Nestle said on Thursday it was closing a Swiss factory which makes products for its skin health business, responding to a slowdown in a business once seen as one of its rising stars.
Nestle Skin Health said it will close the Egerkingen factory in northern Switzerland, where it makes Daylong sun cream and products for dry skin, with the loss of 190 jobs.
Skin health has been part of the food maker’s push into higher growth and more profitable health products to counter a slowdown in its traditional packaged food business.
The business was set up in 2014 when Nestle incorporated the half stake in skin care company Galderma it bought from L‘Oreal with the half it already owned.
Nestle does not break out results for its skin health business separately, but said in July the business had lower sales volumes and pricing during the second quarter of this year as pressure on generics in the prescription business weighed on growth as did China’s soft performance.
Patrik Schwendimann, an analyst at Zuercher Kantonalbank, estimates that Nestle’s Skin Health Business had sales of roughly 2.3 billion Swiss francs ($2.38 billion) last year, up from 2.2 billion francs a year earlier. Profit margins for skin health and Nestle Health Science combined were around 9.2 percent last year, down from 12.5 percent in 2015.
“The business is still in the expansion phase, but the results have been disappointing,” said Schwendimann. “They are aiming for higher margins and higher sales growth especially when companies in the health area should be getting margins of at least 15 to 20 percent in the mid term.”
Nestle has responded by launching an overhaul of its skin health business where it aims to simplify its organization and its geographical footprint.
The company currently sells dozens of different products via prescription, over the counter and as corrective and aesthetic products which are used by doctors.
Nestle said production costs at the Egerkingen site had been rising because volumes were low and the factory was not running at full capacity.
“Nestle Skin Health does not foresee a significant volume increase over the next years in Egerkingen, even taking into account growth forecasts for markets served by the factory,” the company said.
Production will be transferred to other Nestle skin health factories, with its commercial business for Switzerland moved to Zurich and its team in consumer products development moved to the Swiss canton of Vaud.
By John Revill
Source: Reuters
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