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Exchange rates affect Nestlé profits

22-Aug-2003

Exchange rates continued to impact operations at the world's largest food company, Nestlé , but the firm itself preferred to stress the good organic performance in the first half of fiscal 2003.

The company, which makes products as diverse as chocolate, baby food and mineral water, reported sales of SF41.4 billion (€26.8bn) for January to June 2003, down 6.3 per cent on the same period a year earlier as a result of a foreign exchange impact of 12.6 per cent. However, at constant exchange rates, the company said that sales in fact rose by 6.3 per cent, driven by strong organic growth of 5.5 per cent.

 

The sales increase at constant currencies was "clearly above market growth rates" according to Nestlé. Eastern Europe, Latin America and the Caribbean, as well as Africa, performed particularly well, exceeding the group's average organic growth rate.

 

At constant exchange rates, food sales reached SF14.1 billion in Europe, up 3.2 per cent on the same period a year earlier, while Americas sales were ahead 5.2 per cent to SF12.4 billion (although they fell by 15 per cent in actual terms). In Asia, Oceania and Africa, the underlying increase was 3.5 per cent to SF6.8 billion, although again exchange rates meant that actual sales dropped 9 per cent.

 

The Nestlé Waters unit, which includes the Perrier and Vittel brands among others, reported a 9.5 per cent increase in sales to SF3.948 billion, although in real terms, sales were flat compared to the prior year.

 

Within the food unit, beverage sales were ahead 5.2 per cent to SF11.2 billion, again at constant levels, while milk, ice cream and nutrition sales showed more modest growth of just 1 per cent to SF11 billion. Prepared dishes and cooking aids showed growth of 1.8 per cent to SF7.5 billion, but chocolate and confectionery sales dropped 2.3 per cent to SF4.4 billion and petcare sales dipped slightly to SF4.7 billion.

 

In all cases, the group's divisions saw declines when sales were calculated at actual currency exchange rates.

 

Net profits were down sharply compared to the same period in 2002, dropping 51 per cent to SF2.78 billion, but the company stressed that this was chiefly due to exceptional gains of SF4.5 billion in 2002. On an underlying basis, net profit increased by 4.9 per cent and by 19.1 per cent in constant currencies.

 

Peter Brabeck, vice chairman and CEO of Nestlé said that the performance was as good as could be expected in the "very challenging environment and with a continued strong Swiss franc". He added that he expected to see a somewhat more favourable trading environment for the second half of the year, and that organic growth of between 5 and 6 per cent was sustainable for the full year.

 

Despite the continued concerns about the weak global economy, Nestlé continued to push ahead with its expansion into growth business areas. These include the acquisition of Dreyer's, the leading premium ice cream business in the US, concluded in June, the important acquisition of Powwow, the European home and office delivery water group and the acquisition of the Mövenpick ice cream activities in Europe.

 

Other businesses were divested during the first half, such as Ortega (Mexican style food producer based in the US), Mont Blanc (milk-based desserts in France) and the chilled milk products and sweetened condensed milk business in Germany. The group also reduced its participation in the German roast and ground speciality coffee company Dallmayr to 25 per cent.

 

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