Danone to cut costs by €1 billion as dairy experiences slow turnaround in Europe

Danone plans deliver €1 billion in savings by 2020, after a slower turnaround of dairy in Europe and major market volatility in 2016.

The company expects to spend better and more sustainably and to work more efficiently in order to deliver the savings.

Announcing its 2016 results today, Danone’s consolidated sales stood at €21,944m, up 2.9% on a like-for-like basis, while reported sales were down -2.1%, including changes in exchange rates (-5.5%).

In 2016, the Fresh Dairy Products division reported sales up +2.0% like-for-like, after a +0.6% growth in 2015.

This performance reflects mainly an acceleration in growth in the CIS and North America region, in line with expectations.

In Europe, sales trends were impacted by Activia’s performance and aggravated market conditions in Spain in the fourth quarter.

At this stage, Activia’s sales results are below expectations as the relaunch has not delivered the brand’s turnaround, Danone said.

Early Life Nutrition

Danone’s Early Life Nutrition sales rose by +3.5% in 2016, on a like-for-like basis and this performance includes a decline in ‘indirect’ sales to China.

In Europe (excluding ‘indirect’ sales to China), sales from domestic demand were flat, reflecting some contrasted performances: solid growth in the UK, Germany and Benelux and more difficult markets in France, Italy and Turkey.

In China, the transition of the overall indirect channel induced by a fast-changing regulatory environment continued in the fourth quarter, leading to further stock adjustments by traders.

Danone said that this transition is likely to continue until the new regulations are fully enforced in 2018, creating volatility.

Commenting on the results, CEO of Danone, Emmanuel Faber said that with the upcoming addition of WhiteWave, the company will soon start a whole new and exciting chapter of its alimentation revolution journey.

“While we delivered a robust performance leading to a very strong recurring earnings per share (EPS) growth in 2016, the challenges we faced, including a slower turnaround of dairy in Europe and major market volatility, are a clear case to step up in our ability to seize consumer opportunities and improve our efficiency.

“Today’s announced changes will drive horizontal collaboration and vertical delegation across our entire organisation, making us more agile to grow, closer to consumers, and driving consistency in resource allocation.

“I have decided to address our efficiency agenda in a radically new way, and to launch a comprehensive, company-wide program allowing us to spend better and more sustainably and to work more efficiently.”