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CLARA MOSCHINI

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Nestlè 1H18, total sales increased by 2.3% to CHF 43.9 billion

Net Profit increased by 19.0% to CHF 5.8 billion

Nestlé organic growth of 2.8% in the first half was in line with expectations and within the guidance for 2018. RIG was 2.5% and remained at the high end of the food and beverage industry. Pricing contributed 0.3%, reflecting the challenging environment in Europe and lower inflation in some emerging markets. Organic growth in the first half improved materially in North America and China. All categories reported positive growth, led by coffee, petcare, and Nestlé Health Science. Infant nutrition sales growth accelerated, with a broad-based improvement across all geographies, helped by recent product launches, including HMOs (Human Milk Oligosaccharides) infant formula. Acquisitions and divestments had a net neutral impact on reported sales, with the acquisition of Atrium Innovations and other deals being offset by divestments, mainly U.S. confectionery. Foreign exchange had a negative impact of 0.5%. Total sales increased by 2.3% on a reported basis to CHF 43.9 billion.

Mark Schneider, Nestlé CEO said: “Our first half results confirmed that our strategic initiatives and rigorous execution are clearly paying off. Nestlé has maintained the encouraging organic revenue growth momentum we saw at the beginning of the year. In particular, the United States and China markets showed a meaningful improvement. We were also pleased by the enhanced organic growth in our core infant nutrition category.Our margin development is fully consistent with our 2020 target. We are creating value by pursuing growth and profitability in a balanced manner. In line with this approach, we have accelerated our product innovation efforts to drive future growth and initiated significant cost reduction efforts, in particular in Zone EMENA and at our Corporate Center.As we look towards the second half of 2018, we expect further improvement in our organic revenue growth. Margin improvement is expected to accelerate with further benefits from our efficiency programs and more favorable commodity pricing”.

Underlying trading operating profit increased by 3.5% to CHF 7.1 billion. The underlying trading operating profit margin increased by 20 basis points in constant currency, and by 20 basis points on a reported basis to 16.1%. Margin expansion was supported by operational efficiencies and successful execution of ongoing restructuring initiatives. These cost savings were partially offset by higher commodity and packaging costs of CHF 90 million, amounting to a 20 basis point headwind. Distribution costs also increased.The underlying trading operating profit margin is expected to improve further in the second half of the year, driven by further benefits from efficiency programs and more favorable commodity prices. Restructuring expenditure and net other trading items increased by CHF 323 million to CHF 672 million. As a consequence, trading operating profit decreased by 1.3% to CHF 6.4 billion and the trading operating profit margin decreased by 50 basis points on a reported basis to 14.6%.

Net Profit and Earnings Per ShareNet profit increased by 19.0% to CHF 5.8 billion and earnings per share increased by 21.4% to CHF 1.92. The increase was mainly the result of income from the disposal of businesses, lower taxes and improved operating performance.Underlying earnings per share increased by 9.2% in constant currency and by 10.4% on a reported basis to CHF 1.86. Nestlé’s share buyback program contributed 1.5% to the underlying earnings per share increase, net of finance costs. Cash FlowFree cash flow increased by 52%, from CHF 1.9 billion to CHF 2.9 billion. This was mainly driven by an improvement in working capital, lower taxes and increased operating profit.Portfolio ManagementNestlé has made further progress to actively evolve the portfolio towards high-growth, high-margin categories and brands. On May 7, 2018, an agreement was announced granting Nestlé the perpetual rights to market Starbucks consumer and foodservice products globally, outside of Starbucks coffee shops. As part of this transaction, Starbucks will receive an up-front cash payment of USD 7.15 billion for a business which generated annual sales of USD 2 billion. The agreement is now expected to close at the end of August 2018.The process of exploring strategic options for the Gerber Life Insurance business is on track with completion expected in 2018.

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