Danone Aims For Positive Second Half, Following Weak Q1 Results

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Danone Q1 sales: last quarter of decline before returning to like-for-like growth

  • First-quarter consolid ated sales of € 5,657m, down -3.3% on a lik e -for-lik e (LFL) basis, reflecting Covid-related headwinds and lapping high Q1 2020 base of comparison
  • Sharp -7.0% impact of FX, resulting in a -9.4% decline in c onsolid ated sales
  • 2021 guidance reiterated:
    • Back to like-for-like growth as of Q2; return to profitable growth in H2
    • FY recurring operating margin expected to be broadly in line with 2020

Véronique PenchienatiBosetta and Shane Grant: interim co-CEOs statement 

Our first quarter landed in line with expectations and we continue to expect a return to like-for-like sales growth in the second quarter, and to profitable growth in the second half of 2021.

We have now experienced over a year of Covid and the pandemi c continues to impact our markets. Though this resulted in an overall decline in sales, -3.3% on a like-for-like basis, this first quarter has confirmed many of Danone’s strengths and ability to win in key areas. EDP sustained i ts performance momentum in key developed markets, especially in Probiotics, Protein and Plantbased. Growth in Adult Medical Nutrition remained strong, maintaining last years’ momentum. Waters continued to be impacted by out of home trends but showed sequential improvement compared to previous quarters.

Danone partners Ogun State on dairy development through backward integration program

Our focus is on delivery and execution, and so it is to our highly motivated and engaged Danoners that we send our thanks for their resili ence and hard work during these unprecedented times. Through them, together, we will drive Danone back to profitable growth  and winning in the market.”

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In the first quarter of 2021, consolidated sales stood at €5.7 bn, down -3.3% on a like-for-like basis, with a -3.7% decline in volume and a +0.3% increase in v alue .

On a reported basis, sales w ere down – 9.4%, mainly driven by the negative impact of exchange rates (-7.0%) that resulted from currency devaluations against the euro in the United States, Latin America, Indonesia, Turkey and Russia. Reported sales also included a slightly positiv e scope effect (+0.4%)  as well as a +0.4% organic contribution from hyperinflation geographies such as Argentina.

In terms of regional dynamics, Europe and North A merica sales declined by -2.8% on a like-for-like basis, from a high base of comparison that was driven by the pantry loading that benefited the se regions in March 2020 for Specialized Nutrition and, to a lesser extent, Essential Dairy and Plant – based. Rest of the World sales decreased -4.2%, with China, Latin America, and Africa experiencing continued pressure in the quarter.

Performance by reporting entity

ESSENTIAL DAIRY AND PLANT-BASED (EDP)

In the first quarter, net sales w ere up + 1.6% on a lik e -for-lik e basis, including a + 0.5% increase in v olume and +1.1% in v alue, sustaining momentum despite  an exceptional first quarter last year  marked by pa nic buying a nd pantry loading . Europe and North America delivered solid growth, driv en by the Probiotics, Protein and Plant – based . Europe deliv ered another quarter of growth .

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This performance w as driv en by  the continued strength of the Plant – based portfolio, growing w ell into double – digits, while the Probiotics and Protein platforms posted another quarter of solid growth.

The Essential Dairy portfolio registered broad – based market -share gains led by Actimel, Danette and YoPro. North America recorded the l argest absolute net sales quarter ever despite  a high base of comparison, sustaining a solid growth momentum, notably in Coffee Creamers and Plant – based, which deliv ered strong and high single- digit growt h respectiv ely.

In the Rest of the World, sales w ere flat, with soft dynamics in CIS , while Latin A merica and Africa started to show the first signs of improvement compared to previous quarters.

SPECIALIZED NUTRITION

In the first quarter, net sales declined by -7.7% on a lik e -for-lik e basis, with a decrease of -7.0% in volume and -0.7% in value, from a high base of comparison driven by  the pantry loading of March 2020. Adult Medical Nutrition deliv ered another quarter of strong growth, driven by Chin .

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Infant Nutrition remained penalized by C ovid -related channel disru ptions in China, whith cross – border channels sales down around -45%. Domestic channels confirme d their growth momentum. All in all, China sales d ecreased at a steep double – digit rate.

In Europe, sales declined at a mid -teens rate, but market shares held up w ell amid continued soft category dynamics.  In the Rest of the World, Danone continued to register a solid performance a nd market -share gains , led by South-East Asia and Middle East.

WATERS

In the first quarter, net sales were down -11.6% on a like-for-like basis, with a decline of -11.2% in volume and -0.4% in v alue , once again severely penalized as consumer mobility remained below pre-Covid levels.

In Europe, sales declined at a high single- digit rate, improv ing sequentially compared to recent quarters, on the back of improving mobility, the continued resilien ce of at-home formats, and market share gains in key markets such as France, Germany, Spain and Poland.

In the Rest of the World, sales in La tin A merica and Indonesia continued to decline at a steep double – digit rate, while Mizone registered another quarter of growth  in China, in line with the last quarter , and enter ing the high season with innovative product offerings as w ell as strong activ ation plans .

Macro economic outlook

Despite short-term uncertainties, a gradual reopening of economies  is assumed to start from H2, as vaccination programs are rolled out. Meanwhile, abroad – based acceleration of inflation in milk, ingredients, packaging and logistics is expected.

2021 guidance reiterated

Danone expects to be back to like-for-like growth in Q2, and to return to profitable growth in H2. FY recurring operating margin is expected to be broadly in line with 2020.

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