Danone gives plans to reduce costs as income slips

by Jeff Gelski
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PARIS — Groupe Danone S.A. gave details on its cost-reduction plans on Feb. 19, the same day the company reported a dip in fiscal-year net income. The company plans to eliminate about 900 management and administrative positions across 26 European countries. The company expects the overall cost-reduction plan to lead to €200 million ($267 million) in savings in Europe.

For the fiscal year, Paris-based Danone had net income of €1,787 million ($2,390 million), which compared with €1,855 million in the previous fiscal year. Underlying fully diluted earnings per share in the 2012 fiscal year was €3.01, up from €2.89 in the previous fiscal year. Fiscal-year sales increased 5% to €20,869 million ($27,908 million) from €19,318 million.

Revenues and operating income, however, slipped in Europe.

“But 2012 also saw some of our business in Europe come under pressure from a severe deterioration in overall consumer demand, which led to a 3% decline in our revenues in this region and a decline of over 10% in our operating income,” said Franck Riboud, chairman of Groupe Danone. “Clearly this situation is not sustainable, and we will overcome it. In December we set a €200 million target for savings and announced that we intended to launch a plan to adapt our organization.

“Today we are initiating discussions with our (European) Works Council over the plan’s main measures, which are designed to win back our competitive edge and achieve greater efficiency in Europe.”

The cost-reduction plan in Europe includes combining teams from several countries into multi-country units, which will reduce about half of the management units. Subsidiaries of several management functions that currently operate separately will be combined. The plan is designed to boost responsiveness and speed up decision-making, according to Danone.

Danone’s operations outside Europe now generate 60% of the company’s total sales, Mr. Riboud said. Those geographical areas reported profitable growth averaging over 10% in 2012, he said.

Fiscal-year sales in the company’s Fresh Dairy Products business line rose to €11,675 million from €11,235 million. In the United States, new production capacity for Greek-style yogurt came on line in the second half of the year.

Fiscal-year sales in the company’s Waters line rose to €3,649 million from €3,229 million. Growth in emerging markets continued to drive Waters’ performance. In Baby Nutrition, fiscal-year sales increased to €4,257 million from €3,673 million, and in Medical Nutrition, fiscal-year sales increased to €1,288 million from €1,181 million.

For fiscal 2013, Groupe Danone expects like-for-like sales growth of at least 5%. Trends in consumer demand may continue to show contrasts from region to region with overall trends negative in Europe. The company expects the cost of raw materials and packaging materials to remain high with moderate growth in 2013.
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