Nestlé profit rises despite slight drop in sales

Brabeck has something to smile about Keystone Archive

Swiss food giant Nestlé has reported a net profit of SFr6.72 billion ($5.78 billion ) for 2004 – up 8.1 per cent on the previous year.

But sales revenue dropped 1.4 per cent to SFr86.77 billion, weighed down by factors including the low dollar, net divestments and flagging demand in Europe.

Announcing the figures on Thursday, Nestlé said the profit hike was largely due to an increase in operating efficiency, despite higher costs for raw materials.

The figure was also boosted by a SFr1 billion profit from Nestlé’s share in a dilution profit at subsidiary L’Oréal.

In 2003, the Vevey-based food giant saw an 18 per cent drop in net profit to SFr6.21 billion.

The multinational said it had achieved 2004 EBITA (Earnings Before Interest, Taxes and Amortisation of goodwill) of SFr10.97 billion, resulting in an all-time high operating margin of 12.6 per cent of sales.

The company’s key organic (internal) growth margin dropped from 5.1 per cent to 4.9 per cent – slightly below the long-term target of 5-6 per cent per year.

However, real internal growth – which excludes the effects of price increases – rose from 2.2 per cent to 2.9 per cent.

Looking ahead, CEO Peter Brabeck predicted sales and operating margin increases for 2005, based on further organic growth.

Buying spree

The world’s largest food company also announced that it would launch a SFr1 billion share buyback programme later this year – and said there could be more to come.

It added that its ability to generate strong cashflow and its top-level credit rating allowed it to become more flexible with its capital structure.

“The group has shown that it can deliver strong growth and better profitability even under challenging circumstances,” said chief executive Peter Brabeck in a statement.

“In particular, our businesses in the Americas and Asia, Oceania and Africa, together with Alcon [eyecare products], have achieved outstanding growth and strong profit performances.”

Last month Nestlé announced that Brabeck would tighten his grip on the multinational’s strategic leadership, taking on the additional role of chairman.

The company said Brabeck would replace Rainer Gut, who is to step down at the annual shareholders meeting on April 14.

swissinfo with agencies

Key facts

Sales: SFr86.77 billion (SFr87.98 billion).
EBITA: SFr10.97 billion (SFr11.01 billion).
Operating profit margin: 12.6% (12.5%).
Net profit: SFr6.72 billion (SFr6.21 billion)
Earnings per share: SFr17.29 (SFr16.05)
Operating cash flow: SFr10.41 billion (SFr10.13 billion).
Real internal growth: 2.9% (2.2%).
Organic growth: 4.5% (5.1%).
Net debt: SFr10.2 billion (SFr14.4 billion).