Nestle says well placed for price hikes, slowdown

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ORBE, Switzerland, Nov 21 (Reuters) Nestle is well prepared to digest increases in agricultural prices and an economic slowdown and has not been affected at all by the subprime crisis, CEO Peter Brabeck said on Wednesday.

Brabeck said the world's largest food company would increase its operating profit margin this year and next and would not be pressured by record increases in prices for some inputs like milk and sugar into altering its earnings targets.

''We will not change our targets for next year,'' Brabeck told journalists on the sidelines of a media event. ''We've had time to prepare ourselves and put in place good hedging mechanisms.'' But rising commodity prices will weigh more heavily on Nestle's own cost structure in the first half of 2008 than it has so far in 2007 as the costlier goods go through the company's production process to store shelves, he said.

''The first half of next year we will have a stronger impact from commodity prices in our cost structure, and then in the second half it will come down,'' Brabeck said.

Brabeck said the group had undertaken a thorough review of all treasury and financial operations that could have been affected in some way by the subprime crisis, and found no impact at all.

He did not foresee further price increases in farm goods like cocoa, sugar and milk in 2008 similar to those seen in 2007.

''My forecast for 2008 is that we will not have another increase in those prices, if we are talking about the spot price,'' he said.

Brabeck has reshaped Nestle through a series of acquisitions from a mass-producer of milk powder and breakfast cereal into the No. 2 worldwide for specialist nutrition for babies, hospital patients and ''pro-active health seekers.'' He has also shunned snack foods for probiotic yoghurts, for example, and turned up his nose at sweetened carbonated drinks in favour of mineral waters like Henniez and Perrier.

As a result, the group has been able to withstand increases in input costs that have eroded margins at other big food groups.

Earlier on Wednesday, the group unveiled details of a new push into prepared foods for restaurants and hotels, saying it aimed to double revenue from the new division in 10 years to over 12 billion Swiss francs, and that it may use acquisitions to get there.

REUTERS BJR RN2054

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