Nestlé Malaysia’s 1Q20 earnings down 21% on Covid-19, early CNY impact

Despite the setback, Nestlé Malaysia is committed to maintaining their workforce and will not implement any major restructuring or pay-cut initiatives


NESTLÉ (M) Bhd’s earnings fell 20.8% year-on-year in the first quarter ended March 31, 2020 (1Q20), as the country’s largest food and beverage (F&B) manufacturer took a hit from the Covid-19 pandemic and the earlier festive season.

Nestlé Malaysia’s 1Q20 net profit slipped to RM186.31 million from RM235.22 million last year, while earnings per share came in at 79.45 sen against 100.31 sen a year ago.

Revenue dipped 1.3% to RM1.43 billion from RM1.45 billion the year prior primarily due to a 3.4% reduction in domestic sales, although export sales grew 8.8%.

“The impact on domestic sales is partly due to the anticipated earlier timing of Chinese New Year (CNY) and the impact of Covid-19 on the out-of-home business, following the closure of restaurants, coffee shops and most other dine-in channels,” the group told Bursa Malaysia yesterday.

Profit margins were also hit by higher commodity costs, it added.

“Conscious choices were made to protect the safety of our employees and ensure the company continued to supply essential foods and beverages under the Movement Control Order (MCO), resulting in higher expenses in the quarter,” it said.

1Q20’s net profit was higher than the RM131.82 million reported in 4Q19, as sales rose quarter-on-quarter in preparation for an early CNY in 2020.

Another F&B giant, Fraser & Neave Holdings Bhd (F&N) also saw lower earnings for the January to March period due to Covid-19 and the MCO.

F&N said on Monday that its earnings for the 2Q20 shrank 2.2% to RM102.17 million from RM104.43 million the year before.

While some firms are planning pay-cut and layoffs to survive the Covid-19 crisis, Nestlé Malaysia does not anticipate any major restructuring or similar initiatives, its CEO Juan Aranols said.

“We have already made some clear commitments to maintain our workforce. The future is subdued with many white pages.

“At this point, we do not see any kind of radical adjustment. We will continue working the way we have been doing, building efficiencies and ways of working, as part of the nature of doing business,” he said during a virtual media briefing presenting the company’s 1Q20 results yesterday.

He added that the group is keeping its dividend policy of paying at least 95% of net profit.

“At this point, for us, it is business in the new normal where the focus is to continue supplying the market, developing our products, besides getting the safety of our employees, ensuring the supplies to the stores, and supporting the communities.”

Disruption from the Covid-19 situation is expected to persist throughout the next few months, compounded by pressure from unfavourable exchange rates and higher prices for some commodities, Aranols added.

“While it is difficult to anticipate the full extent of the changes this crisis will trigger, we are adapting to the challenges of a ‘new normal’ and leveraging new avenues for growth in 2020,” he stated.

The group will continue expanding its range of Nestle products available online and has a strong pipeline of new products coming in the second part of the year.

It aims to have up to 20 new products reaching the shelves this year, comprising various brands including MAGGI, Everyday, Nescafé, KitKat, and Nestum.

The group is allocating RM280 million in capital expenditure for 2020 — the highest in six years, as it continues to strengthen its capabilities for the long term.

The investment will go towards adding new manufacturing capabilities including an important capacity expansion for its MAGGI noodle factory as well as a latest production line in Shah Alam in preparation for entry into a new high-growth category with strong potential.

“Without the investment, we might reach maximum capacity not too far away from today. Clearly, what this investment will do is push the 10-year horizon for this brand. Basically, we are creating the capacity to grow for another 10 years,” Aranols said.

Nestlé Malaysia’s shares closed unchanged at RM139.60 yesterday, valuing the F&B manufacturer at RM32.74 billion.