Danone CEO defends staying in Russia as he sets out global strategy

Danone’s new chief government has defended persevering with to function in Russia regardless of a western company exodus and dominated out promoting any of the group’s three predominant international companies as he set out his technique for the primary time.

At an investor convention in Evian on Tuesday, Antoine de Saint-Affrique unveiled his multiyear turnround plan for the French maker of dairy and plant-based milks, child formulation and bottled water. It features a vital lower to revenue margins from this yr to free money to spend money on product innovation and promoting because it strives to reignite income development after years of underperformance.

On high of the turnround effort, Danone faces successful to its enterprise from the battle in Ukraine and its fallout in Russia the place financial sanctions have begun to chew. Bernstein analysts reckon the corporate earns about 6 per cent of its €24bn in annual income in Russia, making it probably the most uncovered of Europe’s massive shopper teams.

Requested whether or not staying in Russia would threat damaging Danone’s popularity, de Saint-Affrique informed the Monetary Occasions: “It is rather straightforward to get drawn into black-and-white considering and demagogic positions, however in the long run our popularity is about our behaviour.

“We have now a accountability to the folks we feed, the farmers who present us with milk, and the tens of hundreds of people that rely upon us.”

Danone stated on Sunday it will not commit new funding to Russia, and that it will proceed to watch how the state of affairs evolves.

The corporate has about 8,000 staff throughout greater than a dozen manufacturing websites in Russia, the place most of its revenues come from dairy and yoghurt gross sales and its hottest model is an area one referred to as Prostokvashino.

Analysts say de Saint-Affrique, who took over in September, will probably be judged on whether or not his technique can really increase development throughout Danone’s three companies.

Earlier boss Emmanuel Faber was ousted after a boardroom energy wrestle triggered partly by his failure to ship on a 2015 pledge to realize 5 per cent annual natural gross sales development by 2020. That metric, which is carefully tracked by traders, had improved solely barely, from 2.1 per cent in 2016 to 2.6 per cent in 2019.

The pandemic made the duty more durable by denting gross sales of bottled water whereas pushing up prices from transport to uncooked supplies, and Danone nonetheless has not returned to 2019 gross sales ranges. Final yr, natural gross sales development rebounded to three.4 per cent, after declining 1.5 per cent in 2020.

As an alternative of huge asset gross sales, de Saint-Affrique has opted for a extra methodical strategy. “I don’t see a must essentially reshape the portfolio, however we are going to handle it far more actively than up to now,” he stated, including that the goal could be for portfolio rotation of about 10 per cent of internet gross sales.

He admitted that a few quarter of the enterprise was “underperforming” and wanted to be mounted rapidly. “And if we aren’t able to doing that, then all choices will probably be on the desk to seek out different methods of making worth.”

The refusal to contemplate main disposals might disappoint some traders who had hoped for a bolder technique, akin to offloading its bottled water enterprise that features the Evian and Volvic manufacturers. It’s Danone’s smallest and has decrease margins than different classes.

Danone additionally set out new monetary targets which have recurring working margin falling to 12 per cent this yr — its lowest degree since 2002 and down from 15 per cent earlier than the pandemic. Natural gross sales development will are available between 3 and 5 per cent this yr, largely led by value will increase to offset inflationary pressures.

The “margin reset” is consistent with the 12 to 13 per cent margins that analysts from UBS and Citi had predicted.

For 2023 and 2024, Danone stated it will goal to ship the identical natural development, whereas rising its recurring working revenue sooner than internet gross sales. No goal was given on recurring working margin.

“This plan is a renewal of the corporate and reset of our tradition and in addition to of our monetary targets and execution,” stated de Saint-Affrique.