Nestlé anticipates improved 2006

By Peter Stiff

- Last updated on GMT

Related tags Nestlé Influenza

Nestle 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.

Chocolate, confectionery and biscuits accounts for about 12 per cent of Nestle's overall business.

Recent speculation linking Nestle with a takeover of Cadbury Schweppes was rebuffed, with the company's chairman stating such a move didn't fit into Nestle's strategy.

"The strategy and priority of Nestle is internal growth, that is what gives us growth, of our 10 year growth only one per cent comes from acquisitions,"​ Peter Brabeck-Letmathe said.

Despite price pressures confectionery sales and profits were positive.

Sales of chocolate, confectionery and biscuits were CHF 10.7bn (€6.9bn), up five per cent.

Operating profit also increased by nearly six per cent, to CHF 1.2bn (€770m).

Confectionery profit margins remained stable at about 11 per cent.

Management admitted it had made errors last year in its UK confectionery business but that it would bounce back in 2006 with a focus on key brands.

"In the context of a market in the UK which is flat we have had problems managing our brands, we invested too much in launching new products and promotions that were not successful,"​ said Peter Brabeck-Letmathe, Nestle's Chairman and CEO.

"The plans for 2006 is to improve the basis of our core business including the KitKat brand,"​ he added.

KitKat's poor performance in the UK over 2005 was one of the reasons for the company's stifled growth.

The company said that investment was made in promotions and brand extensions that were not successful in 2005 and that this would limited in 2006.

"In 2006 we will concentrate on the present business as we have it now and allow our core business grow,"​ Brabeck said.

Management said that concentration on the Aero brand through 2005 had proven to be a successful strategy.

Aero became the fastest growing major brand in the market, with over 30 per cent growth.

Nestle said its new strategy was successful over the Christmas period, with strong sales in the After Eight and Quality Street brands.

Outside of the UK Nestle said that its chocolate had sold well in Japan, Canada and Australia along with emerging markets.

In the US, the company said its Wonka brand confectionery had been successful.

Management acknowledged a tricky commodities market for confectioners.

"Obviously we have seen an increase in sugar prices but we are well covered for the next year," said Brabeck. "The global markets are changing, but we don't expect the dramatic increases we have seen over the last 12 months".

With regards to cocoa management said Nestle had assured the price level for 2006 and that the pressure that came in 2005 would ease in 2006.

Nestle's overall sales reached CHF 91bn (€58.4bn) for 2005, an increase of 7.5 per cent.

Operating profit rose to CHF 11.7bn (€7.5bn), a rise of around nine per cent on 2004's figure.

The company took an assured outlook on world issues stating the impact of the recent Danish cartoons, which angered Muslims, was minimal and that it was prepared for avian flu.

"Since this controversy escalated, we have not got any evidence that our sales have been affected in the Middle East or other Muslim countries,"​ said Brabeck at the press conference.

"This has however influenced our actions in these areas for instance in Pakistan we had to close our office for one afternoon, however, there were no problems we couldn't overcome and our sales haven't been affected."

With bird flu making its way across Europe Brebeck said, "we started to look at avian flu in 2003 when Asian countries first started to report the outbreak of the disease. We now have contingency plans and have taken safety measures in many parts of the world".

Overall the company's chairman and CEO said, "Into 2006 the economic outlook is positive and even Europe is starting to show signs that it may once again start growing".

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