October 18, 2007

 

Danone reports rise in sales, despite woes in China

 

 

French Dairy Group Danone Wednesday (October 17, 2007) said its sales for the first nine months of the year rose 4.4 percent due to the strength of its fresh dairy products division.

 

The improved earnings come despite weak performance of its beverage businesses, its troubles with partners in China and poor summer weather in northern Europe.

 

In a statement, Danone said its sales for the first nine months of the year totaled EUR11.24 billion compared with EUR10.8 billion a year earlier.

 

Third quarter sales exceeded expectations, reaching EUR3.69 billion compared with EUR3.56 billion a year earlier, a Danone's spokesman said. Analysts polled by Dow Jones Newswires expected sales in the third quarter at EUR3.3 billion.

 

Organic growth in the third quarter slowed to 3.9 percent from 9.5 percent in the same year-ago period, below analyst expectations of 4.4 percent.

 

The poorer quarter performance was the result of the unusually poor weather conditions in Europe, Danone's Chief Executive Franck Riboud said in the statement.

 

For the third quarter, sales of fresh dairy products increased 11.9 percent while that of beverages slid 11.7 percent.

 

Danone's sales performance continues to be affected by our dispute with one of our partners at Wahaha, Danone's Chinese beverages business. The dispute concerned license rights with its Chinese partner Hangzhou Wahaha Food & Beverages Sales Co.

 

The sales figure for the beverage business in Asia of the third quarter 2007 include EUR232 million relating to the Wahaha business, Danone said.

 

This figure is an estimate based on information available to the group. As a result of the dispute between the group and one of its partners in Wahaha, access to financial information of this company remains constrained, Danone outlined.

 

Danone and Wahaha have been disputing the Wahaha trademark since April. Wahaha's former chairman accused Danone of being in violation of a non-competition clause for holding stakes in other Chinese food companies.

 

Lawsuits are pending in Sweden, the US and China.

 

Last December, Danone established a 49-51 pct joint venture with Mengniu covering the production and distribution of fresh dairy products in China.

 

Danone also sold its entire 20.1 percent stake in Shanghai-based Bright Dairy & Food Co to the Shanghai Dairy and SI Food for US$127 million this week.

 

A spokesman said that the French group's withdrawal from Bright Dairy 'will leave all options open for developing the sale of fresh dairy products in China.'

 

Excluding the entire Wahaha business from the 2006 and 2007 figures, the third quarter 2007 sales growth would have been down 3.3 percent in Beverages, and up 14.5 percent in Asia, reaching a 7.5 percent growth at group level, Danone said.

 

Danone recorded a 30 percent fall in third-quarter sales from its joint venture with Wahaha in China, but is sticking to its full-year guidance for a 20 percent drop, chief financial officer Antoine Giscard d'Estaing said.

 

The French group expects to experience another sharp fall in the fourth quarter, partly due to tough year-earlier comparisons, he said.

 

The French group said the alliance would notably focus on developing 'high quality dairy products' in the country.

 

Regarding Danone's future in China, Giscard d'Estaing said Danone's model for its dairy business in China is 'under review', with a view to having 'less exposure to partners' in future.

 

Since the start of the year, Danone's share price has lost around EUR3.3 or 5.7 percent due to the concerns about the impact on its sales and earnings of its legal dispute in China.