Nestle helped by emerging market boom

City A.M. Reporter
NESTLE, the world’s biggest food maker, said strong demand in emerging markets would help it offset a steep rise in input costs in 2011 after it beat sales forecasts for 2010.

The maker of Nescafe coffee and Gerber baby food said it was well placed to cope with rising commodity prices by making cost savings and pushing up its own prices.

“We saw a significant uptick in raw material prices in the second half,” finance chief Jim Singh said yesterday. “We expect SwFr2.5-3bn (£1.6-2bn) additional input costs in 2011”.

The increase would be about 8-10 per cent on a cost base of about SwFR30bn, a Nestle spokesman said.

Nestle can rely on its strong presence in emerging markets, where underlying sales growth was 11.5 per cent in 2010, and the appeal of brands such as KitKat chocolate bars to offset rising costs for milk, cocoa, coffee, sugar and grain.

“I cannot tell you what the pricing will be, that depends on the different markets,” Singh said.

Underlying sales growth in 2010 rose six per cent to beat a forecast of 5.5 per cent, and accelerated to 6.4 per cent in the fourth quarter, making the group confident of meeting its long-standing target of five to six per cent growth in 2011.

Full-year net profit at Nestle rose to SwFr34.2bn, including the proceeds from the sale of its remaining stake in eyecare group Alcon to pharma group Novartis.

Singh said the group could use part of its cash for smaller acquisitions, particularly in its nutrition business, as it intends to boost its medical food activities. Nestle aims to conclude its current SwFr10bn buyback in the first half of the year and will subsequently decide on a new one, Singh said.