Danone Group: The Kenyan Adventure

Team F:Antoine ChaumeJean-Louis Chen

Lorenzo Cancian-Kavoliunas

Mandate

Mandate Analysis Financials Implementation

Danone group wants to expand and optimize its current operations particularly in Asia-Pacific, Latin America, Middle-

East, Africa (ALMA)

Assess the expansion strategy into Kenya and which option (A or B) is the most attractive for the Danone Group

Recommendation

Mandate Analysis Financials Implementation

Assess the expansion strategy into Kenya and which option (A or B) is the most attractive for the Danone Group

Danone must address their current operational challenges before pursuing Option B

Analysis

Mandate Analysis Financials Implementation

Growth Drivers Kenyan Opportunity

• Population growth• 15 cities with strongest

growth on the planet• 53% sales coming

from emerging markets

• 44 Million residents• High infant mortality• Breeding ground

athletes• Life expectancy 62

years

Danone’s products can be integrated and accepted by the Kenyan market and lifestyle

Analysis

Mandate Analysis Financials Implementation

Decreasing Profitability Reasons for Decrease

• Slowdown in top line growth

• Shrinking Operational and Net Profit Margins

• Decreasing earnings per share

• Operational costs• Raw Materials

• Inflation costs• Currency conversion

Internal problems for Danone need to be addressed

Financials: Operating Inputs and Assumptions

Mandate Analysis Financials Implementation

Main differences are marketing expenses, employees and industrial costs

Financing

• Net Income• Option A:

9.79%• Option B:

4,89%• FCF

• Option A: 8.96%

• Option B: 4.28%

Financials: Revenue Buildup - A

Mandate Analysis Financials Implementation

Consumption in Option A is relatively higher

Financials: Revenue Buildup - B

Mandate Analysis Financials Implementation

Financials: Margins

Mandate Analysis Financials Implementation

Financials: NPV Analysis

Mandate Analysis Financials Implementation

Relatively the same payback period, although B has a lower NPV than Option A

Financials: Danone Group

Mandate Analysis Financials Implementation

Danone cannot ignore its current decline in profitability and must address these issues at hand

Alternatives

Mandate Analysis Financials Implementation

Option A Other Option

• Geopolitical instability• Production safety• Currency Risk

• Penetrate into Kenya by purchasing an existing dairy company

• Ensure operations and strategy in line with Danone

• Less implementation heavy

Both options are viable however risks are difficult to mitigate

Recommendation

Mandate Analysis Financials Implementation

Assess the expansion strategy into Kenya and which option (A or B) is the most attractive for the Danone Group

Danone must address their current operational challenges before pursuing Option B

Implementation

Mandate Analysis Financials Implementation

3-6 Months 1 Year

• Assess operations• Set-up financial

controls to optimize

• Begin operational improvements

• Hedge currencies (swaps)

• Begin expansion into Kenya

Margin improvement crucial, expansion into Kenya to drive sales

2+ Years

• Assess expansion profitability

• Continuously improve supply chain

• Potentially enter into Option A if high profitability

Risks and Mitigations

Mandate Analysis Financials Implementation

Risks Result

• Geopolitical expropriation (war)

• Health care• Demand not met• Currency

• Increase in costs• Financial

instability• Hinder

shareholder value

All risks with Option B can be mitigated somehow

Mitigation

• Partner with government and social initiatives• In line with

Danone’s values

• Hedging Currency

Thank You