Danone Financial Statement Analysis

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DANONE Case
- Financial analysis of Danone group
PENG Bo (e113110) GE Chuxiao(e113051) JIANG Yihong(e113066)

Fiancial Statement Analysis – Danone Case

Agenda
• Introduction
• Capital structure

• Profitability
• Return • Liquidity • Solvency • Conclusions & Recommendations Fiancial Statement Analysis – Danone Case

Introduction of DANONE Group

History

Initiate in 1966, DANONE evolved from the original glass manufacturer to the international leader in fresh diary products.

Mission

“bringing health through food to as many people as possible”

Divisions

the Fresh Dairy Products Division the Waters Division the Baby Nutrition Division the Medical Nutrition Division

Global Approach

The group now represent in all regions in world.

Fiancial Statement Analysis – Danone Case

Introduction

Improvement in the group’s capital structure
Through last half decade, the DANONE Group enjoyed an improvement in its capital structure. The group’s D/E ratio decreased by almost 50% from 1.35 to 0.74. In 2007, a draw-down amount on bank credit facilities of 5173 million dramatically increased the group’s debt level which led to a D/E ratio of 1.35. This ratio continued to increase in 2008 because of shareholders’ equity loss from unfavorable exchange rate fluctuation.

We only include interest-bearing financial debt when calculate D/E ratio

After 2008, the group’s indebtedness greatly improved. In 2009, the D/E ratio sharply decreased to 0.58 because that the firm decidedly revised its financial structure by raising around 3 billion new equity capital and repaying its liabilities. From 2009, the D/E ratio slightly grew back majorly due to the issuance of new bonds. To conclude, the improvement of indebtedness is good for the group, because with a lower D/E ratio, the group can have a better strategic and financial flexibility. Fiancial Statement Analysis – Danone Case

Capital Structure Analysis

Improvement of capital structure from the view of cost of debt Effective interest rate
2007 2.50% 2008 4.11% 2009 4.44% 2010 2.43% 2011 2.67%

From the chart on the right we can see that the effective interest rate can be regarded as a delayed indicator of the group’s debt level. After a continuous increase of D/E ratio in 2007 and 2008, the effective interest rate increased accordingly by nearly 50% in the following 2008 and 2009. We can reasonably assume that the heavy indebtedness of the group increased the potential risk and caused a damage of its credit rating which led to a higher cost of debt.

Effective interest rate is calculated as: interest expense/financial debt

The good news is that with the repayment of debt, the group has recovered from its unfavorable financial situation. And the cost of debt dropped back to an ideal level in 2010 and 2011 which was around 2.5%. This situation was good. With a lower effective interest rate, the group would have more space to raise debt at a lower cost when it is necessary. Fiancial Statement Analysis – Danone Case

Capital Structure Analysis

Increase trend in net sales
From the graph:
 Except for year 2009, Danone keeps a steady growth rate of net sales from 2008 to 2012 .

What happened:
 On a like-for-like basis, 2009 sales were actually up 3.2%, allowing the Group to reach the growth targets it had set.

Hypothesis:
 Increase in net of trade discounts and customer allowances  Increase in costs relating to agreements on contributions to advertising  Increase in occasional promotional actions invoiced by distributors.  Impairment provisions increase because of the raising credit risk on accounts

Conclusion:
 From 2008 to 2011, Danone kept reaching its set growth target in sales which is a good trend.  In 2009 the decrease of net sales may largely resulted from the adjustment of group strategy.

Fiancial Statement Analysis – Danone Case

Profitability Analysis

Not optimistic increase of cost of goods sold...
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