Specialized Nutrition in China: a Strong and Sustainable engine for growth - Bridgette HELLER - Danone
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Investor Seminar
October 22, 2018
Specialized Nutrition
in China:
a Strong and Sustainable
engine for growth
Bridgette HELLER
EVP, Danone Specialized NutritionBridgette Heller
3 years at Danone
2016 EVP Specialized Nutrition
2010 EVP Consumer Care at Merck & Co
2005 Global President Baby Global Business Unit at Johnson & Johnson
Prior to 2005 Senior positions at Kraft Foods
I 2 Icontext short term mid-long term
China, a key Maintaining Leadership Great potential
growth engine in a shifting landscape to capture new
opportunitiescontext short term mid-long term
China, a key Maintaining Leadership Great potential
growth engine in a shifting landscape to capture new
opportunitiesChina is large and growing part of Specialized Nutrition Portfolio context
China, a key
short term
Maintaining
mid-long term
Great potential
growth engine Leadership to capture new
in a shifting opportunities
landscape
Specialized Nutrition Greater China
Net sales ~ €7 bn Net sales
Greater China
AMN
ELN CAGR
AMN
ELN
Rest of the World
2014 2015 2016 2017
pediatric nutrition adult nutrition
Infant Milk Formula (IMF) Allergy Management Enteral Nutrition &
TOP3 Player Neocate Nutricia # 1
Aptamil #1 Brand #1 Brand with HCP’s Adult Nutrition Brand partnership10 years of massive growth of IMF market context
China, a key
short term
Maintaining
mid-long term
Great potential
growth engine Leadership to capture new
in a shifting opportunities
landscape
Greater China IMF Market
€21bn
Infant Milk Formula Global Market
Baby births
increase
Urbanization
& middle
class
07 08 09 10 11 12 13 14 15 16 17
Safety
YOY Growth Concerns
Greater China
Rest of the world
Premiumi-
zation
07 08 09 10 11 12 13 14 15 16 17
Source: Euromonitor Packaged foods value Source: value, Nielsen, SmartpathWe outperformed category while building a more context
China, a key
short term
Maintaining
mid-long term
Great potential
sustainable IMF business model
growth engine Leadership to capture new
in a shifting opportunities
landscape
Market Share Danone route-to-market
Value% Share of Net sales
Indirect
Multinationals
(ex Danone)
Danone
Direct
Chinese top-4
Other
2018 MAT 2015 2018 Est
Source: Nielsen & smartpath IMF category ; Internal netsalesWe are successfully building Direct channels to address context
China, a key
short term
Maintaining
mid-long term
Great potential
sustainability of RTM
growth engine Leadership to capture new
in a shifting opportunities
landscape
Direct China Direct International
Net sales Net sales
increase in
sales
vs 2014
2014 2015 2016 2017 2018 EST 2014 2015 2016 2017 2018 EST
Source: internalWe established IMF leadership leveraging key specific context
China, a key
short term
Maintaining
mid-long term
Great potential
capabilities to win in China
growth engine Leadership to capture new
in a shifting opportunities
landscape
Omnichannel Reach Strong Global Brands
Mom & Champion exposure-led parenting to Reconnect Chinese families to nature to
Cross Border
Baby Ecommerce
become the No.1 culturally resonant become the No.1 socially responsible
Stores parenting brand parenting brand
(CBE)
(MBS)
Ecommerce
We
Chat
Modern Friends
Trade & Family IMF IMF
Brand BrandWe have also built strong leadership both in pediatric allergy context
China, a key
short term
Maintaining
mid-long term
Great potential
and in adult hospital nutrition
growth engine Leadership to capture new
in a shifting opportunities
landscape
Allergy Management Market Enteral Nutrition Market
HCP recommended Hospital Nutrition
brand CAGR brand
CAGR
2014 2015 2016 2017 2014 2015 2016 2017
Source: internalcontext short term mid-long term
China, a key Maintaining Leadership Great potential
growth engine in a shifting landscape to capture new
opportunitiesPerformance softening after four quarters of exceptional growth context
China, a key
short term
Maintaining
mid-long term
Great potential
growth engine Leadership to capture new
in a shifting opportunities
landscape
China Specialized Nutrition Quarterly growth rate
% YOY change
2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Source: internal, like-for-like Net Sales year on year evolutionIn the short term, a few factors putting pressure context
China, a key
short term
Maintaining
mid-long term
Great potential
Market is expected to continue to grow
growth engine Leadership to capture new
in a shifting opportunities
landscape
continued
shrinking regulatory
baby pool changes category
growth
Impacted by Reinforced regulation
demographic and of our categories
lifestyle trendsDemographic and lifestyle trends are impacting growth context
China, a key
short term
Maintaining
mid-long term
Great potential
of IMF category growth engine Leadership
in a shifting
landscape
to capture new
opportunities
China Fertile Population (15-49yo)
Mn, 2005-2020E
400 China New-born Baby Population (MN), 2013-2017
380
360 Fertile
female 17.9
340 The fertile population would
population 17.2
16.9
have a ~20mn decrease from 16.4 16.6
2016 to 2020
320
300
'05 '07 '09 '11 '13 '15 '17 '19
Birth Willingness of 15-49yo Women (currently no child):
%, 2012-2017
10 8.3 8.3 7.8 7.2
8 6.8
5.9 2013 2014 2015 2016 2017
6
4
2
Fertile Population - No. of women in reproductive age (15-49 years old)
0 Birth willingness - % of fertile age woman who gave 1st child birth at given year
2012 2013 2014 2015 2016 2017 Source: Government; Internal analysis & researchAccelerated trend of regulation of our categories in China context
China, a key
short term
Maintaining
mid-long term
Great potential
growth engine Leadership to capture new
in a shifting opportunities
landscape
2018 Developments
New IMF national New process for New E-commerce
standards in draft drug license law promulgated
2008 2013 2015 2016 2017 2018 renewal
Note: SAMR – State Authority for Market Regulation; FSMP – Food for Special Medical Purposescontext short term mid-long term
China, a key Maintaining Leadership Great potential
growth engine in a shifting landscape to capture new
opportunitiesMoving forward, Danone SN well positioned to capitalize context
China, a key
short term
Maintaining
mid-long term
Great potential
on significant opportunities within a changing China market
growth engine Leadership to capture new
in a shifting opportunities
landscape
Our pillars
potential growth drivers
Right Brands
& Strategies Evolving Low tier
Premium Categories
consumer city
preferences offerings beyond IMF
expansion
Right Right
Categories CapabilitiesWe are in the Right Categories with potential for growth context
China, a key
short term
Maintaining
mid-long term
Great potential
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Categories
Key Categories Expected 3Y category growth dynamic
Low to
Infant Milk Mid
Formula Single
digit
Double
First Diet Digit
Condition
Double
Related Digit
Nutrition1
Enteral High
Nutrition single
digit
Source: Internal analysis and estimates
Note: 1. Pediatric areas (Allergy, GI, Growth)We have the Right Brands to drive consumer preference context
China, a key
short term
Maintaining
mid-long term
Great potential
in all of these growth categories
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Brands &
Strategies
Scientifically advanced – immune function Hong Kong Premiumness,
→ ready for challenges” better absorption
Infant Milk Formula Infant Milk Formula
Condition Related Nutrition Baby Food
Dutch Heritage, Rooted in Nature Leading edge organic
for strong growth Baby Food
Infant Milk Formula Infant Milk Formula
Condition Related Nutrition Condition Related Nutrition
#1 allergy globally Strength, Muscle
Condition Related Nutrition Condition Related Nutrition
Faltering growth Cognition Our Medical Masterbrand
Condition Related Nutrition
Enteral Feeding
Disease related malnutritionWe have the Right Strategies to meet the evolving needs context
China, a key
short term
Maintaining
mid-long term
Great potential
and preferences of Millennial Chinese parents
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Brands &
Strategies
Shifts in consumer motivations
2016 2018 H1
Authenticity & Safety
Brand image
Formula
Functional benefits
Source: Market researchOur Brands & Strategies are well suited to address untapped context
China, a key
short term
Maintaining
mid-long term
Great potential
opportunity in ultra-premium IMF segments
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Key Player IF Portfolio price ranges Brands &
Strategies
(Combined Channel)
RMB/KG
650
Aptamil
600 Platinum
Ultra
550
Premium+
500
450
Ultra 400
Aptamil
Premium
350 Platinum
300 Net sales
Super Aptamil
Premium Classic > x2
250
YTD
200 Nutrilon
Mainstream Classic
150
100
Danone Multinational Multinational Multinational Chinese Chinese
A B C Player A Player B
Source: Nielsen; Smartpath IMF category, IF stageWe are prepared to leverage an innovative, benefit-focused, context
China, a key
short term
Maintaining
mid-long term
Great potential
global portfolio to extend our presence in ultra premium.
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Brands &
Strategies
Science-based Benefits Ingredient-based BenefitsOur Brands & Strategies are well suited to address untapped context
China, a key
short term
Maintaining
mid-long term
Great potential
opportunity in condition related or “tailored nutrition”
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Brands &
Strategies
Penetration vs Prevalence Opportunity to leverage our
scientific capabilities
Leadership in Cow’s Milk Allergy
Prevalence EUR 1.3 management
Penetration
billion —
Tailored Nutrition
Strong HCP & KOL credibility
+30% —
growth Research capabilities to localize
science
Gastro-Intestinal Allergy Cow’s Milk Pre-term
Disorders risk Allergy birth
~+50% ~+10% ~+30% ~+30%
(Value growth by area)
Source: Internal estimates & research; Nielsen & Smartpath tailored nutrition market MAT2018Again, we will adapt and leverage our global portfolio context
China, a key
short term
Maintaining
mid-long term
Great potential
tailored to specific conditions & medical needs
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Brands &
Strategies
APTAMIL PROSYNEO APTAMIL PEPTI NEOCATE SYNEO
Hypo-Allergenic, Partially Hydrolyzed Formula Amino Acid-Based Formula for infants
for infants at-risk of cow’s milk allergy SYNEO diagnosed with severe Cow’s Milk Allergy
Whey-based, Extensively Hydrolyzed (CMA) and/or Multiple Food Allergy (MFA).
Formula for infants diagnosed with Cow’s
Milk Allergy (CMA).
A complete portfolio in Allergy prevention and management
Challenged growth due Faltering growth due to
Gastro-intestinal disorders
to pre-term birth disease and/or disability25
We’ll leverage the right brands, strategies and medical context
China, a key
short term
Maintaining
mid-long term
Great potential
expertise to continue capturing potential beyond IMF`
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Brands &
Strategies
Enteral & Parenteral Nutrition AFSMP New Regulatory Framework
AFSMP New Regulatory Framework
market evolution
New regulatory framework, opening a new self-
pay Medical Food Category in 2018, linked to a
growing elderly population
2
—
Global reference benchmark Opportunity to make medical nutrition accessible
in community
—
Supporting chronic disease management eg.
>+10% cancer care, geriatrics
2018 YTD
Parenteral Enteral #1
Hospital
Nutrison powder improves Nutrition
Oesophageal cancer brand
patients overall survival rate1
Source: 1. Research trials; 2. Long term reference based on fully developed markets
Note: FSMP, Food for Special Medical PurposesWe’ve developed the Right Consumer & Medical Marketing context
China, a key
short term
Maintaining
mid-long term
Great potential
and RTM capabilities to win in China
growth engine Leadership to capture new
in a shifting opportunities
landscape
Right
Capabilities
Medical & Consumer Partnerships with leading retail
Data driven marketing route to market and ecommerce players
Walmart Group
Best Supplier Marketing Partner
HCPs
consumers Ali Group
& patients Supplier of the Year
—
Golden Award of Data Collab.
—
Best Integrated MKT
MBS Hospita
l JD
The Only GSKA in IMF
MT Pharmacy
Ecom
Kidswant
1st Brand of IMFWe’re leveraging these skills to capitalize to expand our context short term mid-long term
China, a key Maintaining
|Great potential
market reach and capture opportunities in lower tier cities
growth engine Leadership to capture new
in a shifting opportunities
landscape
1
7 Right
Capabilities
Dual strategy approach Expanding our market reach Deploying our assets |
City coverage (retail)
consumers
2015 2016 2017 2018
EST e-RTM e-RTM package for
Independent Mom & Baby Stores
model
HCPs Hospital coverage
& patients
Patient Digital Medical qualifications
journey Education & pharma background
management Platforms
Therapeutic
Area Strong clinical evidence and efficacy
Strategy of medical nutrition treatment
2015 2016 2017 2018
EST
Source: InternalWe’ve begun to explore opportunities to capitalize on our science and
portfolio to support the needs of a large, growing silver demographic
Percent of population in 50+ age range Increasing relevanceAllowing us to begin building new platforms to fuel future growth | 29
|
Happy mind Pumping heart Inner care
Energy & Mobility Never too old for sports“Specialized Nutrition, giving people the “extra” support they need at critical moments in every stage of life.” first 1000 days childhood adulthood aging
Great Confidence for 2020 and Beyond
To contribute to Danone’s objectives
our pillars our strategic priorities our 2020 objectives
Right Brands accelerate growth
& Strategies
sales growth (1)
Right Right maximize efficiencies
Categories Capabilities
allocate capital Company objectives
with discipline
sales growth (1) operating margin (2)
(1) Like-For-Like sales growth
(2) Recurring operating marginDisclaimer • This presentation contains certain forward-looking statements concerning Danone. In some cases, you can identify these forward- looking statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” “continue,” “convinced,” and “confident,” the negative or plural of these words and other comparable terminology. Forward looking statements in this document include, but are not limited to, statements regarding Danone’s operation of its business, the expected benefits of the transaction, and the future operation, direction and success of Danone’s business. • Although Danone believes its expectations are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those anticipated in these forward- looking statements. For a detailed description of these risks and uncertainties, please refer to the “Risk Factor” section of Danone’s Registration Document (the current version of which is available on www.danone.com). • Subject to regulatory requirements, Danone does not undertake to publicly update or revise any of these forward-looking statements. This document does not constitute an offer to sell, or a solicitation of an offer to buy Danone securities. • All references in this presentation to ”Like-for-like (LFL) New Danone” changes, recurring operating income, recurring operating margin, recurring net income, recurring income tax rate, Recurring EPS, Yakult Transaction Impact, free cash flow and net financial debt correspond to financial indicators not defined in IFRS. Their definitions, their reconciliation with financial statements and IAS29 accounting treatment for Argentina are included in the Q3 sales press release issued on October 17th, 2018. Q1, Q2 and H1 2017 reported figures have been restated for IFRS 15. Indicators ROIC and Net Debt / EBITDA are defined on page 64 of Danone’s 2017 registration document • Due to rounding, the sum of values presented in this document may differ from totals as reported. Such differences are not material.
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