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Sun sets in East: Emerging markets deliver for Nestle in 2011

By Oliver Nieburg , 16-Feb-2012

Food giant Nestle has recorded modest growth in 2011 driven by strong performance in China and other emerging markets leading its CEO to say wealth potential is moving from West to East.

Nestle posted sales of €69.3bn (CHF 83.6bn) in its full-year results, up 7.5% in organic growth on last year, excluding the impact of its Alcon disposal.

Operating profit for the group stood at €10.5bn (CHF 12.5bn) with growth led by emerging markets, which accounted for 41% of sales in the year.

‘The new reality’

Company CEO Paul Buckle said in a press conference: “We are living in a new reality. Wealth creation is moving from West to East.”

Nestle saw growth in emerging markets increase 13.3% compared to 4.4% growth in developed markets.

Sales in the Asian, African and Oceania regions stood at €12.7bn (CHF 15.3bn), which represented 11.9% in organic growth.

In contrast, growth in Europe and the Americas remained in mid-single digits, though Latin America had strong double digit growth with Mexico the highlight.

The company is aiming for 50% of sales in emerging markets by 2020. Buckle said: “I think we will get there faster.”

China

The Chinese market was a highpoint for Nestle in 2011 with sales approaching €4.1bn (CHF 5bn).

The market is expected to grow further through partnerships with domestic firms Yinlu and Hsu Fu established late last year.

According to Buckle, the partnerships will enable Nestle to cater to local consumer preferences.

During the year, the company established a new R&D centre in Beijing in China as it hopes to drive growth through innovation.

Confectionery

In 2011, growth in the confectionery segment was led by emerging markets.

The company oversaw chocolate share gains in the UK, France and Japan.

Performance was also strong for the segment in China, India and Brazil.

Nestle chief financial officer Jim Singh said he expects 60% of sales for confectionery to come from emerging markets in the near future.

2012 outlook

Nestle forecasts organic growth to remain constant at around 5-6% in 2012

It has a four pronged strategy to drive growth which includes nutrition, health and wellness products, premiumisation, out-of-home leadership and affordable popularly positioned products (PPP) in emerging markets.

The company expects growth in emerging markets to continue and will look to increase capacity in these regions.

Buckle said: “Key to our performance lies in innovation”

The company has invested heavily in R&D in recent years with new centres in China, Latin America and India. Further investment in R&D is expected in 2012.

Commodity prices

Buckle said: “Raw material prices are going to stay high”

However, Singh added that while 2012 would be another year of volatility, it would not be to the same extent as was seen in 2011.

Acquisition strategy

Nestle will look to bolt-on acquisition in 2012, but wasn’t prepared to say whether it was in for any larger acquisitions.

Asked during conference why Nestle didn’t move for Pringles before it was snapped up by Kellogg, Buckle said it was not a strategic fit as the company didn’t have a great presence in the salty snacks market.

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