Nestlé sales hit by franc strength

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Swiss food group Nestlé has reported solid organic growth for the
first quarter of 2003, stressing the importance of product
innovation during the period. But actual sales declined as a result
of the continued strength of the Swiss franc.

Organic growth of 4.6 per cent and a 6.3 per cent hike in revenues at constant exchange rates were the highlights of the first quarter of 2003 for giant Swiss food group Nestlé. The good performance in a difficult economic period was put down to the company's "successful drive for innovation and strong market positions".

But the organic growth masked a 7.5 per cent decline in actual sales when reported in Swiss francs, due entirely to a 13.8 per cent negative foreign exchange impact. Turnover for the quarter was SF19.7 billion (€13bn).

Peter Brabeck, CEO of Nestlé, said: "Our consolidated sales clearly took a hit from the strong Swiss franc, but we expect this effect to taper off in the course of the year. We are confident that the rest of the year will bring an acceleration of growth and that we will therefore achieve our stated objective of improving the group's performance in constant currencies for 2003."

As well as the foreign exchange factor, sales growth was impacted by the late Easter date and the competitive situation in Japan, Brabeck said. Nestlé also raised prices in several product categories to reflect cost increases and maintain its margins, with a subsequent impact on sales.

"Nevertheless, the group expects its strong brands, its broad distribution network and its capacity for innovation to lead to an improvement in sales growth as the year goes on,"​ Brabeck said.

Sales in Europe reached SF6.8 billion, but were affected by the late Easter (in the second quarter of 2003 compared to the first in 2002) due to the importance of Nestlé's chocolate and ice cream sales in that zone.

Among the product groups, beverages, especially soluble coffee and coffee mixes under the Nescafé brand, and powdered beverages, under brands such as Milo and Nesquik, did well during the quarter, as did the speciality roast and ground coffees. The beverage arm saw sales rise 6 per cent to SF5.32 billion in constant terms.

There was good progress also in the chilled and the frozen culinary sector, with the recently acquired Chef America business achieving double-digit growth. The performance of chocolate and confectionery was again impacted by the late Easter, as well as by price increases, and sales from this division were down 1.7 per cent to SF2.4 billion.

Meanwhile, Nestlé​ has announced the decision to close its Malaysian sugar confectionery business after it failed to contribute to the company's profits. From 1 May, Nestlé will cease production and marketing of a range of products including hard boiled sweets, soft chews and fruit pastilles under the brand names Frutips and Allen's.

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