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* Sales of CHF 53.1 billion, +CHF 2 billion, 8.9% organic growth, 3.5% real internal growth * EBIT of CHF 7.3 billion (+6.1%), margin +60 basis points in constant currencies, +30 basis points reported, to 13.8% * Results driven by Food and Beverages: 8.9% organic growth, 3.2% real internal growth, EBIT margin +50 basis points in constant currencies, +30 basis points reported * Net profit of CHF 5.2 billion (+6.1%), margin +20 basis points to 9.8%, total EPS CHF 1.39 (+8.6%) * Acceleration of share buyback programme, CHF 13 billion to be completed by year end * Full-year outlook: organic growth at least at 2007 level with improved EBIT margins
The Group's EBIT grew by 6.1% to CHF 7.3 billion, resulting in an EBIT margin of 13.8%. This represents a 60 basis point improvement in constant currencies over the first half of 2007. Foreign exchange reduced the Group's EBIT margin by 30 basis points, to 30 basis points reported.
With sales of CHF 49.3 billion, Food and Beverages achieved organic growth of 8.9%, including real internal growth of 3.2%, and was the Group's main contributor to growth and EBIT margins. With an EBIT growth of 6.7%, Food and Beverages' EBIT margin was up 50 basis points in constant currencies over last year. Foreign exchange reduced Food and Beverages' EBIT margin by 20 basis points, to 30 basis points reported.
The Group's cost of goods sold increased by 190 basis points to 42.8% of sales. This reflects the impact of higher raw material costs, partially reduced by operating efficiencies. Marketing and administration costs declined by 190 basis points to 33.3% of sales, reflecting the effect of different growth rates of the company's product portfolio, efficiencies and the leverage effect from growth. In constant currencies, consumer marketing spend increased by 7%.
Net profit grew by 6.1% to CHF 5.2 billion, resulting in a net margin of 9.8%, up 20 basis points. Earnings per share grew by 8.6% to CHF 1.39.
On 30 June 2008, the Group's operating cash flow stood at CHF 3.5 billion. This is lower than last year reflecting a higher level of inventories as a result of the increased cost of certain raw materials and the decision to selectively increase inventories of some products. The Group's net debt, seasonally high at the half year, rose to CHF 25.8 billion. This will decline to below the level prevailing at the end of 2007, thanks partly to the proceeds received from the sale of 24.8% of Alcon to Novartis.
The share buyback programme is accelerating and the Group expects to spend around CHF 9 billion on buying back its own shares in 2008, an increase of about CHF 2 billion compared to the original plan. By the end of the year, approximately CHF 13 billion of the CHF 25 billion share buyback programme announced a year ago will have been completed.
Sales and EBIT margins by management responsibility
Zone Europe: sales of CHF 13.8 billion, 5.8% organic growth and 2.3% real internal growth. Western European markets such as Great Britain, France, Germany and the Iberian region achieved good organic growth, while the Zone experienced double-digit organic growth in Eastern Europe, particularly in Russia and Poland. Overall, soluble coffee, confectionery, PetCare and culinary products were among the stronger categories. The Zone's 30 basis points improvement in EBIT margin was mainly driven by profitable growth and operational efficiencies.
Zone Americas: sales of CHF 15.1 billion, 11% organic growth and 3% real internal growth. There were good performances across the Zone, with both North and Latin America experiencing strong organic growth. Shelf-stable dairy, soluble coffee, ready-to-drink beverages, biscuits and PetCare did particularly well. The timely implementation of price increases in categories most impacted by higher input costs and the strong innovation pipeline contributed to the 40 basis points EBIT margin improvement.
Zone Asia, Oceania and Africa: sales of CHF 8.4 billion, 13.1% organic growth and 4.5% real internal growth. All the Zone's major emerging markets such as Greater China, Africa, South Asia and the Middle East grew strongly. Shelf-stable milk products, soluble coffee, powdered beverages, culinary products and PetCare did particularly well. In spite of higher cost pressures, the Zone's EBIT margin was unchanged as a result of good growth, efficiency improvements and pricing.
Other Food and Beverages: sales of CHF 1.9 billion, 23.3% organic growth and 20.3% real internal growth. Nespresso, Cereal Partners Worldwide and Beverage Partners Worldwide all performed well. Nespresso's first half sales exceeded CHF 1 billion for the first time. This segment's EBIT margin was 20.4%, up 150 basis points, with improvements from all businesses.
Prepared dishes and cooking aids: sales of CHF 8.6 billion, 5.4% organic growth and 0.9% real internal growth. Ambient culinary products enjoyed strong organic growth in all three zones, especially under the Maggi brand which did particularly well in Asia and Eastern Europe. Frozen food was somewhat slow in the US, while in Europe the Wagner and Buitoni pizza businesses achieved good performances. The category's EBIT margin declined by 70 basis points, reflecting slow volume development in the US and input cost pressures.
Confectionery: sales of CHF 5.4 billion, 7.7% organic growth and 1.7% real internal growth. The successful Kit Kat relaunch in Western Europe continued and the brand showed good performances in emerging markets such as India, the Middle East and Russia, achieving 15.4% organic growth globally. Increasing consumer interest in nutritious snacking alternatives resulted in new product launches such as Nesquik bars with added calcium in Mexico, Chile and Turkey. The UK business performed well due to its focus on key brands and the benefit of restructuring at the York factory. The category's EBIT margin improved across all zones, with an increase of 180 basis points.
PetCare: sales of CHF 5.9 billion, 10.9% organic growth and 5.4% real internal growth. Organic growth continued to be driven by new product launches and increasing focus on premium and super-premium segments. Top performing brands included Beneful, Bakers, Cat Chow, Gourmet and Fancy Feast. The category's EBIT margin decreased by 40 basis points, reflecting the timing of launch expenses and input cost pressures.
Pharmaceutical products: sales of CHF 3.7 billion, 9.6% organic growth and 8.5% real internal growth. The EBIT margin improved by 90 basis points, mainly due to strong growth, operational efficiencies and a positive product mix.
Contacts Media Robin Tickle Tel.: +41 (0)21 924 22 00 Investors Roddy Child-Villiers Tel.: +41 (0)21 924 36 22
Please follow this link for our Half Year 2008 Financials. You can listen to the Investor Call webcast (0830 CET) here. The presentation slides are available for download here.
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