Danone case: Risk management

Résumé du document

Today, Danone is one of the most famous and powerful company in the food industry all around the world thanks to its presence in more than 120 countries. Since its creation in 1929, Danone increased its notoriety and diversified its activities following its mission which is "Bring health through food as many people as possible". The CEO, Franck Riboud is now the head of the company with a capital of more than 130 billion Euros.

The company's financial health and structure allow Danone to preserve a strong position in the financial market and a high share price. As every company, Danone is facing risks so the company has developed a risk management policy in order to protect its assets, the assets of the shareholders in order to respect the interests of their employees, their consumers and the environment.

However, in order to increase Danone's share price, it is possible to put into action new risk management strategies. Thus, as an investment banker, hired by Danone's CEO, I am going to present all the business risks and to propose initiatives that are supposed to increase the company share price.

Extraits

[...] For example you have different colas in some region of France like Breizh Cola in Bretagne, or Corsica Cola in Corse, etc. In order to counterattack this phenomenon, we will acquire some local companies and will sell their products keeping their original name in order not to confuse the consumer. Thanks to this initiative, we will fight against the completion risks and gain market shares against this competition. Moreover, it fits perfectly with our local approach of the business. Now let's develop our strategy concerning the operational risks. Let's begin with the first risk, which is the limited number of suppliers. [...]

[...] This increase of sales will have a positive impact on financial statements, in particular for total sales and consequently our net cash flow. As a consequence, the share price will increase because of our better financial statements. Moreover, thanks to this vertical integration strategy, we will reduce because the transportation costs and the raw material costs and production cost too. As a result, the cost of goods sold will decrease, which will have a positive impact on our income statements In fact, it means that our gross profit will increase so our net profit too. [...]

[...] Moreover, because we will control the raw material production process, we will be sure that these raw material production or extractions respect also the environment. Another important market risk is the risk related to the competition. One part of the problem is related to local brands, which sometimes are very appreciated by the customers and which have very good results comparing to their size. These distributors can be dangerous for Danone because they take market shares against us and they often have a very high loyalty power. [...]

[...] Since it would be too long to each point of this new strategy, going through, financial risks, Business risk, market risks, and operational risks, we are going to focus only on the last two ones in order to develop them in more details. We will explain how a vertical integration strategy can be used in order to reduce some market and operational risks, which will have for consequence to increase the share price. Let's begin with our market risk. We know that risks related to the environmental aspects take more and more importance nowadays. One of these risks is the risk due to consumer's considerations in terms of environmental aspects. [...]

[...] Annual Financial Report - Danone Essentials in - Danone Sustainability Report - Eduard Van Gelderen. February 2012. [...]