Danone has forecast a slowdown in profit growth this year and launched a drive to cut €1bn in costs by 2020, as the world’s largest yoghurt maker prepares for a steep rise in milk prices.
The French dairy group is targeting growth of more than 5 per cent in recurring earnings per share this year compared with 2016, when profit rose 9.3 per cent by this measure. This year’s forecast excludes the pending acquisition of US foodmaker WhiteWave, part of Danone’s effort to add natural and organic foods to its portfolio as customers turn to healthier fare and niche brands.
Delivering 2016 results, Paris-based Danone on Wednesday said in a statement that this year “economic conditions will remain particularly volatile and uncertain overall, with persistently fragile or even deflationary consumer trends in Europe”.
It anticipates a mid-single digit rise in the cost of its strategic raw materials, notably milk. As a result, it has launched a programme to cut €1bn in costs by 2020.
Cécile Cabanis, chief financial officer, said the cuts would be achieved by “spending better, buying better and reinvesting part of these savings in growth initiatives to achieve our 2020 profitable growth ambition”.
Like-for-like sales for the year to December 31 increased 2.9 per cent to €21.9bn — the slowest pace in 20 years. Reported sales, adjusted for currency and other factors, were 2.1 per cent lower, hit by an exchange rate drag from the Argentine peso, the Mexican peso and the Russian rouble.
In Danone’s home market of Europe, like-for-like sales fell 1.4 per cent to €8.5bn, reflecting tougher market conditions in Spain and the stuttering relaunch of its digestive health brand Activia, which “has not delivered” the hoped for turnround.
Danone is trying to better position Activia to compete against cheaper rivals, revamping the logo and packaging and marketing it as a premium product. It has also had to respond to regulatory changes in Europe after watchdogs said that probiotic products, such as Activia, could not be proven to help digestive health or boost immunity.
Ms Cabanis conceded “we overestimated the speed of the turnround”, with Activia sales coming in below expectations.
Medical nutrition was the best-performing division, with like-for-like sales rising 7.4 per cent.
Danone’s operating margin rose 70 basis points to 13.77 per cent, in line with analysts’ expectations of 13.71 per cent. The company proposed a dividend of €1.7 per share, up 6.3 per cent from 2015.
Emmanuel Faber, chief executive, said during a call with analysts that Danone was on track “to deliver strong, profitable and sustainable growth” by 2020.
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