Wednesday, July 23, 2014

Danone strategy review for the next 50 years

Danone is promoting a revision of its strategy at a time when its Chief Executive, Franck Riboud, seeks to ensure long-term growth to ward off doubts that the French food company can survive on its own.
Riboud, who has been running for nearly 20 years, Danone, after replacing his father, asked his top executives to explore areas likely to be expanded, said a person familiar with subject. They will be presenting initial ideas at a meeting in September, with the goal to complete the new strategic plan until early 2015, according to the source.
"There is a profound reflection on what Danone need to do to that the Group continues to grow over the next 50 years," says the person. The maker of Evian water and Activia yogurt is studying whether to pursue big deals or partnerships to strengthen themselves. A spokesman for Danone confirmed the strategic review, but would not comment on the possibility of the company look for a large business.
Danone has been trying to recover from a series of knocks in recent years, starting with the effects of the crisis in Europe. A year ago, the company saw one of its main growth engines, the baby food market in China, be considerably affected by concerns about food safety.
"There is clearly a change of mentality underway, since the direction [the company] is publicly dealing with the problems they are having, which hesitated to do in the past," says James Targett, Ms Berenberg Bank analyst.
Danone's challenges have made analysts turn their attention to the relatively small size of the company in relation to Switzerland Nestle food giant.
After selling a series of secondary assets at the end of 90 years and beginning of 2000, Danone today has its core business in the areas of dairy products, foods for infants, water and medical nutrition.
With a market value of about € 36 billion ($ 49 billion), she is much smaller than Nestle, worth around € 180 billion. Some people within the company say she may be too small to compete with giants like porte, says another person apprised of the subject.
At an event for investors in June, Danone hinted that he was working on a plan named "Danone 2020". The Group stressed that the goal was to change the Organization and the cost base of its dairy business in Western Europe to improve profit margins, which have been declining for the past four years. Danone also claimed to be working to improve their return on capital-an indicator of ability to generate profitable investments.
The Group has been hampered by the stampede of consumers concerned about prices. Also faces the challenge of convincing the Chinese parents to trust their brands of infant formula after an alert, which proved to be false, a supplier regarding the safety of their food. The case sparked a recall of thousands of cans of baby formulas in eight Asian countries.
Analysts estimate that the weakness in the market of dairy products in Europe and infant foods in China will continue weighing on the result of Danone in the first half, which will be released Friday. It is estimated that their profit margin fall almost two percentage points to 11.4%.
Danone has taken steps to becoming leaner: cut costs, reduced the number of employees, closed factories and relocated executives. "The company is restructuring its business now, as I think they should have done two or three years," said Warren Ackerman, analyst at Société Générale.
Soon, Danone could become even smaller. She has negotiated with several stakeholders, in particular the Nestlé, the possible sale of its medical nutrition arm, according to people familiar with matter. The deal could reach $ 6 billion, depending on the size of the slice to be sold, say analysts. Danone and Nestle had no comment.
In a recent note to clients, analysts at Natixis resources manager said, "considering the tangible signs of change, an acquisition could become an increasingly plausible scenario"-PepsiCo and Nestle are the most likely buyers. Other analysts speculated about the possibility of Danone buying the American infant formula maker Mead Johnson Nutrition. The companies had no comment.
In 2005, due to rumors that the American Pepsi was considering making a bid for Danone, the France passed a law barring foreign investment in 11 sectors deemed strategic-named "Danone Law".
Some are not convinced that a large business is to occur. Ackerman said that the Group's emphasis on improving the return on invested capital, indicates that a large acquisition may be out of the question. "In my vision, she doesn't need the Mead if your business Chinese infant milk recover."
Valor Econômico - 23/07/2014
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