DAVY VIEW

Despite initial success in Danone’s productivity programme (H1 21), we see inflationary pressures leading to a cost under-recovery in FY22. We lower our FY22 and FY23 EBIT by 7.5% and 7.9% respectively. Our vigilance on margin progression in FY22 is premised on the ubiquitous price elevation across Danone’s major cost buckets, including raw materials, freight and packaging. Our prior margin outlook on Danone was contingent on the unabated implementation of its productivity programme; as such, we are changing our rating to ‘Neutral’. Pronounced cost inflation amid a radical transformation programme presents an unwelcome distraction for the new CEO and constrains brand re-investment flexibility.