Danone Reports Solid Growth for H1 2015

27 Jul 2015 --- Danone has reported buoyant sales figures for the first half of 2015, with a rise in sales and volume during the period. Consolidated sales rose +8.8% as reported in the first half of 2015 to reach €11,392 million.

Chief executive Emmanuel Faber commented: “First-half growth of 4.6% and half a percentage point rise in margin are fully in line with our roadmap. With a still volatile overall context, we remain focused on our priorities: consolidating our model for profitable, sustainable growth and enhancing our brands and businesses’ ability to serve our consumers’ needs. In Europe, where margins rose significantly, we are executing an overhaul of our Fresh Dairy Products business and finalizing the conditions necessary for a return to growth. In China, we are strengthening our Early Life Nutrition business model, building on the success of our international brands and reinforcing our partnership with Mengniu and Yashili. In the CIS and in North America, we are guiding our operations carefully through the current transition, to get growth back on track while pursuing investments to develop the category. In each region, half-year results confirm the efficient execution of our plans and the excellent work done by our 100,000 employees. Building on our unique culture, brands, geographical platforms, talent of our teams and trust of our partners, we work every day to lay the foundations for sustainable, profitable growth and are moving to deploy our Danone 2020 transformation plan for economic and social value creation serving Danone’s corporate mission.”

The Fresh Dairy Products division reported sales down -1.1% like-for-like in the second quarter, reflecting a -3.1% fall in volumes and a +2.0% price/mix effect. As anticipated, this was below first quarter figures, with the improvement in volume offset in the second quarter by a less favorable base for comparison in price and mix, particularly in Russia. Sales in Europe have continued to decline, with performance limited by the basis for comparison in volume that preceded streamlining of the product portfolio starting in mid-2014. These efforts have helped increase the Fresh Dairy Products division’s gross margin significantly, thus laying the foundations of reinvestment for a sequential improvement in sales volumes as of the second half of 2015. The Actimel brand continued to stabilize. In the CIS region, with consumer spending still fragile, sales remained solid despite more moderate growth than in the first quarter. The division is carefully managing sales trends in its various product ranges and key brands like Prostokvashino, Tëma and Danone have continued to do well. In the United States, Danone is consolidating its leading position, fueled in particular by strong momentum in the children’s segment with the Danimals brand, and by the launch of Greek yogurt specialty Oikos Triple Zero. The ALMA zone continued to expand, driven in particular by a solid performance in Mexico.

The Waters division once again reported strong growth in the second quarter of 2015, with sales up +10.2% like-for-like. This rise was split roughly equally between +5.6% growth in volume and a +4.6% price/mix effect. As in the past, these figures were underpinned by solid growth in Europe and in plain waters. They also reflect once again the very strong performance of emerging markets in Asia and Latin America, and the vibrant aquadrink segment.

The Early Life Nutrition division reported Q2 sales up a steep +11.1% like-for-like, including a +7.3% rise in volume and a +3.8% rise in value. In the Chinese market, the division continues to benefit from a boom in online sales combined with the popularity of our Aptamil and Nutrilon brands, generating double-digit growth for European sales. Despite this overall positive environment, Dumex brand products remained well below levels observed in early 2013, hit hard by the false alert raised by Fonterra and by the shift in consumer preferences from supermarkets to both online sales and specialized distribution. Danone has decided to reallocate resources in this market, and subsequently to revise downward long-term sales projections for Dumex in China. Therefore Danone impaired the brand and certain assets in China for a total amount of €398 million at June 30, 2015. In an extension of their strategic alliance, Danone has reached a preliminary agreement with Mengniu and Yashili to merge Dumex in China with Yashili and to increase its shareholding in Mengniu. By bringing the Dumex and Yashili brands closer together, this operation would build a strong local brand platform in a context of local consolidation.

Division sales in the rest of the world remained robust, with double-digit growth in the rest of Asia, Latin America and the Middle East.

Danone assumes that economic conditions will remain difficult and unstable overall, with fragile or even deflationary consumer trends in Europe, emerging markets undermined by volatile currencies, and difficulties specific to a few major markets, in particular the CIS. In 2015, Danone also anticipates marked but varied trends in the cost of major strategic raw materials, particularly milk: - lower prices in Europe and the United States in the first half, with a rebound likely in the second half of the year, and - gradual price increases in emerging countries all year long. Altogether, Danone anticipates a moderate rise in the cost of main raw materials and packaging in 2015.

Against this backdrop, Danone will focus on developing its product categories and winning market share. In Europe, the company will continue to strengthen its competitive edge. In growth markets, it will focus on developing its product categories, in particular through strong local brands in the most attractive geographical markets.

After delivering profitable growth in the second half of 2014, Danone will seek to make this equation sustainable, generating organic growth in sales and in operating margin in 2015, while making the investments necessary to ensure this performance is lasting.

As a result, Danone's 2015 targets include:

• organic growth in sales of between +4% and +5%

• slight growth in trading operating margin.

Lastly, Danone will continue to work towards lasting gains in free cash-flow without setting a shortterm target.

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