Last week I wrote to you that Nestle is undertaking steps to provide shareholders with even more value, including setting targets for increasing profit margins for the first time ever. For most of its long history, Nestle has been focused on increasing sales as the best approach to market success. But the sector is slowing, and Nestle is focused on wringing more profits out of the sales it is already generating. SwissInfo.ch reports:
Against the backdrop of lacklustre growth, the emphasis in the industry has been on cost-cutting to boost profits.
Leading the way has been Kraft Heinz, controlled by Warren Buffett’s Berkshire Hathaway investment group and 3G Capital. Kraft Heinz’s operating profit margin of 23 per cent is significantly higher than Nestlé’s.
Unilever was the target of a $143 billion takeover approach from Kraft Heinz in February despite the US company being half the size of Unilever in terms of revenues. Although the bid was aborted, it left Unilever – and rivals including Nestlé – looking vulnerable.
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.
Nestlé’s organic sales growth slowed from 6 per cent in 2012 to 3.2 per cent last year, its lowest rate in two decades. However, Mr Schneider revealed growth would have been 3.4 per cent if its struggling skincare division had been excluded. The unit was being “aggressively right sized” by a new management team, he said.
Mr Schneider identified coffee, petcare, infant nutrition and bottled water as future high-growth sectors. Nestlé would also build on its strong position in emerging markets and pursue growth in consumer healthcare. Another investor in London said: “I agree with his approach far more than that of Kraft Heinz.”
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