Excellent first half for Nestlé in 2008: 8.9% organic growth, 3.5% real internal growth - EBIT margin in constant currencies +60 basis points, +30 basis points reported

Back to Press releasesVevey,Aug 7, 2008

  • Sales of CHF 53.1 billion, +CHF 2 billion, 8.9% organic growth, 3.5% real internal growth
  • EBIT of CHF 7.3 billion (+6.1%), margin +60 basis points in constant currencies, +30 basis points reported, to 13.8%
  • Results driven by Food and Beverages: 8.9% organic growth, 3.2% real internal growth, EBIT margin +50 basis points in constant currencies, +30 basis points reported
  • Net profit of CHF 5.2 billion (+6.1%), margin +20 basis points to 9.8%, total EPS CHF 1.39 (+8.6%)
  • Acceleration of share buyback programme, CHF 13 billion to be completed by year end
  • Full-year outlook: organic growth at least at 2007 level with improved EBIT margins

    Paul Bulcke, CEO of Nestlé: "These figures build on the strong momentum gathered from last year's milestone results. Nestlé's drive to become the world's recognised leader in nutrition, health and wellness, its strong billionaire brands and its focus on speed and discipline in execution have allowed the company to further accelerate its performance under difficult economic conditions. I am therefore confident that 2008 will be another year of delivering the Nestlé model, with organic growth at least at the 2007 level and a further improvement in EBIT margins. Our Food and Beverages business will be the key driver of this profitable growth."

      EBIT Margins
    Changes vs.
    Jan.-June 2007
    vs. Jan.-June
    Sales CHF 53 066m  +  3.8% CHF 1 952m    
    EBIT CHF  7 341m  + 6.1% CHF   422m 13.8% +30 bps
    Net profit CHF 5 214m + 6.1% CHF   298m  9.8% +20 bps
    Total EPS  CHF 1.39 + 8.6%      
    Real internal growth
    Organic growth
    All calculations based on non-rounded figures

    Group sales, profitability and financial position

    In the first six months of 2008, consolidated sales of the Nestlé Group amounted to CHF 53.1 billion, an increase of 3.8% over the same period last year, driven by organic growth of 8.9%, including real internal growth of 3.5%. Foreign exchange had a -8.3% impact on sales, while acquisitions net of divestitures, primarily driven by the acquisition of Novartis Medical Nutrition and Gerber, added 3.2% to sales.

    The Group's EBIT grew by 6.1% to CHF 7.3 billion, resulting in an EBIT margin of 13.8%. This represents a 60 basis point improvement in constant currencies over the first half of 2007. Foreign exchange reduced the Group's EBIT margin by 30 basis points, to 30 basis points reported.

    With sales of CHF 49.3 billion, Food and Beverages achieved organic growth of 8.9%, including real internal growth of 3.2%, and was the Group's main contributor to growth and EBIT margins. With an EBIT growth of 6.7%, Food and Beverages' EBIT margin was up 50 basis points in constant currencies over last year. Foreign exchange reduced Food and Beverages' EBIT margin by 20 basis points, to 30 basis points reported.

    The Group's cost of goods sold increased by 190 basis points to 42.8% of sales. This reflects the impact of higher raw material costs, partially reduced by operating efficiencies. Marketing and administration costs declined by 190 basis points to 33.3% of sales, reflecting the effect of different growth rates of the company's product portfolio, efficiencies and the leverage effect from growth. In constant currencies, consumer marketing spend increased by 7%.

    Net profit grew by 6.1% to CHF 5.2 billion, resulting in a net margin of 9.8%, up 20 basis points. Earnings per share grew by 8.6% to CHF 1.39.

    On 30 June 2008, the Group’s operating cash flow stood at CHF 3.5 billion. This is lower than last year reflecting a higher level of inventories as a result of the increased cost of certain raw materials and the decision to selectively increase inventories of some products. The Group’s net debt, seasonally high at the half year, rose to CHF 25.8 billion. This will decline to below the level prevailing at the end of 2007, thanks partly to the proceeds received from the sale of 24.8% of Alcon to Novartis.

    This performance, above-target organic growth combined with a good improvement in EBIT margins, demonstrates Nestlé's ability to grow profitably even in a difficult business environment.

    Share buyback programme

    The share buyback programme is accelerating and the Group expects to spend around CHF 9 billion on buying back its own shares in 2008, an increase of about CHF 2 billion compared to the original plan. By the end of the year, approximately CHF 13 billion of the CHF 25 billion share buyback programme announced a year ago will have been completed.

    Sales and EBIT margins by management responsibility

    In the first half of 2008, the organic growth of Nestlé's total Food and Beverages business was stronger than last year in each of the three geographic regions: 5.2% in Europe, 9.9% in the Americas and 14.2% in Asia, Oceania and Africa. This performance reflects the success of the Group's nutrition, health and wellness strategy, as well as its focus on particular geographic and consumer segments through, for example, Popularly Positioned Products (PPPs) and premiumisation. These figures include the Zones, globally-managed businesses such as Nestlé Waters, Nestlé Nutrition, Nespresso, as well as the Food and Beverages joint ventures.


      Jan.-June 2008
    in CHF millions
    Jan.-June 2008
    Organic Growth
    EBIT Margins
    Jan.-June 2008 Change vs.
    Jan.-June 2007
    Food & Beverages        
      - Zone Europe 13 768 +  5.8 11.7%  +30 bps
      - Zone Americas 15 132 +  11.0 14.9%  +40 bps
      - Zone Asia, Oceania and Africa  8 361 +  13.1 16.3%  0 bps
    Nestlé Waters  4 954 - 1.1  7.2%  -210 bps
    Nestlé Nutrition  5 176 + 11.1 18.5%  -20 bps
    Other Food & Beverages  1 932 + 23.3 20.4% +150 bps
    Total Food & Beverages 49 323  + 8.9 12.3%  +30 bps
    Pharma  3 743 + 9.6 33.8% +90 bps
    Group Total 53 066 + 8.9 13.8%  +30 bps
    All calculations based on non-rounded figures

    Zone Europe: sales of CHF 13.8 billion, 5.8% organic growth and 2.3% real internal growth. Western European markets such as Great Britain, France, Germany and the Iberian region achieved good organic growth, while the Zone experienced double-digit organic growth in Eastern Europe, particularly in Russia and Poland. Overall, soluble coffee, confectionery, PetCare and culinary products were among the stronger categories. The Zone's 30 basis points improvement in EBIT margin was mainly driven by profitable growth and operational efficiencies.

    Zone Americas: sales of CHF 15.1 billion, 11% organic growth and 3% real internal growth. There were good performances across the Zone, with both North and Latin America experiencing strong organic growth. Shelf-stable dairy, soluble coffee, ready-to-drink beverages, biscuits and PetCare did particularly well. The timely implementation of price increases in categories most impacted by higher input costs and the strong innovation pipeline contributed to the 40 basis points EBIT margin improvement.

    Zone Asia, Oceania and Africa: sales of CHF 8.4 billion, 13.1% organic growth and 4.5% real internal growth. All the Zone's major emerging markets such as Greater China, Africa, South Asia and the Middle East grew strongly. Shelf-stable milk products, soluble coffee, powdered beverages, culinary products and PetCare did particularly well. In spite of higher cost pressures, the Zone's EBIT margin was unchanged as a result of good growth, efficiency improvements and pricing.

    Nestlé Waters: sales of CHF 5.0 billion, -1.1% organic growth and -3.1% real internal growth. This performance reflects a slowdown in the bottled water category in large markets such as western Europe and North America due to a combination of difficult economic conditions and perceived environmental issues around bottled water. Nestlé Waters' increasingly-important emerging market businesses continued to achieve organic growth above 20%. The two billionaire brands, Poland Spring and Nestlé Pure Life, achieved positive growth. The EBIT margin fell by 210 basis points. The impact of lower sales was compounded by a significant increase in the two main costs, PET and distribution, due to high oil prices.

    The Group expects Nestlé Waters' organic growth to improve by the end of the year. Nestlé sees huge growth potential for its water business in different parts of the world and the healthy hydration provided by bottled water ideally fits the company's nutrition, health and wellness strategy.

    Nestlé Nutrition: sales of CHF 5.2 billion, 11.1% organic growth and 5.5% real internal growth. These figures are in line with the business' long-term organic growth target of 10%. Strong performances were achieved in infant formula and infant cereals, supported by a highly productive innovation and renovation pipeline, as well as in healthcare nutrition. Jenny Craig returned to a sustainable level of organic growth after an outstanding start to the year. The performance of the recent acquisitions of Gerber and Novartis Medical Nutrition is exceeding acquisition assumptions. The EBIT margin was down 20 basis points to 18.5% due to the anticipated dilutive impact of the two acquisitions. However, the EBIT margin trend of Nestlé's Nutrition's base business continued to improve.

    Other Food and Beverages: sales of CHF 1.9 billion, 23.3% organic growth and 20.3% real internal growth. Nespresso, Cereal Partners Worldwide and Beverage Partners Worldwide all performed well. Nespresso's first half sales exceeded CHF 1 billion for the first time. This segment's EBIT margin was 20.4%, up 150 basis points, with improvements from all businesses.

    Sales and EBIT margins by product group


      Jan.-June 2008
    Sales in CHF
    Jan.-June 2008
    Organic Growth
    EBIT Margins
    Change vs.
    Jan.-June 2007
    Powdered and Liquid Beverages  9 041  + 14.0 22.9% + 20 bps
    Nestlé Waters  4 954 - 1.1  7.2%  -210 bps
    Milk Products and Ice Cream 10 274  + 12.0 11.2% +70 bps
    Nestlé Nutrition  5 176  + 11.1 18.5%  -20 bps
    Prepared Dishes and Cooking Aids  8 555  + 5.4 11.4%  -70 bps
    Confectionery  5 430  + 7.7  10.8% +180 bps
    PetCare  5 893  + 10.9 14.5%  -40 bps
    Total Food & Beverages  49 323 + 8.9 12.3% +30 bps
    Pharmaceutical products  3 743 + 9.6 33.8% +90 bps
    Group Total 53 066 + 8.9 13.8%  +30 bps
    All calculations based on non-rounded figures

    Powdered and liquid beverages: sales of CHF 9.0 billion, 14% organic growth and 9.4% real internal growth. All categories within the product group achieved double-digit organic growth with mid to high single-digit real internal growth. With over a million machines sold, the roll-out of Nescafé Dolce Gusto continued to make good progress. Health-focused offerings such as Nescafé Body Partner and Nescafé Protect sold mainly in Asian markets showed good results, as did single-serve sachets and refill packs in emerging markets. Nespresso continued to grow by close to 40%. There was also double-digit growth from the four other billionaire brands Nescafé, Nestea, Milo and Nesquik, benefiting from renovation and health-focused relaunches. The EBIT margin improved by 20 basis points, in spite of increasing input costs.

    Milk products and ice cream: sales of CHF 10.3 billion, 12% organic growth and 1.8% real internal growth. Milk products achieved double-digit organic growth in all Zones based on good real internal growth combined with timely pricing. The CoffeeMate billionaire brand, now present in over 50 markets, performed extremely well. Ice cream's organic growth was impacted by weaker market conditions in North America and Europe. The super-premium portfolio performed well with innovations such as Häagen Dazs Hunny Bee in the US, Heaven in Australia and Création by Mövenpick of Switzerland, as did health-focused offerings such as Skinny Cow in the US. The total category's EBIT margin was up 70 basis points due to the strong organic growth of higher value-added products and continued focus on efficiencies.

    Prepared dishes and cooking aids: sales of CHF 8.6 billion, 5.4% organic growth and 0.9% real internal growth. Ambient culinary products enjoyed strong organic growth in all three zones, especially under the Maggi brand which did particularly well in Asia and Eastern Europe. Frozen food was somewhat slow in the US, while in Europe the Wagner and Buitoni pizza businesses achieved good performances. The category's EBIT margin declined by 70 basis points, reflecting slow volume development in the US and input cost pressures.

    Confectionery: sales of CHF 5.4 billion, 7.7% organic growth and 1.7% real internal growth. The successful Kit Kat relaunch in Western Europe continued and the brand showed good performances in emerging markets such as India, the Middle East and Russia, achieving 15.4% organic growth globally. Increasing consumer interest in nutritious snacking alternatives resulted in new product launches such as Nesquik bars with added calcium in Mexico, Chile and Turkey. The UK business performed well due to its focus on key brands and the benefit of restructuring at the York factory. The category's EBIT margin improved across all zones, with an increase of 180 basis points.

    PetCare: sales of CHF 5.9 billion, 10.9% organic growth and 5.4% real internal growth. Organic growth continued to be driven by new product launches and increasing focus on premium and super-premium segments. Top performing brands included Beneful, Bakers, Cat Chow, Gourmet and Fancy Feast. The category's EBIT margin decreased by 40 basis points, reflecting the timing of launch expenses and input cost pressures.

    Pharmaceutical products: sales of CHF 3.7 billion, 9.6% organic growth and 8.5% real internal growth. The EBIT margin improved by 90 basis points, mainly due to strong growth, operational efficiencies and a positive product mix.

    Strategic focus

    Nestlé, the world's leading nutrition, health and wellness company, is particularly focused on four core growth platforms. The first is nutrition, covering not only Nestlé Nutrition, the world's largest specialised nutrition company, but also Nestlé's entire product portfolio with the aim of ensuring that its brands offer the best nutritional profile of their respective categories. The second is out-of-home, where the focus is both on branded beverage solutions and customised food solutions for restaurants and institutions. The third is Popularly Positioned Products (PPPs), affordable nutritional products for emerging consumers. The fourth is the increasing focus of many product groups on premium and luxury segments. These four core platforms often overlap.

    Nutrition, Health and Wellness. Nestlé Nutrition continues to do well based on its four growth platforms: infant nutrition, healthcare nutrition, performance nutrition and personalised weight management. The Group will continue to leverage Nestlé Nutrition's specific R&D know-how in its overall food and beverage business. Indeed, the transformation of Nestlé's product portfolio continues unabated. In the innovation and renovation process, any new product launched must obtain a consumer preference of at least 60% in blind tasting and a higher nutritional profile compared to its nearest competitor. Products enriched with Branded Active Benefits (BABs) again achieved double-digit organic growth in the first half of 2008. The objective is that around 20% of Nestlé's product portfolio is renovated each year.

    Out-of-home. Nestlé Professional continued to refocus its activities on branded beverage solutions and customised food solutions, as well as pursuing a significant SKU rationalisation programme. The priority areas within Nestlé Professional performed well, and its business in Asia, Oceania and Africa grew strongly, with double-digit organic growth in markets such as China, India and South East Asia.

    Popularly Positioned Products (PPPs), an integrated business model to reach out to emerging consumers in the developing world, continued to grow strongly in the first half. Nestlé's PPPs, such as dairy and cereal products, beverages and culinary products, enjoyed organic growth of over 20% overall. They grew by 40% in Zone Asia, Oceania and Africa, and also enjoyed good performances in Zone Americas and Europe. This positive trend is set to continue, as consumers migrate to Nestlé's PPPs offering quality, taste and nutritional content at affordable prices.

    Premiumisation. The premium and luxury end of the market offers strong growth opportunities for Nestlé and is proving particularly resilient. The premium segment of most categories performed well, including the most visible examples such as Nespresso, which enjoyed organic growth of almost 40%, and different brands in confectionery (Perugina, Nestlé Noir), ice cream (Häagen Dazs, Mövenpick of Switzerland), water (S.Pellegrino), and PetCare (Beneful, Gourmet).


    In the first half of 2008, Nestlé's organic growth was stronger than last year in each of the three geographic regions. These performances, mirrored by strong results in the product groups, together with a positive overall development of EBIT margins, demonstrate that Nestlé is resilient and able to create opportunities for profitable growth even in challenging economic times. Indeed, the excellent first half of 2008 supports the statement made in February that Nestlé's success is increasingly driven by its capacity to innovate and use its R&D pipeline to launch new, added-value products and services in line with its nutrition, health and wellness strategy.

    Nestlé's strong emphasis on speed and excellence in execution, as well as continuing momentum, will deliver profitable growth in the second half of 2008 and beyond. In view of its first half performance, Nestlé foresees organic growth at least at the 2007 level for the full year, clearly above the company's long-term target, together with an improvement in EBIT margin. 2008 will therefore be another year of delivering the Nestlé model.


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