Nestlé Delivers 3.5% Organic Growth Combined with a 30 bps EBIT Margin Improvement

With 3.5% organic growth and a 30 basis point EBIT margin improvement, Nestlé delivered a combination of growth and increased profitability in the first half of the year, and this in a very challenging business environment.

12 Aug 2009 In the first six months of 2009, Nestlé achieved organic growth of 3.5%, including 0.5% real internal growth. Divestitures, net of acquisitions, reduced Group sales by 0.7%, whilst the currency effect resulted in a 4.3% reduction due to the strength of the Swiss franc compared to many other currencies. These factors resulted in a decline in Nestlé Group sales of 1.5%, to CHF 52.3 billion. Food and Beverages' sales reached CHF 48.3 billion, with organic growth of 3.4%, including real internal growth of 0.1%. This builds on the strong first half of 2008 when Nestlé achieved organic growth of 8.9%.

The Group's EBIT grew to CHF 7.4 billion, resulting in an increased EBIT margin of 14.1% of sales. This represents a 30 basis points improvement, both in constant and reporting currencies. Food and Beverages' EBIT margin was up 20 basis points in constant currencies and 10 basis points reported, to 12.4%.

The acceleration of Nestlé Continuous Excellence, the Group's efficiency programme, contributed to a 30 basis points decline in both the cost of goods sold and distribution costs. The Group's commitment to brand building, including innovation and renovation, is reflected in the 10 basis points increase in consumer-facing marketing and a 20 basis points increase in Research and Development.

Nestlé's net profit margin reached 9.7% of sales. Underlying earnings per share grew by 3.5% to CHF 1.46, up 8.5% in constant currencies.

On 30 June 2009, the Group's operating cash flow was CHF 6.4 billion, significantly up from CHF 3.5 billion in the first half of 2008, reflecting its commitment to capital efficiency. The Group's net debt was CHF 17.4 billion, down from CHF 25.8 billion at the end of June 2008. The continuing share buyback programme and the payment of the dividend together resulted in about CHF 6.5 billion of cash returned to shareholders in the first half of 2009.

In the first half of 2009, the organic growth of Nestlé's overall Food and Beverages activities amounted to 0.5% in Europe, 4.6% in the Americas and 6.6% in Asia, Oceania and Africa.

Zone Europe: sales of CHF 10.8 billion, 0.2% organic growth and -1.5% real internal growth. The EBIT margin was 11.8%, the same level as a year ago. Savings from the acceleration of the Nestlé Continuous Excellence Programme compensated temporary volume softness, additional pension costs and continued investment in marketing. Great Britain and Eastern Europe, particularly Russia and the Ukraine, as well as the regional petcare business and soluble coffee, achieved high organic growth.

Zone Americas: sales of CHF 15.2 billion, 6.6% organic growth and 1.9% real internal growth. The EBIT margin improved by 20 basis points due to growth and significant cost savings from the Nestlé Continuous Excellence Programme. Both North and Latin America experienced strong organic growth, particularly the US, Brazil and Mexico. Soluble coffee and beverages, frozen food and petcare did particularly well.

Zone Asia, Oceania and Africa: sales of CHF 7.7 billion, 5.9% organic growth and 2.2% real internal growth. The EBIT margin improved by 60 basis points due to growth leverage and operational efficiencies. There were good performances across the emerging markets with Africa, China, India and the Philippines, amongst others, achieving double-digit organic growth. Soluble coffee, ambient culinary, powdered and ready-to-drink beverages, petcare and chocolate all delivered strong organic growth. Popularly Positioned Products (PPPs), aimed at emerging consumers, continued to achieve double-digit organic growth.

Nestlé Waters: sales of CHF 4.7 billion, -2.9% organic growth and -3.7% real internal growth. The EBIT margin increased by 110 basis points, benefiting from lower oil-related costs, efficiencies and supply chain optimisation. The organic growth reflects the current environment in the bottled water industry as a whole, particularly in Western Europe and North America. The emerging market businesses achieved double-digit organic growth. Nestlé Pure Life maintained good momentum around the world and drove market share gains in the US.

Nestlé Nutrition: sales of CHF 5.0 billion, 1.5% organic growth and -2.4% real internal growth. The EBIT margin decreased by 110 basis points, reflecting upfront investments in media campaigns and increased support for the accelerating NaturNes launch in Europe. All divisions accelerated during the first half from their first quarter performance. The infant nutrition business showed signs of improving momentum in Europe and the US during the period, and maintained good organic growth in Latin America, Asia, Oceania and Africa, supported by a strong innovation and renovation pipeline.

Other Food and Beverages: sales of CHF 4.9 billion, 6.1% organic growth and 2.4% real internal growth. The EBIT margin increased by 20 basis points due to growth leverage and operational efficiencies. Cereal Partners Worldwide and Nespresso continued to perform well. Nestlé Professional was affected by a softer out-of-home market in developed countries but delivered strong performances in many emerging markets such as Greater China, Philippines and the Middle East, resulting in virtually flat organic growth.

Pharma: sales of CHF 4.0 billion, 5.0% organic growth and 5.1% real internal growth. The EBIT margin improved by 80 basis points, mainly due to growth, operational efficiencies and a positive product mix.

Powdered and liquid beverages: sales of CHF 9.2 billion, 9.7% organic growth and 4.7% real internal growth. The EBIT margin declined by 110 basis points, mainly due to the increased support for the enlarged Nescafé Dolce Gusto roll-out and raw material cost pressures. The strong growth confirms the dynamism of Nestlé's billionaire brands Nescafé, Nesquik, Nespresso, Milo and Nestea. These brands benefited from a strong pipeline of new products, ranging from PPP offerings to super-premium. The successful roll-out of Nescafé Dolce Gusto continued and allowed Nestlé to increase its market share in the fast-growing portioned coffee segment. Nespresso continued its outstanding performance with organic growth over 25%. Overall, the product segment achieved double-digit growth in Eastern Europe, the Americas, Asia, Oceania, the Middle East and Africa.

Milk products and ice cream: sales of CHF 9.6 billion, 0% organic growth and -1.3% real internal growth. The EBIT margin declined by 20 basis points due to lower pricing in ambient dairy in anticipation of falling raw material costs. The EBIT margin in ice cream increased due to efficiencies and the exit from underperforming markets. There were the first signs of a pick up in consumer demand for ambient dairy in emerging markets after the high prices seen in 2008. Ice cream's organic growth improved over the first half of 2009 thanks to innovations such as Häagen Dazs 5 in North America and the successful launch of Nestlé Extrême all natural in Switzerland.

Prepared dishes and cooking aids: sales of CHF 8.2 billion, 1.0% organic growth and 0% real internal growth. The EBIT margin improved by 90 basis points due to product range rationalisation. Maggi achieved double-digit organic growth in Africa, Asia and Eastern Europe. In the US, Hot Pockets, Stouffer's and Lean Cuisine frozen prepared meals delivered a good first half performance. In Europe, frozen prepared meals were weak while the pizza business continued to perform well.

Confectionery: sales of CHF 5.1 billion, 4.3% organic growth and -1.3% real internal growth. The EBIT margin increased by 60 basis points due to efficiencies and product lines streamlining. Kit Kat continued its excellent performance with strong organic growth and market share gains. The UK business continued to perform well with its focus on its seven key brands, as did the US. Overall, the emerging markets in Asia, Africa, the Middle East and Latin America continued to deliver strong organic growth.

PetCare: sales of CHF 6.4 billion, 9.1% organic growth and 2.7% real internal growth. The EBIT margin increased by 120 basis points due to continued growth of high value-added strategic brands, together with pricing to offset input cost pressures. The global petcare business' excellent performance was driven by resilient demand for key premium and super premium brands such as One, Beneful, Cat Chow, Pro Plan and Friskies.