Nestle Sales Up 8.1% in 2006

22/02/07 Nestle has said that reported sales for 2006 amounted to a new high of CHF 98.5 billion in 2006, up CHF 7.3 billion or 8.1%. The single most important factor in this increase was organic growth of 6.2%, above the Group's long-term target of between 5 and 6%. Within the organic growth, real internal growth was 4.7% and pricing 1.5%. Positive exchange rates added 1.6%, while acquisitions, net of divestitures, added 0.3%. The main driver of growth was the food and beverages business, which contributed CHF 6.7 billion to the Group’s CHF 7.3 billion of growth. Its sales were up 7.8% to CHF 91.8 billion. Its organic growth was 5.9%, with real internal growth at 4.2%, reflecting strong performances over most countries and brands.

At CHF 13.3 billion, the Group's EBIT improved by 12.0%, or CHF 1.4 billion, and now stands at 13.5% of sales, an improvement of 50 basis points over 2005. Food and beverages contributed 40 basis points to this increase, with pharmaceutical products, primarily Alcon, accounting for 10 basis points. Nestlé's efficiency programme, Operation EXCELLENCE 2007, exceeded its targeted savings of CHF 1 billion and, together with scale gains and the continued roll-out of GLOBE and shared services, enabled the Group to compensate for higher marketing, R&D and input costs.

The main engine of Nestlé's growth is its brands. Today, brands with sales of more than CHF 1 billion account for over 70% of food and beverages sales. The success of many Nestlé brands is increasingly derived from their strong nutritional credentials. Others have benefited from strong performances of health-focused extensions. Products enriched with Branded Active Benefits (BABs) achieved organic growth of over 20% in 2006, with sales close to CHF 4 billion. The Company’s commitment to growing its brands is demonstrated by a 6.3% increase in marketing and administration spend in 2006. This included an increase of CHF 1.8 billion in marketing-related costs. Despite this increased investment in Nestlé's brands, the strong sales growth and efficiencies in trade spend and overhead costs resulted in a drop of 60 basis points in marketing and administration expenditure as a percentage of sales. Another vital growth driver is innovation and renovation, and Nestlé’s spend on research and development was up 16% in 2006, to CHF 1.7 billion (1.8% of sales).

Net profit reached a record CHF 9.2 billion, up 13.8% or CHF1.1 billion, to 9.3% of sales. Total earnings per share were up 15.0%, amounting to CHF 23.90 (CHF 20.78 in 2005). The Group's return on invested capital, excluding goodwill, was up 40 basis points to 21.2%, while, including goodwill, it was up 30 basis points to 11.7%. The Group’s operating cash flow increased by 14.4%, or CHF 1.5 billion, to CHF 11.7 billion. Free cash flow generation increased by CHF 0.5 billion to CHF 7 billion. The difference between operating and free cash flows is mainly explained by capital expenditure, which rose from 3.7% of sales in 2005 to 4.3% in 2006, or by CHF 0.8 billion to CHF 4.2 billion, to support our consistent strong growth and fast pace of innovation. The Group's working capital performance improved by CHF 1 billion, with working capital declining from 7.7% of sales in 2005 to 6.7% in 2006.

The Group’s net debt increased from CHF 9.7 billion to CHF 11.0 billion. Apart from the increased capital expenditure, the Group completed the CHF 3 billion share buy-back announced in November 2005, made acquisitions including Uncle Tobys and Jenny Craig, and purchased the remaining publicly-owned shares of Dreyer’s Grand Ice Cream. The Group continues to have a AAA rating.

Peter Brabeck-Letmathe, Chairman and CEO: "2006 was another record year for Nestlé. We are seeing the benefits of the Group's transformation into a nutrition, health and wellness company, with stronger innovation and branding, as well as improved efficiency. At the same time, we strengthened our portfolio with the acquisitions of Uncle Tobys, Jenny Craig and Novartis Medical Nutrition, while divesting more commoditised businesses. Our competitiveness was further boosted by higher spending on marketing and R&D, the roll-out of GLOBE and shared services, as well as our strong commitment to savings programmes. This drove profitability to record levels while maintaining top-line growth. The record result is, above all, a testimony to the quality of our people. For 2007, despite the tough input cost environment, we again plan to deliver organic growth of between 5 and 6% as well as an EBIT margin improvement."