Danone: Reshaped ‘local-first’ organization: a key step to restore
value creation in a COVID-world
2020 Investor
Update EventPress release – Paris, November 23, 2020
Reshaped ‘local-first’
organization:a key step to restore value creation
in a COVID-world
- Shifting to a local-first and efficient organization,
unlocking future growth and margin expansion
- Move from category-led to local organization; 6 additions to
Executive Committee to reflect new zones
- €1bn cost savings expected by 2023 including through 20%
reduction in overhead costs
- Updated mid-term profitable growth ambition
- Targeting mid-term recurring operating margin at mid-to-high
teen levels
- First milestone: > 15% recurring operating margin in
2022
- 2020 full-year guidance confirmed
|
All references in this press release to
Like-for-like (LFL) changes, Recurring operating income and margin,
free cash flow (FCF) correspond to financial indicators not defined
in IFRS. Their definitions, as well as their reconciliation with
financial statements, are included in the press release dated
19 October 2020.
Emmanuel
Faber - Chairman and CEO statement:
“The global pandemic has accelerated a
number of the patterns of the food revolution and altered
others. Among the aspects that are favorable to Danone:
the increased perceived relationship between health and food and
notably on immunity to which fermented proteins, and probiotics
participate but also the accelerated conversion to plant-based
diets or the boom in e-commerce. Conversely, we are confronted with
factors such as the closure of out-of-home channels affecting
everywhere our Water business, with the reduction of SKU ranges by
our retail partners, or the announced dip in birth number dynamics,
but also with the elevated cost of operating with sanitary measures
and the cost of securing procurement and physical flaws of our
products.Last July, we announced that we would give
ourselves till the end of the year to work on our adaptation plan.
Here we are. Last October 19th, we laid the ground for our
plan which we have finalized and are announcing today. This
transformation is necessary because we are at this stage in the
paradoxical situation where on one hand, our One Planet. One Health
frame of action anchored in a portfolio of healthy and sustainable
products and brands is even more relevant in today’s world, but on
the other hand we are unable to fully reap the benefits of the
current positive trends nor face in an optimal way their
challenges. Our recent results evidence this. We definitely need to
reinvent ourselves, as a company, very much like all of us are
doing it in our own ways of living, working or consuming.
In this reinvention of food, the most prominent paradigm
accelerated by the pandemic is undoubtedly the trend toward
local. It is a systemic evolution whereby the diversity of
dietary habits rooted in their local cultures is now considered as
a key security and resilience factor for global food systems. It is
also a major political trend with the strong emergence of national
food sovereignty narratives in many countries. It is finally and
for long a consumer trend where many perceive local as a way to
regain control over their food.Our adaptation plan in this
context can be summarized in just two words « Local First
». This plan, that we announce this morning, with the full
support of our Board, and of course the full commitment of our
teams, has also been built listening to our 100,000 employees
during the preceding cycles of yearly consultation that we are
organizing with them. It has three major axes.
- To start with, ”Local First” is a plan by which our local
business units will regain autonomy, everywhere, as close as
possible to consumers and the field. For this, our business
entities in countries will not anymore be dependent on a specific
global category organization but will be unified in one single
local business unit playing with strength and efficiency on the
whole range of local specificities to win in our capability to
serve our clients and consumers and therefore to grow. Because each
of them has a unique contribution, expertise, experience, we also
want our countries to participate actively to the global management
of the company. Consistent with that, they will be represented at
the Executive Committee by zone presidents.
- Simultaneously, by giving power back to countries, we will
regain agility, by shortening our decision-making processes: for
instance by having only two decision-making levels on capital
expenditure where there are five today or two levels to manage a
brand like Activia where there are four today. By doing this, we
will profoundly change the nature of the role of our headquarters
because central functions will have a new role essential to serving
the competitiveness of our countries. These shared or “common”
functions will harness and foster the collective intelligence which
makes the uniqueness of this company: our culture, our talents, our
expertise, the data and the common language that they will allow,
but also the access to technologies and resources in capital. It
will be critical that these common functions are symbiotic with our
local entities and better connected to our business. This is among
the reasons why we will study relocating our global headquarters in
Paris closer to our French business headquarters. This
simplification and evolution in the role of our common functions
will translate in reductions of around 1,500 to 2,000 positions in
local and global headquarters, with up to 25% of current job
positions for our global headquarters. And we will on this topic
pay particular attention to the quality of the human and social
aspects of this transformation including by implementing the
specific policies that we have designed to face the current crisis
with our social values and principles.
- Finally, we will gain efficiency and competitiveness. Local
First works hand in hand with the implementation of our new
integrated value chain organization End-to-End Design-to-Delivery
which we announced on October 19, which will allow us to
access new sources of productivity including through
digitalization. Combined, these pillars of the plan will reinforce
our ability to grow and also to generate recurring savings
amounting to €1 billion by 2023, which will be partly reinvested in
support of our growth and our brands but also to re-enforce our
margins.
Historically, Danone was a growth champion from
which derived our gradual improvement of our margin. Over the last
few years, we have accelerated the progression of our margin in a
more complex growth context. We have been able to raise by 50% the
recurring EPS of the company over the five years that preceded the
pandemic. After 12 months of COVID, we now forecast thanks
to this adaptation plan to return to profitable growth in less than
12 months, as soon as H2 2021 and for our recurring operating
margin to return to its pre-COVID levels at more than 15% by
2022.Growth is sine qua non condition of our
success, of our positive impact. But in these new circumstances, I
want to insist on the utmost importance of the profitability of our
model, because this year has shown that the
competitiveness of our businesses, of our brands, in our countries
could be destabilized by strong and brutal external factors. All
this makes me deeply convinced that, for us to be able to continue
to invest for the long-term, in health, in agriculture, in our
ecosystems, fundamentally to fulfill our mission, we have to
quickly and sustainably add a safety margin to the level of the
operational profitability of our business.
We therefore need to set an additional, strong, ambition
for our margins. We can’t just wait for growth to bring
it. We must build this ambition from an agenda that we can own and
is in our hands. And that is: how we organize ourselves, our ways
of working, our efficiencies, and the operational optimization of
our portfolio. Because we are strongly confident in this agenda, we
are releasing with this adaptation plan financial objectives that
are setting a mid-term ambition on our recurring operating margin,
way above the highest objectives that we have ever set for
ourselves.I know I can count on the energy and the
commitment of all the Danone teams around the world to
work in implementing our Local First plan. I believe it is
fundamentally aligned with the deep DNA of our company. I would
like to express my gratitude to our teams for the remarkable work
they’ve been doing over the last months in incredibly challenging
conditions. And I also would like to thank them for their personal
contribution to the global consultation that was completed last
week in which more than 85,000 of our employees have given feedback
that will guide us in the local implementation of our plans in
consultation with our unions and employees
representatives.I also wish to thank all the members of our
Board of directors who have been so closely guiding our
journey through this health crisis over the last nine months, for
their full support to our plans and objectives announced
today.”
*
*
*
Danone will today host an Investor Update as
part of a series of events covering the adaption plans announced in
Q3 results on 19 October to counter the challenges and win the
opportunities emerging from a new COVID-world. This first event
will focus on how Danone will unlock significant efficiencies and
reconnect with its profitable growth ambition by shifting from a
category-led to a local-first organization. Todays’s presentation
to analysts and investors will be broadcast from 9:00 a.m. (Paris
time) on Danone’s website (www.danone.com). Related slides will
also be available on the website in the Investors page under the
Investor Seminar
section. Objectives:
updated financial targets
- By reshaping its organization, Danone targets to
deliver €1 billion cost savings by 2023, including €300
million from reduced cost of goods and €700 million related to
general and administrative costs (representing around 20% reduction
in overheads costs). Expected savings will be partly reinvested to
fuel growth opportunities and contribute to progress the profitable
growth agenda of the company. Total one-off costs related to the
new organization initiatives are expected to be around €1.4 billion
for the 2021-2023 period.
- Danone also reconfirms its mid-term ambition of achieving 3% to
5% profitable like-for-like revenue growth. Taking into account the
€1bn cost savings plan announced today, the company now targets
mid-term recurring operating margin to reach mid-to-high
teen levels, with the first milestone to be above
15% in 2022.
- The company also confirms its 2020 guidance of
full-year 14% recurring operating margin and the delivery of €1.8bn
free cash flow despite more challenging market conditions in the
fourth quarter created by new waves of restrictions and closures
since Q3 announcement from local pandemic spikes, notably in
Europe.
Executive
Committee: enlargement to reflect local-first
organizationDanone announced on October 19th the company
would be organized in two macro-regions, led by Shane Grant for
Danone North America, and Véronique Penchienati-Bosetta for Danone
International. To ensure decisions are pushed down to a local
level, Danone International will be organized under five zones:
Europe, Asia/Africa & Middle East, Greater China & Oceania,
CIS & Turkey and Latin America. Their Presidents will be
appointed and, as such, be members of the Executive Committee in
2021 after the relevant information consultation processes: Floris
Wesseling for Europe; Corine Tap for Asia, Africa & Middle
East; Bruno Chevot for Greater China & Oceania; Charlie
Cappetti for CIS & Turkey; and Silvia Davila for Latin America.
Jean-Marc Magnaudet will also join the executive committee team to
represent the Specialized Nutrition Unit to keep and strengthen the
category expertise. They will report to Véronique
Penchienati-Bosetta, CEO of Danone International. In the meantime,
they will be part of the Executive Committee in their current roles
and as study leaders of the new organization.
o o O o o
FORWARD-LOOKING STATEMENTS
This press release contains certain
forward-looking statements concerning Danone. In some cases, you
can identify these forward-looking statements by forward-looking
words, such as “estimate”, “expect”, “anticipate”, “project”,
“plan”, “intend”, “objective”, “believe”, “forecast”, “guidance”,
“foresee”, “likely”, “may”, “should”, “goal”, “target”, “might”,
“will”, “could”, “predict”, “continue”, “convinced” and
“confident,” the negative or plural of these words and other
comparable terminology. Forward looking statements in this document
include, but are not limited to, predictions of future activities,
operations, direction, performance and results of Danone.
Although Danone believes its expectations are
based on reasonable assumptions, these forward-looking statements
are subject to numerous risks and uncertainties, which could cause
actual results to differ materially from those anticipated in these
forward-looking statements. For a detailed description of these
risks and uncertainties, please refer to the “Risk Factor” section
of Danone’s Universal Registration Document (the current version of
which is available on www.danone.com).
Subject to regulatory requirements, Danone does
not undertake to publicly update or revise any of these
forward-looking statements. This document does not constitute an
offer to sell, or a solicitation of an offer to buy Danone
securities.
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