Danone looks to tackle climate change after strong 2019

By Jim Cornall

- Last updated on GMT

Tackling climate change and sustainability are priorities for Danone as it looks to the future.
Tackling climate change and sustainability are priorities for Danone as it looks to the future.

Related tags Danone Climate change early life nutrition plant based Dairy

Danone has reported 2019 sales of €25.3bn, up 2.6% on a reported and like-for-like basis, with a 4.1% increase in Q4 on a like-for-like basis.

The French company also reached a 2.8x net debt/EBITDA ratio a year ahead of plan.

Its proposed dividend of €2.10, payable in cash, is up 8% from the previous year.

Following its results, the company said it is investing to accelerate climate action of its brands and strengthen its growth model: €2bn over 2020-2022 on brands, agriculture, packaging and digitalization.

Modest EDP increase

Danone’s Essential Dairy & Plant-based (EDP) division posted net sales growth of 1.1% in 2019 on a like-for-like basis, while margin improved by 13bps to 10.2%.

In the fourth quarter, net sales were up by +1.5% on a like-for-like basis, including a +2.4% increase in value, and a -0.9% decline in volumes.

The acceleration compared to the previous quarter was driven by a general improvement in Essential Dairy and a continued strong growth in Plant-Based. Europe went back to growth in 2019, with plant-based Alpro brand confirming its double-digit growth trend in Q4 and Essential Dairy progressively stabilizing, supported by the deployment of new brands.

North America improved to slightly positive growth in Q4, on the back of a better quarter for yogurts in the US.

Top-3 brands in the region - International Delight, Silk, and Horizon – delivered strong growth while protein powder brand Vega posted another quarter of steep double-digit decline.

In the rest of the world, CIS registered a low-single digit decline, similar to Q3. Latam posted strong growth and Morocco delivered another double-digit growth quarter, closing a year of recovery that brought the business back to market leader position. In 2019, Plant-Based sales amounted to €1.9bn growing at high-single-digit rate for the full-year.

Growth in China

Specialized Nutrition posted net sales growth of 5.8% in 2019 on a like-for-like basis, while margin improved by 49bps to reach a record level of 25.3%.

In the fourth quarter, sales growth accelerated, up 10.2% on a like-for-like basis, with an increase in value of 9.3% and 0.9% in volumes.

Advanced Medical Nutrition (AMN) posted mid-single digit growth in Q4, led by the performance of the pediatrics range, and Early Life Nutrition (ELN) sales grew at double-digit rate.

China posted a quarter with growth exceeding 20%, reflecting the performance of the Aptamil brand during 11:11 - China’s and the world’s largest online shopping event – and including some benefits from the earlier timing of Chinese New Year.

Outside China, Early Life Nutrition grew mid-single digit, driven by the rest of Asia, and Happy Family in the US.

The further integration of AMN and ELN into one single Specialized Nutrition organization to create further value has been successful, the company said.

Climate change

Due to shifting attitudes and expectations towards climate and nature issues, Danone said is stepping up the speed, and increasing the depth, of its transformation actions to put climate further at the core of its growth model.

This will translate into an accelerated investment plan of around €2bn cumulative over the 2020-2022 period on brands, climate and agriculture, packaging and digitalization, Danone said, with the objective to “build the most attractive business platform in the food industry, with greater recognition from consumers for climate-proofing actions, and create a virtuous cycle that fuels a superior growth model and unlocks value further and faster.”

Danone said it will pursue packaging alternatives to plastics (such as glass, cans, and paper), and will also act to enhance the recyclability of EDP cups, targeting zero polystyrene worldwide by 2025, and zero polystyrene in Europe by 2024, starting with the Alpro brand by 2021. Those initiatives will be supported by the launch a dedicated fund to explore next generations of packaging materials and models.

Danone said it believes economic conditions in 2020 will remain particularly volatile and uncertain, including difficulties in a few major markets including the CIS and Argentina, with additional pressure on the world economy since the beginning of the year related to the COVID-19 outbreak.

For 2020, Danone said is targeting a mid-single-digit growth of recurring EPS. This assumes a like-for-like sales growth between 2% and 4% and a recurring operating margin above 15%, reflecting both the strategic steps the company is taking from 2020 to transform the business for the long-term and unlock value further and faster, and the impact of external environment factors.

Emmanuel Faber, chairman and CEO, said, “We end this five-year period of our Danone 2020 plan with a recurring EPS cumulative increase of 50%, a financial deleverage one year ahead of our plan, and a business that embraced the food revolution, leading on flexitarian proteins, organic food and regenerative agriculture.

“Yet we read the last 12 months as a shifting point in civil society, consumer, government, financial institutions attitudes and expectations towards the daunting climate and nature issues we are collectively facing. For Danone, as a company that has adopted One Planet. One Health. as a vision and as a business model, this is a strategic topic​.”

Faber said he was proud that the company reached the peak of its full scope carbon emissions last year, five years ahead of our 2015 plan, and that efforts on regenerative agriculture have resulted in a 9% carbon productivity in farmers’ fields over the last two years.

“Yet, we are convinced that there is an urgent and significant opportunity to put climate actions even more at the core of our business model, truly joining people’s fight for climate and nature with the power of our brands.

To this effect, we announce a €2bn climate acceleration plan today, which in the next three years will further transform our agriculture, energy and operations, packaging, and digital capabilities so that we will leverage fully our climate action to generate resilient growth models for our brands.”

However, Faber added, “We start this year under the uncertain clouds of the coronavirus. Our priority is on the health and safety of our employees, business partners, customers and the communities in which we operate, hand in hand with the work of authorities.

“I would like in particular to commend and deeply thank our teams in China for their incredible commitment to their mission serving relentlessly families, parents, babies and elderlies despite the difficult conditions. Let me express my support and empathy for the difficulties and challenges they face and my confidence that life will return to normal in China and beyond.”

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