French food group Danone will cede control of its dairy business in Russia. This could cost him up to €1 billion ($978 million) in write-downs, Reuters reported, citing the company as a source.

Danone joins a list of global companies undergoing a costly exit from Russia over the war in Ukraine, selling a business representing about 90% of its operations in Russia and keeping its infant nutrition division there. increase.

“This is the best option to ensure long-term business continuity locally,” Danone said in a statement, adding that the Russian dairy sector had achieved 20% of the group’s net sales in the first nine months of the year. He added that it accounted for about 5%.

Sources close to the matter say Danone may hold a stake in Russia’s largest dairy company.

“The board has just begun the process leading to a transaction that could result in a full or partial sale,” the source said, adding that the goal is not to run the business.

Many Western food and consumer goods companies, including Nestlé and Procter & Gamble, continue to supply essential food and medicines to Russia despite pressure from consumers and activists to cut all ties with Russia.

Danone shares rose more than 1% in early trading, with analysts welcoming the news and saying it could herald a broader restructuring.

Chief Executive Antoine de Saint-Afrique, who took over as CEO last September, said the company would sell its underperforming businesses as part of a turnaround plan launched this year.

“Russia is clearly an asset they have to exit,” Pierre Tegner, an analyst at brokerage Odd BHF, said in a note.

“It’s not just because Russia is a low-margin, low-growth company. The main reason is that this asset has created a lot of distraction for top management over the last 11 years. “

Tegner said other areas where the group could consider non-core activities include liquid milk and basic dairy products in Brazil, Argentina, Mexico and Morocco; organic milk in the United States; baby meals in France and Italy and large scale water projects.

The French company is the world’s largest yogurt maker and controls the Russian dairy brand Prostokvashino.

In March, the company said it would continue to produce its primary dairy and infant nutrition products in Russia, but cut other ties with Russia over the war in Ukraine.

At the time, the company said it had ended all investments in Russia and would not receive any cash, dividends or profits from its operations there.

Danone has not disclosed a buyer for its 7,200-employee Essential Dairy and Plant Base (EDP) division, which has 12 production sites.

The move is the second announcement this week by the Western giant after Nissan transferred its assets to the Russian state, suffering a loss of about $687 million.

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Source: Reuters

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