Nestle SA Reports 7.5 Percent Organic Growth In First Half 2011

Nestle SA reported sales of CHF 41.0 billion for the first half of 2011, representing 7.5 percent organic growth and 4.8 percent real internal growth.

Underlying earnings per share were up 5.2 percent in constant currencies.

Full-year outlook: organic growth at top end of 5 percent to 6 percent range, combined with a margin increase in constant currencies

Paul Bulcke, Nestlé CEO, said in a prepared statement: “Nestlé continued to make good progress in a period characterized by political and economic instability, natural disasters, rising raw material prices and, yes, a strong Swiss franc. This has made for an extremely tough, volatile and competitive environment. But by leveraging our competitive advantages, investing behind our growth drivers and excelling in operational efficiency and effectiveness, we managed to drive growth not only in emerging markets but also in developed countries, especially in Europe. Furthermore we improved our trading operating margin while increasing investment in our brands. For the full year, we expect organic growth at the top end of the 5 percent to 6 percent range, combined with a margin increase in constant currencies.”

The Group reported organic growth of 7.5 percent and a trading operating profit margin of 15.1 percent, up 20 basis points reported, up 40 basis points in constant currencies, from that achieved by the continuing operations in the first half of 2010.

The company continued to deliver growth both in emerging and developed markets, with organic growth of 5.7 percent in the Americas, 5.8 percent in Europe and 13.3 percent in Asia, Oceania and Africa. This performance reflects strong alignment and investment in strategic growth priorities and brands to support fast-flowing innovation pipeline. The company also continued to step up our investment in R&D, factories and capabilities to support our growth in both emerging and developed markets.

As announced in February 2011, Nestlé has made certain changes in presentation for revenue and operating profit, as from January 2011, which have no impact on net profit and earnings per share. The 2010 figures have been restated for all the changes as a comparable basis. Following the disposal of Alcon in August 2010, the 2010 comparatives are reported on a continuing basis, which excludes Alcon, except for net profit and earnings per share figures, which include the contribution from Alcon. This is reflected in the analysis below.

In the first half of 2011, the Nestlé Group’s organic growth was 7.5 percent, including real internal growth of 4.8 percent. Pricing increased in the second quarter to 3.8 percent compared to 1.5 percent in the first quarter, resulting in 2.7 percent pricing for the half year. There was a decrease in group sales of 12.9 percent to CHF 41 billion, due to an impact of 13.8 percent from foreign exchange and of 6.6 percent from divestitures, net of acquisitions.

The group’s trading operating profit margin increased by 20 basis points and by 40 basis points in constant currencies.

The cost of goods sold was higher by 180 basis points. The increase in input costs was partially offset by Nestlé Continuous Excellence savings, innovation, growth, sales mix and pricing.

Distribution costs increased by 10 basis points, as sales mix and savings compensated much of the higher oil-related costs compared to the first half of 2010.

Total marketing costs, including the cost of the sales and marketing organizations, were down by 20 basis points. More specifically, the consumer facing marketing spend increased by 6.2 percent in constant currencies. This was on top of a 14 percent increase in the first half of 2010.

Administrative costs were down by 150 basis points. This demonstrates a rigorous approach to efficiency and shows the benefit of rolling out Nestlé Continuous Excellence, enabled by GLOBE, to areas beyond operations, and continues the trend we experienced last year.

Nestlé Continuous Excellence savings are in line with our target of at least CHF 1.5 billion for the full year.