During the first half of 1999, the Nestlé Group improved its trading profit margin from 9.5 percent in 1998 to 9.8%, corresponding to a trading profit of CHF 3,461 million.
The trading profit margin before amortisation of goodwill increased even more, from 9.8% in 1998 to 10.4%. The gains in profitability were most marked in Asia, Oceania and Africa. Profitability also strengthened in Western Europe and North America, as well as for the other activities (water, pharmaceuticals and breakfast cereals). The improvement in trading profit margin reflects a significant further reduction in the cost of goods sold expressed as a percentage of sales. This was made possible by ongoing efforts to optimise usage of raw materials and packaging and also by lower world commodity prices.
On the other hand, marketing expenditures rose as the Group continues to strengthen its brands. Real internal growth accelerated during the second quarter to a rate of 4.7%; since the first quarter was penalised by economic weakness in many markets, real internal growth for the half year as a whole was 2.1%. The recovery witnessed during the second quarter was apparent in all geographic regions and was particularly noticeable in Western Europe, the emerging markets of South-East Asia and Mexico. Japan and the United States, after a solid start to the year, saw growth accelerate in the second quarter.
The other activities all achieved growth rates well above the average. Net profit rose slightly to reach CHF 2,079 million, representing an unchanged margin on sales of 5.9%. Earnings per share rose by 1.7% to CHF 53.50. Operating cash flow rose by a strong 16.5% to CHF 2,590 million. Capital expenditure, strictly controlled, was equivalent to 3.3% of sales. The return on invested capital improved as a result of discipline in capital expenditure and good working capital management. First half sales of CHF 35.3 billion remained stable compared with the corresponding period of the preceding year in a currency environment which reduced Swiss franc figures by 4.4%. At comparable structure, i.e. without acquisitions net of divestitures, and at constant exchange rates, consolidated sales increased by 2.7%.
The recovery of many economies in Asia, where the Group has a solid position, and further improvements in Western Europe and North America were offset by the impact of a strong deterioration in the economies of Eastern Europe and Latin America.
Pet food, breakfast cereals and water – all areas where Nestlé has become a major player within the last ten years – continue to be among the fastest growing activities. The acceleration experienced during the first half of the year is expected to continue. For 1999 as a whole, Nestlé therefore expects further improvements in both sales and profit, provided that exchange rates do not deteriorate significantly.