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
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
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
"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
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
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.
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.
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.