“Nestlé shares (NSRGY) are well positioned in our portfolios based on their global growth potential”


“I believe that Nestle equities are well positioned in our portfolios due to its potential for global growth. Nestlé’s global growth potential is a dividend from the command presence of their trusted consumer brands for 100 years in more than 100 countries. During these years, Nestlé has developed iconic brands that are trusted and cherished. For example, Nestlé has more than 30 brands with annual sales of over $ 1 billion. Nestlé benefits from a large Total Addressable Market (TAM) available to consumers in developing and emerging markets moving from subsistence economies to the introduction of market economies. Nestlé benefits from its market leadership position in two key categories that demonstrate extremely high brand loyalty: global pet food / care and global premium coffee (led by global leader Nespresso from Nestlé).

Most importantly, Nestlé has a culture of long-term investment. Nestlé has a long history of conquering new markets and rolling out new products, often alongside long-standing brands. They also have a history of internal innovation (for example, behind the launch of the new brand’s new single-serve coffee platform, following the external acquisition of companies including brands, technology, patent, manufacture, route to market, adjacent category presence, etc., offer powerful long-term returns on additional investments made to meet growing consumer demands and increasing affordability for consumers. consumers of Western-style goods and services).

Like Berkshire Hathaway, Nestlé management is determined to find ways to reinvest Nestlé’s huge annual free cash flow in new products, new geographies and adjacent categories. They are aided in this research by their vast global network of an extraordinary management team. Most of Nestlé’s senior executives are an extraordinary team of multinationals, multilingual (most of the top 100 executives speak at least three languages) and multicultural. Quite simply, they know their way around the world through global experience in a way that should enable Nestlé’s shareholder leadership teams to secure for Nestlé shareholders “their unfair share” of future growth among companies. categories served by Nestlé’s leading trusted consumer brands.

Nestlé management has added tremendous value over the past decade. First, they have been disciplined enough to retain their long-standing and significant stake in shares of L’Oréal (whose market value over the past eight years has grown from $ 22 billion to over $ 59 billion. of dollars). While many investors believe that Nestlé should have sold L’Oréal shares, Nestlé has held on rather steadfastly, allowing its management support to allow L’Oréal to go further with investments aimed at results at long term, even if the capital expenditure to do so weighed close to the declared profits in the long term. (During those years, when activists suggested the divestiture, the dollar value of Nestlé’s stake in L’Oréal grew by more than $ 37 billion.) Second, Nestlé management strategically restructured its subsidiary Galderma, before selling the company for what I believe to be billions of dollars more than they would have received had they not undertaken such a restructuring under the leadership of Nestlé’s newly appointed new CEO , Ulf Mark Schneider. Third, Nestlé has partnered with countless private equity pools to which they have sold historic businesses in ice cream, frozen confectionery, etc. These partnerships are managed separately but offer Nestlé an extraordinary ability to participate through participations alongside buyers of Nestlé divisions which had rightly been deemed non-strategic.

One area of ​​redeployment of cash from the restructuring described above, involved investments in younger participants in the food and beverage industry, involving venture capital investments in food start-ups. and disruptive digital health. During the pandemic, Nestlé’s willingness to make such venture capital investments was rewarded when several of the companies in its venture capital portfolio sought to sell themselves. Nestlé’s willingness to invest in such ventures from the start gave Nestlé the only seat at the auction table that could have been filled as their potential competitors were unable to act due to the failure to demonstrate due diligence. by COVID.

Nestlé’s sole ability to control these venture capital-funded investments, which they were familiar with due to their long-standing investment presence, enabled Nestlé to acquire a handful of strategic investments with prior knowledge. that other potentially interested parties could not have had. More importantly, potential bidders could not do due diligence for these investments as they were unable to travel and visit due to COVID constraints. Nestlé’s familiarity left them as the sole competitor when it acquired Aimmune, the world’s first peanut allergy vaccine, for more than $ 2 billion. Ironically, just as the FDA granted Aimmune the exclusive right to advertise and market its product’s ability to protect against this often deadly allergy, Nestlé had the opportunity to purchase this important new line of business. .

Nestlé was also able to acquire Freshly, one of the leading e-commerce-based food solutions companies. Nestlé knew the dynamics of the business from their time spent as members of the board of directors of Freshly during its era of venture capital financing. Nestlé was well versed in management, kitchens etc. which they believed created the competitive advantage which made it an attractive investment. Others, without prior knowledge, were at a considerable disadvantage when it came to obtaining the assurances required by traditional due diligence prior to substantial investments such as Nestlé in Freshly. In total, since the pandemic, Nestlé has sold companies for more than $ 5 billion in proceeds while acquiring interesting multi-billion dollar venture capital investments and investing in entirely new projects and projects. expansion in support of Nestlé’s traditional business for more than $ 5 billion.

Nestlé’s ability to withstand and, in fact, capitalize on the disruption caused by the pandemic confirms my long-held belief that Nestlé is, indeed, a combined business – equal parts fixed income and equal parts capital – risk. Nestlé’s characteristic as a fixed income investment reflects the extraordinary generation of free cash flow that its long-standing trusted brands generate. This free cash flow from existing and often mature Western markets resembles bond and bond yields from already established regions of the world. The free cash flow was massively reinvested in the activities of Nestlé … “(Click here to see the full text)

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