Interim Results
August 18 2004 - 3:01AM
UK Regulatory
RNS Number:0785C
Nestle SA
18 August 2004
Press Release
The Nestle 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
* Consolidated sales up 2.5 percent to CHF 42 454 million
* Constant currency EBITA margin up 10 basis points
* Real internal growth accelerates to 2.8 percent, organic growth 4.6
percent
* Operating cash flow up 8.7 percent to a record CHF 3 347 million, free
cash flow up 22.3 percent
* Net profit of CHF 2 838 million and an unchanged net margin of 6.7
percent
* Earnings per share up to CHF 7.30
Peter Brabeck-Letmathe, Vice-Chairman and Chief Executive Officer of Nestle
S.A.: "Nestle's results for the first half of 2004 are resilient in the face of
higher raw material prices, poor weather conditions and continued challenging
trading conditions in western Europe. The constant currency EBITA margin is up
10 basis points from last year and, if the impact of acquisitions and
divestitures is also excluded, there is a 20 basis points improvement in
margins. This performance, delivered in spite of higher raw material and
packaging costs as well as increased investment in our brands, shows that our
effi-ciency programmes are on track. I expect a further acceleration of real
internal growth in the second half of the year and remain optimistic that
organic growth between 5 and 6 percent will be achieved for the full year."
Half-year figures at a glance
Margins
January-June January-June January-June January-June
2004 2003 2004 2003
Sales CHF 42 454m CHF 41 437m
EBITA CHF 5 122m CHF 5 045m 12.1% 12.2%
Net profit CHF 2 838m CHF 2 780m 6.7% 6.7%
EPS CHF 7.30 CHF 7.19
Operating cash flow CHF 3 347m CHF 3 080m
Real internal growth 2.8% 2.1%
Organic growth 4.6% 5.5%
Vevey, 18 August 2004 - During the first half of 2004, the Nestle 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 busi-ness
environment in western Europe.
Sales performance
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.
Nestle Waters had a slow start to the year. Organic growth of 10.6 percent in
North America, reflecting con-tinued 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.
Sales and EBITA margins by management responsibilities and geographic areas
Jan.-June Jan.-June Jan.-June Jan.-June Jan.-June
2004 2003 2004 2004 2003
Sales Organic growth EBITA margins EBITA margins
in CHF millions (%) (%) (%)
Food
* Europe (a) 13 999 13 763 - 0.4 11.4 12.2
* Americas (b) 13 058 12 354 + 7.3 12.8 13.7
* Asia, Oceania and Africa 7 181 6 834 + 7.3 17.8 17.7
Nestle Waters 4 128 3 948 + 2.4 9.4 9.6
Other Activities (a) (c) (d) 4 088 4 538 + 10.9 23.9 17.5
Group Totals 42 454 41 437 + 4.6 12.1 12.2
(a) "Europe" restated for 2003 by excluding Eismann; "Other Activities" include
Eismann
(b) Includes impact of Dreyer's acquisition, except for organic growth
(c) Mainly pharmaceutical products, joint-ventures, Eismann and Trinks
(d) Includes impact of Trinks disposal
All calculations based on non-rounded figures
Sales and EBITA margins by product groups
Jan.-June Jan.-June Jan.-June Jan.-June Jan.-June
2004 2003 2004 2004 2003
Sales Organic EBITA EBITA
in CHF millions growth (%) margins (%) margins (%)
Beverages (a) 10 847 11 195 + 3.8 18.4 17.2
Milk Products, Nutrition and Ice Cream 11 647 11 031 + 4.7 10.8 12.2
(b)
Prepared Dishes and Cooking Aids 7 863 7 573 + 2.8 10.9 11.6
PetCare 4 865 4 674 + 7.0 13.9 13.7
Chocolate, Confectionery and Biscuits 4 486 4 415 + 2.7 6.6 6.2
Pharmaceutical Products 2 746 2 549 + 10.6 30.3 27.1
Group Totals 42 454 41 437 + 4.6 12.1 12.2
(a) Includes impact of Trinks disposal
(b) Includes impact of Dreyer's acquisition, except for organic growth
All calculations based on non-rounded figures
Profit performance
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
improve-ment, 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 per-cent 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 busi-ness 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 com-parison, 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, Nestle 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 dis-torts 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, exclud-ing the US ice cream operations,
shows a 20 basis point increase in EBITA margin, highlighting good per-formances
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.
Financial position
Nestle 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.
Group strategy
After four years during which Nestle 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.
Outlook
The first half of 2004 has seen a deterioration of the general environment for
manufacturers due to the rise of raw material and packaging costs. Western
Europe has also continued to be a very challenging market, not least due to poor
weather conditions. On the other hand, trading conditions in Asia, Oceania and
Africa and Latin America have improved, and a more positive market sentiment is
expected in North America in the second half of the year. Consequently, the
Group expects an acceleration of real internal growth helping it achieve its
organic growth target of between 5 and 6 percent for the full year. The Company
also expects to deliver a higher constant currency EBITA margin and improved
cash flow for the full year.
Contacts:
Media: Francois-Xavier Perroud Tel.: +41-21-924 2596
Investors: Roddy Child-Villiers Tel.: +41-21-924 3622
The complete 2004 Half-Yearly Sales and Results of the Nestle Group
can be downloaded from our website:
http://www.nestle.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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