From Neue Zürcher Zeitung's themarket.ch, October 4:
Nestlé-CEO: «We Are Ready to Make Acquisitions in Any of Our Business Lines»
Mark Schneider, CEO of the world's largest food and beverage company, talks about inflationary pressures, his growth strategy and explains why the long-term momentum in businesses such as coffee and pet care is unbroken.
Cost inflation, supply shortages, rising wages, a looming recession: Nestlé has to contend with all the developments that are currently keeping the global financial markets in thrall.
CEO Mark Schneider, who has been in office for almost six years, won't let this distract him from his strategy. To be sure, cost inflation is hitting the company hard, and in view of a likely recession, Nestlé will have to decide on a product-by-product basis where prices can be increased. But Schneider continues to look to the future: «Even before the recent market setbacks, we had said that we wanted to focus more on acquisitions again. We don’t want to shrink Nestlé in the long run, we want to grow», he says.
In an in-depth interview with The Market NZZ, Schneider explains what ambitions Nestlé has for the growth division Health Science, plant-based meat substitute products, or the expansion of online sales channels. Schneider also sends a clear message to shareholders:«If you’ve managed a rising dividend trend for 27 years and never lowered the dividendfor 60 years, then stability of expectations is a great asset. We will not shake that.»Mr. Schneider, the past two years have been characterized by considerable cost inflation for Nestlé. Do you already see cost pressure easing?
No, unfortunately I can’t give the all-clear yet. The pressure has been building steadily over the past 18 months, and in the meantime inflation for our industry is based on many sources. The starting point at the beginning of 2021 was a simultaneous rise in oil prices and capacity shortages in ocean freight, which caused the cost of overseas shipments to explode. Then we saw several sharp price increases for agricultural commodities during 2021, think of the crop failure for coffee in Brazil, for example. In the US, inflationary pressures at the turn of the year translated into higher wage demands from employees; concessions had to be made in order to ensure production lines or distribution centers would run smoothly. This year, February 24 marked the beginning of another new era. Energy prices skyrocketed again, and for our business in particular there was the issue of supply shortfalls of agricultural goods from Ukraine, such as wheat or sunflower oil.
Prices for transport and certain commodities are falling again. Isn’t that having an impact on your business?
Some raw materials have weakened, others are still drifting upward. A portion of our commodities are bought on a hedged basis, which means that even if spot prices fall, it takes months for this to show up in our numbers. We haven’t seen the full effect of wage inflation yet, that will be an issue for 2023. Our gross profit margin has dropped by almost three percentage points between fiscal 2020 and the first half of 2022. Gross margin, to me, is the most honest gauge between the prices we have been able to charge ourselves and what we have had to accept in price increases. We have been hit hard by inflation, like everyone else. We try to responsibly pass on some of it to our consumers because we have to keep our own cost structure in check.
When you say the effect of wage inflation won’t come through until 2023, are we talking about a global phenomenon, or is that primarily in the US?....
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