Danone reduces 2013 targets after Fonterra whey protein losses

Posted by AFN Staff Writers on 21st October 2013

France-based global dairy company Danone has announced a loss of €350 million in its Baby Nutrition business, and has adjusted its 2013 sales growth targets down to between 4.5 per cent and 5 per cent as a result of the Fonterra whey protein recall in August 2013.

Danone said the recall led to an estimated €170 million in lost sales in the third quarter, with the division showing an 8.6 per cent decline in sales growth and a 7.3 per cent decline in volume.

The Company said action plans to restore sales are being deployed in affected markets and are “generating results effectively but very gradually”. As a result, Danone estimated that the Fonterra whey protein recall incident will have a significant impact on its 2013 results, with full-year lost sales estimated at €350 million, lost margin estimated at €280 million, including €170 million booked as non-current items, and an estimated €300 million loss in cash-flow.

“We are now able to measure fallout from that event clearly, including both the short-term financial impact and the resources and time required to recover our position,” said Pierre-André Terisse, Fonterra’s Chief Financial Officer.

“In the short term, this will weigh on our sales, our operating margin and our cash-flow, which has led us to adjust our full-year 2013 targets,” Mr Terisse said. “Our priority is to get back on track from strong and sustainable growth in this region as early as possible in 2014,” he said.

Australian Food News reported earlier in October 2013 that Fonterra had confirmed it was in dispute resolution talks with Danone, after a why protein concentrate precautionary recall in August 2013, which involved whey protein products from whey protein produced by Fonterra. The batch of whey protein ingredients were thought to contain Clostridium botulinum bacteria.

Danone recalled selected infant formula products from sale in eight markets in the Asian region, but the warning was lifted on 28 August 2013 when tests run by New Zealand authorities found there was no contamination

Australian Food News reported  in August 2013 that an investigation by Fonterra into the whey protein recall had led to the resignation of one Fonterra executive and also saw two other senior managers placed on leave.

Danone sees big profit loss after Fonterra whey protein scare