Danone: strong results despite testing market conditions

By Anthony Fletcher

- Last updated on GMT

Related tags: Cent, Groupe danone, European union, Milk

Danone has ridden out difficult market conditions to report strong
full-year earnings and improved margins.

The French dairy giant said that net income more than tripled from 449m to 1.46bn, boosted by gains on its sale of its HP sauces business and strong performances in key sectors.

The group did not perform evenly across the board however; sales in the key European market, accounting for more than 60 per cent of group sales, rose by just 2.8 per cent, while sales in Asia grew 13 per cent and in the rest of the world by 16 per cent.

Sales of dairy products, accounting for more than half of revenue, rose 7 per cent, compared with a 10 per cent increase in beverages and 1.5 per cent increase in biscuits and cereal products.

"The robust financial performance of Groupe Danone in 2005, completely in line with our overall objectives, illustrates the strength of our business model,"​ said Franck Riboud, chairman and CEO of Groupe Danone.

"To deliver organic growth of 6.7 per cent, while continuing to increase the operating margin of the group, despite the problems in our principal market and the increase in certain material costs, demonstrates the relevance of our chosen business strategies."

The business says it has consistently focused much of its efforts on the reinforcement of its position in healthy eating, the development of new emerging markets and the global deployment of its largest brands.

It has also had to deal with changes in the marketplace. The European Commission said recently that commodity products like butter and skimmed milk powder are likely to lose out to higher value products as the Common Agricultural Policy CAP reform takes hold.

Cheese is likely to be the big winner of CAP reforms, with production across the European Union (EU) expected to rise almost one million tonnes to 9.2m by 2012, according to a new Commission report. Skimmed milk powder, however, is set to go the other way, with production forecast to drop from 1.3m tonnes per year in 2003 to 944m by 2012. Butter production is expected to fall by 2m tonnes.

The market shift, largely anticipated by much of Europe's dairy industry, is expected as part of a general switch to manufacture of higher value dairy products in the European Union. For example, cultures have enjoyed strong organic growth thanks to growing demand from fresh dairy for innovative products and probiotics.

For 2006, Danone said it was confident that it would achieve its targets of underlying sales growth of 5 to 7 per cent and low double digit underlying earnings per share growth.

"The decision by the board to propose a significant increase in the dividend illustrates very clearly our confidence in the Danone model to continue to deliver one of the best financial performances in the sector,"​ said Riboud.

"While our constant focus is to improve group performance, our mission is also to bring health through our food to as large a number of people as possible."

Related topics: Manufacturers, Danone

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