Jon Cox told just-drinks that a disposal by Danone of its water business would make sense

Jon Cox told just-drinks that a disposal by Danone of its water business would make sense

Danone has said that its water division is still a strategic part of the business, despite reports suggesting the company is looking to dispose of it.

Reports this morning (18 October) have speculated that Danone is in talks with Suntory Holdings over the potential sale of its bottled water unit. According to Bloomberg, the Evian water producer may be looking to use the proceeds to fund a possible offer for the infant-nutrition business of US pharmaceutical firm Pfizer.

However, on a conference call this morning, Danone's CFO, Pierre-Andre Terisse, said: "The same rumour again and the same comment again, we have not changed our strategy with regards to water."

A spokesperson for Danone also told just-drinks that it would not comment on the reports, but added that the water business is "still strategic for Danone".

Kepler Capital Markets analyst Jon Cox told just-drinks that a disposal of Danone's water business could make sense, if it wants to grow further in infant nutrition.

"Baby nutrition is more attractive than water, looking at top line growth dynamics on a global basis," Cox said. "The overall category growth of water on a global basis is around 5%. That is made up of double-digit, emerging market [growth] and no growth in developed markets."

In contrast, Kepler said that the infant nutrition category is growing at around 7% annually.

"Infant nutrition is growing quickly in emerging markets but also growing relatively quickly in the developed world so, as an overall category, it is probably more attractive," said Cox. "It is also more profitable. It has the potential to be somewhere close to a 20% operating margin business, while water is maybe mid-teens."

This is the second time Danone has become the subject of water disposal reports. In November last year, Danone's chairman & CEO, Franck Riboud, said that the firm was not seeking to sell its bottled water business after reports suggested it was seeking to offload the division to one of Japan's major drinks firms. Kirin Holdings was suggested as a potential buyer.

This morning, Danone reported an increase in third-quarter sales in it waters division. This was a slowdown, however, from the unit's 18.9% sales growth in the second quarter and reflected poor weather in Western Europe over the summer period.

Danone's share price climbed by 1.37% to EUR46.01 at 1144 BST today.

For just-drinks analysis of how important bottled water is to Danone's net sales and operating profits, click here.