‘More headwinds ahead’: Nestle Malaysia predicts difficult second half of the year despite leading ASEAN growth in H12022

02-Aug-2022 - Last updated on 03-Aug-2022 at 01:46 GMT

Nestle Malaysia believes that the rest of 2022 will be a tumultuous time for the food and beverage giant with supply chain and commodity costs continuing to rise. ©Getty Images

Related tags Nestlé Malaysia Asean

Nestle Malaysia believes that the rest of 2022 will be a tumultuous time for the food and beverage giant with supply chain and commodity costs continuing to rise, even after having pulled off a stellar performance by leading the ASEAN zone growth for the first half of the year.

Nestle recently announced its financial results for the first half of 2022, reporting an 8.1% rise in organic growth, 9.2% increase in total sales to CHF25.6bn (US$26.7bn) and 6.0% profit growth to CHF 7.7bn (US$8.03bn).

This was however in tandem with a profit margin (profit to sales ratio) drop of 50 points, and average increased pricing of 6.5%, both of which were attributed to global inflation.

Its markets in Zone Asia, Oceania and Africa (Zone AOA) saw growth that was slightly above the global average at 8.2% to the global 8.1% and also saw sales increase by 5.2% year-on-year to hit CHF9.3bn (US$9.7bn), though this came with a pricing increase of 6.1%, one of the highest across all of Nestle’s markets and behind only Latin America (9.4%) and North America (9.8%).

Within the APAC region and in particularly South East Asia, Malaysia was highlighted as the firm’s best performing market, leading ASEAN region growth across multiple well-known brands such as Maggi, KitKat and Nescafe as well as bringing in multiple other new brands.

Nestle Malaysia released its Q22022 results on the same day as the group’s H12022 results, announcing a year-on-year growth of 18.8% for turnover from RM1.38bn (US$310mn) to RM1.64bn (US$369mn), growth in domestic sales by 12.5% and in export sales by 48.1%, and an overall net profit growth of over 26% to hit RM169.7mn (US$38.1mn).

“This growth was achieved mainly due to stronger sales and lower COVID-19 related expenses compared with the same quarter last year,” Nestle Malaysia CEO Juan Aranols said in a formal statement.

“We also managed to improve our performance despite the impact of increased commodity prices, unfavourable exchange rates against the ringgit, and the impact of the local Cukai Makmur (Prosperity Tax) on profits.

“That said, [we believe that] headwinds will increase in the second half of 2022, with ongoing disruptions in the global supply chains and sharp increases in prices of most globally traded commodities.

“Adding to this, rising inflation and the prolonged war in Ukraine will continue to put pressure on prices and may impact the availability of key food commodities, further compounded by MYR depreciation vs the USD.”

No specific mention was made of further significant price hikes to combat these challenges, but Aranols stressed that Nestle Malaysia would focus on pushing ‘sustainable growth’ and look internally to best manage these headwinds instead.

“Against this challenging backdrop, we remain focused on driving sustainable growth in the remainder of the year,” he said.

“Despite increased pressure on our bottom line, we will continue to cushion the impact through prudent cost optimisation and tight management of internal efficiencies.”

Plant-based and sustainability continue to be major focus

Nestle Malaysia has poured in a great deal of resources into developing and marketing its plant-based portfolio over the past year, both in terms of new product development as well as establishing dedicated infrastructure for this.

Many new plant-based offerings came to market during the last quarter, including its Harvest Gourmet plant-based nuggets and Nescafe dairy-free coffee capsules under the Dolce Gusto brand, with the Coconut and Almond Flat White variants leading the pack.

This was in addition to other sustainability efforts in the recycling and packaging area, with Aranols highlighting the importance of ESG to the firm’s continued growth.

“In addition to driving financial performance, we also ramped up further sustainability efforts in the quarter including to reduce plastic waste [and] expand our use of environmentally friendly packaging, becoming the first food and beverage company in Malaysia to implement high-quality recycled plastic resin (rPET) for our Ready-to-Drink products in plastic bottles,” he said.

“In addition, we have eliminated single-use plastic shrink wrap for our MILO UHT 125ml products and replaced this with 100% sustainably sourced recyclable paper, and are working to extend this innovation to the rest of our UHT range.”

“Via our Collection and Recycling Programme, we are also on track to achieve our target of collecting 6,000 tonnes of post-consumer packaging by end-2022, of which 3,000 tonnes will be plastics.”