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Danone to sell assets and shake up its management to cope with pandemic

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Danone CEO Emmanuel Faber has launched a strategic review of its businesses to revive the company’s fortunes.


patrick kovarik/Agence France-Presse/Getty Images

Shares in Danone rose more than 2% on Monday, after the multinational food and drinks group launched a review of its businesses and overhauled its management, in a bid to cope with disruptions caused by the COVID-19 pandemic.

Danone
BN,
+1.38%
,
which sells products that range from Danone (Dannon in the U.S.) and Activia yogurts to Evian bottled water, said it aimed to “rapidly reconnect” with its midterm goals, including delivering like-for-like sales growth of 3-5%.

To achieve this, it will carry out a full strategic review of its portfolio of brands, starting with Vega, the plant-based protein powders brand it acquired as part of its $10.4 billion takeover of U.S. organics food producer WhiteWave, as well as €500 million ($585.40 million) worth of assets in Argentina. Together, the two businesses account for about 2% of group sales.

Earlier in October, Danone announced plans to sell its remaining 6.6% stake in probiotic yogurt brand Yakult to shore up its balance sheet.

Read: Here’s what Danone’s CEO Says About Health Food and Having a Mission.

The review came as Danone posted a 2.5 % drop in like-for-like third-quarter sales, slightly worse than the 2.2% fall analysts expected.

Shares in Danone, which are down more than 25% so far this year, were trading 1.54% higher in early morning European trading.

By contrast, shares in Danone rival Nestlé
NESN,
+0.33%

have risen 2% this year, while Pepsi’s
PEP,
+0.21%

stock is up 3.7%, and Unilever’s
ULVR,
+0.02%

is up 12.4%.

Faber has been shifting the group’s portfolio into fast-growing areas such as probiotics, plant-based and genetically modified-free products, to encourage consumers to adopt healthier and more sustainable eating and drinking habits. In June, he predicted that the pandemic will increase demand for healthier, affordable food from millennials and other consumers.

Read: More healthy, affordable items on the menu for Danone, says CEO

”The irony is that a company with health and wellness at its core is unable to grow, just when those qualities should be at a premium. Q4 in Feb 2021 needs to be the start of a process of reconvincing,” Martin Deboo, analyst at Jefferies, wrote in a note ahead of the third-quarter sales.

“Our central conclusion is that Danone’s problem with the market is an issue of trust and confidence, as much as one of delivery per se,” Deboo added. He said Monday’s announcements were “steps in the right direction,” along a road to recovery he expects to be “hard.”

On Monday, Danone also said its chief financial officer Cécile Cabanis would leave the group in February, to be replaced by Juergen Esser, who holds the same role for the company’s Waters and Africa divisions.

Two macro-regional chief executives, Véronique Penchienati-Bosetta and Shane Grant, will be placed in charge of Danone International and Danone North America respectively.

Analysts at RBC Capital said that investors and analysts had never warmed to Cabanis. “It might be that her departure is an attempt to assuage some of their concerns regarding Danone or it might be that she felt, or was felt to be, the wrong person to implement the strategic review,” they wrote in a research note to clients.

“We see the implied focus on more localized execution as a positive, given the nature of the competitive challenges,” analysts at Jefferies said.

Danone reinstated its forecasts for 2020, targeting a 14% recurring operating margin and €1.8 billion ($2.1 billion) of free cash flow.

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