The Nestlé Group's results for the first half of 2004: Increased sales, EBITA and net profit, with a record operating cash flow, confirm positive outlook for the full year

Ø       Constant currency EBITA margin up 10 basis points

Ø       Real internal growth accelerates to 2.8 percent, organic growth 4.6 percent

Ø       Operating cash flow up 8.7 percent to a record CHF 3 347 million, free cash flow up 22.3 percent

Ø       Net profit of CHF 2 838 million and an unchanged net margin of 6.7 percent

Ø       Earnings per share up to CHF 7.30

 

 

 

 

Vevey, 18 August 2004  -  During the first half of 2004, the Nestlé Group's consolidated sales amounted to CHF 42 454 million, an increase of 2.5 percent, resulting in a 2.1 percent increase in net profit to CHF 2 838 million and an unchanged net margin of 6.7 percent.  Earnings per share stood at CHF 7.30, up 1.5 percent from CHF 7.19 last year.  EBITA increased 1.5 percent to CHF 5 122 million.  Although the reported Swiss franc EBITA margin declined slightly by 10 basis points, the constant currency EBITA margin increased by 10 basis points.  Operating cash flow grew 8.7 percent to CHF 3 347 million, while free cash flow increased 22.3 percent to CHF 2 002 million.  These results were achieved in the face of higher prices for raw materials such as milk, coffee, sugar, energy and packaging materials, poor weather conditions, and a difficult busi­ness environment in western Europe.

 

 

 

At constant currencies, sales improved 3.6 percent, while reported sales grew 2.5 percent.  Organic growth was 4.6 percent, consisting of real internal growth of 2.8 percent (up from 2.1 percent in the first half of 2003).  Prices increased 1.8 percent, compared with 3.4 percent in 2003, reflecting a more normal trading and currency environment.  The strength of the Swiss franc against most currencies reduced the Group's consolidated sales by 1.1 percent, and divestitures, net of acquisitions, had a negative impact of 1.0 percent.

 

Trading conditions in western Europe remained challenging throughout the first half of the year and were exacerbated by the poor weather contrasting sharply with the 2003 heat wave.  This had a particular impact on ice cream and water.  Among the other categories, culinary and healthcare nutrition performed well.  Western Europe will see a heavier product launch programme in the second half of the year, which should improve its contribution to real internal growth.  Eastern Europe continued to perform well, with organic growth of close to 10 percent.

 

The Americas delivered a good performance with real internal growth of 4.0 percent and organic growth of 7.3 percent.  PetCare in North America continued to do well, as did Latin America, with outstanding results for chocolate and soluble coffee.  Brazil accelerated from a slow first quarter and is expected to grow for the full year, while Mexico has continued to perform extremely well.  The US grocery business had 1.7 percent real internal growth and 2.5 percent organic growth.  Frozen food, the biggest category in this area, was under temporary pressure while new product launches were being planned.

 

Asia, Oceania and Africa did well, in spite of continuing turmoil in the Middle East and West Africa.  Greater China achieved 13.2 percent organic growth, a similar level to that of the Middle East.  Japan achieved 4.4 percent real internal growth.  Both real internal growth and organic growth were achieved in all regions of the Zone.

 

Nestlé Waters had a slow start to the year.  Organic growth of 10.6 percent in North America, reflecting con­tinued market share gains there, was offset by a slower performance in Europe, not least due to bad weather contrasting with last summer's exceptionally hot conditions.

 

 

 

 

The Group's EBITA increased 1.5 percent to CHF 5 122 million.  In constant currency terms, the EBITA margin for the first half of 2004 would have been 10 basis points higher than in the first half of 2003, and 20 basis points higher if the effects of acquisitions and divestitures had been excluded.  This margin improve­ment, achieved despite higher raw material costs and increased investment in brands, shows that the Group's efficiency programmes are on track and that the Company is committed to protecting and building its market positions over the long term, regardless of short-term market challenges.  Net profit was up 2.1 per­cent to CHF 2 838 million and the net profit margin remained unchanged at 6.7 percent.  Earnings per share increased, up 1.5 percent to CHF 7.30.

 

            In Europe the EBITA margin declined from 12.2 percent in 2003 to 11.4 percent, mainly due to increased marketing spend and raw material costs, as well as lower volumes.  In the Americas, the 90 basis point decline in EBITA margin is due to the inclusion of the Dreyer's numbers in the consolidated results.  This reduces the EBITA margin by 120 basis points.  A like-for-like comparison, without the US ice cream busi­ness for 2003 and 2004, shows a 30 basis point increase of the EBITA margin.  This was due mainly to strong performances in PetCare and Latin America. The 640 basis point EBITA margin increase of Other Activities from 17.5 to 23.9 percent includes the positive impact of the disposal of Trinks.  A like-for-like com­parison, without the Trinks figures, shows an impressive increase of 290 basis points, mainly due to Alcon's strong performance.  In Asia, Oceania and Africa, the EBITA margin rose from 17.7 to 17.8 percent, a good result in the face of rising milk costs in the Zone.  With a decline of only 20 basis points, Nestlé Waters' EBITA margin was resilient in the face of slower volume growth than in 2003 as well as lower pricing.

 

There was a mixed performance from the product groups.  The positive impact of the disposal of Trinks dis­torts the EBITA margin evolution of beverages: without this, the margin is virtually unchanged, with a good performance of liquid beverages following the restructuring of the Japanese operation offsetting a weaker performance in water.  In milk products, nutrition and ice cream, the like-for-like comparison, exclud­ing the US ice cream operations, shows a 20 basis point increase in EBITA margin, highlighting good per­formances in shelf stable dairy products and the smaller nutrition businesses.  PetCare's slight margin improvement masks a particularly strong improvement in North America and a flat performance in Europe.  The chocolate, confectionery and biscuits margin recovered from the impact on margins in the first half of 2003 caused by high raw material costs.  Prepared dishes and cooking aids experienced a decline in margins as a result of difficult trading conditions in North America.  The margin of pharmaceutical products was up from 27.1 to 30.3 percent, reflecting the strong performance of Alcon.

 

 

 

Nestlé continues to benefit from an exceptionally healthy financial position.  Operating cash flow grew 8.7 percent to CHF 3 347 million, while free cash flow increased 22.3 percent to CHF 2 002 million.  Capital expenditure fell slightly as a percentage of sales, while cash expenditure on acquisitions, net of divestitures, was significantly reduced.  Net indebtedness fell from CHF 21 079 million at the end of the corresponding period in 2003 to CHF 15 362 on 30 June 2004.  The ratio of net debt to equity fell from 59 percent at the end of June 2003 to 40 percent mid 2004.

 

 

 

After four years during which Nestlé achieved leadership in core categories such as PetCare and Ice Cream through acquisitions, the first half of 2004 saw substantial disposals of non-strategic businesses in areas such as distribution, culinary, and cocoa processing.  This is in line with the Group's strategy to focus on high value-added, R&D-driven food and beverage products.

 

Internally, the Group has continued to focus on internal efficiencies through its Target 2004+ and Project FitNes programmes, facilitated by the GLOBE project which remains on track.  These initiatives have enabled the Group to deliver an improved performance in the face of higher raw material and packaging costs and increased investment in brands.  The decision to continue investing in brands and market positions in spite of higher raw material and packaging costs reflects the long-term nature of the Company's strategy.