Danone First Half Profits Up 6%

The performance in Fresh Dairy was driven by a significant improvement of volume growth (+2.7%) compared to the negative volume performance (-1.0%) in the preceding quarter, which was partly offset by a negative growth (-2.0%) in value.

24 Jul 2009 Danone has reported a sales increase of 2.2% in Q2 and 1.6% in H1 09, with volume growth of 3.6% in Q2 and 2.4% in H1 09.

Sales of the Fresh Dairy division increased by +0.7% in the second quarter of 2009, on a like-for-like basis. This performance was driven by a significant improvement of volume growth (+2.7%) compared to the negative volume performance (-1.0%) in the preceding quarter, which was partly offset by a negative growth (-2.0%) in value. The significant volume rebound in the second quarter is a clear result of the various marketing initiatives that the division has started to implement since the end of 2008 in order to rapidly adapt its product and/or price proposition to the changing behaviour and preferences of consumers in this ongoing challenging market environment. Following the marketing initiatives that were implemented in countries like Poland, Hungary and the US in the first quarter of 2009, the division extended these initiatives to countries like Mexico, France and more recently, Russia.

The aforementioned initiatives are mainly centred around substantial consumer price reductions coupled with targeted and intensified advertising campaigns as well as adjustments of pack sizes. In most instances, this has led to a significant rebound in volumes and stabilization and/or improvements in market shares. A number of additional countries will follow in the second half of 2009. These positive trends in the division were partly offset by the particularly challenging environment in countries like Spain, Russia and Argentina.

Sales in the Waters division were stable (-0.1%) in the second quarter of 2009, on a like-for-like basis. Underlying volumes continued to grow at 4.4% which was offset by a negative value (mainly mix) effect of -4.5%. Volume growth continued to be entirely driven by the emerging markets (52% of the sales of the division) with particularly strong performances in Indonesia, Mexico and Argentina. Although the industrialised countries (France, Spain, the UK, Germany and Japan) continued to suffer from adverse trends, the underlying growth deterioration decelerated.

The Baby Nutrition division delivered a solid sales growth of 7.4%, on a like-for-like basis, driven by +3.8% volume growth and +3.6% value growth in the second quarter of 2009. The division continued to gain market share in the majority of the markets in which it operates. The performance of the Baby Nutrition division continues to reflect the relative underlying resilience of the category coupled with a somewhat softer performance in the weaning food category as well as in Eastern Europe and most notably Russia. In China, growth was a bit subdued due to a strong come-back of some of the local Chinese Baby Nutrition players that were severely impacted by the melamine crisis in Q4 08 and Q1 09.

Medical Nutrition continued to perform well with a sales growth of +8.8%, on a like-for-like basis, which continued to be entirely driven by volume growth (+9.2%). Due to the economic crisis, those products that are not reimbursed in certain markets experienced certain softness. Overall, growth was supported by all regions with particularly strong performance coming from Southern Europe and new geographies. In addition, all product categories contributed to the growth with above average growth coming from Gastro Intestinal Allergy and Paediatrics.

Commenting on the performance in the first half of 2009, Franck Riboud, Chairman and CEO of Danone said: “Our sales and results in the first half of 2009 clearly show that we are on the right track. The numerous initiatives we have launched in various countries, to quickly adapt our offer to consumer needs, particularly in Dairy, have been seamlessly executed and have enabled a clear acceleration of our volumes. We will continue to expand this strategy in the coming months, by gradually rolling-out initiatives across additional geographies and categories. We have also strengthened our balance sheet in the first half year which makes us stronger to face the current environment. We intend to accelerate our market expansion, with a view to further strengthen our positions and seize new growth opportunities. Thanks to these adjustments, Danone is increasingly well-equipped to deliver strong and sustainable growth and to focus on its mission “to bring health through food to the largest number of people”, which is increasingly relevant in the current context.”

Based on the above and on the performance in the first half of 2009, Danone targets the following for full year 2009:

• like-for-like sales growth of a few points below the medium-term guidance;

• ?like-for-like continued improvement of the trading operating (EBIT) margin;

• ?a +10% growth of its underlying fully-diluted earnings per share at constant scope of consolidation and constant exchange rates and excluding the effects of the € 3 bn capital increase which took place in June 2009.