Danone revamps leadership and plans asset sales to cope with pandemic

Danone is overhauling its management and structure and plans to sell underperforming businesses as it seeks to recover from the shock of the coronavirus pandemic. 

The French food group on Monday said that chief financial officer Cécile Cabanis, who has been at the company for 16 years, would step down by February.

It also announced that it would put businesses that contribute €500m in net revenues up for sale, including its Argentina unit and plant-based protein shake Vega brand, and move to a system of management more focused on geography rather than product types.

The changes are a sign of how much coronavirus has upended Danone’s business by slowing sales of its yoghurts and bottled water in restaurants, cafeterias, and convenience stores, while boosting online and grocery store sales. Consumers have also begun trading down to cheaper brands amid a global recession, while border closures and travel restrictions put pressure on supply chains.

The company, which makes Evian bottled water and Actimel yoghurts, reinstated its 2020 forecasts for a 14 per cent recurring operating margin and €1.8bn of free cash flow, and said it hoped to “rapidly reconnect” with its pre-pandemic goal of midterm annual like-for-like sales growth of 3 to 5 per cent.

Chairman and chief executive Emmanuel Faber said the macroeconomic environment remained volatile as Covid-19 infections rose again in some countries, prompting another round of business closures and lockdowns.

“This is a new world so the company will have to reinvent itself again,” he said. “We must adapt for the future to reshape the organisation.”

Danone’s share price has fallen 28 per cent this year, far underperforming larger consumer goods rivals. Nestlé’s shares have risen 2 per cent this year, PepsiCo’s 3.5 per cent, and Unilever’s almost 11 per cent. 

A wide valuation gap has opened up between Danone and Nestlé in the past three years, with the French company now trading at an almost 40 per cent discount on a price-to-earnings basis. 

Investors have been sceptical of Mr Faber’s focus on environmental and social goals, and frustrated by Danone’s inability to deliver on its financial targets. 

“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,” wrote Martin Deboo, analyst at Jefferies, in a note published before third-quarter sales. “Our central conclusion is that Danone’s problem with the market is an issue of trust and confidence, as much as one of delivery per se.”

Mr Deboo welcomed Monday’s announcements, saying they were “steps in the right direction then, along a road to recovery that we expect to be hard”.

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In the third quarter, comparable sales fell 2.5 per cent to €5.8bn, short of analysts’ forecasts for a 2.2 per cent decline on sales of €5.9bn, according to consensus compiled by the company.

Mr Faber has been recruiting executives from outside Danone to help with its turnround. Shane Grant, a former Coca-Cola executive, has been named the new chief executive in charge of North America, while a former Mars executive, Nigyar Makhmudova, has been running research and innovation since last year.

The other newly created chief executive position for the international business will be filled by Véronique Penchienati-Bosetta, who has been at Danone since 1999.

Danone also hinted at further asset disposals, promising to “conduct a full strategic review of the portfolio of brands, SKUs [products] and assets”.

The company has already begun to trim its portfolio, having sold its 6.6 per cent stake in Japanese dairy company Yakult this month for €470m.

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