Amid pressure from activists, Danone cautions about tough start to year
PARIS (FRANCE) – Danone on Friday said it would go back to profitable growth in the second half of 2021 after facing a tough first quarter. It doubled down on a plan expected to bring in turnarounds, but was criticised as too slow by a few investors.
Chairman and Chief Executive Emmanuel Faber has been through growing pressure as several activist shareholders were pressuring for changes in management to lift returns, which have pulled those of some rivals behind even during the COVID-19 pandemic.
Faber acknowledged on Friday that Danone’s share price – which is at seven-year lows – “is not where we would like it to be”, and added that he was open to dialogue with investors.
The group said it would provide more details of a revamp of its strategy as it lays focus on profitable brands at an investor day on March 25.
When asked whether he would agree for splitting the chairman and CEO roles, which some shareholders have called for, Faber said he was “not dogmatic” on the issue but did not provide any update.
Faber told an analyst conference call, adding that there was huge support from employees for the firm’s strategy. He said, “It might be a topic for the future, but you can’t expect any more comment on that today.”
US investment firm Artisan Partners, which said it had worked its way up with a stake of over 3% in the Activia yoghurt maker, has urged the company to sell off brands found to be underperforming like its Asia water label Mizone and make changes to its governance.
Activist investor Bluebell, which has not disclosed its holding, has called on Faber to resign. The fund on Friday stressed on its call for management changes.
Faber, in his seventh year as chief executive, has followed a strategy, which revolved around widening the group’s portfolio with a diverse range, into fast-growing products, which featured probiotics, protein and plant-based ingredients to lessen slower growth in dairy.
Danone on Friday said it had okayed to purchase US plant-based foods specialist Earth Island in a deal, which would help the group reach a target of making 5 billion euros ($6.1 billion) from plant-based sales worldwide by 2025.
The group’s like-for-like sales fell 1.5% in 2020, which was slightly better than what analysts predicted in a company-compiled consensus for a 1.6% drop.
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 sales of infant formula.
It warned that the first quarter is still likely to be tough due to unfavourable comparables, especially on its Specialised Nutrition operations in China.
That said, it added that its 2021 recurring operating margin would be broadly in line with the 14% of sales achieved in 2020 and said sales growth would make a return in the second quarter.
It also said it would bring down its 2020 dividend by 8% to 1.94 euros per share, to show weaker earnings.
Danone shares were up 2.8% at 0955 GMT.
The 2020 operating margin saw a drop by 150 basis points on a like-for-like basis to 14% of sales, adhering to the company’s guidance and analysts’ expectations.
This drew attention to the costs linked to the pandemic and a lower contribution from Specialized Nutrition, Danone’s most profitable business, because of a slowdown in China.