FDBusiness.com

With all of its divisions and regions posting gains, global food and beverages group Danone achieved a 14.2% rise in underlying net income to Eur1.67b on sales ahead by 13.5% to Eur17.01b for 2010. Excluding the impact of changes in exchange rates (+6.0%) and acquisitions, total sales were up 6.9%. This organic growth reflects a 7.6% rise in sales volume and a 0.7% decrease due to price mix.

Fresh dairy sales were up 6.5% to Eur9.73b with volume growth of 7.5%. The water business increased volume by 7.8% and sales by 5.3% to Eur2.87b. Baby nutrition sales rose 8.9% to Eur3.36b and volume growth was 7.6%. Danone’s medical nutrition division was the fastest growing with sales up 9.0% to 1.06b and volume growth was 8.7%.

Danone’s trading operating income rose 7.1% to Eur2.58b and the trading operating margin (EBIT) improved by 3 bps to 15.2% in 2010, despite the steep rise in raw material prices, particularly milk. The increase in raw materials was primarily offset by various cost-cutting measures that generated record savings of over Eur500m during the year.

Danone completed a number of major transactions in 2010. In October, Danone sold its 18.4% stake in Wimm Bill Dann Foods, Russia’s leading food and beverage company, for $470m. In November, Danone agreed to acquire YoCream, the leading producer of frozen yogurt in the US, for around $103m.

Also in November, Danone and Unimilk finalised the merger of their fresh dairy product businesses in Russia and other CIS countries, creating the region’s market leader in fresh dairy products. Indeed, Russia is now Danone’s largest single national market, with France.

Outlook

Danone expects the trends which were evident in 2010 to continue in the months ahead. Consumer spending in both the industrialised world and emerging economies shows no sign of either significant improvement or worsening, However, raw material prices remain on a volatile upward path.

Franck Riboud, chairman and chief executive of Danone.

The French group expects total raw material and packaging costs to increase by 6% to 9% on average over the year, with a steeper increase in the first half reflecting the comparison with figures recorded in 2010. Danone plans to manage these increases through consistently high productivity and will also continue to use pricing to maintain a competitive edge.

Another priority for 2011 will be the integration of Unimilk’s operations in Russia and CIS countries, with sales and cost synergies set to boost Unimilk’s operating margin from the second half on.

Danone’s targets for 2011 include a 6% to 8% rise in sales on a like-for-like basis and an increase of around 0.20% in trading operating margin, also on a like-for-like basis. This will be fueled by all the group’s activities, but especially by Unimilk and synergies from its integration. As a result, the rise will only take shape in the second half, with first-half trading operating margin down slightly from the same period of 2010. A rise in free cash flow will be in line with the Eur2b target set for 2012.

“The strength of our group, businesses, brands and teams, and our exposure to regions with robust growth prospects mean that we can look to 2011 with confidence,” says Franck Riboud, chairman and chief executive of Danone. “We will aim to outperform our competitors in organic sales growth, margin, and cash generation.”