Danone exploring all options for Russia business as global sales rise 7.1%

FRANCE – French multinational food group Danone is exploring all options for its business in Russia following the country’s invasion of its neighbor Ukraine.  

The Paris headquartered company however maintains that there was no decision at this stage to exit the country. 

“The position of Danone regarding its business in Russia has not changed. All options are on the table and the group is monitoring the situation in close cooperation with the French government,” a group spokesperson said. 

A source close to the matter had explained that the decision was meant to protect the company’s assets in addition to shielding local staff from trouble. 

Danone is also seeking a properly structured exit to avoid cutting the local population from food supply if it pulled out, according to the source. 

The Activia and Alpro owner earned about 5% of its revenues in Russia in 2021 and less than 1% in Ukraine. 

Last month Danone said it would continue local production in Russia of essential dairy and infant nutrition products, but had cut other ties with the country over its war in Ukraine.  

Quarterly sales rise 

Danone recently reported Q1 net sales growth of 7.1% on a like-for-like basis, in what the dairy giant described as a “good start to 2022”. 

The company posted first-quarter net sales of €6.24 billion (US$6.79 billion), compared to €5.66 billion (US$6.16 billion) in the year-ago quarter with price and volume/mix contributing 4.9% and 2.2%, respectively.   

Danone’s Specialized Nutrition and Waters businesses led the company’s 5.7% growth in Europe while strong performance in all categories helped North America achieve a 5.5% growth.  

The company’s China, North Asia & Oceania zone saw like-for-like sales growth of 15.3% led by Specialized Nutrition, while in the rest of the world growth was led by EDP and Waters. 

The company’s Essential Dairy and Plant-based (EDP) division however delivered a “soft quarter,” with plant-based growing ‘low-single-digit’ and dairy posting flat growth.  

Danone says that it continues to expect price-led like-for-like sales growth in the region of 3-5% for the full year. 

Lactalis takeover speculation grows 

Meanwhile, there is growing speculation over a possible takeover of Danone’s business by Lactalis, the world’s largest dairy company by annual sales. 

French business publication La Lettre A has reported that Lactalis is weighing up pursuing a full acquisition of its French peer or a bid for a clutch of the Activia maker’s assets. 

Asked about Lactalis’s reported interest in a call with analysts, Danone CFO Juergen Esser said: “We are working very actively to fix our under-performing assets. We will update you when there is something new.” 

Bruno Monteyne, an analyst at investment bank AllianceBernstein said there could be some merit in a tie-up between the businesses. 

“The complementarity of their activities could not be better,” he said. “It would also provide revenue synergies for Lactalis in the US and China.” 

Monteyne however notes said the initial hurdle seems to be size, with privately-owned Lactalis about 12% smaller than listed Danone in revenue terms. 

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