Nestlé to undergo a major overhaul
NESTLÉ may buy or sell businesses with combined sales of almost 10 billion francs (R137bn) as its chief executive Mark Schneider embarks on the biggest overhaul of the world’s largest food company in at least a decade.
Selective acquisitions and divestments could affect about 10 percent of total revenue, Schneider told investors as he unveiled his new strategy to investors at a conference in London yesterday. Nestlé, which has about 90bn francs in sales, aims to focus on fastergrowing businesses such as coffee, bottled water and pet care as the company tries to sell its US chocolate business in its first major retreat from sugary snacks.
“We’ll need to trade out of some product areas and into others,” Schneider said. “We’ll act decisively, and the US confectionery is a good example of that.”
For the first time, the Swiss owner of Nespresso coffee and Perrier water set a fixed profitability target, aiming for an underlying trading margin in 2020 that’s as much as 2.5 percentage points higher than what it achieved last year. That’s still shy of the level sought by activist investor Dan Loeb, whose hedge fund firm Third Point bought a $3.5bn (R46.5bn) stake in Nestlé earlier this year.
Loeb declined to comment on Nestlé’s plans. The shares traded 0.9 percent higher as of 11.12am in Zurich.
“The target is certainly attainable,” said Jean-Philippe Bertschy, an analyst at Bank Vontobel. “While it will please some investors, others – like Loeb – may be a bit disappointed.”
Nestlé’s adoption of a profit target marks a broader shift among the world’s biggest food companies, after decades of prioritising scale. Now, with many of their mass-market brands facing scepticism from consumers seeking healthier and hipper alternatives, sales growth is slowing and consumer-goods giants are under pressure from investors to cut costs and to move into more profitable niches.
Schneider said Nestlé was not immediately changing its stance on its stake in French cosmetics maker L’Oreal. – Bloomberg