FRANCE: Danone issues warning on margins

By | 19 June 2012

  • Danone lowers margins outlook
  • Sales target retained
  • Company warns on margins

French dairy and bottled water group Danone has warned that its profits will be hit by weaker margins during fiscal 2012.

Danone today (19 June) lowered its margins outlook for the financial year from "stable" to "down 50 basis points", citing a weak performance in Southern Europe - particularly Spain - and higher commodity costs.

The group said poor European sales are being offset by a stronger performance from emerging markets, reiterating its sales outlook of 5-7% growth.

However, sales gains appear to be coming at a price. Danone has had to invest heavily in brand support and price positioning to shore-up its top line, hitting profitability.

The company also appears to be struggling to manage input costs, despite a softening commodities environment as dairy commodity prices retreat from last year's highs.

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Danone decides to adjust operating margin target and reiterates sales growth and free cash flow targets for 2012

In February this year, Danone set clear priorities for 2012: developing its product categories, pursuing investment in countries with high growth potential, particularly those that Danone calls "MICRUB[1]" and supporting operations and brands in Western Europe.

Since the end of the first quarter, the Group has faced a swift deterioration in consumption in Southern Europe that has proven steeper than anticipated, especially in Spain.

In these markets, Danone has chosen to respond with a combination of support for its brands and steps to make its products more competitive.

In addition, inflation in the Group's raw material costs has been stronger than anticipated since the beginning of the year.

As a result, the Group has decided to adjust its targets for 2012 as follows:

  • the target for sales growth is unchanged at +5-7% on a like-for-like basis, with the robust performance of operations in Asia, the Americas, Africa/Middle East and the CIS continuing to help offset pressure on Western Europe,
  • the target for trading operating margin is reduced from "stable" to "down 50 basis points on a like-for-like basis". This adjustment is aimed at deploying initiatives needed in Southern Europe, while continuing to develop Group sales and profitability in the rest of the world,
  • the free cash flow target is unchanged at EUR2bn, with the Group continuing to make progress, in particular in its management of working capital.


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Sectors: Water

Companies: Danone

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