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Sweet profits for Nestlé despite rising costs

By staff reporter , 23-Aug-2006

European confectionery giant Nestle has overcome rising energy costs to report strong profits in the company's first half results announced today, but admits there remains room for improvement in UK brands.

The makers of Smarties, Crunch and KitKat chocolates recorded a 11.4 per cent rise in net profit to 2.63bn euros and indicated that margins had improved throughout the six months since January.

The confectionery industry has been struggling in recent months with spiraling oil prices and the mounting cost of raw materials such as sugar but Nestle profits showed overall growth despite the downturn and a disappointing showing in the UK confectionery market.

 

Chairman and chief executive Peter Brabeck said: "Continued input cost pressures were outweighed by cost and working capital discipline, as well as the effectiveness of our efficiency programmes, reflecting our ability to improve our margins even in tough economic conditions."

 

Sales in the company's chocolate, confectionery and biscuits sector, which accounts for around 12 per cent of Nestle's overall business, rose 3.5 per cent to 3.13bn euros.

 

However EBIT margins in the sector declined by 50 basis points in the half, a drop the company mainly attributed to UK product streamlining.

 

And during a conference call, the company said it had seen poor performance in the UK confectionery market.

 

In the coming year, the company aim to focus on their most pivotal core brands Kitkats, Smarties, After Eight, Aero, Quality Street and Rowntrees, which make up 70 per cent of the market.

 

KitKat in particular had a disappointing year in 2005 when attempts to revive the brand, by launching new varieties such as Strawberries and Cream and Peanut Butter flavour, failed.

 

Nestle remains confident however that renewed concentration and reorganisation of its mainstay British brands would see sales grow in the coming year.

 

Chief financial officer Paul Polman said: "You just don't turn the switch on and off like that. We are putting our plans in place to rationalise the business."

 

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