Nestle SA Reports 6.6 Percent Organic Growth In First Half Of Year

Nestle SA reported sales for the first half of the year at CHF 44.1 billion, including 6.6 percent organic growth, 2.9 percent real internal growth.

Paul Bulcke, Nestlé CEO, said in a prepared statement:Our first-half performance shows the relevance of our strategic roadmap in today’s new reality and demonstrates our swift and disciplined execution behind it, making the right choices at the right time. We continue to drive innovation globally, ranging from popularly positioned products to super premium offerings. We are continually opening new routes-to-market to reach emerging consumers, and using new media to increase both our direct engagement with consumers and our return on brand investment. This approach has delivered profitable growth in both emerging and developed markets. Our first-half top line growth and our trading operating profit margin, together with our focus on capital efficiency, allow us to reconfirm our full-year outlook.”

In the first half of 2012, the Nestlé Group’s organic growth was 6.6 percent, composed of real internal growth of 2.9 percent and pricing of 3.7 percent. The impact of foreign exchange eased to - 1.8 percent. Acquisitions, net of divestitures, contributed 2.7 percent. Total Group sales increased 7.5 percent to CHF 44.1 billion.

As expected, input cost pressure resulted in an increase in the cost of goods sold, of 50 bps. This was mitigated by savings from Nestlé Continuous Excellence implemented throughout all our structures and activities, as well as timely pricing.

Distribution costs decreased by 30 bps, mainly due to the cumulative effects in mix and efficiencies.

Marketing and administration costs were down 20 bps. Consumer facing marketing spend is up in constant currencies and is being used more efficiently and effectively, increasing the return on investment in our brands and support for launch activities globally.

The group continued to invest in R&D (unchanged at 1.6 percent of sales), driving innovation.

The group’s trading operating profit (TOP) was CHF 6.6 billion, up 6.3 percent from CHF 6.2 billion in the first half of 2011. The margin was 15.0 percent, in line with expectation that margin performance would be second-half weighted.

Net profit was CHF 5.1 billion, up 8.9 percent from CHF 4.7 billion.

The underlying earnings per share (EPS) rose 12.4 percent in constant currencies. The reported EPS was CHF 1.61 up 10.3 percent from CHF 1.46 in the first half 2011.

The group’s operating cash flow was CHF 5.1 billion, up from CHF 2.1 billion in 2011, due to improvements in operations and working capital.

The Nestlé group continued to grow in all regions of the world: the Americas achieved organic growth of 6.4 percent, Europe 2.6 percent and Asia, Oceania and Africa 12.6 percent. Business grew 12.9 percent in emerging markets and 2.6 percent in developed markets.

In the Americas sales was CHF 13.4 billion, 5.7 percent organic growth, - 0.1 percent real internal growth; 17.4 percent TOP margin, + 10 bps.

Almost all categories contributed to the zone’s growth, while the trading environment, particularly in North America, remained challenging.

In North America, where consumer confidence continued to be low, several food categories were under pressure including frozen food. In pizza, however, the group can further improve leading position driven by Digiorno with new ranges such as Pizza Dipping Strips and Italian Style Favorites. The innovations and related communications in Lean Cuisine resulted in a return to growth. In ice cream, there was growth in super-premium and snacks, but not in the premium category. Coffee-Mate delivered high single-digit growth, continuing to build on the 2011 launch of Coffee-Mate Natural Bliss its range of natural liquid creamers. Soluble coffee and confectionery contributed positively thanks to core brands, popularly positioned products and innovations such as Nescafe Memento and Skinny Cow.

Nestle Waters sales was CHF 3.6 billion, 5.6 percent organic growth, 3.5 percent real internal growth; TOP margin of 10.0 percent, + 140 bps.

Nestlé Waters’ growth was driven by North America and emerging markets. The water category continued to evolve positively overall. Nestle Pure Life drove geographic expansion in emerging markets, as did international brands Perrier and S. Pelligrino  globally.

North America maintained its momentum from 2011 both in the retail and home and office channels. All tiers of business, from Nestle Pure Life at the value end, to the regional waters such as Poland Spring and Ice Mountain, to the premium international sparkling waters such as Perrier and S. Pelligrino contributed to this performance.

The trading operating profit margin for Nestlé Waters increased by 140 bps thanks to continued growth, product mix, effective pricing and cost management initiatives.