Danone: China negatively impacting sales growth

21 Oct 2016

Danone has reported like-for-like sales growth of 3.2% for the first nine months of 2016, although reported sales growth was down 2.6% reflecting a negative currency impact of -6.3%.

Danone: China negatively impacting sales growth

Danone has reported like-for-like sales growth of 3.2% for the first nine months of 2016, although reported sales growth was down 2.6% reflecting a negative currency impact of -6.3%. The third quarter saw like-for-like sales growth of 2.1%, with a negative currency impact of -4.1% meaning that reported sales growth was down 1.8%.

"Within a volatile context, in Q3 we continued to prioritize the transformation of our business model towards sustainable profitable growth, and to increase its resilience, through disciplined resource allocation,” said CEO Emmanual Faber. “We remained focused on strategic growth opportunities, avoiding tactical allocations of resources, and working on increased efficiencies and cost optimization. We continue to balance the short, mid and long-term agenda of our transformation. While China is transitioning, creating short-term volatility and negatively impacting our sales growth in Q3, we have continued to build a solid growth agenda, leveraging the fundamentals of our unique business portfolio, and the growth potential of our brands in each of our categories.”

The Fresh Dairy Products division reported sales up +2.2% like-for-like, including a -2.3% decline in volume still driven by the CIS and the Latam region, and a +4.5% rise in value. In Europe, Danone continued to progress in its transformation. After the relaunch of its Danonino and Actimel brands in the second quarter, the company said it has continued its major renovation plan with a new identity, positioning and packaging for the Activia brand in mid-September. This, it says, is a key step to reach the objective of a stabilisation of sales.

In the CIS & North America1 region, Danone generated solid growth. In the United States, despite a more competitive environment, total market share continued to rise, reaching a record high of 35.8%. In Russia, where Danone said the business environment remains difficult, Danone offset a decline in volume by enhancing its brand portfolio with an improved product mix.

The Waters division reported sales down -0.1% like-for-like, including flat volume and a -0.1% decline in value. This, Danone said. is mostly due to an unfavourable sales trend in China. China excluded, the division’s overall performance is at mid-single digits supported by strong category dynamics and a constant focus on brand innovation and activation.

In Europe, sales were positive despite a high basis of comparison and poor weather in July. The ALMA1 region (excluding China) reported a strong increase, supported by robust growth from Hayat in Turkey, Aqua in Indonesia and Bonafont in Mexico.

In China, in a transitioning NABs2 category, Mizone third quarter sales were impacted by the continued high basis of comparison and by floods that created some disruptions in the sector. In this weakening consumer environment, the transition will last and Danone said it is important that it remain focused on protecting Mizone’s market share and stay disciplined in fuelling growth initiatives at the right pace for Mizone.

The Early Life Nutrition division reported a +1.7% like-for-like rise in sales, resulting from a -0.4% decline in volume and a +2.1% improvement in price-mix. It mostly reflected a decline in so-called ‘indirect’ sales to China. When these are excluded, division growth comes in at a mid-single digit.

In China, the transition of the ‘indirect’ channel, induced by a fast-changing regulatory environment, is creating short-term volatility via active destocking by traders. In a category marked by rapid distribution channel shifts and stock adjustments, the impact of the ‘indirect’ channel’s transition will continue until the new regulations are fully enforced.

In such a context, Danone said it is making significant progress in building a sustainable growth model in China, increasing its direct distribution through specialized stores and direct e-commerce offerings. Consequently, growth in local sales picked up sharply in Q3.

After delivering profitable growth in 2015, Danone set clear priorities for 2016 and said it is pursuing its journey to meet its ambition for 2020, which calls for strong, profitable and sustainable growth.

Danone still assumes that economic conditions will remain volatile and uncertain overall, with fragile or even deflationary consumer trends in Europe, emerging markets undermined by volatile currencies, and difficulties specific to a few major markets, in particular the CIS, China and Brazil.

In this context, Danone said it continues to strengthen its balanced growth model and anchor profitable growth in a sustainable manner. To do so, it is relying more than ever on disciplined resource allocation, favouring solid execution of its growth plan and appropriate and efficient funding of short-, mid- and long-term initiatives.

Last June, with fast evolving dynamics in some emerging markets, notably China, Danone adjusted the pace of topline refuelling for 2016 in these specific geographies. As a result, the company has raised its 2016 recurring operating margin1 target from “solid improvement2” to a range of +50bps to +60bps2, while confirming its sales growth2 guidance within a range of +3% to +5%.