Nestle share price down, cuts Africa workforce amid disappointing results

Nestle SA, the worlds biggest food and drinks company, confirmed on Wednesday it will cut 15% of jobs in 21 African countries in hopes to break even next year after failing to accurately predict growth in the regions middle classes.

The headcount reduction comes as turnover in the equatorial Africa region failed to deliver in line with growth forecasts set out in 2008, Cornel Krummenacher, Nestles chief executive for the region, said for the Financial Times.

“We thought this would be the next Asia, but we have realised the middle class here in the region is extremely small and it is not really growing,” Mr. Krummenacher added.

Expecting high growth in the region, Nestle has invested close to $1 billion in Africa over the past decade with expectations to double its business every three years. Instead, the companys profitability has deteriorated amid tough competition from local competitors that sell cheap products designed for individual countries, leading to the retrenchment and scaling back of operations.

So far this year, Nestle has shut its offices in Rwanda and Uganda and might close some its 15 warehouses before September. It is also cutting its product range by half and will be lucky to reach 10% annual growth in future years, the Financial Times cited Mr. Krummenacher as saying.

Nestle has about 11 000 employees in the whole of Africa, a spokesman told Reuters, and the planned cuts aim to bring the companys regional operations to break-even in 2016 after having to resort to borrowed money to pay wages and buy raw materials.

Nestles Krummenacher attributed the disappointing performance to the regions slower-than-expected middle class growth, among other factors, as well as poor infrastructure, corruption and negative currency effects. He added that the company will focus on core products such as powdered milk, ditching its efforts on bolstering sales of more elite products such as pet food, Nespresso coffee capsules and even cereals, although competitors in the segment seem to be pleased with its growth.

Nestle SA traded 0.50% lower at CHF 69.05 per share at 09:40 GMT in Zurich, marking a year-on-year drop of 0.36%. The Swiss company is valued at CHF 223.80 billion. The 24 analysts offering 12-month price targets for Nestle SA have a median target of CHF 75.50, with a high estimate of CHF 87.00 and a low estimate of CHF 61.50. The median estimate represents an 8.79% increase from the previous close of CHF 69.40.