Via Financial Times

Danone has scaled back its sales growth and profit margin targets for 2020 as the coronavirus dents demand in China, its second-largest market, and it embarks on a €2bn spending plan to reduce its reliance on non-recycled plastic packaging and cut carbon emissions.

The maker of Evian bottled water and Alpro plant-based yoghurts said on Wednesday that it would aim for 2-4 per cent comparable sales growth this year, instead of the earlier target of 4-5 per cent. The health crisis in China will shave off about €100m in sales in the first quarter mostly from the bottled waters business, and delay some new product launches in baby formula.

Meanwhile Danone’s operating margin is expected to reach above 15 per cent this year, below the 16 per cent or above it had earlier promised.

Those targets are likely to disappoint investors who drove Danone’s valuation multiples higher for much of last year largely because of excitement over how Emmanuel Faber, the chief executive, has made a big bet on plant-based milk, yoghurt and ice cream. The rally ended abruptly in October when Danone warned that 2019 sales growth would be lower than expected, prompting a steep share drop from which it has not since recovered. 

In a statement, Mr Faber defended the decision to abandon the short-term profitability target for 2020, saying that the €2bn spending programme over three years was necessary to “accelerate investments to embed climate change in its growth model”.

It comes as major consumer goods companies such as Nestlé and Unilever are trying to wean themselves off of plastic packaging and cut their emissions. They are being spurred on by a vocal subset of consumers, many of whom are young, who want big companies to stop using so much plastic and worried about warming temperatures and ocean pollution.

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Danone said it would spend about €1bn on reducing its reliance on plastic packaging made from fossil fuels, replacing it with paper, glass, or recycled plastic alternatives. Additional spending over the period will go to upgrade its factories to be more energy efficient, encourage the dairy farmers it works with to cut their emissions, and other green initiatives. 

“We are convinced that there is an urgent and significant opportunity to put climate actions even more at the core of our business model, truly joining people’s fight for climate and nature with the power of our brands,” said Mr Faber in a statement. 

Fourth-quarter organic sales growth, which strips out the effect of currency moves and acquisitions, came in at 4.1 per cent to reach €6.2bn, ahead of analyst expectations for 3.9 per cent. That took annual organic sales growth to 2.6 per cent, which is in the lower range of the 2.5-3 per cent like-for-like sales growth given by Danone in October.

Annual earnings per share grew by 8.3 per cent to €3.85, while the operating profit margin reached 15.2 per cent. Danone said it would propose a dividend of €2.10 per share, an increase of 8 per cent from 2018.