Nestlé S.A. / Strong first-half organic growth and EBIT margin improvement, Full-year
outlook reconfirmed processed and transmitted by Hugin AS. The issuer is solely
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* Group:
Sales of CHF 55.3 billion, 6.1% organic growth, 4.6% real internal growth
EBIT of CHF 8.4 billion, +13.6%; EBIT margin 15.1%, +80 bps1, +70 bps in constant
currencies
Earnings per share up 13.5% to CHF 1.60
* Food and Beverages:
Sales of CHF 51.0 billion, 5.7% organic growth, 4.2% real internal growth
EBIT of CHF 6.7 billion, +10.6%; EBIT margin 13.0%, +60 bps reported and in constant
currencies
Consumer-facing marketing spend up over 14% in constant currencies
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.”
Vevey, 11 August 2010 -The Group achieved organic growth of 6.1% and an EBIT margin
improvement to 15.1%, an increase of 80 basis points1. 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.
First-Half Results
The first-half results reflect our focus on delivering total performance in all
categories and operations.
· 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.
Business Review
Zone Americas
Sales of CHF 16.3 billion, 6.1% organic growth, 3.1% real internal growth; EBIT margin
15.1%, -10 basis points.
* In North America, the Purina PetCare business continued to perform well, accelerating
in the first half. Beneful grew double-digit, whilst ONE and Dog Chow achieved mid to
high single-digit growth. In confectionery, the Wonka extension into chocolate continued
to drive growth, as did Nescafé Clásico in soluble coffee. The frozen prepared meals
category as a whole continued to suffer from weak consumer demand. While Stouffers’ and
Hot Pockets improved, Lean Cuisine continued to decline in a very challenging
competitive environment. A new Lean Cuisine range was launched in June and we expect
improvement by the end of the year. The frozen pizza business, acquired in March,
performed particularly well, especially the DiGiorno brand, which achieved about 14%
organic growth. In ice cream, we saw good growth from Häagen Dazs and Skinny Cow.
* In Latin America, growth accelerated during the second quarter of 2010 to achieve
double-digit organic growth in the first half. The biggest categories in the region,
dairy and chocolate, both performed well. Dairy saw good growth across most of the
region, particularly in Brazil and the Austral-America region, as well as in the Dairy
Partners of America joint venture with Fonterra. Chocolate had a strong start to the
year and a successful Easter season in Brazil and Mexico, as well as in smaller markets.
The Maggi culinary business and Nescafé also both made good progress in their key
markets.
* Compared to the first half of 2009, the EBIT margin was down 10 basis points to 15.1%
of sales. This was mainly due to weak demand for frozen food in North America. There was
a positive contribution to the margin from a good delivery of savings and strong growth
in the Zone. We continued to increase our brand investment.
Zone Europe
Sales of CHF 10.7 billion, 2.2% organic growth, 1.3% real internal growth; EBIT margin
11.9%, +10 basis points.
* In Western Europe, we achieved positive real internal growth in all key markets. Our
broad-based performance was achieved through a focus on increasing distribution,
improving customer service and accelerating innovation and renovation. In Southern
Europe, we achieved positive growth in Italy and the Iberian region and, in Eastern
Europe, Poland and the Ukraine were strong performers. In Russia, we experienced good
performances in many categories although ice cream and confectionery remained soft.
* The ice cream market had a slow start to the season in Western Europe, but otherwise
there was a positive evolution across the Zone’s portfolio. Soluble coffee delivered
good growth, with Nescafé Dolce Gusto continuing to build momentum and take share in its
segment of the market. The culinary chilled and frozen food segments both performed
well, particularly Herta in chilled food, and Buitoni and Wagner pizzas in frozen food.
Ambient culinary, predominantly Maggi, gained share in its biggest market, Germany, and
its Juicy Chicken range continued to build share across Europe. In chocolate, KitKat
performed well across the Zone. PetCare continued its good momentum in the Zone, with
mid single-digit organic growth, and good performances in Russia, Spain, and France
amongst others, as well as strong performances from premium brands such as Gourmet,
Friskies, ONE and ProPlan.
* The EBIT margin increased by 10 basis points to 11.9%. This reflects a good delivery
of savings from Nestlé Continuous Excellence, as well as lower raw material costs than
in the first half of 2009. This was achieved despite increased advertising and
promotional investment.
Zone Asia, Oceania and Africa
Sales of CHF 8.6 billion, 9.0% organic growth, 7.6% real internal growth; EBIT margin
16.9%, +20 basis points.
* The emerging markets in Zone Asia, Oceania and Africa achieved double-digit growth,
with strong performances across the Zone. Highlights were the South Asia region,
including India, the Indochina region, including Vietnam and Thailand, the Central/West
Africa region, Indonesia and China. Growth in Oceania and Japan was flat.
* There were strong performances by most categories. Nido and the other milk brands were
back on a good growth trajectory after a tough year in 2009. Ambient culinary, Maggi,
also grew double-digit, due to a continued extension of its distribution, as well as
successful innovation such as powdered bouillon cubes. Both powdered and ready-to-drink
beverages made good progress, under brands such as Milo, Nestea and Nescafé. Soluble
coffee had strong momentum in emerging markets and performed well in Japan, particularly
due to the roll-out of the Nescafé Barista coffee system there. Chocolate continued to
enjoy double-digit growth in emerging markets, driven partly by the successful
implementation of its popularly positioned products model, including Nestlé éclairs in
India, which are the lowest priced products in Nestlé’s portfolio.
* The EBIT margin increased by 20 basis points to 16.9%, reflecting the growth leverage
in the more profitable categories. This was enabled by increased investment in brands
and distribution.
Nestlé Waters
Sales of CHF 4.7 billion, 2.5% organic growth, 3.0% real internal growth; EBIT margin
8.4%, +10 basis points.
* The water market in the developed world returned to growth after a couple of years in
which consumption fell. In the emerging world, robust growth continued, and we achieved
near 20% organic growth. The Group’s market share performance was good around the
world.
* We achieved positive real internal growth in both North America and Europe. In North
America, Nestlé Pure Life continued to perform well, and there was an improvement in
growth from regional waters such as Poland Spring. In Europe, we achieved positive
growth in a number of markets, including France and Great Britain, despite the poor
start to summer. The international brands, especially S. Pellegrino and Perrier, also
had a strong start to the year globally.
* The EBIT margin increased by 10 basis points to 8.4%. This reflects the faster growth
of emerging markets, as well as the strong performance of the international brands. Raw
material costs were higher than in the first half of 2009, but this was compensated by
savings from Nestlé Continuous Excellence, including in structural costs, and the cost
benefits of light-weighting bottles.
Nestlé Nutrition
Sales of CHF 5.3 billion, 6.2% organic growth, 5.2% real internal growth; EBIT margin
19.0% +160 basis points.
* Infant nutrition had a good start to the year, with positive growth in all zones and
double-digit in many emerging markets, including Russia, China, the Middle East and
Africa. The three segments, infant formula, baby food and infant cereals, all
contributed with cereals being particularly strong. Key to the performance was continued
R&D-led innovation, such as infant cereals with probiotics and infant formula that
contributes to alleviating colic.
* Healthcare nutrition also gathered momentum over 2009, particularly in emerging
markets but also in developed markets such as France and Spain, with the focus on core
strategic platforms, including paediatrics and critical care. Our Jenny Craig weight
management business saw good growth in its US home delivery business, but visit levels
at its centres remained a drag to performance. It is early days for the French and
British roll-outs but first indications are positive.
* The EBIT margin increased by 160 basis points to 19%. This performance was achieved by
a combination of higher growth than in the first half of 2009, structural
reorganisations completed last year, savings from Nestlé Continuous Excellence, product
rationalisation in certain divisions, and the achievement of synergies from
acquisitions. This improvement was achieved whilst increasing brand support.
Other Food and Beverages
Sales of CHF 5.4 billion, 10.3% organic growth, 8.9% real internal growth; EBIT margin
18.6%, +250 basis points.
* Nestlé Professional continued to build on the positive momentum seen already in the
first quarter of 2010, with emerging markets driving the growth. The strategic
repositioning of the beverages division as a solutions provider is already showing signs
of its potential to drive greater value in our relationships with our customers. The
food business also picked up momentum, with China, Latin America and Europe performing
well.
* Nespresso had another strong period, with over 25% organic growth and sales above CHF
3 billion on an annualised basis. The business continued to enjoy double-digit growth in
its more established markets, such as Switzerland and France despite a changing
competitive environment, and broadened its footprint in many other parts of the world.
The boutique development is gathering pace, with about thirty to be opened in 2010: from
Shanghai to New York, from Miami to Cape Town. At the same time, the investment in
capacity continues, with an extension in Avenches that will bring the total investment
at the site to CHF 400 million, doubling its capsule capacity by 2012.
* Cereal Partners Worldwide grew its global market share, with a strong performance in
many emerging markets, as well as in developed markets such as Australia and France.
Beverage Partners Worldwide also achieved positive growth in the period.
* The segment’s EBIT margin increased by 250 basis points to 18.6%, with the main
constituents all contributing. Nespresso had a particularly strong performance, and
Nestlé Professional continued to benefit from its drive to improve its cost base and
reduce under-performing business lines.
Pharma
Sales of CHF 4.3 billion, 11.1% organic growth, 9.2% real internal growth; EBIT margin
39.9%, +530 basis points, +210 basis points like-for-like.
* There was a strong performance by all the constituents. Alcon’s like-for-like EBIT
margin improvement excludes the positive impact of no longer being allowed to depreciate
the Alcon assets held for sale in 2010 by IFRS 5.
Corporate highlights of the first half of 2010
* We announced the sale of our remaining holding in Alcon for around USD 28 billion and
we expect to complete the transaction in the third quarter of 2010.
* We completed the acquisition of the Kraft pizza business and, shortly after the period
under review, acquired Vitaflo, a global provider of clinical nutrition products based
in the UK. We also acquired the leader in instant noodles and dehydrated seasonings in
the Ukraine under the Mivina brand.
* We established a joint venture with Dashan, the leader in bottled water in China’s
Yunnan province.
* New facilities were inaugurated in various emerging markets: a Research and
Development centre for biscuits and cereal-based snacks in Santiago de Chile; a facility
devoted to manufacturing powdered milk and confectionery products in Dubai; and a water
bottling factory in Poland. Furthermore, we expanded our milk processing facilities in
Indonesia.
* We announced several emerging market investments: USD 390 million in Mexico and CHF
150 million in the Equatorial African Region, both over a period of three years.
Furthermore, we will invest CHF 60 million in the construction of a new culinary factory
in Russia and CHF 98 million in the construction of a new dairy factory in the
Philippines.
* Jenny Craig’s weight management programme was launched in France and in the UK.
* We completed our CHF 25 billion three-year Share Buy-Back Programme and launched a new
CHF 10 billion Share Buy-Back Programme.
Outlook
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 us to reconfirm our earlier
full-year guidance for Food and Beverages: organic growth of around 5% and an EBIT
margin improvement in constant currencies over last year.
Contacts Media Robin Tickle Tel.: +41 21 924 22 00
Investors Roddy Child-Villiers Tel.: +41 21 924 36 22
Annex
H1 2010 sales and EBIT margin overview
EBIT margins
Jan.-June 2010 Jan.-June 2010 Jan.-June 2010 Change vs Jan.-June 2009
Sales Organic Growth
in CHF millions (%)
By operating segment
Food and Beverages 16 302 6.1 15.1% -10 bps
· Zone Americas
· Zone Europe 10 692 2.2 11.9% +10 bps
· Zone Asia, Oceania, Africa 8 598 9.0 16.9% +20 bps
Nestlé Waters 4 731 2.5 8.4% +10 bps
Nestlé Nutrition 5 251 6.2 19.0% +160 bps
Other Food & Beverages 5 429 10.3 18.6% +250 bps
Nestlé Food and Beverages 51 003 5.7 13.0% +60 bps
Pharma 4 341 11.1 39.9% +210 bps1
(incl. Alcon)
Total Group 55 344 6.1 15.1% +80 bps1
By Product
Powdered and liquid beverages 10 112 8.4 22.0% +20 bps
Water 4 735 2.5 8.4% +10 bps
Milk products and ice cream 10 126 5.6 11.5% +50 bps
Nutrition 5 253 6.2 19.0% +160 bps
Prepared dishes and cooking aids 8 753 3.4 11.3% -90 bps
Confectionery 5 497 8.4 12.0% +70 bps
PetCare 6 527 5.1 17.6% +190 bps
Pharmaceutical products 4 341 11.1 39.9% +210 bps1
(incl. Alcon)
Total Group 55 344 6.1 15.1% +80 bps1
Nestlé Waters, Nestlé Nutrition and Other Food & Beverages (including Nestlé
Professional) are not included in the Zones. The slight difference in the figures for
water and nutrition between the “Sales by operating segment” and “Sales by product”
tables is due to the fact that some water and nutrition products are also sold by
operating segments other than Nestlé Waters and Nestlé Nutrition
1 Like-for-like excluding the positive impact of no longer being allowed to depreciate
the Alcon assets held for sale in 2010 by IFRS 5 (CHF 139 million).
HUG#1436965
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