DANOY Danone (QX)

--Danone plans to reduce up to 2,000 positions in its local and global headquarters, and implement a "local-first" strategy

--The food company is targeting savings of EUR1 billion by 2023 and recurring operating margin in the mid-to-high-teen levels in the mid term

--The reorganization of its structure will lead to one-off costs of around EUR1.4 billion between 2021 and 2023

By Giulia Petroni

Danone SA on Monday said that it would cut up to 2,000 jobs as part of a newly set mid-term growth strategy and structural reorganization aimed at boosting profitability and increasing efficiencies.

The French food company said its shift from a category-led to a local organizational model will lead to reducing around 1,500 to 2,000 positions in local and global headquarters.

Danone is targeting cost savings of 1 billion euros ($1.19 billion) by 2023, part of which will be reinvested into its growth plan and the rest to secure margin expansion, it said.

Recurring operating margin is expected at more than 15% by 2022 and at mid-to-high-teen levels in the mid term.

The focus on margins and cost is being questioned by some analysts, who fear Danone might be doubling down on a strategy that has been in place for years.

"Danone's focus on rapidly enhancing its operating margin seems to mirror the group's strategy of the past four years," UBS said. "However, we worry that Danone's trading environment will prove more challenging this time around."

The company also expects to return to profitable growth as soon as the second half of 2021, and confirmed its expects to reach 3% to 5% profitable revenue growth in the mid term on a like-for-like basis.

The total one-off costs related to organizational activities are expected to be around EUR1.4 billion for the 2021-2023 period.

Danone last month said that the company would be organized in two macro-regions, Danone North America and Danone International. To ensure decisions are pushed down to a local level, the company said Danone International will be organized under five zones--Europe, Asia/Africa and Middle East, Greater China and Oceania, Commonwealth of Independent States and Turkey, and Latin America.

The new "local-first" plan, however, is expected to cause a long period of organizational turmoil, according to Bernstein. The reorganization also implies the company was unhappy about how brands have been managed under a more centralized structure, but doesn't provide a detailed analysis on how local teams will be able to run them more effectively, according to the bank.

"What really did go wrong? And why will the new organization deal with that better?" Bernstein said.

Danone confirmed its guidance for the full year, saying it targets a recurring operating margin at 14% and EUR1.8 billion in free cash flow in spite of challenging market conditions in the fourth quarter.

At 1141 GMT, shares traded 2.4% lower at EUR51.22.

Write to Giulia Petroni at giulia.petroni@wsj.com

(END) Dow Jones Newswires

November 23, 2020 07:03 ET (12:03 GMT)

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