2007

Sales of FRESH PRODUCTS posted a record rise of 12.2%, buoyed by the performance of four star brands—, , Danonino/Petit Gervais and Vitalinea/Taillefi ne—which reported growth of nearly 20%, and the geographic expansion 20% on several continents. sales for 2007 totaled some 20 billion liters, setting growth for the line at 4%. This refl ects resilience to unfavorable weather in Western Europe and a highly focused growth strategy geared around natural waters 20bns and their contribution to health. The new BABY NUTRITION line has global reach and promises especially robust growth, spurred by innovation and internationally applied best practices. Baby Nutrition sales are expected 17% to account for 17% of Danone’s business in 2008. The MEDICAL NUTRITION line is number one in 19 countries, primarily in Europe and Asia. Sales reached €800 million in 2007, with 35% from Special Needs Nutrition including food supplements to fi ght malnutrition, and 65% from Targeted Nutrition products Number1 designed to help patients. Percentages for Fresh Dairy Products and Waters are expressed at constant scope of consolidation and exchange rates. Percentages for Baby Nutrition and Medical Nutrition refl ect pro forma accounts.

BUSINESS In 2007, Danone turned in another year of fi rm growth in sales and operating income—a performance all the more impressive in view of challenging economic conditions marked by rising commodity prices and adverse summer weather in Western Europe. Scientifi cally proven health positioning for leading brands and geographic expansion were key contributing factors.

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strong12.2% rise transit regularity within two weeks—reaf rmed its status in Fresh Dairy as a powerful growth engine, while Danacol, another star Products sales in health performer in 2007, chalked up growth of 35%. A 2007 once again market leader for ultra-fresh cholesterol-lowering reaffirms this products, Danacol saw sales rise by around 35%, as line’s ability to deployment continued in and Poland. Now sold innovate and win in more than ten countries, it commands over 60% market new territory for share in each. Essensis, a new dairy product that improves its leading brands. skin barrier function by nourishing skin from the inside, With operating was launched successfully on the French, Italian, Spanish margin up from and Belgian markets in 2007. 13.7 to 14%, the Actimel, which helps strengthen the body’s natural de- business was also more pro table, despite a steep rise in fenses, topped €1 billion in sales on continued strong raw material costs. prices saw a record increase, growth of 13%, and sales were up 7% for Danonino/ generatingA €300 million in additional costs, while spiraling Petit Gervais, a children’s forti ed with bone- oil prices made transport and packaging more expensive. building calcium and vitamin D. These increases forced Danone to raise prices an average Danone’s strategy of continually improving the health 5.5% for the year, though actual increases varied by bene ts of products through sizeable R&D investments country. Yet higher prices were well tolerated overall, with and backing claims with solid science has set its products volume growth keeping pace with last year to reach apart, establishing a sound foundation for growth. The 5 million metric tons. same products are differentiated through improved taste appeal and the Group’s combined marketing and manu- Growth by region facturing prowess. In the indulgence segment, Danette Sales in Europe rose nearly 10%, buoyed by robust trends topped €500 million in sales, con rming its potential in in Spain—the FDP sales leader—and strong showings in emerging countries. and Greece. There were also impressive gains in Northern Europe, with 22% growth in the Netherlands and Ever broader horizons 20% in Scandinavia. Eastern Europe con rmed its potential Although Danone expands into three to  ve new coun- with an overall increase of nearly 23%. tries each year, 2007 set a record, with FDP moving into In North America, volumes in Canada were up a vigorous Chile, Colombia, Egypt, Thailand and Indonesia, and 19%, while US growth of nearly 10% in the  rst half of beginning to sell products in Kazakhstan. Danone has 2007 jumped to almost 20% in the second, spurred by the grown steadily on emerging markets, taking the leader’s success of Activia and DanActive. Launched in 2006 and spot in only a few years. 2007, respectively, these high performers have underscored Early results in Thailand are promising, and in Indonesia the power of brands with strong health positioning. Sales the Group inaugurated a new plant that will give FDP were also up 10% for US-based Stony eld, which leads Indonesians access to Activia in addition to Milkuat, a SCIENCE FOR PROGRESS the North American market for organic dairy products and long-life dairy product. Bangladesh-based Grameen is the largest producer of organic yogurt in the world. Danone Foods, Ltd. (see page 54) is also gearing up for Fresh Dairy Products (FDP) had a record year in 2007, reporting 12.2% Growth in Latin America averaged 17% overall, with expansion, with a new plant set to distribute Shoktidoi remarkable performances in several individual countries. yogurt in the Dhaka area. And in the Indian market, where growth at constant structure and exchange rates. Sales came to €8.8 billion*— Sales were up 23% in Argentina, 19% in and 12% Danone has formed a joint venture with ’s over half of the Group total. in Mexico, a trio that now accounts for nearly 14% of Group, the partners launched their  rst products under FDP’s total business. the Yakult brand in late 2007. The Group also made impressive gains in Africa and the Middle East, with 35% growth in , 18% in Algeria, and 11% in Saudi Arabia. In Asia, 2007 brought 18% growth in Japan, where the Group took full control of its FDP business after buying out its original partners, Calpis and . In China, experience acquired through partnerships plus gains in brand awareness led Danone to maintain its growth strategy. In late 2007, the brands Group launched several new initiatives designed to further 4Blockbuster products under four brands—Activia, Actimel, its continuing goal of expanding market share for Danone Vitalinea/Taillefi ne and Danonino/Petit Gervais— brands in China. account for over €4.5 billion in sales. Activia alone represents billion euros—sales* recorded by nearly €2 billion of this fi gure. Health benefi ts drive growth 8.8the Fresh Dairy Product business line With 2007 sales of nearly €2 billion, Activia—a fermented in 2007 versus €7.9 billion in 2006. dairy product that, when eaten daily, helps promote * Blédina is included in 2007 sales.

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RADAN007_UK_68a79_bat.indd Sec1:70 5/06/08 9:05:28 RADAN007_UK_68a79_bat.indd Sec1:71 5/06/08 9:05:41 BUSINESS DANONE 2007 Bringing fresh dairy Danone goes Russian Ten years after entering the Russian market, our Fresh Dairy Products line products to Indonesia generated 2007 sales of over €500 million, and Danone Russia is one of the biggest contributors to FDP sales in absolute value. Growth is powered by four With the construction of a new plant near blockbusters (see page 74) that together account for more than 75% of its perform- Jakarta in 2007, Danone is stepping up its ance, refl ecting Danone’s ability to adapt to local culture and respond to the taste presence in Indonesia, expanding its activity and eating habits of Russian consumers. Thus Rastishka, the Russian version of to include fresh dairy products. DANACOL: Danonino, is fortifi ed with calcium, iron and vitamin D to fi ght dietary defi ciencies Based on nutritional studies of Indonesians, A STAR IS BORN affecting one of every two children. Activia is another example of successfully Danone chose Activia as its fi rst locally made going local. Launched in 2005, product. And since dairy products were still rela- Danacol continues to grow, Activia Kefi r—a traditional Russian tively new in Indonesia, the priorities established with 2007 sales of €135 beverage made from fermenting were to set an affordable price of between 20 million and market share milk with kefi r grains—now accounts and 28 eurocents per portion and develop a milk topping 60% in the ten-plus for 20% of sales in the Activia supply network consistent with the Group’s countries where it is sold. range, and 2007 saw the debut of quality standards. Here Danone has worked with Active growth Behind its success: solid low-fat Activia Kefi r. The product is local banks, setting up a microcredit system to sold in single servings to accommodate for Activia help small farmers buy cattle. Groupe Danone is scientifi c backing for its health benefi ts, increased taste local consumption habits. the fi rst international group in Indonesia to launch In yet another example of Russian In 2007 Activia’s sales appeal and an expanded local production of yogurt and hopes to become style, Danone has adapted the neared the €2 billion market leader. product range. recipe for Actimel to include a ver- mark at €1,877 million, sion fl avored with pomegranate, a fueled by annual growth fruit traditionally credited with averaging over 40% since strengthening the immune system. 2000. The brand is also The strategy has paid off: between expanding steadily into FOCUS ON 2005 and 2007, Danone Russia sales jumped 62%. new territory, moving DISTRIBUTION IN into Greece, Switzerland, Thailand and Chile THE COMMUNITY in 2007. Geographic targets for 2008 include mall neighborhood outlets accounted for Colombia and Egypt. 35% of Fresh Dairy Products growth in 2007, primarily in Latin America and TURKEY SCORES WITH S Eastern Europe. To keep dairy products DANONE NATIONS CUP fresh and available in as many shops as possible, Danone installs refrigerators and stocks them ach year over 100,000 children— reports for the 2007 championship several times a week. Combining sales and and many of their parents— ock alone, and we’ve seen a marked logistics, this strategy gives our brand a crucial to soccer fields in 81 Turkish improvement in our brand image. competitive edge in countries where the traditional provinces for the Danone Nations There’s a ten-point gap in pref- neighborhood store dominates the market. In 2007, E Cup (DNC) from September to May. erence for Danone between people Danone installed 15,000 refrigerators in 12 Known in Turkey as “the Danone,” this who are familiar with the DNC and countries, bringing the total number to 120,000 in international soccer championship for those who aren’t.” 20 countries. 10-to 12-year-olds is now a national  xture. Turkey is one of 40 countries The Ministry of Education is actively participating in the Danone Nations involved, and the number of participating Cup, which has engaged over 15 MARKET SHARE: THE TOP TEN schools has risen from 200 to 8,000 in eight million children and touched years. At the 2007 DNC, some 115,000 nearly 200 million lives worldwide FDP around the world youngsters found an outlet for their talents since it was founded in 2000. The Growth in sales of FDP products 75.90% and shared a unique experience with fellow national tournaments culminate 62.10% 59.85%

has led to an increasingly balanced 59.50% players throughout the country. in the world  nals, where over 800 spread across geographic regions. 51.10% Although the program is essentially youngsters compete annually in 44.30% 43.50% 40.20% 38.80% The graph at right shows the ten countries 37.90% community-oriented, it is central to Danone the company of French soccer star with highest market share by value for 2007. Turkey’s strategy and has a real economic Zinedine Zidane, the DNC’s international of the game. The bottom line? The DNC Argentina tops the list with nearly 76%, impact. “The DNC generates extensive me- ambassador since 2003. Now the gold stand- signi cantly en hances the Danone brand’s

followed by . Argentina Romania Canaries + Spain Hungary Africa South Mexico Portugal Poland Canada dia coverage,” says Serpil Timuray, General ard for youth soccer, the championship is international image, creating a genuine Manager of Danone Turkey. “There were grounded in four core values: openness, sense of community with the family audi- 01 02 03 04 05 06 07 08 09 10 over 300 articles in the press and 23 television accessibility, fair play and sheer enjoyment ence attending the event.

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RADAN007_UK_68a79_bat2.indd Sec1:72 5/06/08 20:27:29 RADAN007_UK_68a79_bat2.indd Sec1:73 5/06/08 20:27:43 BUSINESS DANONE 2007 Asia—three models One goal for Danone’s Fresh Dairy Products line is to make products affordable for every consumer, in every country. To do so, it has developed three business models that adapt to local conditions everywhere—from mature to emerging markets. Asia offers a good example of deployment, since all three approaches have been applied in the region. The fi rst model is intended for mature countries like Japan. Here Danone regularly launches innovative new versions of its fl agship products, introducing new fl avors and formats and improving nutritional value—by reducing sugar in Actimel and Danonino, for example, or increasing Activia’s bifi dus content. The Group is also BLOCKBUSTERS: careful to make these products more competitive by holding price increases below infl ation to make brands more and more affordable. Over the past 15 years, its A BREED APART prices have risen less than 15 base points. The remaining two approaches are designed for emerging markets. The same In 2007 Danone reaffi rmed blockbuster products are also sold in China, Thailand, and Indonesia, but by using its strategy of differentiating local raw materials and the right packaging, they are priced so that consumers can four blockbuster products: afford to enjoy them regularly. The Activia, Actimel, Danonino third model is applied in poorer countries like Bangladesh. Under (sold in as Petit this approach, populations with Gervais) and Vitalinea (also incomes below €1 a day can known as Taillefi ne). This regularly enjoy products with sig- differentiation strategy relies nifi cant health benefi ts, and pov- on establishing and promoting erty is reduced at the same time. a unique positioning for Shoktidoi yogurt, affordably priced each product, based on its at 5 BDT or around 6 eurocents, nutritional value and health is sold door to door by 300 benefi ts. To ensure that Grameen Ladies (see page 54). health claims are well And the model has proved just how founded, Danone invests effective it is: 10,000 units were POWERED BY NATURE heavily in R&D and clinical sold every day in 2007. studies, devoting €25 million In 2007, Danone refocused on natural waters, using products with high to studies in 2007 alone (see page 32). It also differentiates added value to develop new markets. The Waters line’s growth strategy products through innovative 2008 HOLDS PROMISE is increasingly based on emphasizing the health benefi ts of leading water packaging and use of exclusive cultures and other n 2008, Danone’s Fresh Dairy Products line is aiming to accelerate growth. brands from Danone’s own springs. ingredients. Examples include How? By leveraging its well-balanced presence on markets around the world, the success of new Activia and by taking advantage of certain markets, now mature, that are growing at Cheese—launched worldwide an annual rate of 20%. Growth drivers will include continued deployment of I he year 2007 was a good one Mexico, Bonafont sales were up 18%, due largely to its but tailored to local markets— Danacol worldwide, accelerating sales of Activia and DanActive in the , for the Waters business line, success in the home and of ce delivery (HOD) market. and new market segments and expanding business in Indonesia, Colombia and China, where the outlook for with 4% growth at constant In Europe, poor summer conditions in France, the United opened up by Activia Drink. Activia is excellent. structure and exchange rates, Kingdom, Germany and Belgium pushed sales down 2%. and 6% growth outside Asia. By contrast, Poland posted a steep 16% rise, as did Turkey, It was a com mendable per- with sales up 14% against a backdrop of more favorable MARKET OUTLOOK SALES GROWTH formance given the espe- weather. Outside Europe and Japan, export sales were up cially cool summer weather 12%, driven primarily by . In Japan, export sales Rising demand Strong momentum in Western Europe and a grew a record 32%, buoyed by natural and Evian In recent years demand for Fresh Dairy 8,791* The Fresh Dairy Products line posted complex rela tionship with waters and by the launch of Volvic Fruit Kiss. 7,934*

Products market has grown steadily 7,184* sales of €8.8 billion—representing some Wahaha in China. The Waters In China, 2007 saw a disagreement with Wahaha over around the globe. Danone is the world’s 5 million metric tons—in 2007, with 67% of the business line’s sales totaled the management of jointly owned companies, and number one maker of Fresh Dairy Products, total in Europe and the remaining 33% in the rest €3.5 billion, while the trading operating margin rose negotiations for a long-term solution began in the second with total market share of around 22% worldwide of the world. A steady stream of product launches from 12.5% to 13.6% for the year. half of the year. At the same time, Danone Health Drink and weighted average market share of 32% and overhauls have fueled the line’s success. T took over the number one spot in the Chinese spring in the countries where it does business. * All fi gures in millions of euros. Growth by region water market, with growth accelerating to 19% in the In North and South America, Waters posted overall gains Shenzhen region, its core market. In Indonesia, Aqua 05 06 07 of 21.4%, with a rise of nearly 40% in Argentina. In consolidated its position as the world’s largest

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producer of packaged water by volume, a performance Sold under major brand names, these include Volvic matched by substantial investment. Fruits in France (a new-generation water including 15% Volvic takes Japan fruit juice); Villa del Sur Levité in Argentina; and Volvic Focus on waters Fruit Kiss in Japan (see opposite). Early results are The Waters line has grown its business by leveraging the positive, with  avored waters taking much of the credit health bene ts of water, using a differentiation strategy for Waters’ very strong growth in Japan last year. by storm that positions each product based on water’s four primary Following its launch in 2006, Argentina’s Villa del Sur First launched in Japan in May 2007 effects on the human body: Levité  avored water was successfully renovated in Volvic’s flavored water Fruit Kiss % - elimination of toxins, a particularly important concept 2007, joining with newly launched SER Sport to give Lemon helped boost the brand’s market 79 of the human body is for Bonafont in Mexico, Font Vella in Spain and Villa Danone’s Argentine Waters business a fresh boost. share in that country from 17% to 21%. water. An adult of average del Sur in Argentina It was one of the line’s greatest height, living in a temperate climate - renewal: the human body is 79% water, which must be Distribution a driver for growth achievements for the year in the fi ercely and without signifi cant physical renewed every six weeks. This positioning relies on the Also fueling growth are new Aqua Drink in-store sales competitive Japanese market. With full- effort, needs around 2.5 liters association of our brands with springs that evoke ideal areas in France, Argentina and the United Kingdom. year sales totaling almost 3 million liters, of water a day. Beverages supply qualities, “mythical places” such as Evian in France, With a dual emphasis on pleasure and health, these are Fruit Kiss outperformed projections for 1.5 liters, while the remaining 1 liter Lanjarón in Spain and Villavicencio in Argentina introducing consumers to a new generation of products both distribution and rotation. comes from food. - deep hydration and bene cial minerals, with Volvic in based on natural water. Another Danone priority is to France, Zywiec in Poland and Hayat in Turkey, and continue building local distribution networks, stepping - weight management with Taille ne/ Vitalinea. up the presence and visibility of the Group’s brands in Refocusing on natural waters has strengthened the everyday life by creating more points of sale in each Group’s positioning and increased market share in almost country, often in small neighborhood outlets. This strategy, EVIAN TARGETS THE TOP every country where the Waters line does business. At which the Group has been implementing independently verall, Evian sales are up water schools in 2007 (see page the same time, a new strategy—DNH for “drinkable, and in partnership with exclusive distributors, has 3.4%, and the brand has 50). The third theme is Evian’s natural, hydrating”—has led to the launch of  avored already been deployed in Poland, the United Kingdom, strengthened positions on all up-market image, which the brand waters with signi cant added value. Mexico and Argentina. O markets—starting with built on in 2007 by emphasizing France, where it delivered its best its positioning as a luxury product. performance in over 10 years with 2.5% Two versions of a bottle specially growth by volume. This re ects the brand’s designed by Christian Lacroix for unique assets, which Evian enhanced in the 2007 holiday season were put 1 for 10 means water 2007 by focusing on three core themes. on the market: a “ready-to-wear” The first, developed in France, Japan, bottle sold to two million Belgium and the United Kingdom, is the customers worldwide; and a hand- for everyone brand’s core health positioning—its blown “haute couture” version contribution to renewing the body’s water produced in a very limited series Since 2006, Volvic has worked with content. The second is its responsible of 99 bottles and sold for €5,000, UNICEF on an ambitious program to attitude towards sustainable development, with proceeds donated to the improve access to safe drinking as re ected by Evian’s practice of qualitative Ramsar Convention. In the United water in developing countries. and controlled water resource management, States, Evian also sells a premium Worldwide statistics confirm that plus its commitment to protecting the bottle made of PET* and fitted with a an updated design. Inspired by the world of from contaminated water is world’s wetlands. Both Evian and Danone pouring spout made of stainless steel, made cosmetics, the spray is positioned as a one of the major killers of children are parties to the Ramsar International available exclusively to restaurants. To beauty product, with claims emphasizing under five. From its beginnings in Convention on Wetlands, and the two round out this new positioning, the brand its ability to set makeup and hydrate skin. Niger, the “Drink 1, Give 10” cam- companies teamed up to found the Evian has relaunched the Evian spray bottle with * Polyethylene terephthalate VILLA DEL SUR paign has helped dig and maintain LEVITÉ TAKES OFF wells that give local populations reliable access to 40 liters of safe Relaunched in Argentina drinking water per person per day— BOTTLED WATER SALES BY REGION in 2006, Villa del Sur Levité twice the absolute minimum established 17% 42% fl avored water had another by the World Health Organization. Global brands Balancing Europe and Asia successful year in 2007. Originally launched in Germany and Danone is the world’s number two The Waters line reported sales The brand is sold in three France, the program was expanded to Japan, Indonesia, Mexico, the United producer of bottled water by value, of €3.5 billion in 2007. fl avors—orange, grapefruit States, and other countries in 2007. In mature markets, proceeds are donated to and Aqua, its subsidiary in Indonesia, is By refocusing on natural waters and their and apple—and sales UNICEF programs in African countries such as Niger, Ethiopia and Mali, while the world’s number one brand. With around health benefi ts, it boosted market share grew 62% in a single year, proceeds in emerging countries are used to fi nance local programs. 20 billion liters of bottled water sold in in nearly every country where it does business. adding more than four In Mexico, Bonafont has partnered with a local NGO, concentrating on rural 2007, Danone’s share of the global market 41% points to Villa del Sur’s share areas like Chiapas province, where 32% of the population lacks access to safe is around 10%. Europe Asia Rest of the world of the total market for water. With backing from both Volvic and UNICEF, the program has rallied massive bottled waters (by value). support from employees.

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RADAN007_UK_68a79_bat.indd Sec1:76 5/06/08 9:08:51 RADAN007_UK_68a79_bat.indd Sec1:77 5/06/08 9:09:07 BUSINESS DANONE 2007 SPOTLIGHT ON NUMICO AND BLÉDINA With Numico, Danone has acquired worldwide positions in two new business areas—Baby Nutrition and Medical Nutrition. Key 2007 fi gures for Numico* and Blédina point to particularly robust future growth.

BABY NUTRITION (FORMERLY NUMICO) Baby Nutrition’s trading operating margin reached 14.4% in 2007, offsetting price hikes for milk and other raw materials by simultaneously raising prices and cutting costs. Sales growth was strongest for the Fruit Dessert category, up 21.4%, followed by Growing Up Milk with 15.8% and Infant Formula and Follow On Milk with 12%. 2,035 1,789 1,270 9 . 7 % 1 4.4% sales growth margin Robust growth The Baby Nutrition In 2007, the Baby 05 06 07 for Bléd na line posted an Nutrition business increase in sales line’s trading operating Sales Blédina reported a of 9.7% from margin reached 14.4%. (in millions of euros) vigorous 10% rise in 2006 to 2007. sales in 2007, to €492.4 million. Its market share in France topped 50% for the fi rst time, due MEDICAL NUTRITION (FORMERLY NUMICO) largely to investments Despite rising raw material costs, Medical Nutrition widened its trading in developing products operating margin by 20 base points between 2006 and 2007, primarily for infants aged 18-36 by boosting productivity. The line’s strongest sales growth came in months. The brand is also the oral nutrition category, up 16.5%, and lactose GI intolerance/allergies expanding internationally, category up 23.6%. especially in North Africa (see page 29). Success

786 is built on a genuine 692 624 capacity for innovation .4% .8% that strengthens its 1 3 21 positioning as a sales growth margin welcome support for Medical Nutrition posted In 2007, the Baby 05 06 07 busy mothers, with 13.4% growth in sales Nutrition business breakthroughs ranging from 2006 to 2007, Sales line’s trading operating from food products up from 10.8% between (in millions of euros) margin reached 21.8%. under the Petits Grands 2005 and 2006. label to new developed by Blédilait * Figures for Numico are based on full-year 2007, although Numico did not become part of Groupe Danone until October 31, 2007. Growth in trading operating margin is based and Gallia. on Numico’s accounting methods.

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