France’s Danone to Sell China Infant Formula Unit, Keeps Goals
Paris. French food group Danone said it was on track to deliver its full-year goals despite a still difficult global economic climate and weak sales at its Dumex infant formula unit in China, which it has decided to sell.
The world’s largest yoghurt maker, whose brands include Actimel and Activia, posted higher first-half operating profit thanks to cost cuts and lower milk prices. Second-quarter sales beat market expectations, as robust baby food and bottled water divisions offset poor dairy sales.
Danone, which competes globally with Nestle and Unilever, has been striving to rebuild its position in China after an infant formula product recall in Asia in 2013.
Its core dairy division is also grappling with weak consumer spending in Europe and Russia and Danone expects the division to stabilize its sales by the end of 2015.
In China, which contributes 7 percent of group sales, Danone continued to benefit in the first-half from Chinese imports of western European infant milk formula and strong online sales.
This is because Chinese consumers are increasingly buying foreign-made infant formula due to concerns over the safety of locally-produced baby food following health scares.
But sales of mass-market Dumex, which accounts for less than one third of Danone’s infant formula in China, continued to lag amid a fierce price war in the traditional retail sector that is fueled by lower milk prices.
Chief Executive Emmanuel Faber said Danone was confident in the “strong fundamentals” of China’s baby food market but believed it needed a “two-tier strategy”.
Danone had thus struck a preliminary deal to sell Dumex to local partner Yashili International Holdings and would take a 398 million euro ($437 million) impairment charge that limited profit growth in the first half.
Danone will use proceeds from the sale, expected to close by year-end, to deepen ties with one of the country’s biggest dairy firms, raising its 9.9 percent stake in China Mengniu Dairy, Yashili’s indirect parent, by around 2 percentage points, Chief Financial Officer Chief Cecile Cabanis said.
First-half operating profit rose 9.3 percent to 1.381 billion euros, and the operating margin rose by 53 basis points to 12.12 percent of sales, Danone said. This was below a company-compiled consensus of analysts for operating profit of 1.393 billion and an operating margin of 12.27 percent.
Second-quarter like-for-like sales rose 4.5 percent, above the average market estimate of 4.3 percent.
For 2015, Danone said it was keeping its targets for like-for-like sales growth of between 4 and 5 percent, and a slight rise in its operating margin from 12.59 percent in 2014.
Danone’s stock was flat at 1105 GMT, off earlier losses, as investors were reassured by the company confirming its targets.
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