October 19, 2007

 

Nestle dismisses price hikes

 

 

Nestle -- one of the world's biggest food groups -- vowed on Thursday (October 18) that it could still wrestle high raw materials prices as it showed strong brands had helped it outpace most rivals.

 

Peter Brabeck, chairman and chief executive, acknowledged milk prices would remain high, although he foresees some easing after mid-2008 as farmers boosted supply.

 

Input costs have been a growing concern for leading foods groups amid fears that surging prices for milk, wheat and other raw materials would erode margins.

 

Brabeck, who is stepping down next April as chief executive to concentrate on the chairmanship, said strong brands such as Nescafe and Kit Kat had allowed Nestle to pass on higher costs to consumers.

 

Although growth might slow slightly in the final quarter, he sees more acquisitions and continued expansion would enable the group target its sales and profits goals this year.

 

Analysts forecast Nestle will comfortably exceed its 5 to 6 percent sales growth target and raise profit margins.

 

Such expectations received a fillip after nine-month sales rose 9 percent to SFr78.7 billion (US$66.59 billion), helped by acquisitions and exchange rates due to buoyancy which contrasted with mixed results from rival Danone this week. Brabeck says Nestle's strong brands pushed into higher value-added products and cost savings through restructuring and information technology.

 

Organic growth was 7.2 percent, or 6.8 per cent for core food and beverages.

 

Real internal growth, a Nestle measure stripping out acquisitions, currencies and price rises, rose 4.5 percent for the group and 4.2 per cent for food and beverages - all above market expectations.

 

The shares, up sharply this year, fell marginally in late-afternoon trading.

 

Brabeck, who is turning his position to Paul Bulcke, identified three new or enhanced initiatives for further growth. Annual sales in nutrition should swell by about SFr3.6 billion following Nestle's acquisition of units from Novartis, the pharmaceutical group.

 

Targeting consumers in developing countries should tap a further, neglected, market, while Brabeck also announced the creation of a professional division to incorporate and boost existing businesses with the food and beverage trade.

 

Nestle confirmed expectations that Paul Polman, chief financial officer, would succeed Bulcke to head north and south American operations. Polman's job will be taken by James Singh, head of acquisitions and business development.