Nestlé results show Maggi incident still hurts

By Laurence Gibbons

- Last updated on GMT

Nestlé is still feeling the impact of the Maggi noodles incident
Nestlé is still feeling the impact of the Maggi noodles incident

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Nestlé’s still suffering from its Indian Maggi noodle recall and has lost touch with the Chinese consumer, hitting growth for the global food and drink manufacturer, according to market analysts.

Despite its recording growth of 4.2% and sales of 88bn Swiss francs (£62.33bn), figures fell short of its forecast, for the 52 weeks to January 1 2015.

A recall of Nestlé’s Maggi noodles over dangerous levels of lead cost the business £127M and serious reputational damage after India banned the product.

Nestlé was struggling with the weakened demand in the second largest economy – China, Euromonitor International senior food analyst Lianne van den Bos claimed.

“In China, Nestlé admitted that they lost touch with the market,”​ she said.

Disappointing sales

“China represents the company’s third largest packaged food market which has accounted for 20% of its global growth alone over 2009–2014.

“Some of the reasons given for these disappointing sales were failing to come up with a product offer that is adapted to a changing consumer that sits between the traditional and the new generation.”

Nestlé’s results in numbers

  • £62.33bn sales
  • 4.2% organic growth
  • 15.1% trading operating profit margin increase
  • 3% share price decrease

Nestlé was failing to tap into the Chinese tradition of gift giving, which Ferrero has exploited in the country. The Italian luxury chocolate maker has outperformed Nestlé by 19% in the market in 2014.

Nestlé ceo Paul Bulcke said the firm had maintained market share in the majority of its categories in a challenging environment.

Top end of the food industry

“Our free cash flow generation was again at the top end of the food industry at 11.2% of sales, as a result of our focus on margins with discipline in capital expenditure and working capital,”​ he said.

“We anticipate that our trading environment in 2016 will be similar to previous years with even softer pricing. As such we expect to deliver organic growth in line with 2015, with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency.”

Nestlé also managed to “turn around” ​its frozen food business in the US by disposing of non-core brands and forging a new partnership to create a leading player in ice cream, Bulcke claimed.

Ready meals and frozen processed food contribute significantly to the group’s past performance with 22% of total sales growth.

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