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Nestlé sparkles and thanks its shareholders

Perrier water has put some of the sparkle into Nestlé's figures

Swiss food multinational Nestlé has beaten expectations with its first-half figures and announced it was rewarding shareholders with a share buyback programme.

This content was published on August 15, 2007 - 12:02

Nestlé on Wednesday posted a first-half net profit of SFr4.916 billion ($4.05 billion), up 18.4 per cent on comparable figures from last year.

The Nestlé figures and details of the share repurchase programme had a positive influence on the company's share price. At the end of trading, it had risen to SFr494.50, a 9.46 per cent increase over Tuesday's close of SFr451.75.

The company, which is based at Vevey on Lake Geneva, said that sales were up by 8.4 per cent to SFr51.1 billion. It said it was likely to beat its own forecasts for the full year.

Organic growth of 7.4 per cent was made up by real internal growth of 5.1 per cent and product price increases of 2.1 per cent.

"These results are due to the strong performance of the Food and Beverages business and Nestlé's ongoing transformation into the world's leading nutrition, health and wellness company," commented company CEO and chairman Peter Brabeck.

"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."

No major acquisitions

Brabeck said he expected no major acquisitions in the near future, as the company digested recent purchases in medical and infant nutrition from Swiss pharmaceuticals company Novartis.

Nestlé said the two purchases created critical mass in its Nutrition unit, with annual sales of more than SFr10 billion, the clear global leader.

The board of directors has approved a new SFr25-billion share buyback programme over three years, subject to market conditions and strategic opportunities.

Nestlé and other food producers have been facing rising prices for raw materials, including coffee beans, cocoa, milk and grain.

But it has said it has the muscle to command higher prices on store shelves to compensate for the increases.

The company has said it aims to raise prices, withdraw unprofitable products and speed up production rationalisation to prepare for a lasting rise in commodity and energy prices.

Alcon

Nestlé also hinted it was moving closer to a possible sale of its United States eye care products company Alcon as pressure grows to shed some of its non-food operations.

"It is... clear that with our transformation to health and wellness... Alcon becomes increasingly a financial rather than strategic holding, and we must assess it as such," said Chief Financial Officer Paul Polman in a telephone conference call.

Analysts welcomed the results.

"This is a blow-out... strong figures both in terms of revenues and particularly margins," commented analyst Jon Cox at Landsbanki Kepler.

"Nestlé is clearly benefiting from its repositioning into health and wellness."

swissinfo with agencies

Key facts

Nestlé first half 2007
Sales: SFr51.114 billion (+ 8.4% compared with first half last year)
Earnings before interest and tax (Ebit): SFr6.919 billion (+14.2% or +SFr859 million)
Net profit: SFr4.916 billion (+18.4% or +SFr765 million)

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Share buyback

A share buyback or share repurchase is when a company buys back some of its shares from the marketplace.

It absorbs these shares, thereby reducing the number of outstanding shares on the market.

When this happens, the relative ownership stake of each company investor increases because there are fewer shares, or claims, on the earnings of the company.

The message management usually wants to give with such a move is that it sees no better investment at the time than in the company itself.

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Nestlé

The company was founded in Vevey in 1866 by Henri Nestlé and is today the world's largest food and beverages company.

It is in the top 30 of the world's largest companies in terms of market capitalisation.

Sales for 2006 were SFr98.5 billion, with a net profit of SFr9 billion.

The company employs around 265,000 people and has factories or operations in almost every country in the world.

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