PARIS (Thomson Financial) - Danone unveiled more ambitious medium-term
objectives this morning, showing confidence in its core businesses and the
integration of baby food maker Numico.
But market reaction was mixed as some analysts were concerned with ongoing
uncertainty over Chinese partner Wahaha, as well as a lack of visibility in 2007
results that were heavily affected by consolidation changes.
Danone shares ended down 3.57 pct in Paris, falling back sharply from
morning gains of nearly 5 pct.
The company said it expects like-for-like sales to grow 8-10 pct annually in
the coming years, above its 6-8 pct target range for last year.
It also wants operating profit to grow faster than sales on a like-for-like
basis, with operating margin to improve every year, and gave a target of growth
in underlying earnings per share of over 15 pct, versus the proforma 2007 level.
For 2008, Danone said it is specifically aiming for a rise in operating
margin of at least 30 basis points, again on a like-for-like basis.
Speaking at an afternoon news conference, chairman and CEO Franck Riboud
said the expected synergies of 45 mln eur this year from the Numico integration
would go towards margins, and not be used for growth investments.
He said Danone had met its 2007 targets -- for like-for-like sales growth of
6-8 pct and margin growth of 20 basis points -- whatever scope basis is applied.
At published scope, including the consolidation of Numico for Nov-Dec but
deconsolidating Wahaha in the second half, operating margin rose to 13.27 pct
from 13.25 pct, representing a 45 basis point like-for-like gain.
Underlying sales rose 9.7 pct, or 7.2 pct when excluding Numico and
including Wahaha for the full year and the biscuits business for 11 months.
Net profit at published scope was inflated by the proceeds from the sale of
the biscuit operations, jumping to 4.180 bln eur from 1.353 bln.
Analysts had expected the results to be difficult to read, and were
concentrating mainly on the new guidance. Natixis, for example, reiterated its
'buy' recommendation and 77 eur target price for Danone, welcoming the
medium-term group targets that include Numico.
But Bear Stearns was more cautious, sticking to its 'peer perform' rating.
The broker argued that Danone's decision to adopt the equity accounting method
for Wahaha from the second half of 2007 amounted to an admission that "it no
longer has full control of the operations despite its 51 pct ownership of the
Chinese joint venture."
Co-chief operating officer Emmanuel Faber told the news conference that
Danone expects it to take "several months" to work out a solution to its dispute
with Wahaha.
Danone had announced on Dec 21 that the two sides had agreed to halt legal
proceedings and enter friendly negotiations to resolve their row over trademark
ownership rights.
Regarding Danone's expansion plans in China, Riboud said the group has plans
to develop its blockbuster brands in the country, without commenting further.
He also reiterated that the recent termination of a joint venture agreement
with Mengniu Dairy does not affect the companies' agreement to distribute the
Activia yogurt brand.
Concerning Numico, the CEO said the integration process was on track. He
also said a slowdown in fourth quarter sales for Numico's baby food business was
due to a temporary reduction in stock levels to bring them into line with the
rest of the Danone group.
Concerning raw material inflation, Riboud said Danone recorded extra costs
of 40 mln eur last year and anticipates the same figure in 2008, with the burden
already absorbed by previous price increases, he said.
The CEO gave a general figure of 5-10 pct for the price increases
implemented by the group in recent months, with variations depending on the
country and division.
The price hikes have boosted the value component of sales growth compared to
volume, but after a first quarter impact from Jan 1 price rises in countries
like France and Spain, the company expects a "classic balance" between value and
volume growth to re-establish itself in the rest of 2008, Riboud said.
The CEO again stressed the gains achieved thanks to the "simplification" of
its strategy around a small number of core businesses with a health orientation.
He promised that the company would continue to develop its health
positioning, with an overall aim of generating 70 pct of profits from "nature"
as opposed to chemical products.
Danone's recently-announced joint venture with WeightWatchers International
Inc. in China was an opportunity to learn about health issues, he said,
stressing that the company had no plans beyond its Chinese agreement.
Asked about the resignation of Antoine Giscard d'Estaing, announced this
morning, Riboud said that the CFO has other projects and was also unhappy about
not reporting directly to Riboud in Danone's new management structure.
Giscard d'Estaing will be replaced on March 1 by Pierre-Andre Terisse,
currently CFO of cigarette maker Altadis and formerly of Danone, Riboud added.
tfn.paris@thomson.com
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