Danone bets on babies in Mexico, Russia

PARIS Thu Sep 15, 2011 10:33am EDT

General view inside the exhibition to mark the 90th anniversary of the French foods company Danone which is best known for it's yoghurt, in Paris April 2, 2009. REUTERS/Jacky Naegelen

General view inside the exhibition to mark the 90th anniversary of the French foods company Danone which is best known for it's yoghurt, in Paris April 2, 2009.

Credit: Reuters/Jacky Naegelen

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PARIS (Reuters) - French food group Danone (DANO.PA) is mulling entering the baby food market in Mexico as it looks out for acquisitions in fast-growing markets, its finance head said, remaining tight-lipped on rumored interest in Pfizer's (PFE.N) Wyeth unit.

Danone, which recently confirmed its financial goals for 2011, has "no particular worries" about its business despite a tough economic climate, Chief Financial Officer Pierre-Andre Terisse added in an interview on Thursday.

Danone wants to expand in six markets growing at double-digit percentage rates -- Mexico, Russia, Indonesia, China, the United States and Brazil -- that make up 37 percent of group revenue. Danone makes half its total sales in emerging markets.

"In terms of acquisitions, we are keeping an eye on everything that's going on worldwide and we try to assess how opportunities that arise match our development needs," Terisse told Reuters. "We do this all the time and will continue to do so without it being an obsession."

Terisse would not comment on market talk that Danone was looking at Pfizer's (PFE.N) Wyeth baby formula business after having bought Dutch baby food maker Numico in 2007 for 12.3 billion euros ($16.8 billion).

A banking source close to the situation told Reuters last month that European food groups Nestle (NESN.VX) and Danone were the early front runners working on bids for Wyeth worth up to $10 billion.

Danone competes with Nestle and Unilever (ULVR.L) and owns international brands such as Activia yoghurts, Evian and Volvic waters, and Bledina baby food. It had 2010 sales of 17 billion euros and has a market value of 28 billion euros.

In Mexico, which accounts for 5 percent of group sales, Danone is already present in dairy, as well as in water with the Banafont brand.

"We are looking at the possibility of entering the baby food market in Mexico," Terisse said. "It's a priority market."

Danone is the world number 2 in baby food, a sector that makes up 20 percent of group revenue and whose growth has been driven by double-digit increases in the Asia-Pacific region, with Indonesia and China key contributors.

The group has been making targeted acquisitions in baby food, the latest in India last month with the purchase of the nutrition business of Indian group Wockhardt (WCKH.BO) for about 250 million euros.

The acquisition secured Danone a market share of 10 percent in Indian nutrition against the 50 percent that leader Nestle commands.

"We have ambitions in India, which is a very small market for Danone. It's less than 1 percent of turnover... We will look at opportunities to develop in a smart way," Terisse said.

RUSSIAN OPPORTUNITY

In Russia, where the world's largest yoghurt group last year merged with local dairy company Unimilk, securing 21 percent of the fast-growing Russian dairy market, Danone sees strong potential to expand in fresh dairy products for children.

"Unimilk has a brand called Tema, which should play an important role in the coming years. It is positioned in fresh dairy for children. We want to develop it as we think it has an extremely strong potential," Terisse said.

Russia is now Danone's top market, on a par with France, making 11 percent of group sales.

Unimilk suffers from higher milk costs and has also cut some products, which resulted in a second-quarter fall in group dairy volumes.

Danone has said it is focusing on improving Unimilk's product mix and profitability rather than growing volumes this year.

"We are preparing the brand portfolio to re-accelerate sales growth from the start of next year. We have a real potential to develop that category (dairy) in volume and in value," Terisse said.

Asked about the trend for milk prices in Russia, he said: "Prices remain above the year-ago level but have come off their peaks. Meanwhile we have set up processes to gain in productivity."

($1 = 0.731 Euros)

(Editing by James Regan)

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