- Organic growth of 6.2% results in record reported sales of CHF 91.1 billion, an increase of 7.5%
- EBITA margin up 20 basis points, to 12.9% of sales, despite higher input costs
- Net profit increases 20.7% to record CHF 8.0 billion; EPS up 21.3%, underlying EPS up 12.9%
- Return on invested capital increases by 50 basis points
- Above market strong organic growth in both food and beverages (+6%) and pharma (+10.2%)
- Board proposes 12.5% dividend increase to CHF 9.00, and cancellation of shares worth CHF 1 billion
Peter Brabeck-Letmathe, Chairman and CEO: "The 2005 results demonstrate the
strength of the Nestlé Model. We have outperformed the market in growth and
have again delivered an improvement in EBITA margin. This performance reflects
the power of our brands, the quality of our innovation and the benefits of our
efficiency programs. The enhanced dividend proposal and the share buy-back
demonstrate Nestlé's commitment to creating long-term, sustainable value for
our shareholders. For 2006, I expect organic growth of between 5 and 6%, as
well as a continued improvement of the EBITA margin in constant currencies."
Figures at a glance | |||||
% of sales | |||||
2005 | 2004 | 2005 | 2004 |
Change
2005/2004 |
|
---|---|---|---|---|---|
Sales | CHF 91 075 m | CHF 84 690 m | |||
EBITA | CHF 11 720 m | CHF 10 760 m | 12.9% | 12.7% | +20bps |
Net profit | CHF 7 995 m | CHF 6 621 m | 8.8% | 7.8% | +100bps |
EPS* | CHF 20.58 | CHF 16.97 | +21.3% | ||
Organic growth
Real internal growth |
+6.2% +4.2% |
+4.5% +2.9% |
* EPS from continuing operations
Group sales, profitability and financial position
Vevey, February 23, 2006 - The reported results for 2004 have been restated
following the first application of IFRS 2 Share-based Payment and the
discontinued operation resulting from the announcement made in December 2005
creating a venture with Lactalis for Nestlé's Chilled Dairy activities in
Europe.
Reported sales amount to a new high of more than CHF 91 billion, up 7.5%. The
single most important factor in this increase is the strong real internal
growth of 4.2% which, with pricing of 2.0%, creates organic growth of 6.2%,
clearly above market growth. For the first time in five years, many of the
Group's key trading currencies appreciated against the Swiss franc, resulting
in a positive contribution to consolidated sales in Swiss francs of 1.8
percent. Divestments outweighed acquisitions by 0.5 percent, and slightly
reduced sales.
With CHF 11 720 million, the Group's EBITA improved by 8.9% and now stands at
12.9% of sales, an improvement of 20 basis points. Despite rising input costs
and some unforeseen one-off costs such as the product exchange in China, Nestlé
was able to grow margins because of its strong top-line growth and the good
results yielded by the cost saving initiatives, Operation Excellence 2007
and Project FitNes and a strong performance by Alcon.
As a result of its strong savings focus, Nestlé was able to absorb the increased
cost of equity based remuneration, as well as the significantly increased
energy and raw material costs. Cost of goods sold, at 41.7% of sales, and
distribution costs therefore remained stable, whereas continued efficiency
measures even drove marketing and administration expenses down 10 basis points
as a percentage of sales. The Group spent CHF 1.5 billion (1.6% of sales) on
research and development.
Net profit reached a record CHF 7 995 million, up 20.7% or 8.8% of sales. The
2005 net profit is not comparable to 2004 as a result of the new
accounting treatment of goodwill as from January 1, 2005. Earnings per share
were up 21.3%, amounting to CHF 20.58 (CHF 16.97 in 2004). Underlying net
earnings per share increased 12.9% to CHF 21.25.
The Group's return on invested capital including goodwill improved by 50 basis
points to 11.3%; excluding goodwill, it grew by 60 basis points to 20.5%.
Nestlé had an operating cash flow of CHF 10.2 billion and a free cash flow of
CHF 6.6 billion. These figures are after a CHF 600 million cash contribution to
pension funds in the Group.
The Group's net debt declined slightly during the year, from CHF 10.2 billion to
CHF 9.6 billion. This slight decline in net debt reflects the Group's more
active management of its capital structure in 2005 and was achieved despite the
appreciation of the US dollar in which much of Nestlé's debt is held.
The strong performance in 2005 enables the Board - in addition to the previously
announced CHF 3 billion share buy-back - to propose a dividend increase of
12.5% to of CHF 9 per share.
Sales and Margins By Zones
Sales and EBITA margins by management responsibilities and geographic areas | |||||
2005 | 2004 | 2005 | 2005 | 2004 | |
---|---|---|---|---|---|
Sales in CHF millions |
Organic Growth (%) |
EBITA margins(%) |
EBITA margins(%) |
||
Group Totals | 91 075 | 84 690 | +6.2 | 12.9 | 12.7 |
Food | |||||
- Europe | 27 620 | 26 484 | +2.0 | 11.8 | 12.8 |
- Americas | 30 757 | 27 776 | +7.8 | 15.3 | 14.9 |
- Asia, Oceania and Africa | 15 704 | 14 673 | +6.6 | 16.7 | 17.3 |
Nestlé Waters | 8 787 | 8 039 | +8.6 | 8.1 | 8.3 |
Other activities (a) | 8 207 | 7 718 | +11.6 | 25.7 | 21.6 |
(a) Mainly pharmaceutical products, Nespresso and joint ventures managed on a worldwide basis and Eismann (until August 2004).
The consumer environment in Europe, where Nestlé achieved 2% organic
growth, with sales of CHF 27.6 billion, remained subdued. Achieving positive
growth in this climate and in mature markets demonstrates the power of
insightful, consumer-relevant innovation. Organic growth of over one and a half
percent in France and of over three percent in Great Britain reflect share
gains in categories such as Soluble coffee and Frozen food. Nestlé also gained
market share in PetCare, where organic growth reached 5%. The Group continued
to be successful in tapping into the growth in the hard discounters, increasing
its sales through that channel by 20%, to over CHF 1 billion. On a structural
level, Nestlé introduced shared services among European operations and
conducted the strategic re-orientation of the chilled dairy operations through
a venture with Lactalis. Input costs, a challenging retail and competitive
environment and UK Confectionery had an impact on EBITA margins that was not
wholly compensated by efficiency programs.
The environment in Zone Americas was characterized, in general, by strong
consumer demand. The zone achieved 7.8% organic growth, with good performances
in all key markets. North America reported 7% organic growth, Mexico 10.1% and
Brazil 5.4%. In North America the Group gained market share in frozen food,
water and ice cream, amongst others. The joint-venture with Fonterra, Dairy
Partners Americas (DPA), saw organic growth of 20.7%. DPA now includes 8 joint
ventures in 5 countries, covering 7 factories and sourcing over 2.7 billion
liters of fresh milk. The Zone had a good EBITA margin performance due to its
strong growth and cost focus. In January 2006 Nestlé made an offer to minority
shareholders in Dreyer's, enabling it to take full ownership of the company.
Zone Asia, Oceania and Africa, with 6.6% organic growth, experienced
particularly strong performances in many emerging markets: 13.9% organic growth
in South Asia, 13.0% in the Middle East and 9.1% in Africa, reflecting a
favorable macro-economic environment and Nestlé's broad presence in this
region. Organic growth in China accelerated in the second half of 2005,
following the product exchange in May, demonstrated by the 15% growth in the
full year achieved by the pure food and beverage business, excluding Infant
nutrition. The Infant nutrition business is taking longer to recover. Japan
continued to experience deflation but achieved positive real internal
growth, the market benefiting from several new product launches in soluble
coffee, as well as a strong performance in confectionery. The Zone's margin
performance was impacted by the product exchange in China and input costs.
Higher milk prices had an effect on Nestlé's important dairy business in Asia
whilst in Japan, price deflation coincided with rising green coffee prices.
The worldwide market for bottled water continues to grow fast, as consumers
switch from carbonated soft-drinks. Nestlé Waters is well positioned to
benefit from this trend and enjoyed 8.6% organic growth in 2005. The growth is
driven by North America (16.5% organic growth) and the emerging countries,
whilst Europe was stable due to the already high per capita consumption. Nestlé
brands performed particularly well, with Nestlé Pure Life already
exceeding global sales of CHF 700 million. The business felt the impact of
price pressure in the US and Europe, and of high input costs, especially PET.
Although it was successful in compensating about 90% of these costs, it
suffered a slight decline in margins.
Other activities, at 11.6%, achieved strong organic growth once again.
This segment includes Alcon, which achieved organic growth of 10.6%, the
joint-ventures and Nespresso, which reported 36.2% organic growth. The EBITA
margin increased as a result of the good performance of Alcon, Cereal Partners
Worldwide and Nespresso.
Sales and Margins By Product Groups
Sales and EBITA margins by product groups | |||||
2005 | 2004 | 2005 | 2005 | 2004 | |
---|---|---|---|---|---|
Sales in CHF millions |
Organic Growth (%) |
EBITA margins(%) |
EBITA margins(%) |
||
Group Totals | 91 075 | 84 690 | +6.2 | 12.9 | 12.7 |
Beverages | 23 842 | 21 793 | +8.2 | 17.2 | 17.7 |
Milk products, nutrition and ice cream | 23 235 | 21 503 | +6.7 | 11.2 | 12.1 |
Prepared dishes and cooking aids | 16 673 | 15 878 | +4.4 | 12.8 | 12.1 |
Chocolate, confectionery and biscuits | 10 794 | 10 258 | +2.6 | 11.3 | 11.2 |
PetCare | 10 569 | 9 934 | +5.2 | 14.3 | 14.5 |
Pharmaceutical products | 5 962 | 5 324 | +10.2 | 30.7 | 27.4 |
Beverages experienced 8.2% organic growth. Nescafé's growth was fuelled
by its relaunch in mid 2004 and the dynamic performance of mixes, which grew
over 30% in markets as diverse as Great Britain, Turkey and Australia. Milo,
with new launches such as Milo Fuze in Malaysia, achieved strong growth
in Asia, Oceania and Africa, where it has around 40% market share in malted
beverages and over CHF 1 billion in sales. Nesquik, with added
nutritional benefits, took market share in Europe, whilst a low fat version
achieved strong growth through school vending machines in the US.
Milk products, nutrition and ice cream enjoyed 6.7% organic growth.
Several launches of affordable milk, with nutritional benefits, including Nestlé
Ideal in Brazil, drove growth in shelf stable dairy's emerging market
businesses, whilst CoffeeMate achieved dynamic growth in the US.
Products with Branded Active Benefits (BABs) achieved growth of over 25% to CHF
2.9 billion. Many of the carrier products for BABs are in this product group,
and include the Nido nutrition system incorporating Prebio1 for
protection, Prebio3 for optimized growth and development and Calci-N
for bone health. New launches in infant nutrition, including Nestlé Nan HA,
contributed to double digit growth for this segment in most launch markets. In
ice cream, Nestlé achieved market share gains in different parts of the
world, particularly in North America, where there was strong growth from Dreyer's
Slow Churned, as well as new launches such as Häagen-Dazs Light
and Dibs. Cereal Partners Worldwide, the breakfast cereal joint-venture
with General Mills, enjoyed good top-and bottom-line growth in 2005 and
exceeded CHF two billion in sales for the first time.
Prepared dishes and cooking aids had 4.4% organic growth. There was a
good performance by Maggi in emerging markets, including innovation in
noodles in India and expanded routes to market in Africa. Frozen food, one of
Nestlé's biggest businesses in the US, performed well due in part to new
launches including Stouffer's Corner Bistro, a premium range of
restaurant-inspired meals and Stouffer's Lean Cuisine Spa Cuisine, with
whole grains. In Europe, the roll-out of Hot Pockets, small
microwaveable frozen meals, is gaining momentum in France, Germany, Spain and
the UK.
Chocolate, confectionery and biscuits reached 2.6% organic growth. The
product group was held back by issues in its big UK and Russian businesses.
Elsewhere, there were good performances. Chocolate did well in Japan, Canada,
Australia and some emerging markets. Even in the UK, Aero was the
fastest growing major brand in the market, with over 30% growth. Confectionery,
in particular the Wonka brand, performed well in the US, its biggest market,
while Biscuits were strong in Latin America, their key region.
PetCare enjoyed 5.2% organic growth, achieving market share gains in most
categories and key markets. In the US, 2005 was marked by incremental roll-outs
of Beneful such as Healthy Coat or Healthy Heart. Dog Chow, Purina's
largest brand, continued its success. Cat Chow Indoor Formula, a newly launched
product, achieved sales of CHF 125 million in its first year. Golden Products,
the cat litter business, also performed well. In Europe, the strategic brands
such as Bakers, Pro-Plan and ONE saw a good development. The strong
performance of these brands, as well as the growth of the single-serve
products, will in the longer term have a positive effect on profitability.
Pharmaceutical products progressed well with an organic growth of 10.2%;
both Alcon and Galderma achieved good growth on the strength of important
R&D pipelines.
Transformation Process Continues
Nestlé announced in December 2005 a venture with Lactalis in chilled dairy in
Europe. It will cover a wide range of chilled dairy products, such as yogurts
and desserts, mainly under the Nestlé corporate umbrella brand. The venture,
combining Lactalis' highly efficient manufacturing and supply chain expertise
with Nestlé's brand portfolio and R&D strength, creates a solid platform
for a profitable development of the Nestlé brands. The venture, led by
Lactalis, will continue to supply these popular brands to consumers while
delivering a better return to Nestlé shareholders. Chilled dairy continues to
play an important role in Nestlé's strategic move toward health, nutrition and
wellness.
The Group is introducing a new management structure for its foodservice
business. With over CHF 6.6 billion in sales, Nestlé is the world leader in
food services and has particular strength in beverages and beverage systems.
The intention is to enable Nestlé FoodServices to accelerate its growth and
improve its profitability through greater focus on its category-specific
strategic opportunities. The new Strategic Business Division will be headed by
Mr. Marc Caira, who will be named Deputy Executive Vice President and who will
take up his post on May 15, 2006. He will report directly to the CEO. Mr. Caira
is at present Chairman and CEO of the North America operations of an
international dairy company. He had a successful career in Nestlé Canada where
he gained extensive experience as head of the Canadian foodservice business.
Board Proposals to the Annual General Meeting
Capital Structure Management
In view of the good performance in 2005 and the continued strong financial
position of the Group, the Board will propose a 12.5% dividend increase to CHF
9.00 per share to shareholders at the Annual General Meeting. Shareholders will
also be asked to approve the cancellation of shares to a value of CHF 1
billion, following the first share buy back program in 2005. As announced
previously, a second, CHF 3 billion share buy-back program is currently
underway.
New Board Members Proposed
The Board proposes the re-election of Mr. Jean-Pierre Meyers, Vice-Chairman of
L'Oréal S.A. (Paris) and Mr. André Kudelski, Chairman and CEO of the Kudelski
Group (Cheseaux). Mr. Noboyuki Idei of Sony Group (Tokyo) has decided not to
seek re-election and the Board wishes to express its deep appreciation to him
for his contribution and counsel during his years on the Board.
The Board further proposes the election of three new Directors. These are Mrs.
Naina Lal Kidwai, of Indian nationality, Deputy Chief Executive Officer of Hong
Kong and Shanghai Banking Corporation India (Mumbai); Mr. Jean-René Fourtou,
French national, Chairman of the Supervisory Board of Vivendi Universal
(Paris); and Mr. Steven Hoch, U.S. and Swiss citizen, Senior Partner of
Highmount Capital (Boston).
Mandate For Revising Articles of Association
At the 2005 General Meeting, a commitment was made that the Board would solicit
shareholder feedback in the governance and Articles of Association review
process. In the summer of 2005, the Board of Directors commissioned a
shareholder survey in order to better understand the prevailing views of the
shareholders on this matter. While the survey showed that there are different
views amongst the shareholders as to the specific direction of the revision,
there was a large consensus in favor of a process that allows for a
modernization of the Articles of Association.
Certain core provisions of the Nestlé Articles of Association were introduced in
1989. The aim was broadly to protect the Company against hostile takeover
attempts. At the time, Swiss law provided little protection or transparency in
such cases. This has changed in the meantime. The Board of Directors,
therefore, engaged into a process to evaluate a revision of the Articles of
Association. Today, the Board of Directors seeks a mandate from the
shareholders to effect a complete revision of the Articles. While such a
mandate is not required by law, the Board believes that this mandate is
appropriate to enlist the full shareholder support.
Some changes to the Articles of Association can only be made with an attendance
quorum of 2/3 of the total share capital of the company and, in addition, a
supermajority of ¾ of the shares represented at the relevant shareholders'
meeting. Other decisions require the presence of one half of the share capital.
In 1989, when the relevant provisions were introduced, the Nestlé shareholder
base was predominantly Swiss, and Annual General Meetings were attended by a
large number of shareholders. In the meantime, it has become clear that the
attendance quorum is factually impossible to achieve even if all shareholders
with voting rights were to attend a shareholders' meeting because currently
more than one third of the Nestlé shares are not even recorded in the share
register. The Board therefore proposes to go forward with the change of the
Articles without regard to the 2/3 attendance quorum. The ¾ supermajority
requirement will, however, apply for this resolution.
Assuming the Board receives the mandate for change, the actual revision of the
Nestlé Articles will be put before the shareholders in 2007 or later, and will
then be decided by 2/3 of the votes represented at that meeting, i.e. the
supermajority required by law for significant decisions of the General Meeting.
The General Meeting of Nestlé S.A. will take place on April 6, 2006 at 14:30 at
the Palais de Beaulieu in Lausanne. No transfer of shares affecting voting
rights will be registered between March 17, 2006 and the day of the General
Meeting. The management report will be available from March 16, 2006, whereas
the fully audited financial statements are now posted on the Nestlé Corporate
Website (www.nestle.com). The dividend will be payable from April 12, 2006.
Outlook
For 2006, Nestlé takes note of a generally rather positive economic climate,
with some modest growth expectations even in Western Europe. There are
however some elements of uncertainty that could have an impact on the business
environment. High crude oil prices will continue to mark energy and packaging
costs and there is a clearly more volatile political situation in some parts of
the world. Also, a negative outcome of the Doha Round might impact trade and
the overall economic outlook. Nonetheless, the Nestlé Group remains confident
in being able to maintain the momentum of the Nestlé model and again attain its
organic growth target of between 5 and 6 percent and a further improvement of
the EBITA margin in constant currencies.
- Contacts:
-
Media: Francois-Xavier Perroud, Tel.: +41-21-924 2596
- Investors: Roddy Child-Villiers, Tel.: +41-21-924 3509