Nestlé ‘not broken’ says new chief as he announces restructuring

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Nestlé’s new boss said the world’s largest food company was “not broken”, as he lowered its outlook to a more “realistic” sales target and announced sweeping organisational changes to boost performance.

In his first big move as chief executive, company veteran Laurent Freixe cut Nestlé’s sales growth guidance for the year to around 2 per cent, compared with the 3 per cent forecast in July and 4 per cent in February, pointing to persistent consumer weakness.

“We are getting towards around 2 per cent organic growth [for the full year] . . . You could say it’s a reset, or you could say it’s realistic,” Freixe told the Financial Times.

Taking over from boss of eight years Mark Schneider following his abrupt departure announced in August, Freixe has set out to convince investors that Nestlé’s problems can be fixed with better execution.

“There is nothing wrong with the categories,” he said. “There is nothing wrong with the 31 ‘billionaire’ brands [defined as those with annual sales over SFr1bn]. We have tremendous footprint . . . we are the most global and, in a way, the most local.”

“Nestlé is not broken, Nestlé is up and running,” he added. “And we will make sure that all this potential is realised going forward.”

Disappointing sales and a number of operational mishaps, including the botched integration of an IT system and a water purification scandal in France, have worried Nestlé’s investors and weighed on its share price, which has fallen by about 15 per cent this year. Its stock was down by about 2 per cent in early trading on Thursday.

Most consumer goods groups have suffered during a period of high inflation and depressed demand, but Nestlé has underperformed compared with rivals Unilever and Danone.

The Swiss group reported organic sales growth of 2 per cent in the first nine months of the year compared with an expected 2.5 per cent rise, with sales in North America declining 0.3 per cent.

Jean-Philippe Bertschy, analyst at Vontobel, said the new sales outlook represented a “very painful reset” and was unprecedented in the company’s 158-year history. 

“For a supertanker like Nestlé, the miss in just a few months is enormous,” he said. “The priority for the new management team now is to bring Nestlé back to its roots and to what it does best: marketing and connecting with consumers.”

The organisational changes announced on Thursday include the merging of North and Latin America into one reporting unit, with the unit lead operating from Nestle’s Swiss headquarters, rather than the region; and absorbing Greater China into Zone Asia, Oceania and Africa (AOA). All the unit leaders will now report directly to the chief executive.

“I firmly believe that a smaller, nimbler geographic structure will provide more speed, better teamwork, more alignment,” he said.

Nestlé also cut its full-year targets for underlying earnings per share and profitability. Its underlying trading operating profit margin is now expected to be about 17 per cent, rather than a modest improvement on last year’s 17.3 per cent.