Danone feels impact of Fonterra infant-formula recall in Asia

PUBLISHED : Thursday, 17 October, 2013, 12:00am
UPDATED : Thursday, 17 October, 2013, 4:06am

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 sales in affected markets would not recover before early next year.

The world's largest yoghurt maker said that 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 [Asia] as early as possible in 2014," chief financial officer Pierre-Andre Terisse said.

Danone shares were down around 5 per cent in early trading, to their lowest level in nearly eight months.

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 scares have boosted demand for foreign formula.

In August, Danone recalled formula products in Asia due to an unfounded health scare stemming from New Zealand-based supplier Fonterra. Danone said that as a result, 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 3 per cent fall.

Danone said the Fonterra recall would cost it €350 million (HK$3.67 billion) in lost sales this year, €280 million in lost margin and €300 million in lost cash.

"We are not yet seeing a recovery in our sales," Terisse said.

Sales to consumers in affected markets last month represented only 40 per cent of their pre-crisis level in July, he said. Elsewhere, growth improved in the quarter at Danone's core dairy division.

Danone said third-quarter group sales rose 4.2 per cent like-for-like to €5.26 billion, a slowdown from 6.5 per cent growth in the second quarter.

In the dairy division, which accounts for about 60 per cent of group sales, revenue grew by 4.6 per cent, up from 2.6 per cent in the second quarter, reflecting double-digit growth in Russia and North America and signs of stabilisation in southern Europe, where product launches and price cuts are starting to kick in.

Sales at its waters division rose 16.9 per cent, helped by the performance of "aquadrinks" in emerging markets and hot summer weather in Europe.