RNS Number:9795I
Nestle SA
24 February 2005
Press Release
Nestle Full-Year Results: EBITA Margin and Net Profit Up - Dividend Increase
and Share Buyback Planned
4.5 percent organic growth, above industry average, real internal growth up to
2.9 percent
12.6 percent EBITA margin at an all-time high in spite of higher raw material
and packaging costs; 40 basis point improvement in constant currencies
net profit up 8.1 percent to CHF 6.7 billion, resulting in a 7.7 percent net
margin
proposed dividend of CHF 8 per share, up 11 percent over 2003
record-breaking CHF 10.4 billion operating cash flow
very strong financial situation with net debt reduced to CHF 10.2 billion from
CHF 14.4 billion in 2003
share buyback program of up to CHF one billion to start later this year
Peter Brabeck-Letmathe, CEO of Nestle, commented: "The Group has shown that it
can deliver strong growth and better profitability even under challenging
circumstances. In par-ticular, our businesses in the Americas and Asia, Oceania
and Africa, together with Alcon, have achieved outstanding growth and strong
profit performances. The Group's proven capacity to generate predictable, strong
operating cash flow together with its AAA rating allows it to become more
flexible in its capital structure management. The Board is therefore proposing
an 11 percent increase of the dividend and authorizes a share buyback program
starting in the second half of 2005. Looking ahead to 2005, I am confident that
Nestle will again increase its sales and EBITA margin in constant currencies,
with organic growth within our trend target of between 5 and 6 percent."
Figures at a glance
% of sales
Change 2004/
2004 2003 2004 2003 2003
Sales CHF 86 769m CHF 87 979m
EBITA CHF 10 970m CHF 11 006m 12.6%* 12.5% +10bps
Net profit CHF 6 717m CHF 6 213m 7.7% 7.1% +60bps
EPS CHF 17.29 CHF 16.05 +7.7%
Operating cash flow CHF 10 412m CHF 10 125m 12.0 % 11.5% +50bps
Real internal growth +2.9% +2.2%
Organic growth +4.5% +5.1%
* EBITA in constant currencies: 12,9% = +40bps (bps = basis points)
Vevey, 24 February 2005 - On consolidated sales of CHF 86 769 million, the
Nestle Group achieved an EBITA (Earnings Before Interest, Taxes and Amortization
of goodwill) of CHF 10 970 million, resulting in an all-time high margin of 12.6
percent of sales. Net profit amounted to CHF 6 717 mil-lion, a margin of 7.7
percent up from 7.1 percent in 2003, while earnings per share stood at CHF 17.29
over CHF 16.05 in 2003. These results were achieved in the face of higher prices
for raw materials such as milk, coffee, sugar, energy and packaging materials,
poor weather conditions, and a difficult business environ-ment in western
Europe.
Sales and margins
Although constant currency sales increased by 2.1 percent in 2004, reported
sales declined by 1.4 percent due to a negative 3.5 percent currency impact on
the one hand and, on the other, to the level of divestitures which, at 3.6
percent of sales, outweighed that of acquisitions, at 1.2 percent. Real internal
growth accelerated to 2.9 percent from 2.2 percent in 2003 which, combined with
a pricing increase of 1.6 percent, resulted in organic growth of 4.5 percent,
somewhat below the Group's long-term target but well above the industry average.
Sales and EBITA margins by management responsibilities and geographic areas
2004 2003 2004 2004 2003
Organic growth EBITA margins EBITA margins
Sales (%) (%) (%)
in CHF millions
Food
* Europe 28 563 28 574 -0.4 12.2 12.5
* Americas (a) 27 776 27 655 +7.7 14.9 15.0
* Asia, Oceania and Africa 14 673 14 432 +6.9 17.4 17.4
Nestle Waters 8 039 8 066 +0.6 8.3 9.7
Other Activities (b) 7 718 9 252 +10.4 22.6 16.6
Group Totals 86 769 87 979 +4.5 12.6 12.5
(a) Organic growth includes Dreyer's impact since July 2004
(b Mainly pharmaceutical products, joint ventures managed on a
worldwide basis, Eismann (until August 2004) and Trinks (until December 2003)
All calculations based on non-rounded figures
Europe experienced difficult trading conditions in 2004 due to limited economic
growth, higher household savings and increased price competition among
retailers. In such an environment sales were maintained at CHF 28.6 billion,
essentially due to the strength of the euro against the Swiss franc. The organic
growth of -0.4 percent was generated by positive price adjustments of 0.9
percent which partly compensated real internal growth of -1.3 percent. This
performance was held back by the ice cream business which was severely affected
by the adverse weather during the summer season, contrasting with the
extraordinarily good conditions which prevailed in 2003, particularly in Germany
and France. The shortfall of ice cream hides a positive evolu-tion of real
internal growth in several key categories, including culinary, soluble coffee
and pet care. The Group also enjoyed a successful year with hard discounters,
with sales up 10 percent. Sales to hard discounters now account for 5 percent of
total sales in Europe.
The Zone's EBITA was CHF 3.5 billion and the margin 12.2 percent in 2004. The
successful achievement of savings through productivity and structural cost
improvements within our indus-trial and administrative set-up could only partly
offset the negative impacts of increased trade spend, brand support and reduced
growth. The main profit shortfall was in ice cream, whereas the most marked
improvements in profitability were in chocolate and confectionery, culinary and
frozen food.
In the Americas, 2004 has been a year of exceptional progress, with sales growth
above the industry average. Organic growth reached 7.7 percent, com-prised of
4.8 percent real internal growth and 2.9 percent pricing. In spite of the 8
percent devaluation of the US dollar against the Swiss franc, sales for the year
reached CHF 27.8 bil-lion, slightly ahead of 2003. The Zone's EBITA margin was
14.9 percent, the slight decline from 15.0 percent reflecting the inclusion of
Dreyer's for a whole year, which masks an operating improvement of 40 basis
points elsewhere in the Zone. The organic growth performance, which included
Dreyer's Grand Ice Cream Company from July to December, was made possible by
good performances from both our North American and Latin American businesses,
with 6.2 percent and 10.7 percent respectively.
In the USA, real internal growth was particularly strong in the nutrition
business. Successful innovation speeded up frozen food after a slow start.
Dreyer's ice cream delivered exceptional growth, not least due to the successful
launch of "Slow Churned" Dreyer's Grand Light. In Canada the Company
consolidated its leadership position in confectionery and enjoyed out-standing
growth in infant nutrition. The pet care operations in North America delivered
strong organic growth of 8.8 percent, driven by significant innovation and
renovation. This strong sales performance enabled an improvement in pet care
margins in spite of raw material pressures.
The Group's businesses in Latin America were able to recover from the difficult
economic con-ditions experienced in 2003, with a much stronger organic growth of
10.7 percent. The Group's operations in Brazil have once again returned to a
more normal growth rate helped by an improved economic climate. Mexico's
performance was again outstanding; further growth and excellent margins were
achieved by focusing on a fast rotation of products at point-of-sale,
well-targeted marketing support and significant innovation and renovation.
Dairy Partners Americas (DPA), Nestle's joint venture with Fonterra, which now
covers five countries, has enjoyed excellent growth in 2004. Significant
progress was made towards secur-ing a cost-competitive supply of fresh milk and
milk ingredients and building strong positions in chilled and liquid milk
products. The individual joint ventures of the alliance currently operate 13
factories and source over 2.5 billion liters of fresh milk.
Zone Asia, Oceania and Africa experienced another challenging year in 2004, with
political crises in Iraq and Central West Africa Region, natural disasters in
Asia, rising raw material costs and high oil prices. Despite these difficulties,
sales amounted to CHF 14.7 billion. Real internal growth improved considerably
compared to last year and the Zone finished the year with an organic growth of
6.9 percent. The Zone achieved a high EBITA margin, unchanged at 17.4 percent,
despite higher input costs.
Greater China, especially the mainland, continued to perform well with organic
growth of 11.5 percent, resulting from its leadership positions in several key
product categories. The Philippines had an exceptional performance with organic
growth of 16.4 percent. Nestle Japan, on the other hand, experienced negative
organic growth of 3.9 percent, largely as a result of the very competitive
soluble coffee market there. The rest of the Zone performed well, including
Africa, which achieved 7.2 percent organic growth in spite of the problems in
western Africa; southern and east Africa even had double-digit growth rates. The
Middle East pursued its development with a very satisfactory 10.4 percent
organic growth.
Nestle Waters experienced contrasting trading conditions in Europe and North
America. The European water industry was confronted by poor summer weather,
following the heat wave in 2003, as well as by a consumer shift towards private
label and lower priced bottled waters, which resulted in a decline in the
market. With -8.4 percent organic growth in Europe, Nestle was affected by this
trend in 2004. Nevertheless, the Company had preempted the move to value-priced
water at the end of the 1990s with the launch of a pan-Euro-pean water, Nestle
Aquarel. This brand enjoyed outstanding success in 2004, with an organic growth
of over 40 percent. In North America, the water industry continued to experience
volume growth com-bined with price deflation. Nestle performed well in this
difficult environment to achieve increased market shares in retail, with 9.7
percent organic growth. The price declines in retail also affected the Home and
Office delivery market in the US, but this remains a sizable busi-ness for
Nestle, with excellent profitability. There were good performances elsewhere in
the world, with many markets achieving double-digit growth: China, Egypt, Brazil
and Argentina, for example, exceeded 30 percent organic growth. Overall Nestle
Waters delivered organic growth of 0.6 percent and real internal growth of 2.4
percent.
In other activities, Alcon recorded organic growth of 11.1 percent, while
Nestle's 50/50 joint venture with General Mills, Cereal Partners Worldwide, had
organic growth of 10.0 percent.
Sales and EBITA margins by product groups
2004 2003 2004 2004 2003
Organic EBITA EBITA
Sales growth margins (%) margins (%)
in CHF millions (%)
Beverages 21 793 23 520 +2.5 17.7 17.2
Milk Products, Nutrition and Ice Cream (a) 23 582 23 283 +5.4 11.4 12.0
Prepared Dishes and Cooking Aids 15 878 16 068 +3.5 12.1 11.7
Chocolate, Confectionery and Biscuits 10 258 10 240 +3.2 11.2 10.2
PetCare 9 934 9 816 +6.2 14.6 14.7
Pharmaceutical Products 5 324 5 052 +10.4 28.8 26.3
Group Totals 86 769 87 979 +4.5 12.6 12.5
(a) Organic Growth includes Dreyer's impact since July 2004
All calculations based on non-rounded figures
Beverages experienced a 2.5 percent organic growth rate. The technology-driven
relaunch of Nescafe, delivering a clear 60/40 consumer preference in all
markets, was a success. Nevertheless, serious spoiling activity by competitors
in Japan and the reorganization of the Company's distribution network in Russia
reduced organic growth to 2.3 percent. Powdered beverages had organic growth of
3.6 percent, while liquid beverages enjoyed organic growth of 3.9 percent.
Milk products, nutrition and ice cream had an organic growth rate of 5.4
percent. Milk products achieved 5.9 percent organic growth. The category had a
difficult year in Europe, with the chilled dairy market witnessing a dramatic
shift to private label, chiefly in France. Milk products performed well in the
rest of the world, particularly in the US, Mexico and Australia. Nutrition had a
strong year with 8.7 percent organic growth; performance nutrition even grew by
18.2 percent. Ice cream achieved organic growth of 0.5 percent in spite of the
poor weather in Europe, where the Group has held market share and is closing the
gap with the market leader. Most of the rest of the world experi-enced strong
ice cream sales. In the US, the main contributors to good performance were
Dreyer's Grand Light and Haagen-Dazs.
Prepared dishes and cooking aids achieved an organic growth rate of 3.5 percent.
The US frozen food business had a strong end to the year, and chilled culinary
performed well in Europe due to a high level of innovation in dough and pasta.
Culinary continued to perform well in emerging markets, especially in China,
where the Totole bouillon brand and the more recently acquired Haoji bouillon
operation outperformed the market.
Chocolate, confectionery and biscuits had an organic growth rate of 3.2 percent.
Chocolate, with organic growth of 3.4 percent, had a better year in 2004. The UK
market was turned around acquiring an increased market share and showing an
improving real internal growth trend throughout the year. Russia was weaker due
to the reorganization of the Company's local distribution network, while Brazil,
Japan and Mexico had particularly good chocolate sales.
PetCare achieved an organic growth rate of 6.2 percent. North America
experienced a high level of innovation focusing on health and wellness which
consumers view as important for their pets as for themselves. Europe achieved
positive growth in spite of a difficult trading environment, while busi-ness in
the rest of the world continued to gather momentum.
Profit, cash flow and net debt
The Group's EBITA, at CHF 11.0 billion, remained stable in 2004, held back by
the strength of the Swiss franc, particularly against the US dollar and related
currencies. The reported EBITA margin increased to 12.6 from 12.5 percent. At
constant currency, the margin improved by a further 30 basis points. This
constant currency performance, an increase of 40 basis points, gives an accurate
picture of the underlying performance of the Group's businesses around the
world, foreign exchange volatility being beyond the control of management.
The cost of goods sold declined during 2004, both in actual terms and as a
percentage of sales. This improvement was driven by acquisitions and
divestitures on the one hand and, on the other, by the Group's cost savings
initiatives, particularly Target 2004+. This initiative was con-cluded at the
end of the year and yielded CHF 3.2 billion over the three-year period.
Distribution costs remained unchanged at 8.1 percent of sales. Marketing and
administrative costs increased 70 basis points, reflecting the impact of
acquisitions and divestitures, but also Nestle's increased investment in its
brands and market positions. Spending on research and development increased by
20 basis points, to 1.6 percent of sales, mainly reflecting the creation of
GLOBE's Business Technology Center.
The Group's net profit reached CHF 6.7 billion, or 7.7 percent of sales,
compared with CHF 6.2 billion, or 7.1 percent of sales, in 2003, and included
Nestle's CHF 1.0 billion share of a dilu-tion profit at L'Oreal, resulting from
the deconsolidation of Sanofi-Synthelabo. Earnings per share were CHF 17.29
compared to CHF 16.05 in 2003.
Nestle's return on invested capital excluding goodwill remained at 19.9 percent
(10.9 percent with goodwill included) reflecting currency fluctuations.
The level of capital expenditure was unchanged in 2004 at CHF 3.3 billion, or
3.8 percent of sales.
Operating cash flow improved from CHF 10.1 billion, or 11.5 percent of sales, to
CHF 10.4 bil-lion, representing 12 percent of sales in 2004. This was a
particularly good performance in light of the negative impact of the weakness of
the US dollar and related currencies on cash flows. Free cash flow increased to
CHF 6.6 billion in 2004, or 7.7 percent of sales, compared to CHF 6.4 billion,
or 7.2 percent of sales in 2003.
The Group's net debt declined to CHF 10.2 billion at the end of 2004 from CHF
14.4 billion at the end of 2003. This reduction in net debt confirms the Group's
strong cash flows and reflects the benefits of our divestitures, as well as of
our currency allocation, much of the debt being in US dollars.
The net financing cost increased slightly to CHF 0.7 billion, compared to CHF
0.6 billion in 2003, reflecting mainly somewhat higher interest rates as well as
a poorer liquidity performance in 2004. Equity rose from CHF 36.9 billion to CHF
39.2 billion, net of treasury shares, the carrying value of which remained
unchanged at CHF 2.4 billion. The ratio of net debt to equity improved to 25
percent from 38 percent at the end of the previous year.
The Group's savings programs, Target 2004+ and Project FitNes, both enabled by
GLOBE, have contributed significantly to the EBITA margin improvement by
delivering CHF 1.3 billion in gross savings. Much of this was reinvested in
higher raw material and packaging costs as well as strengthening our market
position. In the course of 2004, the number of factories declined from 511 to
500; 29 factories were sold or closed, 15 acquired or newly opened and 3 saw
their status changed.
Board decisions
Capital Structure Management
The strong financial situation of Nestle, its increasing and predictable cash
flow, coupled with lower net debt and no immediate likelihood of larger scale
acquisitions, has allowed Nestle to review the management of its capital
structure. As a result, the Board of Directors of Nestle S.A. is proposing a
dividend of CHF 8 per share, representing a 11 percent increase and a pay-out
ratio of 46.3 percent. Furthermore, the Board has approved a new strategy in the
form of share buybacks for cancellation. Such buybacks are subject to market
conditions as well as other strategic initiatives such as acqui-sitions and
divestitures and have to take into account Nestle's commitment to its AAA debt
rating. The first buyback program, with a value of up to CHF 1 billion, will
start later this year. Further pro-grams could be more significant. The
cancellation of shares is subject to shareholder approval, which will be sought
in due time.
New Board Member Proposed
As announced previously, the Board is proposing to the General Meeting of 14
April 2005 to elect Professor Gunter Blobel as a member of the Board of
Directors of Nestle S.A. Further-more, the Board appointed Mr. Richard T. Laube
Deputy Executive Vice-President of Nestle S.A. to the newly-created function of
Corporate Business Development Manager.
Mr. Laube was in charge of the global OTC business of Roche and also had a very
successful career in the consumer products' sector of Procter & Gamble. He will
assist in the definition of Nestle's roadmap to becoming a nutrition and
wellness company.
The General Meeting of Nestle S.A. will take place on 14 April 2005 at 15:00 at
the Palais de Beau-lieu in Lausanne. No transfer of shares affecting voting
rights will be registered between 25 March 2005 and the day of the General
Meeting. The management report will be available from 22 March 2005, whereas the
fully audited financial statements are now on display on the Nestle Corporate
Website (www.nestle.com). The dividend will be payable from 20 April 2005.
Outlook
Nestle expects its business to unfold in an economic environment that is not
significantly different from that of 2004 and just as competitive. The
management is nevertheless confident that the Group's proven strategies will
allow it to show further sales growth and EBITA margin improvement in constant
currencies and it maintains its 5-6 percent organic growth trend target.
(Press Release Ends)
Contacts: Media: Francois-Xavier Perroud +41-21-924 2596
Investors: Roddy Child-Villiers +41-21-924 3509
The complete 2004 financial statements of the Nestle Group can be downloaded
from our website
http://www.ir.nestle.com/fullyear2004.asp
_______________________________
All the services/events below are available in English
via the Nestle Group's Internet site:
http://www.nestle.com/Media_Center/Events/Main_Event/Main+Event.htm
The 2004 Full-Year Results are available at:
www.nestle.com
TELECONFERENCE:
0830 (Swiss) / 0730 (UK): Investors' Conference Call hosted by
Wolfgang Reichenberger, Nestle CFO Live Audio Broadcast.
Dial-in number (listen only): Tel. +44 (0) 20 8901 6997
Replay numbers (available from approx. one hour after the call ends):
UK / Europe: +44 (0) 20 8515 2499 access code: 634238#
US: +1 303 590 3000 / 1 800 405 2236 access code: 11023117#
This will be available as for 90 days.
Should you have any technical difficulties connecting to the conference calls,
please contact A. Palmer at the MacMaster Company,
Tel. +44 (0)207 670 7452
You can follow the
Investors' Conference call in audio with synchronized presentation at
http://clients.world-television.com/Nestle_q404/
You can also download the PowerPoint presentation
that will accompany the conference call from 0745 (Swiss) at:
http://www.ir.nestle.com/
PRESS CONFERENCE hosted by Peter Brabeck-Letmathe, Nestle CEO:
You can follow this live at 1000 (Swiss) 0900 (UK) at
http://clients.world-television.com/Nestle_q404_press/
The press kit (speech and presentation) will be available at
http://www.nestle.com/Media_Center/Media+Center.htm
This information is provided by RNS
The company news service from the London Stock Exchange
END
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