Poor-performing Nestle opens door to sale of L’Oreal

Swiss food giant Nestle on Thursday appeared to open the door to selling its stake in French cosmetics group L'Oreal after it said that its own business performance in 2017 fell short of expectations.

Poor-performing Nestle opens door to sale of L'Oreal
Employees of Nestle-owned French pharmaceutical company Galderma protest outside Nestle HQ in Vevey on February 9th. Photo: RICHARD JUILLIART / AFP

Nestle, which has come under pressure from an activist investor, US hedge fund Third Point, to sell its stake in L'Oreal, insisted in a statement that it was keeping all options open regarding the 23-percent holding.

“Our shareholding continues to be an important investment for us and we remain committed to the company that has given us very good returns over the years,” Nestle said.

And it said it had “full confidence in L'Oreal's management and strategic direction.”

Nevertheless, Nestle had decided not to renew a shareholders agreement between Nestle and the L'Oreal's family shareholders, the Bettencourt family, under which neither side is permitted to increase their holdings.

The agreement is scheduled to expire on March 21, six months after the death of matriarch Liliane Bettencourt.

Nestle made it clear, however, that it had no plans to increase its stake.

“In order to maintain all available options for the benefit of Nestle's shareholders, the board of directors has decided not to renew this agreement. We do not intend to increase our stake in L'Oreal and are committed to maintaining our constructive relationship with the Bettencourt family,” the statement said. 

Turning to its 2017 results, Nestle said profits took a hit from its skin health business last year and sales fell short of target.

Net profit fell by 15.8 percent to 7.2 billion Swiss francs (€6.2 billion).

“This was mainly due to an impairment of goodwill related to Nestle Skin Health, which was taken to reflect the current prospects of the business,” the statement said.

Revenues, for their part, edged up by 0.4 percent to 89.8 billion Swiss francs. But so-called “organic” growth, which is adjusted for exchange rate developments and divestments or acquisitions, stood at 2.4 percent.

“Organic growth… was at the low end of our expectations,” said chief executive Ulf Mark Schneider, who took over in January 2017.

Looking ahead, Schneider said Nestle, was pencilling in organic sales growth of between two and four percent in 2018.

Nestle's shares fell 2.3 percent in morning trading, while Switzerland's main stock index up 0.3 percent.


‘Unlimited resources’: Switzerland’s Nestle goes vegan

Swiss food giant Nestle, which has made billions with dairy products, said Monday it will host start-ups that want to develop vegetarian alternatives.

'Unlimited resources': Switzerland's Nestle goes vegan

Nestle could thus find itself at the forefront of a sector that has strong growth potential, an analyst commented.

It plans to open its research and development (R&D) centre in Konolfingen, Switzerland to “start-ups, students and scientists” a statement said.

In addition to testing sustainable dairy products, the group plans to encourage work on plant-based dairy alternatives, it added.

Chief executive Mark Schneider was quoted as saying that “innovation in milk products and plant-based dairy alternatives is core to Nestle's portfolio strategy.”

The group unveiled a vegetable-based milk that had already been developed with the process, and technical director Stefan Palzer told AFP it planned to focus on 100-200 such projects a year.

Jon Cox, an analyst at Kepler Cheuvreux, noted that while Nestle had missed some consumer trends in the past, it has now “taken something of a lead in the plant-based alternative market for food”.

And “given its pretty much unlimited resources, Nestle is going to come out one of the winners in the space,” Cox forecast in an e-mail.

Nestle said that “internal, external and mixed teams” would work at the R&D centre over six-month periods.

Nestle would provide “expertise and key equipment such as small to medium-scale production equipment to facilitate the rapid upscaling of products for a test launch in a retail environment,” it added.

The Swiss food giant has long been known for its dairy products, but faced a boycott in the 1970s for allegedly discouraging mothers in developing countries from breastfeeding even though it was cheaper and more nutritious than powdered formula.

On Monday, the group's statement also underscored that the research initiative was part of its commitment to help fight global warming.

“As a company, we have set ambitious climate goals. This is part of our promise to develop products that are good for you and good for the planet,” it said.