Nestle ready to face headwinds

KUALA LUMPUR: Nestle (Malaysia) Bhd is confident that it can weather the headwinds of 2017 including high input costs and challenging consumer confidence levels by increasing its operational efficiency.
Its CFO Martin Peter Krugel said commodity prices have started to increase in the first quarter this year but it has in place the FIT strategy to “fuel, innovate and transform to grow”, focusing on enhancing efficiencies and encouraging innovation throughout the company with highly engaged employees to fuel its growth.
“We’re confident that with our FIT strategy, we’ll be able to compensate for these price increases from the commodity side via efficiency increase in our factories and supply chain. It’s important for us because we’d like to avoid or at least to defer as long as possible, the price increase to consumers,” he told a press conference after its AGM yesterday.
He said the strategy is working out well, as it posted lower cost of sales in Q1 than the cost of sales in Q1 2016.
“This means efficiency increases, hence compensating the negative effects from commodities and the devalued ringgit,” said Krugel.
He said that the higher 2017 capex, which it has earmarked at RM200 million this year, will be a balanced spread across all product categories as well as for the refurbishment of its factories and warehouses. Last year, Nestle’s capex was RM123 million.
Meanwhile, managing director Alois Hofbauer said the current consumer confidence in Malaysia is still subdued and despite a relatively subdued consumer sentiment the company has been able to grow.
In 2016, sales were up 4.7% at RM5 billion, of which 79.1% came domestically and 20.9% from exports. Close to RM400 million sales came from innovation in 2016, which contributed 10% to its total domestic sales in 2016.
“We’ve proven that even in the most adverse environment, we can perform well,” said Hofbauer, adding that 2017 is going to be a challenging year but the strong Q1 2017 results showed that it is positive of delivering good results as it goes.
“Price increase is our last resort,” said Hofbauer, adding that some products that are made up of a lot of raw materials from overseas may see its prices go up, but noted that the company “will do the price increase in the most sensible and sensitive way”.
Nestle, the top food and beverage advertiser last year with an advertising expenditure (adex) of RM493 million, expects to maintain the adex for this year at the level of 2016. He said besides traditional media, digital advertising has also increased.
“We’d like to be a part of the top advertising spenders in the country. It’s been serving us well in 2016 and it’s important to communicate through all channels,” said Hofbauer.