During the first half of 2000, the Nestlé Group achieved a significant increase in both sales and profit margins. Consolidated sales grew by 9.9 percent to CHF 38.8 billion, with real internal growth accelerating to 4.5 percent, compared to 2.1 percent in the same period of 1999. Trading profit amounted to CHF 4296 million.
This represents 11.1 percent of sales against 9.8 percent for the 1st half of 1999. Net profit increased to CHF 2798 million or CHF 72.7 per share, resulting in a net profit margin of 7.2 percent (5.9 percent in the first half of 1999).
The strong sales performance reflects the Group's emphasis on internal growth. The margin improvements result from progress achieved in enhancing operational efficiency, the streamlining of the Group's product portfolio, industrial restructuring and some lower raw material prices which were able to offset higher packaging costs. Internal Growth and Currencies Push Up Sales Consolidated sales, at CHF 38.8 billion, were up 9.9 percent. At comparable structure (excluding acquisitions and divestitures) and at constant exchange rates, sales rose by 4.9 percent. All regions and activities contributed to real internal growth, which stands at 4.5 percent for the first half of 2000.
The improvement was particularly noticeable for food sales in Asia, Oceania and Africa, in Latin America, with the exception of Brazil, and in Eastern Europe. North America and Western Europe showed moderate sales growth to which most markets contributed. Bottled water and pharmaceuticals both added significantly to sales growth. Selling price adaptations account for 0.4 percent of sales growth, essentially through price increases in developing countries with higher inflation rates. Divestitures net of acquisitions reduced consolidated sales by 1.2 percent, reflecting the impact of the divestiture of Findus in Europe, Laura Secord in Canada and the Roast&Ground coffee business in the USA. During the 1st half of 2000 the most significant acquisitions were the Ueshima Coffee Company's vending machine business in Japan and PowerBar (performance nutrition) in the USA. Exchange rates had a positive impact of 6.2 percent, with all major invoicing currencies, except the Euro, appreciating against the Swiss franc. Operational Efficiency Drives Profits Trading profit rose by 24.1 percent to CHF 4296 million in the first half of 2000. This put the margin at 11.1 percent, compared with 9.8 percent in the same period in 1999. The EBITDA (earnings before interest, taxes, depreciation and amortization) margin rose from 14.2 percent to 15.1 percent.
Profitability gains were particularly noticeable in emerging countries, while the USA showed an improvement and Western Europe remained stable. Nestlé's ongoing efforts to increase operational efficiency resulted again in a significant reduction of the cost of goods sold.
In addition, lower coffee and cocoa prices more than offset the higher prices of packaging materials. Total marketing and administration expenses, as expressed as a percentage of sales fell from 32.5 percent to 32.4 percent. While marketing expenditures were stepped up to strengthen Nestlé brands and market share, the growth of administration outlays was slowed down, in line with the ongoing policy aimed at cutting overhead costs. Distribution expenditures, however, showed an increase, as a result of the strong growth in the bottled water business where such costs are generally higher. Net profit grew by 34.6 percent to CHF 2798 million, resulting in a margin on sales of 7.2 percent. Earnings per share, as a result of a lower average number of shares in circulation, rose slightly faster to CHF 72.7 per share (CHF 53.5 in the first half of 1999).
Positive Outlook for the Year 2000
For the second half of 2000, Nestlé expects further, but more moderate improvements in sales and profits. The Company cautions however, against the extrapolation of the sales and profit growth rates recorded during the first half of 2000 for the full year. The basis of comparison for the second half of the year, both in terms of sales growth and in currency effects, will be less favorable. Nevertheless, Nestlé remains confident about its potential to achieve performance improvements for the full year 2000 and, barring major unforeseen events, to reach higher sales and profits than in 1999.