Nestle (M) Bhd will close down all activities relating to the sugar confectionery business conducted by two subsidiaries from May 1, as they have been a drain on the company's operating profits.
The two subsidiaries are Nestle Products Sdn Bhd which handles the sales, marketing and distribution of sugar confectionery and Nestle Foods (Malaysia) Bhd, which operates a sugar confectionery manufacturing plant.
Nestle said it would take a one-time maximum charge of RM31.9mil, mainly due to impairment of assets and related social costs. The financial effects of the closure would have an impact on the company's net tangible assets and earnings this year, but no material impact on its turnover and share capital, the company said in a statement to the KLSE yesterday.
Nestle said its board had reviewed the sugar confectionery business and concluded that, over the years, its operations had been unable to show any noticeable positive economic contribution.
This activity has posed a strenuous drain on operating profits and therefore the board of directors has decided to permanently discontinue all activities related to the sugar confectionery business, including manufacturing, sales, marketing and distribution,'' the company said.
The decline in the overall sugar confectionery category, not only in the domestic market but also in the export markets, was also a major consideration for this decision, it said.
Nestle said the closure of the sugar confectionery business was in the best interest of the company and its shareholders, and every consideration and effort would be made to minimise any negative impact of this decision on the affected employees.
The plant that Nestle would be closing is sited in the industrial estate of Chembong, Negri Sembilan, which was commissioned in 1998 as a component of the manufacturing units of Nestle Foods.
Nestle said the plan was for the sugar confectionery manufacturing plant to provide for local demand and cater to export requirements.
Products manufactured by the plant were halal hard-boiled sweets, soft chews and fruit pastilles range under such brands as Fruitips and Allen's.
When contacted yesterday, Nestle managing director Jose Lopez declined to comment on the closure of the sugar confectionery business. However, he is expected to make a statement on the company's latest move after Nestle's AGM today.
Nestle is expected to post a net profit of RM174mil for the financial year ending Dec 31, 2003, according to 11 brokers polled by Multex Global Estimates.
If the one-time charge is indeed the maximum RM31.9mil, then the impact could be an 18% reduction in this year's projected profit of the firm.
Analysts said the closure of Nestle's sugar confectionery business was part of streamlining the group's operations.
They will take a hit now, but it should be positive for Nestle next year,'' said an analyst with a foreign research company.
The previous plant closure announcement by Nestle was on April, 13, 2000, when it told the KLSE it was terminating the production of reconstituted sweetened condensed milk and sweetened beverage creamer at its Petaling Jaya factory by September that year.
The closure was done as part of the restructuring of its manufacturing operations.
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