis points to 27.1%. The

underlying tax rate was stable at 21.4%.

Net Profit and Earnings Per Share

Net profit grew by 18.3% to CHF 5.9 billion. Net profit margin increased

by 340 basis points to 14.3%, benefiting from one-off income related to

divestitures and improved operating performance.

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. Divestitures and

lower contributions from associates and joint ventures had a negative

impact of 4.4%. Nestlé's share buyback program contributed 1.4% to

the underlying earnings per share increase, net of finance costs.

Cash Flow

Free cash flow decreased by 19.1% to CHF 3.3 billion. This reduction was

mainly due to the delay of a dividend payment by an associate company

from April to July, the impact of foreign exchange rates and

divestitures. When adjusted for this dividend payment, free cash flow

increased by 40 basis points to 9.3% of sales, reflecting improved

capital discipline and stronger operating performance.

Share Buyback Program

In the first half, the Group repurchased CHF 4.2 billion of Nestlé

shares as part of the three-year CHF 20 billion share buyback program,

which began in January.

Net Debt

Net debt increased to CHF 33.4 billion as at June 30, 2020, compared to

CHF 27.1 billion at December 31, 2019. The increase reflected the

dividend payment of CHF 7.7 billion and share buybacks of CHF 4.2

billion, which more than offset free cash flow generation and a net cash

inflow from divestitures and acquisitions.

Portfolio Management

In January, Nestlé completed the sale of its U.S. ice cream

business for USD 4 billion to Froneri, the successful global joint

venture with PAI Partners. The Group closed the sale of a 60% stake in

its Herta charcuterie (cold cuts and meat-based products) business to

Casa Tarradellas in June.

In April, Nestlé completed the acquisition of Lily's Kitchen, a

premium natural pet food business. In May, the Group completed the

purchase of the Zenpep business from Allergan. In July, Nestlé

completed the acquisition of a majority stake in Vital Proteins,

America's leading collagen products brand.

Strategic Developments

In May, Nestlé announced the decision to explore strategic options,

including a potential sale, for the majority of the Waters business in

North America. As part of this process, the Group agreed to sell the

Canadian Nestlé Pure Life business to Ice River Springs in July.

The strategic review of the Yinlu peanut milk and canned rice porridge

businesses in China is ongoing. Both reviews are expected to be

completed in early 2021.

Zone Americas (AMS)

-- 5.3% organic growth: 5.1% RIG; 0.2% pricing.

-- North America saw mid single-digit organic growth, with strong RIG and

negative pricing.

-- Latin America maintained mid single-digit organic growth, with positive

RIG and pricing.

-- The underlying trading operating profit margin increased by 60 basis

points to 18.9%.

Sales Sales Organic UTOP UTOP Margin Margin

6M-2020 6M-2019 RIG Pricing growth 6M-2020 6M-2019 6M-2020 6M-2019

Zone CHF 16.7 CHF 18.1 CHF 3.2 CHF 3.3

AMS bn bn 5.1% 0.2% 5.3% bn bn 18.9% 18.3%

Organic growth reached 5.3%, supported by robust RIG of 5.1%. Pricing

contributed 0.2% and turned positive in the second quarter, with

broad-based improvements. Divestitures reduced sales by 5.3%, largely

related to the divestment of the U.S. ice cream business. Foreign

exchange had a negative impact of 7.7%, mainly due to currency

depreciations in Latin America. Reported sales in Zone AMS decreased by

7.7% to CHF 16.7 billion.

North America grew at a mid single-digit rate, supported by strong RIG

in most product categories. The largest growth contributor was Purina

PetCare, which saw continued strong momentum in e-commerce and in

premium brands, such as Purina Pro Plan, Purina ONE and Fancy Feast. The

launch of Pro Plan LiveClear, the first allergen-reducing cat food,

resonated strongly with cat owners. In the beverages category, Starbucks

at-home products, Nescafé and Coffee mate grew at double-digit

rates. Frozen food accelerated to double-digit growth, with increased

sales for DiGiorno, Hot Pockets and Stouffer's. Baking products,

including Toll House and Carnation, continued to see exceptional demand.

Water reported negative growth, impacted by reduced sales in the

out-of-home channel. International premium brands saw positive growth in

the United States, led by S.Pellegrino. Nestlé Professional posted

a double-digit sales decline, in line with channel dynamics.

Latin America maintained mid single-digit growth, with positive

contributions from most geographies and product categories. Sales in

Brazil grew at a high single-digit rate. Ninho, NAN and Nescafé all

saw elevated consumer demand. Chile reached high single-digit growth,

led by dairy. Mexico saw low single-digit growth. By product category,

the key growth platforms were dairy, Purina PetCare and coffee.

Confectionery reported negative growth due to reduced demand for

on-the-go products, but market share improved overall.

The Zone's underlying trading operating profit margin increased by 60

basis points. Portfolio management, reduced in-store activation during

lockdowns and the Direct-Store-Delivery transformation more than offset

COVID-19 related costs and commodity inflation.

Zone Europe, Middle East and North Africa (EMENA)

-- 2.4% organic growth: 2.8% RIG; -0.4% pricing.

-- Western Europe saw low single-digit growth with solid RIG, partially

offset by slightly negative pricing.

-- Central and Eastern Europe had mid single-digit organic growth, with

strong RIG. Pricing was negative.

-- Middle East and North Africa posted low single-digit organic growth. RIG

and pricing were positive.

-- The underlying trading operating profit margin grew by 40 basis points to

18.3%.

Sales Sales Organic UTOP UTOP Margin Margin

6M-2020 6M-2019 RIG Pricing growth 6M-2020 6M-2019 6M-2020 6M-2019

Zone CHF 10.0 CHF 10.6 CHF 1.8 CHF 1.9

EMENA bn bn 2.8% - 0.4% 2.4% bn bn 18.3% 17.9%

Organic growth was 2.4%, with solid RIG of 2.8%, supported by favorable

mix. Pricing decreased by 0.4%, turning positive in the second quarter

with improvements across all sub-regions. Divestitures reduced sales by

0.5% and foreign exchange negatively impacted sales by 7.0%. Reported

sales in Zone EMENA decreased by 5.1% to CHF 10.0 billion.

Zone EMENA grew at a low single-digit rate. After an exceptionally

strong start to the year, organic growth turned negative in the second

quarter due to a sharp sales decline in the out-of-home channel,

particularly for water, and Nestlé Professional. Overall, the other

product categories performed well and posted high single-digit growth.

The Zone saw continued market share gains in most geographies and

product categories, particularly in pet food, coffee and culinary

products. Each region saw positive growth, with strong momentum in

Russia.

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July 30, 2020 01:18 ET (05:18 GMT)