Nestlé: peeling back the wrapper A chocolate bar is never as big as it looks with the wrapper on. Nestlé knows this better than most. On Thursday, the foodmaker announced that annual organic growth in sales and underlying earnings per share both hit about 7.5 per cent. Impressed, shareholders boosted the shares in Europe's second-biggest company by market capitalisation by 2 per cent. The trouble with all these adjusted metrics, though, is that they exclude the effect of the strong Swiss franc. The raw numbers are more sobering. Sales fell 5 per cent, and, helped along by cost cuts, operating profits were flat. Even shareholders based overseas should be worried as despite the currency controls Switzerland implemented in September, the effect is not a one-off. The weighted average exchange rates at which Nestlé reported its figures last year were 0.89 to the dollar and 1.23 to the euro. The dollar now is less than 5 per cent stronger, and the euro about 2 per cent weaker. So Nestlé"s future performance appears set to be similar to last year. That leaves Nestlé with less in the bank. Cash from operations last year fell one-fifth excluding the effect of disposals. Nestlé"s insistence on raising its dividend means its pay-out now represents 60 per cent of operating cash flow, twice the level of four years ago. If it wants to keep its net debt at 31 per cent of equity, any significant acquisitions in the future may have to be funded by equity. But tapping shareholders for cash is the last thing Nestlé will do given it also is furiously buying back shares. So with meaningful acquisitions out of the question, Nestlé may quickly turn into an income stock. That is fine, but investors may find its share price - 17 times this year's earnings - resembles one of its own chocolate bars, a bit more disappointing than the shiny wrapper makes it appear.