Halal Industry

Nestle Malaysia posts lower second-quarter profit on impact of pandemic-hit HORECA sector

BY Staff Writer

25 Aug 2020

News

Salaam Gateway

Nestle Malaysia posted a lower profit for the second-quarter as COVID-19 restrictions hit the country’s hotel, restaurant and café businesses, impacting the company’s Professional business line.

The packaged food company said operational restrictions on HORECA “had some material impact” on its Professional business that serves out-of-home channels, as well as its Ready-to-Drink and some food products.

“Despite a temporary contraction versus the baseline period derived from these COVID-related challenges, the situation in HORECA channels is progressively improving as Malaysia entered into the Recovery MCO phase (RMCO) in June,” Nestle Malaysia said in a bourse filing on Tuesday (August 25).

In comparison, its in-home consumption channels performed strongly with “solid gains” in household penetration for brands such as Maggi, Nescafe, Milo and Nestle Ice Cream, said the company.

This reflects Nestle Group’s worldwide performance that it said saw a “significant shift” from out-of-home to at-home consumption.

In Malaysia, the Kit Kat maker's net profit for the second-quarter dropped 32.7% to 105.533 million ringgit ($25.31 million) compared to 156.887 million ringgit for the same period last year.

This was on the back of a drop of 8.7% in turnover to 1.22 billion ringgit.

FIRST-HALF PERFORMANCE

Nestle Malaysia’s performance for the first six months of the year was propped up by a better first-quarter that saw a 20.8% fall in net profit to 235.22 million ringgit.

Turnover for the six months reached 2.65 billion ringgit, a drop of 5.02% compared to the previous year’s corresponding period.

“This was due to the anticipated earlier timing of Chinese New Year impact on our Q1 sales vs prior year, as well as the COVID-19 impacts in Q2,” said the company.

Overall, the company booked 291.84 million ringgit in net profit for January through June, a drop of 25.6% compared to last year.

The company posted a marginally stronger performance for its Food & Beverages business that earned revenue of 2.212 billion ringgit for the first-half compared to 2.199 billion ringgit for the same six months in 2019.

Nestle said this was “driven by the local business, supported by solid sales execution and effective marketing campaigns.”

Its business line that includes nutrition, Nestle Professional, Nestle Health Science and NESPRESSO fell 25.08% to 441.32 billion ringgit in revenue compared to 2019’s 589.029 billion ringgit.

Apart from the impact from a weaker HORECA sector, Nestle also attributed the drop in first-half earnings to “significant expenses” for work safety and operational continuity, which it said reached 50 million ringgit that was mostly expended in the second-quarter, and a one-off gain of 19.7 million ringgit related to a factory divestment that boosted its 2019 second-quarter baseline.

FIRST PLANT-BASED FACILITY

The company in May announced it would allocate 280 million ringgit for capital expenditure, its highest in six years.

It said on Tuesday that this includes a “significant investment” into one of its factories where it will build a facility for plant-based meal solutions.

This will be the first such facility in Asia for the Nestle Group worldwide, and it will produce for the local as well as export markets.

Nestle Malaysia said the sector is a “high strategic priority” for the Nestle Group worldwide.

Nestle has a substantial halal footprint. The Switzerland-based company itself has not given a definitive number to the sales value of its halal products but it says that more than 160 of its factories in more than 40 countries produce halal products. Malaysia is the company’s Halal Centre of Excellence and all products out of Nestle Malaysia are halal and halal-certified, including what it exports to 51 countries.

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Earnings