Danone Sales Down 1.7% in Q3

Excluding the effects of changes in exchange rates (-4.5%) and in scope of consolidation (-1.3%), total sales increased by +4.1% on a like-for-like basis.

23 Oct 2009 --- Danone has said that consolidated reported sales decreased by -2.1% to € 11,300 mln in the first nine months of 2009. Excluding the effects of changes in exchange rates (-3.2%) and in scope of consolidation (-1.3%), total sales increased by +2.4% on a like-for-like basis. This like-for-like sales growth was driven by a +3.9% rise in volume and a -1.5% decline in value. The aforementioned effects of changes in exchange rates were mainly driven by the Polish zloty, the Mexican peso, the Russian rubble, and the British pound. The change in the scope of consolidation was predominantly driven by the divestiture of Frucor, a beverage-based business based in Australia and New Zealand, which was sold to Suntory Limited and deconsolidated as of January 2009.

Consolidated reported sales decreased by -1.7% to € 3,780 mln in the third quarter of 2009. Excluding the effects of changes in exchange rates (-4.5%) and in scope of consolidation (-1.3%), total sales increased by +4.1% on a like-for-like basis. This like-for-like sales growth was driven by a +7.1% rise in volume and a -3.0% decline in value.

Sales of the Fresh Dairy division increased by +2.3% on a like-for-like basis in the third quarter of 2009. This performance was driven by a continued strong volume growth acceleration to +7.0%, which was partly offset by a negative value growth of -4.7%. The significant volume acceleration in the third quarter reflects the successful implementation of the extensive reset program that the division has started to implement in a number of countries since the end of 2008. The reset program is centered around substantial consumer price reductions, new product introductions as well as adjustments of existing formats, coupled with targeted and intensified advertising campaigns. Next to the significant acceleration in volume growth, this has led to stabilization and/or improvements in market shares in most countries in which the reset program has been implemented.

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, Spain and Russia. The result of these actions largely offset the challenging environments in a few countries (Spain, Russia and Argentina).

Among brands, Activia and Danacol delivered strong performance, while Actimel continued to show noticeable improvements. Our health benefit brands (Activia, Actimel, Danonino and Danacol) continued to grow faster than the average of the division, resulting in positive product mix. The performance of the core range was strong, lead by successful relaunches in various countries.

Sales in the Waters division increased by 4.6% on a like-for-like basis in the third quarter of 2009. This strong performance was driven by an excellent volume growth of 9.8% which was offset by a negative value (mainly country mix) effect of -5.2%. 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. While the performance of Spain and Japan remained weak, the volume growth of France, the UK, and Germany rebounded after having witnessed several quarters of declining performance.

The Baby Nutrition division delivered 6.5% sales growth, on a like-for-like basis, driven by 3.7% volume growth and 2.8% value growth in the third quarter of 2009. The performance of the Baby Nutrition division continued to reflect the 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. The division’s strategy and market leading positions continued to result in market share gains in the majority of the markets in which it operates and, most notably, reached a record high market share in France. In China, the division continued to maintain its market share at a substantially higher level than it enjoyed before September 2008.

The Medical Nutrition division delivered a double-digit growth performance by delivering 12.2% sales growth, on a like-for-like basis, in the third quarter which continued to be volume-driven (+10.9%). Geographically, the performance continued to broad-based with particularly strong performance coming from Southern Europe, Latin America and Eastern Europe. In addition, all product categories contributed to the growth with above-average growth coming from Pediatrics and Gastro Intestinal Allergy.

Based on the performance in the first nine months of 2009, Danone expects to deliver:
• a like-for-like sales growth close to 4% in the second half of 2009;
• a like-for-like improvement of the trading operating (EBIT) margin between 60 and 70 bps for FY 09;
• a +10% growth of its underlying fully-diluted earnings per share for FY 09 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.
• double-digit growth of the free cash flow from operations in FY 09.