SAN FRANCISCO, Feb. 26, 2021 /PRNewswire/ -- Please find following a letter sent by the Artisan Partners International Value and Global Value Teams to the board of directors of Danone SA.
In their letter, Daniel J. O'Keefe, Artisan Global Value Strategy Lead Portfolio Manager, and N. David Samra, Artisan International Value Strategy Lead Portfolio Manager, express their views on the company's recently announced year-end results and their suggested path forward for Danone.
Board of Directors
To the Members of the Board:
We write to you in our capacity as significant shareholders in Danone. We are long-term value investors managing collectively over $45 billion in long-only equity. Our investment teams have a proud track record of supporting European businesses as constructive shareholders with a very long-term investment horizon. Our attraction to Danone is the quality of its assets; however, it is our belief that the current strategy undermines the strength of its brands and ultimately the health of the company.
In response to press speculation regarding a board of directors meeting on Monday, 1 March, we are writing to share our updated views on the company's performance. According to press reports, this meeting is to address governance and management issues at Danone. We hope our observations are helpful in the board's decision on both leadership and strategy.
On 19 February, Danone reported year-end results that exhibited a continuation of poor performance. Danone's sales and volume growth, as well as profitability, continue to trail relevant category competitors. Comparisons to companies in the broad and unrelated processed food industry—as shown in the CEO's recent analyst presentation—are not relevant to Danone's categories.
Danone's water business has declined more than Nestle's; the sales decline of Danone's nutrition business is in stark contrast to the sales growth of Nestle and Abbott; and EDP reported growth well below its category. Further, much of the growth in the EDP business comes from the assets purchased in the expensive Whitewave transaction, while the underlying business continues to decline. These trends do not represent solely issues related to the Covid-19 pandemic—rather, they are a continuation of the trends reported over the last six years.
Management has appointed a new team and announced a new structure. Management in its own words is embarking on a reinvention and a reshaping of the company. Overhead put in place by the current management team is to be reduced, and brands purchased by the current management team are to be sold. Jobs created and employees hired by the current management team are to be terminated. These are all hallmarks of management failure, and they beg a fundamental and inescapable question: Given it is this management team that has driven Danone to disrepair over the past six years, why does the board of directors continue to support it?
There is an urgent need to address the board's structure and the company's leadership. The roles of CEO and Chairman should be split to reflect modern-day corporate governance. Governance standards also require that prior leadership leave the board. And logic demands more consumer goods experience on the board of directors. Finally, a new, non-financial CEO with consumer goods experience and a track record of success should be installed as soon as possible to restore Danone to the elevated status it deserves within the French business establishment.
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