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Danone shares rally, helped by rising Chinese baby powder demand

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Danone shares rallied, as the world's third-ranked dairy company reported rising European sales, and increased Chinese demand for infant formula.

The company reported higher than expected sales, and maintained its optimistic outlook.

Danone's adjusted operating profit over the first six months of 2016 reached E1.478bn, up 7.0% year on year.

This compare to analyst forecasts of 1.427bn profit.

Net sales were down 3.0%, at $11,052bn, but like-for-like sales rose 3.8%.

Danone restated its full-year target, for like-for-like sales growth in a range of 3-5%.

Rising sales of fresh dairy

Danone's fresh dairy business saw rising sales, thanks to higher pricing, although volumes were down year on year, due to "negative trends in liquid milk in the CIS".

"In Europe, Danone is continuing to work gradually and structurally towards renewed profitable growth," the company said.

Fresh dairy sales in Asia and Africa were sharply up.

But the company warned of a "volatile environment with complex dynamics," with sales in Brazil and Argentina falling.

Chinese baby food demand

Baby food sales rose 7.2% like-for-like in the April to July period, thanks to booming Chinese demand.

Danone reported an increase in direct distribution infant formula sales, through specialised stores and local e-commerce offerings.

But a change in tax regulations has reduced indirect demand, with fewer Chinese buying formula from European suppliers online.

Loophole closed

In April China closed a tax loophole that allowed the import of goods bought from overseas websites at lower tax levels, which spawned an online grey market in infant formula, among other goods.

Closing the loophole, which meant that goods purchased online were charged only at a flat parcel tax rate, imposed an effective 11.9% tax increase on dairy imports.

At the time Cecile Cabanis, Danone's chief financial officer, said that no effect on sales was expected, as the Danone brand was competitive on consumer trust, not price.

Danone shares in Paris rose 3.4%, to E67.93 in afternoon deals.


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