Danone: A new world: Deliver. Reshape. Review. Adapt.
2020 Third-Quarter
SalesPress release – Paris, October 19, 2020
A new world: Deliver. Reshape. Review.
Adapt.
- Q3 confirming sales growth sequential
improvement
- Net sales of €5,821m, down by -2.5% on a like-for-like (LFL)
basis1 and -9.3% on a reported basis
- FY 2020 guidance restored to 14% recurring operating
margin and €1.8bn free cash flow
- Driving return to mid-term 3-5%2
profitable growth agenda
- Reshaping the organization, including
appointment of two regional CEOs- Portfolio review
launched
- Adaptation plans to optimize execution
|
Danone publishes today third-quarter sales
broadly in line with expectations, showing sequential improvement
versus the previous quarter driven by a strong acceleration of
Essential Dairy and Plant-based and an improvement in Waters. In
this context, and confident in the strength of its unique
portfolio, Danone announces today three decisions to progress with
its adaptation plans to a new COVID-world, with the objective to
strengthen its ability to fulfill its mission and to rapidly
reconnect with its mid-term objectives, including 3-5%2 profitable
sales growth:
- Reshaping the organization of Danone to best
serve its strategy and execution. This includes the appointment of:
- Two macro-regional CEOs, respectively in charge of Danone
International and Danone North America. Acting as P&L owners,
they will be in charge of maximizing the focus on delivery,
operational excellence and local execution with cross-category
synergies
- One COO in charge of a newly created strategic end-to-end
design-to-delivery function, integrating Research & Innovation,
Cycles & Procurement, Operations (manufacturing and supply
chain) and Quality, a critical enabler to support the company’s
transformation to better serve people needs anytime anywhere in a
cost-efficient way;
- Conducting a full strategic review of
the portfolio of brands, SKUs and assets to shape it for
our 3-5% profitable growth agenda, starting with an immediate
review of its strategic options for Argentina, for Vega brand, and
possibly further assets;
- Accelerating the finalization of an ambitious
plan for the previously announced adaption strategy to
counter the challenges and win the significant growth and
efficiency opportunities emerging from a new COVID-world, with
implementation starting Q1 2021.
Separately, after 16 years with
Danone, Cécile Cabanis has decided to move on and open a new
chapter of her professional life, outside of the company. She will
leave in February 2021, after the finalization and the launch of
Danone’s COVID adaptation plan, and after a transition with Juergen
Esser, currently CFO of Waters and Africa divisions, newly
appointed as Danone’s CFO. Emmanuel
Faber: Chairman and Chief Executive Officer statement
“Our Q3 results reflect how much the COVID-world and its
cohort of sanitary measures, border closures, uncertainty in
consumer sentiment and some structural changes affect our business.
As we expect continued volatility in our other businesses in the
short term, the return of EDP growth beyond 3%, both for Q3 and YTD
(and stellar performance of plant-based) is a north star to our
ambition to reconnect as soon as possible with our 3-5% mid term
profitable growth agenda. Our discipline on portfolio focus and
capital allocation will be an additional enabler. On our
announcements today, I will start with the departure of Cécile, as
this is closest to me personally. Cécile and I have been working
together for many years, she has been instrumental in all the major
transformations of our company and she has been close by my side
since I am in my current role. We are going to enter into a new
phase of transformation for Danone, adapting to the new world, on
which the Executive Committee, Cécile and myself are working
together and have complete agreement. Yet, her decision to open a
next chapter is a profound, personal one, and I respect it. On
behalf of all my colleagues on the Board of Directors, all our
colleagues in the company, and personally, I want to express my
deep gratitude for her dedication and contribution and wish her all
the best for her bright future, after she leaves in February.
In the meantime, I am thrilled that with the full support of
our Board, we are already moving forward with our adaptation plans,
laying the ground today to their execution with a new organization
of the Executive Committee. It will increase our focus on delivery,
immediately reap the synergistic benefits, from a growth and
efficiency perspective, of our unique and cohesive portfolio of
health related categories, and finally, accelerate the finalization
of our ambitious plans, which we expect to start being implemented
as soon as Q1 next year.” |
I. Q3 2020
sales: as expected
In the third quarter of 2020,
consolidated sales stood at €5.8 bn, down -9.3% on a reported
basis, primarily driven by change in currencies against the euro
which had an effect of -7.1% on the sales of the quarter (mostly
from the US dollar, the ruble, and currencies in Latin America). On
a like-for-like basis, revenues declined by -2.5%. Volumes
sequentially improved at -0.4% in the quarter (vs. -2.6% in Q2),
remaining affected by Waters performance, and were flat (-0.1%)
overall in the first nine months. Value also sequentially improved
at -2.1% (vs. -3.0% in Q2), reflecting in Q3 negative country mix
but stable pricing.
€ millionexcept % |
Q32019 |
Q3 2020 |
Reported change |
LFL Sales Growth |
Volume Growth |
9M2019 |
9M2020 |
Reported change |
LFL Sales Growth |
Volume Growth |
BY REPORTING ENTITY |
|
|
|
|
|
|
|
|
|
|
EDP |
3,240 |
3,108 |
-4.1% |
+3.7% |
+4.0% |
9,818 |
9,699 |
-1.2% |
+3.3% |
+2.8% |
Specialized Nutrition |
1,920 |
1,698 |
-11.6% |
-5.7% |
-2.9% |
5,611 |
5,441 |
-3.0% |
-0.2% |
-0.4% |
Waters |
1,258 |
1,015 |
-19.3% |
-13.5% |
-8.1% |
3,603 |
2,864 |
-20.5% |
-17.1% |
-7.3% |
BY GEOGRAPHICAL AREA |
|
|
|
|
|
|
|
|
|
|
Europe & Noram1 |
3,451 |
3,334 |
-3.4% |
-1.1% |
+1.3% |
10,303 |
10,156 |
-1.4% |
-0.1% |
+1.8% |
Rest of the World |
2,966 |
2,486 |
-16.2% |
-4.1% |
-2.0% |
8,728 |
7,848 |
-10.1% |
-3.5% |
-1.8% |
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
6,418 |
5,821 |
-9.3% |
-2.5% |
-0.4% |
19,031 |
18,004 |
-5.4% |
-1.6% |
-0.1% |
1North America (Noram): United States and
Canada
As in the first half of the year, marked
variations across channels continued to impact the
performance. In out-of-home channels (representing 11% of
2019 sales globally, mostly in Waters), sales declined by around
-25% in the quarter on a like-for-like basis, slightly improving
vs. Q2; sales of Infant Formula done in China through cross-border
channels contracted sharply (c. -60%) given the continuous border
closure and reduced tourism with mainland China. On the other side,
rhythm of growth of global sales through e-commerce accelerated
significantly in the quarter (+40% at Company level vs. +30% in Q2
on a like-for-like basis).
In terms of regional dynamics,
growth improved in all regions vs. Q2.
Like-for-like sales growth in Europe and North America improved in
the third quarter from -3.5% in Q2 to -1.1%. North America
continued to see solid momentum while sales trends in Europe
improved but remained negative, mirroring continued decline in
sales normally consumed away from home in Waters and soft category
dynamics in Specialized Nutrition. In Rest of the World (-4.1% in
Q3 on a like-for-like basis), CIS returned to solid growth while
China, Latin America, Indonesia and Africa saw continued pressure
in the third quarter.Performance by reporting
entity
§ ESSENTIAL DAIRY AND PLANT-BASED
(EDP)
Essential Dairy & Plant-based
(EDP) posted a significant acceleration in net sales
growth at +3.7% in Q3 2020 on a like-for-like basis, reflecting a
+4.0% increase in volume, and -0.3 % in value. All segments grew
with probiotics and functional yogurts, organic milk and coffee
creamers among the best performing, alongside plant-based which
posted its third consecutive quarter of double-digit sales growth
(high-teens in Q3). Europe and North America continued their
mid-single-digit momentum, sustained in Europe by further market
share gains thanks to Actimel, Danette, and Alpro, and in North
America by growing at-home consumption benefitting to Silk, So
Delicious, Horizon brands growing at double-digit rate. In the Rest
of the World, CIS returned to solid growth while Mexico and Africa
saw continued pressure.
§ SPECIALIZED NUTRITION
Specialized Nutrition sales
declined -5.7% in Q3 2020 on a like-for-like basis, with a decrease
of -2.9% in volume and in value, penalized by the performance of
China which posted a steep double-digit sales decline in the
quarter against a high base last year. This resulted from headwinds
related to channel logistics issue caused by COVID-19
(cross-border channels contraction) and pantry destocking
dynamics. However, in the Chinese domestic market, we are
continuing to see strong underlying consumer demand for our brand
as Aptamil kept a good market share momentum in e-commerce and
mum&baby stores, driven by the Platinum premium range. Revenues
in Europe declined at mid-single-digit rate, penalized by hospital
and prescription activity rate below pre-COVID levels and soft
category dynamics for infant formula. Other regions of the world
like South East Asia, Middle East and US maintained their strong
growth momentum benefitting from a strong acceleration of
e-commerce and the launch of successful innovations under Aptamil
umbrella and local brands.
§ WATERS
Following a Q2 at -28% on a like-for-like basis,
sales trends in Waters improved in the third
quarter but were still heavily impacted by low mobility index due
to lockdown policies. Sales declined -13.5% in Q3 2020 on a
like-for-like basis, with a decrease in volume of -8.1% and -5.4%
in value. Pace of recovery was uneven: on one side Europe and China
improved, reaching around -10% growth on the back of a partial
resurgence of out-of-home consumption and some market share gains;
on the other side, Latin America and Indonesia kept declining at
steep double-digit rate, in line with previous quarter, as social
distancing measures remained quite severe.
II. Q4
outlook: focus on delivery
Macroeconomic outlookLooking into the remainder
of the year, business remains difficult to predict as the
environment is still volatile and much uncertainty remains about
the implications of the pandemic as to how exactly lockdown easing,
channel dynamics and consumer habits may evolve, notably the pace
of recovery of out of home consumption and proxy channels, and the
cross-border activity with mainland China.
In this environment, Danone remains vigilant and
continues to expect the largest factor impacting its Q4 performance
will be the channel dynamics driven by the COVID-19 pandemic and
resulting global macroeconomic headwinds. Based on current rates,
currencies are expected to remain a headwind.
GuidanceDanone’s priorities for the next quarter
will be to keep the market share momentum and continue to
sequentially improve sales growth on a like-for-like basis albeit
at a slower pace. Recurring operating margin is expected to remain
impacted in the second half by COVID-19-related extra-costs and
negative mix, but efficiency, cost control and tight cash
management actions are in place to target for the full-year
14% recurring operating margin and the delivery of
€1.8bn free cash flow.
III. Reshape.
Review. Adapt.
During the entry phase into the radically new
operating environment created by COVD-19 pandemic, Danone made the
unequivocal choice to protect its whole business ecosystem. The
company chose to wait and evaluate how gradual re-openings of
economies would impact the way people live and work before
preparing its own plans to adapt to consumer shifts and accelerate
the company’s return to its profitable growth agenda.
Danone has garnered at this stage enough
convictions and insights on how COVID-19 is structurally affecting
its industry, consumers and supply chains: (i) the growing
importance of proximity to consumers and customers and localized
supply chain, (ii) the need for extreme supply chain and customer
service agility at competitive cost, (iii) the power of trusted
brands leveraging their heritage and local relevance, and (iv) the
increasingly blurring of categories.
The company is accelerating the finalization of
an ambitous detailed plan to counter the challenges and win the
significant growth and efficiency opportunities emerging from a new
COVID-world, expecting its implementation strating Q1 2021.
Reshaping the organization to best serve
strategy and optimize executionThese plans start with a
reshaping of Danone’s organization aimed at making Danone fitter,
more agile locally and fully capable of reaping the benefit of its
unique and synergetic health-driven portfolio, both in terms of
growth and efficiency.
This reshaping begins with the appointment of
two macro-regional CEOs3 in charge of Danone International and
Danone North America, respectively led by Véronique
Penchienati-Bosetta and Shane Grant.
Acting as P&L owners, they will be in charge of maximizing the
focus on delivery, operational excellence and local execution with
cross-category synergies.
A new strategic function, integrating global and
local capabilities from Research & Innovation, Cycles &
Procurement, Operations (manufacturing and supply chain) and
Quality, is also created. Led by Henri Bruxelles,
appointed Chief Operating Officer End-to-End Design to Delivery, it
will be a critical enabler to support the company’s transformation
to better serve people needs anytime anywhere in a cost-efficient
way. Jointly with the already existing Growth Strategy &
Capabilities function led by Nigyar Makhmudova, it
will optimize robustness, local relevance and speed of
innovation.
Conducting a full strategic review of
the portfolio of brands, SKUs and assetsThe objective is
to shape Danone portfolio for its 3-5% profitable growth agenda,
starting with a review of assets where performance is not aligned
with its financial equation agenda. This includes, as an immediate
step, our Argentinian platform and Vega brand, representing
together around €500m net sales. Other assets will be reviewed at a
later stage.
IV. CFO
transition
After 16 years with Danone, Cécile
Cabanis, Executive Vice President Finance, Technology and
Data, Cycles & Procurement since 2015, has decided to move on
and open a new chapter of her professional life, outside of the
company. She will leave in February 2021, after the finalization
and the launch of Danone’s COVID adaptation plan, and after a
transition with Juergen Esser, currently CFO of
Waters and Africa divisions, and newly appointed Executive
Vice-President, Chief Financial, Technology and Data Officer.
Juergen Esser will report directly to
Emmanuel Faber, Chairman and Chief Executive
Officer, and be a member of Danone's Executive Committee. Juergen,
49, has spent almost his entire career with Danone, which he joined
in 2000 after 3 years as auditor at PwC. He spent 4 years in
various Finance positions at Danone Germany before taking in 2004
the role of International Treasury Director and in 2007 the role of
Business Development Director within the Dairy division. He joined
the Waters business in 2010, first as Regional Finance Director,
and then as Finance Director for EVW (Evian Volvic World) in 2015
before being appointed in 2017 to his current position as Senior
Vice President Finance Waters and Africa in 2017.
V. Major
Financial Transactions And Developments Over The
Period
- October 6, 2020: Danone launched the
sale via an accelerated bookbuilding process of its remaining 6.61%
stake in Yakult, in accordance with its continued focus on capital
allocation discipline and balance sheet strength. The transaction
resulted in a total gross consideration of JPY58 billion,
representing c. €470 million.
- September 3, 2020: Danone announced that
Francisco Camacho, Executive Vice President, Essential Dairy and
Plant-based International (EDP International), and a member of
Danone’s Executive Committee, was leaving Danone to explore new
horizons.
VI. IFRS
Standards And Financial Indicators Not Defined in IFRS
IAS29 impact on reported
data
Danone has been applying IAS 29 in Argentina
from July 1st, 2018. Adoption of IAS 29 in this hyperinflationary
country requires its non-monetary assets and liabilities and its
income statement to be restated to reflect the changes in the
general pricing power of its functional currency, leading to a gain
or loss on the net monetary position included in the net income.
Moreover, its financial statements are converted into euros using
the closing exchange rate of the relevant period.
IAS29 impact on reported data €
million except % |
Q3 2020 |
Sales |
-3.6 |
Sales growth (%) |
0.0% |
Breakdown by quarter of 9M 2020 sales after
application of IAS 299M 2020 sales correspond to the addition
of:
- Q3 2020 reported sales;
- Q1 and Q2 2020 sales resulting from the application of IAS29
until September 30 to sales of Argentinian entities (application of
the inflation rate until September 30, 2020 and translation into
euros using September 30, 2020 closing rate) and provided in the
table below for information (unaudited data).
€ million |
Q1 2020(1) |
Q2 2020(2) |
Q3 2020 |
9M 2020 |
EDP |
3,356 |
3,235 |
3,108 |
9,699 |
Specialized Nutrition |
1,953 |
1,790 |
1,698 |
5,441 |
Waters |
925 |
924 |
1,015 |
2,864 |
|
|
|
|
|
Total |
6,234 |
5,949 |
5,821 |
18,004 |
(1)Results from the application of IAS29 until
September 30, 2020 to Q1 sales of Argentinian entities (application
of the inflation rate until September 30, 2020 and translation into
euros using September 30, 2020 closing rate – unaudited data).
(2)Results from the application of IAS29 until September 30, 2020
to Q2 sales of Argentinian entities (application of the inflation
rate until September 30, 2020 and translation into euros using
September 30, 2019 closing rate – unaudited data).
Financial
indicators not defined in IFRS
Due to rounding, the sum of values presented may
differ from totals as reported. Such differences are not
material.
Like-for-like changes in sales, recurring
operating income and recurring operating margin reflect Danone's
organic performance and essentially exclude the impact of:
- changes in consolidation scope, with indicators related to a
given fiscal year calculated on the basis of previous-year scope
and, since January 1st, 2019, previous-year and current-year scope
excluding Argentinian entities;
- changes in applicable accounting principles;
- changes in exchange rates with both previous-year and
current-year indicators calculated using the same exchange rates
(the exchange rate used is a projected annual rate determined by
Danone for the current year and applied to both previous and
current years).
Bridge
from reported data to like-for-like data
(€ million except %) |
Q3 2019 |
Impact of changesin scope of
consolidation |
Impact of changes in exchange rates and others, including
IAS29 |
Argentina organic contribution |
Like-for-like growth |
Q3 2020 |
|
|
|
|
|
|
|
Sales |
6,418 |
+0.0% |
(7.1%) |
+0.2% |
(2.5%) |
5,821 |
Recurring operating income is
defined as Danone’s operating income excluding Other operating
income and expenses. Other operating income and expenses comprise
items that, because of their significant or unusual nature, cannot
be viewed as inherent to Danone’s recurring activity and have
limited predictive value, thus distorting the assessment of its
recurring operating performance and its evolution. These mainly
include:
- capital gains and losses on disposals of fully consolidated
companies;
- impairment charges on intangible assets with indefinite useful
lives;
- costs related to strategic restructuring and transformation
plans;
- costs related to major external growth transactions;
- costs related to major crisis and major litigations;
- in connection with of IFRS 3 (Revised) and IAS 27 (Revised)
relating to business combinations, (i) acquisition costs related to
business combinations, (ii) revaluation profit or loss accounted
for following a loss of control, and (iii) changes in earn-outs
relating to business combinations and subsequent to acquisition
date.
Recurring operating margin is
defined as Recurring operating income over Sales ratio.
Free cash-flow represents cash
flows provided or used by operating activities less capital
expenditure net of disposals and, in connection with IFRS 3
(Revised), relating to business combinations, excluding (i)
acquisition costs related to business combinations, and (ii)
earn-outs related to business combinations and paid subsequently to
acquisition date.
o o O o o
FORWARD-LOOKING STATEMENTS
This press release contains certain
forward-looking statements concerning Danone. In some cases, you
can identify these forward-looking statements by forward-looking
words, such as “estimate”, “expect”, “anticipate”, “project”,
“plan”, “intend”, “objective”, “believe”, “forecast”, “guidance”,
“foresee”, “likely”, “may”, “should”, “goal”, “target”, “might”,
“will”, “could”, “predict”, “continue”, “convinced” and
“confident,” the negative or plural of these words and other
comparable terminology. Forward looking statements in this document
include, but are not limited to, predictions of future activities,
operations, direction, performance and results of Danone.
Although Danone believes its expectations are
based on reasonable assumptions, these forward-looking statements
are subject to numerous risks and uncertainties, which could cause
actual results to differ materially from those anticipated in these
forward-looking statements. For a detailed description of these
risks and uncertainties, please refer to the “Risk Factor” section
of Danone’s Universal Registration Document (the current version of
which is available on www.danone.com).
Subject to regulatory requirements, Danone does
not undertake to publicly update or revise any of these
forward-looking statements. This document does not constitute an
offer to sell, or a solicitation of an offer to buy Danone
securities.
The
presentation to analysts and investors, held by Chairman and CEO
Emmanuel Faber, and CFO Cécile Cabanis, will be broadcast live
today from 9:00 a.m. (Paris time) on Danone’s website
(www.danone.com). Related slides will also be available on the
website in the Investors section.
APPENDIX – Sales by reporting entity and by geographical
area (in € million)
|
First quarter |
Second quarter |
Third quarter |
|
2019 |
2020 |
2019 |
2020 |
2019 |
2020 |
BY REPORTING ENTITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
EDP |
3,308 |
3,364 |
3,283 |
3,238 |
3,240 |
3,108 |
Specialized Nutrition |
1,828 |
1,949 |
1,866 |
1,792 |
1,920 |
1,698 |
Waters |
1,002 |
928 |
1,346 |
925 |
1,258 |
1,015 |
BY GEOGRAPHICAL AREA |
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe & Noram1 |
3,381 |
3,469 |
3,471 |
3,352 |
3,451 |
3,334 |
Rest of the World |
2,757 |
2,772 |
3,025 |
2,602 |
2,966 |
2,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
6,138 |
6,242 |
6,496 |
5,954 |
6,418 |
5,821 |
|
First quarter 2020 |
Second quarter 2020 |
Third quarter2020 |
|
Reported change |
Like-for-like change |
Reported change |
Like-for-like change |
Reported change |
Like-for-like change |
BY REPORTING ENTITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
EDP |
+1.7% |
+4.6% |
-1.4% |
+1.6% |
-4.1% |
+3.7% |
Specialized Nutrition |
+6.6% |
+7.9% |
-4.0% |
-2.2% |
-11.6% |
-5.7% |
Waters |
-7.4% |
-6.8% |
-31.3% |
-28.0% |
-19.3% |
-13.5% |
BY GEOGRAPHICAL AREA |
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe & Noram1 |
+2.6% |
+4.7% |
-3.4% |
-3.5% |
-3.4% |
-1.1% |
Rest of the World |
+0.5% |
+2.6% |
-14.0% |
-8.2% |
-16.2% |
-4.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
+1.7% |
+3.7% |
-8.3% |
-5.7% |
-9.3% |
-2.5% |
1North America (Noram): United States and
Canada
1All references in this document to Like-for-like (LFL) changes,
Recurring operating income and margin, free cash flow (FCF)
correspond to financial indicators not defined in IFRS. Their
definitions, as well as their reconciliation with financial
statements, are listed on pages 5 and 6.
2On a like-for-like basis
3 Effective November 1st, 2020, this organizational change will
not lead to any reduction in the level of granularity of the
Company’s financial disclosure
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