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Danone Warns of Tough Start to Year

Danone said on Thursday 2021 would be a year of recovery with a return to profitable growth in the second half following a tough first quarter and after the coronavirus crisis hit the French food group’s 2020 sales and profits.

Chairman and Chief Executive Emmanuel Faber, who is under growing pressure as activist shareholders push for management changes to lift returns, said Danone’s share price - which is at seven-year lows - “is not where we would like it to be”.

He added that he was open to dialogue with investors. There was, however, no word on governance changes.

Danone said its 2021 recurring operating margin would be broadly in line with the 14% of sales achieved in 2020, although it warned that the first quarter would still be tough due to unfavourable comparables in particular on its Specialised Nutrition operations in China.

The world’s largest yoghurt maker also said it would slash its 2020 dividend by 8% to 1.94 euros per share, to reflect weaker earnings.

“We are focused on preparing our return to sales growth as soon as the second quarter and fully confident that we are building the right conditions and momentum to reconnect with our profitable growth as soon as H2,” Faber said in a statement.

Danone made the forecast after it reported 2020 like-for-like sales fell 1.5%, which was slightly better than analysts’ estimates in a company-compiled consensus for a 1.6% decline.

The maker of Evian and Badoit bottled water said this reflected a fall in water sales to the restaurant sector during government-enforced lockdowns. Coronavirus travel restrictions in Asia also weighed on the sales of infant formula.

The Essential Dairy and Plant-based (EDP) business however was back to solid 3.4% sales growth in 2020, underpinned by both Essential dairy, up low single-digit and the Plant-based business whose sales grew 15% year on year.


The 2020 operating margin declined by 150 basis points on a like-for-like basis to 14% of sales, in line with the company’s guidance and analysts’ expectations of a 14% margin 

This reflected costs inked to the pandemic incurred during the year to keep employees safe and insure business continuity and a lower contribution from Specialized Nutrition, Danone’s most profitable business, due to a slowdown in China.

In contrast, Swiss rival Nestle on Thursday posted organic sales growth of 3.6% and an operating margin of 17.7% of sales for 2020. [L8N2KO1CR]

U.S. investment company Artisan Partners, which said it had built up a stake of over 3% in the Activia yoghurt maker, has criticised Danone’s strategy and its share price performance demanding the company split the chief executive and chairman roles.

Activist investor Bluebell, which has not disclosed its holding, has called on Faber to step down.

Faber, in his seventh year as chief executive, has pursued a strategy centred on diversifying the group’s portfolio into fast-growing products featuring probiotics, protein and plant-based ingredients to mitigate slower growth in dairy.

In line with that strategy Danone on Friday said it had agreed to buy U.S. plant-based foods specialist Earth Island, in a deal that would help the group reach a target of generating 5 billion euros ($6.1 billion) of plant-based sales worldwide by 2025.

Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta, Edmund Blair and Emelia Sithole-Matarise

Source: Reuters

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