(AOF) – Danone announced via a press release its decision to launch the process of “transfer of control of its Essential Dairy and Plant-based activity (EDP, essential dairy products and of plant origin-Editor’s note) to Russia”. The French leader in dairy products and infant nutrition has indicated that the operation could result in a depreciation of up to one billion euros.
“During the first 9 months of 2022, EDP activity in Russia represented around 5% of Danone’s consolidated turnover”, underlines the company. “It had a dilutive contribution to like-for-like sales growth and to the group’s current operating margin”.
The French agri-food group announced in late March that it would continue its local production in Russia of essential dairy products and infant nutrition even if it had cut its other ties with the country because of the war in Ukraine.
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Key points
– World leader in the food industry: first in fresh dairy products (Activia, Gervais, Alpro, Oikos, Actimel brands, etc.), second worldwide in infant and medical nutrition (Blédina, Dumex, SGM, Aptamil, Theocate, etc.) and third in bottled waters (Mizone, Volvic, Evian and Acqua);
– Sales of €24.3 billion divided into 3 divisions: dairy or vegetable products for 54%, specialized nutrition for 31% and bottled water;
– Revenues balanced between Europe-North America (57%, including 22% for the United States) and the rest of the world -Argentina, Brazil, Mexico, China, Indonesia, Russia, Turkey and Morocco;
– Model 2030 “One Planet. One Health”: based on the purpose of “providing health through innovation”, accelerating growth, maximizing efficiency, developing committed brands and enhancing profitability;
– Open but blocked capital (double voting rights, voting limited to AGMs, etc.), Gilles Schnepp chairing the 16-member board of directors, Antoine de Saint-Affrique as general manager and François Riboud being honorary chairman;
– Healthy balance sheet with net debt of €10.2 billion and free cash flow of €2.5 billion.
Challenges
– Renov Danone 2024 strategy: based on 4 pillars: identify future growth areas, regain competitiveness, develop selectively and manage the portfolio / with new 2022-2024 objectives: 3 to 5% annual increase in sales and margin operational by +12% thanks to the savings of the Local First plan /including an intermediate objective 2023-2024: portfolio rotation of 10% of turnover, investments limited to 4.5% of turnover and increase in the need for working capital;
– Innovation strategy contributing to a quarter of annual sales and carried out in 2 international centers and 7 specialized centers: 6 themes: microbiota, plant matrices, packaging and post-plastic, naturalness and organic, allergies and healthy aging / co- building with consumers using agile methods;
– Long-standing environmental strategy: “Acceleration plan for the climate” with €2 billion invested (2020-22) in the group’s brands, agriculture, packaging (84% recyclable) and digitalization / “WeActForWater” : halving the use of virgin plastic, i.e., in 2025, 50% recycled PET (rPET) worldwide and 100% in Europe, accelerating carbon neutrality in Europe by 2025 (2020 for Evian and Volvic ), water access fund (50 million people by 2030)/B Corp certification for 50% of turnover;
– Strengthening, with the purchase of Follow your Heart, of the plant-based products business (sales expected at €5 billion in 2025 vs. €2 billion in 2020);
– Ongoing review of the portfolio, other disposals being expected after that of Aqua d’or in Denmark.
Challenges
– Impact of raw material inflation: 10 to 12% increase in milk prices (+10% in sales);
– Impact of the Russia-Ukraine war: stoppage of non-essential imports and exports (mainly water) and maintenance of the production of dairy products and infant nutrition (13 factories, 8,000 employees, i.e. 5 to 6% of sales and 3 to 5% of operating profit);
– Total renewal of the board of directors, of 12 members in the long term, by 2023.
Development of the Chinese dairy industry
The Chinese government encourages the consumption of dairy products to improve the nutrition and immune defenses of the population, while seeking to reduce the country’s dependence on imports. Wishing to turn the page on the melamine infant milk scandal, which affected 300,000 babies in 2008, milk production is picking up again in the country, after ten years of stagnation. The big industrial groups (Mengniu, Yili, Youran or Modern Dairy) do not export and concentrate on a domestic market, which is growing by 4 to 5% per year. They develop very large farms and rely heavily on innovation, investing four times more than all their competitors in the world.