Rising raw material prices, strong Swiss franc drag growth
Food giant Nestle has reported a 14 per cent decline in its net profit to 4.7 billion Swiss francs ($6.53 billion) in the first half of 2011 due to rising raw material prices coupled with soaring Swiss franc.
The Swiss entity, which has significant presence in India, had posted a net profit of 5.5 billion Swiss francs in the corresponding period last year.
“Nestle continued to make good progress in a period characterised by political and economic instability, natural disasters, rising raw material prices and, yes, a strong Swiss franc. This has made for an extremely tough, volatile and competitive environment.
“But by leveraging our competitive advantages, investing behind our growth drivers and excelling in operational efficiency and effectiveness, we managed to drive growth not only in emerging markets but also in developed countries, especially in Europe,” the company CEO, Mr Paul Bulcke, said in a statement.
Nestle, whose brands include Nespresso, Kit Kat and Maggi, recorded sales of 41 billion Swiss francs in the six months ended June 30, 2011 down from 55.34 billion Swiss francs in the year-ago period.
The company has been pushing a business model — Popularly Positioned Product (PPP) — which includes a deeper distribution into more rural areas of the Asian region to target an additional one million retail outlets by the end of 2012. That led to sales growth of 11.7 per cent in the Asia, Oceania and Africa region to 7.5 billion Swiss francs.
Nestle said Maggi and Nescafe brands performed well in the emerging markets including India.
“As we look forward to the second half of 2011, we expect continued challenging conditions including political and economic instability, volatile raw material prices and subdued consumer confidence in the developed world,” Mr Bulcke said.
However, the company expects that the pricing strategy would benefit in the second half of the year.
“We are therefore confident of achieving organic growth at the top end of the 5 per cent to 6 per cent range, combined with a margin increase in constant currencies,” he added.