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The world’s largest food group Nestlé has raised its full year growth forecast after posted organic growth of 8.1% in the first half as booming coffee sales drove strong growth.

Overall organic growth was 8.1% in the first six months of the year, driven by volume growth of 6.8% and a 1.3% pricing increase, reflecting input cost inflation.

Nestlé said the largest contributer to growth was coffee, with strong demand for the three main brands Nescafé, Nespresso and Starbucks. Starbucks in particularly posted 16.7% growth, with sales reaching CHF1.4bn across 79 markets.

Purina PetCare saw double-digit growth led by science-based and premium brands Purina Pro Plan, Purina ONE and Felix, as well as veterinary products.

Prepared dishes and cooking aids posted high single-digit growth, based on strong demand for Maggi and Stouffer’s.

Vegetarian and plant-based food offerings continued to see strong double-digit growth, led by Garden Gourmet.

Dairy reported high single-digit growth, led by fortified milks, coffee creamers and ice cream.

Confectionery also recorded double-digit growth, supported by a strong sales development in impulse products.

Water returned to positive growth, led by international premium brands S. Pellegrino and Perrier.

Infant Nutrition saw a sales decrease, impacted by lower birth rates in the context of the pandemic.

On a geographic basis, organic growth was 6.7% in developed markets, based mostly on volume growth. Organic growth in emerging markets was 10.0%, with strong internal growth and positive pricing.

By channel, organic growth in retail sales was 7.3%, moderating to a mid single-digit rate in the second quarter due to a high base of comparison in 2020. E-commerce sales grew by 19.2%, reaching 14.6% of total group sales, with strong momentum in most categories particularly coffee, Purina PetCare and culinary.

Organic growth in out-of-home channels was 21.3%, helped by the easing of movement restrictions in some geographies.

Net divestitures decreased sales by 3.1%, largely related to the divestments of Nestlé Waters North America brands, the Herta charcuterie business and the Yinlu peanut milk and canned rice porridge businesses.

On a headline basis sales were 1.5% higher at CHF41.8bn as foreign exchange reduced sales by a further 3.5%.

Underlying trading operating profit increased by 1.3% to CHF7.3bn, with margin unchanged at 17.4%.

Gross margin increased by 20 basis points to 48.8% as consumer-facing marketing expenses increased by 80 basis points to above 2019 levels, following reduced in-store activation in 2020. Cost inflation also impacted margin development in the second quarter.

Restructuring expenses and net other trading items increased by CHF78m to CHF264m due to asset impairments, meaning trading operating profit increased by 0.2% to CHF7billion.

Due to the strong first half sales growth Nestlé said it expects full-year organic sales growth between 5% and 6%, having posted growth of 3.6% last year.

Underlying trading operating profit margin is now expected around 17.5%, reflecting initial time delays between input cost inflation and pricing as well as the one-off integration costs related to the acquisition of The Bountiful Company’s core brands.

CEO Mark Schneider commented: “Organic growth was strong across most geographies and categories, with robust momentum in retail sales and a return to growth in out-of-home channels. Through fast-paced innovation, strong brand support, increased digitalization and stringent portfolio management we have built the foundation for delivering consistent mid single-digit organic growth for years to come.

“Nestlé continues to invest for future profitable growth. We are creating a global leader in vitamins, minerals and supplements with the acquisition of The Bountiful Company’s core brands. The expansion of our partnership with Starbucks into ready-to-drink coffee will open new opportunities in a fast-growing segment. Our portfolio choices, strong execution and decisive actions on sustainability enable us to create value for all stakeholders.”

Nestlé shares have eased back 0.7% to CHF113.38 on this morning’s news.

Morning update

On a busy morning, the world’s biggest brewer AB InBev has posted a futher improvement in second quarter results, with top-line growth ahead of pre-pandemic levels.

The company said it saw “continued momentum” in the second quarter, with top-line growth of 3.2% versus against the same quarter in 2019, even in the context of ongoing impacts related to COVID-19.

Year-on-year total volumes grew by 20.8%, with own beer volumes up by 20.5% and non-beer volumes up by 23.2%.

In the second quarter combined revenues of its three global brands, Budweiser, Stella Artois and Corona, increased by 23% globally and by 19.3% outside of their respective home markets.

In the first half, total volumes grew by 17.0% with own beer volumes up by 17.7% and non-beer volumes up by 12.6%.

Underlying profit for the quarter was US$1.5bn compared to US$790 in 2Q20 and was US$2.6bn in the first half compared to US$1.8bn in the same period last year.

Normalized EBITDA increased by 31% in the quarter and by 22.1% in the first half.

ABI said positive brand mix, revenue management initiatives, operational leverage and ongoing cost discipline drove the bottom line improvement, partially offset by anticipated transactional FX and commodity headwinds.

For the rest of the year ABI said it expects EBITDA to grow between 8-12% and revenue to grow ahead of EBITDA from a combination of volume and price.

CEO Michel Doukeris commented: “The consistent execution of our commercial strategy – centered around winning brands, category development and digital transformation – delivered continued momentum in the second quarter with top-line growth 3.2% ahead of 2Q19 pre-pandemic levels, even in light of ongoing COVID-19 impacts. Looking forward, we will continue to build upon our customer- and consumer-first approach to drive growth and value creation.”

French dairy giant Danone returned to growth in the second quarter as it announced a €800m share buyback to reflect its improved prospects.

Net sales were up 3.6% in the quarter to €6.2bn on a reported basis and by 6.6% on a like for like basis, to bring its first half sales into growth of 1.6% like-for-like.

Second quarter growth was broad-based, with Europe and North America sales up 6.4% on a like-for-like basis, led by the recovery in Waters, as well as sustained solid momentum for dairy and plant-based, and a return to growth for specialized nutrition.

Sales in the Rest of the World increased by 6.9% on a like-for-like basis, notably led by the softer basis of comparison in EDP and Waters.

Total first half sales were down 2.9% to €11.8bn, mainly driven by the negative impact of exchange rates (-5.5%) that resulted from currencies’ depreciation against the euro.

Recurring operating margin was at 13.1%, down from 14% in the same period last year, reflecting selective pricing initiatives, coupled with efficient product mix management and stepped-up productivity partially offsetting adverse category mix and higher inflation.

Danone reiterated its full-year guidance, pointing to a return to profitable growth in the second half and full year recurring operating margin broadly in line with 2020.

To reflect its improved performance, Danone also announced the launch of a share buyback programme of up to €800m in the second half of the year.

Interim CEOs Véronique Penchienati-Bosetta and Shane Grant jointly stated: “We are pleased to report a return to growth across all our categories this quarter, thanks to the teams’ commitment and focus on execution and delivery.

“Our continued focus on core portfolio renovation and innovation, supported by selective reinvestments and channel execution focus, has helped our leading brands such as Alpro, Actimel, Neocate, evian and Oikos grow market share, playing into global trends towards health and immunity.

“Margin held up well despite an adverse category mix and accelerated inflation. Strong productivity delivery coupled with selective pricing and mix management allowed us to partially offset headwinds.

“Looking ahead, we reiterate our guidance for the full year. Although the macro context is still uncertain, we have strong foundations across our categories, geographies and brands. Local First project is progressing according to plan. We will continue to adopt a disciplined approach to capital management and remain focused on delivering on our growth priorities and plans in the second half.”

Spirits giant Diageo has posted strong growth in net sales and operating profit in its full year, despite the impact of Covid on out-of-home channels and travel retail.

For the year to 30 June, Diageo reported net sales growth of 8.3% to £12.7bn, with strong organic growth partially offset by an adverse foreign exchange impact.

Organic net sales growth of 16% for the year was driven by growth across all regions and a benefit from lapping a reduction of inventory levels by customers in the previous financial year.

In particular, organic revenues grew by 20.2% in North America, reflecting resilient consumer demand, spirits taking share of total beverage alcohol and the replenishment of stock levels by distributors and retailers.

Positive price mix was primarily driven by strong premiumisation trends, particularly in North America and Greater China, and price increases in Latin America and Caribbean.

Diageo said it saw broad-based growth across categories, including tequila, scotch, Chinese white spirits and Baileys.

It held or grew off-trade market share in over 85% of total net sales value in measured markets, though on-trade remained significantly restricted in many markets due to Covid-19, particularly impacting beer in Europe.

Reported operating profit increased 74.6% to £3.7bn, with reported operating margins up by 1,112bps, primarily due to a significant reduction in exceptional operating items.

Organic operating profit growth of 17.7% followed a decline in 2020, with growth in all regions except Europe and Turkey.

Organic operating margin increased 46bps, driven by overhead efficiencies and lapping one-off expenses, partially offset by gross margin decline and upweighted marketing spend.

CEO Ivan Menezes commented: “I am very pleased with the strong financial results we have delivered in fiscal 21, while continuing to invest in long-term sustainable growth. These results demonstrate the strength and relevance of our brands and the extraordinary efforts of our talented people.

“I believe that our foundation, built through outstanding brand-building, active portfolio management, consumer-led innovation, smart investment in data analytics tools and embedding a culture of everyday efficiency, has been a key competitive advantage for Diageo. We were well-positioned to successfully manage the challenges created by Covid-19, we have responded quickly to changing consumer trends and we have emerged stronger.

“While our business has recovered strongly in fiscal 21, with net sales growth on a constant basis ahead of fiscal 19 in three of our five regions, we expect near-term volatility in some markets.

“However, I remain optimistic about the growth prospects for our industry, with spirits continuing to gain share of total beverage alcohol globally and premiumisation trends remaining strong. I believe Diageo is very well positioned to capture these exciting opportunities to drive long-term sustainable growth and shareholder value.”

FTSE 100 global catering firm Compass Group grew its third quarter organic revenues by 36.4% as it lapped the first full quarter of COVID-impacted revenues.

As anticipated, revenues in business & industry and education improved gradually whilst the more defensive sectors of healthcare & seniors and defence, offshore & remote continued to grow.

Its sports & leisure business benefitted significantly from higher attendance levels following an easing of restrictions in North America.

Compass said the “flight to trust” continued, leading to strong new business wins across all regions, with around 50% of new wins coming from first time outsourcing.

The group’s operating margin increased by 80bps from 4.2% in Q2 to 5.0% in Q3 as it continued to manage costs, resize its business, and adapt operations.

Compass said it continues to benefit from the acceleration in first-time outsourcing and market share gains. In Q4, with the ongoing reopening and mobilisation of sites in some of its biggest markets, it expects to be trading at 80-85% of pre-COVID levels and operating margin is expected to increase by a further 50-100 bps to 5.5%-6.0%.

It stated: “We are confident in our ability to return to a Group underlying margin above 7% before we return to pre-COVID volumes. In the longer term, we remain excited about the significant structural market opportunities globally, the potential for further revenue and profit growth, and shareholder returns over time.”

Pets at Home has posted sales growth of 25.7% in the 16 weeks to 15 July, with quarterly sales up to £377.8m.

Group like-for-like revenue in the period was up 30.2%, or 29.4% on a 2-year basis, reflecting broad-based growth throughout the quarter and continued strong growth across both retail and veterinary operations.

Retail revenues grew 29.1%, and LFL revenue was up 29.1% (29.6% on a 2-year basis) with good growth across both food and accessories, instore and online, despite the re-opening of non-essential retail and hospitality sectors during the quarter.

Omnichannel revenues were up 21.4%, or 107.5% on a 2-year basis. Participation of Retail revenue of 15.6% across the quarter, compared to 16.6% in the comparative period and 15.8% for the full year last year.

Strong performance across its veterinary operations also continued through the quarter, with customer sales across First Opinion practices approximately 30% higher on a 2-year basis.

Notwithstanding an increasingly challenging cost environment, including the ongoing impact of the pandemic on operating costs, which the company estimates at £9m this financial year, Pets at Home said it maintained price competitiveness through the quarter, with good profit and cash conversion reflecting a higher number of store transactions and strong growth in accessories sales.

Based on trading year to date, it now anticipates that full-year group underlying pre-tax profit will be £130m, at the top end of the current range of analyst expectations, representing a £42.5m (49%) increase on the prior year.

CEO Peter Pritchard commented: “It is pleasing to note that many of the positive trends from our last financial year have accelerated in the current quarter. Key indicators point to continued growth in pet ownership, providing a supportive backdrop to long-term growth across the underlying market and our business, and we continue to see strong growth in new customers, subscription plans and veterinary clients. I remain incredibly grateful to all our colleagues and Partners across the Group for their continuous hard work and excellent customer service.

“Our unique, omnichannel pet care strategy continues to deliver, with strong momentum across both sides of our business, as well as good progress against our strategic priorities, meaning we look to the future with much confidence.”

Sausage skin manufacturer Devro has posted group constant currency revenue up 3.1% to £122.7m in the six months to 30 June, primarily driven by market share gains and improving pricing discipline.

Reported revenue was marginally higher, rising from £119m to £199.9m, reflecting foreign exchange headwinds.

Volumes of edible collagen casings were up 4.2%, with emerging market volume up 10% driven by South East Asia, China and Latin America, while mature markets volume up 1% thanks to strong growth in North America but offset by weaker market conditions in UK & Ireland and Australia.

Underlying operating profit was up 9.7% to £20.3m and operating margin increased to 16.9% from 15.5%, benefiting from revenue growth, improving price/mix and ongoing cost savings which were partially offset by inflationary pressures.

Given the group’s financial position, trading performance and outlook, the board has declared a modestly increased interim dividend of 2.8p.

CEO Rutger Helbing said: “Devro’s constant currency revenue growth has accelerated and has driven significant profit growth in the first half, demonstrating the successful execution of the strategy, and we enter the second half with good momentum across the business, and confidence in our future prospects.

“In the shorter term, for the second half we expect the strong underlying performance to continue, however reflecting the uncertainties relating to COVID-19 pandemic and foreign exchange headwinds, the Board’s full year expectations are unchanged.

“The Board’s confidence in the Group’s prospects and the continued strengthening of the balance sheet has resulted in an increase in the dividend for the first time in four years, as well as an incremental increase in investments required to facilitate the sustainable growth we foresee based on underlying market dynamics, as well as our targeted sales actions.”

Finally this morning, drinks supplier and distributer C&C Group has announced chief operating office Andrea Pozzi and non-exec director Jim Clerkin will step down from their board roles on 1 September and 27 October respectively.

Pozzi will remain with C&C and has agreed to take up the role of managing its combined GB businesses, “aligning management structures and guiding us through a significant change programme of simplification and integration”.

The enlarged GB business will continue to trade under the existing core fascia of Tennent’s, Matthew Clark and Bibendum.

The group said Pozzi brings a wealth of experience to this important position, having previously led the GB business prior to the acquisition of Matthew Clark and Bibendum.

C&C will not replace the role of COO and current board responsibilities associated with that position will be fulfilled by the remaining executive directors.

Clerkin will step down from the board as a consequence of his increased work responsibilities in the USA.

Pozzi commented: “I am excited with the opportunity to lead our enlarged GB business and it is with careful consideration that I felt this role requires my complete focus and dedication. I look forward to driving the next stage of C&C’s evolution in the GB market.”

Chair of C&C group Stewart Gilliland commented: “I am delighted that Andrea has agreed to lead our enlarged GB business and I would like to thank Andrea for his significant contribution to the Board over the last four years. I would also like to extend my thanks to Jim Clerkin for his valued contribution and the considerable experience he has brought to the Board of C&C over the last four years.”

On the markets this morning, the FTSE 100 is up 0.5% to 7,052.3p so far today.

Risers include Total Produce, up 5.3% to 200p, Hotel Chocolat, up 4.8% to 369p, Bakkavor, up 3.8% to 132p and Compass Group, up 2.9% to 1,541.7p.

The day’s fallers so far include Virgin Wines, down 2.4% to 200.1p, Pets at Home, down 2.1% to 490.4p and Ocado, down 1.4% to 1,829.5p.

Yesterday in the City

The FTSE 100 ended the day up 0.3% at 7,016.6pts.

Morrisons shares were unchanged at 266p despite the news that a major shareholder said it was inclined to reject the £6.3bn takeover and further news that Singapore’s GIC wealth fund has joined Fortress’ bid for the supermarket.

British American Tobacco was down 1.3% to 2,734p despite increasing sales by 8.1% to £12.2bn in the first half thanks to growth in new categories.

Total Produce slumped 10% to 190p after it issued a short statement to the London Stock Exchange revising down the expected price range in the upcoming Dole IPO.

The day’s risers included SSP Group, up 6.7% to 269.7p, Glanbia, up 4.7% to €14.40, Just Eat Takeaway.com, up 2.4% to 6,368p, Domino’s Pizza Group, up 2.2% to 423.8p and B&M European Value, up 1.9% to 568.8p.

Fallers included Bakkavor, down 4.7% to 127.2p, Hotel Chocolat, down 3.6% to 352p, Greencore, down 2.7% to 129.6p, Nichols, down 1.9% to 1,422.5p and AG Barr, down 1.7% to 572p.

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