Raw material costs and currency woes lead to profits slump at Nestlé Malaysia

By Lester J Wan

- Last updated on GMT

The firm saw q3 profits dip by one-quarter.
The firm saw q3 profits dip by one-quarter.

Related tags: Southeast asia

Net profits at Nestlé (Malaysia) dropped by 25% during the latest quarter, down from RM160.71m this time last year to RM119.75m.

The company, which employs more than 5500 people and manufactures as well as markets more than 500 halal products in Malaysia, said increases in raw material prices and the devaluation of the ringgit had taken their toll.

While Q3 revenue climbed 4.8% to RM1.32bn on the back of domestic and export sales, which grew 4.2% and 6.8% respectively, the company was hit hard by the spike in prices of sugar, milk powder and coffee beans, and by the flagging currency.

Nonetheless, Nestlé (Malaysia) remained optimistic.

In a press statement, CEO Alois Hofbauer said they had anticipated continuing challenges from these “external headwinds”​ and still delivered strong Q3 and nine-month sales growth against an exceptionally high sales period a year ago.

He said they cushioned the impact with internal increases in efficiency, overall diligent cost management, as well as clear marketing strategies.

“We had also foreseen the impact from challenging market conditions this year on the business and put clear plans in place to mitigate this. As a result, the Group continued to maintain a solid profit situation,” ​said Hofbauer.

Trade promotions

In Nestlé (Malaysia)’s report, it stated: “The commendable growth was driven by the solid domestic and export performance, which grew at 4.0% and 5.5% respectively.”

The company said that despite continued weak consumer sentiment, it has invested in effective marketing and trade promotions on select product categories, generating demand for its products and strengthening the leading position of many of its product categories.

Hofbauer and Nestlé (Malaysia) both indicated they expect a significantly higher Q4 net profit than last year.

In its exchange filing, Nestlé (Malaysia) credited the strong export performance to having benefited from the growth registered by the Nestlé affiliates in the Asean region.

In spite of the drop in profits, Nestlé (Malaysia) has declared a second net interim dividend of RM0.70 per share for the financial year ending Dec 31, 2017.

Earlier this year the firm moved to bolster its e-commerce offering to boost sales by partnering with Shopee, a mobile-first marketplace, partner in South East Asia and Taiwan.

“The e-commerce channel is one of the most powerful growth engines in Nestlé Malaysia. Shopee’s  shopping experience has made it a platform for us to collaborate with and we look forward to establishing new standards together,”​ said Joshua Zhu, head of e-commerce, Nestlé Malaysia, at the time.

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