Nestle to invest in UK sites for now

Nestle factory in Halifax
Nestle factory in Halifax

CONFECTIONERY GIANT ​Nestle ​said it will make no ​changes to​ its investment plans for Britain ​following the Brexit vote before details of the UK’s exit from the European Union become clear​er.

​​Nestl​e​ employs 1,800 people in York​, ​where it makes up to seven million KitKat bars a day​, ​​and 500 in Halifax​, where it makes its famous Quality Street​ and After Eight chocolates. ​

​Nestle’s c​hief executive Paul Bulcke said​: ​“Let’s first let the dust settle​.” He added that the group’s investment in the UK​ ​is for the long term.

Mr Bulcke said Nestle’s UK team is looking at all options to deal with the fall in the pound, but he is not forecasting immediate price increases. This is in contrast to rival Unilever, whose push to raise prices in response to the falling pound landed it in a public spat, dubbed ‘Marmitegate’, with Tesco last week.

“The pound is going south and that is going to have some effect on certain imports and you cannot defy gravity,” said Mr Bulcke.

“But I don’t say ... our costs go up 1 per cent – bang, we pass that straight on to the consumer – they would punish you.”

Nestle ​is the latest company to ​suffer from the ​fall in the pound and the ​global slowdown ​which is hitting food​ ​manufacturers​.

T​he firm reported​ its weakest underlying sales growth in more than a decade and ​has cut its outlook for the year, saying it now expect​s​ full-year sales to rise by 3.5 per​ ​cent after posting an increase of 3.3 per​ ​cent for the first nine months.

Analysts had on average expected organic growth, which strips out foreign exchange and acquisitions, of 3.7 per cent, according to a Reuters poll.

​Nestle has been struggling with price deflation in Europe amid fierce competition among supermarkets and weak commodity prices. Tough conditions have also persisted in key markets like China and Brazil.

Nestle said price increases in Western Europe could come later in 2017 if commodity prices continue to rise. The group said it ​will prioritise volume increases in what it described as a soft environment.

Nestle’s nine-month sales rose ​slightly ​to ​£54bn from ​£53.5bn a year earlier.

The figure lagged the average analyst estimate of ​£54.4bn. Analysts had on average expected organic growth​, which strips out the impact of acquisitions and currency swings​, of 3.7 per​ ​cent.

​Analyst Jon Cox at Kepler Cheuvreux​ said:​ “Europe looks like it was under pressure during the quarter while China weakness is weighing on Asia despite the recovery in India​. The cut in guidance is disappointing although all of the staples companies looked like they have had a tough quarter – they need to find relevance with consumers.”

A​nalysts at Liberum said in a note: “Nestl​e​’s ​third quarter​ call highlighted that underlying trends are unlikely to materially change in ​the fourth quarter.

“Guidance for 3.5​ per cent​ organic sales growth in 2016 implies ​a ​60​ basis points​ acceleration in the fourth quarter​ which seems challenging in light of continued guidance downgrades, limited visibility and deflation.

​“​Trading operating margin will reflect higher restructuring costs as Nestl​e​ seeks to accelerate structural cost savings initiatives although clearly this weighs on margin growth.

“​In our view, 2016’s pressures will last into ​the first half of 2017 and matters could get worse before they get better. Investors can hold out hope that the worse it gets the more likely incoming CEO Schneider will take aggressive action. However, it may get worse before it gets better.​”