Nestlé defies the gloom to record sales rise

Nestlé managed to keep margins and net profits largely stable even as the Swiss franc reached a record high with investors piling into the safe haven currency.

Like peers Kraft and Unilever, the multinational group accelerated price increases in the second quarter to offset soaring costs for commodities such as coffee, cocoa and sugar, which hit 30-year highs earlier this year.

Nestlé saw sales rise by 7.5 per cent to 41 billion francs (£34bn) in an “extremely tough, volatile and competitive” trading environment.

This was helped by double-digit growth in emerging markets, although Nestlé also achieved growth in crisis-hit Europe and America.

In the UK and Ireland, Paul Grimwood, chairman and chief executive, said: “The first six months of 2011 was just as challenging as we expected, as household budgets across the country continue to be squeezed.

“However, we are pleased with the progress we have made as we continue to grow market share in nearly all of the categories we operate in.”

Strong performers in the UK included Aero, Milky Bar, Rowntrees and Rolo confectionery, new Nescafé 3-in-1 and Dolce Gusto coffee products and the Maggi dry recipe range.

Mr Grimwood added: “Our focus on driving innovation continues to pay off.

“Consumers today are looking for quality products that deliver true value for money as demonstrated by the success of recent launches.”

Nestlé is a big employer in Yorkshire, with 2,315 staff across sites in York, Halifax and Castleford. It manufactures chocolates including Aero, Kit Kat, Milky Bar, Yorkie and After Eight in the region.

Looking ahead to the second half of 2011, Paul Bulcke, group chief executive, said: “We expect continued challenging conditions including political and economic instability, volatile raw material prices and subdued consumer confidence in the developed world.

“But our momentum is strong, our efficiency drive continues and we expect our pricing to have a fuller impact in the second half of the year.

“We are therefore confident of achieving organic growth at the top end of the 5 to 6 per cent range, combined with a margin increase in constant currencies.”

James Singh, chief financial officer, added: “Our guidance is cautious due to the environment we’re operating in. Investing in our business, both organically and through bolt-on buys, and increasing our dividend is our priority.”

Vevey-based Nestlé, listed on the Swiss stock exchange, decided not to launch a new share buyback programme, which had been expected by many analysts, partly due to the tough economic environment and also to keep cash for acquisition opportunities across all regions.

Vontobel, a Swiss private bank, said the absence of the buyback would stoke rumours of Nestlé being interested in Pfizer’s nutrition business, which is up for sale. A Nestlé spokeswoman declined to comment.

Analysts at Liberum Capital said: “We react positively to the company’s decision not to announce a new share buyback programme – owing to capex and M&A opportunities – even though some may be disappointed.”

Sara Welford, an analyst at Citi, added: “Headlines are good, demonstrating the resilience and quality of the business.

“The growth is broad-based and margin growth is impressive compared to the large cap food peer group which saw margin declines in the first half.”

Cheer in emerging markets

Growth was high across the emerging markets during the first six months of 2011, Nestlé said.

The multinational saw a double-digit increase in Asia, Africa and the Middle East, with particular highlights in China, South Asia, Pakistan, North-East and South Africa, Indonesia and the Indochina region. It attributed this to deeper penetration of popular products into rural areas.

Growth in Europe was just over 4 per cent, helped by strong performances in France, Italy, Benelux, the Nordic region and Switzerland.

Nestlé grew sales by 5.6 per cent in the Americas, despite subdued confidence in the US.