Nestlé to invest RM800m in capex for next 4 years

Company is expected to allocate RM150m-RM200m yearly for products development

By P PREM KUMAR / Pic By ISMAIL CHE RUS

Nestlé (M) Bhd will set aside a capital expenditure (capex) of up to RM800 million for the next four years, as the company continues to innovate new products to extend its market leadership.

CFO Martin Peter Krugel (picture) said the company is expected to allocate a capex of between RM150 million and RM200 million annually during the period for various products development.

He said the company had invested over RM1.1 billion in the past five years, with the highest amount being in 2014 when Nestlé Malaysia finalised its investment to open a global procurement hub in Kuala Lumpur — the third of Nestlé’s in the world.

“After the peak in 2014, we see a normalised capex spending of between RM150 million and RM200 million for the following four years.

“We have enough capacity for now and we feel that there is no need for a heavy investment for a greenfield factory in the coming years,” Krugel told reporters after Nestlé Malaysia’s AGM yesterday.

Nestlé Malaysia CEO Alois Hofbauer said this year, the company would be investing about RM180 million particularly on culinary and confectionery products, as well as on improvements of its manufacturing infrastructure.

He said Nestlé Malaysia, which has a leading market share in the local food and beverages consumption market, is expected to register RM400 million in sales this year as a result of new product launches.

Hofbauer said the company has targeted to launch between 40 and 50 new products this year, including for the on-the-go consumption segment, which consists mainly of confectionery and culinary products.

The targeted RM400 million in sales would represent approximately 10% of Nestlé Malaysia’s domestic sales target.

Last year, Nestlé Malaysia garnered RM380 million in sales from new products introduced in 2017.

Domestic consumption currently contributes about 80% of Nestlé Malaysia’s sales, while the remaining 20% is from the export market.

“We export to over 50 countries, including the Middle East and South-East Asia,” he said, adding that the export value constitutes about RM1 billion.

Nestlé Malaysia manufactures and markets more than 500 halal products globally.

Hofbauer said the company is cautiously optimistic of achieving earnings growth for its current financial year ending Dec 31, 2018, with projected improvement in profit margin amid declining prices of commodities and recovery of the ringgit.

“The gross margin will improve as commodity prices have started to decrease and the ringgit has appreciated. We also have been able to further increase our efficiency and in the supply chain.

“That’s why we’re quite confident that our gross margin will improve compared to 2017 and close to the level achieved in 2016,” he said.

Nestlé Malaysia’s gross margin stood at 50% and 36.7% in 2016 and 2017 respectively.

The firm currently operates a total of seven production facilities. It is currently the most expensive stock on Bursa Malaysia with a share price of RM136.50 at close yesterday.

Share price of Nestlé Malaysia has been steadily declining since Monday, from RM148 per share. Some 212,900 shares were traded yesterday.

The firm’s net profit in the first quarter ended March 31, 2018, increased RM231.22 million from RM230.69 million in the same period a year ago.

Revenue rose 4.38% to RM1.43 billion from RM1.37 billion, driven by higher domestic and export sales.