The French food and drink group Danone, yesterday, reported a sharp fall in net profits to €132m for 2001, from €721m a year earlier due to a leap in one-time charges.

Exceptional items saw €648m in charges against the company this year, compared to a €1m gain last year. The charges included €475m related to goodwill payments for the Italian biscuit maker Galbini.

However, excluding the one off items net profits were up to €780m, from €720m a year earlier. Revenues were also up to €14.5bn from €14.3bn.

Operating profits in the group's dairy business increased to €790m from €712m, but those of its beverage business fell to €432m from €513m, with a drop in operating margin to 11.4% from 12.4%.

The company said the results were set against a "challenging environment because of the strikes that followed the announcement of the biscuit restructuring plan in France, very difficult economic conditoins in Argentina and unfavourable price evolutions for some key raw materials."

Talking to reporters after the results announcement the company tried to play down recent fears concerning its water business in the US.

"We're probably not the only major drinks company not heavily dependent on the U.S. market," he said, naming the company's rivals as Coca-Cola, PepsiCo and Nestle SA. "The market there only accounts for 15% of global water sales...and 31% of all our sales are now being made in emerging markets," he said. "The U.S. is an opportunity for us, not a strategic constraint."

Danone chairman Franck Riboud said in an interview with Reuters that the company rejected the idea that it would only be a niche player in the US market. However he also said the company would not pull out of the market and neither would it get involved in a price war that would harm Danone's margins.

We won't be a niche player, (but) we will be a player," Riboud said. "The US is going to evolve, it will start to segment. Once they have reached full capacity with distilled water they will move onto other things - it is a country of marketing."

He declined to comment on how he thought the company would compete against the likes of Pepsi and Coca-Cola, whose arrival on the water scene has increase the pressures of competition greatly. However, he brushed aside the concerns saying: "It's an important market...(but) should I go ahead and lose money in a market that will make 10% of worldwide growth, or do I consolidate my positions (in countries) that will make up 60%."

He added: "The US is not our focus. Our business equation is elsewhere."