Nestle nourished by health aims

By Neil Merrett

- Last updated on GMT

Related tags Nestlé

Nestle's drive to be a major health and nutrition player resulted
in a strong first half fiscal performance for the company.

Sales for the group were up by eight per cent to CHF51.1bn (€31.2bn) for the period ending June on the back of its food and beverage brands. Operating profit rose 13 per cent with margins up by 0.7 percentage points to 16.7 per cent. Following the company's decision in April to acquire Novartis's Gerber business, Nestle said it would continue to focus on a drive for even greater operational efficiency and value from its food and beverage operations operations. The group also announced it would begin a three-year CHF25bn ($20.5bn) share buyback plan. Nestle chairman Peter Brabeck-Letmathe said he is confident the group would continue to undergo growth throughout its operations as it focuses on higher-margin goods and improved manufacturing efficiency. "In spite of increasing input cost pressures, I am confident of Nestlé achieving above-target organic growth for 2007, as well as a sustainable margin improvement,"​ he stated. This focus had already resulted in improved performances throughout the group's portfolio over the period, particularly in its dairy, ice cream and powdered beverages division. Sales of the group's powdered and liquid beverages products were up 9.2 per cent to CHF8.4bn (€5.1bn) in organic terms on the strength of sales of the group's Nespresso and Nesta brands. The Milo brand of milk-based beverages also performed strongly as a signal of the strength of the group's nutrition focus, the company said. Margins for the segment were up 0.6 percentage points to 22.7 per cent over the period, due to increased prices for its goods. The milk products and ice cream segment posted sales of CHF10bn (€6.1bn), an organic increase of 7.1 per cent, despite increasing costs pressures for raw milk in Asia, Africa and Latin America, Nestle added. The group praised innovation within its ice cream brands towards health-focused and premium ranges, and improved manufacturing efficiency for driving a 1.6 percentage points increase in operating margins for the segment. Through its Nestle Waters division, sales increased 10.3 per cent to CHF5.4bn (€3.3bn) particularly through strong sales in North America, where its Nestle Pure Life brand posted 40 organic volume growth. Increased sales in smaller markets like the Middle East and Latin America helped offset higher packaging costs, as margins improved by 0.1 percentage points to 9.3 per cent. In terms of its nutrition portfolio, infant formula and healthcare brands dominated the segment with sales up 10.5 per cent in organic terms to CHF3.4bn (€2bn). The acquisition of Jenny Craig in August 2006 hit the division's margins, which dropped 0.2 percentage points to 18.7 per cent. Emerging markets helped drive growth for Nestle's confectionery brands, with the segment posting an organic sales increase of 4.6 per cent to CHF5.3bn (€3.2bn). Markets including Brazil, South Asia, Venezuela and the Middle East, all posted double-digit volume growth for the brands. A segment-wide focus on restructuring operations and product ranges, particularly in the UK and US, led to 1.2 percentage point improvement in margins to 9 per cent for the half year. Prepared dishes and cooking aids posted sales of CHF8.7bn (€5.3bn), an organic increase of 3.1 per cent over the same period the previous year. This was in part the result of marginal price increases as well as volume growth for its culinary ranges in emerging markets, and chilled culinary brands in North America and Europe, according to Nestle. As with the group's other health-focused innovations, changes to the Lean Cuisine range of goods led to an improved performance for the brand in the North America. Frozen food sales in the country are therefore expected to accelerate during the second half of the year, the company said. However, margins for the segment were down by 0.4 percentage points over the period, blamed by Nestle on competitive conditions in the market, and realignment of internal costs. The group's petcare and pharmaceutical segments posted 7.2 per cent and 11 per cent organic growth respectively. Sales in its petcare division reached CHF5.9bn (€3.6bn) with margins up 0.2 percantage points to 14.9 per cent. Pharmaceutical sales reached CHF3.7bn (€2.2bn) for the period, with margins up by 1.3 percentage points to 32.9 per cent, on the back of double digit growth for its joint ventures in the segment.

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