Nestlé sets profit targets for the first time
Nestlé has for the first time set a target for profit margin growth, marking a significant shift from its traditional sales-focused model as the Swiss group reacts to competitive pressures facing the world’s biggest consumer goods groups.
The world’s largest food and drinks company said it would aim for trading operating profit margins of between 17.5 per cent and 18.5 per cent by 2020 – up from 16 per cent last year.
The announcement is a strategic change for Nestlé which has historically relied on leveraging its size to power sales growth. It is part of a strategic update unveiled in London, by Mark Schneider, the former head of German healthcare group Fresenius who became chief executive in January.
Nestlé also reconfirmed its target for mid-single digit organic sales growth by 2020.
In June, Daniel Loeb, founder and chief executive of Third Point, the US activist hedge fund, disclosed he had taken a 1.25 per cent stake in Nestlé, worth $3.5bn and called on the Swiss group to shake up “its old ways”.
Nestlé also said it would accelerate a share buyback programme worth up to SFr20bn, which it announced in June.
Like other consumer goods companies, Nestlé has faced a backlash against “big food” and processed products and a slowdown in emerging markets on which it depends for 42 per cent of sales.
Revenue growth of the 50 biggest consumer goods companies has fallen steadily over the past five years from 7 per cent to minus 1 per cent last year, according to data from OC&C, the consultancy. Instead, small, insurgent brands offering consumers novelty and variety have been growing fast.
Nestlé’s own organic sales growth slowed from 6 per cent in 2012 to 3.2 per cent last year – its slowest rate in two decades. Nestlé’s product range includes Kitkat chocolate bars, Nescafé and Nespresso coffee, and Perrier water.
The Swiss group said it would “increasingly focus capital spending on advancing the high-growth food and beverage categories of coffee, petcare, infant nutrition and bottled water. It will also build on its strong position in emerging markets and pursue growth opportunities in consumer healthcare.”
Mr Schneider said:
In line with today’s accelerating pace of change, we are intensifying our focus on innovation, operational efficiency, and portfolio management. We will grow by remaining at the forefront of consumer trends and offering the brands and products to meet people’s changing needs, especially their demand for a better, healthier life.