Nestlé: Americas offset slow times in Europe

By staff reporter

- Last updated on GMT

Related tags: Nestlé

Nestlé's Americas division has established itself as the food
firm's most important business region for the first time following
difficult conditions and subdued sales growth in Europe.

North America rose to the forefront of Nestlé's business in 2005 thanks to strong growth in ice cream, its joint venture with New Zealand dairy co-operative Fonterra and a 16.5 per cent sales rise for bottled water.

Sales at Nestlé's whole Americas division grew by almost eight per cent last year after "stellar performances"​ in its important emerging markets of Mexico and Brazil.

This region helped the group to a 7.5 per cent full-year sales rise to €58.3bn, while net profits grew 8.8 per cent to around €5bn.

Sales in Europe, meanwhile, grew only two per cent and the group said the consumer environment there "remained subdued"​. Rising input costs and a difficult time for its UK confectionery business were enough to send profit margins down by one per cent in the region.

There was some good news, however, as the Nescafé brand made share gains on Britain's soluble coffee market. And, the group said sales through hard discounters - one of Europe's fastest rising retail sectors - grew by a fifth during 2005.

Nestlé announced in October that it planned to get more of its branded products into hard discount stores owned by chains such as Aldi and Lidl. "We will continue pushing and developing our relationship with them,"​ it said at today's results conference, adding there was "no reason why we cannot record double-digit growth again in 2006"​.

Beverages

Bottled water continued to be a main growth driver for the whole company as consumers continued to shift away from sugar-laden fizzy sodas. Nestlé Waters increased sales by 8.6 per cent.

Most growth was seen in the US, while Europe progressed more slowly because existing consumption levels were already high, the firm said.

Nestlé's relatively new Pure Life water brand grew particularly well, with global sales now above €449m, alongside established brands Vittel and Perrier.

Vittel has recently undergone an image change for 2006. The drink now comes with a red cap, helping to distinguish it further from rivals Volvic and Evian, and mini-bottles aimed at children have been launched in three different flavours.

Elsewhere in beverages, sales of Nescafé mixes grew 30 per cent in Britain, Turkey and Australia, while a low fat version of Nesquik performed strongly in US school vending machines - indicating how other beverages may benefit from moves to get fizzy sodas out of schools.

Rising costs for PET plastic sent margins down slightly for Nestlé beverages over the last year.

Dairy

Nestlé hopes to get its chilled dairy business back on track in Europe after signing a joint venture deal with French dairy firm Lactalis last December.

Nestlé was forced to change strategy and accept a minority share in the venture after admitting its chilled dairy division had failed to deliver over the last few years.

The group said its dairy division as a whole was boosted in 2005 by launches of affordable milk with added nutritional benefits in emerging markets, such as Nestlé Ideal in Brazil.

Ice cream has also begun to bounce back for the group after more than a year of stagnant performances. There was particularly strong growth in North America, and the group recently became the world's biggest ice cream maker after taking full control of US firm Dreyer's.

Confectionery

Nestlé has acknowledged its mistakes in confectionery over 2005 and expects improved sales in 2006.

The company said heavy investment in unsuccessful ventures last year coupled with rising commodity prices blighted 2005 results in the confectionery product group.

Sales of chocolate, confectionery and biscuits, which make up 12 per cent of Nestlé's business, were still up five per cent to €6.9bn, however.

"The plan for 2006 is to improve the basis of our core business including the KitKat brand,"​ said Peter Brabeck-Letmathe, Nestle's Chairman and CEO.

He rebuffed recent speculation linking Nestlé with a takeover of Cadbury Schweppes, stating such a move didn't fit into Nestle's strategy.

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