Nestle CEO upbeat as emerging markets boom

By David Jones and Silke Koltrowitz

VEVEY, Switzerland (BestGrowthStock) – The world’s biggest food group, Nestle (NESN.VX: ), expects fast-growing emerging markets to drive future growth, helped by new products aimed at aging populations in mature markets.

The maker of Nescafe coffee and Kitkat chocolate bar said, despite debt problems in southern Europe and budget cutbacks across the continent, it remains optimistic on growth and would stick to its annual worldwide “Nestle model” for 5 to 6 percent growth over time.

“The developed world has a few things to iron out but the worldwide growth is there thanks to the developing markets,” Nestle Chief Executive Paul Bulcke told Reuters in an interview at the group’s headquarters in Vevey on the northern shores of Lake Geneva in Switzerland.

He said forecasts for world growth of 3 to 4 percent this year were encouraging, and although western Europe was more depressed there was growth in certain categories such as medical nutrition for the elderly and home coffee systems like Nespresso and Dolce Gusto.

“I’m a born optimist, everybody says that. But you go for opportunities, there’s always opportunities. You can have a bit of turbulence here and there but I see opportunities,” he added.

Many analysts believe Nestle shares are undervalued due to uncertainty surrounding its 30 percent stake in L’Oreal (OREP.PA: ), the world’s biggest cosmetics group, where it has the rights to 87-year-old Liliane Bettencourt’s 31-percent stake, worth around $20 billion, if her family want to sell.

Bulcke, however, said there were no plans to change the “status quo” over its stake in Paris-based L’Oreal, which Nestle has held for over 30 years.

Nestle has plenty of firepower, with $28 billion from the sale of its stake in eyecare group Alcon (ACL.N: ), but seems more focused on share buybacks, saying last week it had completed a 25 billion Swiss franc ($23.41 billion) program launched in August 2007 and is about to start a further 10 billion franc buyback.


Bulcke said the group would continue its policy of returning cash to shareholders by dividends and share buybacks, while investing in its business and making small bolt-on acquisitions.

In April, the Perrier water and Buitoni sauces group beat forecasts with a 6.5 percent rise in underlying first-quarter sales, with core food and beverages growing 6.1 percent, boosted by surprisingly good growth in Western Europe.

The Swiss giant has stuck to its forecast to see higher growth in 2010 from its food and beverage business, compared with 3.9 percent growth in 2009, and for a rise in 2010 operating, or EBIT, margins in constant currency from 2009’s 14.6 percent.

Currently, analysts are looking for underlying or organic growth in 2010 of 5 percent or more, in line with the long-term Nestle model, but Bulcke is cautious as the group faces tough comparisons against a stronger last 3-4 months of 2009.

“Yes, we are cautious because we always are, we are a Swiss company. We are not doing speculation. I deliver,” he said.

Bulcke took over as CEO in April 2008 from Peter Brabeck, who has continued as chairman, and Bulcke, fluent in six languages, is also fluent in the no-nonsense Swiss way of business, with a focus on success, efficiency and consistency.

The 55-year old Belgian, who joined Nestle to see the world and stayed 31 years, has had stints in South America and Eastern Europe before heading up the Americas region and turning it into Nestle’s biggest and most profitable market.

He speaks from his office in the elegant resort town on the shore of Lake Geneva, an hour east of Geneva by train, where German pharmacist Henri Nestle invented his baby milk formula in 1867 and saved the life of a neighbor’s child, and since then the group has expanded to sell into every country in the world, including North Korea.

It is emerging markets like North Korea where Nestle is looking to expand sales, and Bulcke sees them making up 45 percent of group sales in ten years time from 35 percent now, as they are growing at twice the rate of developed markets.

He is positive on China after the nation broke the yuan’s two-year peg to the dollar and set the Chinese currency for likely appreciation, and sees good momentum in Latin America and stability in Africa.

Nestle shares trimmed early losses to close down 0.47 percent at 53.30 Swiss francs, while L’Oreal shares rose 0.77 percent to end at 83.54 euros.

Stock Market Research

($1=1.068 Swiss Franc)

(Editing by David Holmes and Simon Jessop)

Nestle CEO upbeat as emerging markets boom