Dairy Division Drives Danone Sales Up 20%

Fresh Dairy division sales increased by +6.5% on a like-for-like basis in the first quarter of 2011, reflecting volume growth of +2.9% and a +3.6% rise in value.

4/14/2011 --- Danone has reported that consolidated sales rose +19.6% to €4,757 million in the first quarter of 2011. Excluding the impact of changes in exchange rates (+2.5%) and the scope of consolidation (+8.6%), sales were up +8.5%. This organic growth reflects a +5.0% rise in sales volume and a +3.5% increase in value.

Exchange-rate effects reflect favorable trends in currencies including the Russian ruble, the Brazilian real, the Indonesian rupiah and the Chinese yuan. Main changes in the scope of consolidation were the integration of Unimilk (Russia) for the full quarter and, to a lesser extent, that of two new European fruit-drink subsidiaries (Danone-Chiquita and Proviva) and of Medical Nutrition USA, Inc.

Fresh Dairy division sales increased by +6.5% on a like-for-like basis in the first quarter of 2011, reflecting volume growth of +2.9% and a +3.6% rise in value.

This takes into account a steep +15.3% like-for-like rise at Unimilk in the first quarter, led by a significant rise in average price per kilo due to higher sales prices and trading-up within the product mix. Integration of Unimilk made rapid progress in the first quarter, with reinforcement of the management team and deployment of a program to optimize its product portfolio.

Excluding Unimilk, Fresh Dairy division sales continued the robust trend observed in the previous two quarters, rising +5.5% like for like with a combination of +4.1% volume growth and a positive price effect of +1.4%.

Growth in sales value reflects a policy of competitive price increases that got under way across most countries during the quarter.

The division’s priority markets including Latin America (Brazil, Mexico and Argentina), the USA, Russia, France and the UK continued to drive growth. Activia, children’s brands and indulgent brands were the main drivers; innovation continued at a steady pace.

These results illustrate once again sustained sales momentum, especially in view of a particularly high basis for volume comparisons over the first half.

The Waters division posted a very strong +13.3% like-for-like rise in sales in the first quarter of 2011, driven by a robust +10.7% rise in volumes. All regions contributed to volume growth, especially emerging economies.

A +2.6% rise in sales value reflects the division’s improved mix, with a shift to positive growth in mature economies and very strong showings from aquadrinks in emerging markets.

This trend got an additional boost from short-term factors, including the low basis for comparison in Japan and unfavorable weather in Latin America in the first quarter of 2010.

The Baby Nutrition division got off to a strong start this year, with sales up +11.2% like for like and volume growth reaching +5.8%. A robust +5.4% rise in sales value reflects two factors: the decision to discontinue non-strategic commodity milk powder business in the Middle East, an activity with low added value, and price increases in some regions.

All regions reported growth, with China and Indonesia again the division’s main drivers. Growing-up milks continued to deliver double-digit growth, while weaning foods saw another slight rise in the first quarter due to strong performances in the United Kingdom, Poland and Russia.

Danone also announced the opening in Singapore of a research center specializing in child and maternal nutrition. This is the first specialized unit of its type in Asia and will study the impact of nutrition on gut bacteria, the immune system, the development of babies and young children, and the impact on their future health.

Medical Nutrition reported +9.3% like-for-like rise in sales in the first quarter of 2011, entirely attributable to a rise in volumes (+9.7%). Once again all regions contributed to growth, with Western Europe and new geographical regions contributing equally. All product categories gained ground, with pediatric care and metabolic control showing above-average growth.

Backed by steady growth in the first quarter of 2011, Danone stands by its targets.

It expects 2010 trends to continue in the months ahead:

• consumer spending in both the industrialized world and emerging economies shows no sign of significant improvement or worsening,
• raw material prices remain on a volatile upward path.

More specifically, in view of developments since the beginning of 2011, the Group expects total raw material and packaging costs to increase by 6 to 9% on average over the year, with a steeper increase in the first half reflecting the comparison with figures recorded in 2010.

Danone will be drawing on its experience of 2010 to manage these increases through consistently high productivity. The Group will also continue to use pricing to maintain competitive edge, benefiting from increased room for maneuver thanks to repositioning in 2009 (Reset program).

Another priority for 2011 will be the integration of Unimilk’s operations in Russia and CIS countries, with sales and cost synergies set to boost Unimilk’s operating margin from the second half on.

Altogether, targets for 2011 include:
• a 6% to 8% rise in sales[1] on a like-for-like basis[2],
• an increase of around 0.20% in trading operating margin, like for like. This will be fueled by all Group’s activities, but especially by Unimilk and synergies from its integration. As a result, the rise will only take shape in the second half, with first-half trading operating margin down slightly from the same period of 2010,
• a rise in free cash flow in keeping with the €2 billion target set for 2012.

Chairman’s comment: “Danone teams have done a truly remarkable job over the past few quarters, reflected in the steep 8.5% rise in our net sales for Q1 2011. All four business lines and all the regions we operate in contributed to this acceleration, benefiting from very healthy pace in volumes. Waters and Baby Nutrition put in an exceptionally good showing, reporting growth of over 10% this quarter.”

“Since January, we have begun integrating Danone-Unimilk, our joint venture in Russia, with several initiatives already under way. These include portfolio segmentation and trading-up, but also measures to increase productivity and realize synergies. Continued progress here will remain a priority in the months ahead.”