Profits up for Nestlé but European ice cream flags

Related tags Ice cream Milk

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 milk products, nutrition and ice cream division managed to achieve an organic growth rate (like-for-like sales plus the impact of price increases) of 5.4 per cent, while milk products achieved slightly higher organic growth of 5.9 per cent - despite having to fork out an increased price for raw milk.

Nestlé admitted that the category had experienced a "difficult year in Europe"​, pinning slower sales growth across the chilled dairy market to a dramatic shift in consumer preference from commodity to private label, especially in France.

Similarly, 2004 sales across its European ice cream operation suffered a disappointing shortfall in profits, after failing to recover from the sales-cooling effects of a below-par European summer - a sharp contrast compared to the heat wave of 2003.

Overall, however, global organic sales growth for ice cream fared slightly better with a 0.5 per cent increase. Nestlé's Dreyer's Grand Light and Häagen-Dazs ice cream brands delivered particularly strong performances in the US, helping it move one step closer to overtaking Unilever as the world's leading ice cream manufacturer.

Also in the US, Nestlé described growth across its joint dairy products venture with New Zealand dairy co-operative Fonterra as "excellent"​, while it claimed significant progress had been made towards securing a "cost-competitive supply of fresh milk and milk ingredients and building strong positions in chilled and liquid milk products"​.

The individual joint ventures of its Dairy Partners Americas (DPA) alliance currently operate 13 factories, source over 2.5 billion litres of fresh milk and span five continents.

Related topics Manufacturers Ice Cream

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