Nestlé scales back growth targets amid economic jitters

Company to step up savings and increase restructuring costs to 500m Swiss francs

Net profit at the maker of KitKat chocolate bars and Nescafé instant coffee fell to 8.5 billion francs last year. Photograph: Andrey Rudakov/Bloomberg via Getty Images

Net profit at the maker of KitKat chocolate bars and Nescafé instant coffee fell to 8.5 billion francs last year. Photograph: Andrey Rudakov/Bloomberg via Getty Images

 

Food group Nestlé is aiming for 2-4 per cent underlying sales growth this year after net profit fell and sales did not rise to the amount expected in 2016, hit by slowing emerging markets and a deflationary environment.

“Two to four per cent reflects the macroeconomic uncertainty . . . this is a volatile and still somewhat deflationary environment . . . we felt this was wise and prudent,” new chief executive Ulf Mark Schneider, who took over on January 1st, told reporters at the company’s headquarters. “But I also wanted to express my confidence that we can get back to mid-single-digit growth by 2020,” he said, adding he expected pricing to improve this year.

Nestlé will step up cost-savings to boost profitability and replaced its “Nestle model” of 5-6 per cent underlying sales growth with a new mid-term goal of “mid-single-digit organic growth and significant structural cost savings by 2020”. Nestlé said it would increase restructuring costs to around 500 million Swiss francs (€470 million) this year and so expected a stable trading operating profit margin in 2017.

Emerging markets slowing

Net profit at the maker of KitKat chocolate bars and Nescafé instant coffee fell to 8.5 billion francs last year, well short of the average estimate for 9.59 billion francs in a Reuters poll of analysts, hit by a one-off non-cash adjustment to deferred taxes. Shares in Nestlé were indicated to open 2.3 per cent lower based on pre-market activity.

Underlying “organic” sales growth slowed to 3.2 per cent from 4.2 per cent in 2015, missing the now outdated target of 5-6 per cent growth for the fourth year in a row and also a 3.4 per cent average estimate in the Reuters poll.

Growth in emerging markets, previously the growth driver, slowed to 5.3 per cent from 7.0 per cent a year ago.

Emerging markets also spoilt the picture for Unilever. Last month it reported lower-than-expected fourth-quarter sales amid problems in India and Brazil, while Danone said on Wednesday tough conditions in China would endure in 2017.