Maggi mess: Nestle Sees First Loss in Two Decades

Affected by a countrywide recall and destruction of its instant noodle brand, Maggi, India’s largest food company by revenue, Nestlé India, posted its first quarterly loss in 17 years.

The Indian subsidiary of the world’s largest food company reported a Rs 64.4-crore net loss in what was its most challenging quarter to date. Thanks to the recall and ban of Maggi on June 5 (trouble for it began towards the end of May when sales began falling after detection of contaminants in some of the product’s samples), the company took a one-time charge of Rs 452 crore which hit its bottom line.

Net sales was not spared, either, with top line falling by a fifth to Rs 1,934 crore for the June quarter, compared with Rs 2,419 crore a year ago. The results were way below Bloomberg’s consensus estimates, which stood at Rs 2,340 crore for net sales and Rs 223 crore for net profit for the quarter.

The company’s stock reflected the overall mood; it fell 2.24 per cent in afternoon trade on BSE on Wednesday, after opening at Rs 6,240 a share. While the stock recovered marginally towards the end of the day’s trade, it ended 0.62 per cent lower than its previous close, at Rs 6147.30 a share.

“This quarter has been extremely challenging for the company. Nestlé India would like to reassure consumers that our products are safe. Consumer trust is and will always remain the cornerstone for Nestlé. Nestlé India is making all efforts and will continue to engage with authorities to bring Maggi Noodles back to the shelves,” said Nestlé India MD-designate Suresh Narayanan.

Nestlé added while releasing its results that the June quarter of this year was not comparable with the corresponding period last year. “Results for the quarter have been affected by the Maggi noodle issue,” it said in its statutory statement. “Recent developments and growing concerns about the product had led to an environment of confusion, leading to the product being temporarily taken off shelves,” the company said.

While Nestle is fighting to get the ban on Maggi lifted — the case is being heard by the Bombay High Court — the road ahead for the company is hardly expected to be easy. Analysts see the full impact of the Maggi ban being felt in the September quarter. The reasons for this were not difficult to gauge: Even if the ban on Maggi was lifted, the company was expected to take some time to get Maggi back on track, analysts tracking the company said. “Without question, trust has been hit and for Nestlé to win that back will not be easy,” a senior industry executive from a rival company said. “While Maggi contributed some 22 per cent to the company’s revenue in 2008, it is now at 30 per cent,” this executive said. “In the same period, revenue contributions of Nestlé’s ‘chocolate & confectionery’ and ‘beverages’ businesses have together come down to some 25 per cent from 32 per cent,” he added

As things stand today, Nestlé India derives 46 per cent of its revenues from milk products and nutrition, 29 per cent from prepared dishes and cooking aids, 13 per cent from beverages and 12 per cent from chocolates & confectionary.

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When analysing the company’s last annual report, Gautam Duggad, vice-president, research (FMCG & retail), Motilal Oswal, had said: “Except prepared dishes (this is the category where Maggi sits), which posted a volume growth of 3.7 per cent in calendar year 2014, others like chocolates & confectionary, milk products and beverages showed a volume decline of 12.2 per cent, 2.3 per cent and 11 per cent, respectively.”

Analysts have said the company will have to take quick measures across categories to prop up its sales and profit numbers. This is expected to be the key challenge for Narayanan when he takes over on August 1, even as he fights to restore Maggi back to its former glory.

Reference - http://www.business-standard.com/article/companies/maggi-mess-nestle-sees-first-loss-in-two-decades-115072901292_1.html