Nestle Lanka beats pandemic woes to report solid earnings in 2Q

Nestle Lanka PLC reported robust sales and profits for the three months to June (2Q21), as the company had successfully overcome the pandemic-induced challenges, due to the strong demand for its at-home product range when the out-of-home segment was adversely affected by the travel and other restrictions, which remained throughout the quarter. 

The local unit of the Swiss food and beverage company, the local portfolio of which include Nescafe coffee, Maggi instant noodles, Nestomalt malted drinks and cereals, reported sales of Rs.10.1 billion in the April-June quarter, recording a 22.4 percent increase from the same period in 2020. 

Nestle Lanka also has a large export segment, as the company is one of the world’s largest exporters of coconut milk powder but the interim results, which only provide the consolidated status of the performance, didn’t give any clue as to how the export segment of the business did during the period under consideration. 

During the financial year ended in December 2020, the firm’s export business and out-of-home business reported a negative growth but was offset by the strong growth in the domestic retail business.

When people aren’t moving out as before because of the lockdowns and the fear of contracting the virus, they tend to consumer more homemade food, triggering heavier demand for processed food makers such as Nestle, which has a strong at-home product range. 

When the pandemic first struck the country last year, Nestle Lanka strengthened its omni-channel approach to ensure its products reach seamlessly to the customers. 

“We accelerated and strengthened our presence on e-commerce, implemented door-to-door sales and launched ‘Nestlé Mart’, a retail hub locator, which shows users a list of grocery stores and supermarkets closest to them, which can deliver Nestlé products to their homes,” said Managing Director Fabrice Cavilling in the annual report for last year. 

Nestle also experienced some cost inflation, a phenomenon seen across the local and global food supply chains and in most other industries, which are coming out of the virus-induced disruptions. 

The cost of sales was seen rising by 24.4 percent year-on-year to Rs.7.1 billion. 

The company reported an operating profit of Rs.1.19 billion in the three months to June, up 14.1 percent but the net profit rose by 41.9 percent to Rs.844.3 million or Rs.15.71 a share, due to less corporate tax. 

The company, which engages in large-scale manufacturing, is now taxed at 18 percent, exports at 14 percent and other incomes at 24 percent since January 2020, against the pervious standard rate of 28 percent. 

For the six months ended in June, the company reported earnings of Rs.48.13 a share or Rs.2.59 billion from sales of Rs.21.6 billion, both up by 109 percent and 24 percent, respectively. The most recent global M&A deals have provided evidence that the world’s leader in processed foods has inclined to become more active in the health and nutrition sector, due to the faster growth and its future potential. 

The company targets to become carbon neutral by 2050 and is working towards the interim goal of making all packaging 100 percent recyclable by 2025. 

Switzerland-based Nestle S.A. has 91.21 percent in Nestle Lanka while the Employees’ Provident Fund has a 0.19 percent stake, being its ninth largest shareholder.