China Food

Just now, Danone’s mid-term report revealed that the milk powder and beverage business performed “double heaven” in China

Today, Danone, which owns brands such as Atami, pulsation and Evian, released its 2022 semi annual report.

The financial report shows that in the first half of this year, Danone’s sales amounted to 13.325 billion euros (about 91.451 billion yuan), an increase of 7.4% year-on-year. Among them, price and sales volume / portfolio contributed 6.1% and 1.3% respectively.

During the reporting period, Danone recorded a recurring operating profit of 1.612 billion euros (about 11.063 billion yuan), an increase of 0.5% year-on-year; The recurring operating profit margin was 12.1%, a year-on-year decrease of 88 basis points.

CEO of Danone

“Although the external environment is unprecedented (volatile), the strong performance in the first half of the year and the extensive business development results prove the resilience, focus and participation of all Danone people.” Antoine de Saint affrique, CEO of Danone, said in the financial report that the company had begun to promote the implementation of the “renew Danone” strategy, and further accelerated its growth in the second quarter. The businesses of altami, drinking water and beverages showed a good momentum.

Xiaoshidai noticed that at the performance meeting held today, Juergen Esser, chief financial officer of shengruian and Danone, further talked about China’s milk powder business and business portfolio management. Let’s have a look.

Milk powder contrarian growth

First, pay attention to the regional markets where China is located (Note: including China, Japan, Australia and New Zealand).

The financial report shows that the sales volume of the region in the first half of the year was 1.671 billion euros (about 11.468 billion yuan), an increase of 8.3% year-on-year. Among them, sales volume / portfolio contributed 6.1% growth. During the period, the recurring operating profit margin increased by 240 basis points to 32.0%.

In the second quarter, sales in the region increased by 3.3% year-on-year to 936 million euros (about 6.424 billion yuan), led by professional special nutrition business.

According to the performance data of Danone read by snack generation, the sales volume of professional special nutrition business in China’s regional market in the quarter was 617 million euros, an increase of 9.7% year-on-year; The sales volume of drinking water and beverage business was 230million euros, a year-on-year decrease of 13.6%; The sales of basic dairy products and plant-based products were 89 million euros, an increase of 14.3% year-on-year.

Specific to the Chinese market, in the second quarter of this year, the growth rate of infant formula milk powder was medium to high single digits, and the share of Chinese and English label products continued to show resilience. Among them, Chinese label milk powder achieved double-digit growth; English label products continued to grow, and the income of indirect channels (overseas shopping, purchasing by relatives and friends) in the infant powder business in that quarter has accounted for less than 15%.

At today’s meeting, Sheng Ruian said that Danone’s professional special nutrition business achieved extensive growth in the first half of the year and “performed particularly well in China”.

He also mentioned that during the static management period in Shanghai, the milk powder team found many ways to ensure that Atami could reach people smoothly, and also participated in the government guaranteed supply project, but stressed that this would not bring significant growth in sales. “The only thing that really drives our growth because of the epidemic is to import (milk powder) from the United States.”.

In addition, Danone China’s special medical food for children and adult nutrition products also maintained a good momentum in the second quarter.

China business “addition and subtraction method”

Next, focus on Danone China milk powder.

Xiaoshidai noticed that this business has also become the focus of questions after a domestic listed milk powder company recently issued a performance warning. For example, an analyst asked whether Danone would be affected by the strong promotion of its friends in the second half of the year.

In this regard, Sheng Ruian said that at present, he has not observed the impact of competitors’ inventory management actions on Danone. In the face of competition, the company will continue to focus on brand and product portfolio development and act prudently. Juergen Esser revealed that Danone is carefully managing inventory in China and markets outside China, “because this is the way to manage prices and profits”.

Sheng Ruian also stressed that in addition to brand power, scientific research accumulation and digital tools, Danone’s ability to manage channels, inventories and prices is also an important competitive advantage. The company is using artificial intelligence and other technologies to predict demand and manage different channels, price structures and other work.

With the implementation of the new national standard for milk powder next year, Danone is also intensively expanding its “ammunition” in the first half of this year.

In March this year, Danone announced a strategic cooperation with Hunan obijia to invest in and develop its local infant formula factory and products. Four months after the official declaration of cooperation between the two sides, the two sheep milk powder series of Zhuoyuan and nuoyou sheep under obijia passed the formula registration and became the first batch of sheep milk powder that met the new national standard of milk powder.

The formula registration of Zhuoyuan and nuoyou sheep means that Danone China has more chips to promote sinking and obtain business increment.

Xiaoshidai once introduced that in May this year, Danone pointed out in an internal notice that with its strategic cooperation with obijia, the company intends to “establish and polish the business model of exclusive supply lines in offline cities, and strive to make a greater breakthrough in the expansion model of offline cities”. At the same time, it also made the latest appointment to obijia’s business team.

In addition, in May this year, Danone announced that it would re buy Dumex China from Yashili. Xiaoshidai introduced that Dumex has Shanghai Jinqiao production base and early life nutrition research and development center. In addition, Dumex currently holds a number of registered formulas, including sheep milk powder that Danone is optimistic about.

“This is not so much about (valuing) the Dumex brand as about the industry platform and formula, because it is definitely a driving factor for us to continue to strengthen the Chinese label strategy, production localization and scientific research localization, so as to ensure that we are close to Chinese mother and baby groups.” Juergen Esser previously said that the local acquisition is one of the steps to improve the resilience of the milk powder business, and Danone will make good use of the acquired factories.

Danone CFO

In China, Danone is constantly adding milk powder and simultaneously subtracting business combinations. Xiaoshidai introduced that in the new strategy released by Sheng Ruian in March this year, Danone will actively promote the rotation of business portfolio, and the adjusted business volume will account for about 10% of net sales.

However, at today’s meeting, some analysts thought that Danone’s portfolio management was “very low-key” and asked whether it was still in progress.

In this regard, Sheng Ruian said that Danone is not very low-key in managing its product portfolio, and the next stage to be promoted is to end its cooperation with Mengniu. Xiaoshidai said that the two sides announced “going their separate ways” in May this year. According to the arrangement, Danone will withdraw from the yogurt company jointly invested with Mengniu and sell its Yashili shares to Mengniu.

Today, xiaoshidai checked the Danone interim report and found that the company disclosed the latest revaluation results of the above two assets. Danone said that as of June 30, 2022, the withdrawal from the yogurt joint venture led to a loss of 48million euros (about 329 million yuan), and the sale of Yashili shares led to a loss of 73million euros (about 501million yuan).

“Meet expectations”

Finally, let’s take a look at the various categories of the French food giant.

During the reporting period, the sales of Danone basic dairy products and plant-based products amounted to 7.062 billion euros (about 48.467 billion yuan), with a year-on-year increase of 4.6%; Professional special nutrition business increased by 10.4% year-on-year to 4.029 billion euros (about 27.651 billion yuan); The sales of drinking water and beverage business increased by 11.2% year-on-year to 2.234 billion euros (about 15.332 billion yuan).

In the second quarter, the sales of Danone basic dairy products and plant-based products were 3.684 billion euros (about 25.283 billion yuan), with a year-on-year increase of 5.6%; Professional special nutrition business increased by 11.4% year-on-year to 2.106 billion euros (about 14.453 billion yuan); The sales of drinking water and beverage business increased by 7.9% year-on-year to 1.277 billion euros (about 8.764 billion yuan).

Today, Danone also announced to update its 2022 performance expectations. It is expected that the annual sales will increase by 5% to 6% year-on-year, and the recurring operating profit margin will exceed 12%.

For Danone’s latest performance, Reuters quoted Jefferies analysts today as saying: “Danone’s financial report reads like a copy of Unilever’s (financial report). On the good side, the price (the contribution of the increase) is surprising. When the company is facing imported inflation, its profit margin is still in line with expectations. The good news is that China’s infant formula business continues to be strong.”

Bloomberg analysis today pointed out that Danone has been raising its product prices in an attempt to “recover” its rising costs. “So far, consumers seem to have accepted the price rise. However, for consumer goods companies, this needs to be handled carefully, because excessive prices will make people turn to cheaper (store) private brands.”

Bloomberg also noted that although the sales price of Danone increased by 6.8% in the second quarter, the company was still able to sell more products, and the sales volume increased by 0.9%. This is partly because Danone has delivered more newconte and Atami milk powder to the U.S. market to alleviate local shortages.

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