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| 07/27/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 First-Half Results | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Solid +5.9% growth in sales in H1 2012, driven by emerging markets Trading operating margin of 13.85% (-61 basis points) New full-year targets for 2012 confirmed
[1] Net sales Chairman's comment ''The consumer environment definitely got tougher in Europe, particularly Southern Europe, in the first half of this year. At Danone, we moved quickly to manage this new situation in line with our strategic priorities: strengthening our brands and pursuing sustainable, profitable growth. Key financial data in H1 2012
[1] See Note 2 of consolidated financial statements at June 30, 2012 concerning restatement of consolidated accounts published on June 30, 2011 Sales by business line and geographical area in Q2 and H1 2012
Overview of sales performance – H1 2012 Consolidated sales increased +7.7% to €10,475 million in the first half of 2012. Excluding the impact of changes in the basis for comparison, which include exchange rates and scope of consolidation, sales were up +5.9%. This organic growth reflects a +2.2% increase in sales volume and a +3.7% increase due to the price/mix effect. Overview of sales performance – Q2 2012 Consolidated sales increased +7.8% to €5,359 million in the second quarter of 2012. Excluding the impact of changes in the basis for comparison, including changes in exchange rates and scope of consolidation, sales were up +5.0%. This organic growth reflects a +2.1% increase in sales volume and a +2.9% increase due to the price/mix effect. The +2.8% exchange-rate effect reflects favorable trends in currencies including the Chinese yuan and the US dollar. Fresh Dairy Products The price/mix effect declined from the first quarter as the impact of price increases introduced in the first part of 2011 tapered off in most countries. Sales in Europe were down this quarter, affected by a rapid deterioration in consumer demand in Southern Europe, particularly Spain. Sales in Latin America and the Africa-Middle East region remained extremely robust with continued double-digit growth. The CIS region and North America are on track for their plans and second-quarter sales were up once again in both volume and value. The CIS confirmed its return to a growth model built on balanced gains in volume and value. Volume growth continues to expand whereas the impact of price increases introduced in early 2011 faded. Initiatives aimed at activating key Unimilk brands are producing the expected results. Children's brands and Bio Balance reported double-digit growth in the first half of 2012, as did Prostokvashino, which remains the top contributor to growth. In the United States, the Oikos brand continued to win market share in the very fast-growing Greek yogurt segment, strengthening Danone's leading position in fresh dairy products overall. The Group is heading into the second half of 2012 with additional production capacity and ambitious plans for innovation. Waters Both volumes and mix were adversely affected by the high basis of comparison established in Q2 2011, when demand was boosted by the earthquake in Japan as well as very favorable weather in Western Europe and Latin America. In contrast, Western Europe experienced poor weather in the second quarter of the current year. The division's structural trends nonetheless remain solid, with double-digit growth in emerging markets. Growth in value continues to benefit from the positive price/mix effect of aquadrinks, as well as past price increases in emerging countries, starting in the second quarter of 2011, even though the impact is starting to taper off. Baby Nutrition The growing-up milk segment reported double-digit growth once again, while weaning foods continued to decrease. Strong growth in value shows a balanced distribution between the favorable growth mix by product and geographical market on the one hand, and the impact of price increases on the other. All regions are up; with Asia, the Middle East, Turkey and the United Kingdom remaining the division's prime drivers. Medical Nutrition As in the previous quarter, main contributors are China, Brazil, Turkey, the United Kingdom and the Netherlands. Market conditions nonetheless remain tough in Southern Europe and North America. All product categories gained ground, with pediatric care including the Neocate and Nutrini brands and the division as a whole once again showing above-average growth. Trading operating margin[1] of 13.85% down -61 bps like-for-like[2] from the first half of 2011
[1] See pages 8 and 9 for details on calculation of financial indicators not defined in IFRS Danone's H1 2012 trading operating margin is down -61 bps like-for-like at 13.85%. This decrease mainly reflects raw material costs that are still high compared with the first half of 2011, which benefited from hedging, particularly for packaging and powdered milk. Moreover, the cost of some raw materials - including whey, milk proteins, fruit and sugar - continued to outpace our projections. Ongoing initiatives to optimize costs generated savings of a significant €246 million in the first half, partially offsetting the rise in raw materials. Moreover, the decline in sales in Southern Europe, plus the additional resources deployed to support consumption in this region, cut profitability significantly, and higher margins outside Europe, where investment programs were maintained, did not entirely offset the decline. Advertising expenses held steady in the first half of 2012 to keep Group brands' profile high. Expenditure on digital marketing continues to grow apace. The Group also continued to invest heavily in other growth drivers, in particular in its sales force and R&D costs, which increased over 10%. Underlying fully diluted EPS[1]rose +2.5% like-for-like[2]to total €1.51 in the first half of 2012
[1]See pages 8 and 9 for details on calculation of financial indicators not defined in IFRS The balance of other operating income and expense was -€40 million, reflecting in particular charges relating to the integration of Unimilk. The cost of net debt declined compared with the first half of 2011, due primarily to the positive impact of managing our bond financing and, to a lesser extent, the decline in interest rates. The change in other financial income and expense results primarily from a rise in the cost of hedging exchange rates for emerging economies. The underlying tax rate[1]for the first half of 2012 was 26.7%. Net income from companies consolidated on an equity basis is up, reflecting the higher profit of our associates in Asia and in the Africa-Middle East region in the first semester of 2012. Underlying net income, Group share, increased by +4.3% as reported to €911 million, or a like-for-like increase of +2.1%. Underlying net income per share after dilution was +4.7% higher than in the first half of 2011 at €1.51, and up +2.5% like-for-like. [1]See pages 8 and 9 for details on calculation of financial indicators not defined in IFRS Financing Free cash flow[1] stood at €890 million, or 8.5% of sales. This is a -3.8% decline from the first half of 2011 and was due to a very steep +23.4% rise in capital expenditures, against a low basis for comparison in H1 2011 resulting from a marked concentration of 2011 investments in the second half of the year. [1]See pages 8 and 9 for details on calculation of financial indicators not defined in IFRS [1]See pages 8 and 9 for details on calculation of financial indicators not defined in IFRS Adjustment in 2012 financial outlook (from press release issued June 19, 2012) In February this year, Danone set clear priorities for 2012: developing its product categories, pursuing investment in countries with high growth potential, particularly those that Danone calls ''MICRUB[1]'' and supporting operations and brands in Western Europe. Since the end of the first quarter, the Group has faced a swift deterioration in consumption in Southern Europe that has proven steeper than anticipated, especially in Spain. In these markets, Danone has chosen to respond with a combination of support for its brands and steps to make its products more competitive. In addition, inflation in the Group's raw material costs has been stronger than anticipated since the beginning of the year. As a result, the Group has decided to adjust its targets for 2012 as follows: • the target for sales growth is unchanged at +5-7% on a like-for-like basis[2], with the robust performance of operations in Asia, the Americas, Africa/Middle East and the CIS continuing to help offset pressure on Western Europe [1]Mexico, Indonesia, China, Russia, the US and Brazil
Key financial transactions and events in H1 2012 (from press releases issued in the past quarter) On May 30, 2012, Danone announced the successful launch of its first US bond issue in an amount of $850 million and maturing in ten years. On June 27, 2012, Danone announced it was raising its interest in Centrale Laitière du Maroc from 29.2% to 67.0% by acquiring part of SNI's shareholding for a total €550 million[1], thus becoming the majority shareholder. [1] or 6,050 million dirhams, equal to €550 million at an exchange rate of 11 dirhams / 1 euro. Change in Danone SA shareholder base in Spain On July 26, Danone completed the purchase from two minority shareholders of a total 1,416,368 shares of its subsidiary Danone SA (Spain), raising its equity interest from 57.05% to 65.62%. These acquisitions were made through a cash payment of €91.5 million plus the contribution of 6,110,039 Danone treasury shares earmarked for external growth initiatives and representing around 0.95% of Danone's total share capital. An equal number of shares will be purchased over the next three months by the Group as part of a share buyback program to offset dilution caused by this transaction. The two minority shareholders receiving the Danone shares in exchange for their interests in Danone SA (Spain) have undertaken to hold these shares for a minimum of three years. This operation will be accretive for Danone net earnings per share from the first year and will have a positive €81 million[1] impact on Group debt. Following the transaction, put options granted by the Group to other Danone SA (Spain) minority shareholders are recorded in Group accounts as financial debt in an amount of €1,693 million. Discussions are now under way with remaining minority shareholders. These discussions may or may not lead to an agreement. [1]Based on a price of €47.15 per Danone share, corresponding to the opening price on July 26, 2012. Financial indicators not defined in IFRS Information published by Danone uses financial indicators that are not defined by IFRS. These are calculated as follows: Like-for-like changes in net sales, trading operating income, trading operating margin and net income - Group share essentially exclude the impact of: (i) changes in exchange rates, with both previous year and current year indicators calculated using the same exchange rates (the exchange rate used is a projected annual rate determined by the Group for the current year), and (ii) changes in consolidation scope, with previous year indicators calculated on the basis of current-year scope. Trading operating income is defined as the Group operating income excluding other operating income and expense. Other operating income and expense is defined under Recommendation 2009-R.03 of the French CNC, and comprises significant items that, because of their exceptional nature, cannot be viewed as inherent to current activities. These mainly include capital gains and losses on disposals of fully consolidated companies, impairment charges on goodwill, significant costs related to strategic restructuring and major external growth operations, and costs related to major litigation. Since application of IFRS 3 (Revised), they have also included acquisition fees related to business combinations. Underlying net income attributable to the Group (or current net income - Group share) measures the Group's recurring performance and excludes significant items that, because of their exceptional nature, cannot be viewed as inherent to the Group's current performance. Such non-current income and expense mainly include capital gains and losses on disposals and impairments of non fully-consolidated equity interests and tax income, and expense related to non-current income and expense. Non-current net income-Group share is defined as non-current income and expense excluded from Net income-Group share.
[1] See Note 2 of consolidated financial statements at June 30, 2012, concerning restatement of consolidated accounts published on June 30, 2011
Underlying fully diluted earnings per share or underlying net income per share after dilution is defined as the underlying net income over diluted number of shares ratio.
[1]See Note 2 of consolidated financial statements at June 30, 2012, concerning restatement of consolidated accounts published on June 30, 2011 Free cash flow represents cash flows provided or used by operating activities less capital expenditure net of disposals and excluding acquisition costs related to business combinations (since the application of IFRS 3 (Revised).
[1]See Note 2 of consolidated financial statements at June 30, 2012, concerning restatement of consolidated accounts published on June 30, 2011 Net financial debt represents the net debt portion bearing interest. It corresponds to current and non-current financial debt (i) excluding Liabilities related to put options granted to non-controlling interests (ii) net of Cash and cash equivalents, Short term investments and Derivatives - assets.
Our presentation to analysts and investors will be broadcast live at 9.30 am (Paris time) this Friday, July 27, 2012. Related slides will be available on our website (www.finance.danone.com) from 7.30 am (Paris time) today.
FORWARD-LOOKING STATEMENTS This press release contains certain forward-looking statements concerning Danone. Although Danone believes its expectations are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and APPENDIX – Sales by division and by region
[1] Like-for-like; see pages 8 and 9 for details on calculation of financial indicators not defined in IFRS
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