letter to shareholders December 2007

Dear shareholders,

As 2007 draws to a close, a new adventure starts for . With the arrival of Numico and the sale of the Biscuits division in 2007, another stage in the history of the Group has begun. We can already be certain that 2007 will feature among the important dates in DANONE’s history, as it paved the way for new opportunities and laid the ground for the Group’s development for the next ten years. With Numico, we intend to build a new DANONE, one that is more coherent, balanced and scientific, and at the same time more demanding. Our aim is to manage four highly coherent business lines, all of which will contribute fully to the Group’s mission to “bring health through food to the largest number of people, throughout their lives”. Geographically, the Group will be even more balanced, with no country in the world representing more than 13% of overall Group sales. This means we will be able to spread risks even more effectively, while at the same time reducing our dependence on certain markets. We will also be discovering a new business, clinical nutrition, one that will help strengthen our health positioning. Therefore more health but also more science. By combining DANONE Research and Numico Research, we will be in a position to draw on an unrivalled R&D potential and stock of scientific expertise for our business lines. Finally, the new DANONE will continue to provide food for men and Results P. 2 women throughout a major part of the planet. This is a magnificent responsibility. It enables us to make an extremely outstanding contribution DANONE & Numico P. 4 to the world, and will undoubtedly prompt us to deepen our social News P. 6 and environmental commitments. Sincerely, Key figures P. 8 Franck Riboud Results Sales for the first nine months of 2007 11,241 million euros

2007: earnings growth meets annual targets

Over the first nine months of the year, consolidated Chinese partner to find a lasting solution to the conflict. DANONE sales rose 7% on a like-for-like basis, to Despite this, earnings achieved by the Group are in line 11,241 million euros. with 2007 objectives. • Organic sales growth for Q3 (+3.9%) was affected by poor weather conditions and the conflict with Wahaha in China. Nevertheless, the Group has confirmed its objectives for 2007 with organic growth of between 6% and 8% and a rise in trading operating margin of at least 20 Sales growth* basis points. At constant exchange rates and consolidation (first 9 months of 2007) scope, DANONE achieved growth of +3.2% in Europe, -9.7% in Asia and +17.1% in the rest of the world in Q3. The Fresh Dairy Products business continued to post By business division Fresh Dairy Beverages Biscuits Group double-digit growth (+11.9%), driven in particular by its Products blockbusters, sales of which grew almost 20%. Soaring raw materials prices were offset by price rises in every region of the world. Growth rates in France and Spain were moderate, a reflection of their high base levels of

comparison, while the rest of Europe continued double- + 11.7% - 1.1% + 5.7% + 7.0% digit growth. Sales in Latin America and North America rose 15%. The Blédina brand achieved growth in excess By region of 10%. The Biscuits division, whose sale was completed + 17.0% on 30 November, also achieved good results in Q3 (+6.6%). The Beverages business (-11.7%) was impacted by exceptionally unfavourable weather conditions during the peak sales period in Europe. In France, Group market share remained stable in a bottled water market that fell + 6.3% + 7.0% 20% over the period. The rest of Europe performed in a similar way, with gains in market share for the Group in E - 2.7% T T OF WORLD

Spain, Belgium and Poland. Loss of sales from Wahaha IA ES UROP S E R GROUP (-30% in Q3) also badly affected growth in the Beverages A division. DANONE is pursuing negotiations with its * At constant exchange rates and consolidation scope.

02 letter to shareholders December 2007 Group results

Quarterly growth in sales 2007

1st quarter 2nd quarter 1st half 3rd quarter 9 months

By business division 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007

Fresh Dairy Products +9.5% +12% +8.5% +11.2% +9% +11.6% +9.2% +11.9% +9.1% +11.7%

Beverages +11.8% +9.1% +12.4% +0.9% +12,1% +4.7% +14.9% -11.7% +13.1% -1.1%

Biscuits & Cereal products +3.5% +4.3% +4.4% +6.3% +3.9% +5.3% +0.3% +6.6% +2.8% +5.7%

1st quarter 2nd quarter 1st half 3rd quarter 9 months

By region 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007

Europe +4.3% +8% +4.7% +7.7% +4.5% +7.8% +5.3% +3.2% +4.8% +6.3%

Asia +17.9% +8.4% +17.7% -5.6% +17.8% +1.1% +20.1% -9.7% +18.5% -2.7%

Rest of world +16.5% +17.2% +15.6% +16.6% +16% +16.9% +14.9% +17.1% +15.6% +17%

Groupe +9% +10.1% +8.9% +7.3% +9% +8.6% +9.5% +3.9% +9.1% +7%

1st half 1st half Variation Key figures (in millions of euros) 2006 2007 Sales Consolidated sales 7 ,217 7, 553 + 8.6%* Trading operating income 972 1, 055 + 8.6% for Trading operating margin 13.46% 13.97% + 47 pb* first 9 months of Net income from continuing businesses 614 663 + 8,1% 2007 Group share of net income 704 656 (on a like-for-like basis) Diluted net earnings per share* (in euros) 2.50 1.38 + 10.1%

Free cash flow** 732 631 Shareholders equity (including minority interests) 5,455 5 ,937 + 7.0% Net financial debt 3,411 3 ,365

* At constant exchange rates and consolidation scope. ** Cash flow - Changes in working capital requirements - Industrial investments (net of cash from sales).

DEcembER 2007 letter to shareholders 03 group news

Shaping the new DANONE

On 23 November 2007, the closing date for the reopening period of the bid, DANONE held 98.4% of Royal Numico’s ordinary shares. A refocusing on fast-growing and health- oriented businesses with a product offering that covers every life stage, the shaping of the “new DANONE” has begun. The integration of Numico into DANONE will modify the structure of the Group which The acquisition of Numico will enable DANONE to become leader in the baby food market in Europe and henceforth will be structured on the basis number two worldwide. of four divisions: Fresh Dairy Products (around 52%), Beverages (around 26%), Baby Food (around 17%) and Clinical rather than competition. The integration of births in the country: 16 million a year, Nutrition (around 5%). This acquisition will Numico will enable DANONE to provide as many as in Europe, the United enable DANONE to become leader in a wider range of products. While Numico States and Latin America combined… Europe and number two worldwide in is specialised in baby foods, Blédina has The attractiveness of the baby food market the baby food market, as well as a major been innovating over the last year with a resides in its high level of profitability and global player in the clinical nutrition market. range of foods that targets the 18 months- considerable growth potential. This can 3 year age children. be seen from Numico’s sales in this Complementarity Complementarity is also in play at the sector which grew by 12.2% in 2006 on a in baby food geographic level. Blédina is the leader like-for-like basis. Furthermore, according In the baby food market, DANONE is in France and Belgium and is also pres- to the Actimed Institute, forecast world already a recognized player thanks to ent in the Maghreb. Although Numico’s growth is estimated at 21% by 2010. Blédina. Its penetration of this sector is baby food division generates the majority The context is favourable as the number now set to grow as baby food is the main of its sales in Western Europe, it is also of births throughout the world is likely activity of Numico. With five leading brands, well established in high potential markets to continue to increase in parallel with Nutricia, Cow & Gate, Milupa, Mellin and such as Poland and Turkey. In the Asia- higher disposable income, in particular in Dumex, Numico offers products in two Pacific region, Numico imposed itself emerging markets. And in mature markets segments, children’s milks and weaning as number one in Indonesia and China such as Western Europe, demand will foods (mainly cereals and prepared dishes). in 2006. The potential of the Chinese continue to increase thanks to innovation Blédina’s products offer complementarity market is reflected in the number of and high-quality products. The prospects

04 letter to shareholders December 2007 DEcembER 2007 letter to shareholders 05 Numico group • 13, 000 staff news • 2006 sales: 2,623 million euros • 2006 sales split by sector 72%: Baby Food 28%: Clinical Nutrition • 2006 Sales split by region Western Europe: 56.1% Eastern Europe: 13.9% Asia-Pacific: 24.7% Rest of the world: 5.3% • Leading brands Nutricia, Cow & Gate, Milupa, Mellin, Dumex, Pfrimmer and SHS

for DANONE’s baby food business are The “new DANONE” therefore excellent, particularly as private labels are inexistent in this sector. Sectors Geographic split Clinical Nutrition A new business sector: 5% Western clinical nutrition Baby Food Rest of the Europe Clinical nutrition targets those that 17% world 48% have difficulty in eating normally or 22% who are following a special diet (food allergies, metabolic illnesses etc.). The 26% 52% division develops health products that Fresh are distributed under medical control. Dairy Asia- 19% 11% Eastern Beverages Numico for example provides feeding Products Pacific Europe tubes for patients that are unable to nourish themselves. Other product ranges provide support for persons Many patients or senior people are The company devotes 3% of its investments with nutritional deficiencies such as inadequately nourished. In France, to R&D. At the same time, Numico’s diabetics. Lastly, certain products 450,000 persons of more than 65 years baby food and clinical nutrition businesses target specific illnesses such as HIV, of age suffer from undernourishment. will benefit from DANONE’s expertise in paediatric illnesses and Alzheimer’s, A television campaign on this subject marketing. Numico’s brands will therefore with the aim of relieving or retarding has helped increase the sales of two reach a wider public and the company will symptoms. Numico has a leadership of Numico’s products, Fortimel and be in a better position to explain the health position in the clinical nutrition market Forticreme. benefits of its products. Not to mention in the majority of European countries, work aimed at improving the taste and as well as Russia, China and Brazil. Exchange of best practices texture of products which will facilitate Population ageing, the spreading of With expertise in the medical domain progress in combining nutrition, health and illnesses such as obesity and diabetes, and a specialised distribution network in pleasure. a result of poor eating habits, and the drug stores, the acquisition opens up increasing attention paid to nutrition, opportunities for DANONE in the health are all factors that are likely to underpin area. The Group is also likely to benefit from the growth potential of this sector. Numico’s substantial R&D capabilities.

04 letter to shareholders December 2007 DEcembER 2007 letter to shareholders 05 group news

DANONE Danone Russia included in the DJSI Water schools Increasing For the protection of wetlands production to keep DANONE’s stock has again been selected up with demand for the DJSI (Dow Jones In Russia, the Tchékov Sustainability Index) in 2007. fresh dairy products plant The DJSI comprises the best expansion project is companies in terms of eco- coming to an end. Work at nomic, social and environmen- the plant will be completed tal performance. Some in 2008, tripling production of the fastest progress made capacity to 400,000 tonnes. by the Group has been in the A decision amply justified by areas of risk management, increasing demand. With business conduct principles, 500 million euros of sales, brand management and devel- Danone Russia is in second opment of human resources. position in the fresh dairy products market and generates 82% of its sales “Nobel Prize” from its four leading brands. A for nutrition success that can be explained by the fact that Danone The protection of water resources lies at the heart The 2007 International has adapted its products to of DANONE’s endeavours in favour of social and Danone Nutrition the local context and to the environmental responsibility. DANONE and have prize was awarded tastes and habits of Russian signed the Ramsar International Convention. This inter- to Professor Jeffrey consumers. Kéfir* for governmental treaty, under the auspices of UNESCO, Friedman for research example represents 20% of aims to help protect wetlands throughout the world. contributing to the fight sales of the Activia brand range It was in this context that Evian created the water protection against obesity. Considered in Russia. As far as publicity is schools. Their objective is to help local communities manage by scientists as the “Nobel concerned, advertisers derive water resources in a sustainable and autonomous manner. for nutrition”, the prize their inspiration from Russian The project is supported by an international network of worth 120,000 euros is culture and work with local experts who will adapt their knowledge to the traditional awarded every two years celebrities. An approach that know-how of local inhabitants. The first three water protection to a researcher or research has borne fruit: between 2005 schools were created in 2008 in Nepal, Thailand and Argentina. team whose work in the and 2007, Danone Russia area of nutrition has made grew by 62%.

a major contribution to * Kefir is a traditional Russian drink derived from the fermentation of milk public health. and kefir grains.

06 letter to shareholders December 2007 group news

Egypt, Danone Evian, takes n° 2 spot in Wimbledon’s official Involving dairy products Evian has become the suppliers in innovation official bottled water for the Wimbledon tennis tournament for five years. The contract signed for the period to 2012 is part of Evian’s policy of sponsoring prestige sports which has been pursued for Present in Egypt for a many years. Evian is the official little less than a year, water for the US Open and Danone is now number two Australian Open and sponsors in the fresh dairy products Evian Masters, the number two market with a market share feminine world golf tournament. of 20.2% and a level of brand recognition of 82%. To To optimise the impact of innovation, DANONE achieve this, Danone Egypt Advancing is involving its suppliers at an early stage in the developed dairy product development of its most strategic products. This year, research into the Group has decided to consecrate a special prize to them. The consumption among the immunology population with its classic Dan’Innov ceremony, an in-house event that awards particularly innovative projects or products, now has a “supplier” trophy. On brands. The subsidiary then DANONE gives support to the occasion of the prize-giving ceremony which took place in extended its product range the Pasteur Institute with September during the traditional DANONE general managers with yoghurts adapted to an operation in France. From meeting in Evian, three of DANONE’s closest suppliers received local nutritional tastes and September 2007 to February an award. For example, Graham, a US packaging manufacturer, needs. Next stage: the 2008, customers are invited has helped cut the weight of a bottle of in half since introduction of Danette and to cut out donation coupons 1996. Polaris, a French supplier of nutritional fats worked for two cream deserts. on Actimel packaging. years with DANONE’s R&D department to finalise the recipe for DANONE will pay 20 euro Essensis. This co-development approach has given birth to a cents to the Pasteur Institute structured partnership strategy associating the Marketing, R&D for each coupon received. and Purchasing functions at Group level, as well as supplier DANONE research workers teams dedicated to DANONE. Their joint work has enabled and the Pasteur Institute are us to develop more competitive, ecological products that help working together to advance differentiate DANONE from its competitors. research into immunology, microbiology and probiotics. http://www.danone-pasteur.fr

DEcembER 2007 letter to shareholders 07 GROUP NEWS Key Facts and Figures

DANONE shares: Notepad

> Number of shares as of 16 November 2007: 512,851,460 > February 14, 2008 > Nominal value: 0.25 euro per share as of 16 November 2007 2007 Full year final results audited > Quoted stock markets: company shares are quoted in Paris on > April 24, 2008 the NYSE Euronext and on the Swiss Stock Exchange. They are 1st quarter 2008 sales traded under ADS/ADR (American Depository Share/Receipt) with > April 29, 2008 the ratio: 1 current share = 5 ADS, on the Over the Counter US General meeting of shareholders of Groupe Danone market (OTC). (at the Carrousel du Louvre, Paris) > July 30, 2008 Sales and First half 2008 results > October 22, 2008 Stockmarket performance Sales 9 months 2008 CAC 40, Eurostoxx SM 50 and DJ Stoxx F&B DANONE compared to the DANONE share price DJ STOXX F&B INDEXES PERFORMANCE CAC 40 115 YTD 2006 information 115 Contact

110 Find financial information on 110 www.finance.danone.com

105 Figures, news, presentation, calendar... 105 Freephone: 0800 320 323 Free call from metropolitan France using a fixed phone. 100 100

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5-Oct.07 11-avr.-0720-avr.-0702-mai-0711-mai-0722-mai-0731-mai-0711-juin-0720-juin-0729-juin-07 19-Juil.0730-Juil.07 6-Sept.07 16-oct.-0725-oct.-07 29-déc.-0629/12/0610-janv.-0719-janv.-0730-janv.-0708-févr.-0719-févr.-0728-févr.-0709-mars-0720-mars-0729/03/0729-mars-07 29/06/0710-Juil.-07 08-Aout.0717-Aout.0728-Aout.07 17-Sept.0729/09/0726-Sept.07 05-nov.-0714/11/0714-nov.-07

CAC 40 DJ Stock F&B Danone > Since the beginning of the year and through 16 November, Danone’s stock rose 5.51%, the CAC 40 fell 0.33%, and the DJ Stoxx Food & Beverage index gained 12.66%. After outperforming the majority of indices at the beginning of the year, Danone’s share price was unfavourably impacted by the

ongoing dispute with its Chinese partner, the public offer for Numico The letter to shareholders is a publication of Groupe DANONE: and significant rises in milk costs. Since Q3 2007 results were 17, boulevard Haussmann, 75009 Paris. Publication Management: announced in October, and following the annual investors seminar in Stéphanie Rismont Wargnier. Translation: Allingua.fr Moscow, markets appear to have been reassured and DANONE’s Design and Production: +33 1 55 34 46 00 (ref.: 1DANACT127) share price has significantly outperformed the main indices.

08 letter to shareholders DEcembER 2007