Record year for Nestlé in 2006: double-digit increases in EBIT, net profit and cash flow

Thursday, 22. February 2007 07:31



* Sales of CHF 98.5 billion, up 8.1%
* Above-target organic growth of 6.2%
* EBIT up 12% to CHF 13.3 billion, margin up 50 basis points to
13.5%
* Food and beverages organic growth of 5.9%, margin up 40 basis
points
* Net profit up 13.8% to CHF 9.2 billion, margin up 40 basis points
to 9.3%
* Operating cash flow up 14.4% to CHF 11.7 billion
* Higher R&D, marketing and input costs more than offset by
efficiency and scale gains
* Return on invested capital, excluding goodwill, up 40 basis
points to 21.2%
* Return on invested capital, including goodwill, up 30 basis
points to 11.7%
* Board to propose 15.6% dividend increase to CHF 10.40 and
cancellation of shares following the CHF 3 billion share buy-back

Peter Brabeck-Letmathe, Chairman and CEO: "2006 was another record
year for Nestlé. We are seeing the benefits of the Group's
transformation into a nutrition, health and wellness company, with
stronger innovation and branding, as well as improved efficiency. At
the same time, we strengthened our portfolio with the acquisitions of
Uncle Tobys, Jenny Craig and Novartis Medical Nutrition, while
divesting more commoditised businesses. Our competitiveness was
further boosted by higher spending on marketing and R&D, the roll-out
of GLOBE and shared services, as well as our strong commitment to
savings programmes. This drove profitability to record levels while
maintaining top-line growth. The record result is, above all, a
testimony to the quality of our people. For 2007, despite the tough
input cost environment, we again plan to deliver organic growth of
between 5 and 6% as well as an EBIT margin improvement."


+-------------------------------------------------------------------+
| Figures at a glance * |
|-------------------------------------------------------------------|
| | | | Margins |
| | 2006 | Change vs. 2005 |-----------------|
| | | | 2006 | vs. |
| | | | | 2005 |
|-----------------+-----------+-------------------+-------+---------|
| Sales | CHF 98 | + 8.1% | + CHF 7 | | |
| | 458m | | 343m | | |
|-----------------+-----------+---------+---------+-------+---------|
| EBIT | CHF 13 | + 12.0% | + CHF 1 | 13.5% | + 50bps |
| | 302m | | 426m | | |
|-----------------+-----------+---------+---------+-------+---------|
| Net profit | CHF 9 | + 13.8% | + CHF 1 | 9.3% | + 40bps |
| | 197m | | 116m | | |
|-----------------+-----------+---------+---------+-------+---------|
| Total EPS | CHF 23.90 | + 15.0% | + CHF | | |
| | | | 3.12 | | |
|-----------------+-----------+---------+---------+-------+---------|
| Real internal | 4.7% | | | | |
| growth | 6.2% | | | | |
| Organic growth | | | | | |
+-------------------------------------------------------------------+

2005 restated to be comparable with 2006
(*) - see note at end of release
Group sales, profitability and financial position

Vevey, 22 February 2007 - Reported sales amounted to a new high of
CHF 98.5 billion in 2006, up CHF 7.3 billion or 8.1%. The single most
important factor in this increase was organic growth of 6.2%, above
the Group's long-term target of between 5 and 6%. Within the organic
growth, real internal growth was 4.7% and pricing 1.5%. Positive
exchange rates added 1.6%, while acquisitions, net of divestitures,
added 0.3%. The main driver of growth was the food and beverages
business, which contributed CHF 6.7 billion to the Group's CHF 7.3
billion of growth. Its sales were up 7.8% to CHF 91.8 billion. Its
organic growth was 5.9%, with real internal growth at 4.2%,
reflecting strong performances over most countries and brands.

At CHF 13.3 billion, the Group's EBIT improved by 12.0%, or CHF 1.4
billion, and now stands at 13.5% of sales, an improvement of 50 basis
points over 2005. Food and beverages contributed 40 basis points to
this increase, with pharmaceutical products, primarily Alcon,
accounting for 10 basis points. Nestlé's efficiency programme,
Operation EXCELLENCE 2007, exceeded its targeted savings of CHF 1
billion and, together with scale gains and the continued roll-out of
GLOBE and shared services, enabled the Group to compensate for higher
marketing, R&D and input costs.

The main engine of Nestlé's growth is its brands. Today, brands with
sales of more than CHF 1 billion account for over 70% of food and
beverages sales. The success of many Nestlé brands is increasingly
derived from their strong nutritional credentials. Others have
benefited from strong performances of health-focused extensions.
Products enriched with Branded Active Benefits (BABs) achieved
organic growth of over 20% in 2006, with sales close to CHF 4
billion. The Company's commitment to growing its brands is
demonstrated by a 6.3% increase in marketing and administration spend
in 2006. This included an increase of CHF 1.8 billion in
marketing-related costs. Despite this increased investment in
Nestlé's brands, the strong sales growth and efficiencies in trade
spend and overhead costs resulted in a drop of 60 basis points in
marketing and administration expenditure as a percentage of sales.
Another vital growth driver is innovation and renovation, and
Nestlé's spend on research and development was up 16% in 2006, to CHF
1.7 billion (1.8% of sales).

Net profit reached a record CHF 9.2 billion, up 13.8% or CHF1.1
billion, to 9.3% of sales. Total earnings per share were up 15.0%,
amounting to CHF 23.90 (CHF 20.78 in 2005). The Group's return on
invested capital, excluding goodwill, was up 40 basis points to
21.2%, while, including goodwill, it was up 30 basis points to 11.7%.

The Group's operating cash flow increased by 14.4%, or CHF 1.5
billion, to CHF 11.7 billion. Free cash flow generation increased by
CHF 0.5 billion to CHF 7 billion. The difference between operating
and free cash flows is mainly explained by capital expenditure, which
rose from 3.7% of sales in 2005 to 4.3% in 2006, or by CHF 0.8
billion to CHF 4.2 billion, to support our consistent strong growth
and fast pace of innovation. The Group's working capital performance
improved by CHF 1 billion, with working capital declining from 7.7%
of sales in 2005 to 6.7% in 2006.

The Group's net debt increased from CHF 9.7 billion to CHF 11.0
billion. Apart from the increased capital expenditure, the Group
completed the CHF 3 billion share buy-back announced in November
2005, made acquisitions including Uncle Tobys and Jenny Craig, and
purchased the remaining publicly-owned shares of Dreyer's Grand Ice
Cream. The Group continues to have a AAA rating.

+-------------------------------------------------------------------+
| Sales and EBIT margins by management responsibilities and |
| geographic areas |
|-------------------------------------------------------------------|
| | | 2006 | Margins |
|------------------| 2006 Sales in | Organic |-------------------|
| | CHF millions | Growth (%) | 2006 | Change vs |
| | | | | 2005 (*) |
|------------------+---------------+------------+-------+-----------|
| Food | | | | |
| * Europe | 26 698 | + 2.3 | 11.6% | - 40 bps |
|------------------+---------------+------------+-------+-----------|
| * Americas | 31 286 | + 6.1 | 15.8% | + 70 bps |
|------------------+---------------+------------+-------+-----------|
| * Asia, Oceania | 15 439 | + 7.9 | 16.7% | + 40 bps |
| and Africa | | | | |
|------------------+---------------+------------+-------+-----------|
| Nestlé Waters | 9 616 | + 8.2 | 8.7% | + 60 bps |
|------------------+---------------+------------+-------+-----------|
| Nestlé Nutrition | 5 955 | + 6.1 | 16.9% | - 80 bps |
|------------------+---------------+------------+-------+-----------|
| Other Food & | 2 777 | + 19.1 | 13.0% | + 80 bps |
| Beverages | | | | |
|------------------+---------------+------------+-------+-----------|
| Total Food & | 91 771 | + 5.9 | 12.2% | + 40 bps |
| Beverages | | | | |
|------------------+---------------+------------+-------+-----------|
| Pharma | 6 687 | + 11.6 | 31.9% | + 120 bps |
|------------------+---------------+------------+-------+-----------|
| Group Totals | 98 458 | + 6.2 | 13.5% | + 50 bps |
+-------------------------------------------------------------------+

(*) - see note at end of release

Food and beverages sales and profitability by geography

The organic growth of Nestlé's total food, beverage and nutrition
business (including globally-managed businesses such as Nestlé
Waters, Nestlé Nutrition and Nespresso, as well as food and beverages
joint ventures) amounted to 3.3% in Europe, to 7.2% in the Americas
and to 8.0% in Asia, Oceania and Africa, outpacing GDP growth of all
regions.

With sales of CHF 26.7 billion in 2006, Zone Europe achieved 2.3%
organic growth, consisting of 1.4% real internal growth and price
increases of 0.9%. Soluble coffee, pet care and powdered beverages
performed strongly. The Zone continued to enjoy double-digit organic
growth in Eastern Europe and in the hard discount channel in Western
Europe.

With sales of CHF 31.3 billion in 2006, Zone Americas had a strong
performance with 6.1% organic growth, consisting of 3.8% real
internal growth and price increases of 2.3%. In North America, pet
care, frozen food, shelf-stable dairy and ready-to-drink beverages
performed well, while in Latin America, all categories enjoyed
dynamic performances, with chocolate and culinary especially strong.

With sales of CHF 15.4 billion in 2006, Zone Asia, Oceania and Africa
also performed well, with 7.9% organic growth, consisting of 6.0%
real internal growth and price increases of 1.9%. There was strong
organic growth across all the product groups, in particular culinary,
chocolate, shelf-stable dairy and powdered beverages. China, India,
Africa and the Middle East did very well as the Zone's emerging
markets achieved double-digit organic growth.

With sales of CHF 9.6 billion in 2006, Nestlé Waters achieved 8.2%
organic growth, consisting of 9.1% real internal growth and a decline
in prices of 0.9%. Sales of Nestlé Pure Life and Poland Spring, a
North American regional brand, exceeded CHF 1 billion for the first
time in 2006. Emerging markets and North America were once again the
driving force of growth. In Europe, Nestlé Aquarel achieved
double-digit growth, while among the international brands,
S.Pellegrino and Acqua Panna enjoyed good performances.
With sales of CHF 6 billion in 2006, Nestlé Nutrition achieved 6.1%
organic growth, consisting of 2.2% real internal growth and price
increases of 3.9%. Nestlé Nutrition did well in Latin America and
much of Asia and Africa, but its overall performance was held back by
China. The business achieved strong gains in infant nutrition, an
area where Nestlé is global market leader, as a result of the
international roll-out of a premium infant formula product, Nestlé
NAN HA. Nestlé Nutrition's EBIT margin fell by 80 basis points,
mainly reflecting the previously-foreseen dilutive effect of the
Jenny Craig acquisition and start-up costs of the global Nestlé
Nutrition business.

Other food and beverages (Nespresso, Cereal Partners Worldwide,
Beverage Partners Worldwide) had sales of CHF 2.8 billion and
achieved organic growth of 19.1%, with each of them enjoying good
organic growth. Nespresso's sales exceeded CHF1 billion for the first
time in 2006.

With sales of CHF 6.7 billion in 2006, Nestlé's pharmaceutical
activities achieved 11.6% organic growth, with a strong performance
by Alcon.


+-------------------------------------------------------------------+
| Sales and EBIT margins by product groups |
|-------------------------------------------------------------------|
| | | 2006 | Margins |
|------------------------| 2006 Sales | Organic |-------------------|
| | in CHF | Growth | | Changes |
| | millions | (%) | 2006 | vs |
| | | | | 2005(*) |
|------------------------+------------+---------+-------+-----------|
| Beverages | 25 882 | + 8.0 | 17.3% | 0 bps |
|------------------------+------------+---------+-------+-----------|
| Milk Products, | 25 435 | + 5.3 | 11.8% | + 60 bps |
| Nutrition and Ice | | | | |
| Cream | | | | |
|------------------------+------------+---------+-------+-----------|
| Prepared Dishes and | 17 635 | + 4.8 | 13.2% | + 10 bps |
| Cooking Aids | | | | |
|------------------------+------------+---------+-------+-----------|
| Chocolate, | 11 399 | + 2.6 | 11.5% | - 10 bps |
| Confectionery and | | | | |
| Biscuits | | | | |
|------------------------+------------+---------+-------+-----------|
| PetCare | 11 420 | + 7.1 | 15.1% | + 60 bps |
|------------------------+------------+---------+-------+-----------|
| Pharmaceutical | 6 687 | + 11.6 | 31.9% | + 120 bps |
| Products | | | | |
|------------------------+------------+---------+-------+-----------|
| Group Totals | 98 458 | + 6.2 | 13.5% | + 50 bps |
+-------------------------------------------------------------------+

(*) - see note at end of release

With sales of CHF 25.9 billion in 2006, beverages achieved 8.0%
organic growth, with real internal growth of 6.9%. Nescafé performed
well around the world, while the October launch of Nescafé Dolce
Gusto in parts of Europe had a promising start. Milo and Nesquik's
strong health credentials were the foundation of their good
performances. Milo continued its successful development in Asia,
while Nesquik performed well in the US in ready-to-drink form, and in
Europe in powdered form.

With sales of CHF 25.4 billion in 2006, milk products, nutrition and
ice cream enjoyed 5.3% organic growth, with real internal growth of
3.2%. There was a strong performance by shelf-stable dairy, with
CoffeeMate continuing to grow at a double-digit rate in the US, while
nutrition-focused products such as Nido, Bear Brand, Nesvita and
Dancow benefited from a successful segmentation strategy. Ice cream
enjoyed success in Europe with the roll-out of innovations such as
low-fat varieties across a number of brands and the relaunch of
Mövenpick of Switzerland. Meanwhile, the US ice cream business
focused on improving margins through a higher quality of sales.

With sales of CHF 17.6 billion in 2006, prepared dishes and cooking
aids experienced 4.8% organic growth, with real internal growth of
4.2%. Maggi did especially well in emerging markets, while
Stouffer's, Lean Cuisine and Buitoni all grew strongly in the US.
Buitoni also performed well in Europe, helped by innovation in frozen
pizzas.
With sales of CHF 11.4 billion in 2006, chocolate, confectionery and
biscuits reached 2.6% organic growth, with real internal growth of
0.5%. This product group achieved high single-digit growth in Zone
AOA and Latin America. Kit Kat performed particularly well globally,
benefiting from the growing consumer preference for lighter chocolate
products. In Europe the picture was mixed with stronger performances
in Italy and the Iberian peninsula, and weaker ones in Great Britain
and Germany. In the US, business was down in a declining market.

With sales of CHF 11.4 billion in 2006, PetCare enjoyed 7.1% organic
growth, with real internal growth of 4.3%, doing well all over the
world. In the premium segment, Dog Chow and Puppy Chow together
achieved CHF 1 billion of sales for the first time in 2006. The high
premium and super premium segments, with products such as Beneful and
Pro Plan, are also developing well.

Transformation process continues

Nestlé's strategic transformation has continued apace. In addition to
the strong growth of those brands that are closely associated with
nutrition, health and wellness and to ongoing product innovation and
renovation, the announcement of three acquisitions in the course of
2006 further enhanced the Group's nutrition, health and wellness
credentials: Uncle Tobys in Australia with activities covering
breakfast cereals, nutritious snacks and instant soups, Jenny Craig
in weight management, mainly in North America and Australia, and the
global Novartis Medical Nutrition business.

Nestlé continued to tackle underperforming businesses throughout
2006. There were a number of disposals including the Perrier glass
making operation, the vending business in Japan and certain canned
liquid milk brands in parts of Asia, as well as the creation of the
Lactalis Nestlé Produits Frais venture in chilled dairy in Europe.
Several businesses underwent significant restructuring and increased
discipline was applied to reducing product ranges as well as legal
and reporting structures. By the end of 2006, 80% of Nestlé's food
and beverages business was covered by GLOBE and the consequent
benefits are beginning to accrue.

Board proposals to the Annual General Meeting

The strong performance in 2006 enables the Board to propose to
shareholders a dividend increase of 15.6% from CHF 9.00 per share to
CHF 10.40 per share. Furthermore, the Board will propose that
following completion of the CHF 3 billion share buy-back programme in
2006, shares amounting to that value be cancelled.

The General Meeting of Nestlé S.A. will take place on 19 April 2007
at 14:30 at the Palais de Beaulieu in Lausanne. The management report
will be available from 15 March 2007, whereas the fully-audited
financial statements are now posted on the Nestlé Corporate Website
(www.nestle.com). The dividend will be payable from 25 April 2007.

Outlook

For 2007, the Group is confident of once again achieving the Nestlé
model: organic growth of between 5 and 6% and a further EBIT margin
improvement in constant currencies, and this in spite of continued
strong input cost pressure, especially on agricultural raw materials,
and more investment in brands, R&D and additional capacity aimed at
further accelerating the Group's transformation into a nutrition,
health and wellness company.

Notes to the financial tables
(*) 2005 comparatives have been restated following the first
application of the option of IAS 19 Employee Benefits § 93A ss.,
IFRIC 4 Determining whether an Arrangement contains a Lease on the
one hand, and, on the other, the decision to transfer the fresh
cheese activities in Italy, not disposed of to Lactalis Nestlé
Produits Frais, to Nestlé Nutrition
Contacts: Media: François-Xavier
Perroud Tel.: +41-21-924 2596
Investors: Roddy
Child-Villiers Tel.: +41-21-924 3509



--- End of Message ---
WKN: 887208; ISIN: CH0012056047; Index: SLCI, SMI, SPI, SMIEXP;
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Author:
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