Danone has around 40% of its sales in Western Europe

Danone has around 40% of its sales in Western Europe

Danone chief Franck Riboud has today (19 February) insisted the company has to change the way it does business in Europe, where the Activia firm plans to cut 900 jobs.

Riboud, speaking after Danone announced the job cut plans and a set of annual results that included lower sales and margins in Europe, said the company was not going to "sleep waiting for better days" in the region. It was, he insisted, time to "re-adapt" Danone's business in Europe in order to return to "strong, sustainable and profitable" growth.

"We are going to take care of our situation. We consider the crisis in Europe will not stop tomorrow. We can't wait. We give ourselves two years to re-adapt our organisation, to simplify it," Riboud said.

The cuts, which were presented to staff officials today, represent around 3.3% of Danone's European workforce. Under Danone's proposals, they will take place over a two-year period. The cuts form part of a wider cost-savings plan announced in December to save EUR200m.

The French company, which has around 40% of its sales in western Europe is become more exposed to the region's debt crisis than some of its competitors.

In 2012, Danone's like-for-like sales in Europe fell 2.4%. Its trading operating margin in the region dropped by 160 basis points. 

As part of its restructuring plans, Danone will cut its "management units" by around half and combine teams from several countries into "multi-country units".

However, Riboud said: "We will keep the specificity of each of our businesses ... the management and the people we need to stay specific for the country. We are going to ask less of the smaller countries. We are going to ask the bigger countries, in terms of function, to take care of the smaller ones."

While Danone reported falling sales in Europe in 2012, the company's businesses in emerging markets were "booming". However, he suggested it would be wrong to focus solely on emerging markets as a way of helping offset sales in Europe.

"It is very fashionable to say everything is doing very well because of the emerging countries. I don't want to be the nasty guy but I've been doing this job for 30 years," Riboud said. "Okay Europe is in trouble, the emerging countries are booming, but nobody knows what the situation will be in ten years' time because these countries also present some difficulties, it could be political ... it could be raw material prices ... so we have to be careful to work on both sides to be the best in class.

"The emerging markets snowball is going very fast year after year, and the snowball of Europe is getting lighter and lighter. This company will reinforce the model within the next five years; we are going to do better things in Europe."

Ribould said the solution in Europe is not to push down prices but to invest in improving volumes by investing in "speaking to the consumer" through innovation and reducing the costs in the functional jobs across its operations.

"First of all grow the volume, second play the mix and you will deliver the margin," he explained. "The idea for us is to reduce the cost, not of what we put behind the product, ie advertising, promotional, digital, but to reduce the cost we have in the functional jobs around that. To support brands because we continue to think we can really have success with these brands and you will see a difference. We have growth plan[s] everywhere. This year we ask all our general managers to focus on top-line growth and our financial team will take care of the rest."

Asked whether the cost cuts would include plant rationalisation, CFO Pierre-Andre Terisse said any decision on would be made locally and not Europe-wide.

"We don't believe we have an overall question or issue of capacity. Capacity has continued to be utilised very well in most countries. Capacity issues will continue to be deal with on a country basis and not on a European level. All things in relation to operations, these will be local."

Looking to Danone's prospects in 2013, the company admitted its trading operating margin would fall. It forecast a slide of 30 to 50 basis points. The company has set a target of "at least" a 5% increase in like-for-like sales.

Terisse said the key for Danone in 2013 will be to return to "strong and profitable growth as soon as 2014". He said emerging markets and Europe could help Danone achieve that goal. "The ongoing development of our categories and brands in the Americas, Russia, Africa, Middle East and Asia, and at the other end, the gradual stabilisation of Europe, both in terms of sales and in terms of margin."

He added: "2013 is a year of transition because we need this year to deliver everything I have explained. Growth markets we will accelerate, we ask our people to focus on their profitable top-line growth and in 2014 we expect the group will go back to this strong profitable sustainable growth. That is the future of Danone."

Bernstein analyst Andrew Wood said the phrase "'transition year' never sounds too healthy" but he described the guidance as "mixed, but slightly positive."

Mainfirst analyst Alain Oberhuber said Danone's outlook met his estimations.

"We believe that the situation remains difficult. However, the announced concrete cost savings of EUR200m for FY 2013 ... will give Danone's share some support this morning."

Danone's share price was up 5.4% to EUR52.86 at 13:21 CET today.