Sour result for Nestle as profit takes a hit after sales downturn
Nestle has a portfolio of popular food and beverage brands, including baby formula, Nescafe, International Roast and the Nespresso range of machines and coffee capsules. The steep profit decline for its latest financial year was also driven by the impact of the sale of its Peters Ice Cream business and gourmet foods division CDS.
Nestle Australia cited the loss of the two businesses for its poorer financial performance, as well as weak trading conditions across the consumer discretionary sector, and in particular its business with the nation's biggest supermarkets Woolworths and Coles.
But the supplier's local offshoot, chaired by former ANZ executive and Perpetual director Elizabeth Proust, said its performance was bolstered by the growing popularity of its Nespresso brand, as well as its Purina pet food range and its chain of Jenny Craig weight loss centres.
Documents lodged with the Australian Securities and Investments Commission show Nestle Australia reported a profit of $107.87 million for the 2012 calendar year, down from $193.67 million in 2011.
Revenue was almost unchanged at $2.092 billion in 2012.
"The company's financial performance was impacted by the losses on ice-cream and CDS divestments and the challenging trading conditions in Australia," Nestle Australia directors said in the latest financial report.
A spokeswoman confirmed it had been stung by the softer economic environment and difficult trading conditions in the supermarket channel.
"But careful management of expenditure helped us reduce the impact on profit," she said.
Other international suppliers have also witnessed shrinking bottom lines from their Australian offshoots, driven by a number of factors including a pull-back in consumer confidence and tougher terms from the supermarkets, which are clamping down on supply chain costs.
At the same time shoppers have warmed to private-label brands, turning away from branded groceries.
Last week BusinessDay reported that consumer goods giant Unilever, which owns a wide assortment of household and personal-care brands, booked a near 50 per cent dive in full-year profits.
Nestle Australia directors said that management would focus on optimising the company's portfolio of brands and slashing administration and overhead costs.
Product development and innovation would also help drive future financial performance.
Frequently Asked Questions about this Article…
Nestle Australia reported a 44% drop in profit for the 2012 calendar year, falling to $107.87 million from $193.67 million in 2011, according to documents lodged with ASIC.
Yes. The profit decline was driven by a combination of factors including weaker trading conditions in the consumer discretionary sector, tougher supermarket terms from Woolworths and Coles, and losses associated with the sale of Peters Ice Cream and the gourmet foods division CDS.
No. Revenue was almost unchanged in 2012, at about $2.092 billion, despite the significant drop in reported profit.
Nestle Australia said growth in its Nespresso coffee range, the Purina pet food business, and its chain of Jenny Craig weight-loss centres helped bolster performance amid the broader downturn.
The article notes supermarkets are clamping down on supply-chain costs and offering tougher terms to suppliers, while shoppers have warmed to private-label brands—both trends are squeezing margins and contributing to weaker profits for international suppliers operating in Australia.
Yes. The article mentions that other international suppliers have seen shrinking bottom lines, and BusinessDay reported Unilever booked a near 50% dive in full-year profits — a sign of broader industry pressure.
Nestle Australia said management would focus on optimising its portfolio of brands, slashing administration and overhead costs, and boosting product development and innovation to help drive future results.
Investors should note that divestments (like the sale of Peters Ice Cream and CDS), tougher supermarket relationships and changing consumer preferences can materially affect local profits even when revenue is steady. Watch for management actions on cost control, portfolio optimisation and innovation as indicators of how the company plans to respond.
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