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Nestle posts jump in net profits to 18 billion francs

business Updated: Feb 20, 2009 05:41 IST
Nestle posts jump in net profits to 18 billion

Swiss food giant Nestle posted a 69.4 per cent surge in net profits to 18 billion Swiss francs in 2008 and said on Thursday it would be among the industry's fastest growing firms this year despite slower consumer demand.

The profits equivalent to 12 billion euros or 15 billion dollars were significantly boosted by the sale of a quarter of its stake in eyecare company Alcon to Novartis, leading to a profit of 9.2 billion dollars on the disposal.

Sales reached 109.9 billion francs last year, up 2.2 per cent compared to 2007, even though the strength of the Swiss franc against most other local currencies dented the results reported in francs.

But the group warned that the global economic downturn "could further impact consumer demand."

"It is clear that in the prevailing market conditions, we will grow slower in 2009 than the high levels in 2008," said Jim Singh, who is chief financial officer, in a conference with analysts.

Nevertheless, the group is targeting organic growth of around five per cent this year, said chief executive Paul Bulcke.

"We believe that the group will once again be one of the industry's fastest growing companies in 2009," he said.

Singh said the group would seek to drive growth through cost reductions in 2009.

But as consumers hit by the economic crisis are more careful with their money, Singh said there were opportunities for the group, which makes food products ranging from pasta sauces to ice cream, chocolate drinks, mineral water and milk sold under well-known brands.

European consumers would take a "cautious approach to spending" this year, but the food group would benefit as consumers have coffee at home, rather than in cafes or restaurants, said Singh. Nestle is one of the biggest instant coffee makers.

The trend was borne out in the United States, where frozen food sales accelerated in the second half of last year.

"This bodes well for 2009," said Singh.

In Asia, government policies to boost domestic consumption could help the group, said Singh.

"Our business is all about domestic consumption," he said, adding that the group offers products for consumers seeking good value.

Analysts at Bank Wegelin said the cautious outlook could be disappointing for investors.

"However, it should be noted that a growth of about 5.0 per cent and a margin improvement in the current economic situation is still an achievement," it said.

It recommended that investors adopt a long-term view on the stock and take advantage of the weak stock price to build up their holdings.

Bank Vontobel said that Nestle's current valuation was "unjustified given the results achieved in 2008 and outlook for 2009."

The stock was up 4.16 per cent to 38.56 at early morning trade, leading the overall Swiss Market Index, which was up 1.07 per cent.