Nestle to absorb sugar tax

Impacted range: Aranols says the sugar tax mostly impacts the ready-to-drink products.

KUALA LUMPUR: Nestle (M) Bhd says most of its products will not be hit by the sugar tax imposed by the government effective July 1.

“Basically this little impact (of the sugar tax) that we have, we will find a way to absorb it. We will find a way to defend the price of our products so that the largest possible number of consumers can benefit from them. At this point, we are not increasing prices because of the sugar tax,” chief executive officer Juan Aranols said at the company’s Hari Raya open house yesterday.

“The impact (to Nestle) is very limited and credit is due to the people who work on these products. The reality is that we are within the threshold limits for most of our products and we will continue to work to bring the remainder products that are impacted by the sugar tax to be within the (non-taxable) limit,” he added.

Aranols said the sugar tax mostly impacted the ready-to-drink products: the coffee range such as Nescafe that is being impacted.

“The product price would be the same at this point and we will absorb it. As of today and for the next few months, we are not seeing any significant price increase (due to the sugar tax),” Aranols said.

He noted that other products such as Milo were within the sugar limits that have been defined by the government.

Asked to elaborate further on how the absorbtion of the sugar tax would impact Nestle’s finances, Aranols said: “Tiny (impact). It is in the limits of what we can absorb without impacting the consumers.”

Commenting on its outlook moving forward, Aranols said that there were still ample growth opportunities within the Malaysian market for the company.

“We keep working very hard to capture this growth. We are confident of growth in Malaysia despite tough competition. We need to earn to win everyday,” he said.

UOBKayHian Research (UOBKH) said in its report that Nestle’s share price has held up well despite commanding excessively high valuations.

This is due to the defensive nature of the consumer sector which has outperformed the FBM KLCI, registering a growth of 3.1% in the year-to-date period (vs the FBM KLCI’s -1.0%), UOBKH said.

To recap, the proposed sugar tax which had been postponed from April 1 to July 1, 2019, is an excise duty of 40 sen per litre.

This excise duty is being imposed on non-alcoholic beverages containing added sugar of more than 5gm per 100ml, and fruit or vegetable juices containing added sugar of more than 12gm per 100ml.

There is also an increase in the threshold for milk-based beverages (those which contain lactose) to 7gm per 100ml from 5g per 100ml.

The delay was to allow more time for re-formularisation, UOBKH said.

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