Nestle CFO James Singh has hailed the company’s “very strong operating performance” in the first half of 2011.
The strength of the Swiss franc and the absence of eyecare company Alcon, in which Nestle sold its majority stake last year, led to half-year sales and profits falling at the Swiss food giant. Even from continuing operations, sales slid 5% and net profit dipped 0.2%.
However, Nestle’s sales climbed 7.5% on an organic basis during the first half of the year and its operating margin was up by 20 basis points.
Speaking to analysts yesterday after Nestle had reported its results, Singh said the sale of Alcon and the strength of the Swiss franc “should not overshadow the very strong operating performance”.
He said: “This maintains our momentum from the first quarter and is a true differentiating level of performance. It has been a challenging first half but we need to separate the foreign exchange impact on the reported numbers from the underlying sold operational performance. The foreign exchange movements are a big impact on translation, no question, but they have only a small impact on our underlying operations.”
Nestle’s sales were up in the Americas, Europe and also increased in its third “zone” of Asia, Oceania and Africa.
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By GlobalDataUsing Nestle’s measure of real internal growth – which excludes price changes, M&A and currency movements – sales increased 1.1% in the Americas, climbed 2.8% in Europe and were up 8.8% in the Asia, Oceania and Africa division.
Singh said 2011 had been an “extraordinary year” with the company “making progress” in those countries and regions “that have been making the headlines”, for example, Egypt, Cote d’Ivoire, the Eurozone and North America.
“The real differentiating highlight of the first half of 2011 is that Nestle has not only delivered where you would expect us to deliver but we have also delivered against the odds as our businesses have demonstrated our ability to perform in the toughest of times,” he said.
He pointed to Japan, which was hit by an earthquake, tsunami and a nuclear scare in March. Nestle claimed it was the first food manufacturer to see its distribution fully recover after the disaster.
Singh also said Nestle had managed to grow in the “troubled economies” of southern and western Europe. Nestle’s combined sales in Portugal, Italy, Greece and Spain increased 3.9%.
However, during the first half of the year, Nestle had seen “record raw-material costs”, Singh said. The company increased prices by 2.7% during the first half of the year and this had accelerated to 3.8% in the second quarter.
The Nestle finance chief said the company still expects its commodity costs to increase in the “upper end” of a range of CHF2.5bn to CHF3bn and said it would continue to increase prices during the remainder of the year.
The first six months of 2011 had left Nestle on track for a “record year for capital investments” and Singh pointed to moves to increase capacity in a number of markets.
He also reflected on Nestle’s moves to expand its business via acquisition, including the two proposed deals for majority stakes in Chinese companies Yinlu Foods Group and Hsu Fu Chi.
When asked about Nestle’s acquisition strategy, whether the company saw more opportunities this year and whether there could be more activity by the business in that area, Singh said: “We are looking for M&A opportunities all over the world, in the developed world, in emerging markets and in categories that are of strategic importance to our future. We are focused on bolt-on acquisitions and that is what we will continue to do.
“I would say in our industry we have seen a little bit more activity this year than last year. We’re going to be very discriminate in terms of what is strategically compelling and with good financial logic. That’s how we are pursuing these deals. Some maybe we will win, other we won’t. That’s how we have always executed our M&A strategy for the group.”