DANONE: Strong progress on profitable growth in 2019; 2020:
investment to accelerate climate action of our brands and
strengthen our growth model
2019 Full-Year
ResultsPress release – Paris, February 26, 2020
Strong progress on profitable growth in
20192020: investment to accelerate climate action
of our brands and strengthen our growth model
2019, a year of progress
- Strong recurring EPS growth: +8.3% at
€3.85
- 2019 sales: €25.3bn, up +2.6% on a reported
and like-for-like bases, with +4.1% in Q4 on a
like-for-like basis
- Strong recurring operating margin improvement at
15.2%, up +76bps on a reported basis and free cash
flow delivery reaching an all-time high of €2.5 bn
- Stronger balance sheet, reaching 2.8x net
debt/EBITDA one year ahead of plan
- Proposed dividend: €2.10 payable in cash, up
+8% from €1.94 last year
Leading the battle against climate
change
- Peak of full scope carbon emissions reached in
2019, five years ahead of initial plans and
commitments
- First step to provide visibility into the cost of
carbon emissions to earnings
- investment to accelerate climate action of our brands
and strengthen our growth model: €2bn over
2020-2022 on brands, agriculture, packaging and
digitalization
Objectives
- For 2020, new guidance of
mid-single-digit recurring EPS growth, reflecting +2 to
+4% like-for-like sales growth and recurring operating margin above
15%, as we accelerate investment and factoring in assessment to
date of the impact of coronavirus outbreak
- Beyond 2020, expecting to deliver in the
mid-term mid to high-single digit recurring EPS growth, with 3 to
5% sales growth on a like-for-like basis
|
2019 Key Figures |
in millions of euros except if stated otherwise |
FY 2018 |
FY 2019 |
Reported Change |
Like-for-like(LFL) |
Sales |
24,651 |
25,287 |
+2.6% |
+2.6% |
Recurring operating income |
3,562 |
3,846 |
+8.0% |
+7.4% |
Recurring operating margin |
14.45% |
15.21% |
+76 bps |
+71 bps |
Non-recurring operating income and expenses |
(821) |
(609) |
+212 |
|
Operating
income |
2,741 |
3,237 |
+18.1% |
|
Operating margin |
11.12% |
12.80% |
+168 bps |
|
Recurring net income – Group share |
2,304 |
2,516 |
+9.2% |
|
Non-recurring net income – Group share |
46 |
(586) |
(632) |
|
Net income – Group share |
2,349 |
1,929 |
-17.9% |
|
Recurring EPS (€) |
3.56 |
3.85 |
+8.3% |
|
EPS (€) |
3.63 |
2.95 |
-18.7% |
|
Free cash flow |
2,232 |
2,510 |
+12.5% |
|
Cash flow from operating activities |
3,111 |
3,444 |
+10.7% |
|
All references in this document to Like-for-like
(LFL) changes, Recurring operating income and margin, Recurring net
income, Recurring income tax rate, Recurring EPS, Free cash-flow,
EBITDA correspond to financial indicators not defined in IFRS.
Their definitions, as well as their reconciliation with financial
statements, are listed on pages 9 to 11. The calculation of ROIC
and Net Debt/EBITDA is detailed in the half-year interim financial
report and the annual registration document.
Emmanuel
Faber: Chairman and Chief Executive Officer statement
“2019 has been a year of strong progress for
Danone both in terms of the delivery and the transformation of our
company. The sequential acceleration of our business quarter after
quarter is evidence that we are in the right direction on
sustainable profitable growth, while navigating multiple
headwinds.
I am also excited that our 100,000 employees
became shareholders at our AGM last year, and that our « One
Person. One Voice. One share » program has entered into its second
year resulting in 90,000 of our team members voicing their opinions
for the company local and global strategy, and in 26 volunteers
having a direct and structured dialogue with non executive Board
members.
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.
On that front, we are proud that we were able to
reach the peak of our full scope carbon emissions last year,
literally five years ahead of our 2015 plan, and that our efforts
on regenerative agriculture have already resulted in a 9% carbon
productivity in our farmers’ fields over the last 2 years. This is
critical to ensure the resilience of farms, sinking carbon in the
soil, therefore reintroducing organic matter and fertility, and
saving costs, pesticides, chemical intrants, and water at a
critical climate juncture for agriculture.
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 €2 billion 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.
This is backing my confidence in the relevance
of our investment plan in the next three years and in both our
short term guidance and mid term objectives as we are setting the
company on a unique path of deep alignment between its vision and
execution.
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. 坚强, 中国 Stay strong
China.”
I. FOURTH
QUARTER AND FULL YEAR RESULTS
Sales
In 2019, consolidated sales
stood at €25.3 bn, up +2.6% on a like-for-like basis. Sales grew by
+3.8% in value, led by continued positive mix and portfolio
valorization, while volumes declined by -1.2%. Reported sales were
up +2.6%, including a negative scope
effect (-1.0%), mainly reflecting the deconsolidation from
April 1st of Earthbound Farm, a positive impact of
currencies (+0.7%), as well as a
+0.4% organic contribution of Argentina to growth. In the
fourth quarter, sales grew +4.1%
on a like-for-like basis, up from +3% in the previous quarter, with
broadly flat volumes.
€ millionexcept % |
Q42018 |
Q4 2019 |
Reported change |
LFL Sales Growth |
Volume Growth |
FY2018 |
FY2019 |
Reported change |
LFL Sales Growth |
Volume Growth |
BY REPORTING ENTITY |
|
|
|
|
|
|
|
|
|
|
EDP |
3,316 |
3,335 |
+0.6% |
+1.5% |
-0.9% |
13,056 |
13,163 |
+0.8% |
+1.1% |
-2.2% |
Specialized Nutrition |
1,754 |
1,943 |
+10.8% |
+10.2% |
+0.9% |
7,115 |
7,556 |
+6.2% |
+5.8% |
-0.1% |
Waters |
939 |
962 |
+2.5% |
+1.4% |
+0.9% |
4,480 |
4,568 |
+2.0% |
+1.5% |
-0.4% |
BY GEOGRAPHICAL AREA |
|
|
|
|
|
|
|
|
|
|
Europe & Noram1 |
3,422 |
3,408 |
-0.4% |
+0.6% |
-0.3% |
13,654 |
13,710 |
+0.4% |
+0.3% |
-1.2% |
Rest of the World |
2,587 |
2,833 |
+9.5% |
+9.0% |
+0.7% |
10,997 |
11,577 |
+5.3% |
+5.6% |
-0.8% |
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
6,009 |
6,241 |
+3.9% |
+4.1% |
-0.1% |
24,651 |
25,287 |
+2.6% |
+2.6% |
-1.2% |
1North America (Noram): United States and
Canada
Margin
In 2019, Danone’s recurring operating income
stood at €3.8 bn. The recurring operating margin reached
15.21%, up +76 bps on a reported basis.
On a like-for-like basis, recurring margin
increased by +71bps driven by gross margin improvement - as an
outcome of the continued portfolio valorization efforts and focus
on efficiency offsetting the strong inflation on raw materials –
and sustained sales and marketing investments. In total, gross
savings reached €900 million for the year. The Protein program
delivered approximately €400 milion gross savings, bringing the
cumulated savings since its launch in 2017 to around €700
million.
In addition, reported margin also included:
- The positive scope effect of
+20bps, reflecting the impact of the Earthbound Farm disposal,
- A slight positive effect from
currencies, at +6bps, and
- A negative effect of -21bps
reflecting Argentina’s impact on margin
Recurring operating profit
(€m) and margin (%) |
FY 2018 |
FY 2019 |
Change |
€m |
Margin (%) |
€m |
Margin (%) |
Reported |
Like-for-like |
BY REPORTING ENTITY |
|
|
|
|
|
|
EDP |
1,317 |
10.09% |
1,345 |
10.22% |
+13
bps |
-7 bps |
Specialized Nutrition |
1,762 |
24.77% |
1,908 |
25.26% |
+49
bps |
+94 bps |
Waters |
483 |
10.79% |
593 |
12.98% |
+219 bps |
+189 bps |
BY GEOGRAPHICAL AREA |
|
|
|
|
|
|
Europe & Noram2 |
1,928 |
14.12% |
1,999 |
14.58% |
+46
bps |
+47 bps |
Rest of the World |
1,634 |
14.86% |
1,847 |
15.96% |
+109 bps |
+96 bps |
|
|
|
|
|
|
|
Total |
3,562 |
14.45% |
3,846 |
15.21% |
+76 bps |
+71 bps |
2North America (Noram): United States and Canada
Performance by reporting entity
ESSENTIAL DAIRY AND PLANT-BASED (EDP)
Essential Dairy & Plant-based
(EDP) 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 vs.
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 to address new consumer tribes.
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.
SPECIALIZED NUTRITION
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 posted mid-single digit growth in Q4, fostered
by a good performance of pediatrics range and Early Life
Nutrition sales grew at double-digit rate. China posted
another exceptional quarter, with growth exceeding 20%, reflecting
notably the outstanding performance of 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 run successfully.
WATERS
Waters posted net sales growth
of +1.5% in 2019 on a like-for-like basis, while margin improved by
+219bps to reach 13.0%.
In the fourth quarter, net sales were up +1.4%
on a like-for-like basis, with an increase in value of +0.5% and
+0.9% in volumes. In Europe, where demand remained
soft in Q4, business returned to growth driven by better
performance in Spain and Poland. In Emerging
Markets, outside China, growth was solid and led by
Indonesia and Turkey, as well as by plain waters in Mexico. In
China, Mizone sales slowed down at a steep double digit rate in a
context of paused investments in the quarter, ahead of the
repositioning plan initially planned for March 2020 to revitalize
the brand. In 2019, about 50% of Waters’ volumes were offered in
reusable formats (especially jugs in Indonesia, Mexico, and Turkey)
and the use of rPET increased to reach 16% worldwide.
Net income and Earnings per
share
Other operating income and
expense stood at -€609 million, mainly related to a
non-cash charge of -€154 million resulting from the loss on the
divestiture of EarthBound Farm in April 2019, restructuring and
integration costs of more than -€300 million, linked notably to the
further integration of the Early Life and Medical Nutrition
organizations.
The recurring net financial
result slightly increased in 2019 vs 2018 (from -€350
million to -€370 million), reflecting the appreciation of the cost
of US-denominated debt and higher interest rates in Argentina. The
recurring income tax rate stood at 27.5% in 2019,
down 40bps from 2018, supported by a favorable country mix.
Recurring net income from associates increased to
€98 million, reflecting good results from the participation in
Mengniu, offsetting the decrease in the participation in Yakult
from 21.3% to 6.6%, which occurred in March 2018. Recurring
minority interests increased to €103 million, driven by
the good results of Aqua in Indonesia.
Total non-recurring net income (Group
share) amounted to -€586 million in 2019, reflecting, in
addition to the non-recurring operating expenses mentioned above,
the impairment of the goodwill related to the stake held in Yashili
(-€109million). As a result, reported
EPS was €2.95, down -18.7% on the high base of
last year, which embedded an exceptional capital gain of €0.7
billion from the partial sale of Danone’s stake in Yakult last
year.
|
FY 2018 |
FY 2019 |
|
in millions of
euros except if stated otherwise |
Recurring |
Non-recurring |
Total |
|
Recurring |
Non-recurring |
Total |
|
Recurring operating income |
3,562 |
|
3,562 |
|
3,846 |
|
3,846 |
|
Other
operating income and expense |
|
(821) |
(821) |
|
|
(609) |
(609) |
|
Operating income |
3,562 |
(821) |
2,741 |
|
3,846 |
(609) |
3,237 |
|
Cost of net
debt |
(231) |
|
(231) |
|
(220) |
|
(220) |
|
Other financial income and expense |
(119) |
2 |
(117) |
|
(150) |
(0) |
(151) |
|
Income
before taxes |
3,213 |
(819) |
2,393 |
|
3,477 |
(609) |
2,867 |
|
Income
tax |
(895) |
179 |
(716) |
|
(956) |
163 |
(793) |
|
Effective tax rate |
27.9% |
|
29.9% |
|
27.5% |
|
27.7% |
|
Net
income from fully consolidated companies |
2,318 |
(640) |
1,678 |
|
2,521 |
(446) |
2,075 |
|
Net income
from associates |
79 |
683 |
762 |
|
98 |
(144) |
(46) |
|
Net
income |
2,397 |
43 |
2,440 |
|
2,618 |
(590) |
2,028 |
|
• Group
share |
2,304 |
46 |
2,349 |
|
2,516 |
(586) |
1,929 |
|
• Non-controlling interests |
93 |
(3) |
90 |
|
103 |
(4) |
99 |
|
EPS (€) |
3.56 |
|
3.63 |
|
3.85 |
|
2.95 |
|
Cash flow and Debt
Free cash flow grew +12.5% in
2019 to €2.5bn, and free cash flow conversion ratio significantly
increased to 9.9% of sales, driven by stronger operating
performance and capital discipline. Capex amounted to €951 million
in 2019, or 3.8% of net sales, in line with 2018.The application of
IFRS16 increased Danone’s net debt as of January 1, 2019 by €0.7
billion, from €12.7 bn to €13.4 bn (please refer to IFRS Standards
section page 11). As of December 31, 2019, Danone’s net debt stood
at €12.8 bn, down -€0.6 bn from 2018, with Net Debt /
EBITDA reaching 2.8 times at the end of 2019. ROIC
improved by around +70bps to 9.6% at the end of 2019.
Dividend
At the Annual General Meeting on April 28, 2020,
Danone’s Board of Directors will propose a dividend increase of 16
cents to €2.10 per share, in cash, in respect of
the 2019 fiscal year. This dividend increase is in line with
recurring earnings progression and reflects the solid financial
position of the Company and the strong confidence of both the Board
and the management. Assuming this proposal is approved, the
ex-dividend date will be May 11, 2020 and dividends will be payable
on May 13, 2020.
II. LEADING
THE BATTLE AGAINST CLIMATE CHANGE
2019 Environmental
footprint
To achieve its mission of “bringing health
through food to as many people as possible” and in line with its
“One Planet. One Health.” vision, Danone strives for the highest
standards regarding social, environmental and health performance,
notably when it comes to fighting against climate change. As part
of its pledge towards carbon neutrality on its full value chain by
2050, Danone set intermediate greenhouse gas (GHG) reduction
targets for 2030 which were officially approved by the
Science-Based Targets initiative in 2017. Danone further
strengthened in 2019 its commitments through the signature of
“Business Ambition for 1.5°C” pledge, a significant further step
towards climate urgency.
Danone estimates that the peak of its
carbon emissions on its full scope was reached by the end of
December 2019 (with a total of 27 million tons of GHG),
five years ahead of its original plans and commitments (2025) and
one year prior the 1.5°C Science-Based Targets commitment. Overall
the company has reduced its GHG emission intensity by 24.8%(1) on
its full scope since 2015. Danone was recognized on February
3rd, 2020 as a global environmental leader, becoming one of only 6
companies, among 8,400 organizations assessed, with a ‘triple A’
score by CDP in recognition of its leading environmental efforts,
namely in tackling climate change, fighting deforestation and
protecting water cycles.
(1)The data is based on a constant consolidation
scope and a constant methodology. The GreenHouse Gas protocol
defines three scopes for carbon footprint assessment: Scope 1
emissions are direct emissions from owned or controlled sources.
Scope 2 emissions are indirect emissions from the generation of
purchased energy. Scope 3 emissions are all indirect emissions (not
included in scope 2) that occur in the value chain of the reporting
company, including both upstream and downstream.
Providing visibility into the cost of
carbon emissions to earnings
Danone has been a pioneer in discussing and
setting carbon emission targets on its entire value chain more than
ten years ago, and in including environmental targets in its
management incentives. In light of the urgency for climate action
and in line with its ambition to lead the way to create and share
sustainable value, Danone is taking further steps, with the support
of its Board of Directors, to better connect Environmental, Social,
and Governance metrics and financial performance, starting with
carbon.
Danone shows for the first time a
‘carbon-adjusted’ recurring EPS evolution that takes into account
an estimated financial cost for the absolute GHG emissions on its
entire value chain(1) . This ‘carbon-adjusted’ recurring EPS grew
in 2019 at +12%, faster than the +8.3% recurring EPS growth
reported by the company given the +9% carbon productivity delivered
in 2019.
Going forward, as full scope carbon emissions
peak was reached in 2019 and GHG emissions in absolute levels are
set to decrease, Danone’s ‘carbon-adjusted’ recurring EPS is set to
grow faster than recurring EPS.
Taking into account positive and negative carbon
externalities on the entire value chain in financial disclosure
will help investors to make better investment decisions for the
long-term and drive corporate to accelerate their
transformation.
(1)
Carbon-adjusted recurring EPS is equal to the recurring EPS less an
estimate financial cost for carbon / number of shares after
dilution. The estimated financial cost for carbon is based on
Danone’s full scope (1, 2 and 3) carbon emissions of 27.2 mT for
2019 (26.3 mT for 2018) x a constant carbon cost estimate of
35€/ton, aligned with CDP disclosure. Scopes 1 and 2 emissions
result from activities under the operational control of Danone
assets (production, sites, warehouses, etc.) while Scope 3
emissions refer to Danone’s indirect emissions resulting from its
value chain, upstream and downstream.
Investment to accelerate climate action
of our brands and strengthen our growth model
In a context of shifting point in attitudes and
expectations towards climate and nature issues and growing industry
disruption, Danone is stepping up the speed and increase the depth
of its transformation actions to put climate further at the core of
its growth model, building truly recognized activist brands, moving
from purpose to bold actions.
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
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.
The accelerated investment will support new bold
commitments to advance some of the Company’s Goals for 2030,
including:
- Sustaining current high level of innovation,
with increased resources to enable more powerful activations and
scaled distribution, building on the portfolio progress made to
date;
- Accelerating B CorpTM journey with Waters
business expected to be certified as a B CorpTM by 2022. In today’s
world where big companies and their brands are fundamentally
challenged as to whose interests they really serve, B CorpTM
certification is a mark of trust for companies demonstrating
highest standards of social and environmental
performance;
- Building truly recognized activist brands, moving from
purpose to bold actions towards responsible packaging, carbon
neutrality and climate-efficient sourcing
Circular
packaging: For Waters, in addition to the existing objective to
reach 50% rPET worldwide by 2025, Danone is now committed to
reaching 100% rPET in Europe from 2025. To serve this ambition,
evian and Volvic brands will act to offer, starting from April
2020, 100% rPET bottles: Volvic full range in Germany, all evian
and Volvic small and XXL formats in France, and all evian on the go
formats in the UK. In order to accelerate the elimination of
single-use plastics, Danone will pursue its investments to innovate
other packaging alternative to plastics (such as glass, cans, and
paper) and rethink business models for hydration. Danone will also
act to enhance the recyclability of Essential Dairy and Plant-Based
cups, targeting zero polystyrene worldwide by 2025, and zero
polystyrene in Europe by 2024, starting with Alpro brand by 2021.
Those initiatives will be supported by the launch a dedicated fund
to explore next generations of packaging materials and models.
Climate,
diets and agriculture: Danone will accelerate the carbon neutrality
trajectory of its flagship Waters brands in Europe evian and Volvic
to become fully carbon neutral in 2020 on all their ranges (full
scope), by cutting emissions throughout the product life cycle as
well as protecting, restoring and funding projects to sequester
carbon in natural ecosystems. The company will also further invest
to support regenerative agriculture and pivot large brands for
preferred and climate-efficient sourcing.
Digital, end-to-end connected value chain:
Danone will also invest in a ‘data, tech and agile’ enabled
transformation, leveraging data and technology to strengthen
execution, better serve people needs in a cost and
climate-efficient way, to ultimately seize growth and efficiency
opportunities.
This accelerated investment plan for 2020-2022
will include around €600 million of accelerated recurring costs
behind brands, technology and capabilities (c. €200 million in
2020) as well as an accelerated capital expenditure plan of around
€1bn. It will include on top material ‘other income and expenses’
dedicated to the transformation of our operations, notably in EDP.
These ‘other operating income and expenses’ will, as usual, be
determined and communicated in the course of the investment plan.
We consider today they could amount to around €500 million costs in
2020.
Danone is confident that those advanced
commitments and accelerated investments behind its growth model
will allow it to deliver in the mid-term a consistent
mid-to-high single digit recurring EPS growth with
like-for-like sales growth to be in the 3% to 5% range. The
accelerated transformation of the company will continue to be
supported by very disciplined capital strategy, with a leverage Net
Debt/EBITDA ratio that the company expects to maintain in the
2.5x-3.0x range.
III. 2020
OUTLOOK AND GUIDANCE
Danone assumes that economic conditions in 2020
will remain particularly volatile and uncertain overall, including
specific contextual difficulties in a few major markets including
the CIS and Argentina, with an additional pressure on the world
economy since the beginning of the year related to the COVID-19
outbreak that began in Wuhan in China last December.
For the year 2020, Danone is targeting a
mid-single-digit growth of recurring EPS. This assumes a
like-for-like sales growth between +2% and +4% (vs. +4% to +5%
previously) and a recurring operating margin above 15% (vs. above
16% previously), 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.
Full-year guidance factors include:- an
assessment to date of the COVID-19 impact on (1) the company’s
sales and margin in the first quarter, which the company currently
estimates at around €100 million lost sales, mostly in Waters China
business, expecting to bring Q1 like-for-like sales growth broadly
flat; (2) timing of Mizone’s repositioning plan initially planned
in March, putting at risk its summer season;(3) time to market of
Early Life Nutrition innovations in China
- a year-on-year mid-single digit rise in the
cost of its strategic raw materials, although the impact of
COVID-19 on commodities price in 2020 remains uncertain at this
stage. While we cannot currently predict the duration and
extent of the impact of COVID-19, we remain extremely vigilant and
are closely monitoring the situation every day, working hand in
hand with the local authorities.
Danone is strong and resilient, and, confident
in its strategy, will continue in this context to promote in 2020
strategic growth investments over short-term tactical
allocations.
IV.
OTHER
Financial transactions and
developments
§ February 2020: Danone and Harrogate
Water Brands announced that they have entered into a final
agreement under which Danone will acquire a majority stake in
Harrogate Water Brands, the parent company of British water brand,
Harrogate Spring Water, and ethical brand Thirsty Planet. With
revenues of approximately £20 million, Harrogate Spring Water is
one of the fastest growing players in the sector, holding strong
positions in Foodservice and On Premise channels. The closing of
the transaction is subject to regulatory approval.
Governance and Financial
Statements
- At its meeting on February 25, 2020, the Board of Directors
approved draft resolutions that will be submitted to the approval
of the Annual General Meeting on April 28. Acting upon the
recommendation of the Governance Committee, the Board proposes that
shareholders renew the appointments of Gregg L. Engles, Gaëlle
Olivier, Isabelle Seillier, Jean-Michel Séverino and Lionel
Zinsou-Derlin, whose current term of office will expire on the next
General Meeting. The Board noted that these renewals fall within
the framework of the Board’s diversity policy and that this
stability ensures the quality and the continuity of its work.
- At its meeting on February 25, 2020, the Board of Directors
closed statutory and consolidated financial statements for the 2019
fiscal year. Regarding the audit process, the statutory auditors
have substantially completed their examination of financial
statements as of today.
IFRS Standards
IFRS16: applicable starting
January 1, 2019, no restatement of 2018 financial
statements
Danone applies IFRS 16 on leases starting
January 1, 2019 and elected for the modified retrospective approach
for its implementation:
- lease assets and lease liabilities are calculated as of January
1, 2019 based on discounted future lease payments,
- they are recognized in the consolidated balance sheet as of
January 1, 2019 and prior-period financial information are not
restated (i.e. IAS17 is applied).
2018 |
January 1, 2019 |
2019 |
IAS 17 |
- Assets: +€664m
- Liabilities : +€664m
|
IFRS 16 |
IFRS 16 has no significant impact on
the recurring operating income, recurring operating margin and
recurring net income.
IAS29 impact on reported
data
Danone has been applying IAS 29 in Argentina
from July 1st, 2018 (with effect from January 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 euro using the closing exchange rate
of the relevant period.
IAS29 impact on reported data €
million except % |
Q4 2019 |
|
FY 2019 |
|
Sales |
-0.9 |
|
-15 |
|
Sales growth (%) |
-0.0% |
|
-0.1% |
|
Recurring Operating Income |
|
|
-36 |
|
Recurring Net Income – Group share |
|
|
-46 |
|
Breakdown by quarter of FY 2019 sales after
application of IAS 29FY 2019 sales correspond to the addition
of:
- Q4 2019 reported sales;
- Q1, Q2 and Q3 2019 sales resulting from the application of
IAS29 until December 31 to sales of Argentinian entities
(application of the inflation rate until December 31, 2019 and
translation into euros using December 31, 2019 closing rate) and
provided in the table below for information (unaudited data).
€ million |
Q1 2019(1) |
Q2 2019(2) |
Q3 2019(3) |
Q4 2019 |
FY 2019 |
EDP |
3,309 |
3,276 |
3,243 |
3,335 |
13,163 |
Specialized Nutrition |
1,828 |
1,864 |
1,921 |
1,943 |
7,556 |
Waters |
1,003 |
1,344 |
1,259 |
962 |
4,568 |
|
|
|
|
|
|
Total |
6,139 |
6,485 |
6,423 |
6,241 |
25,287 |
(1)Results from the application of IAS29 until
December 31, 2019 to Q1 sales of Argentinian entities. (2)Results
from the application of IAS29 until December 31, 2019 to Q2 sales
of Argentinian entities.(3)Results from the application of IAS29
until December 31, 2019 to Q3 sales of Argentinian entities.
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.
Financial
indicators not defined in IFRS
Like-for-like changes in sales
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, starting 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 year).
Bridge from reported data to
like-for-like data
(€ million except %) |
FY 2018 |
Impact of changesin scope of
consolidation |
Impact of changes in exchange rates and others, including
IAS29 |
Argentina organic contribution |
Like-for-like growth |
FY 2019 |
|
|
|
|
|
|
|
Sales |
24,651 |
-1.0% |
+0.7% |
+0.4% |
+2.6% |
25,287 |
Recurring operating margin |
14.45% |
+20 bps |
+6 bps |
-21 bps |
+71 bps |
15.21% |
Recurring operating income is
defined as Danone’s operating income excluding Other operating
income and expenses. Other operating income and expenses is defined
under Recommendation 2013-03 of the French CNC (format of
consolidated financial statements for companies reporting under
international reporting standards), and comprises significant items
that, because of their exceptional nature, cannot be viewed as
inherent to its recurring activities. These mainly include capital
gains and losses on disposals of fully consolidated companies,
impairment charges on goodwill, significant costs related to
strategic restructuring and major external growth transactions, and
costs related to major crisis and major litigations. Furthermore,
in connection with IFRS 3 (Revised) and IAS 27 (Revised) relating
to business combinations, the Company also classifies in Other
operating income and expenses (i) acquisition costs related to
business combinations, (ii) revaluation profit or loss accounted
for following a loss of control, (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.
Other non-recurring financial income and
expense corresponds to capital gains or losses on disposal
and impairment of non-consolidated interests as well as significant
financial income and expense items that, in view of their
exceptional nature, cannot be considered as inherent to Danone’s
recurring financial management.
Non-recurring income
tax corresponds to income tax on non-recurring
items as well as significant tax income and expense items that, in
view of their exceptional nature, cannot be considered as inherent
to Danone’s recurring performance.
Recurring effective tax rate
measures the effective tax rate of Danone’s recurring performance
and is computed as the ratio income tax related to recurring items
over recurring net income before tax.
Non-recurring results from
associates include significant items that, because of
their exceptional nature, cannot be viewed as inherent to the
recurring activity of those companies and distort the reading of
their performance. They include primarily (i) capital gains and
losses on disposal and impairment of Investments in associates, and
(ii) when material, non-recurring items as defined by Danone
included in the net income from associates.
Recurring net income (or
Recurring net income – Group Share) corresponds to the Group share
of the consolidated recurring net income. The recurring net income
measures Danone’s recurring performance and excludes significant
items that, because of their exceptional nature, cannot be viewed
as inherent to its recurring performance. Such non-recurring income
and expenses mainly include other operating income and expense,
other non-recurring financial income and expense, non-recurring
tax, and non-recurring income from associates. Such income and
expenses excluded from Net income are defined as Non-recurring net
income and expenses.
Recurring EPS (or Recurring net
income – Group Share, per share after dilution) is defined as the
ratio of Recurring net income adjusted for hybrid financing over
Diluted number of shares. In compliance with IFRS, income used to
calculate EPS is adjusted for the coupon related to the hybrid
financing accrued for the period and presented net of tax.
|
FY 2018 |
|
FY 2019 |
|
Recurring |
|
Total |
|
Recurring |
|
Total |
|
Net income-Group share (€ million) |
2,304 |
|
2,349 |
|
2,516 |
|
1,929 |
|
Coupon related to hybrid financing net of tax (€ million) |
(14) |
|
(14) |
|
(14) |
|
(14) |
|
Number of shares |
|
|
|
|
|
|
|
|
• Before dilution |
642,721,076 |
|
642,721,076 |
|
648,250,543 |
|
648,250,543 |
|
• After dilution |
643,450,446 |
|
643,450,446 |
|
649,106,039 |
|
649,106,039 |
|
EPS (€) |
|
|
|
|
|
|
|
|
• Before dilution |
3.56 |
|
3.63 |
|
3.86 |
|
2.95 |
|
• After dilution |
3.56 |
|
3.63 |
|
3.85 |
|
2.95 |
|
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.
(€ million) |
FY 2018 |
FY 2019 |
Cash-flow from operating activities |
3,111 |
3,444 |
Capital expenditure |
(941) |
(951) |
Disposal of tangible assets & transaction fees related to
business combinations1 |
61 |
17 |
Free cash-flow |
2,232 |
2,510 |
1 Represents acquisition costs related to business combinations
paid during the period.
Net financial debt represents
the net debt portion bearing interest. It corresponds to current
and non-current financial debt (i) excluding Liabilities related to
put options granted to non-controlling interests and (ii) net of
Cash and cash equivalents, Short term investments and Derivatives –
assets managing net debt.
(€ million) |
December 31, 2018 |
December 31, 2019 |
Non-current financial debt1 |
14,343 |
12,906 |
Current financial debt1 |
3,546 |
4,474 |
Short-term investments |
(4,199) |
(3,631) |
Cash and cash equivalents |
(839) |
(644) |
Derivatives — non-current assets2 |
(81) |
(271) |
Derivatives — current-assets2 |
(27) |
(16) |
Net debt |
12,744 |
12,819 |
·Liabilities related to put options granted to non-controlling
interests — non-current |
(46) |
(13) |
·Liabilities related to put options granted to non-controlling
interests — current |
(463) |
(469) |
Net financial debt |
12,235 |
12,337 |
Note: The application of IFRS16 increased
Danone’s net debt as of January 1, 2019 by €0.7 billion; 2018
comparative information has not been restated.1 Including
derivatives-liabilities. As from January 1st 2019, also include
debt related to leases in compliance with IFRS16 2 Managing net
debt only
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 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 8:30 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 1 – Sales by reporting entity
and by geographical area (in € million)
|
First quarter |
Second quarter |
Third quarter |
Fourth quarter |
Full Year |
|
2018 |
2019 |
2018 |
2019 |
2018 |
2019 |
2018 |
2019 |
2018 |
2019 |
BY REPORTING ENTITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDP |
3,296 |
3,308 |
3,257 |
3,283 |
3,214 |
3,240 |
3,316 |
3,335 |
13,056 |
13,163 |
Specialized Nutrition |
1,812 |
1,828 |
1,831 |
1,866 |
1,723 |
1,920 |
1,754 |
1,943 |
7,115 |
7,556 |
Waters |
976 |
1,002 |
1,325 |
1,346 |
1,248 |
1,258 |
939 |
962 |
4,480 |
4,568 |
BY GEOGRAPHICAL AREA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe & Noram1 |
3,311 |
3,381 |
3,453 |
3,471 |
3,468 |
3,451 |
3,422 |
3,408 |
13,654 |
13,710 |
Rest of the World |
2,774 |
2,757 |
2,961 |
3,025 |
2,719 |
2,966 |
2,587 |
2,833 |
10,997 |
11,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
6,085 |
6,138 |
6,414 |
6,496 |
6,186 |
6,418 |
6,009 |
6,241 |
24,651 |
25,287 |
|
First quarter 2019 |
Second quarter 2019 |
Third quarter 2019 |
Fourth quarter 2019 |
Full Year 2019 |
|
|
Reported change |
Like-for-like change |
Reported change |
Like-for-like change |
Reported change |
Like-for-like change |
Reported change |
Like-for-like change |
Reported change |
Like-for-like change |
|
BY REPORTING ENTITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDP |
+0.4% |
+0.2% |
+0.8% |
+2.2% |
+0.8% |
+0.7% |
+0.6% |
+1.5% |
+0.8% |
+1.1% |
Specialized Nutrition |
+0.9% |
+0.4% |
+1.9% |
+3.2% |
+11.4% |
+9.8% |
+10.8% |
+10.2% |
+6.2% |
+5.8% |
Waters |
+2.7% |
+3.9% |
+1.6% |
+2.1% |
+0.7% |
-0.9% |
+2.5% |
+1.4% |
+2.0% |
+1.5% |
BY GEOGRAPHICAL AREA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe & Noram1 |
+2.1% |
-0.8% |
+0.5% |
+1.1% |
-0.5% |
+0.3% |
-0.4% |
+0.6% |
+0.4% |
+0.3% |
Rest of the World |
-0.6% |
+3.0% |
+2.2% |
+4.2% |
+9.1% |
+6.5% |
+9.5% |
+9.0% |
+5.3% |
+5.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
+0.9% |
+0.8% |
+1.3% |
+2.5% |
+3.7% |
+3.0% |
+3.9% |
+4.1% |
+2.6% |
+2.6% |
1North America (Noram): United States and
Canada
APPENDIX 2 – Focus on Danone in
China
- China is the second largest country of Danone, representing
~10% of the company’s sales in 2019, with ~1/3 of its
revenues from Waters and ~2/3 from Specialized Nutrition
- It employs around 8,200 employees and runs 8 production sites:
7 for Waters (of which one in Wuhan) and 1 for Medical
Nutrition
Danone (EU:BN)
Historical Stock Chart
From Mar 2024 to Apr 2024
Danone (EU:BN)
Historical Stock Chart
From Apr 2023 to Apr 2024