Nestle latest to feel the pain from commodity price rises

The world’s biggest food group said the cost of raw materials – corn, wheat, cocoa – is likely to continue increasing in 2011 and price rises and cost savings will have to be introduced.

The warning came following similar admissions from rivals Unilever, Danone and Procter & Gamble.

After stripping out the sale of its stake in eyecare firm Alcon, the Switzerland-based group saw profits dip 7 per cent to 9.7 billion Swiss francs last year.

After the Alcon disposal, net profits tripled to 34.2 billion Swiss francs.

But rising prices failed to dent sales, which lifted in line with expectations by 6.2 per cent to 109.7 billion Swiss francs in 2010.

The company said sales in Europe grew by 2.5 per cent last year, driven by growth in the UK and France, with sales of household favourites such as Nescafe and Kit-Kat among those to stand out.

But the company, which also makes Perrier, said almost a third of its sales – some 34.3 billion Swiss francs – came from food and drinks in the Americas region.

Paul Grimwood, the York-based chairman and chief executive of the UK business, said: “In a challenging economic climate, Nestle UK and Ireland produced a good 2010 performance.

“We invested more than ever in our portfolio of iconic brands and, by doing so, we grew share across our key product categories.

“While the outlook for 2011 remains challenging, we have strong plans in place across all our businesses to continue to win share.”

Nestle said the sale of its remaining 52 per cent stake in Alcon to drug maker Novartis allowed it to launch new products, cut its debt, buy back shares and build new factories around the world last year.

Paul Bulcke, Nestle chief executive, said the company continued to outperform the market in 2010 and was well positioned to deal with soaring costs.

He said: “We are starting 2011 with continued momentum, well placed to face uncertainties ahead, including volatile raw material prices.”

Nestle, which has a market value of 180 billion Swiss francs (£116bn), said it expected sales to continue to grow this year. Excluding acquisitions, disposals and currency moves, it predicts growth rates of between 5 per cent and 6 per cent in 2011.

Chris Wickham, analyst at investment bank Matrix, said underlying margins were below expectations, but added the strong growth “was consistent with a food sector that accelerated in the final quarter of 2010”.

Nestle employs around 2,500 people in York, Halifax and Castleford.