Nestle sets out product priorities in €9bn revamp

Nestle plans to switch in or out of businesses with combined sales of almost 10bn Swiss francs (€8.7bn) as chief executive Mark Schneider focuses on coffee, bottled water, and pet care to prioritise profitability over scale.

Nestle sets out product priorities in €9bn revamp

Selective acquisitions and divestments could affect about 10% of total revenue, Mr Schneider said, as he unveiled his new strategy to investors at a conference in London. Nestle is already trying to sell its US chocolate business, its first major retreat from sugary snacks, as the Nescafe maker embarks on its biggest revamp in at least a decade.

“We’ll need to trade out of some product areas and into others,” Mr 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 investor Dan Loeb, whose hedge fund firm Third Point bought a €2.95bn stake in Nestle earlier this year.

Mr Loeb, who attended the London presentation, declined to comment on Nestle’s plans. The shares which rose 1.5% are up 13% this year.

“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.”

The adoption of a profit target by Nestle marks a broader shift among the world’s biggest food companies.

With many 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.

The margin target isn’t higher because Nestle also needs to accelerate sales growth, Mr Schneider told investors. The CEO already announced a share buyback worth, the planned disposal of Nestle’s US confectionery unit and acquisitions of coffee and fresh-food businesses.

Reuters

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