Danone looks to recovery in 2021

By Jim Cornall

- Last updated on GMT

Domestic sales of infant formula in China were back to growth in the quarter. Pic: Danone
Domestic sales of infant formula in China were back to growth in the quarter. Pic: Danone

Related tags Danone pandemic COVID COVID-19

Danone has published its fourth quarter and full year results.

In 2020, consolidated sales were €23.6bn ($28.6bn), down -1.5% on a like-for-like basis, with stable volumes (-0.1%) and a -1.5% decrease in value reflecting negative category and country mix, especially in Waters and Specialized Nutrition.

On a reported basis, sales were down -6.6%, mainly driven by the negative impact of exchange rates (-5%) that resulted from currencies devaluation against the Euro in the US, Latin America, Indonesia and Russia. Reported sales were also impacted by a negative scope effect (-0.4%), resulting from the deconsolidation from April 1, 2019 of Earthbound Farm, and by a +0.3% organic contribution of Argentina to growth.

In the fourth quarter, sales declined -1.4% on a like-for-like basis, showing a sequential improvement from the two previous quarters, with flat volumes. Reported sales were down -9.8%, mainly driven by a continued strong negative effect of -8.8% from exchange rates.

After a sequential improvement in Q3, out-of-home channels sales declined by approximately -25% in Q4, penalized by new waves of restrictions and lockdown measures related to COVID-19, especially in Europe. Infant formula sales in China from cross-border channels continued to contract sharply (-45%) given the ongoing Hong-Kong border closure and travel limitations with mainland China, but showed a sequential improvement compared to the previous quarter.

On the other hand, domestic sales of infant formula in China were back to growth in the quarter, at low-single-digit rate. The eCommerce channel continued to grow significantly, at approximately +45% in the quarter, with all categories contributing to growth.

In terms of regional dynamics, sequential improvement compared to Q3 was led by Rest of the World. Like-for-like sales growth in Europe and North America was broadly in line with the previous quarter, moving from -1.1% to -1.0% in Q4. In Europe, good EDP performance and Specialized Nutrition sequential improvement offset the deterioration in Waters, while North America continued to see solid momentum. Like-for-like sales growth in the Rest of the World improved in Q4 from -4.1% to -1.9%, notably led by a better performance in China and another quarter of growth in CIS.

Essential Dairy & Plant-based posted net sales growth of 3.4% in 2020 on a like-for-like basis, sustained by both Essential Dairy, up low-single digit, and plant-based that grew at +15% and reached €2.2bn ($2.67bn) of sales in 2020, up from €1.9bn in 2019. Recurring operating margin remained broadly stable above 10%, despite Covid-related costs.

In the fourth quarter, net sales were up +3.6% on a like-for-like basis, reflecting a +3.7% increase in volume and -0.1 % in value. This growth was led by Europe and North America, that sustained their mid-single-digit performance. In North America growth was supported by Premium Dairy and Plant-based continued momentum.

Yogurt and Coffee Creamers both grew in retail channels, low-single digit and double-digit respectively, but continued to be penalized by their exposure to away-from-home channels. In Europe, Essential Dairy was back to low-single-digit growth in the quarter (+2%), with a broad-based contribution from all key brands, and plant-based registered high-teens growth, with all geographies contributing. In the Rest of the World, CIS delivered another quarter of positive growth, with a balanced contribution from traditional and modern dairy brands, while Latin America and Africa continued to experience pressure from Covid-related restrictions.

Specialized Nutrition posted net sales growth of -0.9% in 2020 on a like-for-like basis and recurring operating margin decreased by -74bps to 24.5%, notably reflecting the negative country mix from Infant Nutrition in China, as well as Covid-related costs incurred this year.

In the fourth quarter, sales declined -3.1% on a like-for-like basis, with a decrease of -1.7% in volume and -1.3% in value, sequentially improving from the third quarter (-5.7%) thanks to better trends across geographies. In China, sales declined at mid-teens rate, after decreasing double-digit in Q3.

While cross-border channels sequentially improved from last quarter, they were still severely penalized by ongoing Hong-Kong border closure and travel limitations with mainland China, declining by -45% in the fourth quarter compared to last year. On the other hand, domestic channels were back to growth in the quarter, driven by the performance of Aptamil that gained market shares. In Europe, infant milk and first diet performance slowly recovered but remained negative, penalized by continued soft category dynamics, while adult nutrition accelerated, notably driven by the first signs of normalization in hospital and prescription activity. Other regions delivered strong growth, sustained by market share gains in South East Asia and Latin America.

At the AGM on April 29, 2021, Danone’s board of directors will propose a dividend of €1.94 ($2.35) per share, in cash, in respect of the 2020 fiscal year. In line with the Company’s continued measured and balanced dividend policy, the dividend is down 8% from last year. This reflects on the one hand the impact of the deteriorated environment on 2020 results, and demonstrates on the other Danone’s confidence in rapidly reconnecting with profitable growth, as reflected by the increased pay-out ratio to 58%. Assuming this proposal is approved, the ex-dividend data will be May 10, 2021 and the dividends will be payable on May 12, 2021.

Danone said it expects a tough Q1 driven by the tough base of comparison of Q1 last year and continued channel-related headwinds.

The company anticipates to return to growth in Q2, and to return to profitable growth in H2. The FY recurring operating margin is expected to be broadly in line with 2020

Emmanuel Faber, chairman and CEO, said, “On the business front, as Covid became a pandemic throughout 2020, we faced material specific short-term challenges in a number of our key categories and geographies but also clearly uncovered significant long-term opportunities, whose existence directly lies in the strategic framework and choice of category portfolio that we made over the last several years. our one planet one health framework of action has never been as relevant as today for the future, and we continue to be ahead of competition in implementing this vision.

“Building on the highly successful integration of whitewave, which sales grew 11% (like for like) last year, contributing to 160 bps to our growth, I am thrilled to announce the acquisition of follow your heart, a California based pioneer company, leading the cheese and mayonnaise plant based alternatives, opening for Danone a strong foothold into the promising flexitarian trend in the US cheese market, in both retail and foodservice.

“This is building further on our global leadership on plant-based, now representing 10% of our sales.

“After making 2020 a year of both delivery and progress under serious challenging conditions, we know Q1 2021 is going to be heading tough comparables in particular in our SN Chinese operations and that governmental health strategies around the world will continue to create uncertainties on the speed of recovery of mobility in indexes that will weigh a bit longer on our water business performance.

“2021 is therefore going to be a year of recovery. we are focused on preparing our return to sales growth as soon as Q2, and are fully confident that we are building the right conditions and momentum to reconnect with our profitable growth agenda as soon as H2.

“In this context, we fully recognize that our share price is not where we would like it to be and we are pleased that this FY announcement resumes our ability to dialogue openly with our shareholders, in preparation of our important CME On March 25, when we will share more on the growth platforms underlying our categories and countries, as well as our progress on our transformation plans, which will provide the necessary support to our full ability to unlock our short and mid term profitable growth opportunities.”

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