Nestle unscathed by SARS threat


  • Business
  • Thursday, 24 Apr 2003

BY JAGDEV SINGH SIDHU

THE outbreak of Severe Acute Respiratory Syndrome (SARS) and the war in Iraq have had no negative impact on Nestle (M) Bhd's business, said its managing director Jose Lopez, and the company is satisfied with how it has performed so far this year. 

Lopez said the closure of the company's sugar confectionery business from May 1 would save it money going forward, as this business had lost RM10mil last year. Nestle posted a net profit of RM182.6mil for 2002. 

“There is so far no material impact of these events (SARS and the Iraq war) on our business, and no change to our long-term strategies,'' Lopez told the media after the company's AGM in Petaling Jaya yesterday. 

He said SARS had an impact on sales to outlets related to the tourism industry, like hotels and airlines, but the immediate result of a drop-off in such sales was a pick-up in sales to homes.  

Jose Lopez

“One can argue that Nestle would be better off because fewer Nestle goods are consumed in restaurants than in the home,'' he said. 

“My numbers are generally well in line with my plans. So far, for the first part of the year, we are doing, if anything, slightly better than what we had expected,'' he added. 

Lopez said Nestle was not changing any of its plans for the year even though consumer sentiment had been affected by global events. 

He said the company would look at tailoring its marketing strategies to deal with weakening consumer sentiment, but they would fall in line with the group's long-term plans.  

Commenting on the closure of the company's sugar confectionery plant, which was announced on Monday, Lopez said the sugar confectionery business was not growing; market volume in Malaysia had declined by 9% last year. 

“We have not been able to generate sufficient interest. Malaysians don't fancy having a piece of sugar in their mouths all the time,'' he said, adding that it was the same for neighbouring countries. 

He said the sugar confectionery business could not generate sufficient funds to not only offset the investment in the plant but also grow the brand. 

“The closure of this plant was more marketing and consumer demand driven,'' he said. 

The sugar confectionery plant employs 53 people, and Lopez said most of them would not lose their jobs. 

He said one of the reasons profits were under pressure last year was due to the execution of the company's GLOBE programme.  

GLOBE would enable Nestle to implement best practices and integrate common business processes to improve operational efficiency and business competency. 

“This has paid off and this year we are running the company in a much more stable environment than we had last year. Our factories and supply chain are running smoothly and much less waste is generated by the company,'' he said. 

“We know what to do, and how to improve margins. The numbers will come.'' 

Lopez said the profits were too stable for his taste and margins should increase this year. 

“We should see strategies this year pointing in the right direction,'' he said. 

Even though commodity prices had fluctuated wildly for the year so far, Lopez said, Nestle would not react with knee-jerk moves. He said Nestle was using some lower-priced commodities purchased in 2002. 

The main raw materials used by Nestle are cocoa, coffee, palm oil, wheat flour, sugar and milk. 

“The way things are done is to continuously look at adding value to our products that call for higher prices. These are in the areas of nutrition or better quality,'' he said. 

In terms of exports, which grew by 44% last year, Lopez said: “The export business is primarily destined to improve the capacity utilisation of our assets.'' 

He said South-East Asia represented a growth area for Nestle globally, and operations in countries such as Thailand and Indonesia had improved. 

“Companies in the region are performing well and ... I'd rather expect an increase in growth,'' he said. 

Commenting on the emergence of hypermarkets in Malaysia, Lopez said there had been a shift in shopping patterns, which he described as “not huge,” and there were advantages and disadvantages from that change. 

“There is a bit more pressure on the margins, but I can do many more activities, like points of purchase, and communication with retailers,'' he said. 

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