FRANCE: Danone confirms cost effect on margins
By Dean Best | 27 July 2012
- H1 margins down on costs
- Increases stake in Spanish unit
- Baby food growth strong
 |
Margins from Danone dairy business under pressure |
Danone has today (27 July) confirmed higher raw material costs hit margins in the first half of 2012, six weeks after surprising the market with a profit warning.
The French food giant said trading operating margin fell 61 basis points to 13.85% amid costs of whey, milk proteins and fruit and sugar that were above the company's expectations.
Danone reiterated its warning last month that its trading operating margin will be down 50 basis points in 2012. Earlier in the year, it had forecast flat margins.
Challenges in southern Europe has had an effect on Danone's business so far this year. "The consumer environment definitely got tougher in Europe, particularly southern Europe, in the first half of this year," Danone said today.
In Spain, an important market for Danone, the company this week upped its stake in its local subsidiary from 57.1% to 65.6%.
Underlying net income increased 2.1% in the first half of 2012. Sales were up 7.7%, even as like-for-like sales decelerated in the second quarter.
Volume growth was strongest in Danone's baby food business.
2012 First-Half Results
July 27, 2012
Solid +5.9% growth in sales in H1 2012, driven by emerging markets
Trading operating margin of 13.85% (-61 basis points)
Net earnings per share up +4.7%
Free cash flow at €890 million
New full-year targets for 2012 confirmed
· Solid growth in H1 2012 sales[1] of +7.7% as reported and +5.9% like-for-like[2]
· Second quarter in line with expectations, marked by a high basis for comparison in 2011
in the Waters division; reported sales[1] up +7.8% and like-for-like sales[2] up +5.0%
· Sales up in all divisions, with variations from one region to the next including a decline in
Europe and double-digit growth[3 in the rest of the world
· Trading operating margin[3] in line with expectations at 13.85% (-61bps)[2]
· Underlying fully diluted earnings per share[3] up +4.7% at €1.51 as reported, and up
+2.5% like-for-like[2]
· Free cash flow[3] at €890 million
· New full-year targets for 2012 confirmed: sales growth of 5-7%[2], operating margin down
50 bps[2], and free cash flow at €2 billion.
Chairman's comment
"The consumer environment definitely got tougher in Europe, particularly Southern Europe, in the first half of this year. At Danone, we moved quickly to manage this new situation in line with our strategic priorities: strengthening our brands and pursuing sustainable, profitable growth.
"Our first-half organic growth in sales stands at nearly 6%, in line with our full-year objectives. In the United States and Russia, our Oikos and Prostokvashino brands are continuing to expand rapidly.
"In emerging markets, we are continuing to grow at a very brisk pace and are expanding our presence, as we did recently in Morocco and India. Finally, everywhere we operate we are innovating to offer consumers new experiences, adapted to their expectations; examples include Yolado in Spain and the renovation of Dumex in China. These initiatives and results testify to the commitment and determination of our Group and our teams. And they allow me to move into the second half with confidence."
Original source: Danone
Sectors: Baby food, Dairy, Emerging markets, Financials
Companies: Danone
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