* Plans to save 200 mln euros over next two years
* Adds to annual productivity savings of 500 mln euros
* No plans to close factories in Europe
* Job cuts to focus on managerial, support functions
* Follows pressure from activist Peltz
(Adds analyst comments, Danone comments, detail, shares)
By Dominique Vidalon
PARIS, Dec 13 French food group Danone
will cut more costs and could shed staff to cope with the
economic downturn in Europe that is the main drag on its core
The world's largest yoghurt maker, which faces pressure from
U.S. activist shareholder Nelson Peltz to improve its
performance, said it planned to save around 200 million euros
($261 million) in Europe - roughly 2 percent of group annual
The maker of Activia and Actimel yoghurt faces a sales slump
in Southern Europe, particularly at its dairy division in Spain
where cash-strapped shoppers are switching to cheaper private
labels as the country struggles with its second recession in
Danone warned in June that its operating profit margin would
fall by 50 basis points to 14.1 percent this year and investors
have been bracing themselves for a similar decline next year as
economies deteriorate. Danone has yet to give its official
outlook for 2013.
By 1154 GMT, Danone shares were up 1.5 percent at 51.12
euros as investors welcomed the move to cut costs. Its shares
have lost 2.8 percent since the June profit warning,
underperforming a 12 percent gain in the European sector
"This news is the first positive one since the profit
warning in June and demonstrates that the top management is
highly focused on fixing the business in Europe," said Natixis
analyst Pierre Tegner.
The plan, which may involve cutting administrative and
managerial jobs, will be in addition to ongoing annual
productivity savings of 500 million euros.
Danone has a global workforce of 102,000 people, including
27,000 in Europe, of which a third occupy managerial functions,
Laurent Sacchi, senior vice president, communications said.
Aurel BGC analysts said any job losses would be "rather
exceptional for the group" and "reflects the seriousness of the
situation on European markets".
Some analysts, who say Danone lags its peers in terms of
productivity measures such as sales per factory and sales per
employee, had suggested savings could be made by closing
factories in Spain where the group has six dairy plants out of
Danone said on Thursday it does not intend to close plants.
The company has started to cut its prices, notably in Spain
which generates 8 percent of its sales and 11 percent of
profits, in response to falling demand.
But Danone, which competes with Nestle and
Unilever, has also been suffering from a steady
weakening of its dairy market share in Europe as innovation has
slowed and it has cut advertising.
To regain market share, Danone has vowed to focus on product
innovation and renewal to justify the brand premium it commands
over private labels, but this strategy will require money and
time, analysts say.
Last month Peltz, co-founder of U.S. investment firm Trian
Fund Management LP, said he had bought a 1 percent stake in
Danone for 310 million euros.
Sacchi would not say whether Peltz and Danone had been in
contact but commented: "This (cost-cut) plan has nothing to do
with Peltz. It takes more than a month to make this sort of
The billionaire businessman, who often challenges management
at companies he considers undervalued or poorly managed, said
Danone's stock had the potential to rise by more than 60 percent
to 78 euros by the end of 2014.
Peltz has said he supports Danone's management but
improvements were possible through boosting operating margins,
cutting more costs and abstaining from mergers.
He wants Danone to boost its profit margin by 1 percentage
point by 2015 from an expected 14.1 percent in 2012.
Natixis' Tegner estimated that the additional savings Danone
announced on Thursday would represent the bulk of this target.
But a key question was what proportion of the savings Danone
would reinvest to boost sales growth and how much it would use
to support margins, Tegner said.
Details of the cuts, which will be spread over 2013 and
2014, were not disclosed as Danone has yet to submit the plan to
its works councils. Talks with staff are due to take place by
($1 = 0.7669 euros)
(Reporting by Dominique Vidalon; Additional reporting by Noelle
Mennella Editing by Christian Plumb and Erica Billingham)