June 2, 2016 / 7:32 AM / in a year

Nestle Chairman says succession announcement expected this year

Nestle Chairman Peter Brabeck-Letmathe listens to a question during a dialogue session at the Asian Financial Forum in Hong Kong, China January 18, 2016. REUTERS/Bobby Yip

VEVEY, Switzerland (Reuters) - Nestle (NESN.S) is looking at internal and external candidates to lead the world’s largest food and drink company and will announce its choice for a new chairman before the end of the year, its current chairman said on Thursday.

The election of a new leader next year is an opportunity to shake up the Swiss company just as the global packaged food industry faces a slew of challenges from changing consumer tastes and greater competition.

Speaking at the company’s headquarters in Vevey on Lake Geneva, Chairman Peter Brabeck told Reuters that Nestle also uses external candidates to benchmark internal ones.

“It’s a task of the nomination committee not to look only internally, but also externally, because it is also important to be able to compare if our internal candidates are competitive in the current environment,” Brabeck said on the sidelines of the festivities for the company’s 150th anniversary.

He said the board’s nomination committee meets at least three times a year to discuss succession planning, and has plans for both emergency and long-term succession.

“We obviously always have several candidates for long-term planning,” said Brabeck, who recently recovered from cancer and will soon reach the mandatory retirement age of 72.

Earlier on Thursday, Swiss newspaper Blick quoted Brabeck as saying current Chief Executive Paul Bulcke was among several candidates to succeed him, and that there was also more than one possible candidate to succeed Bulcke.

While the CEO runs the company, the chairman provides strategic guidance. Nestle’s last four chiefs, whose collective CEO tenure lasted 40 years, all became chairmen.

PROMOTING FROM WITHIN

Nestle has a history of promoting internally and some analysts and shareholders expect that to continue.

Thomas A. Russo of Gardner Russo & Gardner says Nestle’s management bench is deep enough that it can deliver “quite comfortably” a capable new CEO.

“There’s a wealth of choices and I don’t believe that we need an outsider just because Nestle needs to be changed,” said Russo, whose firm holds roughly $1 billion worth of Nestle’s U.S.-traded shares. “I know Nestle is aware of the kind of drumbeat for transformation.”

Jon Cox at Kepler Cheuvreux predicts Bulcke as chairman and said frontrunners for CEO include Laurent Freixe, head of Nestle’s Americas business, and Wan Ling Martello, former chief financial officer who now runs the Asia, Oceania and Africa unit.

Cox previously said Martello, a Chinese American woman, would be seen as something of an outside appointment and would likely signal a bigger shift in strategy, albeit within the company’s current business model.

“We see the Nestle model as being maintained whoever becomes the next CEO,” he said.

Nestle sells thousands of goods from baby food to coffee and chocolate, and has been investing lately in higher-margin, higher-growth healthcare businesses as it tries to fend off criticism that its scale stifles agility. It has signed a series of deals with small companies in its bid to create a new kind of business that is midway between food and pharmaceuticals.

It is also being put to the test by investment groups 3G Capital and JAB Holding, which have bought up big food and drink businesses and are injecting an intense cost-consciousness into the sector, as industrywide growth slows due to a shift towards healthier and more natural foods.

“This is a massive sea change moment for Nestle,” said Ali Miremadi, fund manager at THS Partners, a Nestle shareholder. “The company could be losing its crown.”

Writing by Martinne Geller in London; Editing by Ruth Pitchford, Alexandra Hudson and Susan Thomas

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