Danone lowers goals as Asian recall hits sales

DANONE said yesterday that an Asian recall of infant formula had a worse-than-expected impact on its high-margin baby food division in the third quarter and that sales in affected markets would not recover before early next year.

The world’s largest yoghurt maker said it was cutting its sales, profitability and free cash flow goals for 2013.

“Our priority is to get back on track for strong and sustainable growth in this region (Asia) as early as possible in 2014,” financial chief Pierre-Andre Terisse said.

To counter weakness in Europe, the maker of Bledina baby food and Volvic water has been expanding in fast-growing markets in Asia, notably China, where previous food-safety scares have boosted demand for foreign baby milk formula.

China is an important market for Danone’s baby food division, which accounts for 20 per cent of group sales, making it the No. 2 contributor after dairy. But Danone has faced a variety of problems in China this year.

In July it was hit by a fine and had to cut prices in China after a milk-powder price-fixing probe. Then in August it had to recall infant formula products in Asia due to an unfounded health scare stemming from New Zealand-based supplier Fonterra.

Most recently, two of its units – Dumex in baby food and Nutricia in medical nutrition – faced bribery allegations in China, which the units are investigating.

Danone said that as a result of the Fonterra recall its baby food sales fell 8.6 per cent in the third quarter, reversing a 15.2 per cent rise in the first half. This compares with an average market expectation for a three per cent decline.

Danone said the Fonterra recall would cost it €350m (£295m) in lost 2013 sales, €280m in lost margin and €300m in lost cash.

“We are not yet seeing a recovery in our sales (in the affected markets),” Terisse said.

Sales to consumers in these markets last month represented only 40 per cent of their pre-crisis level in July, he said.

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