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Nestle to build R&D centers in Xiamen and Dongguan

Date: 2012-10-20

Nestle SA, the world's largest food company measured by revenue, announced plans on Thursday to build two more research and development centers in China.

Nestle said it will build one of the centers in Xiamen, Fujian province, and the other in Dongguan, Guangdong province. In Xiamen, researchers will work with Yinlu Foods Group, in which Nestle acquired a 60 percent stake last year, on ready-to-drink beverages and congee. In Dongguan, they will work with the candy maker Hsu Fu Chi International Ltd, in which the Swiss company also holds a stake, on baked products.

"Nestle has been active in recent mergers in emerging markets," said Gong Bo, an industry analyst at Beijing United Innovation Capital Ltd. "This new investment, which comes after a recent series of acquisitions, is meant to secure its high growth margin in the fast growing market."

Nestle announced in April that it would buy the US drug maker Pfizer's infant nutrition business for $11.85 billion.

The purchase is believed to have made Nestle the holder of the largest share in the Chinese market for infant formula, surpassing Mead Johnson and Co LLC, Dumex - a part of Groupe Danone - and other rivals in that regard, industry analysts said.

As recently as July 2010 the industry research company CIConsulting had reported that Dumex held the largest portion of the Chinese formula market, taking up 16.7 percent of it, followed by Mead Johnson, with 12 percent, and Nestle, with 10.5 percent.

"Nestle is going after the middle- and high-end formula market, which is a huge market for foreign brands to enter," said Song Liang, a researcher with the Distribution Productivity Promotion Center of China Commerce.

Also on Thursday, Nestle released its financial results for the third quarter. The company reported sales of 67.6 billion Swiss francs ($69.11 billion) in the period, up 11 percent year-on-year. The company's home market, Europe, brought it 11.2 billion Swiss francs worth of sales.

In the Greater China region, the company had 2.5 billion Swiss francs in sales in 2011, an amount showing a compound annual growth rate of 16 percent. The company expects to see the value of its sales double in the country this year.

"Through our merger and acquisition of Yinlu and Hsu Fu Chi, as well as our sales growth, we realized our fast growth in the country," said Paul Bulcke, Nestle CEO. "China is a very, very important market for Nestle. We expect double-digit growth in 2013."