PARIS (Reuters) -French food group Danone targets 3-5% annual sales growth over three years and will step up investment in its brands and part with non-performing assets under a fresh strategy outlined by new chief Antoine de Saint-Affrique on Tuesday.
Saint-Affrique, who took over as the chief executive of the world’s largest yoghurt maker in September, must conduct his revival plan amid mounting input costs, coupled with further uncertainties caused by Russia’s invasion of Ukraine, which has forced Danone to suspend investments in Russia.
Danone’s brands include Activia yoghurt, Evian and Badoit water as well as Aptamil baby formula.
The “Renew Danone” plan is “all about creating the conditions for sustainable and competitive growth and then delivering consistently in a way that creates value for all,” Saint-Affrique told investors meting in Evian, near the French Alps.
While “there is nothing wrong” with Danone’s three businesses – dairy and plant-based products, infant formula and bottled water – the key to stoke sales growth was to improve execution, invest sufficiently behind worthy brands and innovation and part with underperforming assets in those businesses.
“There will be no sacred cows, there will be no taboos,” Saint-Affrique said.
About 25% of Danone’s sales come from businesses that were underperforming.”So, we will fix them or sell them,” he added.
The Chinese water brand Mizone has been one of these challenged brands though it returned to growth in 2021. Danone was also looking at how to fix its business in Morocco.
Danone announced on Sunday that it is suspending investments in Russia following the country’s invasion of Ukraine but would continue to operate its dairy and baby food business there. Saint-Affrique said it is working on plans to mitigate the impact of sanctions there and “all options are on the table”.
MARGIN RESET FOR 2022
The food giant said it would reinvest all of the 700 million euros ($761.04 million) of Local First savings in 2022. It targets a productivity higher than last year’s 5% and a low to mid-teens level of input cost inflation against 8% last year.
As a result, Danone expects its operating profit margin to decline to more than 12% of sales in 2022 from 13.7% in 2021, with like-for-like sales growth in a range of 3% to 5% against 3.4% in the year-ago period.
By 1409 GMT Danone shares were up 0.4%, having erased earlier losses.
“Announcement on the portfolio rotation is clearly good news. Guidance for 2022 is with no surprise despite the fact a part of the consensus will have to revise down,” Oddo analysts said in a note. The consensus forecast a 2022 margin of 13.5%.
For the 2023-2024 period, Danone set a goal for “profitable growth” and said it targeted like-for-like sales growth between 3% and 5% with a recurring operating income growing faster than like-for-like net sales.
Under the plan, Danone will selectively expand in terms of segments, channels and geographies and seek bolt-on acquisitions and divestitures, with a portfolio rotation reaching around 10% of net sales and an annual capital expenditures enveloppe equivalent to up to 4.5% of net sales.
Saint-Affrique replaced Emmanuel Faber, who was abruptly ousted as chairman and CEO last year following clashes with some board members over strategy and calls from activist funds for him to resign over the group’s lacklustre returns compared with some rivals.
($1 = 0.9198 euros)
(Reporting by Dominique Vidalon;Editing by Sudip Kar-Gupta, Sherry Jacob-Phillips and Susan Fenton)