Nestlé volume growth in the first half of 2018 driven by on-trend new products, sales to China and positive core category performance

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Melanie Felgate, Senior Analyst at GlobalData, a leading data and analytics company, offers her view on the company’s current progress:

‘‘Nestlé’s half year results show continued positive volume growth performance for the group in H1 2018, although relatively weak pricing growth indicates a greater need for Premiumization to build value in the long-term.

‘‘Overall H1 net sales amounted to CHF 43.9bn, with real internal growth (RIG) of 2.5% at total group level. This growth can be attributed to a number of innovative new product launches in recent months, accelerated growth in key markets such as China, and positive performance in nutrition, coffee, confectionery and pet care categories.

‘‘Although Nestlé divested its US confectionery business to Ferrero in January; a wave of on-trend new launches in other markets, particularly Europe, has helped drive positive overall performance in the confectionery space, with 4.1% real internal growth in H1.

‘‘The introduction of new KitKat Ruby and KitKat Senses product lines in the UK have showcased the brand’s efforts to move into the premium confectionery space to drive value growth. Furthermore the introduction of lower sugar formulations within its core KitKat and Milky Bar ranges has helped align with rising consumer health consciousness, particularly in a category most at risk from the sugar-backlash.

‘‘Nestlé’s water business has seen relatively weak performance globally, with Nestlé Waters recording negative growth of -0.7% (RIG), driven by weak sales in Europe and emerging markets. However, the introduction of a new sparkling water range in February has contributed to positive growth performance in North America. The new naturally-flavored and unsweetened sparkling water range taps into demand for healthier hydration as consumers move away from traditional carbonates.

‘‘Nestlé has performed particularly strongly in the AOA (Asia, Oceania and Sub-Saharan Africa) region with 3.7% real internal growth, driven partly by accelerated performance in China. China has seen strong performance in coffee as Nestlé has taken advantage of growing demand for convenience and quality with the introduction of its premium Dolce Gusto and Nespresso at-home coffee machine brands in this market.

‘‘Opportunities for Nestlé in the coffee space, in China and globally, are likely to grow even further going forward following a deal signed in May for the perpetual rights to market Starbucks-branded food and beverage products in the retail space.

‘‘Looking ahead, the expansion of Nestlé’s new infant formula product – an innovative formulation which reproduces human milk oligosaccharides (HMO) found in breast milk – globally is likely to continue to drive strong growth performance in its health and nutrition business; and support further positive growth in the next quarter.’’

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