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h hassuffered from slack market trends but is nowback to firm growth in many countries. Andlooking at the geographical breakdown ofsales, markets as important for us as Franceand Spain showed renewed pace in 2006 aftergoing through a troubled patch.BUILDINGTHE FUTURE“DANONE is a unique business thathas built its success on being different.And that difference also holds the keyto our future.”FRANCK RIBOUD,Chairman and Chief Executive Officer, Groupesales.Number 1 worldwide infresh dairy productsNumber 2 worldwide inbottled waterNumber 2worldwide inbiscuits and cereal productsIn 2006, DANONE posted continued growth, beating targets forthe year. This strong performance will underpin management’s drive tobuild the business of the future, accelerating moves into new marketsand stepping up the pace of innovation, while at the same time testingnew business models. CEO Franck Riboud reviews highlights ofthe year and looks at what the future holds.
You have revised your target for organicgrowth, setting it higher for the mediumterm. What are the reasons behind suchconfidence?F. R.: Feeling confident doesn’t mean thatwe can take anything for granted. We’regoing to keep our eye very much on the ball.But there are also good reasons for confidence.First of all there is the geographical balancein our business, with half of our sales outsideWestern Europe and a third on emergingmarkets.That means that our growth is notdependent on ups and downs in any one partof the world—with our broad geographicalbase,we can make up for the temporary lullsthat are inevitable on any market.Secondly, a growing number of countriesare reporting very strong growth.When youlook at DANONE’s markets you see that thesubsidiaries posting the strongest growth—that is, above the 8% at the top end of ourtarget range—are making an increasinglyimportant contribution to sales. In 2006 theyaccounted for over half the total. That willautomatically generate momentum overtime, which is cause for confidence. Andour shareholders and investors appear toshare our feeling, since DANONE sharesgained over 30% last year.Pushing into new markets and steppingup organic growth—doesn’t that weigh onprofitability?F. R.: Well, our operating margin was upfor the 12th year running in 2006, which Ithink speaks for itself. It is a clear sign of alastingly sound business base; proof thatour growth, however strong, is under firmcontrol and is not at the expense of profitability.Which is essential—if growth weren’tprofitable it couldn’t be lasting, since wewouldn’t be able to fund it for long.That said, our business model is deliberatelydesigned for growth.We are not going to sacrificegrowth, and with it our future, so as togive margin a temporary, artificial lift. Notthat it would be hard—we could add a fewbasis points simply by cutting a few weeks’worth of advertising at the end of the year.But that would be putting our future at risk.What we have to do is strike the rightbalance between improving our profitabilityand growing our sales. I think we havebeen successful in doing just that, and itshows in our financial targets for 2007. Weexpect sales to grow 6 to 8% and operatingincome to rise by between 7 and 10%. Weare thus looking forward to firm sales growthand a slightly higher rise in earnings.Whichshows, first, that we are not growing at theexpense of profitability and, second, thatimproved profitability is not hamperinggrowth and investment.What are the main priorities in Danone’sstrategy?F. R.: We have