Nestlé, the world's largest food corporation, is rolling in money. The 2009 results recently announced show sales topping USD 102 billion (94.6 billion in the core food and beverages division), operating profits of 14.85 billion (up on the previous year), margins (much beloved of financial analysts) hitting an enviable 14.6%, and a breathtaking 67% increase in cash flow, up from USD 6.81 billion in 2008 to 16.93 billion in 2009.
There's also Nespresso, the rising star among Nestlé brands, with sales growth of over 22% last year, an anticipated USD 2.83 billion in sales this year, and no competition! This year's expansion will bring the Nespresso "sensory and brand experience" to sub-Saharan Africa.
Where will all this money go? Nesbuybacks, of course! Nestlé will spend USD 9.46 billion buying its own shares this year for the sole purpose of funneling the company's huge cash flow directly into the hands of shareholders. The buybacks, of course, also boost executive compensation. Last year CEO Paul Bulcke, in addition to his nearly 2 million dollar "base salary" and nearly half a million cash bonus, got some USD 8 million in various stocks and options. He also picked up three-quarter million dollar contribution to future pension benefits - more than the most long-lived retired Nestlé worker would ever hope to see in their old age.
What else? Besides the buy backs, there's the dividend payout - a 14.3% increase for a total payout of over USD 5.2 billion (compared with just 4.73 5 billion in 2008). That puts the payout ratio, the ratio of dividends to earnings, at over 51%.
Dividends at many large corporations have tended to decline as share buybacks have become the preferred tool for "returning value" to shareholders. Not so at Nestlé, where the famous "Nestlé model" gets you the best of both.
While most shareholders are delighted with the results, some want to know a wee bit more about the nature of the supplier relationships vaunted in the latest "Creating shared value" brochure. Or why, if the company is really "concerned" about the "destruction of rainforests and peat fields caused by palm oil plantations", they seemed more concerned about copyright infringement than their supply chain in response to the Greenpeace palm oil campaign.
Ethical investment advisors reading the latest "Creating Shared Value" might want to know why, if the company attaches so much importance to ILO Conventions, Nestlé has been in the dock at the OECD more times than any other company for, according to the IUF, violating those Conventions, and thereby violating the OECD Guidelines for Multinational Enterprises.
Others are starting to question the famous Nestlé arrogance which last September had Nestlé Chairman Brabeck threatening to pull out of Switzerland if the government so much as discussed capping executive pay. At the recent shareholder's meeting, Brabeck stated "Nestlé is important for Switzerland, but let me also state clearly that Switzerland is important for Nestlé. This country has a distinct advantage as a domicile because of its well balanced and flexible legal system" ideally suited to creating value for shareholders. Brabeck expressed his "confidence that the Swiss parliament and the Swiss people will find a reasonable solution to the reforms currently under discussion." Nespressure? - of course! Nestlé is important for Nestlé.
That same corporate arrogance is driving Nestlé management in Russia to ignore a formal request in the Russian federal parliament that the company reinstate the victimized union leader at Nestlé Waters near Moscow [1] and that it stop attacking and start negotiating with the union there. The same arrogance drives Nestlé management in Indonesia to ignore for over two-and-a-half years the demand to negotiate wages with the union at the Nescafé factory in Panjang, Indonesia [2], where management has contended that wages were a "commercial secret". Confronted with the evident illegality of this position with respect to the ILO Conventions and labour rights it claims to respect, Nestlé now arrogantly insists on including as a condition for the long-delayed negotiations the participation of a 'union' it created and controls for the sole purpose of undermining the union that has led the fight for workers rights at the factory.
And Nestlé workers around the world are increasingly asking why, when some 15 billion dollars are being funneled to shareholders this year, there is so little for investment in the employees who are the backbone of this highly profitable company.
Nespressure, it seems - squeezing workers and suppressing rights - remains an integral part of the "Nestlé model."