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Danone’s new chief Antoine de Saint-Affrique faces tough turnround task

Danone SA updates

Danone’s new chief executive Antoine de Saint-Affrique faces an uphill battle to reignite sales growth at the French consumer goods maker, with analysts predicting that the turnround will take several years.

De Saint-Affrique, who took the reins on Wednesday, could take about six months to formulate and announce his strategy, said people close to the group. That would leave investors in the dark until after annual results in February.

“The problems at Danone are not easily solved,” said one person.

The main challenge will not be cost-cutting, but rather generating more revenue growth across Danone’s three businesses — dairy and plant-based milks and yoghurts, baby formula, and bottled water — something that previous boss Emmanuel Faber also worked on for years without success.

The Covid-19 pandemic further complicated matters last year by denting sales of bottled water, especially the higher-margin small bottles sold in convenience stores and bars, while simultaneously pushing up costs on everything from transport to raw materials.

Even before the pandemic, Faber had failed to deliver on his 2015 pledge to achieve 5 per cent annual organic sales growth by 2020. That metric, which is closely tracked by investors in the consumer staples sector, had improved only slightly, from 2.1 per cent in 2016 to 2.6 per cent in 2019.

Faber was ousted in March after months of attacks from activist investors and turmoil in the boardroom.

Antoine de Saint-Affrique took over as Danone’s chief on Wednesday © Danone

In May, Danone selected De Saint-Affrique, who was then running cocoa and chocolate manufacturer Barry Callebaut. During his six-year tenure, the Swiss group’s share price more than doubled as it focused less on volume growth and more on profitable growth. De Saint-Affrique, a French citizen, also worked for a decade in Unilever’s food business.

In a video sent to employees on Wednesday, the new chief executive said he was “mighty impatient to hit the road” to learn about the business, and implored people to “speak up” and tell him about the challenges and opportunities they saw.

“If I don’t know, then I cannot act,” he said.

Danone, which had annual sales of €25.3bn last year and employs about 100,000 people, is smaller than its European rivals Nestlé and Unilever, which delivered €77bn and €51bn in revenue respectively last year.

Bernstein analyst Bruno Monteyne said Danone’s problems were deep-rooted and would not be easy to fix. “Danone is in structurally weak categories and even in the ones that show some growth, they tend to lose market share, such as dairy alternatives in the US,” he said, referring to how newcomer Oatley had muscled into plant-based milks with savvy marketing.

Analysts have been debating whether De Sainte-Affrique will need to undertake major investment to stoke growth at Danone, which would imply a “margin reset” to lower levels. Other consumer staples companies under new leadership, including Reckitt Benckiser and Beiersdorf, have announced such investment plans in recent years.

“The market is concerned about a reset and what is and isn’t priced there,” wrote Jefferies analyst Martin Deboo, in a note after Danone’s quarterly results in August. “We’re not convinced that a reset is required” but if one is, then Danone can afford one, he added.

Another dilemma will be whether to sell Danone’s bottled water business, the smallest of its three units. Some analysts and investors support such a move, not only because of its lower growth prospects but also because environmentally minded consumers have become more critical of its heavy reliance on plastic.

De Saint Affrique will be working under chair Gilles Schnepp, who has sought to draw a line under the Faber era by proposing a governance overhaul. In July, Danone announced that it would reduce its board size from 16 to 12, and replace six members by 2023 and another four in 2024.


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