Danone S.A. (BN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Danone Full Year 2020 Results Conference Call. [Operator Instructions] I must also advise you that this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Mathilde Rodié., Head of Investor Relations. Please go ahead.

Good morning, everyone. Mathilde Rodié speaking, Head of Investor Relations at Danone. I'm very pleased to have the opportunity to meet you through this call today, and I hope to have soon the opportunity to meet you for real. Thanks for being with us this morning for Danone full year results. I'm here with Emmanuel Faber and Juergen Esser, who will first go through the presentation before taking your questions in the second step. Before we start, I draw your attention to the disclaimer on Page 2 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 over to Emmanuel.

Thank you, Mathilde. Good morning, everyone. Thanks for your interest in being with us today. Today is an important milestone in what we have started already in terms of dialogue with you. You should not expect everything to be discussed today; in particular, as you know, we have a very important event on the 25th of March, which we'll catch up a number of aspects of the reinvention of Danone and how we are going to be on track with our profitable growth agenda. So -- and -- but today is an important milestone in this journey, and we are really happy to be able to resume our dialogue with you as of this morning. For this discussion about the reinvention of Danone, I have with me, as Mathilde said, what is actually a new team. So my friends, Juergen, Mathilde, welcome. Cecile is on the call in a completely different way. So Cecile, I just want to say a big thank you for having made all these calls with me for the last 5 years. Thanks for being with us. And the same for Nadia, whom I know is also on the webcast. Thank you for both of you to your contribution, and Cecile in particular, in what you have been doing and continue to do with us. Before we go into the meat of that discussion, let me turn to page, I think, 5, because -- to put it this way, the long-term performance of our company has been a topic in the press and elsewhere. We've not been able to discuss that with you. And we felt that it was important that, given this exercise, we should state a few facts and figures so that we all use the same. So just 2 pages before we move on on the agenda. One is about the fact that on a long-term basis, on Page 5, as you can see, Danone has been delivering on sales growth, both as a total company compared to a peer group of the largest food and beverage companies listed in your universe of investment. But also, if you look at it category by category, in Essential Dairy and Plant-based, we've been significantly doing better than our biggest global competitor. In Specialized Nutrition, we grew 2x faster. In Waters, we grew 30% faster. And if you look at the recurring operating margins and EPS, we are 50 bps above the average in terms of recurring margin improvement. And EPS has actually been growing 60% faster than this universe. I know some of you have been exposed to more granular versions in terms of our peers. So if you look also to Page 6, that's also a few numbers that you might want to use as the real one, which basically says something nothing new for anyone, I think, on the recurring EPS compared to our big friends, N,U and M, very successful competitors, obviously, on the peer group of investment. We've been growing 8% CAGR. The EPS over the last -- well, the 2015 to 2019 average growth refers to the 50% EPS growth recurring that we've been sharing with you on the total for the period. Interestingly, it's been made by a like-for-like sales growth that is really in line with this group of a -- smaller group of periods of investments. And interestingly, in terms of recurring operating margin, although this 260 bps is the fastest-growing period for margin at Danone, we can see that people that have gone actually through significant reorganization and restructuring, sinking or investing billions of euros or dollars in their transformation, have actually been growing their margin faster than us. So with that and this brief history, let me turn now directly to Page 8 to speak about 2020. In essence, what Page 8 says is that 2020 has been for us a mix of the execution of the acceleration plan that we announced exactly 1 year ago for the year 2020 and the COVID execution at the same time. I won't spend any time on this chart, you can read the words themselves, all of them are relevant to both what Danone is truly -- what our acceleration plan is about and what is relevant in this COVID crisis. Interestingly, on Page 9, as we do every year, but I think particularly this year, we've had significant ESG discussions with you, both in the PM meetings and in the governance meetings. And we felt it was important that we continue these sort of updates regularly with you on where we are. So on our business model, as you know, we have 3 big pillars. One is to focus on sustainable profitable growth. A few numbers to say that our plant-based business has grown 15% and that on the same business model topic, 50% of our sales are now covered by the B Corp certification. In the middle, environmental performance, AAA. We are the only food company out of actually nearly 7,000 companies that registered to the climate disclosure -- Carbon Disclosure Project, the only AAA, which means carbon, water and deforestation, probably the only company that actually met its objectives on deforestation for 2020. And consistent with that and starting the conversation -- continuing the conversation we started with you last year, on the bottom part of the green block, we continue to decrease our total carbon emissions full cycle, including agriculture, with a cost of carbon per share that has decreased by an additional 4%. On the yellow box, very importantly for us, the engagement of people at Danone continues to be extremely high. 90% of our employees would recommend Danone as a great place to work. This is more than 10 points above the norm for this industry, and we continue to work on diversity with now parity of directors from underrepresented nationalities within the company. Turning to numbers now in terms of financials, Page 10. Nothing new, I guess, except simply to say that we met our guidance for last year, which we reinstalled at the Q3, with a 14% recurring operating margin, slightly over-delivered on free cash flow, strong free cash flow in particular at the back end of the year, and like-for-like sales with the sequential improvement that lasted with or finished with 0% volume, so flat volumes in Q4, and Juergen will come back to that in a minute. Page 11 is an illustration of what the year has been for us. When we couldn't fight against category declines and volatility and channels, we fought for market share. And you can see in different ways on this page that in the very sort of make-or-break blocks of our businesses around the world, on the left, like infant milk formula in China, which is nearly $2 billion business; Dairy and Water, which is in Europe, which is $4 billion; Essential Dairy in North America, another $4 billion, that's $10 billion in total increased market share. Each of them increased individually market share. The same for all the slate of brands that you can see on the right, which increased their market share anywhere between 20 bps and 200 bps for the best of them. We can come back to that. But market share strength has really been, as you have seen and heard me say all along the year, a very important parameter for us to be prepared for the rebound and the recovery this year. On Page 12 now, a bit of focus on EDP. Just to share a very important news. Of course, Plant-Based and EDP is the bright spot. We'll come back to that. But Dairy itself is fighting back. And as you can see, for the first time for a very, very, very, very long time, we had a positive sales in Europe in Dairy in the Q4. In North America, Essential Dairy in total also had -- was positive. And in CIS, which obviously these 3 blocks are the super big building blocks of Dairy. The same with our modern and traditional dairy portfolio that have been fueling the growth recovery. Looking in a little bit more granularity in a couple of examples, Page 13. You can see brands like Actimel, in which we've been very agile, to, for instance, put in 99% of our SKUs of Actimel last year vitamin D. We got that brand to grow more than 10% and growing market share by 20 bps. On the right side, importantly as well, indulgents will continue to be part and probably is going to be a big part of the future as well for people in these difficult moments. And you can see that our good old brand Danette has also been growing, 5% growth last year and again increase in market share. Of course, Page 14, all of this has been fueled, and you know that for a long time already, by the fact that we have accelerated our ability and our time to market for product development. And this Page 14 shows that even further in 2020, we've actually increased the ratio of our innovation as part of total sales, more than doubled in about 4 years' time. You heard me say already that I felt in a way we were overinnovating. So we can't push everything that we innovate for and that doesn't always stick on the shelves. So we took a big lesson from that, and we have already started to be more disciplined now that we have all the creativity that we need to do this. So on Page 15 is a good example that we already shared, on the left, of how in the U.S. with Horizon Organic, the leading brand in the organic milk business, we've been able by rationalizing SKUs to really push on the innovations that work. That created double-digit growth for the brand, freeing 10% of volume output for assets and a 200 bps share gain. So that lesson is going to be and is actually applied everywhere now by the teams in 2020. We started already. On the right side, you can see that we will cut by the end of this year up to 20% of our SKUs, to make sure that we actually focus on either the existing or the new innovations that are going to be here on the biggest of our brands. Page 16. Another element for us of satisfaction for 2020 was the last year of the WhiteWave integration. Very successful value creation here. On the left block, you can see that on a CAGR since the acquisition, WhiteWave in the U.S. has grown 6%, Alpro has grown 13% on a like-for-like basis. Both of them still are improving in certain cases their category leadership in Europe and in the U.S. In the middle, a number that we haven't shared with you, but we thought it was important given the 3-year program that we finished and completed in 2020, the legacy WhiteWave business has actually been growing 11% last year. So it's the fastest-growing business within the Danone portfolio, which basically contributed 160 bps to the growth of Danone. You remember that our estimate was that it was going to contribute anywhere between 50 and 100 bps. So we are beyond that last year. On the right side of things, when it comes to the profitability and the operating efficiency, we've actually over-delivered on our plan of $300 million of synergies by 2020. And as a result of that, the EBITDA has grown by 40% under our management since we acquired the company. So turning now to immediately Page 18. Let me briefly go with you through what's currently underway, as I started to say, which is the Danone reinvention. It's 4 building blocks, and I will go directly to Page 20, with the first building block, which is about investing for the portfolio superiority and the differentiation. Portfolio superiority versus our peers, our competitors, and your peers in investment for you, is plant-based, first of all. So plant-based is now representing 20% of EDP revenues, which is absolutely reaching scale. You can see that on the left. It's 10% of total sales now for Danone, unparalleled in your portfolio of investment. Second, in the middle, we have done an incredible work to sustain and support the category penetration with, as you can see, major penetration gains in both North America and Europe since we acquired the business for the whole category. And then on the right side, we have continued to expand outside the U.S. with Alpro, now a $750 million brand. It's as big as Actimel, 60% growth since 2015 and we have doubled the number of countries in which that brand is present. In a number of those countries, it's still very small, and it paves well the way to our overall acceleration plan, as you know, and I'll come back to that for our EUR 5 billion ambition and objective for '25. Portfolio superiority is also about focusing on protein. You heard me say that in the past. Still absolutely true. 2 examples here: one, globally on YoPRO, our performing sports nutrition HiPRO business, 3 years after launch is a EUR 130 million brand in 4 countries; even bigger, as we've shared with you, the Two Good, which is only 2 grams of sugar, high pro, low fat yogurt in the U.S., non-GMO verified, a EUR 100 million brand after only 2 years after the launch. Still about acceleration, e-commerce on Page 22, where it's now about 10% of our total sales. It's been growing 40% last year despite the fact that in China, obviously, as you know, with all the international labels, channels, complexities and challenges last year, this business has been declining, this particular business. And despite that, we had a 40% growth. Interestingly, we gained market share in the most competitive markets, and in particular here we are sharing some EDP numbers in Europe. So if you take a couple of our largest EDP markets like France, like Spain, like the U.K., here are the kind of market share growth that we've taken on the e-commerce. The next chapter of the reinvention is about the optimization of our execution across the value chain, which allows us to focus the way we invest. Page 24, a good example, so how science and technology in plant-based, probiotics and proteins creates an opportunity for us. Those of you who were with us at CAGNY 2 years ago would remember the left part of the chart. I shared with you that this magic triangle of plant-based, proteins and probiotics was growing 8% per annum as categories. Well, that's exactly what it did for us last year, for Danone, 8% growth. So it's one of the core engines of the reinvention of Danone in the COVID world, and as a result of that, all the brands that you see on the right here will have a clear investment support to continue to grow throughout this year immediately. The next page, on Page 25, is a brief illustration of how technology and proprietary knowledge on supply chains and delivery can help. You heard me say a lot of times how Alpro is totally unique in the way they are integrated from the research and development, their ingredient data set, their direct pharma relationship, their proprietary processes and capabilities and technologies. Well, the result is directly on the right side. Not only it's 4x bigger than the #2 in Europe, but it's also twice -- the first brand of choice for twice more consumers than the biggest competitor -- its next biggest competitor. And that's really because of the organoleptics and the technology that we are able to develop. The third part of the chapter of reshaping is about reshaping the organization. As I said earlier, you won't listen much from us. You may have questions this morning, but most of it will be updated with you during the CME in a few weeks' time. So be patient with us here. If you want to have a flavor of what it means on Page 27, I would simply encourage you, instead of reading this chart that we already shared with you in November, it's just add up the numbers in terms of layers and number of units that you have at the bottom of this page, the 3, 13 and 61 is 77. That's the existing model. And the 6 and 22 is 28, that's the future model that we're putting in place when we speak about making things simpler, leaner and less -- and more cost effective. On Page 28, the reason we believe that we can do that is also something that we shared with you. We have an organization from the history of Danone that is about 250 bps higher than the average of our peers when it comes to SG&A. We identified that, shared that with you. We believe we need to address that to reinvest both in the margin and in the support of our brands. And so on the right side, nothing new for you. EUR 700 million will be generated in terms of efficiencies and savings from this organization, which will be added to another EUR 300 million through our direct to delivery -- design to delivery, sorry, end-to-end function that we have created back in October. So we intend to reduce by 20% our SG&A through the transformation program that's happening right now. Before I turn to Juergen, the last chapter that starts on Page 29 for our reinvention is, as we discussed, reviewing our portfolio and making selective divestiture, bolt-on acquisitions. I'm thrilled to start with that latter with the acquisition of Follow Your Heart in the U.S., which is a pioneer in the plant-based cheese and mayonnaise segments in the U.S. The cheese market is bigger in the U.S. than the dairy market. The penetration of plant-based in the dairy market is 15%. It's only 2% in the cheese market. That's how big the potential is. And you can double that when you think about the food service space, where shredded and sliced plant-based cheese are poised for huge growth in whatever is pizzas and burgers and many more, macaroni and cheese, typical American dishes. So I'm thrilled to announce that. It will -- it's a typical case for us where the strength of the channels, the know-how, the knowledge of Danone will be put to continue to develop this gem of a company. A wonderful story, cultural story, founders, bright people that I would really like to welcome as part of the Danone family right now. The other part of the chapter about portfolio review is one that is known to you on Page 31. We've started and the strategic review of both Argentina and Vega are well on track. We will update you when we have concrete news to share with you. But that's absolutely fundamental to what we want to do to drive shareholder returns through very disciplined capital allocation. That's also why there is a reminder on the bottom left part of the chart of Page 31, about Yakult, which is an example, and there could be others, of minority stakes where we exited with a significant capital gain, freeing cash to basically serve our priorities, which I would like to restate on the right page of this -- on the right side of this page. The objective is at the core of this blue circle that you have, how to generate total shareholder returns. I'm clear on that, and we are all clear on that. So it starts with investing in profitable, sustainable growth, then making sure that we do the bolt-on acquisitions we need for the continued portfolio superiority management of Danone, coupled with a sustainable and resilient balance sheet, but also an efficient balance sheet. And therefore, the fourth driver is about dividend and share buybacks. We may have a conversation about that. We've already been very active in the past in certain period of the corporate history of Danone about share buybacks and we are completely open to that, in particular, in the current context. The last thing I'd like to share is the news, which is that we have decided that total shareholder return is going to be part not only of my compensation, but also my full Executive Committee team as of this year for our long-term incentive plans. Now I will skip, I think, Page 32, which basically summarizes what I just said. I will finish with one chart about our governance on Page 34, which basically tells you that we are very pleased that we have strengthened our governance with the decisions that were made, in particular, obviously, last year in 2020. At the back end of the year, we decided that we would welcome a new lead independent director with Gilles Schnepp, who will take his role starting next AGM, subject to your approval. We are also going to welcome 2 new members, ladies bringing additional very important expertise around our Board with Ariane Gorin the digital space and Dr. Susan Roberts, who is a very respected scientist in the field of nutrition in the U.S. You also know, in the middle, that we created a specific committee at the Board to monitor the transformation plan that I described and the strategic review of our portfolio which is going to be and is chaired by Benoit Potier today. And we created, with your approval, 99% of our shareholders' approval in June, back in June, the creation of a Mission Committee as part of the new Danone status as an Entreprise à Mission, which monitors our progress on our social and environmental goals globally, which is currently chaired by Pascal Lamy and supported by a number of very high level global experts in their fields. So it was a bit of a long introduction, but as you know, the last few weeks have been eventful. We were not able to speak to you. I'm super happy that we resume our ability to do so. And with no further ado, I'll turn it over to Juergen to take us through our financials for the year. Thank you.

Thank you, Emmanuel, and good morning to everyone. I hope you're all safe and healthy. And I'm extremely delighted to discuss with you this morning the financial results of Danone. Let's start with the full year net sales on the next page. We closed year 2020 with EUR 23.6 billion of net sales, declining by minus 6.6% on a reported basis. This decline is mostly driven by ForEx that has a minus 5% effect mainly due to the depreciation of the U.S. dollar, the Mexican peso, the Indonesian rupiah and the Russian ruble against the euro. Argentina, which is not accounted for in our like-for-like, added 0.3%, while scope had an impact of minus 0.4%, lapping the effect of the disposal of Earthbound Farm in April 2019. On a like-for-like basis, sales declined by minus 1.5%. Emmanuel was mentioning that already, volumes closing almost flat at minus 0.1%, sequentially improving since Q2. They are flat in the fourth quarter after declines of minus 2.6% in Q2 and minus 0.4% in Q3. Value is negative at minus 1.5% over the year, mostly driven by negative category and country mix. Product mix was mostly negative for our Waters business due to the sharp decline of the out-of-home formats. Looking at the quarterly like-for-like evolution, sales declined by minus 1.4% in Q4, showing, as we expected, a sequential improvement from Q2 and Q3. Moving to the next page to discuss our Specialized Nutrition business. On a full year basis, Specialized Nutrition declined by minus 0.9%, driven by COVID-related headwinds in Early Life Nutrition and notably in China, while our medical nutrition continued to grow despite some pressure on hospital and prescription activity. Specialized Nutrition margin declined by minus 74 bps, reflecting the negative country mix from China and COVID-related costs incurred this year, while product mix had a positive contribution this year, reflecting the resilience of our portfolio and strength of our innovation. Looking more precisely into Q4, Specialized Nutrition declined by minus 3.1%, sequentially improving from Q3, where it declined minus 5.7%, a trend observed across all geographies. Zooming into China, China sequentially improved compared to Q3, declining at a mid-teens rate in Q4, again on a high base. Domestic channels showed improvement in Q4. Sales in mom-and-baby stores, modern trade and direct e-commerce grew low single-digit in the quarter and closed the year with the growth rate well within the category algorithm. Notably, Aptamil achieved really an excellent performance in the quarter, ranking as #1 brand in 11:11. On the other hand, cross-border channels, which includes indirect channels and the Hong Kong platform, continued to contract sharply, driven by sustained border closure and travel limitations. In Q4, these channels contracted by minus 45% compared to minus 60% in Q3. Looking at sell-out, it's probably worth noting that we are the #1 multinational player in the overall Chinese IMF category and a close #2 in the total market. Our brands, Aptamil, Nutrilon and Karicare are gaining market share on both platforms, Chinese label and international label, and this throughout all year 2020. Having been able to sustain our position across channels despite all the volatility and the disruptions experienced in 2020 is an important indication for the resilience of our brands and our competitiveness in China. And finally, our advanced medical nutrition portfolio posted another quarter of strong growth, contributing to the sequential improvement of the China SN platform. Moving to Europe, Europe performance sequentially improved from last quarter, yet remained negative with low single digits. Infant milk and first diet remained negative this quarter, declining at a mid-single-digit rate, driven by improving yet soft category dynamics. On the other hand, diet nutrition accelerated in Q4, thanks to the beginning of normalization of our hospital and prescription activity. And in rest of the world, our sizable platforms in Southeast Asia and Latin America delivered another quarter of strong growth, supported by market share gains. Let's now move to the next page and to discuss the Essential Dairy and Plant-Based performance. EDP delivered a very solid and consistent performance this year, growing plus 3.4% in 2020. Margin held well at 10.2% despite COVID-related costs. Before diving into the performance of the year, I would like to start by commenting the excellent work done over the last few years in rejuvenating and repurposing our Essential Dairy portfolio. Emmanuel mentioned it earlier already, in 2020 Essential Dairy grew low single digits, supported by Europe back to growth and CIS recovery and Noram continued delivery. Next to Essential Dairy, Plant-based delivered in 2020 really a stellar performance. Overall, Plant-based portfolio closed 2020 at plus 15% growth rate with a significant acceleration of growth in the second half of the year. Plant-based reached EUR 2.2 billion of revenues in 2020, up from EUR 1.9 billion in 2019 and is now representing around 20% of sales of our EDP division. This has been achieved thanks to the contribution of all platforms and notably Alpro, reaching around EUR 750 million of revenues and delivering high-teens growth in 2020. Focus on Q4 developments by geography, with Europe and North America sustaining their mid-single-digit growth rate in Q4. In Europe, Essential Dairy delivered low single-digit growth in the quarter with a broad-based contribution from all key brands. Actimel is delivering a really exceptional growth at high teens level, while Activia grew low single-digit with great performances in Spain, U.K., Germany and Benelux. Both brands benefited from their unique positioning on health and immunity. Danette, also to mention, grew mid- to high single digits and continued to gain share in the quarter. And finally, Plant-based. Plant-based delivered another exceptional performance, growing high teens in the quarter with a contribution from all geos. In Noram, Essential Dairy posted low single-digit growth driven by continued performance of premium dairy. Yogurt and coffee creamers were both still exposed to negatively performing away-from-home channels. However, I think important to mention that in retail channels coffee creamers grew double-digit in the quarter, while yogurt grew low single digits with a strong contribution from probiotics and functional brands such as Activia and Too Good that reached EUR 100 million net sales only 2 years after its launch. In the rest of the world, CIS delivered another quarter of growth with a balanced contribution from traditional and modern brand -- dairy brands. And finally, Latin America and Africa continued to experience pressure from COVID-related restrictions. Let's move on to the next slide and conclude the business review with Waters. For Waters, 2020 has really been a year of profound disruption. It closed the year down by minus 16.8%, with a margin at 7%. Volume, product mix and format mix have been significantly impaired by COVID-related disruption of our out-of-home and [impact] channels. As a consequence, sales of small format declined by 30% in Q4, severely impacting the average price per liter of our Waters division. Diving into Q4, the last quarter, we have seen very volatile conditions in Europe, notably. Mobility indexes were relatively positively oriented in the beginning of the quarter, before a new wave of restrictions limited again out-of-home consumption, which led to strongly unbalanced dynamics during the quarter. In this context, it is worth noting that at-home consumption resisted well with revenues for large formats growing low single digits. This resilient performance of at-home formats, combined with gains of market shares in the second half of the year bodes well for the strength of our brands like evian or Volvic. Latin America and Indonesia, sales continued to decline steep double digits. Both platforms remain significantly impacted by ongoing restrictions. And finally, Mizone. Mizone closed Q4 in positive territory on a traditionally small quarter. We continue to receive positive feedback on the new Mizone mix, which makes us cautiously confident in its future. Yet, we remain obviously vigilant, especially with the volatile mobility indexes, which also in China still below pre-COVID levels. Moving to the next slide on the margin bridge. Full year margin stood at 14%, down 117 bps compared to last year, which means a decrease on a like-for-like basis of 150 bps. Margin from operations down 102 bps, reflecting the headwinds related to COVID that affected our performance this year. Volumes [ held ] well, as we discussed, while mix was heavily negative, around minus 100 bps, mostly driven by negative category mix, with lower sales from Specialized Nutrition of our most profitable business, and from negative country mix, reflecting the slowdown of China in 2020. We managed to pass some price, especially in the second half of the year when inflation accelerated. Direct cost related to COVID have amounted to slightly more than EUR 150 million in 2020, representing a 62 bps negative impact on full year margin. The relative impact of those costs has decreased from the first semester to the second semester as we have been able to better anticipate some of our needs, notably on logistics and inventories. On the other hand, we continue to incur costs related to the sanitary measures which we put in place to protect the safety of our employees around the world. To mitigate these headwinds, the teams did a great job and stepped up productivity efforts and continue to -- and we continue to manage our expenses with discipline and agility. Especially in the second half of the year, this allowed us to deliver over 350 bps of productivity for 2020 and lock in close to EUR 850 million of savings. And finally, scope currencies and Argentina had a combined positive impact of 34 bps. Moving to the next chart on the EPS. Recurring EPS closed at EUR 3.34, down 13.2% from last year. This decrease is almost entirely driven by the decreasing operational performance. It's worth noting here the positive contribution of the financing box, reflecting the continued decrease of our net debt position. Our reported EPS stood at EUR 2.99, up 1.2% from last year. While we have been investing into the transformation of our operations and businesses, especially in EDP, and we benefited from the capital gain of the sale of Yakult, as Emmanuel mentioned before. Then I think it's worth spending a minute on our carbon-adjusted EPS. We brought this indicator forward last year to provide visibility into the cost of carbon emissions. In 2020, we can see that the cost of carbon per share has decreased by minus 4%. This has been achieved thanks to the reduction of our carbon emissions full scope which decreased by as much as 1 million tons in 2020 and which amounts in 2020 to a total of 26 million tons. Calculated by difference, our carbon-adjusted EPS stands therefore at EUR 1.94. Moving to the next slide. As you know, one of our focus areas in this unprecedented year has been to deliver solid free cash flow. It stood at EUR 2.1 billion, implying a cash conversion rate of 8.7%. Working capital remained well negative at minus 3.1% on sales. However, this ratio deteriorated by around 100 bps, mainly due to negative channel mix as our exposure to traditional channels in emerging markets is highly cash generative. We can expect to sequentially recover debt working capital over the next quarters, contributing positively to our cash conversion moving forward. CapEx stood at EUR 960 million, broadly in line with last year and represented 4.1% of 2020 net sales. This stability reflects our disciplined capital allocation in the context where we accelerated investments in line with our strategic priorities, such as the digitalization of our operations. And finally, you can see that we managed to maintain our net debt/EBITDA ratio stable, thanks to a net debt which stood at EUR 11.9 billion at the end of 2020, down from EUR 12.8 billion 1 year earlier. Moving to the next page on dividend. We proposed a dividend of EUR 1.94 per share in cash. This proposition reflects 2 elements. On one hand, our consistent and balanced dividend policy strongly pegging the dividend to operational performance and recurring EPS evolution, which is indeed decreasing in 2020. On the other hand, our proposed dividend reflects the confidence we have in our company's resilience, our strong cash generation and balance sheet combined with our confidence in reconnecting ASAP with profitable growth, giving us confidence for the future. This is why we intend to increase the payout ratio to 58% on recurring EPS. This dividend will be proposed at the next AGM on April 29. And then coming to outlook on the next page. Looking at year 2021, we expect this year to be a year of recovery. Yet visibility remains limited, especially on the duration of mobility and travel restrictions that currently affect some of our platforms. On the other hand, our assumption today is that economies will progressively reopen, starting from the second semester, driven by the deployment of vaccination programs across the world. This progressive return of mobility will allow the platforms and channels that have been mostly affected in 2020 to start recovering. Given the uncertainties, we will therefore not give a formal guidance for 2021 at that moment. But based on current news flow, we continue to see 2021 as a year of 2 phases. The first semester and especially Q1 that will still be affected by mobility restrictions and a muted out-of-home consumption, whereas Specialized Nutrition will be exposed to the double burden of continued headwinds from its cross-border business but also lapping of last year's high base of comps. We expect to be back to net sales growth in Q2. And then as of the second semester, we are confident in our ability to reconnect this profitable growth, thanks to easing basis of comps. Our full year margin is expected broadly in line with that of year 2020, which leads me to my almost last page, which is about our financial targets. And just to remind what we already said in last November, our journey of reinventing Danone starts with the first milestone in targets in 2022, where we target to reconnect with pre-COVID margin levels of more than 15%, confirming our midterm target which is to deliver profitable growth in the range of 3% to 5% together with mid- to high teens recurring operating margin, which is in line with our long-term goal to deliver superior sustainable profitable growth. And then moving to the last slide before closing this financial review. I just wanted to come back to one essential component for our finance community. Because we are conscious of the challenge for the investor community to connect short-term financial performance with long-term sustainable value creation of businesses. That's why we joined the UN Global Compact, the CFO Task Force, and is also why we decided to map our current sustainability reporting with the TCFD. In addition, we will map our reporting against the SASB frameworks, and we are also working with academics to test and pilot the future of nonfinancial reporting standards. Having said that, that concludes the financial review for 2020, and I hand it over for Emmanuel for conclusion.

Thank you, Juergen. In conclusion, I will actually be very short to make sure we have time for questions. I hope you get from this conversation with us this morning that never have we felt that our "One planet. One Health" framework of action is more relevant than today. We -- everything that we have been preparing for the last several years that is grounded in long-term practices for Danone, but even accelerating in this moment, is now in one way or the other either copied, improved, but one way or the other, many of our competitors are doing and starting to do the same. So we really believe that it's a huge tailwind that we have to continue to sustain the superiority of our brands, consumers' preference and the overall business model. The second is, when we're talking about portfolio superiority, we are very clear on the choices that we have made. We will prune that portfolio further, as we already said, to make sure that every business has a role in the company's equation towards the 3% to 5% mid- to high teen margins that Juergen alluded to for our midterm ambition. But we are there. We are moving there, and we continue to be. The third is we are all hands on deck on the delivery of an agenda which is very simple for this year, which is we are only 1 quarter away of growth, we are only 2 quarters away of profitable growth. This is what Danone's commitment is in a situation where we fully recognize, acknowledge, that there are uncertainties, but we are absolutely clear that what I just said is under our control, and that is what we will deliver. We won't be more granular today. We may be more granular when we speak about the CME, depending on many topics, but I just wanted to conclude this to say again that, for us, this conversation today with you, which will be followed by a number of follow-up conversations, one-to-ones in the coming hours and days, is a great opportunity for us to resume our dialogue towards the reinvention of Danone and making sure the share price is where we, I think, all would like it to be, which is not where it is today. Thank you.

Thank you very much. Now we're ready to open to the Q&A. I kindly ask you to limit yourself to 2 questions in order to give a chance to everyone to ask a question.

So first question coming from Warren Ackerman from Barclays.

Emmanuel, Juergen. It's Warren here from Barclays. I've got 2. The first one is on margin. You said margin will be flat at 14% this year, 15% and 22% and then mid- to high teens beyond that. To get there, you're assuming the vast majority of the new savings will drop through to the margin. I'm just interested. Do you think that's the right thing to be doing? Should you not be fueling the business more with advertising? I'm just trying to square the overhead has been 250 bps above peers, but advertising below peers. And how do you actually get that top line margin balance right, I guess that's the big challenge. And then the second one, for Emmanuel, is just around changes. I've heard a lot today around being open-minded on buybacks, changing executive compensation. You talked about being dogmatic about splitting the Chairman and CEO role. Could you touch on those 3 elements -- buybacks, compensation and the CEO Chairman role -- and give us a bit more detail on your plans for each of those?

Thank you, Warren. Actually, I'll also take the first question, and then Juergen may comment. We are very clear that we are not assuming that all of the EUR 1 billion of savings are going to flow directly into the margin. 100% clear that it's not the plan. We won't go into any more detail right now because, as we said, the growth event and conversation we want to have is in a few weeks' time with you guys. So you'll have to be a bit more patient before we come to this algorithm. But let me just give you a couple of building blocks to build on the reasoning here. So one, there will be significant reinvestments on the brands, on research, but the right approach to it on brand support in terms of efficiency of working versus nonworking, for instance, on digital versus nondigital, but also in terms of support that we bring, as I just said, the right innovations, not all kinds of innovations. So focus really. And we gave a simple idea of that when I mentioned that magic triangle, which is a huge part of the business, growing 8%, which will definitely have more support this year than it had last year. So that's one thing. The second is if you assume that the Water margin is going to stay at 7%, that's not my assumption. The Water margin has gone down to 7% because and only because of the COVID and the way it's been operating. So if we assume in the midterm that it will stay there, it means the world is certainly not going to operate the same way it is today. We don't know. And certainly, if there is one element on which we feel that is certainly not in our own control in terms of agenda, is how fast the bars, the cafés, the restaurants, the railways, the tourism, the Chinese in Paris and all the rest will get back to normal. But even if you say that's going to take 3 years, with a decline of 15% we had last year, that's another 5 years -- 3 years of 5% growth for our Water business. So between the huge efficiency platforms that we are running now on Water as on the rest to get the costs down, plus the fact that the volume uplift will create mechanically over the next several years an improvement in the margin, that big drop will not be there. The third aspect is the portfolio. We said that portfolio management is going to be precisely fit, precisely fit. I can't be more clear. Precisely fit to make sure that whatever is not having a role that will build the profitable growth agenda will not stay as part of our business. We started with a couple of -- 2 examples. We shared already what it means in terms of bps. So that is the way we will balance the thing and why we feel we are absolutely confident on that path. Sorry, I've been a bit long, but I felt it probably was useful for you to hear it directly from me. On the second question, there are very different nature. There is one thing that has an evidence in the past. When 20 years ago a few of us joined the company, and we sold about 30% of the business that Danone had prior to year 2000. We engaged in a total shareholder return program that was above EUR 10 billion of cash that has been returned through share buybacks. We were among the first companies in France to go for share buybacks, on top of what we reinvested actually in emerging countries to build Eastern Europe and Russia, to build Latin America, to build, of course, Asia at that point in time. So share buybacks have been there, has always been there, as a balancing element. And as we are ahead of our schedule in terms of deleverage, it would be natural for us, if there was excess cash coming from the portfolio review that is underway, that we would consider share buybacks as a part of the balancing element. So that's evident from the past. So it's no change. It's simply this is a balancing element, and we may approach conditions under which that may make sense. The second is a certainty. So it's about the present and that's what I shared about the long-term incentives on TSR. So 30% of the long-term incentive of my team and myself will be related to a TSR condition, which will be measured against the set of peers that we have been using on other metrics than TSR. So it's not a question. It's my position. It's a decision. We recommended that, the Board has agreed to that, I can announce that today. And it's, as you know, it's been a deeper conversation for a number of years that we've had with a number of our investors, and we are pleased that we are there. You mentioned that on the split, I was not dogmatic. So that's my position. It's not a topic for today. It might be a topic for the future because I'm not dogmatic, as I just said. But you can't expect from me any more comment on that topic today. So thank you, Warren, for your questions.

Next question is from Guillaume Delmas from UBS.

Good morning, Emmanuel and Juergen, and best wishes to Cecile and Nadia. Two questions for me, please. The first one, it's really about Danone's employees and the morale right now inside the company. Because it's been undoubtedly a tough 12 months with COVID, new organizational structure, a plan that includes some significant redundancies. And now I think, for pretty much the past 4 weeks, almost on a daily basis, some news flow about the company, which I guess must add some anxiety, uncertainty among your employees. So simply wondering how disruptive all of this has been and still is for your employees around the world? And at what point does it start having an impact on your operational performance? And then my second question is on margins in the second half for Specialized Nutrition. So I think they came in at 22.5%. Wondering is 22% to 23% the new range for this division?

Thank you, Guillaume. I'll take the first question, let Juergen the second one. So it's interesting, again, that what you're saying here. And I guess the 3 topics are actually very different, one from another. The COVID situation is affecting all of us, very clearly, whether we work on our job in logistics bases, factories and the sales force, the merchandisers in the shops or in the headquarters or offices, one way or the other. The -- we have been monitoring, as we are every year and now every quarter with pulse reviews, the morale of our team across the globe, and it is absolutely striking to see that their level of engagement has actually raised quarter-by-quarter in 2020. Their level of conviction that our platform is the right one has increased. By platform, I mean the business model that we've developed, including the focus on sustainability, innovation, consumer preference of our brands, is core to their morale. Profitable growth and the way we reconnect with that is core. So the one thing that we want to follow very carefully, and frankly, it's something that I'm -- we are sharing as CEOs of this industry across many companies, is the fatigue. Because there is a fatigue. And it's very important that we find ways where that balance between the commitment and the engagement and the ability to have the energy to deliver is very, very much one that, with the HR community of Danone, we are working in proximity with our teams to make sure it stays in the right range. On the redundancies that you're talking about. We -- what we are talking about here is 1,000, 2,000 people -- sorry, not people, jobs in headquarters. This is obviously something very important for all these people. And I've put very clear words that everyone at Danone is important, everyone deserves to be dealt with in a manner that respects in managing their future career plans and potential wherever they are. It's quite natural that in the headquarters, the global headquarters of Danone, there is more emotion and uncertainty than in the 100,000 other jobs that are not in headquarters. In particular, in France, of course, where our global headquarter is, there is more emotion among my colleagues here in this building. And we have to manage that. And we are managing that day by day. Well, among the noises that has been made over the last several weeks, if there is one that you can simply refer to -- and it's not me talking, just look at the social media and the press -- there is a huge support by the unions, the employee representatives, through the balanced model of management of Danone. And I think this is going to stay here. Their -- the employees are clear on that. It will not last forever and that is what I think is absolutely clear for -- and needs to be clear for our people. But I can assure you that they're all working hard, and they all know that the best for the future of the company is just to deliver what each of us have to do every day in our job. And that's what our people are doing right now. Maybe I will turn to Juergen for the next question.

Yes. Thank you, and good morning, Guillaume. To come back to your question on Specialized Nutrition margin 2020/2021. A few elements of reflection. Element #1, it's true that 2020 already has been for us, in that sense, also a year of 2 phases. We have started the year with a very strong performance in China in 2020. And you know China being one of our most profitable geographies within the Specialized Nutrition portfolio. And then we expected exactly the reverse dynamics in the second half of 2020. Now going into 2021. As we know, Q1 will still be very tough in China because of the base of comps from last year because of cross border, which probably still for a number of weeks will be disrupted. But then we see that this will stabilize and we should see a more balanced growth in between the geographies in our portfolios in Specialized Nutrition. So we will have, in the end, exactly the opposite effect of 2020 in 2021. This is one element which will help us. The other element is clearly that COVID-related costs are going to [ top ] out over the course of the year, which is an important element. And thirdly, and most importantly, probably, I want to come back to what I said before, which is about market shares. I mean, we have been extremely successful in protecting and gaining our market share on both platforms, Chinese label and international label, which makes us also very confident for year 2021. And so to conclude, I do not expect a reset of SN margins vis-à-vis what we have seen in 2020.

So next question is from Celine Pannuti from JPMorgan.

Yes. My first question is on reinvestment. Can you share with us how your A&P spend has been progressing over the past couple of years, let's say, 2016-2020, given that to try to understand how you will manage to reinvigorate growth going forward? If I look at 2016-2020 or exclude 2020, growth rate was never in the 3% to 5% range that you had hoped for. So last time, I think that time you said that out of the EUR 1 billion, you will reinvest EUR 300 million into the business. I wonder whether would that be enough. And so yes, a bit more discussion on that would be appreciated. And my second question, maybe coming back on Specialized Nutrition. Can you talk about what is your outlook for the Chinese market cross-border channel? Will it recover and under which Horizon? And I understand that you did grow in Mainland China in the second half of last year. But how do you see local competition progressing?

Good morning, Celine. First, a few quick comments on A&P, which I understood has been a conversation of the past days. I will exclude for one moment 2020, which by all means, has been a very special year. But when you look at our selling expenses, A&P and distribution costs, they have definitely been increasing over the period, as you were mentioning, '16 to '19, reflecting our focus on investing behind our brands, and which obviously, as we know, can take very different forms depending on category and geographies. For example, in emerging markets where trade is still very traditional and extremely fragmented, it makes very often more sense to invest into sales force and distribution gains rather than pure media. 2020, unprecedented year. What we have been doing is we have been managing our investment discipline. And we have been adapting investments for all those businesses and channels which we were the most impacted by COVID, namely in the Water division and also some -- or not some, and also the away-from-home channels across the divisions. And then looking forward, and I think you said it, we definitely intend to accelerate investments in the quarters and years to come. Big chunk of it coming from the OpEx investments related to our EUR 2 billion plan. We speak about EUR 600 million over the next 3 years, which will be dedicated to investments to support brands and innovations. And then another EUR 20 million to EUR 30 million, so the EUR 300 million you were quoting coming from the EUR 1 billion savings plan we just talked about.

Thank you, Juergen. Maybe Celine, hello, I will -- I mean, your point is an important one because it looks like it's been contentious for a few of stakeholders. And what we really want to do is to make sure that during the next CME in a few weeks' time, we will dedicate a very clear session on this algorithm and where and how we want to put additional support behind the brands. So bear with us for a moment. On your question on SN in China. When it comes to local competition, the one thing we can say is that, as you know, there is one competitor -- it's not like there are many competitors -- there are one competitor which so far has increased market share and taken market share mostly from the domestic players. There are 2,000 brands on the Chinese market. In any mature market in early life nutrition or baby food, you'll find a maximum of, let's say, a dozen and quite often 3 or 4. So 2,000. So that's really where that competitor has actually been taking share. Also taking share from a few international brands, obviously not ours, as we said, as on the domestic channels, we have both grown and increased our market share, especially with our flagship brand Aptamil, on Chinese labels. When it comes to the outlook, it's much more difficult for me to share at this stage. We believe that with the gradual fade away of the pandemic, the vaccines all over the place, that travel, logistics, borders will reopen in a way that will allow flow to come back. We continue to see fundamental attractions and actually, as Juergen said, market share gains also on this channel. So we are really getting prepared for that. But -- and in the meantime we are developing fastly our ability to even produce locally in China. As you know, we just acquired a factory. We are actually starting that factory in a couple of -- not even months now to start producing locally, and we continue our work of registering new recipes, going stage by stage and making progress on those stages that will unlock the full potential of the innovation range that we've prepared for China this year, and probably even more than this year, next year.

Okay. Next question coming from Morgan Stanley, Richard Taylor.

Two for me. You previously had a target for ROIC to be 12%. I think you're currently at around 8% and had been below 10% for quite a long time. So do you have a target for ROIC? And will it explicitly become part of the Executive Committee's long-term incentive plan? And then secondly, how much contribution from new business acquisitions should we expect for Danone to reach its EUR 5 billion plant-based target by 2025? And how much will that impact ROIC?