Danone On Target For 2015 Growth
15 Apr 2015 --- Danone has posted first quarter sales increase of 8.1%, with like-for-like sales up 4.8% compared with the same period last year. The company reported that its Water and Early Life Nutrition divisions have posted the most promising sales, while Fresh Dairy products, particularly in Europe, continue to struggle, in line with recent years.
Danone CEO, Emmanuel Faber, said: "With a solid 4.8% organic growth, we are in line with our expectations for the quarter and with our roadmap, delivering further adaptation of our products and organization in Europe, confirming our leadership in North America and CIS and maintaining dynamic growth in emerging countries. In a continued difficult and unstable environment, Danone’s teams are focusing on our 3 priorities: anchor our model of sustainable profitable growth, continue to make our brands and businesses more competitive to serve our consumers and shape the Danone 2020 agenda. This first set of results makes me strongly confident that, with the new Executive Committee and all teams, Danone is on the right track to reach a decisive milestone in 2015.”
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.
In the first quarter of 2015, reported consolidated sales in Africa grew +8.1% to total €5,471 million. Excluding the impact of changes in the basis for comparison, which includes exchange rates and scope of consolidation, sales were up +4.8%. This reflects stable sales volumes (-0.2%) and a +5.0% increase in value. The exchange-rate effect of +3.7% reflects favorable trends in some currencies, including the US dollar, the Chinese renminbi and the Indonesian rupiah. The -0.4% impact on scope of consolidation results primarily from the deconsolidation of Fresh Dairy Products operations in China starting in July 2014 and in Indonesia starting in December 2014.
The Fresh Dairy Products division recorded steady like-for-like sales in the first quarter of 2015 (+0.2%), reflecting a positive +5.0% price/mix effect and a -4.8% decrease in volume. As anticipated, business in Europe was in line with trends observed in previous quarter, with sales down by around -4%. This reflects a decline in sales volumes that was partly offset by an improved price/mix effect, and results in part from initiatives to streamline assortment and promotions, which were rolled out gradually since mid-2014. These initiatives are under way throughout Europe; they are aimed at improving the division’s gross margin and laying the foundations for a sequential improvement in sales volumes. In Russia, sales are solid in an uncertain consumer environment, in which the division is closely guiding trends in its various product ranges. An enhanced portfolio value has thus continued to drive growth, while sales volumes kept declining. In the United States, the division’s performance was in line with the category as a whole, allowing Danone to confirm its leading position.
In the first quarter, the Waters division reported another strong growth in sales, up +8.7% like-for-like, driven by a +6.7% increase in volume and a +2.0% increase in value. These figures reflect both a very good performance in Europe and continued strong growth in emerging markets, in particular Asia, with steady gains by the Aqua and Mizone brands. They come despite the impact of inventory reduction in China during the quarter.
Early Life Nutrition division sales grew by a strong +11.6% like-for-like in Q1 2015, albeit from bases for comparison that were less favorable than in the previous two quarters. Sales volumes were up +4.2% and the price/mix effect was a high +7.4%. In China, division brands continued to benefit from category growth, with e-commerce expanding rapidly. The Nutrilon Platinum brand, launched in China in early 2014, continued to win market shares among specialized distribution stores. Yet sales of Dumex brand products remained well below levels observed in early 2013. In Europe, Q1 sales showed double-digit growth driven by the international success of brands like Aptamil and Nutrilon. The division in the rest of the world reported continued robust business, with double-digit growth in the rest of Asia, Latin America and the Middle East.
The Medical Nutrition division reported Q1 2015 sales of +9.1% like-for-like, with volumes up +3.5%. The division turned in a solid performance, particularly in Europe, despite downward pressure on healthcare spending as a whole. Main contributors to growth were the United Kingdom, China and Brazil, with a stronger contribution from the Neocate and Nutrison brands.
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.
