Nestlé India continues to focus on improving efficiencies
Nestlé India Ltd has informed BSE that the Company has on April 01, 2005, met with the Financial Analysts, to get assistance in understanding the Company's operations.
Mr. Martial Rolland, Chairman and Managing Director of the Company and Mr. Shobinder Duggal, Director - Finance and Control reviewed the Company's performance during 2004. Mr. Rolland reaffirmed that "Nestlé India is focused on long term, sustainable and profitable growth. Our economic model is robust and the seven value drivers of the model enable us to review and sustain our continuous efforts for sales growth, profit margins and capital efficiencies. The current environment of rising aspirations, changing lifestyles towards greater wellness and Out Of Home Consumption, coupled with increasing disposable incomes should accelerate growth in FMCG products. Nestlé India is in a strong position and is well disposed to benefit from this in the future. Innovation and Renovation will be critical to seize the opportunities arising from rising income and consumerism. We will focus on new concepts and driving preference for our products, which will be facilitated by our very strong brands and the tremendous Research and Development capability of our parent company. GLOBE implementation will further strengthen our business."
Presenting the financial data for the full year 2004, Mr. Duggal explained that continued focus on the seven value drivers helped sustain and improve shareholder's value, tripling the economic profit over the last five years. Highlights of the presentation and clarifications are given below:
* Domestic sales growth, as reported, was 5.3% for the year.
* Top line growth was impacted by a shortage and increased price of milk solids during a part of the year. Consequently Management allocated this important raw material to relatively more profitable products. Certain products were also discontinued. Under comparable circumstances the RIG (Real Internal Growth) of 4.4% on reported numbers would have been 7.0%.
* Volume growth for most categories was satisfactory [Milk Products & Nutrition + 7.4%; Prepared Dishes & Cooking Aids + 3.8%; Chocolate & Confectionary + 9.9%]. The exception was Beverages [- 4%] that showed a decline, largely because in 2003 the category also included Packaged Drinking Water, which was withdrawn subsequently following the market test.
* Initiatives to balance exports and reduce dependence on exports to Russia, are delivering results. Exports to other markets have increased from 33% of exports in 2003 to 52% in 2004.
* Nestlé Group Savings initiatives partially offset the negative impact from increased commodity prices and helped in achieving healthy EBITDA margin of 19.0% in 2004, compared to 19.5 % in 2003.
* The Company further improved the Fixed and Operating Working Capital Intensity reaching even higher levels of efficiency
* The Company achieved a good operating cash flow of INR 3.7 billion and paid record dividend (also for approval at the AGM is a special dividend mainly out of undistributed profits) in 2004.
* As a high tax payer, the Company through its business contributed (directly and indirectly) towards tax collections to the exchequer, close to Rs 6.2 Billion at Central and State levels.
* Provisions for contingencies are in line with statutory accounting standards and are necessary for good corporate governance and protecting shareholder value. Provisions are made for potential obligation on clear criteria - Past event, Probability of future cash outflow, Reasonable estimate.
* In keeping with the situation of the FMCG sector, sustaining margins could be challenging. Oil prices are hardening and while prices of some commodities are currently lower compared to 2004, they are still higher than 2002 and 2003 levels.
* The GLOBE initiative is progressing satisfactorily and its implementation will allow the Company to adopt Best Practices and help to sustain and improve efficiencies by implementing sophisticated and integrated information technology systems, much needed for a complex value chain. GLOBE is a substantial investment, necessary to retain the ability of the Company to react and respond more efficiently to the demands of the consumers and shareholders. GLOBE will be implemented across all functions and processes in the Company to better integrate them. Its implementation is planned for in the second quarter of calendar year 2005 and is likely to adversely impact the cost of Company in the short run, to avail of the benefits in the future.
* In terms of the Union Budget, the Company hopes that the proposed Fringe Benefit Tax on advertising and other genuine business costs which adversely impacts the FMCG sector will be re-considered by the government.
* Implementation of VAT is a positive move, though piecemeal approach is causing uncertainty. VAT will also tax a larger part of the value chain than hitherto and at higher tax rates.
While clarifying queries from analysts, Mr. Martial Rolland stated that the Company is committed to shareholder value and will continue to leverage its access to the Nestlé Group's proprietary technology, Brands/ expertise, centralised Research and Development to strengthen its efforts to provide Nutrition, Health and Wellness across its portfolio and strategic four pillars namely, Innovation and Renovation, Availability, Effective & Efficient Operations, Consumer Communications. Mr. Rolland also stressed that this effort will be supported by the commitment and quality of the People, aligned structures and the implementation of GLOBE."