Nestlé worries about Switzerland’s policy decisions
SWITZERLAND is losing business appeal because of its referendum to restrict immigration and the strength of its currency, says Nestlé CEO Paul Bulcke.
“If we would have to expand something here, I would think twice,” Mr Bulcke said during a press conference on full-year results yesterday.
Swiss voters last year approved a plan to restrict immigration, while more recently the Swiss National Bank unleashed a surge in the currency by abruptly abandoning an exchange-rate cap. Mr Bulcke said Nestlé might not have picked the Swiss town of Romont as the site for a new Nespresso factory if it was making the decision now.
“The Swiss franc is part of it,” he said.
“But there are other dimensions in my eyes that are even more important: immigration. I have people here that run a multinational. I need people who understand these countries.”
Nestlé was launched almost 150 years ago making infant formula on the shores of Lake Geneva.
Mr Bulcke’s comments highlight the challenge Switzerland has in continuing to attract business investment. The Swiss economy has outperformed the neighbouring euro area every quarter since 2012.
“Switzerland needs to think about that.” Nestlé does not intend to move businesses out of the country and is not planning job cuts, he said. However, he is not sure if Nestlé will replace all employees when they leave.
More than half of the company’s research costs are in Switzerland, Mr Bulcke said.
The KitKat maker has opened research centres elsewhere in the world to avoid concentrating too much in one country, he said.
Nestlé has 10 plants in Switzerland, which export about two-thirds of their production. The company gets less than 2% of total revenue from its home country, and has about 10,000 employees in Switzerland, of a total of 339,000.
“We’re going to work on that to see how we can soften the impact of the Swiss franc’s revaluation,” Mr Bulcke said.
Nestlé forecast sales growth of about 5% this year, at the low end of its long-term goal, as it grapples with deflation in Europe and a slowdown in China. The company’s long-term model calls for growth of 5% to 6%, but it fell below that last year, coming in at 4.5%.
Mr Bulcke called the results “solid” in a tough environment. He said 2015 would be similar, but that Nestlé still aimed for growth “around 5%”, language analysts perceived as giving some wiggle room to again miss its long-term target.
“I think in the volatile world we’re living in, that’s appropriate,” Mr Bulcke said.
“We are aiming as an organisation for 5% growth… we’ll see how far we get.”
The goal includes improvements in margins, helped by cost savings and efforts to turn around the struggling North American frozen-foods business, and food business in China.
Nestlé also proposed to raise its dividend to Sf2.20 per share from Sf2.15.
“The dividend increase is the lowest in years; however, it still allows an attractive dividend yield,” said Vontobel analyst Jean-Philippe Bertschy.
“Nestlé remains best-in-class in the industry, and a core holding in our view.”
Nestlé’s organic sales, which exclude currency swings and acquisitions, were in line with analysts’ average expectation, a Reuters poll found, after Nestlé signalled in October it was likely to fall short of its 5% goal.
Net profit rose Sf4.4bn to Sf14.5bn last year, helped by price increases, cost-savings and the profit realised on the sale of shares in L’Oreal.
The scale of Nestlé’s portfolio, which includes KitKat chocolate and Nescafe coffee, as well as bottled water and pet food, allows it to deliver consistent results and often outperform rivals. Indeed, its 2014 growth was greater than that of Unilever and Mondelez International.
The global consumer goods sector has toned down its expectations as once-hot economies such as China and Brazil have slowed, and cost-conscious shoppers in Europe and North America remain cautious.
Still, Nestlé’s shares trade at nearly 22 times earnings, only a slight premium to its peers, as yield-starved investors have turned to consumer staples for their reliable earnings.
Full-year organic sales rose 5.4% in the Americas, 1.9% in Europe and 5.7% in Asia, Oceania and Africa.