PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 11:39 UK, 25th Jul 2014, by Agrimoney.com
Danone upbeat, despite milk price hit to profits
Danone highlighted the reversal in milk prices, and efforts to improve its fortunes in China and Europe, as the dairy-to-water giant stood by forecasts for full year profits growth, despite a first half performance which fell short of investor expectations.

The French-based group, the world's largest yoghurt maker, owner of brands such as Actimel and Activa, reported operating profits down 10.0% at E1.18bn for the first six months of 2014, on revenues up 2.2% at E10.47bn on a like for like basis.

The group's operating margin dropped by 1.59 points to 11.3%.

The data fell below the expectations of investors, who had expected operating profits to drop more modestly, to E1.21bn, and a drop of at most 0.2 points in the margin.

"We operate in a global environment that is still subject to risks and upheavals, and it presents us with challenges every day," Franck Riboud, the Danone chairman, said.

The deterioration was blamed largely on "record" milk prices, with Danone in 2014 paying 8.3% more for its milk, per tonne, than last year, when prices rose 9.8%.

Danone also highlighted the continued fallout on Chinese sales of infant nutrition products stemming from the, false, alarm last year over botulism tainting in an ingredient supplied by Fonterra.

'Right where we expected'

Nonetheless, Danone stood by expectations of a rise of 4.5-5.5% in like-for-like sales for the full year, when operating margins will come in within 0.2 points of 2013 levels.

"Danone's results at the end of June are right where we expected as a necessary transition point on our way to meeting our targets for the full year," Mr Riboud said.

The company added: "Our agenda for the second half of the year is exactly the same - we will stay focused on reaching our 2014 targets.

"The group anticipates a return to strong, sustainable, profitable growth beginning in the second half."

 

Danone said it was, through product launches and extensions of branded products, focused on "rebuilding" its position in China's infant nutrition market.

The group, which is suing Fonterra for compensation over the dairy scare, has relaunched its Dumex infant formula brand at a discount, in an effort to revive a brand performance which "fell slightly short of expectations" in the first half of the year.

The overall early life nutrition division reported a 9.2% drop in sales in the April-to-June quarter, reflecting declines in both sales and prices.

Group growth will also be boosted by its increasing focus on emerging markets, underlined last week when it announced the purchase of a 40% stake in Kenya-based Brookside, East Africa's top dairy producer.

'Sharpening the competitive edge'

For Europe, which has proved a particularly difficult market in dairy, the group said it would continue "updating its product portfolio and sharpening its competitive edge", with a view to "stabilising its performance in the region by the end of 2014".

In dairy, "sales have stabilised in Iberia, while bother Germany and Italy are still difficult markets", Danone said.

In fact, the group's European dairy sales "continued to decline" in the April-to-June quarter, bucking a 2.4% rise, like for like, to E2.84bn for the division as a whole although this sales rise came at a price.

Danone's dairy volumes slumped by 7.4%, as it pushed through to consumers rising milk costs, increasing its prices by 9.8%.

However, "milk prices have now stabilised," or are falling, the group noted.

Market reaction

The results were greeted with some disappointment by analysts at Canaccord Genuity, who trimmed by E1 to E44 their target price for Danone shares, maintaining a "sell" rating.

However, market reaction was muted, with the shares standing 0.3% lower at E55.83 morning deals in Paris.

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