Danone FY Reported Net Income Rises

Danone FY Reported Net Income Rises

Danone FY Reported Net Income Rises

The FINANCIAL -- Emmanuel Faber: Chairman and Chief Executive Officer statement

“In 2017, Danone once again demonstrated the strength of its portfolio, the resilience of its business model and its ability to execute. Despite volatile food and beverage markets and rising input costs, we delivered very strong full-year results, with double-digit recurring earnings per share growth in line with our latest guidance. We closed the year with an accelerated sales growth rate, outperforming the industry average, along with very strong margin improvement and free cash flow above €2bn. In addition to strong results delivery, 2017 has been a year of preparation and continued transformation with the onboarding of WhiteWave, and the launch of our ambitious €1bn ‘Protein’ savings program. We have also continued to strengthen our organization and governance, backing the launch of our One Planet.One Health. vision to sustainable value creation for all our stakeholders. This achievement reflects the unparalleled engagement of all the Danone teams, which I am proud to lead and would like to thank for making this possible every day. In a trading environment that remains volatile and fragmented, we are starting 2018 with stronger foundations and I am confident that we are on track to accelerate towards our 2020 ambition, with another year of delivery against the commitment we made to our shareholders for consistent EPS growth.”

2017 Full-Year Results

In 2017, consolidated sales were €24,677 million, up +2.5% on a “like-for-like New Danone” basis. The sales growth included a +3.9% rise in value showing continued mix and value enhancement in all Reporting entities, which offset a -1.4% decline in volume mainly driven by EDP International.

With sales growth up +3.7% on a like-for-like New Danone basis in the last quarter, Danone saw a continuation of its top-line growth in the second half of the year. The improvement in the last quarter was driven by very strong growth in Specialized Nutrition (+8.4%) and Waters (+10.3%) and the sequential improvement of Essential Dairy and Plant-Based International and Noram.

Full-year reported sales were up +12.5% vs. 2016, including:

the base effect corresponding to the consolidation of WhiteWave from April 12, 2017 (+12.7%);

other changes in the scope of consolidation (-1.1%), resulting primarily from the disposal of Stonyfield (August 2017);

negative currency impact (-1.6%) reflecting the appreciation of the euro against the US dollar, the Turkish lira and the British pound, with a worsened impact in the fourth quarter (-5.7%).

In 2017, Essential Dairy & Plant-Based (EDP) International sales decreased by -1.3% on a “like-for-like New Danone” basis, including a –6.1% decline in volumes and a +4.8% rise in value. In the fourth quarter, sales were broadly flat (–0.3% on a “like-for-like New Danone” basis), showing solid progress in most regions.

Sales growth in Europe (excluding Alpro) remained negative in the fourth quarter, but the sequential improvement has continued since the second quarter, with turnaround results coming at a different pace from one country to another. Notably, Activia registered clear signs of progress in some of the biggest countries where the brand is present (France, Spain, UK, Italy). The relaunch in Q3 2017 of the flagship Danone brand, with a new and enhanced brand stature, also contributed to this positive trend, particularly in France. Danone continued to expand successfully in Europe its portfolio of young and local-heritage brands, including Light&Free in the UK or Les Deux Vaches in France.

Sales of Alpro, now the second-largest EDP International brand in Europe, rose nearly 10% in the fourth quarter, driven by robust demand for nut-based beverages and plant-based alternatives to yogurt. Alpro is the market leader in its top-four countries—the UK, Germany, Belgium and the Netherlands—which together account for nearly 80% of its sales, according to Danone.

In Latin America, sales growth remained strong in Mexico in Q4 2017. Operations in Brazil remained under pressure with another quarter of double-digit sales decline. The ongoing restructuring of the portfolio and distribution network is continuing although it will take time to complete.

In the CIS region, Danone reported in Q4 2017 another quarter of solid growth, driven by market growth and positive price-mix effect resulting from the overperformance of premium brands like Actimel, Danissimo and Prostokvashino which were supported by a pipeline of major innovations.


Essential Dairy & Plant-Based (EDP) Noram sales were down -2.0% in 2017 on a “like-for-like New Danone” basis, including a –1.8% decline in volumes and a -0.2% decline in value. Danone delivered as expected a solid sequential improvement, with sales contracting by -0.4% in the fourth quarter but back to growth when excluding Fresh Foods (from -2.2% in Q3). This improvement was driven by a steep recovery in plant-based products sales and continued strong momentum in coffee creamers, offsetting the continued negative performance of the Horizon and Earthbound Farms businesses.

In Yogurts, Danone continued to outperform the broader US retail market in the fourth quarter and recorded additional market share gains. Further progress was made against strategic priorities, including the execution of the Non-GMO Pledge in the US, with about 90% of Danimals and Dannon brands almost entirely converted as of end 2017, the improved distribution of Silk and So Delicious plant-based yogurts, and the successful delivery of a large pipeline of breakthrough innovations and renovations. Notably, Danone introduced in Q4 2017 the first whole-milk organic yogurts for kids and babies under the Happy Family brand, a new Light & Fit packaging design, as well as the first indulgence yogurt sold under the International Delight brand.

Coffee Creamers enjoyed good momentum throughout the year, fueled by market share gains across the product portfolio. Effective marketing and innovation were key drivers of the performance.

Plant-based foods and beverages delivered a meaningful growth improvement in the fourth quarter, driven by a steep rise in Silk nut-based beverages and continued strong growth of the Vega brand and So Delicious frozen desserts and novelties. The acceleration in Q4 of nut-based beverages was driven by targeted marketing campaigns and successful innovations launched under the Silk brand, which included Silk 96-oz. Almondmilk, Silk Protein Nutmilk and Silk Unsweetened Coconutmilk. Danone is the market leader across all plant-based segments where it operates in beverages, food and nutrition.

Premium Dairy sales declined strongly in the fourth quarter and continued to suffer severely from the impact of industry over-supply of organic milk. The entire industry was challenged in 2017 due to abnormally high disparity in retail prices between organic and conventional milk and its recovery will take time. Danone continued its efforts in Q4 2017 to reduce its organic supply, reallocate surplus into other products in its portfolio, and spur demand through innovations around differentiated milks, such as Horizon grass-fed product line.

Finally, the implementation of the Fresh Foods turnaround plan continued in Q4 2017 through further cost base reduction initiatives.


Specialized Nutrition sales were up +9.3% in 2017 on a “like-for-like New Danone” basis, with a +3.0% rise in volume and a +6.3% increase in value. The fourth quarter was another quarter of very strong growth with sales up +8.4%, supported by continued positive market dynamics in China.

2017 was a year of very strong performance for Early Life Nutrition with sales growth of nearly +10% on a full-year basis. In the fourth quarter, sales grew at high-single digit rate, with China sales growing at more than 30%. This performance reflected the rebound in Chinese demand as well as market share gains across all direct distribution channels, which resulted from successful innovation and brand activation plans around Aptamil and Nutrilon brand platforms. Danone continued to focus on building a sustainable direct sales model in China. Outside China, sales were stable in Europe, while Latin America continued its strong momentum. Danone pursued the development of its Tailored Nutrition products, which delivered full-year sales growth of nearly +10%, driven by Indonesia, Russia and the UK.

Advanced Medical Nutrition delivered mid-to-high-single digit sales growth in the fourth quarter, driven by all regions and all product segments (adult and pediatric care), with visible gains in brands such as Neocate, Nutrison and Nutrini, and supported by very strong growth in China.


Waters registered sales up +4.7% in 2017 on a “like-for-like New Danone” basis, including a +1.4% growth in volume and a +3.3% rise in value. As anticipated, sales growth accelerated in the second half of the year: Waters delivered a very strong performance in the fourth quarter, which included a +10.3% rise in sales on a “like-for-like New Danone” basis, after a strong sales growth in Q3 (+7.6%).

Plain waters sales grew at a double-digit rate in the fourth quarter, with great results across all markets and brands. This was driven by successful brand activation campaigns and innovations. The performance was supported by very positive trends across all regions. In line with Danone’s ‘One Planet. One Health’ vision, plain water brands, such as evian, Villavicencio and Lanjaron, increased their commitment to plastic recycling. In particular, evian committed to adopt a circular model where 100% of its plastic bottles will become bottles again by 2025.

Aquadrinks reported high-single digit sales growth in the fourth quarter, driven in particular by Turkey, Mexico and China, benefitting from the continued switch of consumers towards healthier hydration options and supported by the launch of breakthrough innovations. In China, Waters reported strong growth in Q4 2017, confirming the end of Mizone transition, on the back of a gradual rebound of the category, successful activation plans, and positive results from Mi-Pro launched in the second quarter.

In 2017, Danone’s recurring operating income stood at €3,543 million, up +17.2% as reported. Recurring operating margin reached 14.36%, up +58 bps on a reported basis including:

the dilutive impact resulting from WhiteWave consolidation since closing (-33 bps);

other scope effects (+21 bps), resulting from the disposal in 2016 of Dumex in China and Fresh Dairy Products in Colombia, and in 2017 the disposal of Stonyfield in the US and Fresh Dairy Products activities in Chile, illustrating Danone’s focus on active portfolio management;

a marginal positive impact from change in currencies (+1 bp).

On a “like-for-like New Danone” basis, recurring operating margin increased by +70 bps. This very strong improvement reflects notably:

sales growth including top-line valorization and differentiation strategy;

significant productivity gains, partly offsetting the strong negative impact from input cost inflation over the year (mainly milk, plastics and sugar);

efficiencies and disciplined resource allocation behind brand investment;

achievement of more than $50 million cost synergies in recurring operating margin from WhiteWave integration, ahead of the initial plan, resulting in particular from headquarters consolidation, the merge of sales forces and mutualization of back office functions.

Danone announced at the beginning of the year the launch of an ambitious efficiency program, called “Protein”, with an objective to deliver €1 billion sustainable savings by 2020 by making smarter spending choices. At the end of 2017, 10 out of 30 clusters, representing more than 50% of the targeted cost base, had been activated. Governance, tools and best practices have been put in place in order to start the savings delivery in 2018.

Other operating income and expenses were €192 million and include the capital gain from Stonyfield disposal and the damages awarded following the arbitration on Fonterra case, partially compensated by the one-off expenses related to restructuring plans in certain countries and the integration costs of WhiteWave including expenses related to synergies implementation.

As expected, the cost of net debt increased in absolute amount in 2017 from -€146million in 2016 to -€263million in 2017, reflecting additional charges related to the financing of the WhiteWave acquisition.

Other financial income and expense stood at -€175million, an increase due notably to the non-recurring amount paid in relation to the early redemption last October of WhiteWave’s outstanding 5.375% $500 million senior notes.

The recurring income tax rate was 30.3% in 2017, representing a 0.75 point decrease from 2016, mainly driven by the effect of the removal of the 3% tax on cash dividend in France, partially offset by the new exceptional corporate income tax decided by the French government.

The US tax reform enacted in December 2017 had a one-off non-cash benefit on reported income tax of +€285 million resulting from the revaluation of deferred tax liabilities. This was partially offset by other tax effects including capital gain arising from Stonyfield disposal.

Net income from associates increased from €1 million last year to €109 million on the back of a favorable base of comparison (impairment of the 25% interest in Yashili in 2016). Minority interests were stable at €110 million.

Recurring net income – Group share was €2,190 million in 2017, up +14.6%.

Recurring EPS reached €3.49, up +14.2% at constant exchange rate, in line with full-year guidance.

Recurring EPS was up +12.6% on a reported basis, including negative changes in exchange rate (-1.6%), mainly driven by the depreciation of the British pound.

Reported net income – Group share was €2,453 million in 2017, and Reported EPS stood at €3.91, up +40.1%.

Free cash flow stood at €2,083 million, up +18.4% from 2016, supported by the rise in recurring operating income, a strict discipline in capex investment and tight monitoring of working capital.

In addition, this result includes an exceptional contribution from the Fonterra settlement outcome for €105 million.

This cash delivery will primarily contribute to the Company’s deleveraging and fund Danone’s roadmap for growth. Capital expenditure for 2017 came to €969 million, or 3.9% of sales.

Danone’s net debt increased by €7,900 million from December 31, 2016, mainly due to the closing of WhiteWave’s acquisition on 12 April 2017. It stood at €15,372 million on December 31, 2017.

Introduction of ESG criteria in syndicated facility, tying financing cost and environmental and social performance

On February 12th 2018, Danone amended its €2 billion syndicated credit facility, in order to include global environmental and social criteria directly impacting, upwards or downwards, the margin payable to its banks over the entire duration of the facility. Danone’s syndicated facility now includes an innovative mechanism of payable margin adjustment, reviewed at least once a year, on the basis of ESG criteria provided by third parties:

scores granted to Danone by two ESG agencies, Sustainalytics and Vigeo Eiris;

percentage of consolidated sales of Danone covered by B Corp certifications.

Cécile Cabanis, Chief Financial Officer declared: “We are thrilled to be a pioneer in combining both traditional financial and ESG criteria as drivers of long term sustainable performance, and for our banks to support this vision. This move is consistent with Danone’s ambition to become a B Corp and with our long term commitment to create sustainable value for our shareholders and all our stakeholders”.

Sustainalytics and Vigeo Eiris are leading independent global providers of research and ratings of companies’ ESG performance with environmental, social and governance scores. B Lab, a non-profit organization, accredits B Corp certifications to for-profit companies which demonstrate high standards of social and environmental performance. The maturity of this renewed credit facility is 5 years with two potential 1 year extensions.


At the Annual General Meeting on April 26, 2018, Danone’s Board of Directors will ask shareholders to approve the distribution of a €1.90 dividend per share in respect of the 2017 fiscal year, up +11.8% from 2016. This dividend reflects the confidence of both the Board and management in the Company's agenda towards strong profitable and sustainable growth. Shareholders will be asked to opt for full payment of their dividend in either cash or in Danone shares. New shares would be issued at a price set at 90% of the average opening Danone share price on Euronext over the twenty trading days prior to the Shareholders' Meeting on April 26, 2018 less the amount of the dividend.

Assuming this proposal is approved, the ex-dividend date will be May 4, 2017. The period during which shareholders may opt to receive dividends in cash or in shares will begin on May 4 and run through May 18. Dividends will be payable in cash or in shares on May 31, 2018.


As part of its ‘One Planet. One Health’ vision, Danone is committed to working with partners and communities to preserve and protect the environment. This ambition is reflected in Danone’s Climate Policy, issued in 2015, and its pledge to build a carbon neutral value chain by 2050, including activities such as agriculture, for which Danone shares responsibility with other parties.

To meet this goal, Danone has set intermediate greenhouse gas (GHG) reduction targets for 2030, with a 2015 baseline: to reduce full scope (scopes 1, 2, and 3)1 emission intensity2 by 50%; and to achieve a 30% absolute reduction in scope 1 and 2 emissions as defined by the GHG Protocol3. In November 2017, both targets were officially approved by the Science Based Targets initiative4 as being in line with the global measures necessary to meet the Paris Agreement objective of keeping global warming below 2° C.

Recognition by the Science Based Targets initiative confirms Danone’s commitment to the transition towards a low-carbon economy, including in agriculture, which currently represents 57% of Danone’s carbon footprint. To this end, Danone joined the French government’s international 4 per 1000: des sols pour la sécurité alimentaire program, aimed at promoting productive, resilient agriculture through sustainable soil management. Through this cross-sector platform, Danone is sharpening its focus on regenerative agriculture as a way to both reduce its carbon emissions and meet consumer demand for greater transparency and naturality.

Danone also joined the RE100 initiative in 2017, committing to source 100% renewable electricity by 2030, with an intermediate target of 50% in 2020. As of December 2017, 18.2% of electricity consumed in Danone’s factories was from renewable resources.

By the end of December 2017, Danone had reduced its GHG emission intensity5 10.5% on its full scope since 2015, and achieved a 9.7% absolute reduction in scopes 1 and 2 emissions. For the first time, Danone was awarded in 2017 a position on the Leadership List for climate change by CDP, the non-profit global environmental disclosure platform, with an A- ranking, recognizing Danone as a global leader in corporate sustainability.


In the current year, Danone will make further progress towards its 2020 ambition through its separate focuses on both mid-term growth and short-term efficiency. It will also start rolling out the ‘Protein’ efficiency program and continue to capture the synergies from the WhiteWave acquisition. These activities will underpin its ability to deliver sustainable growth in sales and profits.

Macroeconomic outlook

Danone assumes that market volatility will continue.

In 2018, Danone expects further cost-inflation with a mid-single digit rise in the costs of raw and packaging materials, including:

·milk price inflation of low to mid-single digit overall,

·a double-digit increase of PET pricing driven by the crude oil price rebound and,

·inflationary conditions in other raw materials, including sugar and fruits.

Danone also expects an ongoing impact from currency volatility, particularly the UK pound.

2018 guidance

Danone’s focus will remain on accelerating growth and maximizing efficiencies, including the first year of delivery of its Protein program's savings. In 2018, the Company will progress towards its 2020 ambition through further sales growth and an improved recurring operating margin.

As a result, Danone is targeting double-digit recurring EPS growth at constant exchange rate for 2018, excluding Yakult Transaction Impact.