Fresh Dairy Hits Danone Results

Sales in the Fresh Dairy division decreased by 1.2% on a like-for-like basis, due to a combination of the continued difficult economic environment and a historical high comparable basis in the first quarter of 2008.

16/04/09 Groupe Danone has reported that consolidated reported sales in Q1 decreased by 2.3% to € 3,674 million. Excluding the effects of changes in exchange rates (-2.2%) and in scope of consolidation (-1.1%), total sales increased by 1.0% on a like-for-like basis. This like-for-like sales growth was driven by a 1.1% rise in volume and a -0.1% decrease in value.

Commenting on the results in the first quarter of 2009, Franck Riboud, Chairman and CEO of Groupe DANONE said: “The performance in the first quarter is in line with our expectations, reflecting the impact of a deteriorating economic environment on consumption behavior as well as a very high base of comparison in the first quarter of 2008. In this context, the Group’s sales continued to grow in the first quarter, both in volume and in value terms. Baby Nutrition and Medical Nutrition continued to show their potential and resilience, and so did our Waters businesses in the emerging markets which continued to deliver strong growth. On the other hand, the ongoing market deterioration has weighed - as anticipated - on the performance of the Fresh Dairy division in various regions.

Sales in the Fresh Dairy division decreased by 1.2% on a like-for-like basis, due to a combination of the continued difficult economic environment and a historical high comparable basis in the first quarter of 2008. This quarter’s organic growth consisted of -1.0% volume growth and -0.2% value growth. The Blockbuster brands continued to drive the growth of the division delivering above divisional volume and sales growth.

A number of markets have shown an improvement in the volume and sales growth trend compared to the preceding quarters. In Poland, the division generated significant volume growth acceleration in the quarter, driven by double-digit consumer price reductions coupled with targeted and intensified advertising campaigns as well as adjustments of pack sizes. This led to market share gains in the quarter. Hungary delivered a significant improvement in volume performance within the quarter mainly driven by Actimel, and Activia which benefited from intensified promotion supported by specific (TV) advertising to emphasize the brands’ benefits. The US witnessed a noticeable volume trend rebound in the first quarter of 2009 resulting in positive volume growth in March due to – among others – new product introductions, intensified trade support and consumer promotions and a selective adjustment of pricing. Consequently, Danone regained volume and value market share in the US within the quarter. Additionally, countries like Brazil, Italy and the UK continued their strong volume and sales track. These positive trends in the division were offset by a deteriorating trend in Mexico and Russia, among others.

The performance of the Waters division in the first quarter of 2009 continues to reflect the negative dynamics witnessed in the developed markets in 2008. Sales declined by -3.9% based on a continued positive volume growth of 3.0% which was offset by a negative value effect of -6.9%. Volume growth was driven by the emerging markets (52% of the divisional sales) which continued to deliver strong volume and sales growth, driven by continued strong performances in Indonesia, Mexico and Argentina. However, the continued adverse trends in the category in the developed markets (France, Spain, the UK, Germany and Japan), as well as a marked deceleration in the “Away From Home” channel, negatively impacted volume growth and led to a negative value effect for the division overall.

The Baby Nutrition division was able to continue its double-digit growth track in the first quarter of 2009, despite the very high volume and sales comparable in the first quarter of 2008. Sales increased by 10.5% driven by a volume growth of 3.3% and a value growth of 7.2%. The volume growth performance mainly reflects the underlying difficult comparable whereas value growth partly reflects the carry forward effect from price increases taken in the course of 2008. Western Europe and Asia continued to deliver strong performances while some Eastern European countries like Russia experienced some softness in the quarter.

Medical Nutrition also continued its double-digit growth trajectory with sales growth of 10.8% in the first quarter of 2009. This growth was driven by a volume growth of 10.6% and a value growth of 0.2%. Growth was supported by all regions with particularly strong performances coming from Southern and Eastern Europe. In addition, all product categories contributed to the growth with above-average growth coming from the Pediatrics range.

In terms of outlook Danone said in a statement, “Our scenario for 2009 remains that current consumption patterns in our key emerging and developed markets will continue over the balance of the year, with no significant improvement or dramatic breakdown. Our sales growth will, therefore, continue to be mainly driven by our leading brands, with a clear focus in all key markets on increasing their functional value for money to respond to the spending pattern of our consumers. As a result, we expect to gain further market share in our key geographies. Our operating margin will be enhanced by the category and geographic mix of our sales growth, overall improving input prices of our key commodities as well as cost efficiencies in all areas of our organization.”

Based on the above, 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.