Danone Model in Motion Franck Riboud Sept 7 th, 2011
2 Disclaimer This document contains certain forward-looking statements concerning DANONE. Although DANONE believes its expectations are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those anticipated in these forward-looking statements. For a detailed description of these risks and uncertainties, please refer to the section Risk Factors in DANONE s Annual Report (which is available on www.danone.com). DANONE undertakes no obligation to publicly update or revise any of these forward-looking statements. This document does not constitute an offer to sell, or a solicitation of an offer to buy, Danone shares.
Danone Model in Motion A unique model Growing our categories and brands Productivities and cash efficiency 3 3
A unique mission, a unique portfolio Fresh dairy Products Developing a well being category worldwide Waters Hydration and elimination Danone worldwide position Baby nutrition Supporting growing children every step of the way Bring health through food to the largest number of people Medical nutrition Nutritional support for persons in fragile health #1 Fresh Dairy Products #2 Packaged water #2 Baby Nutrition #3 Medical Nutrition 4 4
5 Best positioned in fastest growing categories & geographies Fastest growing categories 2010 volume growth by category ~50% sales in emerging markets H1 2011 sales breakdown Baby Nutrition 8.7% Medical Nutrition 6.5% Dairy Waters Savoury Biscuits and Crackers 5.7% 5.0% 4.6% Western Europe 38% Emerging markets Frozen Processed Food 2.8% 50% Sauces, Dressings and Condiments 2.8% Cheese Ice Cream Confectionery RTE Cereals Soup 2.3% 2.0% 1.6% 1.4% 0.8% North America 9% 3% Japan & ANZ Source : Euromonitor & Internal estimate
6 MICRUB: strongholds in emerging markets Sales 2006 2010 proforma Unimilk % group sales mln % group sales Growth MEXICO 5% 1.0 5% INDONESIA 2% 0.9 5% >60% CHINA 11% 0.8 4% RUSSIA 3% 2.0 11% People USA 7% 1.4 8% BRAZIL 2% 0.7 4% Total MICRUB 30% 37% 60%
A strong H1 Objectives Results Sales growth (1) 6-8% 8.7% Trading operating margin around -30 bps (1) -23 bps (1) FCF (2) +8% (1) Like-for-like : Based on constant scope of consolidation (including 12 months Unimilk) and constant exchange rates (2) Free Cash Flow: Cash flow from operations less capital expenditure (net of disposals) and excluding business combinations fees 7
Danone Model in Motion A unique model Growing our categories and brands Productivities and cash efficiency 8 8
Broad based growth across ALL our businesses and geographies Like-for-like sales growth H1 2011 Dairy w/o Unimilk 5.5% Europe w/o Unimilk 3.2% Dairy 6.0% Europe 4.0% Waters 16.2% Asia 19.5% Baby 10.4% ROW 13.6% Medical 9.0% 9
Growing our categories and brands - WATERS Aquadrinks - Growth vs year ago Segment weight (2010, value) Plain sparkling 8% HOD 12% Aquadrinks 21% 59% Plain still PET 2011 launches : Volvic Muscat (Japan) Bonafont hibiscus (Mexico) Mizone «Mango kweni» (Indonesia) Badoit «Fruit bubble» (France) 10 10
11 Growing our categories and brands BABY NUTRITION -9 m 0 m 12 m 36 m Supporting pregnant & lactating women Addressing the special needs of babies Building superiority over non specific food 2011 launches :
12 Growing our categories and brands MEDICAL NUTRITION 2011 launches :
Growing our categories and brands FRESH DAIRY PRODUCTS Danone Per Capita Consumption (kg/yr) & 2005-2010 increases 10.0 8.0 All Danone countries: + 33% pcc growth 2005-2010 6.0 4.0 2.0-13 13
14 Growing our categories and brands FRESH DAIRY PRODUCTS Packaging New channels + 19 pts preference New benefits New segments
Fresh Dairy Products in Russia : major growth area in volume & value Average consumption of Fresh Dairy Products Netherlands 35 France 1 cup a day Germany 30 25 20 Portugal Spain Austria Finland Belgium Norway Sweden Iran Czech R. Bulgaria 1 cup every 2 days 15 10 5 0 Argentina Slovakia UK Poland Hungary Russia Turkey Japan Algeria Canada Chile Ukraine Mexico Italy South Africa Brazil USA Romania Colombia Kazakhstan 1 cup a week Belarus China India 2% 3% 4% 5% 6% 7% 8% 9% 10% * GDP growth PPP 2010-2015 (source EIU) Purchasing Power growth 15*
Danone-Unimilk integration creating a national leader Portfolio Regions Distribution Industrial & supply chain + Focus on Premium and Health Focused on the West Modern retail and Direct RTM Best-in-class practices Focus on traditional with reach to all SELs Focused on the East Presence in traditional channels Large network RUSSIA Belarus Ukraine 16
17 Danone-Unimilk integration creating a national leader Phase 1. Collaboration Phase 2. Integration 7 selected collaboration project in key business areas Identification of most potential areas of Danone and Unimilk best practices implementation Building organization with focus on: - Growth - Profitability - Sustainability Full scope integration Integration milestones : 07/2010 Deal announcement 09/2010 Collaboration initiatives 12/2010 Deal approval 03/2011 Joint Sales Team Pilot Building one company by 2012 One company
18 Unimilk : focusing on mix & profitability improvement Clear short term priorities Segmenting the portfolio FOCUS ON THE RIGHT KPIs PRODUCT MIX S1 like-for-like sales growth Prostokvashino brand 14% S1 2011 Tëma brand 21% S1 2011 Drive efficiency to invest behind brands GROSS MARGIN Trading operating margin 4.05% Integration SYNERGIES -0.65% -2.04% Q4 2010 Q1 2011 Q2 2011
19 Unimilk : focusing on mix & profitability improvement Brand portfolio dynamics Portfolio simplification Example of sku rationalization : Portfolio optimization Focus on Golden SKUs example of Golden SKU :
20 Fresh Dairy Products in US : Danone catching the opportunity 2010 PCC in LB 90.0 Potential : Doubling consumption 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0-22.0 14.0 Almost 2/3 s of all Yogurt Buyers only Buy the Category Once a Month or Less.
Danone performance in US Sales Danone Fresh Dairy Products* Danone* contribution to PCC evolution CAGR +10 % 11.1 11.7 11.7 12.1 14.0 3.7 4.1 4.1 4.4 5.1 2006 2007 2008 2009 21 2010 Total Market Groupe Danone Danone* market share (value) 2005 2006 2007 2008 2009 2010 36.0 35.7 36.7 35.4 35.0 33.1 35.7 35.8 35.3 33.4 34.3 Groupe Danone* *Includes Danone US [Ex-Frusion & LaCreme] & Stonyfield Source: IRI 30.0 Competitor 2006 2007 2008 2009 2010 YTD11
The Greek Phenomenon US Fresh Dairy Products - Market Share by Segment 45 40 35 30 25 20 15 10 5 5.5 12.6 21.9 Core Light Proactive Health Kids Greek 0 2009 2010 2011 YTD Source: IRI 22
Danone s Greek relaunch July 2011 23
24
Activia innovations New Tastes & Formats Entering new distribution channel GREEK STYLE PARFAIT 1oz Crunchy Granola 5oz Creamy Vanilla Yogurt Thick and Creamy Crunchy and Creamy 2oz Real Strawberries FRENCH STYLE Silky and Fruity Fruit Bites on the Bottom 25
Danone Model in Motion A unique model Growing our categories and brands Productivities and cash efficiency 26 26
Input cost at high level and volatile 1000 S&P GSCI Commodity Index 900 800 700 600 500 400 300 200 100 0 Source : Bloomberg 27
Strong productivities the first lever to manage input costs Productivity (1) 2007-2011 ( mln) 516 500 470 Change the Model Stretch the Model 324 H1 246 Innovate and change Do more with less 2008 2009 2010 2011 Buy Better (1) Perimeter = COGS including logistic costs 28
Strong productivities the first lever to manage input costs 2011 Saudi Arabia Recipe - Danette 360 renovation Better product Cheaper recipe Product recipe score beat current (9.5) vs. (9.0) in consumer test Business opportunities to fuel brand growth Better nutrition Less CO2 Meet Nutritional requirements Fat and Energy reduction achieved No new ingredient excepted milk solids -17% CO 2 56 M litres of milk saved 21% water saving 29
Strong productivities the first lever to manage input costs Danone stand-alone before Unimilk Trading operating margin growth Like-for-like -8bps +36 bps +91bps -174bps -53bps +92bps 15.30% Net of +269 pts productivity Margin H1 2010 Leverage & Others Pricing & Mix Input costs Other COGS A&P Margin H1 2011 30
FCF: virtuous model and strong performance Free-Cash-Flow (1) 2,000 1,713 986 1,183 1,427 H1 925 +7.8% vs H1 10 2007 2008 2009 2010 2011 2012 (1) Free cash flow: Cash flow from operations less capital expenditure (net of disposals) and excluding business combinations fees 31
32 Looking forward with confidence
2011 target confirmed H1 2011 Objectives FY 2011 Sales growth (1) 8.7% 6-8% Trading operating margin -23 bps (1) around +20 bps (1) FCF (2) +8% on track for 2 bn in 2012 (1) Like-for-like : Based on constant scope of consolidation (including 12 months Unimilk) and constant exchange rates (2) Free Cash Flow: Cash flow from operations less capital expenditure (net of disposals) and excluding business combinations fees 33