NGUINI Jean-Yves BS5 1C

01/05/2012

MANAGEMENT FINAL ASSIGNMENT

ISM-ISEG GROUP 2011/2012
1

EXECUTIVE SUMMARY

The goal of this assignment is to give a practical approach to risk management in analyzing the Danone Case. In this assignment we must analyze the different risk that DANONE can have and find the best alternatives and solutions to deal with this risk. For obtain and propose the best solution possible, we are going to use the balance score card and risk score card of DANONE and analyze the financial statements of this company. After that, we will advise the CEO with regards to the investment banker’s suggestions. Give the pros and cons, and clear arguments supporting your advice. And for finish we will explain what impact the investment banker’s suggestions and your advice could have on the share price (similar if you agree with the investment banker). DANONE is a major player in the global food industry, with a turnover of 12.8 billion Euros in 2007. It operates in three markets corresponding to its three business segments: dairy products fresh water and baby food and medical nutrition. He holds leadership positions in many countries with a strong presence, particularly in American, European, African and Asian markets. a strategy International recently strengthened by the acquisition of Dutch NUMICO, having led to a sharp increase in sales outside Western Europe.

2

……….19 BIBLIOGRAPHY…………………………………………………………………………………………………………………….15 DEBT POLICY……………………………………………………………………………………………………………15 THE ACTION MARKET VALUE AND ITS BOOK VALUE………………………………………………16 C-BANKER SUGGESTION AND RISK OFFICER ADVICES TO THE CEO………………………………………17 CONCLUSION………………………………………………………….…….8 VALU CHAIN……………………………………………………………………………………………………………9 B.9 RISK SCORE CARD……………………………………………………………………………………………………10 THE INVESTMENT POLICY AND INVESTMENT CHOICES………………………………………….8 FAST-MOVING CONSUMER GOODS COMPETITIVES FORCES…………………………………..SUMMARY A.6 BRAND POSITIONING STATEMENT……….…………………………………………………………....20 3 .RISK MEASUREMENT 1) 2) 3) 4) 5) BALANCE SCORE CARD……………………………………………………………………………………………..4 GROUP BUSINESS………………………………………………………………………………………………….5 DANONE STRATEGY…………………………………………………………………………………………….DANONE PRESENTATION 1) 2) 3) 4) 5) 6) DANONE HISTORY………………………………………………………………………………………………….……………………………………………….....

1967: Merger of Gervais DANONE and to create Gervais DANONE 1970: Sensing the decline of the glass. biscuits. Saiwa).8 billion Euros in 2007. drinks and nutrition infantile. African and Asian markets. European. with a turnover of 12. Carambar. 1973: Acquisitions of Kronenbourg. Sale of its biscuit division to Kraft producer. a strategy International recently strengthened by the acquisition of Dutch NUMICO. 1919: Company founded in Barcelona DANONE by merchant Isaac Carasso. particularly in American. The magpie sings.A-BRIEF DANONE PRESENTATION 1) DANONE HISTORY DANONE is a major player in the global food industry.. Nabisco's European subsidiaries: Belin. 1990: BSN really internationalized its business 1994: BSN became DANONE 1996: Concentration of DANONE in 4 businesses who combines high growth potential and health positioning: dairy products. specializing in food and infant medicalized by OPA. 1929: Appearance in France of the Parisian society of the DANONE yoghurt 1966: The industrial group Boussois-Souchon-Neuvesel (BSN) is created by the meeting of Ice Boussois which manufactures flat glass and glass high-Souchon Neuvesel which manufactures bottles. who sells yogurt based lactic ferment. originally sold in pharmacies. Before being a nutrition specialist. Maille. Ice Boussois leaving BSNGervais Danone. 4 . the CEO Antoine Riboud chosen to direct its activities towards the content container glass.. It operates in three markets corresponding to its three business segments: dairy products fresh water and baby food and medical nutrition. 1979: BSN-Gervais Danone disengages from its flat glass business. Evian and above all the Gervais Danone seal BSN specialization in the food industry. the group General Biscuit. DANONE was born glassmaker. He holds leadership positions in many countries with a strong presence. . A strategy that will result in a fifty acquisitions through the world. 2007: Takeover of NUMICO. having led to a sharp increase in sales outside Western Europe. 1980: A series of acquisitions in the European food market (Amora. Jacob's.

representing 56% of Group turnover In 2006 and grew by 9. All subsidiaries of Groupe DANONE has contributed to this performance on all continents with particular Asia and Latin America.2%. DANONE reaching 7. It remains the world number 2. DANONE is the market leader. the margin operational World Beverages business grew only by 12. -Packaged water: the division's turnover grew by 14. This activity. 5 .8% due to higher prices of raw materials packaging.8% in 2006 when growth was only 8% on average since 2000.9 billion Euros.2) The group's businesses DANONE activities are divided into four areas: -Dairy-Free: with 20% of the market share (35% in some countries) and a presence in 45 countries.

Russia and the USA for the Dairy Products activity. namely Indonesia. to help those affected by certain diseases to preserve their condition. 3) The group's strategy The Group has a policy of organic growth and acquisitions to establish a balance geographically between developed and emerging countries. It has in its portfolio of brand NUMICO. -Clinical Nutrition: This segment provides the medical treatment of malnutrition. 6 . These countries accounted for 28% of total Group sales in 2007. The Group's strategy is based on: -The focus on product categories with a strong health / wellness. and support others with special nutritional needs.-The infantile nutrition: Bledina is the leader in baby nutrition in France and second in the world. . Brazil.Its powerful brands and concentrated. It is number 3 worldwide. Its products are divided into two divisions namely milks infant foods and diversified. boosted by ongoing communication. Mexico. the Group is developing its business in countries which are growth drivers. Argentina. In this context.

the 49%of their joint venture responsible for the distribution of bottled water across the Atlantic.An ambitious innovation policy-based health benefits.S. 7 .Introducing into products accessible to as many people in emerging countries in order to develop a mass consumption of branded food and sit down the Group's brands for the future. rather than fight against powerful competitors in the U. Danone has decided to strengthen its teams in Asia which is a particularly dynamic area of development as important. The group also proposed a strategy for increasing its partnership with Coca-Cola to United States. to support the increased purchasing power and changing consumption patterns. market for water. The soft drinks giant bought the French. for an undisclosed sum. Organic growth in recent years based on the Group's ability to market quality products that meet consumer expectations in local markets: -Improving in-the products of acquired companies. .Geography balanced between developed and emerging countries. The Evian brand will continue to be distributed under license by Coca-Cola. -Drawing-in marketing expertise of the Group to market value-added products already available in other countries. ..

8 .

B-RISK MEASUREMENT 1) BALANCE SCORE CARDS Mission of the company: to bring health through food to the largest number of people. Business strategy : The Group has a policy of organic growth and acquisitions to establish a balance geographically between developed and emerging countries Financial targets Clients targets • • geographical Acquisition of other company in the same sector forecasting sales growth of between 5 9 • Give a sense of pleasure in a healthy and natural product All people who take care of health with • .

purchasing power specific to the area. .Inter Region Segmentation: As for developed countries. A strategy produced very strong value creation for developed countries and a strategy of low value creation to emerging requirements all tailored to local taste. the development prospects are considerable.Low income per capita: with a smaller purchasing power . Manufacturers must therefore adopt a different strategy than that used in developed countries.and 7 per cent • nutrition • People of emergent’s country static operating profit margin and achieve free cash flow of €2bn at the end of this year Organizational / HR targets • Business process targets • • Increase the production capacity Diversify the brand in healthy products o attract and retain new talent. the distinction of two major geographic areas obliges large groups to adopt a different product. encourage communication at all levels and develop every employee’s professionalism translate Danone’s values into routine attitudes and promotes social responsability • CLIENTS TARGET: The demand from emerging countries growing The particularity of this requests is in its growth rate of 16% by volume. companies can access real opportunities taking into account certain specificities: . emerging countries are subject to segmentation. emerging markets have very good growth prospects. involve employees in projects. as in together 2. with trade liberalization. Indeed. demand is difficult to access goods at very high value creation as nutraceuticals. It is through geographical criteria to take into account the customs. Thus. religions.7 billion people. BUSINESS PROCESS TARGETS : -A product policy developed and produced consistently for the market to better meet customer expectations (portfolio diversification of activity in line with health trend among consumers and geographic diversification into new dyna Develop 10 . Through this analysis.

If now the two leaders are content to focus on business-oriented nutrition.the health food portfolio (organic products and innovation) -Develop the group's business in emerging markets by acting on its flexibility (alternating direct investment / partnerships to reduce risk as the case Wahaha) ORGANIZATIONAL AND HR TARGETS: We note that to remain an industry leader. Business strategy : Develloping the brand in the healthy sector Market risk Business risk • • RISKS ASSOCIATED WITH THE COMPANY’S GROWTH STRATEGY RISKS ASSOCIATED WITH THE GEOGRAPHICAL DISTRIBUTION OF THE COMPANY’S BUSINESS ACTIVITIES RISKS ASSOCIATED WITH THE PRODUCTS • RISKS ASSOCIATED WITH THE CONCENTRATION OF PURCHASES OF SOME PRODUCTS AND SERVICES FROM A LIMITED NUMBER OF SUPPLIERS RISKS ASSOCIATED WITH A POSSIBLE DOMINANT POSITION OF THE COMPANY IN CERTAIN MARKETS • • 11 . we can consider in the near future the acquisition of pharmaceutical companies to keep one step ahead of distributors 2) DANONE RISK SCORE CARD Mission of the company : to bring health through food to the largest number of people. This is why the development of pharmaceutical expertise comes increasingly into account in the strategic guidelines. the industrial sector must at all costs accumulate as many skills in areas that were not originally the heart of their business.

-Relationships with partners of the Company in certain entities are governed by agreements. particularly in the case of a change of control of the Company. or perhaps recently experienced economic instability. this strategy involves the pursuit of external growth opportunities through acquisitions. political or social. These acquisitions could have a negative impact on the business of the Company if the Company fails to integrate acquired companies. Such restrictions could make it difficult for the Company to carry out its strategy. RISKS ASSOCIATED WITH THE GEOGRAPHICAL DISTRIBUTION OF THE COMPANY’S BUSINESS ACTIVITIES : The operations of the Company and its employees may be exposed to risks and uncertainties related to the pursuit of commercial and industrial activities in many countries that may experience.Operational risk • Credit risk • • • INTEREST RATE RISK FINANCING RISK AND LIQUIDITY RISK CURRENCY EXCHANGE RISK • RISKS ASSOCIATED WITH THE VOLATILITY OF PRICES AND A POSSIBLE SHORTAGE IN RAW MATERIALS RISK OF AN INTERNAL CONTROL FAILURE RISKS ASSOCIATED WITH THE CONSEQUENCES OF RESTRUCTURING PLANS • BUSINESS RISK RISKS ASSOCIATED WITH THE COMPANY’S GROWTH STRATEGY: -The Company's strategy is to become the leader in every market where it operates. some agreements with partners can provide the Company with stock options. in 12 . providing the necessary resources and /or fails to achieve the synergies and cost savings it expects from these acquisitions. In the context of further concentration in the food and drinks. Finally. contracts or documents that could allow certain decisions to be taken with the agreement of the partners or without the consent of the Company.

which aims to limit the volatility of its financial result. in particular. This risk of contamination exists at every stage of production cycle: at the time of purchase and delivery of raw materials. the Company does not rely on debt or periodical or in a meaningful way. production processes. but also from suppliers.particular Latin America. Operating cash flow is generally sufficient to self-finance its business operations and internal growth. impose taxes and other payments and set up restrictions. storage and delivery of finished products to distributors and retailers food. physical and allergic and depends on the nature of products. However. on the activities of international groups. product packaging. FINANCING RISK AND LIQUIDITY RISK : As part of its operations. Asia. The risk of contamination is classified into four categories: microbiological. RISKS ASSOCIATED WITH THE PRODUCTS : The goal is to have control over the risks both within the Company. In addition. MARKET RISK RISKS ASSOCIATED WITH THE CONCENTRATION OF PURCHASES OF SOME PRODUCTS AND SERVICES FROM A LIMITED NUMBER OF SUPPLIERS : 13 . The Company has implemented a policy to control and manage this risk. storage and shelving of finished products at the points of final sale. Africa and the Middle East. maintain controls on the exchange or repatriation of income and capital invested. the Company is exposed to fluctuations in interest rates affecting the amount of interest expense. Its objective is to maintain its debt amount to a reasonable level in order. some countries in which the Company is now offering legal environments that are neither well developed nor very protective (especially in regard to intellectual property rights). the Company may in the future to increase itsamount of debt to finance acquisitions. CREDIT RISK : INTEREST RATE RISK With interest rates on its debt. to preserve some flexibility with respect to its funding sources. chemical. sometimes with retroactive effect.

Therefore. improve efficiency of its production processes. can provide only reasonable and not absolute assurance regarding the achievement because of inherent limitations in all control processes of the company. 14 . Restructuring plans are composed of. and downsizing in order to lower production costs. in plant closure in particular. the Company cannot exclude the risk of failure of internal control.As part of its policy of optimizing its procurement procedures. Such allegations could affect the reputation of the Company. OPERATIONNAL RISK : RISKS ASSOCIATED WITH THE VOLATILITY OF PRICES AND A POSSIBLE SHORTAGE IN RAW MATERIALS : The results of the Company may be adversely affected by the availability and price of raw materials. especially materials needed to produce food of the Company and beverages (mainly milk and fruit). which in turn could have a negative impact on the activities of corporate image of business and results. and petroleum). the Company may be accused of abusing a dominant position in these markets. Restructuring could harm relations employee of the Company and cause labor disputes. the Company centralized the purchase of certain goods (particularly raw materials such as enzymes used in the dairy business online fresh produce) and services (especially outsourcing services or services) from a limited number of suppliers. PVC. and materials for packaging or transport its products (PET. following a judicial proceeding and could have a material adverse effect on the business of the Company and the results. Accordingly. strikes and disturbances. to implement synergies and to adapt to the demands of a changing marketplace. RISK OF AN INTERNAL CONTROL FAILURE The Company has established an internal control system. however it is appropriate.light cardboard for boxes. RISKS ASSOCIATED WITH A POSSIBLE DOMINANT POSITION OF THE COMPANY IN CERTAIN MARKETS : In some of its markets. This system. including work stoppages. the Company is the market leader. RISKS ASSOCIATED WITH THE CONSEQUENCES OF RESTRUCTURING PLANS : The Company has already undertaken restructuring plans in the past and may continue to do so.

Also if the same business decides to engage in this type of investment. which can impact heavily on the funding side. 2007) and a second of a principal amount of 1.3 billion euros maturing in December 2010 (drawn for the entire December 31. 2007 . The principal amount of residual authorized $ 2. -Treasury bounds: a French program of 2.3) The investment policy and investment choices of DANONE Group DANONE is a company operating in the agri-food sector. 15 . which significantly increased the volume of its investment. we find that the bulk of investment is based on acquisition approaches in which participation costing much less expensive than investing heavily in construction. it will not ensuring a sufficient return on investment to cover the expenses generated by this last. The bulk of investment in this sector is the construction of plants production. This is more wisely because DANONE chooses to ally either absorbed or companies in the same sector and has already reached the production tool. . After considering the report of management DANONE. the Company entered two successive contracts of bank credit: . Funding sources of the Group consist mainly of: -Bank debt: in 2007. Yet when we see the strategy of Groupe DANONE. This strategy is quite relevant because there are two scenarios: -The first is favorable when the company is progressing and where investment generates revenues. it has increased its return on equity and have significant tax savings. 2007) and a Belgian program of $ 0.The second is negative where the group can post their work assignment. 4) Debt policy The Group's objective is to control the cost of access to its capital. -A syndicated loan ("Revolving") concluded in December 2007 with a principal amount of EUR 4 billion in two tranches: the first a principal amount of 2.it was used for this date1. Note that the company Danone has used debt to finance its investments.2 billion euros at December 31.85%.2 billion (fully utilized at 31 December 2007) . The Group's policy is to diversify its funding sources.6 billion at December 31.1 billion at December 31.A bridge loan to the original principal amount of 11 billion euros concluded in July 2007 and arrived in maximum of maturity in January 2009. and leverage is present in this case. we can see that in 2007 the group conducted a leveraged participation NUMICO at a rate of 98.5 billion euros (used 1. favoring a debt financing.7 billion euros maturing in December 2012 (drawn up by 1.7 billion euros. 2007). to finance the acquisition of Numico. while maintaining a reasonable level of debt for maintain its financial flexibility.

the Group has $ 4.5 2007 :57.-Committed credit lines not used: a portfolio of bank lines of security concluded with credit institutions of the first rank. at December 31.4 billion euros at December 31. In total. 2007. 2007 (as against 3 219 000 000 euros at December 31. with maturities between 1 and 4 years.1 16 . Moreover. 5) The market value of the action and its book value Below the share performance of DANONE compared to the evolution of the CAC 40January 2004 to January 2009 : The market values of the action of DANONE during the years 2004. $ 3.1 billion in principal.98 2005 :44. cash and marketable securities: they totaled $ 1. 2005. the Group has not made any draw on these lines. the operating subsidiaries of the Company receive lines of credit available amount of 0. 2007. 2006 and2007 were : Market value of the action 2004 :33.13 2006 :57. 2006).041million at December 31.4 billion committed credit unused at December 31. 2007.

The return of 2. Now. the production must be in US. Therefore Danone’s risk profile is too low. He uses to following return table: Stock Return 1990-2010 1995-2010 1990-2010 2005-2010 Danone 7. (2) buy market share by means of acquisitions (3) leveraging the balance sheet – – The first solution who consisting in investing more in local and cheaper production facilities in emerging markets to supply local as well as mature markets (Europe and US).C-BANKER SUGGESTION AND RISK OFFICER ADVICES TO THE CEO Think of an investment banker.5% • The banker has the following story: over the last 5 and 10 years Danone stock has only performed a few percent.5% is similar to the yield on a German government bond. Danone should increase it’s risk profile by: – (1) investing more in local and cheaper production facilities in emerging markets to supply local as well as mature markets (Europe and US). In order to stay attractive to investors. If we need to supply US. it’s more interesting to target this population and product for these emergent’s countries.1% 2. This strategy is more interesting in terms of 17 . and where the rivalry are not very important.2% 8. conforming to the population and demand to the emergent countries. The solution who consisting to buy market share by means of acquisitions is the actual strategy of Danone Group.2% to 2. It’s for the most sophisticated product. who approaches Danone’s CEO.2% 2. is not interesting in the sense where the production place must be directly close to the market because are very sensible and have in majority a short life time. but today the production cost in developed country is not very profitable and this market arrives at his majority.

The best solution for me is to continue to buy market share by means of acquisitions. this solution permits to the Danone group to profit and use the local supplier and distribution circuit put in place by the acquired company. This analysis can explain why the Danone results since this last year are not famus. potentials inverstors can see that the actual balance sheet of Danone results of this politic of investments and acquisitions since 2007 (Numico etc…°). Danone can also use the expertise of the market of this company. Althoug Danone can have the financial possibility to do that.finance that to create and invest in new building of production. it’s the best solutions in the long term to obtain the best results and to stay attractive for the investors. In terms of finance. 18 . this solution permits to reduce the riks by limiting the investment in company growth. Concerning leveraging the balance sheet. it’s better to enter in new market by acquisitions of existing companies specialized in the same sectors of Danone. this results is dut to the recent investment who are not give yet good return on investment. The share price are not excessive but we can see that it’s on the way to be stabilize and can be in the long term increase considerably with the results give by the acquisition strategy in emergent’s markets conduct by the Group Danone. And more.

Now this industry benefits from the skills of others to offer increasingly innovative products necessary to safeguard growth. Emerging countries that were behind the quality of consumption could see their condition rapidly evolve. we wonder whether the strategy to spread his new job only 3 activities (Milk. when analyzing the debt policy of Groupe DANONE. they will not be only engine of growth in countries but countries that participate in sustainable growth. Eventually. In conclusion. Danone's strategy to refocus on his heart to lead a business seems very promising future to glean the ranks and compete with Coca-Cola and other PepsiCo who can notforever keep their positions with sodas. However. Moreover. Food Enfantile) generate the same success as Nestle. the dairy industry is experiencing real restructuring costs forcing it to mutate. 19 . the functional food fortified biscuits could reduce obesity. we noticed that in 2007the company enjoyed a good financial autonomy that the debts represented 123% of the capital. Water. The health market and Water are truly emerging issues of consumer products where Danone has a very good position by being the world leader in packaged water to Nestle and Coca Cola. the new problem developed countries. Thus.CONCLUSION Like other industries. we can say that the DANONE Group follows a successful strategy and has an appropriate financial policy that allows it to this day maintain a strong competitive position in its market.

R&D http://cisad.diplomatie.Pharmacie http://www.wikipedia.com/archive/une/art_795.pdf http://www.pdf DANONE 2010 AND 2008 REGISTRATION DOCUMENT BRAND POSTIONING STATEMENT (Alexandre daval tools) 20 .htm http://www.htm http://www.Agro news http://www.eurasante.mfa.blogagroalimentaire.html .industrie.com/actualite/DANONE-convoite-l-eau-en-bouteille-en-Inde-1026.org/wiki/Danone .pdf .boursier.htm http://fr.com/vals/FR/danone-vaste-reorganisation-du-groupe-news-245305.pdf http://agreste.danone.gouv.pdf http://www.agrojob.agriculture.gouv.Industire http://www.fr/biblioth/docu/kiosque/cahiers/pdf/c124.fr/reperes/telechar/formul/ent/moyens/moyens06/noticeqg06.com/fileadmin/eurasante-medias/pdf/DossierPresse_Pole_NSL_2007.fr/IMG/pdf/primeur192.fr/info/sante/200073527.lesechos.ua/france/fr/publication/content/12182.gov.aspx http://www.education.com/?2006/07/19/233-au-coeur-de-la-recherche-agroalimentaire-chez-danonele-vitapole http://www.pharmaceutiques.fr/fr/actions-france_830/economie-mondiale_901/ .gouv.BIBLIOGRAPHY Site internet .com/cmscache/MYSESSION~E0182ACDC39743C5C1256D1000576720/RA02_PLF.Danone http://www.adc.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.