Danone: Asset Recycling in China – 09/05/2022 at 11:21

(AOF) – Danone announced last Friday night that it had reached an agreement with Mengniu to sell its 25% stake in Yashili and its 20% stake in the Inner Mongolia Dairy joint venture. At the same time, Danone announced the acquisition of 100% of Dumex Baby Food Co Ltd, a Chinese infant formula manufacturer, owned by Yashili, and the closure of these operations will not necessarily be simultaneous. Subject to compliance or waiver of the terms of each of the proposed transactions, the first closing could take place this year.

Further announcements will be made in connection with compliance or, as the case may be, a waiver of the terms of the proposed transactions in accordance with the market rules applicable in Hong Kong. Danone announced in Mengniu in 2021 and its completion will end the partnership between Danone and Mengniu.

China remains a very strategic country for Danone, and this announcement in particular will enable Danone to enhance its ability to produce infant formula domestically. In line with capital allocation priorities, the expected proceeds from the operation will be allocated to Danone debt reduction.

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the main points

– The global leader in the food industry: first in fresh dairy products (Activia, Jervis, Alpro, Oykos, Actimil, etc.), and second worldwide in infant nutrition and medical nutrition (Bledina, Domex, SGM, Aptamil, Thiocet, etc.) the third in bottled water (Maison, Fulvik, Evian and Aqua);

Sales of €24.3 billion divided into 3 divisions: dairy or vegetable products with 54%, specialty nutrition with 31% and bottled water;

Revenue is balanced between Europe and North America (57%, including 22% for the US) and the rest of the world – Argentina, Brazil, Mexico, China, Indonesia, Russia, Turkey and Morocco;

– Model 2030 “One Planet. One Health”: Based on the purpose of “Providing Health through Innovation”, accelerating growth, maximizing efficiency, developing committed brands, and enhancing profitability;

– open but restricted capital (dual voting rights, voting limited to ordinary general assembly meetings, etc.), Gilles Schneeb chaired the 16-member Board of Directors, Antoine de Saint-Afrique as General Manager, François Ribaud as Honorary Chairman;

Good balance sheet with net debt of €10.2 billion and free cash flow of €2.5 billion.

Challenges

– Renov Danone 2024 strategy: based on 4 pillars: identifying future growth areas, restoring competitiveness, selectively developing and managing the portfolio / With new 2022-2024 targets: 3-5% annual increase in sales and operating margin +12% thanks to savings Domestic plan first / including intermediate target 2023-2024: portfolio turnover of 10% of turnover, investments limited to 4.5% of turnover and increased need for working capital;

– The innovation strategy contributes to a quarter of annual sales and is implemented in 2 international centers and 7 specialized centers: 6 topics: microorganisms, plant matrices, packaging and post-plastic, natural and organic, allergy and healthy aging / Collaboration with consumers using agile methods;

– Long-term environmental strategy: “Climate Acceleration Plan” with an investment of €2 billion (2020-22) in the group’s brands, agriculture, packaging (84% recyclable) and digitization / “WeActForWater”: halving the use of virgin plastic, for example Example, in 2025, 50% of recycled PET (rPET) worldwide and 100% in Europe, accelerating carbon neutrality in Europe by 2025 (2020 for Evian and Wulvik), Water Access Fund (50 million people by 2030) / B Corp certification for 50% of turnover

– Strengthening the vegan products business with the purchase of Follow Your Heart (expected sales of €5 billion in 2025 versus €2 billion in 2020);

– Ongoing portfolio review, further dispositions are expected after those of the Aqua d’Or in Denmark.

Challenges

– the effect of raw material inflation: an increase in milk prices by 10 to 12% (+ 10% in sales);

– the impact of the Russo-Ukrainian war: stopping unnecessary imports and exports (mainly water) and preserving the production of dairy products and children’s nutrition (13 factories, 8000 employees, i.e. 5 to 6% of sales and 3 to 5% of operating profit);

A total renewal of the 12-member board of directors for the long-term by 2023.

Prosperous fair trade in France

This trade has nearly tripled in five years, reaching €1.83 billion in 2020 in France. Based on a more profitable model for southern producers, developed by the NGO Max Havelaar in 1988. The latter ranks 90% of the world’s fair trade with a total of $10.7 billion in 2019. This trade is 95% of food products. Coffee, chocolate, bananas and cane sugar account for three-quarters of sales. On our territory, the NGO will name the wheat from the gills and the milk from the Poitou-Charentes. The French market is developing through mass distribution, which represented 54% of sales in 2020 compared to 42% in 2018. However, while organic accounts for 6.5% of consumption in France, the share of fair trade is limited to 1.5%.

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