France's Danone said that it is deconsolidating its Essential Dairy and Plant-based (EDP) business in Russia, triggering a roughly €200 million cash impairment and a non-cash foreign exchange translation difference of about €500 million.
The Russian state this month took control of Danone's Russian subsidiary along with beer company Carlsberg's stake in a local brewer.
Danone will continue to provide information on material developments related to the situation of its EDP operations in Russia, the company said, adding that it would keep investigating how to protect its assets and its rights as a shareholder, with a first priority to ensure its people's safety.
Net sales were up 6.3% on a reported basis in the first half of its financial year, to €14.17 billion, and up 8.4% on a like-for-like basis.
This was driven by a 9.4% increase in pricing and a volume decline of 1.1%, the company said.
'Volatile and Challenging'
"In an environment that remains volatile and challenging, we further built our track record of delivery with a solid first half of the year: like-for-like sales growth reached +8.4%, supported by resilient volume/mix and continued pricing," commented Antoine de Saint-Affrique, chief executive. "Growth remains broad-based, with all geographies contributing."
In the second quarter, like-for-like sales were up 6.4%, with its Europe (+6.5%), China (+9.6%) and Latin America (+10.8%) divisions performing strongest.
"While a lot remains to be done, this makes us look at the future with confidence – this year, we expect to deliver a like-for-like sales growth in the upper end of our +4 and +6% guidance, underpinned by sequential volume/mix improvement in the second half, and moderate recurring operating margin improvement," added de Saint-Affrique.
Commenting on Danone's performance, Barclays analyst Warren Ackerman said, "Danone has delivered a Q2 ahead on group OSG as well as recurring operating margin 12.2% vs consensus at 12.1%. While headline figures by category and geography all look fine or in line, this is the sixth quarter of visible delivery for Danone. The move of guidance to the upper end of their +4-6% range is underpinned by vol/mix improvement in the second half and moderate recurring operating margin improvement.
"We see the increase in investment behind brands that rose by 99bp in the first half, funded by gross margin expansion as a key driver of continued top line growth for the rest of 2023 and beyond. Important to highlight [that] Q2 is the final quarter of Danone's SKU rationalisation programme, and even still they posted a better vol/mix -2.3% (consensus -2.5%) than expected."
Additional reporting by ESM