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Saturday May 11, 2013

Nestlé plans to produce more innovative food products

By LEONG HUNG YEE
hungyee@thestar.com.my


Hofbauer: ‘The first quarter was a good quarter. Not only did we do well, we have a decent start for the year’. Hofbauer: ‘The first quarter was a good quarter. Not only did we do well, we have a decent start for the year’.

YOU could probably be contributing to the world's largest food manufacturer, Nestl while reading this, either over coffee during your breakfast or while you eat your cereal.

Nestl (M) Bhd managing director Alois Hofbauer who has recently took over the helm in February says Nestl which celebrated its 100th anniversary in Malaysia last year, is a “powerful company and has gained consumers trust” over the years.

“Nestle is here to stay for good or bad times. We will continue to provide nutritious and healthy food and beverages in line with our motto of Good Food, Good Life,” he tells StarBizWeek.

Hofbauer, an Austrian relocated to Malaysia from Sri Lanka, says Nestl Malaysia has deep roots in this country. “We are like the local multinational company. Many see us as a local MNC.”

Nestl started out in Penang in 1912 as the Anglo-Swiss Condensed Milk Company and sold one product the Milkmaid brand condensed milk, or as it was more popularly known, “susu chap junjung”.

Today the food giant produces lot of foodstuff and beverages from instant noodles to baby cereal. It is responsible for manufacturing brands such as Milo, Nescafe, Maggi, Kit Kat and Nespray.

The Damansara-based food giant manufactures its products in seven factories here and two factories in Singapore.

Hofbauer explains that Nestl Malaysia had a good first quarter ended March 31. “The first quarter was a good quarter. Not only did we do well, we have a decent start for the year. Nestle's model is to improve year-on-year on our top and bottomline,” he says.

Nestle reported a net profit of RM184.4mil, or 78.64 sen earnings per share on revenue of RM1.22bil in the first quarter ended March 31.

Going forward, Hofbauer says earnings driver would come from three directions continued growth from its existing products, innovative products and export markets.

He adds that Nestl will continue to grow and come out with more innovative products for its Milo, Nescafe and Maggi noodles. “We recently introduced Maggi Magic Meals recipe mix. It is a chicken dish in the most convenient way,” Hofbauer says.

Nestle, Hofbauer says, looks at innovation in two ways. One is for consumers through innovation and renovation of the end-products. The other innovative products include Milo Sejuk, a cold water-soluble Milo mix and the Dolce Gusto brewing machine that makes coffee from capsules.

Hofbauer says exports seem to have picked up. Nestle saw demand rise in its export markets in the first quarter ended March 31 compared with the marginal decline experienced in the fourth quarter 2012. He says Malaysia's halal certification which is recognised around the world gave it an advantage as well enabling it to export to a lot of markets.

Nestle's confectionery such as Kit Kat chocolate snacks is also one of the fastest-growing product segments. “We have re-launched our Kit Kat confectionery products with a new range and have made it more affordable. In the past five to six years, it had a relatively flattish growth. After the re-launched, with fresh products, it is now growing fast,” Hofbauer says.

Nestl is expected to add more manufacturing capacities in its plant in Chembong in Negri Sembilan. It is also working on details on setting up a manufacturing plant adjacent to its Shah Alam plant.

For the current financial year ending Dec 31, 2013, Nestle has earmarked more than RM200mil as capital expenditure (capex) to boost its operations.

“Bulk of the capex will be invested in liquid drinks and an expansion of the confectionery segment,” Hofbauer says, adding that last year the company spent about RM160mil in capex for the expansion of its culinary products and confectionery division.

Hofbauer says the group's new plant would begin commercialisation in the first half of 2014. He adds that the new plant in Shah Alam would be mainly for liquid drink products.

Milo is certainly Nestle's success story, commanding a lion's share of the health drink market for decades. Despite its success, Hofbauer says Nestl still has Milo under its watchful eyes.

“Today Milo is much bigger than it was years ago. We have some 90% market share of the fast-growing health food drinks market,” he says.

Nestl has been launching a range of Milo products catering to various groups of consumers including Milo Fuze and ready-to-drink Milo in cans.

In 2012, the food beverages segment accounted for RM3.74bil, or 82% of Nestle's total turnover of RM4.55bil. For the full financial year 2012, Nestle reported a net profit of RM505.3mil, or 215.50 sen earnings per share on revenue of RM4.55bil.

Hofbauer says Milo and Nescafe are its star performers. He adds that Nestl liquid drinks segment have also gained traction with strong growth in 2012 and gained market share.

Nestl remains concerned over the high price of raw materials. Raw materials and packaging account for about 50% of production costs depending on products, Hofbauer says.

“Prices have been relatively stable in the past six to eight months. It is not so volatile now but it remains high,” he says, adding that Nestl would focus on innovation and revamping its product line-up.

Hofbauer says passing on the cost to consumers would be the “last resort” and it would continue on its cost management.

“We have embarked on the Nestl Continuous Excellence programme and all staff on all levels look into ways to be more productive and reduce wastage among others. It has been very successful and we are rolling in to non-production related divisions as well.

“We want to have a lean enterprise. It is a never ending process,” he says.

Nestl shares have gained more than 16% from last May to RM65 yesterday. Nestle paid a total net dividend of RM2.10 for 2012 translating into a dividend yield of 3.3%

Admittedly, Hofbauer says the group was rather boring but it has paying generous dividends to shareholders. Over the past five years, Nestl has paid more than 90% of its net profit to shareholders.

“More importantly, not only did shareholders get dividends, they also got a nice appreciation in Nestle's share price,” he declares.

Hofbauer says Nestle's ability to generate cash flow enables it to reward shareholders. “Profit is an opinion. Cash flow generation is a fact.”

On a lighter note, Hofbauer, who has been with the Nestle group of companies since 1990, still finds joy with his work. “I don't work regular hours. I will be reading emails in the morning. You have to like what you do, or it'll be a painful scene,” he says.

At his first AGM held two weeks ago, Hofbauer found himself explaining to shareholders where Austria is as many confused him as being an Australian.

“So far, it has been quite good. People thought I'm from Australia. I have to explain to people we don't have the kangaroo in Austria,” he says.

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