Danone blames Europe for profit fall

PARIS: Food group Danone SA, a world leader in dairy products, reported a 4.2% fall in net profit in the first six months, saying yesterday that the business climate in Europe was ‘‘very difficult’’.

Although expansion in emerging markets was dynamic it was also volatile, the group which is pushing hard into these fast-growing markets, also said.

Reporting that in its home markets France and more broadly Europe conditions had shown signs of slight improvement in the second quarter, the group said net profit for the first half reached 873 million ($1.16 billion).

However, when the figures were adjusted on a comparable asset basis with performance in the same period of last year, the net figure fell by 1.3%.

Finance director Pierre Andre Terisse told journalists that the setback reflected a fall in operating margins, increased taxation in France, and unfavourable exchange rate changes mainly regarding the Argentinian peso and Brazilian real.

‘‘These are good results which are very much in line with our targets and are even a bit better,’’ he said.

In the first half of the year, sales rose by 5.6% or by 6.0% on a comparable basis to 11.058 billion.

Chief executive Franck Riboud said in a statement: ‘‘Danone confirms its good start to the year in a context of the economy and of consumption which remains very difficult in Europe and sometimes volatile in emerging markets.’’

‘‘However, the business climate in Europe had shown the first signs of stabilising in the second quarter,’’ he said.

Sales rose by 3.5% in a 12-month comparison although they fell by 3.0% on a comparable basis.

The price of shares in Danone was up 2.78% in early trading to 59.11 per share.

Investors were pleased that Danone’s internal growth, meaning on a comparable asset base, had risen faster than expected in the second quarter.

One stock analyst who declined to be named commented: ‘‘Good news. Danone accelerated its growth in the second quarter ... but the outcome of the results does not reflect this and margins are shrinking markedly within the two big divisions in the group,’’ in a reference to dairy products and water.

The group held to its targets for the full year, saying it expected sales to grow by at least 5.0% and its current operating margin to fall by 0.3-0.5%.

At the beginning of the year, Danone launched a programme to cut costs involving the shedding 10.0% of its managers in Europe, or 900 jobs, over two years.

The objective was to return to stable and lasting growth in 2014 by adapting the business in Europe, Terisse stressed.

In the second quarter, the drivers of growth were markets in North America where sales rose by 7.0%, and in the emerging markets of Asia, the Middle East and Latin America where they rose by 18.0%.

Sales by the group’s main division, making fresh dairy products, rose by 4.0% and of bottled water by 9.0%.

Sales of products for babies rose by 12.0%.

Chinese authorities have begun investigations into alleged price-fixing by foreign companies selling powdered milk for babies in China. Before the outcome is known, Danone’s subsidiary in China, Dumex, undertook at the beginning of July to reduce prices for its powdered baby milk by 5.0-20.0%.