Originally created 08/19/04

Nestle reports flat profits; plans to cut costs

VEVEY, Switzerland -- Nestle, the world's biggest food and drink company, on Wednesday posted a first-half net profit of 2.84 billion Swiss francs ($2.28 billion), up 0.02 percent on the year-earlier figure of 2.78 billion francs (then $2.03 billion).

"These results were achieved in the face of higher prices for raw materials such as milk, coffee, sugar, energy and packaging materials, poor weather conditions, and a difficult business environment in western Europe," a company statement said.

The cool, rainy weather contrasted sharply with a heat wave last year, it said. "This had a particular impact on ice cream and water," the company said.

Nestle, which reports earnings only for the half year and full year, said six-month sales were 42.45 billion francs ($34.13 billion), up from 41.44 billion francs (then $30.22 billion) for the first half of last year.

The owner of global brands such as Nescafe coffee said earnings before interest, taxes and amortization, or EBITA, rose to 5.12 billion francs ($4.1 billion) from 5.05 billion francs ($3.68 billion), but the operating margin slipped to 12.1 percent from 12.2 percent.

Nestle failed to meet its target for organic growth, one of its main performance yardsticks. This measure of volume growth, which includes price increases but not the effects of acquisitions, fell to 4.6 percent from 5.5 percent.

However, the company repeated previous projections that it will achieve full-year organic growth of 5 percent to 6 percent. It also said it expects to increase its full-year EBITA margin in constant currency terms.

"Our efficiency programs are on track," said Chief Executive Officer Peter Brabeck.

Nestle share prices were down 5.8 percent at 295.50 francs ($237.62) by late afternoon on the Zurich exchange.

Nestle plans to cut costs by more than 6 billion francs ($4.82 billion) by 2006, with most of the savings coming in 2005 and 2006.


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