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This short report supplements the information contained in Nestlé's Half-Year 2001 Report and under a separate article on its Sectors of Activity.
In the first half of 2001 Nestlé's business continued to prosper. Real Internal growth (RIG) increased from 4.4% to 4.6% and net profits rose as a % of sales from 7.2% to 7.6%. Total sales measured in CHF or Euros (though not in USD) increased about 10%.
RIG growth in Europe of 2.6% reflected strong sales growth combined with lower production costs in ECE.
The financial media cited a significant rise in marketing and administration expenses. Globe project expenses were included in the first half, and cited as a reason for lower gross profits (EBITDA).
However it is likely that Nestlé's rate of growth will slow down in the second half of 2001, mainly due to economic disruptions caused by the recent world events. J. Banfi reports that RIG growth fell sharply in France in recent months, and we might expect a reduction of activity in North America. The key indicator is whether Nestlé's rate of growth declines in Asia/Oceania/Africa, which has been very high in the last few years. Nestlé however is probably less vulnerable to a general economic crisis than less diversified or U.S.-based rivals.
Nestlé recently informed us that it is selling the Levanger milk powder site in Norway with 23 employees, but says that there will be no losses of jobs.
Nestlé has won EU approval for its acquisition of Ralston Purina, subject to conditions (see under Item 3), but does not yet have approval from U.S. authorities. The EU also recently approved the creation of the joint venture with Coca-Cola, called Beverage Partners Worldwide, which will be based in Zurich. The obvious model is Cereal Partners Worldwide based in Morges.
A pending acquisition is that of the 50% of the Ice Cream Partners joint venture with Pillsbury in the United States of which Nestlé already owns 50%. Full ownership would bring control of the Hagen-Dasz brand that would compete with Unilever's Ben&Jerry's in the super-premium ice cream category, including competition in Europe. This deal may be waiting on regulatory approval of General Mill's acquisition of Pillsbury from Diageo.
Nestlé recently announced a major joint venture in the dairy sector with the Fonterra group (formerly the New Zealand Dairy Board). for North America and Latin America. The joint venture would report to a joint supervisory board and cover shelf stable and chilled refrigerated dairy products in the Americas.
In recent months in Latin America, taking advantage of the Mercosur trade pact, Nestlé has closed coffee plants in Argentina and Chile to concentrate in Brazil, concentrated frozen foods in Chile and pet foods in Argentina. Similarly in Southeast Asia, Nestlé from the start has concentrated various sectors in one country to produce for the region (soup in the Philippines, dairy products in Thailand and New Zealand, coffee in Indonesia, etc., and has begun closing factories in Australia.
Nestlé continues to expand in China, creating a strategic joint venture with Haoji, the second largest chicken bouillon producer.
Future Strategy
This speculation is based on recent comments in the financial press based on interviews with CEO Peter Brabeck. These articles contain numerous references to the huge number of Nestlé brands (some 8000) and factories (500 worldwide), and the ambitions of the Globe project that would permit further rationalisation once it has created the tools. The articles point out that Nestlé has not restructured as drastically as have its major competitors Unilever and Danone. Brabeck could be preparing the financial media for an announcement of a restructuring plan that would rationalise the high expenses of the Globe project, which is supposed to save 3 billion CHF annually.