Sector News

Nestle’s portfolio transformation continues

October 22, 2019
Food & Drink

Nestle S.A. has created a new group strategy and business development function to support the company in identifying internal and external strategic growth opportunities. The function also will manage external partnerships and licensing agreements and oversee corporate venture capital activities.

“In a period of rapid change in our industry, it will be more important than ever to recognize key trends early and to act on them fast, including but not limited to portfolio adjustments,” said Ulf Mark Schneider, chief executive officer.

Sanjay Bahadur, currently head of acquisitions and business development, has been tapped to lead the new group. Mr. Bahadur has been with the company since 1982.

“Sanjay brings deep operational and financial experience to his new role,” Mr. Schneider said during an Oct. 17 conference call to discuss nine-month sales results. “He knows that only those strategies succeed that are implemented thoroughly and fast, and he has done a superb job overseeing our recent portfolio adjustments to position the company for higher growth.”

The company also announced it is integrating the Nestle Waters business into its three geographical zones, effective Jan. 1, 2020. Nestle will continue to manage the Nespresso and Nestle Health Science businesses globally, Mr. Schneider said.

“Our Nestle Waters global structure was very helpful in bringing this business to its current size and stature,” Mr. Schneider said. “It also helped to establish leading global brands such as San Pellegrino and Perrier. Having said that, the business is now at a stage where local responsiveness and competitiveness are of increasing importance. This is where our three geographic zones come into play. They are the most proven and efficient implementation and execution structures inside Nestle. I have every confidence that they will do an outstanding job in taking this business to the next level.”

As a result of the reorganization, Maurizio Patarnello, deputy executive vice-president and head of Nestle Waters, will leave the company. Mr. Patarnello will continue to advise Nestle Waters to ensure a smooth transition to the new structure, the company said.

“The structure change announced today is just one of several steps we’re taking to improve the performance of our waters business,” Mr. Schneider said. “We will pursue a growth strategy that will get us increasingly out of low-margin, undifferentiated business and focus on high-value premium brands, functional waters as well as flavored and carbonated products. Improved proximity to consumers coming from our new organizational structure, combined with the strategic focus on higher-growth, higher-margin segments, will help our waters business to live up to our growth and earnings expectations in the midterm.”

Nine-month sales increased 2.9% to 68.4 billion Swiss francs ($69.3 billion) from 66.4 billion Swiss francs in the prior-year period. Organic sales growth reached 3.7%.

“We are seeing good momentum in our largest market, the United States, and strong growth in our global Purina PetCare business,” Mr. Schneider. “Key roll-out initiatives such as our Starbucks coffee range and our plant-based burgers are performing extremely well.”

Zone Americas sales rose 10% to 24 billion Swiss francs ($24.3 billion) from 21.9 billion Swiss francs. Organic growth increased to 4.1%. Nestle’s partnership with Starbucks contributed to a strong performance in North America.

“The largest contributor to growth was Purina PetCare, which continued to see strong momentum in e-commerce and premium brands,” said François-Xavier Roger, executive vice-president and chief financial officer. “Beverages had mid-single-digit growth, supported by strong demand for Starbucks and Coffee-mate. The transition of the U.S. pizza and ice cream businesses from a D.S.D. system to a warehouse distribution model is fully on track. Ice cream grew mid-single-digit; and frozen food, including pizza, grew low-single-digit.”

The company’s portfolio management activities are on track, according to the company, with the divestment of the Nestle Skin Health business completed on Oct. 1 for an agreed price of 10.2 billion Swiss francs ($10.28 billion). The strategic review of the Herta charcuterie business remains ongoing and is expected to be completed by the end of the year.

Management confirmed its full-year guidance. Organic sales growth is expected to be around 3.5%, and underlying earnings per share in constant currency and capital efficiency are expected to increase, the company said.

By Monica Watrous

Source: Food Business News

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