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Danone reports profit slump after false health scare
AFP Danone reports profit slump after false health scare

Paris (AFP) - French dairy food giant Danone reported on Thursday a 15.0-percent slump in net profits last year, blaming a false health scare, high milk prices and currency factors in some emerging markets.

Net profit fell to 1.422 billion euros ($1.95 billion), although sales rose by 2.1 percent to 21.298 billion euros, and by 4.8 percent on a comparable basis.

However, the current operating margin fell by 0.8 percentage points to 13.19 percent.

In October, Danone has issued a profits warning.

The results on Thursday were broadly in line with the picture given then, in the aftermath of a false botulism health scare by its New Zealand competitor and former supplier Fonterra.

This mistaken alert by the supplier caused the recall of baby food and alarmed customers notably in China, where consumers had turned to foreign brands after a local health scare.

Danone said that the various costs arising from this episode had set back operating profit by about 300 million euros, and curtailed sales by about 370 million euros.

The French group, which is seeking damages from Fonterra, says it now needs to focus on rebuilding its brands in China.

Danone is known in various markets for its water under the Evian brand, Danette dairy products and Bledina baby food.

Finance director Pierre-Andre Terisse told journalists that the company began 2014 with fairly clear ideas about priorities and objectives."

Chairman Franck Riboud said in a results statement: "Despite strong headwinds that took a toll on our business, 2013 was a year of solid growth and decisive progress in building Danone's future."

He said: "Several factors affected our results, particularly in the second half: currencies were volatile in emerging countries, milk prices rose steeply around the world, taxes went up sharply, and a false food-safety alert triggered by one of our suppliers had a marked impact on our Early Life Nutrition activities."

Danone said it expected to return to strong, lasting and profitable growth in the second half of this year, saying that 2014 sales would rise by 4.5-5.5 percent and that operating margins would be broadly stable.

The group is counting on three drivers: business in the United States led by Greek yoghurt, activities in Russia, and its bottled water division.

The group also wants to strengthen its performance in Europe by pursuing cost-cutting with the shedding of 900 managerial jobs, and by innovating to stimulate flat consumption.

It also intends to develop in west Africa following its purchase in October of 49.0 percent of Fan Milk which make and distributes iced milk products and juices mainly in Ghana and Nigeria.

The group said that the price of milk rose by 10.0 percent last year, and it would have to act to respond to this.

Terisse said that 2013 was marked by "a complicated, even hostile, environment."

In the last quarter particularly, overall sales had fallen by 3.0 percent, and sales of infant foods by 13.5 percent.

The price of shares in the company was showing a gain of 1.37 percent to 51.66 euros in morning trading.