Danone CFO Cecile Cabanis today (28 July) insisted the Actimel maker is making progress with its bid to improve the performance of the French group’s dairy business, the company’s largest by revenue, despite a decline in volumes in the first half of the year.
Each of Danone’s four divisions – fresh dairy, waters, early life nutrition and medical nutrition – saw sales revenue grow in the six months to the end of June. However, fresh dairy was the only one of the four to report a decline in volumes, which were down 2.1%.
Speaking to analysts to discuss Danone’s results this morning, Cabanis said the 3% rise in like-for-like sales recorded by the fresh dairy business in the second quarter showed an improvement over that three-month period, compared to the first quarter of 2016.
Like-for-like sales from Danone’s fresh dairy business rose 3% in the first half of the year. However, volumes were down 2.1% in the first quarter and slid 2.2% year-on-year in the April-to-June period. Reflecting on the second quarter, Cabanis highlighted two markets. “It’s Russia and Brazil,” she said.
The Danone finance chief said in Russia the company was focusing less on cheaper products and more on value-added lines. “In Russia, we have volumes that are negative in a context that has been every difficult for a long time. We are really making sure that we are putting a full focus on valorised brands and it is paying off. We continue to perform in those brands and are getting a very big gap in value, protecting the margins. We still have very negative volumes, especially in milk, in Russia.
Cabanis said a recent move to up prices in Brazil to combat inflation in milk hit volumes. “In Brazil, we still have strongly negative volumes. We had to pass a price increase of around 7% in Q2 and this has deteriorated volumes,” she said.
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However, Cabanis sought to emphasise the progress Danone is making in dairy in Europe and North America. Sales fell at a “low-single-digit” rate in Europe in the second quarter but Cabanis said that was an improvement on the first three months of 2016. The recent relaunch of the Actimel and Danonino has led to the sales of both brands rising. “In Europe, as we have shared in the past, 2016 is the year of re-investment to support the relaunch of our key global brands. There are still important milestones to go including the relaunch of Actimel to really complete the transformation and return to profitable growth.”
In the US, another of what Cabanis called the “key battles” for Danone, recent innovation is “paying off”, with the company increasing its share of the category by 1.2 percentage points to 35.6% in the first half of 2016 versus the corresponding period last year. Like-for-like sales in the US rose at a “mid-single-digit” rate.
“Despite a fiercely competitive environment, Danone improved its market share and at the same time we were able to structurally increase the profit equation of our US business. We continue to be confident of the potential of the US market for this category and in that sense we are building for the long term.”
Reflecting on the division as a whole, which also saw margins rise by 56 basis points in the quarter, Cabanis added: “The division is fully in line with its agenda of a return to profitable growth. All the efforts made to structurally improve the gross margin to support future value creation are paying off.”