Danone announces first-half results
In the first half of 2021, consolidated sales stood at €11.8bn ($14bn), up 1.6% on a like-for-like basis; on a reported basis, sales were down 2.9%, which the company said was mainly driven by the negative impact of exchange rates (-5.5%) that resulted from currencies’ depreciation against the euro in the US, Latin America, Indonesia, Turkey and Russia.
In the second quarter, sales increased by 6.6% on a like-for-like basis, with value up 4.7% and volumes 1.8%. Reported sales rose 3.6%, mainly impacted by a still strong negative effect of 4.0% from exchange rates.
Europe and North America sales were up 6.4% on a like-for-like basis, led by the recovery in Waters, as well as sustained solid momentum for Essential Dairy and Plant Based (EDP), and a return to growth for Specialized Nutrition. Sales in the Rest of the World increased by 6.9% on a like-for-like basis.
Danone’s recurring operating income reached €1.6bn ($1.9bn) in H1 2021. Recurring operating margin stood at 13.1%, down -86 basis points (bps) on a reported basis and -83 bps on a like-for-like basis. This change was mainly driven by the negative impact of input costs inflation as well as a negative category mix, for a combined impact of -490 bps.
These headwinds were partially offset by the effects of valorization and productivity that added +430 bps to the margin in the first half, as Danone reinvested selectively in its brands. Reported margin also reflects the negative impact of its change in scope (-16 bps), the positive currency impact (+15 bps), and +3 bps reflecting the impact of organic contribution from hyperinflation geographies.
Essential Dairy & Plant-based posted sales growth of 3.2% in H1 2021 on a like-for-like basis and recurring operating margin remained broadly stable at 9.1%, with strong productivity mitigating the heightened milk inflation.
In the second quarter, sales accelerated from Q1, reaching +4.8% on a like-for-like basis, reflecting a 2.2% increase in volume and +2.6% in value. The Essential Dairy portfolio delivered solid growth while Plant-based posted its sixth quarter of double-digit growth. Europe and Noram delivered another quarter of solid growth, led by Plant-based.
In Europe, Alpro registered another quarter of steep double-digit growth on the back of strong investments and global market share gains, while Probiotics showed solid growth led by Actimel. Noram posted its second successive record sales quarter, led by yogurt returning to broad-based growth and share gains led by Oikos, Two Good and Activia, with sustained growth in creamers, and its highest ever share in Premium Dairy. In Plant-based, growth was led by creamers and yogurt. In the Rest of the World, sales growth was strong, thanks to the favorable basis of comparison in Latam and Africa, while CIS performance remained soft amid a challenging macro-economic and sanitary environment.
Specialized Nutrition sales declined 2.6% in H1 2021 on a like-for-like basis. Recurring operating margin decreased by -351 bps to 22.9%, strongly impacted by a negative country mix.
In the second quarter, sales increased by 2.8% on a like-for-like basis, with a decrease of 1.4% in volume and an increase of 4.2% in value, after a heavily negative first quarter. Adult Nutrition, which now represents approximately 15% of Specialized Nutrition revenues, delivered high single-digit sales growth, with all geographies and all segments contributing. Infant Nutrition posted low single-digit sales growth. In China, performance remained polarized. Domestic labels posted positive growth in the quarter, despite the very high base of comparison, leading to a semester growing at around mid single-digits. E-commerce platforms for International labels delivered very strong growth, while indirect cross-border channels, which include Daigous, Friends&Family and the Hong-Kong platform, continued to be under pressure and declined within the -45% to -60% range they delivered in the second half of 2020. Aptamil market share continued to be resilient. In other regions, Danone’s platforms delivered another solid quarter of growth.
Other operating income and expense reached -€700m (-$831m) vs -€123m (-$146m) in the prior year, resulting mostly from the Local First project and the transformation of Danone’s operations. As a result, reported operating margin was down -576 bps from 13.0% to 7.2%.
Net financial costs were down by €42m ($50m) to -€129m (-$153m), resulting notably from a decrease in the cost of net debt due to two bond reimbursements in 2020 issued at higher interest rates, as well as a new bond issuance at 0% coupon in June 2021.
The recurring net income from associates decreased significantly from €21m ($25m) to €9m ($10.7m), reflecting the disposal of Danone’s stakes in Mengniu and Yakult. Danone is also engaged in a disposal process of its 20% stake in the Fresh Dairy JV with Mengniu, which is thus classified as an asset held for sale under IFRS 5 as from June 30, 2021. Recurring minority interests stood at €40m ($47.5m), broadly in line with the prior year, reflecting a performance across entities with minorities still under pressure.
As a result, recurring EPS was €1.53 ($1.82), down -9.3% vs. last year, but reported EPS increased by 5.1% to €1.63 ($1.93).
Outlook
Despite short-term uncertainties, a gradual reopening of economies is assumed to continue in H2 as vaccination programs are rolled out. Meanwhile, a broad-based acceleration of inflation in milk, ingredients, packaging and logistics is expected.
Danone said it expects to return to profitable growth in H2, and FY recurring operating margin is expected to be broadly in line with 2020.
As announced in February, Danone expects to buy back up to €800m ($949m) worth of shares, in one or more tranches, in the second half of 2021.
Interim co-CEOs Véronique Penchienati-Bosetta and Shane Grant said, “We are pleased to report a return to growth across all our categories this quarter, thanks to the teams’ commitment and focus on execution and delivery.
“On a two-year basis, our like-for-like sales growth is also positive, on both Q2 and H1. We maintained strong momentum in our EDP business, led by growth in Dairy, and Plant-based reporting its sixth consecutive quarter of double-digit growth, and a solid performance in Europe and Noram.
“Specialized Nutrition returned to growth in Q2, with notably a consistent high single-digit performance in Adult Nutrition and a positive growth in Infant Nutrition.
“Our continued focus on core portfolio renovation and innovation, supported by selective reinvestments and channel execution focus, has helped our leading brands such as Alpro, Actimel, Neocate, evian and Oikos grow market share, playing into global trends towards health and immunity.
Looking ahead, we reiterate our guidance for the full year. Although the macro context is still uncertain, we have strong foundations across our categories, geographies and brands. Local First project is progressing according to plan. We will continue to adopt a disciplined approach to capital management and remain focused on delivering on our growth priorities and plans in the second half.”
