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September 26, 2017

Nestle bows to investor pressure to provide formal margin target

Nestle has unveiled a formal margin target - a move demanded from some investors - ahead of an investor seminar in London today (26 September).

By Andy Coyne

Nestle has unveiled a formal margin target – a move demanded from some investors – ahead of an investor seminar in London today (26 September).

The Maggi owner has set an underlying trading operating profit margin target of 17.5% to 18.5% by 2020 (up from 16% in 2016) following peers like Unilever in laying down a margin goal.

A number of Nestle investors – including activist shareholder Third Point which took a US$3.38bn stake in the company in June – have been calling on the company to follow suit. 

The Switzerland-based company – which also owns food brands such as Kitkat and Shreddies – has also confirmed a mid-single digit organic growth target for 2020 and affirmed its strategic focus will be on food and beverages with consumer healthcare an additional growth platform.

Today in London Nestle will describe its plans to accelerate organic sales growth, building on its “industry-leading volume growth”, by capitalising on recent key consumer trends in categories and markets around the world. 

Food and beverages remain core to the company’s strategy, it said, with a continued focus on nutrition, health and wellness “enabling the company to meet changing consumer demands”. 

The firm suggested its strategy balances growth with increased cost discipline and margin expansion as well as improved capital efficiency.

Today’s event will be the first time relatively new chief executive Mark Schneider has had a chance to lay out his strategy for the company to investors.

He said: “Nestle has a strong foundation, a clear path forward and a bright future. 

“We have a proven track record of delivering sustainable, industry-leading performance. 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.”

Nestle will tell the investor seminar that it will continue to pursue a value creation model that balances growth in earnings per share, competitive shareholder returns, flexibility for external growth, and access to financial markets. 

It will reveal it will increasingly focus capital spending on advancing the high-growth food and beverage categories of coffee, pet care, infant nutrition and bottled water. It will also build on its “strong position” in emerging markets and pursue growth opportunities in consumer healthcare.

Hinting at future acquisitions, Nestle said it will pursue external growth opportunities that fit within targeted categories and geographies, deliver attractive returns, and build on the company’s “leadership positions”.

The firm said it is actively adjusting its product portfolio in line with this strategy, as shown by the recent investments in Blue Bottle Coffee, Sweet Earth, and Freshly, as well as the decision to “explore strategic options” for its US confectionery business, which is likely to be sold off.

Nestle will today also provide an update to its previously announced capital structure review. In June, the company announced its intention to make an additional CHF20bn (US20.62bn) available for M&A and share buybacks over the next three years. 

The company said that in light of its strong cash generation, it intends to accelerate buybacks by spreading them evenly over three years.

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