Danone CEO: China’s business ‘extremely strong’ with infant, medical nutrition sales growing
Danone’s full year sales for FY23 was €27.6bn (US$29.9bn), up seven per cent on a like-for-like basis. Recurring operating profit was €3.5bn (US$3.79bn), with a margin of 12.6 per cent, up 40 basis points (bps) from the year before, the company reported on February 22.
The company’s specialised nutrition business in China, which consists of both infant and medical nutrition, was one of the highlights of its annual performance.
As a region, China, North Asia and Oceania reported a 10.1 per cent increase in sales on a like-for-like basis to €3.5bn (US$3.79bn) in FY23.
This region was also the fastest growing for Danone last year, followed by Latin America, which reported a 9.8 per cent increase in sales growth on a like-for-like basis.
A breakdown shows that specialised nutrition was Danone’s biggest portfolio in China, North Asia and Oceania, where sales was up 8.3 per cent on a like-for-like basis to €2.45bn (US$2.65bn)
Sales from the region’s waters business, which includes the electrolyte beverage brand Mizone, was also up 14.1 per cent to €692m (US$750m), while essential dairy and plant-based products (EDP) was up 15.3 per cent to €360m (US$389m).
CEO Antoine de Saint-Affrique has described China’s business for the past year as “extremely strong”, citing a stronger infant formula portfolio and a strong tube-feeding nutrition business.
“Obviously we are happy with the quality as much as the quantity of growth in China.
I mean the business is being extremely strong,” he said in response to queries from analysts during the Q&A session.
China’s infant nutrition sector is seeing a further market consolidation following the government’s introduction of a new guobiao / GB or national registration standard last year.
“As we said last time, we got our registration we were looking for, and we are in a position where we come out with a portfolio which we believe is stronger,” said de Saint-Affrique.
The firm launched in Q3 last year Aptamil Essensis – said to be the series’ first SKU to be approved under the new GB standard.
Positioned as a premium offering, the product contains Danone’s patented Syneo formulation – a unique blend of probiotics and prebiotic oligosaccharides.
Specifically, the human-residential Bifidobacteria (HRB) breve M-16V is used, while short-chain galacto-oligosaccharides (scGOS) and long-chain fructo-oligosaccharides (lcFOS) in the ratio of nine to one was used as the prebiotics.
“In China, the infant formula business has posted another quarter of steady growth and continued to gain market share, thanks to a local team that is running tight control on our inventory and our pricing levels while the market is still transitioning from old to newly registered product,” Juergen Esser, chief financial officer added.
According to data from Kantar Worldpanel, Danone’s Aptamil infant formula was only second after local brand Feihe in terms of market value share last year.
Feihe’s market value share was 17.8 per cent, while that of Aptamil was 12.9 per cent. Yili came in third at 8.2 per cent.
de Saint-Affrique also pointed out a strong tube-feeding business in China, and the company is working on more nutrition powder products for post-hospital discharge to further expand its portfolio.
He believes that having the adults, medical, paediatrics nutrition business in China could help build the resilience of Danone’s business in China.
“Having in China “three legs”, which are the adults, medical, and paediatrics [nutrition], [portfolios] with the similar type of profitability, is actually helping us further build the resilience of the business,” he said.
Europe remains Danone’s largest specialised nutrition market, with sales up 3.4 per cent last year to €3.08bn (US$3.33bn).
Growth opportunities in tier 3,4 cities
The company is seeing further growth opportunities for its China infant formula business in the tier three and four cities.
“The second point that is probably important in China when it comes to IMF, and I think we said it as well, is we still have opportunities of penetration in tier three and tier four cities,” said de Saint-Affrique.
“We have opportunities as the new registrations come in, with consolidation of the market to serve people, so it’s going to be on emerging efforts where we drive our innovation, our penetration and our distribution and we leverage the contribution of the market.
“It's not going to be a linear journey by the way, as you'll remember that last year Shanghai was closed and reopened [due to COVID-19 restrictions], and so we had a very strong start to the year so there's a bit of a of normalisation,” he added.
Vitamin, electrolyte drink business in China
Danone’s vitamin and electrolyte drink brand Mizone also grew double-digits, up 14.1 per cent and was “back to competitive growth”.
“In waters, Mizone delivered another quarter of double-digit growth led by volumes and market share [in China], confirming the progress we are making in turning it around,” said Esser.
Last year, Danone launched Mizone Electrolyte + for active consumers to supplement their electrolyte requirements.
In its half year results of FY23, Danone said Mizone had posted mid-teens growth after going through a revamp and the growth was restored around products that based their innovations on electrolytes.
