Nestlé

Company Update:
Putin placed Nestlé's Russian business under temporary external administration in a presidential decree signed yesterday, transferring management of Nestlé Russia and Nestlé Kuban to L.E.V. Management.

The decree effectively covers 100% of the shares in the two entities. Nestlé says it is assessing the situation and its options and will take the necessary steps to protect its rights and ensure business continuity.

According to Reuters, Nestlé's Russian business could be worth RUB160-175bn, or around CHF1.57-1.73bn. This remains small relative to Nestlé overall, although INFOLine estimates suggest Russia could still represent around 2-3% of Group sales.

The P&L impact therefore appears limited at Group level, but the situation could lead to a more meaningful one-off accounting impact.

Nestlé still has a meaningful operational footprint in Russia, with six production sites across coffee, confectionery, baby food and pet food. Importantly, Nestlé's FY25 accounts explicitly stated that the Group still controlled its Russian entities despite the restrictions in the country.

The new decree could therefore trigger a reassessment of control and potentially lead to deconsolidation. Overall, we see this as a negative development and can expect a negative share price reaction this morning.

Expert Opinion:
We don't think the financial impact on Nestlé is really meaningful, as the company had stopped investing and said it didn't intend to make any profit there.  Yet it cannot be seen as good news, as the potential value of assets seized could be estimated at around CHF 1.7 bn at the upper end out of a market cap of CHF 200 bn. If Nestlé is down meaningfully this morning (say more than 3%), we would use that as an entry point and buy some. Nestlé is cheap by historical standards, remains defensive and  still delivers decent organic growth while the new strategy to refocus on a a few selected categories could provide additional growth. 

BUZZI X READ: Alongside Nestlé's assets,  Russia also decided to seize Auchan's assets in the country which is significant.  Both these companies had decided to remain committed to Russia and the seizing of the assets is a very negative read-across for companies that are still active in Russia. Among companies within our coverage that are still meaningfully active in Russian, Buzzi comes to mind as it still owns 2 plants there with c 5m tons capacity.   Russia is about 6% of Buzzi's total group revenue and only 3% of its EBITDA.


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