Danone predicts sales growth will accelerate amid European recovery

French food group Danone said group sales growth would accelerate in 2014 as a recovery in European dairy gathers momentum and that it aimed to return to strong profitable growth from the second half of the year.

The world’s largest yoghurt maker also said it was confident about prospects in China despite accusations there of bribery and overpricing, and it hopes to rebuild its baby food business in Asia after an infant formula recall dented profits.

To reduce its dependence on lower-growth Europe, Danone has been expanding in emerging markets, notably in China, where previous food safety scares have boosted demand for foreign baby milk formula. China now accounts for 20% of its baby food sales, making it the No 2 contributor after dairy.

“Our priorities for 2014 are to continue the recovery in Europe, aiming to stabilise the top line of dairy products in Europe, expand in emerging markets and rebuild positions in baby food in Asia,” chief financial officer Pierre-Andre Terisse told a conference call with journalists.

For this year, Danone set a goal of underlying sales growth of 4.5% to 5.5%. It also said its 2014 operating margin would be stable within a range of 20 basis points lower to 20 basis points higher.

“Danone’s reporting/ guidance was slightly disappointing but it was not a disaster which, after a couple of years of more significant disappointments, is probably good news for Danone,” Bernstein analyst Andrew Wood said.

China contributes 6% of group sales but the producer of Bledina baby food, Evian and Volvic water and Activia and Actimel yoghurt faced a variety of problems there last year.

In July 2013 it was hit by a fine and had to cut prices in China after a milk-powder price-fixing probe.

Then in August it had to recall infant formula products in Asia due to a health scare that began with concerns raised by New Zealand-based supplier Fonterra.

A bacteria found by Fonterra turned out to be less harmful than feared. Danone is now suing the company for unspecified compensation.

Danone said the recall in Asia cost the group €370m in lost sales last year and shaved 26 basis points from its operating profit margin.

— Reuters


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