Swiss food giant Nestle SA (NESN.VX) said Thursday it had '08
net profit of CHF18 billion, up 69%, citing strong organic growth
and the windfall of the Alcon Inc (ACL) divestment to Novartis AG
(NVS), but said growth would likely decelerate in '09.
Nestle Group: above target 8.3% organic growth, 2.8% real
internal growth EBIT of CHF15.7 billion, EBIT margin 14.3%, up 30
bps, up 50 bps in constant currencies Food and Beverages: 8.2%
organic growth, 2.3% real internal growth Resilient performance
creates momentum for 2009 Net profit: CHF18.0 billion (+69.4%),
margin +650 bps to 16.4% Includes profit on disposal of 24.8% of
Alcon to Novartis Proposed dividend increase of 14.8% to CHF1.40
per share Reflects strong performance in 2008 and confidence for
2009 CHF25 billion share buyback programme on track: CHF8.7 billion
repurchased in 2008 Paul Bulcke, CEO of Nestle: "Nestle's 2008
performance reflects its ability to achieve a high level of organic
growth together with an improvement in the EBIT margin, even in
difficult times. The Group's results in 2008 are broad-based,
demonstrate its intrinsic strength and provide momentum into 2009.
Nestle's ability to capitalize on a wide variety of market
conditions across the world remains one of its decisive competitive
advantages. This will enable the Group to seize growth
opportunities worldwide in 2009 by leveraging the company's growth
platforms, particularly nutrition, health and wellness and
popularly positioned products, whilst also accelerating its cost
efficiency initiatives. We believe that the Group will once again
be one of the industry's fastest growing companies in 2009, in line
with the long-standing Nestle model, and we are committed to
achieving organic growth at least approaching 5%, as well as a
further improvement of the EBIT margin in constant currencies."
Group sales, profitability and financial positionVevey, 19 February
2009 - In 2008 Nestle demonstrated its ability to deliver a solid
operating performance in a tough environment, with above-target
organic growth and a 50 basis points EBIT margin improvement in
constant currencies. 2008 was also a year in which the value of
Nestle's strong balance sheet was proven, enabling the Group to
continue to access the debt markets at advantaged rates whilst also
pursuing its three-year CHF25 billion share buyback programme. In
2008, consolidated sales of the Nestle Group amounted to CHF109.9
billion, an increase of 2.2% compared to the prior year, driven by
organic growth of 8.3%, including real internal growth of 2.8%.
Acquisitions, net of divestitures, added 1.7% to Group sales. The
currency effect reduced Group sales by 7.8% due to the strength of
the Swiss franc compared to most other currencies. The Group's Food
and Beverages business, with sales of CHF102.4 billion, was the
main contributor to growth, achieving organic growth of 8.2%,
including real internal growth of 2.3%. The Group's EBIT grew to
CHF15.7 billion, resulting in an EBIT margin of 14.3%, up 30 basis
points reported, and up 50 basis points in constant currencies. The
EBIT margin for Food and Beverages was up 20 basis points reported,
and up 40 basis points in constant currencies. Net profit increased
by 69.4% to CHF18.0 billion, resulting in a net profit margin of
16.4%, up 650 basis points. This includes the CHF9.2 billion profit
on disposal from the sale of 24.8% of Alcon to Novartis. Total
Earnings Per Share grew by 75.2% to CHF4.87. The underlying
earnings per share increased by 0.7% reported, and by 10.9% in
constant currencies. The Group's cost of goods sold increased by
120 basis points to 43.1% of sales. This reflects the impact of
higher packaging and raw material costs, partially compensated by
operational efficiencies which contributed over CHF1 billion of
savings. Operational efficiencies, enabled by GLOBE, incorporate
areas such as supply chain, factories, administrative costs,
product line rationalisation and improved returns on marketing and
trade spends. The main engine of Nestle's growth is the continuous
innovation and renovation of its products and brands. In 2008, an
additional 15% of Nestle products were successfully tested for
superior nutritional benefits and taste characteristics over
competitors' products. Innovation was driven by a 15% increase of
Nestle's Research and Development investment in Food and Beverages.
Furthermore, the Company's commitment to growing its brands is
demonstrated by a 7.5% increase in consumer-facing marketing
expenses in constant currencies. Nestle brands with annual sales of
more than CHF1 billion ("billionaire brands") accounted for over
70% of Nestle's Food and Beverages sales in 2008 and were the main
drivers of organic growth. The Group's operating cash flow was
CHF10.8 billion, while free cash flow was CHF5.0 billion. Cash flow
was impacted by the decline in value of most currencies relative to
the Swiss franc, and also a higher level of inventories as a hedge
against the higher cost of certain raw materials. The Group's net
debt decreased to CHF14.6 billion thanks also to the proceeds from
the sale of 24.8% of Alcon, as well as from cash flow generation.
The return on invested capital (ROIC), including goodwill, was
12.3%; excluding goodwill, it was 22.2%. Share buyback programme
and proposed dividendThe share buyback programme launched in
September 2007 is on track and will be completed, subject to market
conditions and strategic opportunities, within the 36-month period
originally planned. In 2008, the Group spent CHF8.7 billion on
buying back its own shares which brings the total amount spent on
repurchased shares to CHF13.1 billion. In 2009, the Group is giving
preference to a dividend increase, as evidenced by a 14.8% rise in
the proposed dividend to CHF1.40, and intends to invest around CHF4
billion in repurchasing its own shares. Sales and EBIT margins by
management responsibility and geographic areasIn 2008, the organic
growth of Nestle's total Food and Beverages business, including
globally-managed businesses such as Nestle Waters, Nestle
Nutrition, Nespresso, the Food and Beverages joint ventures, as
well as the Zones, amounted to 5.3% in Europe, 8.8% in the Americas
and 13.1% in Asia, Oceania and Africa. 2008 Sales in CHFmillions
2008 Organic Growth (%) EBIT Margins 2008 Change vs.
2007 Food & Beverages - Zone Europe 28 153 + 5.6 12.2% +20
bps - Zone Americas 33 134 + 10.3 16.5% +20 bps - Zone Asia,
Oceania and Africa 17 130 + 12.2 16.5% +20 bps Nestle Waters 9 589
- 1.6 6.0% -220 bps Nestle Nutrition 10 375 + 7.7 17.3% +10 bps
Other Food & Beverages 3 983 + 23.5 17.5% +170 bps Total Food
& Beverages 102 364 + 8.2 12.8% +20 bps Pharma 7 544 + 8.8
34.1% +80 bps Group Total 109 908 + 8.3 14.3% +30 bps All
calculations based on non-rounded figures In all three Zones, EBIT
margin improvements were achieved despite significant packaging and
raw material cost pressures in many categories and despite the
strength of the Swiss franc. The key drivers of this improved
performance were faster growth of more profitable categories and
markets in line with Nestle's nutrition, health and wellness
strategy, operational efficiencies and the benefits of
rationalising underperforming product lines. Zone Europe: sales of
CHF28.2 billion, 5.6% organic growth and 1.4% real internal growth.
The Zone's EBIT margin increased by 20 basis points. The Zone
experienced double-digit organic growth in Eastern Europe, and
positive organic growth in key Western European markets, such as
France and Great Britain, as well as in the pan-European PetCare
business. Zone Americas: sales of CHF33.1 billion, 10.3% organic
growth and 2.7% real internal growth. The Zone's EBIT margin
increased by 20 basis points. There was high single-digit organic
growth in North America and double-digit growth in Latin America.
Zone Asia, Oceania and Africa: sales of CHF17.1 billion, 12.2%
organic growth and 3.7% real internal growth. The Zone's EBIT
margin improved by 20 basis points. All the Zone's major emerging
markets continued to achieve double-digit organic growth, with
South Asia doing particularly well. Popularly Positioned Products
continued to achieve an outstanding performance in the Zone with
27.4% organic growth. Nestle Waters: sales of CHF9.6 billion, -1.6%
organic growth and -3.9% real internal growth. The decline in sales
reflects the continued slowdown of the bottled water category,
particularly in Western Europe and North America. The emerging
market businesses achieved organic growth close to 20%. Despite
significant cost savings, the EBIT margin fell by 220 basis points
as the impact of lower sales was compounded by a significant
increase in the business' two main cost drivers, PET and
distribution. Nestle Nutrition: sales of CHF10.4 billion, 7.7%
organic growth and 1.8% real internal growth. The EBIT margin
improved by 10 basis points to 17.3%. The successful integration of
Gerber and Novartis Medical Nutrition reinforced Nestle Nutrition's
position as the global leader in nutrition. Infant Nutrition
performed well, supported by a highly productive innovation and
renovation pipeline. Jenny Craig achieved double-digit organic
growth. Other Food and Beverages: sales of CHF4.0 billion, 23.5%
organic growth and 20.1% real internal growth. The EBIT margin was
up 170 basis points to 17.5%. The three constituents, Nespresso,
Cereal Partners Worldwide and Beverage Partners Worldwide, all
performed well. Nespresso's annual sales exceeded CHF2 billion for
the first time. Sales and EBIT margins by product group 2008 Sales
in CHFmillions 2008 Organic Growth (%) EBIT Margins 2008 Change
vs.
Powdered and liquid beverages: sales of CHF18.9 billion, 12.8%
organic growth and 7.4% real internal growth. The EBIT margin
declined by 30 basis points. This excellent sales performance
confirmed the dynamism of Nestle's billionaire brands Nescafé,
Milo, Nespresso, Nesquik and Nestea. These brands benefited from a
strong pipeline of nutritionally enhanced products, including new
PPP offerings for lower-income consumers. In Asia and Australia,
soluble coffee benefited from its continuous focus on products with
improved nutritional profiles such as Nescafé Body Partner, Nescafé
Protect and Nescafé Greenblend. The successful roll-out of Nescafé
Dolce Gusto continued and allowed Nestle to increase its market
share in Europe in the fast-growing portioned coffee segment.
Following a successful launch in Mexico, Nescafé Dolce Gusto was
extended to Japan and the US. Nespresso continued to achieve an
outstanding performance with more than 30% organic growth. The
decline in the product group's EBIT margin reflected increased
support for the accelerating Nescafé Dolce Gusto launch and raw
material cost pressures.
Milk products and Ice cream: sales of CHF20.6 billion, 9.2%
organic growth and 1.2% real internal growth. The EBIT margin
increased by 40 basis points with both milk products and ice cream
contributing. The dairy category benefited from a multi-tier
strategy with products adapted to different affordability levels
and nutritional needs, reflected in the Nestle Nido Nutrition
System. Ice Cream's organic growth was impacted by the decision to
discontinue less profitable products and distribution routes. The
super-premium portfolio with brands such as Moevenpick of
Switzerland and Haagen Dazs performed well, as did health-focused
offerings such as Skinny Cow in the US.
Prepared dishes and cooking aids: sales of CHF18.1 billion, 6.1%
organic growth and 1.1% real internal growth. The EBIT margin
declined only slightly, by 20 basis points, due to a strong
recovery of the category over the second half of the year,
particularly in frozen food, in spite of cost pressures. Culinary
products in Asia and Eastern Europe achieved double digit organic
growth, especially the Maggi brand. In the US, the three
billionaire brands Hot Pockets, Stouffer's and Lean Cuisine
accelerated during the course of the year. In Europe, the Wagner
and Buitoni pizza business continued to perform well, as did Herta
in France due to launches of products with nutritional
advantages.
Confectionery: sales of CHF12.4 billion, 8.0% organic growth and
1.4% real internal growth. The EBIT margin improved by 150 basis
points reflecting in part the successful reorientation of the
European business. The relaunch of the "Best Ever" KitKat and the
launch of KitKat Senses continued successfully in Western Europe.
These initiatives, as well as a continued strong performance in
emerging markets, resulted in this product category's strong
performance. The category continued to focus on both the lower
income and the premium and super-premium segments. The upmarket
move resulted in the roll out of dark chocolate products and a new
range of chocolates designed by Pierre Marcolini sold exclusively
in Nespresso boutiques in Switzerland and France.
PetCare: sales of CHF12.5 billion, 12.1% organic growth and 5.2%
real internal growth. The EBIT margin increased by 20 basis points
with a strong second half performance. Strong organic growth was
driven by resilient demand for key premium and super-premium brands
across all Zones which benefited from new product launches such as
Fancy Feast Elegant Medley's, Cat Chow Healthful Life and ONE
Natural Balance.
Pharmaceutical products: sales of CHF7.5 billion, 8.8% organic
growth and 8.4% real internal growth. This was the result of high
single-digit growth by Alcon and double-digit growth by Galderma
and Laboratoires innéov. The EBIT margin increased by 80 basis
points to 34.1%.
Popularly Positioned ProductsNestle's Popularly Positioned
Product (PPP) strategy, one of Nestle's four growth platforms and a
specific business model which focuses on lower income consumers by
offering them relevant and high-quality nutritious products at
daily-affordable prices, is proving particularly beneficial in
these turbulent economic times. Nestle's Food and Beverages
business in emerging markets achieved organic growth of 15% on
sales of CHF35 billion. With an increasing number of consumers
trading down in the current economic environment, PPPs and other
initiatives providing lower-priced products are proving
particularly popular, also in developed countries. PPPs achieved
organic growth of 27% overall, with hundreds of separate
initiatives worldwide.
Nestle Professional
Nestle Professional, the company's division dedicated to the
out-of-home food and beverage market, was organised as a globally
managed business unit in 2008 with full profit and loss
responsibility as of 1 January 2009. In 2008, Nestle Professional
achieved organic growth of 6.1% with sales of CHF6.2 billion.
Outlook
The global business environment in 2008 was affected by a number
of unforeseen events, especially in the latter part of the year.
Economies around the world have significantly weakened over the
last few months and it is likely that developments could further
impact consumer demand. However, Nestle believes that it will once
again be one of the industry's fastest growing companies of this
year, in line with the long-standing Nestle model. For 2009, Nestle
is committed to achieving organic growth at least approaching 5%,
as well as a further improvement of the EBIT margin in constant
currencies.
L'Oréal
The conditions of Nestle's agreement with L'Oréal are public.
The main point of the agreement states that the Bettencourt family
and Nestle will keep all of their L'Oréal shares until at least 29
April 2009 and not increase their respective stakes in L'Oréal
during the lifetime of Mrs. Liliane Bettencourt and six months
after that. This is a commitment which Nestle will honour whatever
the circumstances. Consequently, Nestle does not need to take any
action or decision regarding its stake in L'Oréal next April.
The future of Nestle's participation in L'Oréal is an important
topic for the Group which the Nestle Board of Directors is
addressing with great attention in the framework of the Group's
global nutrition, health and wellness strategy. Nestle's
participation in L'Oréal has been beneficial to both companies for
many years and Nestle will continue to take a long-term strategic
view in shareholders' best interest.
Appointment to the Executive BoardThe Nestle Board of Directors
has appointed Petraea Heynike as Executive Vice President in charge
of Strategic Business Units, Marketing and Sales, and Nespresso,
effective on 1 March 2009. Mrs. Heynike, currently Head of the
Chocolate, Confectionery and Biscuits Strategic Business Unit and a
former Nestle Canada CEO, has more than 36 years of experience with
Nestle in 6 countries and, over the past three years, was
responsible for the successful reorientation of Nestle's
confectionery business, giving the category new strategic direction
and delivering strong business results. Her international
experience combined with her deep product, market and
communications expertise make her ideally suited to help define the
strategic direction of Nestle's different product categories.
Board proposals to the Annual General MeetingThe strong
performance in 2008 will enable the Board to propose to
shareholders a dividend increase of 14.8% to CHF1.40 per share.
The mandate of Professor Guenter Blobel, who first joined the
Board in 2005, expires in April 2009. The Board wishes to express
its gratitude to Professor Blobel for his highly-appreciated
services over the years. Finally, the Board will propose the
individual re-elections of Ms. Carolina Mueller-Moehl as well as
Messrs. Kaspar Villiger and Daniel Borel.
Company Web Site: http://www.nestle.com
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