Danone plans shake-up with portfolio review
Examines options for plant-based Vega
French food group Danone SA is planning what could become a string of asset disposals after an extensive review and management shake-up announced yesterday as it seeks to contend with the challenges posed by the coronavirus crisis.
Danone said it was looking at strategic options for its Argentina business and its plant-based North American brand Vega, which have combined sales of about €500 million ($588 million), and would later conduct a more in depth portfolio review to prune underperforming assets.
“This is a new world and therefore, in many ways, this company will need to reinvent itself again,” chairman and CEO Emmanuel Faber told analysts, adding that Danone’s plan would also entail “very significant cost savings”.
Danone, known globally for its yoghurt products, also spoke of its desire to “rapidly reconnect” with the group’s goal to deliver mid-term sales growth of 3-5%.
There has been recurring speculation that the group’s waters business and notably the Mizone brand in China could be among non-performing assets eventually earmarked for disposal, though Faber told analysts yesterday that he would be “patient” with Mizone.
Danone earlier posted a 2.5% drop in like-for-like third-quarter sales, slightly worse than the 2.2% decline expected by analysts, as a fall in out-of-home consumption hit sales of its bottled waters division while coronavirus travel restrictions in Asia weighed on its specialised nutrition sales in China.
The consumer giant, owner of Evian and Badoit water and the Activia and actimel yoghurt brands, also reinstated 2020 forecasts that target a 14% recurring operating margin and €1.8 billion of free cash flow.
Faber, now in his sixth year as CEO, has pursued a strategy centred on diversifying the group’s portfolio into fastgrowing products featuring probiotics, protein and plant-based ingredients to mitigate slower growth in dairy.
In 2017 Danone bought US organic food producer WhiteWave Foods in a $12.5 billion deal, bringing the company more into line with healthier eating trends.
However, the coronavirus disruption has hampered Faber’s turnaround efforts. Investors have also been sceptical about Faber’s dual economic and social agenda to boost shareholder value and profit while also focusing on the environment and social issues.
“The irony is that a company with health and wellness at its core is unable to grow, just when those qualities should be at a premium,” Jefferies analysts wrote last week.
But Jefferies welcomed yesterday’s announcements as “steps in the right direction” on what it expects to be a hard road to recovery.
Its analysts have previously said they view Danone’s medical nutrition, Mizone or Horizon & Wallaby liquid milk among potential noncore businesses.
Danone shares have lost about 25% this year, lagging a 2% gain for rival Nestle SA and a 19% fall for the CAC-40 index of French blue chips.
As part of the management shake-up, Danone said that finance chief Cecile Cabanis would leave the company in February to be replaced by Juergen Esser, currently CFO of the Waters and Africa divisions.
Danone also appointed two regional chiefs, Shane Grant for North America and Veronique Penchienati-Bosetta for Europe and the rest of the world. Henri Bruxelles, the former executive vice president for Waters and Africa, will become chief operating officer.