NSRGY Nestle SA (PK)

By Nina Trentmann 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 25, 2019).

Nestlé SA has achieved about half of the savings it hopes to implement by 2020 in a cost-cutting effort focused on boosting efficiency and centralizing procurement.

The Swiss consumer-goods giant is scrutinizing its manufacturing footprint, consolidating procurement and simplifying its recipes to cut billions in costs by next year, Chief Financial Officer François-Xavier Roger told CFO Journal.

"My priority is to make sure that we deliver on our commitment for 2020," Mr. Roger said.

Nestlé, which produces Kit Kat chocolate bars and Nescafé coffee, plans to generate savings of 2.0 billion to 2.5 billion Swiss Francs ($1.99 billion to $2.49 billion) as part of an initiative that began in 2016.

About CHF1.2 billion in cuts have already been achieved.

"The focus to date has been on procurement and back-office rationalization," said Martin Deboo, a consumer goods analyst at Jefferies International Ltd. "We sense that Nestlé sees major potential from manufacturing cost savings."

While the procurement operations have already generated 65% of planned savings, manufacturing so far only has managed 35%, Mr. Roger said.

Nestlé is currently closing one plant a month, the CFO said. It also is repurposing some of its facilities, and transferring manufacturing functions between plants.

The cost cuts have had a measurable effect on the company's financial results, improving its margins, capital expenditures and working capital, according to the CFO.

Capital expenditures as a percentage of sales fell to 4.2% last year from 5.9% in 2012, according to a recent investor presentation. Working capital, measured as a percentage of sales, declined to 1.4% from 8.5% in 2012, according to the presentation. Return on invested capital has increased to 12.1% from 10.8% in 2014, according to the presentation.

Changing consumer tastes are playing a role in the effort. Nestlé anticipates growing demand for single-serve coffee, for instance, but experiences less demand for congee, a rice porridge consumed in China.

Last year, the company opened and closed plants, resulting in a stable factory count of 413 at the end of 2018.

Mr. Roger declined to give a forecast for 2019, and he said the company doesn't have a fixed target for job cuts.

Mr. Roger also sees potential for sourcing a larger share of the company's procurement orders from one of three centers in Europe, Central America and Asia. About 60% of what Nestlé buys is routed through these procurement centers, he said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

May 25, 2019 02:47 ET (06:47 GMT)

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