Groupe Danone S.A.

by Corporate Profiles
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 In February, Franck Riboud, chairman and chief executive officer of Paris-based Groupe Danone S.A., said the company’s priorities for the year were “developing its product categories, pursuing investment in countries with high growth potential (Mexico, Indonesia, China, Russia, the United States and Brazil) and supporting operations and brands in Western Europe.”

Several months later, it appeared the company was making headway on its goals.

In his mid-year letter to shareholders released this summer, Mr. Riboud cited two “transformations” at Danone.

First, emerging markets accounted for 51% of Danone’s sales and more than 75% of growth in 2011, “and this growth is sustainable,” he said.

Second was the successful incorporation of new Baby Nutrition and Medical Nutrition businesses, of which “the organic growth pipeline is still enormous.”

To establish its Greek yogurt in America, Danone advertised its Oikos brand during the Super Bowl on Feb. 5. It was the first yogurt advertisement ever during the most-watched U.S. sporting event.

“At the end of 2011, Greek yogurt represented 25% of the dairy product market (in America), compared to 5% only two years ago, and was at one third during the first half of 2012,” Danone said. The Oikos brand grew 88% between the first and second halves of 2011, Danone said, with the United States still seen as a good prospect because overall per capita yogurt consumption is “six times less than that in Europe.”

Problems with the European economy in 2011 carried over into 2012. On June 19, Danone reduced its target for trading
operating margin from “stable” to “down 50 basic points on a like-for-like basis.”

“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,” said Pierre-Andre Terisse, executive vice-president of finance. At the same time, the company left unchanged its 2012 target for sales growth of 5% to 7% and free cash flow at €2 billion because of strong sales in emerging countries and robust performance in Asia, Africa, the Americas, the Middle East, Russia and the C.I.S.

The first half of fiscal 2012 was challenging for Groupe Danone amid a tough consumer environment in Europe, but the company moved quickly to manage the situation.

“The consumer environment definitely got tougher in Europe, particularly Southern Europe, in the first half of this year,” Mr. Riboud said in late July when first-half fiscal 2012 results were released. “At Danone, we moved quickly to manage this new situation in line with our strategic priorities: strengthening our brands and pursuing sustainable, profitable growth.”

Of its four divisions, Fresh Dairy Products sales were €5.906 billion in the first half of fiscal 2012 ended June 30, up 4% from the same period of fiscal 2011. Sales in Waters were €1.855 billion, up 11% from 2011. Baby Nutrition sales were €2.090 billion, up 15%. Sales in Medical Nutrition were €624 billion, up 9%.

Geographically, first-half fiscal 2012 sales in Europe made up 53% of Danone’s total, Asia 17% and the rest of the world 30%. Sales in Europe were up only slightly, Asia was up 26%, and the rest of the world was up 13%.