Danone S.A.

Good day and thank you for standing by. Welcome to the Dannon First Quarter 2023 Sales Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mathilde Roger, Head of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for being with us this morning for our Q1 call results. I'm with Jorgen Esser, the CFO, who will go through some prepared remarks before taking your question in a second step. And before we start, I'll draw your attention on a disclaimer, page two. related to forward-looking statements and the definition of financial indicators that we'll refer to during the presentation. And with that, let me hand it over to Jürgen.

Thank you, Mathilde, and good morning to all of you. Welcome to our Q1 sales update. I hope you are all well. Let me jump straight into the presentation, and let's start with the highlights of this first quarter on page number four. The headline of this quarter is that we delivered a strong start to the year, reporting plus 10.5% like-for-like net sales growth, with all our geographies contributing. I will come back to the highlights by zone in a minute, but let me mention here already the continued competitive and resilient performance of our North American platform, as well as the exceptional delivery this quarter of our China, North Asia, and Oceania zones. Looking at the performance by category, the momentum in this first quarter was supported by the solid contribution of our EDP platform at plus 9.3% net sales growth, with double-digit growth of high protein indulgence as well as of our coffee creations platforms. At the same moment, our specialized nutrition category is sustaining its strong growth momentum with plus 12%, led by further competitive growth across most geographies. And finally, our waters category, they delivered broad-based growth with plus 12%, notably driven by a strong quarter of the Evior and Volvic brands in Europe, as well as by an encouraging start of the year for our Maison brand in China. Let's now move on to the next page, page number five. And here, let me reiterate our focus on the execution of our Renew Done On agenda. and the confidence we have in our ability to drive sequential and sustainable value creation. Three elements I would like to highlight here. First, the progress we make in winning in our strongholds, making the most of our core portfolio. The combination of higher investments, a much more agile resource allocation, and improving execution is delivering results as we speak. I use here the example of our SGM brand in Indonesia, of our medical nutrition portfolio in China, but could have used a number of other examples like the one of APTAMIL across many of our geographies. Second element to highlight is that we are making good progress on the transformation of our EDP portfolio in Europe. We are executing our plan with discipline and consistency along the lines we shared with you just a few weeks ago. On the slide, we put an illustration of the segmentation work which the team is currently deploying across Europe. The example showing our Spanish case where we have revised our portfolio architecture, refocusing on the displayed five brands, with the Danone brands serving everyday nutrition needs. Since we started to streamline our portfolio and to intentionally position our brands, we have seen first encouraging results in terms of household penetration and offtake. We are laser focused. to make this transformation happen and remain confident that we will start delivering improved volume dynamics in EDP Europe from the second semester onwards. Third point, and as recently discussed, we have also been making progress on seeding the future for our company. While we are investing into bringing our R&D and innovation capabilities to the next level, as you could see from the opening of our R&D center in Paris, Saclay in February this year, We have also started to look at value-creative bolt-on and minority investments. We have, over the last few weeks, invested into a number of projects, like the acquisition of a home care business in Poland, which is complementing our existing SN business in this country. We've also done some minority investments into young companies developing interesting food technologies for the future around precision fermentation, as well as around cell-based dairy solutions. All of these elements will help us to start shaping the future of our company by keeping the focus of the organization on delivering competitive performance in the short and medium term. And with that, let's now move on to the financial reviews, starting with the Q1 sales bridge on page number seven. As I mentioned, we delivered in this Q1 plus 10.5% growth on a like-for-like basis, with price up plus 10.3%. and volume mix up plus 0.2%. When excluding EDP Russia, Like for Like was up plus 11.1%, supported by plus 10.1% price, mostly made of carryover from last year. We also posted a positive contribution from volume mix up plus 1.1%. Outside of the Like for Like, we benefited from a slightly positive Forex impact of plus 0.7%, mainly driven by the appreciation of the US dollar, and the Mexican peso against the euro. And finally, scope that had a negative contribution of minus 0.6% due to the deconsolidation of our waters business in Argentina. In total, reported growth reached plus 11.6% for the quarter, bringing our quarterly net sales to 6.9 billion euro, up from 6.2 billion euro in Q1 last year. Let's now have a look at the performance of each zone in more detail, starting with Europe on page number 8. Europe delivered solid growth of plus 6.2% with all categories contributing. Price was up plus 10.2, while volume mix declined minus 4%, reflecting the progress we are making on the transformation of the EDP portfolio. Growth this quarter was driven by France, the UK, and Poland, with key brands like Danone, Actimel, Aptamil, Evian, and Alpro performing well. From a category perspective, the portfolio transformation on EDP is progressing in line with the plan which we shared just a few weeks ago during the full year release, and we expect further progress in Q2. Beyond EDP, Specialized Nutrition delivered another quarter of sound growth supported by the Aptamil brand, while the Waters category grew plus 16% this quarter, reflecting the strengths of our brands while also leveraging early stock build of many of our customers ahead of the season. Moving to North America on page number nine, where we posted a strong like-for-like growth of plus 11.8%, driven by price up at plus 11 and positive volume mix at plus 0.8%. This continued momentum is supported by the consistent execution the team delivers against our strategy. but also by continued investments behind our winning platforms and brands. In EDP, sales were up double-digit, led by Oikos, Activia, and Light & Fit & Yogurt, as well as by International Delight and our Stoke brand and Coffee Creations. In both Yogurt and Coffee Creations, we are seeing the benefits of the work done on portfolio architecture, which also allows for reinvestments that are more efficient, surfing on a clear brand positioning. In this first quarter, we also saw plant-based more moderately growing, recycling a high base of Q1 2022, while the waters category was growing competitively at a very fast pace, well into the double digits. Moving on to the next page, page number 10, into our China, North Asia, and Oceania zone. Here, like-for-like growth reached plus 16% in the quarter, driven by a very strong volume mix at plus 14.3%. Let me start with a few comments on China, where all our categories grew double digits. In specialized nutrition, infant milk formula delivered a strong start to the year, led by Aptamil, which continues to grow and to gain market shares. And while we are pleased to see Aptamil maintaining its competitive growth momentum, it's worth noting that this first quarter benefited also from the normalization of inventory levels after we closed year 2022 with minimum stock. Beyond IMF, Our two medical businesses grew well into the double digits, in adults led by our tube feeding portfolio under the Nutrizion brand, and in pediatrics with our energy portfolio under the Neocate brand. While medical nutrition benefits from strong category fundamentals, our performance also reflects the superiority of our product propositions and the strength of our market access capabilities. On waters, our MyZone brand had an encouraging start to the year amid improving operating conditions as outdoor activities and travel resumed in China. With the summer season in front of us, the MyZone team is now starting to activate the rejuvenated brand marketing mix, which was developed during COVID times. Beyond China, our Japan business posted again double-digit growth this quarter. led by Danone as well as by the Oikos brand, improving our competitive position quarter after quarter. Let's now move on to the Latin America zone that was previously part of the rest of the world zone and that we now disclose separately on page number 11. LATAM registered sales growth of plus 12.6% in Q1 on a like-for-like basis with a price up of plus 12.7% and a resilient volume mix at minus 0.1%. Our two main countries, Mexico and Brazil, both contributed to the strong growth. Volumes remained resilient in a context where the price component was lower than in previous quarters. EDP posted double-digit growth. Our main dairy brands, Danone, Activia, Danet, and Yopro, all of them contributing. And in waters, our Bonafont brands drove growth thanks to the good performance of small formats and aqua drinks. Finally, moving on to the rest of the world zone on page number 12, which since the exclusion of Latin America consists of Africa, Middle East, Asia, as well as our Russian and CIS platforms. The zone posted sales growth of plus 11.7% on the like-for-like basis this quarter, with price up plus 12.9% and resilient volume mix at minus 1.1%. In fact, the volume mix component was positive at as much as plus 3.6% when excluding EDP Russia. This good performance was notably driven by our Southeast Asian business, which have grown mid-teens over the quarter. Growth was, as mentioned earlier, also dynamic in Indonesia, thanks to a strong performance of our SGM and Bevelac brands. The calendar effect of an earlier Ramadan, which compared to last year was moving into the first quarter, did positively impact our sell-in activities in a number of countries in this zone, something which you will see unwinding in the coming second quarter. And final comment for this zone is that we continue to make good progress on the portfolio transformation of our dairy business in Africa, creating the conditions for profitable growth and value creation. Let me now wrap it up with the update on the full year outlook on page number 14. Taking stock of our growth or strong performance over the first three months of the year, we are today upgrading our like-for-like guidance for year 2023 to net sales growth between plus 4% and plus 6%. We're at the same moment confirming our full year guidance for recurring operating margin, delivering a moderate margin increase versus previous year. This outlook reflects our confidence in the journey we are engaged in, but also our continued commitment to reinvest into our brands and commercial activities. The objective remains to sequentially improve the quality and the balance of our growth as we progress into the year 2023. And with that, let me hand it back to Mathilde to start the Q&A session.