21/06/12

Yoghurt and bottled water maker Danone has adjusted its profitability forecast down in the light of slowing sales in southern Europe.

While the company’s target for sales growth is unchanged at +5-7% - it said that it is performing well in Asia, the Americas, Africa/Middle East and the CIS – it has reduced its trading operating margin by 50 basis points on a like-for-like basis.

This adjustment, said Danone, is aimed at deploying initiatives needed in Southern Europe, while continuing to develop sales and profitability in the rest of the world.

In February, Danone set its priorities for 2012: developing its product categories, pursuing investment in countries with high growth potential (Mexico, Indonesia, China, Russia, the US and Brazil) and supporting operations and brands in Western Europe.

However, Danone now says that, since the end of the first quarter, it has seen a rapid deterioration in consumption in Southern Europe that has proven steeper than anticipated, especially in Spain. Spain is said to account for 12% of Danone’s profits and 7% of its sales.

It is believed that the company has lost market share to cheaper own brands as Spanish consumers react to the country’s ailing economy by trading down.

Danone said that it 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.