Profits up for Nestlé as confectionery sales improve

- Last updated on GMT

Related tags: Nestlé

Nestlé, the world's number one food company, hopes to appease
investors by offering a sizeable dividend payout, despite
announcing a disappointing overall drop in 2004 sales, Tom
Armitage reports.

Peter Brabeck-Letmathe, Nestlé's CEO, conceded that despite "challenging circumstances"​ - referring mainly to a disappointing European summer, the group had delivered "strong growth and better profitability"​ in 2004.

The Swiss food conglomerate reported earnings before interest, taxes and amortisation of goodwill (EBITDA) of CHF10.97 billion, down on the previous year's CHF11 billion. Conversely, it notched up an increase in net profits from last year's CHF6.21 billion to CHF6.72 billion - despite sales (in value terms) falling 1.4 per cent to CHF86.77 billion.

"The group's proven capacity to generate predictable, strong operating cash flow together with its AAA rating allows it to become more flexible in its capital structure management,"​ said Brabeck-Letmathe, underlining the company's ability to achieve its long-standing growth target of between 5-6 per cent.

As part of a thinly veiled attempt to restore investor confidence, the Swiss company confirmed it is to buy back a reported CHF1 billion in shares, starting in the second half of 2005 and also announced an 11 per cent windfall increase for investors (stemming from an increase in earnings per share from CHF16.05 on the previous year to CHF17.29).

Following the announcement, Nestlé's shares opened 1.4 per cent higher at CHF318 in Zurich this morning, following an overall 7.4 per cent decline throughout 2004.

According to the Swiss company, combined sales across its chocolate, confectionery and biscuits division managed to achieve an organic growth rate (like-for-like sales plus price increases) of 3.2 per cent, despite the ongoing price volatility of key ingredients, particularly sugar.

Chocolate managed to bounce back from disappointing 2003 sales, one of the product categories which Nestlé described as having shown a "marked improvement in profitability"​ in 2004 - notching up organic growth of around 3.4 per cent, with Brazil, Japan and Mexico all emerging as strong performing markets.

The company added, however, that its European division was still reeling from the sales-cooling EU-wide drive to tackle obesity and junk food - something which has had an adverse effect on several leading European confectionery manufacturers' sales.

But UK consumers, however, appear not to have heeded the government's repeated obesity messages, with Nestlé successfully increasing its market share and with sales growth set to continue.

Meanwhile, Nestlé recorded a significant CHF175 million drop in assets across its chocolate, confectionery and biscuit division, following the divestment of several key business activities - the reorganisation of the local distribution network in Russia, for instance.

The company has already stated its intention to whittle down its non-core confectionery interests in order to focus on bolstering sales of its leading brands, including number one confectionery brand KitKat.

Related topics: Manufacturers, Nestle

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