15637_Agence 17/12/04 11:00 Page 2 Letter to shareholders December 2004 Dear shareholder, Over the first nine months of the year, showed a solid performance with sales rising +7.7% at constant scope and exchange rates— bearing out our claim to being the fastest-moving food company. Fresh Products were again the major growth engine, posting organic growth of +10.6% over the period. This reflects in particular vigorous trends in North America, where we consolidated our position in January 2004, by taking control of Stonyfield Farm, the number-one maker of organic in the US. Beverage sales, which got an exceptional lift from the heat wave in Europe in summer 2003, rose by +6.4%, with Asia and Latin America providing much of the impetus. In keeping with the aims announced at the annual Shareholders’ Meeting, Biscuits showed some encouraging signs of an upturn, with organic sales growth reaching +3.6%. Overall, this performance was reached despite conditions considered unfavorable for mass market consumer goods as growth slowed in main European countries. Annual These good overall results reward our strategy of focusing on three of the fastest Meeting growing categories in the food industry, backing this up with continued innovation The combined annual to better meet consumer needs including special attention to health and nutrition, and extraordinary as well as stretching Group’s frontiers to make the most of growth opportunities shareholders’ meeting will take place on Friday, wherever they are. 22 April 2005 at 3:00 pm DANONE will thus be stepping up expansion in China, Indonesia, and at the Carrousel du Louvre, 99, rue de Rivoli, Mexico. For all these reasons, I am confident that we will be able to meet our 75001 Paris. targets for this year and next. Franck Riboud ✩ ✩ ✩ v v Results p.2 v News p.4-7 Key figures and upcoming events p.8 ✩ ✩ 15637_Agence 17/12/04 11:00 Page 3

RESULTS First-half 2004 sales (like-for-like) +8.8% First-half 2004 THE STRONGEST ORGANIC GROWTH FOR ANY SIX-MONTH PERIOD IN FIVE YEARS DANONE consolidated sales showed a strong +8.8% Sales growth* organic rise in the first-half of 2004, allowing (first-half 2004) a significant improvement in operating margin, up +46 basis points. Earnings per share rose +10.4%. By business line

Fresh Dairy Beverages Biscuits Other Food Groupe Products and Cereal Business DANONE resh Dairy Products were again the main driver, posting organic Products growth of +11.2%. In Beverages, the figure was +9.4%, reflect- F ing good showings in Latin America and Asia, while business in Europe suffered from unfavorable weather conditions. Turning to Biscuits and Cereal Snacks, sales showed an organic rise of +3.7%, +11.2% +9.4% +3.7% +3.2% +8.8% reflecting our efforts to restore growth momentum on core western European markets. Overall results by region included consistently firm trends in Europe, where sales rose +5.9% despite slackening By geographical market

consumption in , while business in Asia remained particularly + 17.4 %

vigorous, with double digit growth. Sales in the Rest of the World + 13.8 % showed a robust +20% rise with all our businesses in Latin America

making strong performances and Fresh Dairy Products growing well + 8.8 % in North America. + 5.9 % Operating margin was significantly higher, rising from 11.9% to EUROPE ASIA GROUP 12.3%. This performance was achieved despite increasing input costs, REST OF WORLD

mainly PET in Asia, and the fall in US Dollar, Yen and Pound Sterling, * At constant structure and exchange rates. which negatively impacted our Beverages exports. The Themis project (the Group’s information systems project) contributed around +20 basis points to the increase in operating margin. Diluted earnings per share were up 10.4%, in line with Group targets ● Fully diluted for the full-year. net earnings per share for the first-half 2004 +10.4%

2 15637_Agence 17/12/04 11:00 Page 4

BUSINESS

€ 1st half 1st half Change Financial highlights ( millions) 2003 2004 Net sales 6,622 6,995 +8.8% (1) Operating income 787 863 Operating margin 11.9% 12.3% +46bp Operating Net income 403 437 +8.4% margin Net earnings per share (diluted) 1.54€ 1.70€ +10.4% in first-half 2004 Free cash flow (2) 479 513 +7.1% Stockholders’ equity (incl. minority interests) at June 30 5,365 5,514 12.3% Net financial borrowing at June 30 3,163 2,431 Net financial borrowing/stockholders’ equity 59% 44% (vs 11.9% in first-half 2003) Number of shares listed at 30 June (’000) 275.4 268.1 Stock price at 30 June (€) 60.25 71.7 Market capitalization at 30 June (€ millions) 16,593 19,223

(1) At constant structure and exchange rates. (2) Free cash flow = cash flow from operations – capital expenditure +/- change in working capital requirement.

Change in operating In 3rd-quarter 2004, margin sales up +5.5%*

By business line 1st half 1st half By business line 3rd quarter 2004 2003 2004 Fresh Dairy Products 13.7% 13.8% Fresh Dairy Products +9.5% Beverages 14.5% 15.4% Beverages +1.3% Biscuits and Cereal Products 8.3% 8.8% Biscuits and Cereal Products +3.3% Other Food Business 16.5% 17.8% Other Food Business -3.4% Group total 11.9% 12.3% Group total +5.5%

By geographical market 1st half 1st half By geographical market 3rd quarter 2004 2003 2004 Europe 13.7% 13.7% Europe +1.1% Asia 13.6% 14.4% Asia +12.6% Rest of World 8.2% 9.9% Rest of World +18.9% Group 11.9% 12.3% Group +5.5%

* At constant structure and exchange rates.

3 15637_Agence 17/12/04 11:00 Page 5

GROUP NEWS NEW DANONE LOGO: all smiles!

The Danone logo is getting a facelift for greater impact, projecting a warmer, and more up-to- date message. Not that it will be changed beyond recognition — consumers will still find the famil- iar features they identify with quality, trust and health. The new logo is shaped like a smile, giving visual expression to brand values that include warmth, enjoyment, contact and people. It also reflects the DANONE adver- tising theme that well-being shows. DANONE Nations Cup The new logo, celebrating the 75th anniver- sary of the brand in France, will be phased Making dreams come true in by stages for all Fresh Dairy Products on markets in over 40 countries, as well as for The international final of the 2004 DANONE Nations Biscuit and Water products sold under the Cup brought together the winning teams from DANONE name. These include in parti- 32 countries in Paris on Septem- cular biscuits in Asia, Aqua Danone in ber 5 this year. “Contributing to the well- Indonesia, and Taillefine-Vitalinea waters being of children and helping them to grow is in a number of other countries. an important aspect of the mission we have set ourselves as a world leader in the food industry. And the Nations Cup is very much attuned to that,“ notes DANONE CEO Franck Riboud. Since the tourna- ments began in 2000, over 8 million children have participated, sharing their love of soccer. As in previous years, matches in 2004 Best Innovator were played in a spirit of mutual respect, tolerance, friendship and —naturally— enthusiasm. A crowd of 30,000 people Award 2004 led by soccer great Zinedine Zidane, standard-bearer for the event and DANONE’s ambassador for programs in favor of children, DANONE was named France’s top business in the Culture cheered the young players on to give their best. Spain won its first of Innovation and Organization category of the 2004 victory, beating Switzerland by three goals to one. Winners or not, Best Innovator awards. Initiated by management all the children went home with the knowledge that they had been consultancy A.T. Kearney and L’Expansion, a lead- right to believe in their dreams. ing French business magazine, these are intended to show recognition for businesses that are able to DANONE Nations Cup 2004 at a glance: excel — standing out from the crowd through effec- tive management of innovation. > over 2.5 million young soccer players worldwide Sven Thormahlen, DANONE’S head of Research and Development, received the award from François > 32 national finals d’Aubert, France’s Minister Delegate for Research, > 30,000 spectators for the international final in Paris at a ceremony on Thursday, October 7.

4 15637_Agence 17/12/04 11:00 Page 6

Biscuits Round figure works magic in China Aiming for a place with all consumers, including low income groups, in June this year Danone Shanghai Biscuits launched new 40-gram packs selling at just one remimbi a piece — approxi- mately €0.10 — a round figure with immediate appeal on the Chinese market. The first products selected for the new format are TUC and Danone & Milk, both benefiting from strong brand posi- WATER YOURSELF tions and rich in minerals and vitamins. TUC is a cracker with added vitamin B to favor vitality for adults, while Danone & Milk backs up children's health and well-being with added cal- cium, iron and four vitamins. Results for this highly affordable offering have already beaten expectations, with sales growth reaching 50% to 100% without encroaching on other formats. It has also won a place for the two brands in small outlets, with high margins spelling ready appeal for shopkeepers. Danone Shanghai Biscuits is now planning to extend Evian’s new international “Water Yourself” cam- the format to Danone Milk Sandwich and High paign made its Chinese debut in Hong Kong and Calcium Soda, the latter a calcium-enriched biscuit Shanghai this October and is now set for deploy- targeting women in particular. Prospects are clearly ment in other parts of Asia, Northern and Eastern promising. Europe and Latin America.

Fresh blush for

Adding some fizz to demand for sparkling water called for some four weeks, 90% of supermarkets were stocking it, outdoing radical innovation. This June Badoit, the top brand for results for the recently introduced Light Lemon and Vanilla sparkling waters in France, rose to the challenge with Coke. It was also quickly adopted by away-from-home Badoit Rouge, a new product with twice the bubbles for a more outlets, winning a place with a majority of chains such intense sensation. The addition of natural carbon- as Total, Relay, Flunch and Club Med. Independent ated gas has been carefully measured to ensure a light, refresh- sales points have also signed on, with no fewer ing taste. In another break with tradition, Badoit Rouge comes in than 2,500 offering Badoit Rouge in Paris. bright red bottles, contrasting with the sober greens and blues Supermarket sales in one-litre bottles already usual in the segment. In the first three months from launch, it exceed half of those for Perrier in the same made an excellent showing, winning its place with retailers more format and account for 3% of the mar- quickly than any other new beverage on the French market. In just ket in this type of outlet.

5 15637_Agence 17/12/04 11:00 Page 7

GROUP NEWS

Serbia: Danone eyes LOWERING PRICES water market for French consumers DANONE’s number-one worldwide ranking for bot- Following the agreement signed by French food industry lead- tled waters is built on strong positions in Asia, Latin ers and major retailers to target lasting cuts in consumer prices, DANONE has opted for a differentiated approach America and Western Europe. Attention is now through reductions ranging from 3% to 19% rather than turning to Eastern and Central Europe, and at a 2% cut across the board. To spread the benefits as widely the end of August DANONE made a public offer as possible, these cuts focus on around 250 high-profile, for an equity interest in Serbia’s Knjaz Milos. family products with high market penetration. Together, Generating sales of some €70 million in 2003, those selected account for around one-third of total volumes sold by the Groupe DANONE in France. As a result, the company is market leader for bottled water careful shoppers can save significantly more than the in Serbia with strong brands including Knjaz targeted 2% average. To take a concrete example, the Milos and Aqua Viva. saving on the combined purchase of a Danette dessert cream, a plain Danone , a 1.5 liter bottle of and a packet of Prince Choco snacks comes to 10%. Information on the products concerned is made available MEXICO: DANONE to consumers through targeted communications backed up by retailers’ initiatives. consolidates strength in Home & Office Deliveries United Kingdom and Ireland In March 2004, DANONE acquired a controlling interest in Arco Iris, a top contender on the Mexican Sale of Group Biscuit business HOD market. With sales totaling some 350 million litres in 2003, the company is joint leader in At the end of July, DANONE rea- announced in February 2004. Guadalajara, Mexico’s second largest city, and ched an agreement for the sale of Regional differences are particu- has strong positions in Puebla, the fourth lar- its UK Biscuit business through larly significant in the sector, which gest. The move follows up a variety of initiati- Jacob's to United Biscuits, and at means that the solutions adopted ves in 2003, including the acquisition of a 50% the end of August followed this up may vary from country to country. interest in Tijuana-based UltraPura and 100% with the announcement of the sale DANONE does not rule out the pos- of AquaPura in Monterrey. DANONE already of W&R Jacob's, its biscuit subsi- sibility of alliances or divestments holds a leading place on the nationwide HOD diary in the Republic of Ireland, to where a return to lasting growth market with the Pureza Agua brand and is Fruitfield Foods Ltd. These divest- supposes a significant increase in number one in Mexico for bottled waters with ments are part of a strategy to market share. In April 2004, our Bonafont. The acquisition of AquaPura and restore momentum for lasting, pro- Group thus teamed up with Arcor, Arco Iris will help to accelerate expansion of fitable growth in the Group’s Argentina's largest food group, to the Bonafont brand in HOD. Biscuits business, a priority for create the number-one biscuit busi- management consideration as was ness in South America.

6 15637_Agence 17/12/04 11:00 Page 8

GROUP NEWS key facts

NUTRITION, the challenge Milestones

for our century > 1919 First DANONE yogurts sold in Barcelona

ver the past 50 years, food has > 1964 Launch of the Taillefine undergone more change than range with the first fat-free fresh Oalmost any other aspect of daily cheeses life. New eating habits and lifestyles have > 1987 Launch of BIO*/ also led to the emergence of new disor- ders like obesity, which has even become > 1994 Launch of a problem in a developing world still > 1996 Focus on three core suffering from malnutrition and hunger. businesses: Fresh Dairy Products, Clearly, though, obesity is not the cen- Beverages and Biscuits tral issue, which is instead the satis- > 1997 Extension of Taillefine faction of daily nutrition requirements. - Vitalinea range to biscuits > 1998 Launch of Danone Milk DANONE — active commitment Biscuit in China Nutrition is fundamental to public health. And as a world leader > 2000 Launch of Taillefine - in the food industry, DANONE is committed to contributing Vitalinea beverages, SER (slow all it can to worldwide progress in this critical area. Our pri- energy release) biscuits and ority is to offer products that are attuned to local conditions Calisma, Blédina’s functional infant formula and meet the highest possible standards of quality, as is con- sistent with a business model leveraging nutrition and health > 2004 Launch of Danacol for added value. Concern for nutrition has thus played a * Not an organic farm product decisive role in DANONE’s positioning and business devel- opment from its beginnings. Healthy products and respon- sible policies have made our Group a recognized benchmark for health in the food industry, as confirmed in several sur- Support from science veys, including those conducted by Morgan Stanley and JP Morgan in 2003. ANONE calls on the assistance of independent laboratories to assess its products and Building on basics Dprocesses. Growing pressures from society and Clearly, a balanced diet and regular exercise are essential consumer demands for products with genuine health to good health. DANONE’s approach centers on equally benefits make honesty absolutely essential, as any simple convictions: That information must be fully trans- attempt to mislead the public would run the risk of parent to give consumers real freedom of choice. That destroying confidence in the industry. Illustrating it is the duty of the food industry to offer products that this, in February 2004 France’s public food-safety meet individual nutrition needs and are attuned to local agency (Agence française de sécurité sanitaire des conditions. That communications must be consistent aliments, or Afssa) released its report on Actimel and with the nature and makeup of the products on offer. the related submissions from DANONE’s research These convictions are set out in a Health and Nutrition institute Vitapole. The report supported the claim Charter defining DANONE’s commitments and pro- that the ferment Lactobacillus casei DN 114 001 viding a foundation for consultation and dialog with present in Actimel “contributes to the reinforcement consumers, the scientific community and authorities. of natural defenses.” Actimel is thus the first probi- otic product on general offer in France to have won official approval for a health benefit claim.

7 15637_Agence 17/12/04 11:00 Page 1

Dividends paid to Key facts Groupe DANONE shareholders AND FIGURES 2.45 2003 euros DANONE shares

■ NO. OF SHARES AT JUNE 30, 2004:268,060,220. ■ NOMINAL: €0.50 per share at June 30, 2004. 2.30 ■ LISTED ON: Paris, New York (ADS – American Depositary Share), Zurich, 2002 euros Geneva and Brussels. 2.06 General Meeting of Shareholders 2001 euros lease note that the information below has no binding legal force and in no Pway constitutes a notice of meeting or carries any entitlement to attend the meeting. The General Meeting of Shareholders is a high point of the year, offer- ing DANONE shareholders and management an opportunity for direct contact and exchange of views. For information about how to attend, you should con- tact your bank. In France, there is also a toll-free number shareholders can call • February 11, 2005: publication — 0800 320 323 (valid in continental France from a fixed line). Procedures differ of audited 2004 sales and income. for holders of directly or indirectly registered shares and holders of bearer shares. • April 14, 2005: publication

It is also possible to vote online before the meeting. Details can be accessed at events of 1st-quarter 2005 sales. www.danone.com ● • April 22, 2005: Annual General Meeting of Groupe DANONE shareholders (at the Carrousel du Louvre in Paris). STOCK-MARKET PERFORMANCE

DANONE share performance compared with CAC 40, Upcoming Euro StoxxSM 50 and DJ Stoxx Food & Beverage indices DANONE 160 € EURO STOXXSM 50 CONTACTS CAC 40 140 DJ STOXX F&B Financial information online at www.finance.danone.com 120 > key figures > news 100 > business profile > events 80

60 Toll-free number: 0800 320 323 (valid in continental France from a fixed line). 1/01/03 1/03/03 1/05/03 1/07/03 1/09/03 1/11/03 1/01/04 1/03/04 1/05/04 1/07/04 1/09/04

> The CAC 40 and Euro StoxxSM 50 indices staged strong rallies following US mili-

tary intervention in Iraq, showing full-year rises of +16.1% and +15.7%, respec- Letter to Shareholders is published tively, for 2003. Conditions were less favorable for defensive stocks and DANONE by Groupe DANONE: 17, boulevard Haussmann, 75009 Paris. edged up +0.9%, and did better than the DJ Stoxx Food & Beverage index, down Director of publication: Danone Investor Relations. -2.9% for the year. Markets have made only limited progress in 2004, with the Design & layout: CAC 40 rising +3% and the Euro StoxxSM 50 +0.6% from the beginning of the 41, rue Greneta 75002 Paris. Printed by: im. de Pithiviers. year to October 14. Over the period, DANONE shares rose +0.5%, doing a little better than DJ Stoxx Food & Beverage index, down -0.5%. KEY FACTS AND FIGURES KEY FACTS