Inside Danone's 2020 vision

by Monica Watrous
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Cecile Cabanis said the team is focused on optimizing, investing, building and nurturing to grow the company.

PARIS — Despite continued economic challenges, Danone SA is determined to maintain momentum in the year ahead with an eye to driving stronger growth in 2020. The company reaffirmed its full-year financial targets upon delivering 4.8% organic sales growth in the first quarter on strong gains in baby food and bottled waters and improving trends in the dairy business.

 “…2015 will be and is, I should say, both a year of delivery and preparation in an overall context that will continue to be complex and volatile,” said Cecile Cabanis, chief financial officer, during an April 15 earnings call. “Delivery of profitable growth in 2015 and preparation for 2016 and beyond to make sure that profitable growth is sustainable beyond 2015 and that we can then accelerate growth toward 2020.”

To help shape the Danone 2020 initiative, the company in March named Lorna Davis and Pascal De Petrini to two newly created roles in the executive committee. As chief manifesto catalyst, Ms. Davis will support and coordinate the establishment of the company’s mission across Danone’s teams and communities. Mr. De Petrini will join the company as executive vice-president of strategic resource cycles to manage global sourcing organizations and lead efforts to strengthen the company’s ability to protect essential resources, such as milk, water and plastics.

“(The team is) fully focused on an agenda that we summarize around four key words: optimize, invest, build and nurture,” Ms. Cabanis said. “It’s about optimizing the model in improving gross margin through portfolio management, efficiencies and discipline. It’s about investing behind the right initiatives toward sustainable profitable growth. It’s about building our categories and regions and shaping our Danone 2020 guiding vision.”

For the first quarter, Danone reported sales of €5,471 million ($5,805 million), up 8% from €5,061 million ($5,370 million) in the prior-year period. Excluding the impact of exchange rates and the divestment of a dairy operation in Indonesia, sales grew 4.8%, reflecting a 0.2% drop in sales volume and a 5% increase in price/mix. Positive impact of the U.S. dollar, Chinese renminbi and Indonesian rupiah offset unfavorable currency trends in the Russian ruble.

All regions contributed to growth during the quarter, with like-for-like sales rising 2.9% in Europe, 2.8% in North America and the Commonwealth of Independent States (CIS), and 8% in Asia/Pacific, Latin America, Middle East and Africa.

Danone’s fresh dairy products business posted sales of €2,807 million ($3,000 million), down from €2,809 million ($3,002 million) in the first quarter of the previous year. Sales volume declined in Europe as a result of streamlining assortment and promotions.

“In the U.S. we continue building our agenda to create (a) new dynamic of growth,” Ms. Cabanis said. “The global category is still growing, although at a (slower) pace. And in this environment we have been successful in maintaining Danone leadership, having been able to reach a position of co-leader in the Greek segment, where we still see opportunities of growth and where we’re having successes with our new launched Oikos Triple Zero.”

Other initiatives in the United States include the launch of Light & Fit protein shakes and a partnership with Starbucks to develop Greek yogurt products served at the coffee chain and sold in grocery stores.

“So basically for the U.S. in 2015, our agenda remains to invest behind the category to reignite growth in the category, with great potential,” Ms. Cabanis said.

Sales for the waters business rose to €1,065 million ($1,138 million) from €895 million ($956 million) through global product launches, despite the impact of inventory reduction in China during the quarter.

“Overall on aquadrinks, we can say that it’s continued to be a very resilient lever to expand categories through healthy hydration offers,” Ms.  Cabanis said.

For the early life nutrition business, sales advanced to €1,220 million ($1,304 million) from €1,029 million ($1,100 million), with solid performance across all regions. Driven by the strength of international brands Aptamil and Nutrilon, continued strength in infant milk formula offset flat volume in weaning food. Danone’s brands in China are benefiting from category growth, with e-commerce expanding rapidly, but the company’s Dumex brand has been struggling on challenges in the retail channel.

Sales for the medical nutrition division rose to €380 million ($406 million) from €328 million ($351 million), despite downward pressure on health care spending in Europe.

“We have, on one hand, Europe reporting a very solid performance that is above mid-single digit, with U.K., Poland and Turkey being very dynamic, and on the other hand, in terms of products, this quarter Neocate in pediatrics and Nutrison in tubes performed very well,” Ms. Cabanis said.

While anticipating currency volatility and rising input costs, executives continue to expect to deliver an organic sales increase of 4% to 5% and slight growth in trading operating margin for the full year.
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