Danone set to reap increasing dividends in Asia Pacific

French dairy giant Danone is poised to benefit from bullish growth
in the Asia-Pacific region. Analysts say that a recent investor
trip by company executives to China confirms its intentions to
expand aggressively in the region, adding that the company stands
to beat off the competition. Simon Pitman reports.

According to global investment group Goldman Sachs, Danone​ currently stands to benefit from its exposure in developing markets, particularly those in Asia Pacific. Although there is underlying caution with regards the performance of the domestic market and cost pressures in the Asia Pacific region, the company has reiterated its target for organic sales growth of 5-7 per cent in 2005.

Goldman Sachs says that its confidence in the company's operations in Asia Pacific stems from the fact that it has stuck to its four point strategy for the region. This entails maintaing a focus on the China and Indonesia markets, expanding its offerings in the functional drinks category, value added innovation and leveraging the scale of its operations through diversification.

Currently China is the company's largest market outside of Europe, accounting for an estimated 9 per cent of group sales. But with sales relatively stagnant in Europe and the group continuing to expect organic growth of 10-15 per cent in 2005, the potential that China holds is clear to see.

Looking at the Asia Pacific market as a whole, Danone has showed particularly strong growth in the beverages category, where in 1999-2003 it achieved 30 per cent growth per annum. The company is aiming to maintain growth of 20-30 per cent in this segment. Although price deflation in this category in China has been a problem in recent years, Goldman Sachs says that the fact that this now appears to be bottoming out is reassuring.

As well as bottled water and dairy products, Danone is also increasing its presence in the region's biscuit market. Biscuit sales growth has averaged 10 per cent in the past two years, which compares favourably to average market growth of just 10 per cent. Danone also says it is capable of maintaining this rate of growth in the future.

It is the belief in the company's market performance in Asia Pacific that has led Goldman Sachs to infer the title of best placed food company in the Asia Pacific region. It seems Danone has a lot to live up to in the coming year.

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