Danone Sales Up 6% in Q4
Danone sales increased by 6.0% in Q4 and 8.4% in FY 08, trading operating margin improved 53 bps to 14.91% in FY0 08, underlying fully-diluted EPS increased 15.1% to € 2.74 in FY 08.
12/02/09 Commenting on the results of 2008 and on the outlook for 2009, Franck Riboud, Chairman and CEO of Groupe DANONE said: “Our solid performance in 2008 emphasizes the potential for profitable growth of our 100% healthy food portfolio. It also illustrates the successful integration of the new Baby and Medical divisions - that have strongly contributed to the Group’s performance - as well as the reactivity and determination of our teams. I, therefore, remain confident in Danone’s business model to deliver our corporate mission to bring health through food to the largest number of people. Specifically for 2009, and in light of the current specific environment, our focus in each of our business lines will be simple: grow wherever the growth is, continue to perform above the category and strengthen our market shares. In other words, we will put all our capabilities into motion to come out of the current period stronger than ever by combining responsiveness and rigor with strict focus on cash generation and cost management. During this period, Danone will continue to build on, and consolidate, the specific factors from which we derive the unique quality of our results and the engagement of our staff: health positioning, support for the progress of people and their competencies as well as commitment to social and environmental responsibilities which are all competitive advantages for Danone.”
Consolidated reported sales increased by 19.1% to € 15,220 mln in full year 2008. Excluding the ffects of changes in exchange rates (-3.5%) and in scope of consolidation (+14.2%), total sales increased by +8.4% on a like-for-like basis. This like-for-like sales growth was driven by a +2.8% rise in volume and a +5.6% rise in value.
Consolidated reported sales increased by 10.4% to € 3,683 mln. Excluding the effects of changes in exchange rates (-2.6%) and in scope of consolidation (+7.0%), total sales increased by +6.0% on a like-for-like basis. This like-for-like sales growth was driven by a +3.7% rise in volume and a +2.3% rise in value.
Sales of the Fresh Dairy division increased by +3.5% in the fourth quarter of 2008. This performance reflects the ongoing pressure on volumes as a result of the challenging market dynamics in a select number of markets. As such, this quarter’s organic growth consisted of flat volume growth (-0.3%) and +3.8% value growth. Based on their proven health benefits and superior taste, the blockbuster brands continued to drive the growth with a healthy positive volume growth which is substantially higher than the divisional average. A number of Western European markets – most notably Italy, Spain, France and Germany - showed signs of volume trend improvements versus the previous quarters of 2008. The majority of Eastern European markets continued to show volume and sales growth. In Latin America, Brazil continued to perform very well whereas Mexico showed a softening of the volume growth compared to the preceding quarter. Dannon in the US witnessed a marked slowdown in the fourth quarter, which impacted most products with the exception of Activia and the Stonyfield range.
The performance of the Waters division continued to reflect trends which have been developing throughout the year. Sales declined by -1.5% based on a volume growth of +3.8% which was offset by a negative value effect of -5.3%. Volume growth was driven by the emerging markets (51% of the sales of the division) which continued to deliver mid-teens sales growth, driven by very strong performance in Indonesia, Mexico and Argentina.
However, the continued adverse trends in the category in most developed markets (France, Spain, the UK and Japan in particular) led to negative volume growth in Europe, and to a negative value effect for the division overall.
Baby Nutrition delivered its best growth rate ever with a growth of +20.8% in sales and +14.8% in volume in the fourth quarter of 2008. This outstanding performance was helped by a low comparable in the fourth quarter of 2007 and significant gains in China. However, excluding these two factors, the Baby Food division continued to deliver consistent above-average market growth. The continued above-average value effect (+6.0%) partly reflects the price increases that were taken to offset the pressure from rising milk prices. All categories and geographies continued to contribute to the division’s performance. Western Europe continued to show healthy growth driven by most markets, most notably the UK, Germany and Italy. Asia and Eastern Europe also continued their excellent performances, driven by strong growth in China, Indonesia, Poland and Russia.
Medical Nutrition continued its excellent growth track record with a sales growth of +12.1%, which was entirely driven by volume growth of +13.2%. Growth was supported by all regions with particularly strong performance coming from Southern Europe. In addition, all product categories contributed to the growth with above-average growth coming from Gastro Intestinal Allergy and Paediatrics.
Danone’s trading operating margin improved by +53 bps to 14.91%, on a like-for-like basis, in 2008. The Baby Food and Medical Nutrition divisions showed like-for-like margin improvements of respectively +230 bps and +149 bps versus 2007, reflecting the implementation of cost synergies relating to the integration of Numico, as well as increased operating leverage. The margin of the Waters division decreased compared to 2007, mainly due to lower fixed cost absorption and cost inflation. The margin improvement of the Dairy division reflects – inter alia – increased operational efficiencies and leverage. Total A&P spend as a percentage of sales increased by 20 bps in full year 2008 and 30 bps in the second half of 2008, driven by higher A&P spend in the Dairy and the Baby Food divisions.
In Europe, the margin improvement was driven by the Numico synergies which were partly offset by the negative operating leverage in Waters the division. Margin improvements in Asia mainly reflect improved operating leverage in Baby Nutrition and Waters. Margins in the Rest of the World remained stable.
Financial expenses reflected the full year effect of the financing of the Numico acquisition, as well as a slight increase in the average cost of debt. The underlying tax rate in 2008 was 23.5% compared to 27.0% in 2007. The decrease is mainly explained by changes in the scope of consolidation, a lowering of the tax rates in markets where Danone has a significant presence and a positive country mix. Net result of discontinued activities of € 269 mln is almost entirely related to the last portion of the final proceeds of the disposal of the Biscuits division that was completed in 2007. Non-current result from continued operations reflects an impairment on Danone’s non-consolidated investment in Wim-Bill-Dann, as well as other non-recurring costs. Underlying net result increased by +15.0% to € 1,313 mln and underlying fully diluted earnings per share grew by +15.1% to € 2.74 in 2008 compared to full year 2007 pro forma numbers.
Free cash flow from operations amounted to € 1,183 mln in 2008 (7.8% of sales), compared to € 986 mln in the same period last year, excluding the free cash flow relating to the Biscuits activities that were sold in the course of 2007. Capital expenditure was € 706 mln, or 4.6% of sales.
The net financial debt decreased by € 362 mln to € 8,199 mln in 2008, excluding the put options granted to minority interests of € 2.855 mln. The next significant debt repayment is the first tranche of the € 2.3 bn syndicated loan that will mature in December 2010, of which € 1.2 bn was drawn at 31 December 2008. Secondly, it is to be noted that there are no covenants linked to any of Danone’s debt facilities. Thirdly, Danone has sufficient sources of financing available to back-up its € 1.6 bn of commercial paper exposure and to cover the outstanding put options which amount to € 2.9 bn. These sources of financing consist of a € 1.5 bn committed, undrawn syndicated bank loan facility, € 3.8 bn of committed, undrawn
credit back up lines, € 0.5 bn of treasury shares as well as part of our cash position.
