Danone to swap Dumex China infant formula unit for larger stake in Mengniu
Earlier today, in its financial results for the first half of 2015, Danone announced it has reached a "preliminary agreement" with Chinese dairy Yashili on the sale of Dumex China.
Under a Memorandum of Understanding (MOU) signed by Danone, Yashili, its parent company Mengniu, the French dairy will use the proceeds to increase its 9.9% interest in Mengniu.
Yashili and Danone also "intend to, among other thing, collaborate in New Zealand with respect to a manufacturing facility," Yashili and Mengniu said in a Stock Exchange of Hong Kong filing.
Mengniu, China's second largest dairy, is Yashili's largest shareholder, controlling a majority 51.4% stake. Danone also holds a 25% interest in the company.
Dumex "hit hard"
Chinese sales of Dumex were "hit hard" by the 2013 Fonterra botulism scare.
In August 2013, Fonterra informed customers, including Danone, that three batches of whey protein concentrate (WPC) potentially contaminated with Clostridium botulinum had entered the supply chain.
Later tests revealed the contaminant was a non-toxic strain called Clostridium sporogenes. This came to late, however, for Dumex, which had already pulled infant formula from shelves in China, Hong Kong, Thailand, Cambodia, Laos, Malaysia and Singapore as a precaution.
Danone terminated its supply contact with Fonterra in January 2014 and launched legal action.
"Despite the overall positive environment, Dumex brand products remained well below levels observed in early 2013, hit bard by the false alert raised by Fonterra and by the shift in consumer preferences from supermarkets to both online sales and specialized distribution," Danone said today.
"Danone has decided to reallocate resources in this market, and subsequently to revise downward long-term sales projections for Dumex in China."
"Therefore Danone impaired the brand and certain assets in China for a total amount of €398m at June 30 2015," it added.
First half results
In its first half result, the French dairy giant reported group sales of €11.392bn - a 4.6% like-for-like increase on the €10.467bn it recorded in H1 2014.
Danone's largest segment, Fresh Dairy Products, reported sales of €5.664bn - down 0.4% from €5.640bn reported in H1 2014. This was offset, however, by a sales boost from its Early Life Nutrition, Medical Nutrition and Waters divisions.
Its Early Life Nutrition unit, which includes the Dumex brand, reported sales of €2.444bn for the first six months of the year - up 11.3% from €2.071bn.
Revenue from its Medical Nutrition business increased 4.3% from €682m to €780m for the six month period.
Meanwhile, Danone's Waters division reported sales of €2.503bn, an increase of 9.5% on the €2.074bn reported in the first half of 2014.