Danone weathers water cooler write down as net profits slide

- Last updated on GMT

Related tags: Cent, Goldman sachs, Yoghurt, Danone

Danone, the French dairy conglomerate, announced today that net
profits had plummeted 62 per cent, following the costly €600
million write down of its water-cooler business last month, Tom
Armitage reports.

The group announced that its 2004 net profit of €917 million had risen by 9.3 per cent on the previous year's figure of €839 million - although this failed to take into account an exceptional cost of €600 million, incurred after the write down of its European and US water business in January 2005.

Despite this, however, the group said that its January valuation decision would not affect future sales - of which the company expects an overall increase of approximately 5 to 7 per cent (on a comparable basis) during 2005.

In line with market analysts' forecasts, the group posted an increase in like-for-like sales of 7.8 per cent to €13.7 billion, announcing a 10.5 per cent growth increase across its fresh dairy products division, while its beverage and biscuits and cereal products divisions showed slightly more modest growth of around 7 and 3.9 per cent respectively.

As part of the Paris-based firm's strategy for 2005, it will once again focus on bolstering sales of its best-selling probiotic drinking yoghurt brand Actimel, which it plans to roll-out across the US later this year in an attempt to exploit the burgeoning western trend for health and wellness products.

Already the company, currently valued in the region of €19.1 billion, is the leading US manufacturer of fresh dairy products, accounting for a 36.5 per cent market share (0.9 per cent ahead of its nearest competitor) and it is also the world's largest yoghurt manufacturer.

The company added that it had expanded its US operations by around 4 per cent in 2004, although this figure pales in comparison to the growth figures recorded across the under-developed markets of China and Indonesia - where Danone respectively notched up increases of 25 and 22 per cent.

Market analysts Goldman Sachs commented: "Despite our expectation of overall good performance from the group in 2004 there is likely to be a degree of disquiet with regards to the modest rate of margin growth in the second half of 2004 and the likely pressure on margins in 2005."

According to Danone, its operating margin grew by 0.2 per cent on the previous year to 12.4 per cent in 2004 - setting the trend for further margin pressures during 2005 and consequently leaving its ability to determine future prices slightly compromised (important if the company is to weather reduced consumer spending across Europe).

"Falling prices in France and increased PET costs in water are the main culprits. As a result we see a realistic possibility of margins being flat in the first half of 2005,"​ Goldman and Sachs added.

Danone shares rose 1 percent to €71.35 in Paris trading, following the results announcement earlier today.

Related topics: Manufacturers, Danone

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