Nestle Achieves First-Half Profit Rise of 7.5%

Organic growth for all Food and Beverages operations was 5.3% in the Americas, 3.6% in Europe and 10.4% in Asia, Oceania and Africa. The Group’s emerging markets continued to achieve over 10% organic growth. BRIC countries’ combined performance was even stronger.

Aug 11 2010 --- Nestle has achieved Group organic growth of 6.1% and an EBIT margin improvement to 15.1%, an increase of 80 basis points. The Group’s Food and Beverages business achieved 5.7% organic growth, built on a solid foundation of growth both in emerging markets as well as in Western Europe and North America. This growth represents an acceleration over the corresponding period in 2009, particularly in Europe as well as in Asia, Oceania and Africa. This top line performance was combined with a 60 basis points EBIT margin improvement in Food and Beverages.

Organic growth for all Food and Beverages operations was 5.3% in the Americas, 3.6% in Europe and 10.4% in Asia, Oceania and Africa. The Group’s emerging markets continued to achieve over 10% organic growth. BRIC countries’ combined performance was even stronger.

Key growth drivers included deeper distribution in emerging markets in support of a further roll-out of our value-priced, popularly-positioned products, and the continued success of premium products in both developed and developing markets. Recent innovations across all categories, combined with increased investment in consumer-facing marketing, were key to strengthening the Group’s market positions.

The leverage effects from our growth and scale as well as the ongoing efficiency drive under Nestlé Continuous Excellence contributed to the improvement in our EBIT margin, even after increased investment in the business to improve our performance in a sustainable way.

Paul Bulcke, Nestlé CEO: “The Group’s very successful first-half performance is due to the excellent execution of our proven strategies in all parts of the world, covering the full range from premium brands to value-priced offerings, combined with the ongoing successful implementation of Nestlé Continuous Excellence. We have increased investment in our brands, people and capabilities and have prepared the company for a more challenging second half, which allows me to reconfirm our earlier full-year guidance for Food and Beverages: organic growth of around 5% combined with an increase in EBIT margin in constant currencies.”

In the first half of 2010, the Nestlé Group’s organic growth was 6.1%, including real internal growth of 4.6%. Foreign exchange impacted sales by -1.5%, whilst acquisitions, net of divestitures, added 1.3%. Overall, Group sales increased by 5.9% to CHF 55.3 billion.

Food and Beverages’ organic growth was 5.7%, with real internal growth of 4.2%. The foreign exchange impact was -1.5% and acquisitions, net of divestitures, added 1.4%. Overall, Food and Beverages’ sales increased by 5.6% to CHF 51.0 billion.

The Group’s EBIT margin increased by 80 basis points like-for-like, or 70 basis points like-for-like in constant currencies, and by 100 basis points reported, to 15.1%. For Food and Beverages, the improvement was 60 basis points to 13.0%, reported and in constant currencies. We achieved this higher EBIT margin whilst, at the same time, increasing our Food and Beverages consumer-facing marketing spend by over 14% in constant currencies.

The cost of goods sold was lower by 160 basis points like-for-like (180 basis points reported). Savings from Nestlé Continuous Excellence were in line with our CHF 1.5 billion full-year target, and more than compensated input cost pressures. The delivery of the planned savings for the full year will contribute to the Group meeting its full-year EBIT margin targets in a more challenging input cost environment during the second half.

Distribution costs fell by 40 basis points, despite higher oil-related costs than in the first half of 2009, as a result of distribution synergies across operations in all three Zones, as well as Nestlé Waters’ continued efforts to optimise its distribution structures.

Administrative costs were down by 20 basis points, reflecting the roll-out of Nestlé Continuous Excellence to areas beyond operations.

Earnings per share rose by 13.5% from CHF 1.41 to CHF 1.60.

Net profit was CHF 5.5 billion, up 7.5%.

The Group’s operating cash flow was CHF 5.8 billion as a result of the normalisation of our working capital levels.

The Group’s organic growth and EBIT margin in the first half, combined with the positive effect of our continued investment in the business, allows the company to reconfirm its earlier full-year guidance for Food and Beverages: organic growth of around 5% and an EBIT margin improvement in constant currencies over last year.