May 18, 2017 / 5:48 PM / 2 months ago

UPDATE 1-Danone eyes 2020 operating margin of above 16 pct

4 Min Read

* Eyes 2020 l-f-l sales growth of 4-5 pct

* Eyes 2020 operating margin above 16 pct of sales

* Reiterates 2017 goals (Adds details from statement)

By Dominique Vidalon

PARIS, May 18 (Reuters) - French food group Danone said it banked on synergies from its acquisition of U.S. organic food producer WhiteWave and on a one billion euro cost-cutting plan to lift its recurring operating margin above 16 percent of sales in 2020.

The world's largest yoghurt maker made the forecast in a statement issued on the last of a two-day seminar in Evian, eastern France, to detail its long-term strategy.

Danone also said it targeted overall like-for-like sales growth of between 4 percent and 5 percent in 2020 against 2.9 percent in 2016. Its operating margin stood at 13.77 percent last year.

Danone unveiled in July 2016 plans to buy WhiteWave - maker of Silk almond milk and Earthbound Farm Organic salad - in its largest acquisition since 2007, a move it said would double the size of its U.S. business. The deal finally closed on April 12.

Whitewave's products have outperformed mainstream packaged food businesses in recent years as they are in line with a consumer shift toward natural foods and healthier eating and should help Danone as it struggles with challenging conditions in dairy in Europe and babyfood in China.

Danone said on Thursday that it will generate $300 million in synergies in 2020 at recurring operating income level from the WhiteWave acquisition.

The 2020 overall sales growth forecast included sales growth above 5 percent for Danone's Essential Dairy & Plant-based (EDP) division NORAM, which includes its North American dairy business and Whitewave's former North American business.

Danone also eyed sales growth of 3-4 percent for its Essential Dairy & Plant-based (EDP) international, which includes its dairy products in the rest of the world as well as WhiteWave's former business in Europe, Latin America and China.

Danone has faced tough market conditions in Spain and problems with the relaunch of its Activia brand in Europe, which held back dairy sales growth in the final quarter of 2016, while pressures in the Chinese market have weighed on baby food sales.

This led Danone to unveil in February plans to cut costs by 1 billlion euros over the next three years.

The savings plan - called "Protein" by Danone - aims to cut spending on marketing and general expenses such as corporate travel, and will be partly used to fund future growth.

Danone said on Thursday that at least 300 million euros net of reinvestment will fall into its margin expansion by 2020.

Danone also said it will focus on growing its free cash flow to deleverage its balance sheet and improve its Return On Invested Capital, targeting a level of 12 percent in 2020.

The WhiteWave acquisition led Danone in April to raise its forecast for 2017, saying it was now targeting double-digit recurring EPS at constant exchange rates and moderate like-for-like sales growth for 2017.. It confirmed these forecasts on Thursday. (Reporting by Dominique Vidalon; editing by John Irish)

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