Nestle Delivers Strong First Half Results

15/08/07 The Nestlé Group has said that in the first six months of 2007 consolidated sales of amounted to CHF 51.1 billion, an increase of 8.4% over the same period last year. This was mainly driven by organic growth of 7.4%, consisting of real internal growth of 5.3% and price increases of 2.1%. Foreign exchange pushed sales up by 0.5%, while acquisitions, net of divestitures, added another 0.5%. The Group's Food and Beverages business achieved organic growth of 7.1%, consisting of real internal growth of 4.9% and price increases of 2.2%.

Food and Beverages' strong organic growth of 7.1% yielded scale benefits both in cost of goods sold and marketing. Combined with a continued drive for efficiencies, these benefits of scale more than compensated for higher input costs. As a result, Food and Beverages’ EBIT margin (Earnings Before Interest and Taxes) was up 60 basis points and was the main contributor to the Group's overall EBIT margin improvement of 60 basis points to 13.5%. The Group’s EBIT rose 14.2% to CHF 6.9 billion. The cost of goods sold decreased by 20 basis points. Distribution expenses increased by 40 basis points, mainly as a result of the Jenny Craig acquisition in August 2006 and the strong growth of other distribution intensive businesses such as Nestlé Waters. In spite of increased investment in Nestlé's brands, marketing and administrative costs dropped by 80 basis points due to the good management of trade spend and economies of scale.

Net profit grew 18.4% to CHF 4.9 billion, resulting in a net margin of 9.6%, up 80 basis points. Earnings per share grew 19.0% to CHF 12.79.

The Group’s operating cash flow increased by 29.4% or CHF 1 billion over the same period last year, to CHF 4.3 billion. The continued focus on working capital resulted in a further improvement in this area as compared to the first half of 2006. The Group’s net debt was CHF 13.4 billion, a level similar to the corresponding period last year.

Nestlé's Board of Directors approved a new CHF 25 billion share buyback programme to be completed over the next three years, subject to market conditions and strategic opportunities. This decision takes into account the strong momentum, improving capital efficiency and future prospects of the Food and Beverages business, which is increasingly benefiting from the move towards nutrition, health and wellness. Furthermore, the recent acquisitions of Novartis Medical Nutrition and Gerber create critical mass in Nutrition, with annualised sales of over CHF 10 billion. Therefore, while the Board continues to believe that driving the performance of the Food and Beverages business offers the greatest opportunity for value creation within Nestlé, it takes the view that a significant share buyback programme should further enhance shareholder value. The scale of the buyback programme is in line with Nestlé’s financial management objectives, which aim to retain flexibility.

Peter Brabeck-Letmathe, Chairman and CEO of Nestlé: "The Group again achieved both strong growth and improved margins, the hallmark of the Nestlé model. These results are due to the strong performance of the Food and Beverages business and Nestlé's ongoing transformation into the world's leading nutrition, health and wellness company. In spite of increasing input cost pressures, I am confident of Nestlé achieving above-target organic growth for 2007, as well as a sustainable margin improvement."