Diversity does it for Nestlé

SCRUTINEER

Nestlé

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Alliance Trust

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THE "heritage" section of Nestlé UK's website contains an absolute gem of a photograph. What the group hopes you will take to be three generations of perfectly groomed males – son, father and grandfather – sit bathed in sunlight with fishing rod in hand. Beneath the smiling trio is the strapline: "Nestlé – Good Food, Good Life."

It's enough to make anyone (ad execs included) reach for the sickbag.

Fortunately, the confectionery giant's products are much more appetising than the content of its website. Products such as hazelnut-cream chocolate bar KitKat Senses, for example.

The launch of the chocolate bar in the UK using an advertising campaign fronted by pop group Girls Aloud (a wiser choice than the fishermen three) helped boost first-quarter growth.

Nestlé yesterday reported a 9.8 per cent rise in like-for-like group sales, with the UK witnessing "near double-digit organic growth".

All told, first-quarter revenues at the Swiss giant jumped 6 per cent from a year earlier to 25.7 billion Swiss francs (£12.7bn).

It's a strong performance, particularly against a backdrop of soaring world prices for staple ingredients such as wheat and rice.

As well as the success of KitKat Senses, sales were boosted by acquisitions made last year, including Novartis's Gerber baby food unit.

The group also benefited from continued "double-digit" growth in eastern Europe and steady performances in emerging markets in south Asia and the Middle East.

Elsewhere, sales of water, which include Vittel and Perrier, dipped 0.6 per cent amid "softer market conditions in the developed world".

The first-quarter outcome underscores the global nature of the business and the vast array of brands under Nestlé's control – everything from pet food Friskies to Nescafé Gold Blend. That diversity is crucial as the global economy continues to blow hot and cold.

Despite cost pressures, Nestlé is also taking a bullish stance for the full year, flagging organic growth towards the 2007 level of 7.4 per cent.

Analysts have been reassured by the first-quarter numbers and outlook.

With the consensus recommendation on Nestlé a firm "outperform", the world's biggest food and drink company may be a useful European stock to buy into.

IT SURELY says something about the state of the market when even Katherine Garrett-Cox, a former City "superwoman", believes that the best thing to do at the moment is, in effect, to hoard cash, writes Hamish Rutherford.

Garrett-Cox was poached from Morley Fund Management to direct the investment strategy at Alliance Trust in early 2007.

Professional investors, in general terms, are not known for such modesty; Alliance Trust's current strategy is tantamount to saying the best thing investors can do – at least the cautious ones – is to leave the money in the bank.

But Garrett-Cox and Alliance Trust should be given some credit for the strategy. Despite the venerable Dundee-based firm watching its net asset value – and share price – eroding over the past 12 months, its strategy of going defensive early in 2007 appears to have paid off, with two of its key portfolios outperforming key benchmarks, including the largest, UK Large Cap.

While it has been helped by a large number of takeovers during the leveraged finance boom, the company has moved up the rankings of Britain's largest listed companies, joining the blue-chip FTSE 100 index for the first time in February.

Even in the case of the cautious trust, there is a flip-side to current willingness to wait in the wings.

Garrett-Cox, like many in the City, believes that when the market does return to confidence, it could do so in some style.

A small mountain of cash is building up, not only at Alliance Trust but also in the coffers of thousands of retail investors across the UK. When, so the theory goes, confidence returns, this mountain should spark a sharp rally.

The only question is when. Commentators are becoming less willing to take a real stab on the subject, as banks continue to disappoint the market.

Garrett-Cox predicts the next quarter or two will see a "working out" of the credit crunch and she's happy to sit out the storm in the meantime. At least her view doesn't appear to be clouded by bravado.