Tough Europe forces Danone savings drive

Commenting on the company’s half year results today (July 29), chairman and ceo Franck Riboud said: “In Europe, simplifying our model and reducing costs remain a priority.​

“Our organisational adaptation plan is now being deployed, right on schedule, with the first benefits expected from the second semester onwards.”​

Danone, whose brands include Evian, Activia and Volvic, reported overall trading operating profit for the group down 49 basis points (bps) like-for-like to 13.34%.

More serious​

However, taking the situation in Europe in isolation, it revealed the situation to be more serious, with trading operating profit down 118 bps to 14.28% from 15.24% in the previous half year.

As a result, the European economy had continued to drag down global profits, the company admitted. “As in 2012, lower sales in Europe continued to cut significantly into group profitability, while outside Europe margin as a whole continued to rise …​

“… This being the case, the group will continue to adapt its model in Europe, stepping up the pace of updates to its product ranges to meet consumers’ changing needs, and at the same time adapting its structures and costs to achieve ​€200M ​[£172.7M] in savings by the end of 2014.”​

Bad weather had also hit sales in Danone’s Waters division in Europe, even though they kept growing globally.

Raw material prices​

Raw material prices had increased substantially once again, although more modestly than the first half of 2012.

Danone had two pieces of good news for Europe. The first was that it had continued to benefit from indirect demand for international baby formula brands in some emerging countries.

The second was that the UK ranked alongside China, Brazil, Turkey and the US as a main contributor for growth in medical nutrition sales.

The group reported solid global sales growth for the half year, up 6% like-for-like.

“We see this as a strong result,” said Investec analyst Martin Deboo. He noted that the rate of decline in European sales had slowed from -5.1% to -3% in the group's second quarter, although this was against an easier comparative figure.

Margins would be the key concern for the second half of the financial year, he acknowledged.