NESTLE TO SPEED UP RESTRUCTURING

Food giant will speed up restructuring programme to improve profit margins

FOOD giant Nestle expects organic sales growth to stay muted in the fourth quarter and is speeding up its restructuring programme as it seeks to improve profit margins.

Makers of packaged foods are under pressure to review their business models and brand portfolios to satisfy consumers’ appetite for fresh, healthy, local foods, while improving returns to address increasingly vocal ac- tivist investors.

It said yesterday it expected its operating margin this year to slip by 0.4 to 0.6 percentage points as restructuring costs could reach one billion Swiss francs (RM4.22 billion), double the initial plan, while maintaining guidance for overall charges of up to 2.5 billion francs until 2020.

It said, however, that its underlying trading operating margin, which strips out restructuring costs, was set to improve by at least 0.2 percentage points.

Under pressure from activist investors to improve near-term returns, Nestle last month set a target for this margin to reach 17.5-18.5 per cent by 2020, up from 16 per cent last year.

Organic sales growth accelerated to 3.1 per cent in the third quarter from 2.3 per cent in the first and 2.4 per cent in the second, helped by improved trading in Europe and Asia.

Nestle said it expected organic growth for the full year to be in line with the 2.6 per cent seen in the nine-month period, implying a slowdown in the fourth quarter from 2.9 per cent in the year-ago period.

Chief finance officer FrancoisXavier Roger said this was also due to seasonal factors, such as the leap year last year and the timing of the Chinese New Year, with expected underlying growth in the final quarter “closer to three per cent”.

He cautioned that the Europe, Middle East and North Africa zone and Asia might not be able to repeat the good performance over the final three months. Reuters