World's largest food company is highly optimistic

Roger Guy and Guillaume Rambourg, co managers of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund, single out Nestle's ability to pass on sharp rises in material costs to the consumers as one of the key reasons for Nestle's stellar performance. Nestle remains one of the core holdings of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund.

"Thanks to Nestle's position as a market leader and therefore its ability to increase prices in order to counter surging raw material costs, sales remain in positive territory and forecasts for operational momentum in 2008 are strong. In our view, with strong revenue growth and continued margin improvements, Nestle remains one of the best investments in the food sector."

Nestle is busy preparing for the challenges that lie ahead. Paul Bulcke, the man replacing Peter Brabeck as CEO of food giant Nestle has pledged to see through Nestle's evolution from a mass distributor of commodity-based foods like milk and breakfast cereal into the lucrative fitness and nutrition business. The focus is now on sparkling waters, performance foods and healthy lifestyles. Profits over the last few quarters have soared as a result.

"Correctly assessing shifts in consumer behaviour as well as commodity prices has also enabled Nestle to strategically position itself ahead of its rivals, recording strong profits despite pressures on margins", according to Roger and Guillaume.

Bulcke will also have to decide how best to allocate some of the cash the company is currently sitting on. Record profits along with the recent $39bn sale of US eye care company Alcon to Novartis have swelled the coffers.

"Nestle has announced it is willing to spend beyond its self-imposed $2bn annual cap - set aside for acquisitions - if the move makes strategic sense. There are rumours that Nestle may make a move on French cosmetics giant L'Oreal. We will just have to wait and see."

The Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund are both AAA rated by Standard and Poor's.