October 18, 2013

After the major impact of the recall of infant formula products in Asia, Danone has changed its targets for 2013.

Danone's sales in the third quarter were up 4.2%, despite the recall and unfavourable exchange rates, and they're confident in a full recovery, although not necessarily this year.

The French company has adjusted its 2013 targets to sales growth of between 4.5% and 5%, trading operating margin down -0.8 percentage points and free cash flow between €1.5 billion (US$2 billion) and €1.6 billion (US$2.2 billion). This compares to Danone's original targets which were to see sales growth of at least 5%, trading operating margin down by between -0.5 percentage points and -0.3 percentage points, and free cash flow of around €2 billion (US$2.7 billion).

The company said it would take longer than anticipated to recover from the recall of certain baby formula milk products after Fonterra issued a false alert, triggering significant losses in sales, earnings and cash-flow. Chief financial officer Pierre-Andre Terisse said "our priority is to get back on track for strong and sustainable growth in this region (Asia) as early as possible in 2014".

The company's shares remain down 3.9%, after falling this morning - a marked fall for European blue-chip stock. It said it was seeking full compensation from New Zealand-based supplier Fonterra.

This is not the first time the company has received a knock this year when it comes to Asian divisions. Its baby food division in China, accounting for 20% of group sales, was hit by a fine and had to cut prices following a milk powder price-fixing probe, prefacing the unfounded health scare initiated by Fonterra.

Danone said the recall meant its baby food sales fell 8.6% in the third quarter, reversing a 15.2% rise in the first half of the year, compared with analysts' average forecast for a 3% decline.