Nestlé Waters, including iconic brands Perrier and Vittel, increased sales by 5.9 per cent to CHF4.28bn (€2.76bn) after a continued strong performance in North America and a marked recovery from a poor 2004 in Europe.
Bottled water has seen renewed growth in Europe thanks to health-conscious consumers and better weather conditions.
A major player in Nestlé Waters' European turnaround has been Aquarel, a natural spring water targeted at the cheaper end of the market to accommodate a "consumer shift towards private label and lower-priced bottled waters".
Aquarel recorded 40 per cent organic sales growth in 2004, despite Nestlé Waters' total organic growth slipping 8.4 per cent.
Consumer trends towards healthier soft drinks mean competition is becoming increasingly tough on the bottled water market due to the large amount of interest from retailers and other producers.
The volume of the UK bottled water market rose by 50 per cent between 1999 and 2004, while carbonated soft drinks grew by less than six per cent, according to a recent bottled water report by Mintel.
Cott Corporation, the world's biggest supplier of private label soft drinks, has just bought UK soft drinks firm Macaw partly to get Macaw's aseptic production line - known to enhance bottled water production.
And, among branded players, Scotland's Highland Spring has risen to be Britain's joint-second biggest bottled water brand, after a 30 per cent sales rise on the back of new production lines and marketing.
Market research group Zenith International said Highland Spring had a nine per cent market share alongside Danone's Volvic. Danone's Evian remains number one on 12 per cent.
New products have become essential for Nestlé if it is to maintain its own good position in the rapidly growing bottled water market. A company spokesperson recently told www.BeverageDaily.com that it was particularly focused on creating new flavour combinations.
Flavoured water accounts for less than 5 per cent of the group's sales but shows great potential as a healthy alternative to fizzy colas and sodas, she said. Nestlé's most recent launch was a new orange-lychee drink under the Perrier brand.
Flavoured water was highlighted as one of the strongest growth areas in the recent Mintel report.
One of the category's main advantages is its ability to add value to products.
Added-value offerings have become crucial for branded firms attempting to justify higher prices than private label competitors and also protect margins.
Nestlé Waters' margins dipped from 9.4 per cent to 8.2 per cent in the first half of 2005. The group said that a "substantial increase" in PET prices, on the back of unprecedented oil price rises, had played a large part.
"Trading conditions will continue to be challenging in a number of markets, whilst commodity costs and currencies are likely to remain volatile," Nestlé said in its outlook.
Nestlé's net sales rose 2.4 per cent to CHF43.47bn (€28bn) in the first half of 2005, with net profits up 32 per cent to CHF3.68bn.