Food price cuts boost Danone

July 24, 2009
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, PARIS, Jul 24 – Industrial food giant Danone reported on Friday a first-half rise in sales and net profit mainly through price cuts which the group intends to continue at the costs of its profit margins.

The company, the biggest in the world in the milk and mineral water sectors, reported a net profit of 722 million euros (1.0 billion dollars), a rise of 7.6 percent from the comparable figure last year.

Sales rose by 1.6 percent to 7.52 billion euros, at constant exchange rates.

Current operating profit rose by 0.98 percentage points to 16.03 percent owing to a fall in prices for raw materials for milk products and baby foods.

The group stood by its targets for the whole year.

"The challenges for the second half lie in confirming the trend" of a rise in sales and profits, financial director Pierre Andre Terisse told a telephone press conference.

"We have a good start to increasing our results more through sales than through margins," he said.

Sales had risen on aggressive pricing, increased promotions and price cuts, mainly for milk products and mineral waters.

In the second quarter, these policies had pushed up sales in the fresh milk activities by 0.7 percent on a comparable basis. The volume of sales had risen by 2.7 percent but by value they had fallen by 2.0 percent.

Prices were cut in Poland, Hungary, the United States and France, and the company intended to boost promotions in the second half, he said.

Last year, Danone raised prices for its milk products by nearly 10 percent, he recalled.

The latest aggressive policies had also had an effect on mineral waters. In the second quarter, the volume of sales had risen by 4.4 percent but the value had fallen by 4.5 percent.

This market showed an improvement in the second quarter for the first time for two quarters, Terisse said, remarking that he was "cautious" about future performance.

Sales by the baby food division had risen by 7.4 percent in the second quarter.

A capital increase to raise 3.0 billion euros in June had enabled the group to reduce debt by half.

The group stood by its targets for the current year. Net current earnings per share, on a basis of constant exchange rates and asset base, excluding the effect of the capital increase, should increase by 10 percent.

The growth of sales would be a few points below the medium-term target of 8.0-10 percent.

The current operating margin should continue to increase, Danone said.

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