The world’s largest food manufacturer, Nestlé, posted profits of CHF9.2bn (US$7.43bn) for fiscal 2006, a year-on-year rise of 13.8% which was driven by growth in its branded food and beverage businesses and its increased focus on health and well being.
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Commenting on the results, Peter Brabeck-Letmathe, chairman and CEO, said: “2006 was another record year for Nestlé. We are seeing the benefits of the group’s transformation into a nutrition, health and wellness company, with stronger innovation and branding, as well as improved efficiency.
“At the same time, we strengthened our portfolio with the acquisitions of Uncle Tobys, Jenny Craig and Novartis Medical Nutrition, while divesting more commoditised businesses. Our competitiveness was further boosted by higher spending on marketing and R&D, the roll-out of GLOBE and shared services, as well as our strong commitment to savings programmes. This drove profitability to record levels while maintaining top-line growth.”
At a group level, sales were up 8.1%, climbing to CHF98.5bn and beating forecasts of CHF98.3bn.
Stripping out the impact of foreign exchange and acquisitions, the Swiss food group saw organic growth that matched 2005’s levels at 6.2%. The company’s food and beverage business reported organic growth of 5.9%.
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By GlobalDataExamining the record performance of its food and beverage business, Nestlé said that its main strength came from its high profile brands. Brands with sales of more than CHF1bn accounted for 70% of food and beverage sales during the year. The success of its brands, Nestlé said, was increasingly the consequence of their nutritional credentials and health-focused extensions along with investments in innovation and renovation.
During 2006, Nestlé increased its marketing spend on branded food and beverage products by 6.3%, while Nestlé’s investment in research and development increased by 16% during the fiscal year. However, the company said that higher investments in R&D and marketing were more than offset by efficiency and scale gains. Net profit margins were up 40 basis points to 9.3%, Nestlé revealed.
Nestlé, which is shifting its strategic focus toward health and nutrition, bought Novartis’s medical nutrition business last year for $2.5bn. The company has also invested in acquiring Jenny Craig and Uncle Tobys and it is widely expected to bid for Gerber’s baby food division.
The board has proposed a 15.6% dividend increase to CHF10.40.
In its earnings statement, Nestlé said it expected organic growth of between 5% and 6% in 2007, and further margin improvement despite continued cost pressures, especially in agricultural raw materials.
“For 2007, despite the tough input cost environment, we again plan to deliver organic growth of between 5 and 6% as well as an EBIT margin improvement,” Brabeck-Letmathe said.
In the coming year, Nestlé said it would continue to raise its level of investment in its brands and R&D, speeding its shift to a “nutrition, health and wellness company”.
In morning trade, Nestlé shares rose 2.69%, climbing CHF12.50 to CHF476.50 at time of press.
