FDBusiness.com

French food and beverage giant Danone has reported an 11.2% increase in consolidated sales to Eur8.35b in the first half of 2010 and a 7% rise on a like-for-like basis. The like-for-like sales growth was driven by a 9.8% jump in volume and a 2.8% decline in value. Trading operating income increased by 2% on a like-for-like basis to Eur1.28b.

Danone’s trading operating margin was stable at 15.30% compared to the average margin in 2009. However, compared to the first half of 2009, the margin decreased by 74 bps on a like-for-like basis. The reduction mainly reflects the negative price effect of the Reset program, the effect of rising raw material prices and a difficult comparable basis. The impact of higher raw material prices in the first half of 2010 has been largely offset by Danone’s various cost savings initiatives, which are expected to generate up to Eur500m in the current financial year.

Danone assumes that the financial, economic and social crises will continue to weigh on consumption trends in Europe, while emerging markets are expected to keep developing well overall. Consequently, Danone will continue to focus on, and invest in, growth opportunities in key categories and geographies, on the strength of its competitive positions and on the development of its brands. Productivity gains as well as the growth of free cash flow will continue to be key priorities.

In line with this strategy, Danone recently entered into an agreement to acquire Medical Nutrition USA for approximately $62m in cash. Danone is also to merging its fresh dairy product businesses in the CIS area with those of Russian company Unimilk. The new entity will become the leader for dairy products in the CIS area as a whole, and particularly in Russia.

Outlook

For full year 2010, Danone is targeting like-for-like sales growth of at least 6%; a stable trading operating (EBIT) margin versus 2009 on a like-for-like basis; and an increase of the free cash flow from operations of at least 10% versus 2009 on a reported basis.

Franck Riboud, chairman and chief executive of Danone.

“Our results in the first half of this year confirm our strong start in 2010. We continue to invest in countries, products and brands with a strong potential: baby nutrition in Asia, dairy products in the US, in Brazil as well as in Russia where the Danone-Unimilk alliance provides us with significant long term growth opportunities. In the Waters and Medical Nutrition divisions we continue to identify new growth opportunities in emerging markets as well as new business models. We simultaneously continue to focus on productivity, which is critical in light of the volatile raw material prices,” says Franck Riboud, chairman and chief executive of Danone.

“Lastly, our cash-flow generation keeps increasing steadily.  Investments, productivity and cash flow are essential as they build the performance of today, but also the Danone of tomorrow, more global, more efficient, stronger, at the service of its mission and of value creation.”