Yesterday, Danone, the food and beverage giant owning brands like Mizone and Aptamil, released its full-year 2019 financial report on its official website. According to the report, 2019 revenue was €25.3 billion (approximately RMB 192.9 billion), a 2.6% increase year-on-year (from €24.651 billion). This included a 1.2% decline in volume and a 3.8% increase in price. Among this, Danone's sales in China last year were approximately RMB 19.3 billion, still holding a significant share of its global market. Of the China market share, about two-thirds came from the specialized nutrition business (including infant formula), estimated at RMB 12.8 billion, and about one-third from the water and beverage business, estimated at RMB 6.5 billion. -01- Mizone, Not Selling Well When discussing the beverage business, it's impossible not to mention Mizone, another major player under Danone in China. It attracts so much attention partly because functional, sports, and vitamin drinks remain highly popular. On the other hand, 2016 saw the first decline in Mizone's sales in China, and after a rebound in 2017, sales stagnated again in 2018. Therefore, many eyes are closely watching Mizone's performance in 2019. In last year's financial report, Danone's Chairman and CEO Emmanuel Faber stated at an analyst meeting that he was dissatisfied with Mizone's performance in the previous quarter. He also mentioned that in 2019, Danone would change the formulas of some Mizone product lines. However, he also anticipated that Mizone would not see significant growth in 2019. Sure enough, in 2019, Mizone faced another "Waterloo" in the Chinese market. According to the financial report, in the fourth quarter of 2019, due to suspended investments, Mizone's sales slowed sharply at a double-digit rate. As a result, the plan to revitalize the Mizone brand and reposition it, originally scheduled before March 2020, may be brought forward. It's worth noting that this could potentially impact Mizone's summer sales. Zhu Danpeng, a Chinese food industry analyst, commented that last year in the Chinese beverage market, apart from three sub-categories—purified water, coffee, and functional drinks—which still saw growth, other categories generally declined. Mizone's predicament precisely illustrates the lag in its brand upgrades over the years. He suggested that besides trying energy drinks, Mizone could also leverage its vitamin drink positioning and expand into more health-oriented scenarios. Meanwhile, according to Danone Chairman Emmanuel Faber, Danone's senior management remains confident in the future of the Mizone business. Danone has already developed formulas suitable for Mizone's future development in China, and believes that after relaunching, Mizone is expected to return to growth. -02- Infant Formula: "A Small Step Back, a Big Step Forward" Although Mizone's performance in Danone's business was unsurprisingly disappointing, the infant formula business has been reborn and reached new heights. According to Danone's financial report, its specialized nutrition business (which includes infant formula and medical nutrition) saw sales increase by 5.8% year-on-year to €7.556 billion (approximately RMB 57.7 billion). Additionally, the business's profit margin hit a new high, rising 49 basis points to 25.3%. In 2019, the growth rates for the four quarters were 0.4%, 3.2%, 9.8%, and 10.2%, respectively. Moreover, the annual growth rate was 5.8%, ranking first among the three major business segments. It's worth mentioning that, according to Danone's CFO Cécile Cabanis at the meeting, Danone's Aptamil brand became the number one infant formula brand in terms of sales during the Double 11 shopping festival. Additionally, because the Chinese New Year this year came earlier than in 2019, it partially drove growth. Prior to this, due to significant setbacks in indirect channels, Danone's infant formula business in China had experienced consecutive declines of 20%, 10%, and 15% from Q3 2018 to Q1 2019. It wasn't until Q2 2019, benefiting from Danone's expansion in lower-tier cities and the supplementation of direct channels, that it achieved slight positive growth. In addition to the achievements in specialized nutrition, among Danone's three major business segments, the other two also made modest progress. The water and beverage business saw sales revenue increase by 1.5% year-on-year last year, with a significant improvement in profit margin of 219 basis points to 13.0%. The basic dairy and plant-based products business saw sales revenue increase by 1.1% year-on-year, with profit margin improving by 13 basis points to 10.2%. -03- Epidemic and Outlook During this financial report meeting, Danone also discussed its current assessment of the epidemic's impact. Danone expects to lose €100 million in first-quarter sales due to the epidemic, mainly affecting its water and beverage business in China, and expects growth to be flat compared to the first quarter of last year. When discussing the COVID-19 pandemic, Faber said at the meeting: "At the beginning of 2020, we faced uncertainties and challenges brought by the COVID-19 pandemic. Danone's current top priority is to actively cooperate with the Chinese government's epidemic prevention and control efforts, ensuring the health and safety of our employees, business partners, customers, and the communities where we operate. I would like to especially thank all Danone employees in China. Despite the many difficulties, they have gone all out to provide services and support to families, parents, babies, and the elderly in need. We are fully aware of the enormous challenges our employees in China are facing, and we empathize with them and provide full support. I also firmly believe that China will overcome this epidemic, and people will soon return to normal life. Go China!" Since New Year's Eve, Danone has been providing global assistance, with cumulative donations of goods and money to China reaching nearly RMB 23 million over the past few days. Faber also stated that he believes the epidemic's impact is only temporary and has firm confidence in the Chinese business. "Through innovation, we expect the Chinese market to achieve further growth this year. Among them, specialized nutrition is expected to continue performing well this year." Cécile Cabanis stated at the meeting that Danone expects steady growth in early life nutrition this year. However, considering the impact of the COVID-19 pandemic and a possible decline in the number of newborns, the growth rate for this business is expected to be below 5%. Additionally, she announced that Danone's 2020 sales growth guidance has been adjusted to 2% to 4%, compared to the previous guidance of 4% to 5%.