Danone warns of price rise

City A.M. Reporter
FRENCH food group Danone is planning to raise some of its prices this year as well as making productivity gains to help combat an expected rise of up to nine per cent rise in raw material costs, it said yesterday.

The world’s largest yoghurt maker with brands like Actimel and Activia, forecast the price of milk, its biggest raw material cost, will rise five to eight per cent but looked for a small rise in 2011 operating margin, helped by cost cutting in Russia.

The Paris-based group said it expects six to eight per cent growth in underlying sales this year, after a 6.9 per cent rise in the fourth quarter of 2010 and in the full-year, despite higher milk costs and tough economic conditions, especially in southern Europe, like Spain.

Danone’s operating profit margin was unchanged last year at 15.2 per cent and it sees a small rise to 15.4 per cent in 2011.

The shares closed 3.3 per cent higher after the announcement at €45.42, reflecting the group’s confidence in coping with cost increases and setting 2011 sales and margin targets higher than analysts expected.

Chairman and chief executive Franck Riboud anticipated no major change in consumer spending in industrialised and emerging economies, but saw growth in Russia after sealing a merger with Unimilk late last year to make it the country’s leading provider for milk products.

“We will aim to outperform our competitors in organic sales growth, margins and cash generation,” he said in a statement.

Finance director Pierre-Andre Terisse told a conference call: “We are looking at raw material cost increases of six to nine per cent including five to eight per cent in milk.”