Profits down at Nestlé

Nestlé factory, Dalston.
Nestlé factory, Dalston.

Nestlé has reported a drop in profits and made a commitment to make "significant" cost cutting over the next three years.

Its net profit for 2016 was 8.5bn Swiss francs (£6.78bn), down from 9.1bn in 2015.

This was at the "lower end" of the group's expectations for the year. It is now predicting organic growth of between two and four per cent in 2017.

The company's sales growth fell to 3.2 per cent from 4.2 per cent in 2015, with rising prices and falling demand in emerging markets given as the main reasons behind this.

Mark Schneider, Nestlé's chief executive, has now said that the company's plant network needs to be "optimised".

The Swiss giant employs 330 people at its site in Dalston, near Carlisle, which has been on its site in the village since 1952. It processes 65m litres of milk each year and almost 1bn sachets of Nescafe Cafe Menu products.

Mark Schneider, Nestlé's chief executive, said in a statement to the Swiss stock market: "Our 2016 organic growth was at the high end of the industry but at the lower end of our expectations."

Mr Schneider also said trading had been "solid" and that the company's cash flow had grown "significantly."

He added: "In 2017, we expect organic growth between two per cent and four per cent. In order to drive future profitability, we plan to increase restructuring costs considerably in 2017.

"As a result, the trading operating profit margin in constant currency is expected to be stable. Underlying earnings per share in constant currency and capital efficiency are expected to increase."

"Nestlé continues to invest in future growth and operating efficiency, targeting mid-single digit organic growth and significant structural cost savings by 2020."

In a subsequent broadcast interview with Bloomberg he was asked where savings would come from.

He said: "This will be mainly from non-customer facing structural costs - think back office and administration - and, basically, our plant network - that needs to be optimised."

A statement to investors said the UK had been a tough business environment for the company.

It said: "In Germany and France we had solid real internal growth, while there was good organic and real internal growth in southern Europe. In the UK, on the other hand, it was a particularly challenging year with both volume and pricing declining slightly."

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