Danone lays out productivity plans in virus-led restructuring - Reuters India - 3 minutes read


LONDON (Reuters) - French food group Danone plans to cut up to 2,000 jobs, trim product ranges and reorganise its global business to become leaner and more agile in a post-COVID environment.

FILE PHOTO: A company logo of the French food group Danone is pictured on a truck in Mexico City, Mexico October 14, 2020. REUTERS/Edgard Garrido/File Photo

The world’s largest yoghurt company on Monday said these actions would help it save 1 billion euros a year by 2023 and meet a new mid-term margin target.

“We have never, ever been so ambitious at Danone,” CEO Emmanuel Faber said.

Still, Danone sounded a cautious tone on 2021, forecasting a flat margin and saying the first half would be hurt by comparisons with this year’s COVID-related stockpiling and continued travel restrictions.

That caution, and a focus on cost-cuts rather than on how it will drive demand for goods such as Evian water and Activia yogurt, disappointed investors, since Danone has set similar targets in the past and continues to lag peers.

“Danone is doubling down on a strategy that hasn’t worked for the last 5 years,” said Bernstein analysts.

The company’s shares, which Faber noted trade at a 30-percent discount to peers, were down more than 2 percent in Paris, bringing their year-to-date fall to more than 30% despite a rally at the start of the month fuelled by optimism about a COVID-19 vaccine.

Danone said it chose to focus on efficiency first as that was within its control. It plans to give further updates on a broad turnaround plan announced last month.

‘LOCAL-FIRST’

Danone plans to cut 1,500 to 2,000 jobs in local and global headquarters, about a quarter of such roles, with a source close to the company saying about 400-500 of those would be in France.

At the same time, Danone is reshaping itself into a ‘local-first’ company, giving business units around the world more autonomy, and promoting their zone presidents to the executive committee.

It also plans to reduce its range of goods by 10-30% in the next year, dropping small products that account for up to 2% of sales.

Danone says it expects to return to profitable growth as soon as the second half of 2021, and for its recurring operating margin to return to its pre-COVID level, at more than 15% by 2022. It sees a mid-to-high teen margin level in the mid-term.

It plans to reinvest 20-30% of its savings into growth initiatives as it tries to reconnect with its mid-term sales growth target of 3-5%. The program will cost 1.4 billion euros, mainly in 2021.

“The credibility of the new targets will be questioned given Danone’s failure to deliver its previous (mid-term) margin target,” Jefferies analysts said.

Danone reiterated its 2020 guidance for 14% recurring operating margin and 1.8 billion euros of free cash flow.

It said it was making progress with the strategic review of two assets announced in October, but said there would be more news on portfolio pruning during the first half of the year.

CEO Faber told a French newspaper that a sale of its water business, which had been mooted by some analysts, was not on the agenda.

($1 = 0.8420 euros)

Source: Reuters

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