Impact of Maggi recall in India to continue in H2: Nestle

The company is engaging fully with the authorities as it works to relaunch the product

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Swiss FMCG major Nestle today said the negative impact of withdrawal of Maggi in Indian market will continue in the second half of the year.

The company, which posted a 4.5 per cent increase in sales at 42.8 billion Swiss Franc (about 43.8 billion USD) in the first half of the year, said its sales in Asia, Oceania and sub-Saharan Africa (AOA) markets were "overshadowed" by the issue in India.

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"In India, our withdrawal of Maggi noodles resulted in a negative organic growth, which will continue into the second half. We are engaging fully with the authorities as we work to relaunch the product," the company said in a statement.

"The trading operating profit margin of zone AOA was affected by the withdrawal and destruction costs of the returned products in India, which have already had a material impact in the first half of the year," Nestle said.

India's central food safety regulator FSSAI had banned the Maggi instant noodles, saying it was "unsafe and hazardous" for consumption after finding lead levels beyond permissible limits.

The regulator had also said the company violated labeling regulations on taste enhancer MSG and ordered the company to submit a compliance report on its orders.

The ban was, however, overturned by the Bombay High Court today.

This week the government had filed a class action suit against Nestle India seeking about Rs 640 crore in damages for alleged unfair trade practices, false labeling and misleading advertisements.

On the results, Nestle CEO Paul Bulcke said: "The first half results were in line with our expectations, broad-based across categories and geographies, solid even in difficult circumstances, and consistent with our strong performance over time."

In January-June, Nestle's sales growth in Asia, Oceania and sub-Saharan Africa came in at 7.1 billion Swiss Franc (7.2 billion USD).

During the first half, Nestle sales grew 6.6 per cent in the US market, 3.4 per cent in the European, Middle East and North African market and 2.2 per cent in the AOA region.

The company expects that in 2015, it would achieve 5 per cent growth and improve its margins based on 4.5 per cent growth in H1.

"We aim to achieve organic growth of around 5% with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency," Nestle said.

Following orders from India'a food safety regulator FSSAI, Nestle India had to recall its entire stock of instant noodles sold under Maggi brand.

"The trading operating profit margin of zone AOA was affected by the withdrawal and destruction costs of the returned products in India which have already had a material impact in the first half of the year," said Nestle.

Ban of Maggi hit Nestle India hard as it reported a standalone loss of Rs 64.40 crore for the quarter ended on June 30, 2015 - its first quarterly loss in over three decades.