Nestle has reported net profit growth of 12.7%. Sales are up, profits are up: it’s a pretty picture at Nestle. Growth is accelerating in Asia, Oceania, Africa and Europe, although it fell in the Americas. The main worry over the results seems to be regarding Nestle’s Ebit margin. Heavy promotional investment and new product launches may have held this back, but should provide a strong basis for the near future.
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Despite its previous slow-changing image, Nestle has seen major changes since the appointment of Peter Brabeck as CEO in 1997. Growth at the Swiss food giant is continuing to speed up and H1 2000 showed some healthy movement. Net profits were up 12.7% on last year, growing from $1.7 billion to $1.9 billion. Brabeck’s devotion to boosting sales through heavy investment in Nestle’s global brands seems to be making a mark, with sales rising 6.3% to $24.7 billion.
Nestle’s results proved its resilience in the face of the economic downturn, partly through a strong presence in emerging markets. Demand in these areas is growing dramatically, easing the effects of comparatively slow growth elsewhere.
The highest growth rate was seen in Asia, Oceania and Africa, where first half demand was up 7.2%, compared to the 6.3% growth announced for the same period last year. Meanwhile, the Americas were rather disappointing, with a falling growth rate of just 2.9% compared to 4% in the first half of 2000. Growth in Europe was even lower, at 2.6%, but was still an improvement on last year when the region had a growth rate of 1.6%.
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The Ebit margin was down slightly for the period, concerning some analysts. However, the difference may have been affected by the impact of Nestle’s new streamlining initiative, which will cost around $150 million per year but is hoped to reduce costs by $1.8 billion by 2006. The remainder of the difference came from accounting changes. Without these two factors, the trading margin would have changed very little.
While some investors had hoped the trading margin would have shown improvement due to strong sales, it is not in itself a bad sign. Higher promotional spending and the expense of product launches account for a good deal of the extra costs and appear to be working as Nestle is setting itself up well for a profitable future.
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