LETTER to SHAREHOLDERS March 2011

Dear shareholders,

Our sales grew by over 6% in 2010. All of our divisions and all our geographies have increased. Continued high operating margin and a 20% rise in free cash flow are remarkable achievements in a year that saw a steep rise in raw material prices and the end of adjustments to sales

• sales [1] prices under our Reset Program, which improved our competitive edge. increased + 6.9% in full year 2010 [2] These robust performances in 2010 testify to the strength of our business • Volume growth model. of + 7.6% in full year 2010 [2] Reflecting the growth strategy Danone has pursued for many years, • Trading operating our structure is changing rapidly and emerging economies now repre- margin [3] steady at sent half of our business. The joint venture uniting Danone and Unimilk 15.16% (+3 bps) [2] in 2010, up a steep since December 1, 2010 makes Russia our largest single national (+78 bps [2] in S2) market, with . The move has created a new leader in Fresh • Underlying net income [3] up 14.2% [2] Dairy products, with a nation-wide presence and strong brands in each • Underlying fully- segment. This investment offers exciting growth perspectives with diluted Earnings per share [3] increased major potential for value creation. 8.6% [4] in reported figures to `2.71, rising The strength of our Group, businesses, brands and teams, and our 12.7% like-for-like exposure to regions with robust growth prospects mean that we can

• Free Cash Flow [3] look to 2011 with confidence. In a context of high volatility of raw materials up 20.0% [5] to `1,713 million prices, we are placing the emphasis on lasting development of our • Proposal to pay a brands, with a commitment to health, pleasure and respect for the envi- dividend of `1.30 per share ronment. We will also be continuing efforts to raise global productivity to underpin our policy of competitive price management. 1] Net sales We will aim to outperform our competitors in organic sales growth, margin, [2] Like for like [3] Calculation of financial indicators not and cash generation. defined in IFRS [4] Theoretical ex-rights price (TERP) adjusted Sincerely, [5] Reported figure Franck Riboud RESULTS

A year 2010: progression for all the group’s activities and geographies

The group’s consolidated sales rose The Waters division posted a +5.3% 13.5% to `17,010 million in 2010. like-for-like rise in sales in 2010. A Excluding the impact of changes in robust +7.8% rise in volumes confirms carbon exchange rates (+6.0%) and in scope trends over the past six quarters, with of consolidation (+0.6%), total sales continued double-digit growth in emerging footprint were up 6.9%. This organic growth markets and steadying volumes in mature reflects a +7.6% rise in sales volume and a economies, where France and German -22% -0.7% decrease due to price mix. Exchange- were top performers. Danone products depend rate effects were due primarily to rises in the to a large extent on Brazilian real, the Mexican peso, the US Sales of the Baby Nutrition division natural eco-systems. It is therefore in the dollar and the Russian ruble. Main changes increased by +8.9% on a like-for-like Group’s best interest in the scope of consolidation were the inte- basis in 2010, and produced its best to take care for the gration of Unimilk (Russia) from December performance in the fourth quarter of the environment as an integral part of its 1, 2010, and, to a lesser extent, the arrival year, with sales up +9.8% like-for-like and business activities. of two new European fruit-drink subsidiaries volume growth reaching +6.4% (7.6% for Carbon footprint is a (Danone-Chiquita and Proviva), partially 2010). All regions reported growth, with global indicator that offset by the sale of Frucor (New Zealand) in China, Indonesia and the United Kingdom reflects a wide range of environmental criteria. February 2009. still the main contributors. The milks cate- Danone is committed to gory continued to deliver double-digit reducing its carbon Sales of the Fresh Dairy division growth, while weaning foods, more stable, intensity (grams of CO2 per kilogram of product increased by +6.5% on a like-for-like recorded good performances in France, sold) by an ambitious basis in 2010, reflecting volume Poland and Russia. -30% from 2008 to 2012. growth of +7.5% for the full year. This In keeping with this takes into account a steep +27.1% like-for- Medical Nutrition division reported a commitment, Danone cut its carbon intensity like rise at Unimilk in December. Excluding +9% like-for-like sales growth in by -22% [1] from 2008 this impact, this performance illustrates 2010, mainly attributable to a rise in vol- to 2010. The Group is maintaining its continued momentum from the Reset pro- umes (+8.7%). Once again all regions 30% reduction target gram, despite a significantly higher basis for contributed to growth, with Western Europe for 2012, i.e., over a five-year period. comparison in volume terms for the quarter and new geographies contributing equally. and a persistently difficult consumer market All product categories gained ground, with [1] Based on constant scope and in southern Europe. The division’s priority pediatrics and the gastro-intestinal allergy on emissions under Danone’s direct responsibility (packaging, markets, among them the US, Russia and range again showing above-average industrial activities, logistics and Brazil, continue to drive growth, while growth. end of life) is the division’s most dynamic product, accounting for half of overall growth.

02 LETTER TO SHAREHOLDERS MARCH 2011 GROUP RÉSULTS

Key financial highlights Sales

2010 Change 2009 In millions d’` 2009 2010 Change [2] Volume [2] [1] growth Sales 14,982 17,010 + 6.9% [2] ( m) ` By business line Trading operating 2,294 2,578 + 7.1% [2] income [4] (m `) Fresh Dairy 8,555 9,732 + 6.5% +7.5%

[2] Trading operating margin 15.31% 15.16% + 3 pb Waters 2,578 2,868 + 5.3% +7.8% [4] Underlying net income [2] 1,412 1,669 + 14.2% Baby Nutrition 2,924 3,355 + 8.9% +7.6% (m `)

Underlying fully diluted 2,5 [5] 2,71 + 8.6% [3,5] Medical Nutrition 925 1,055 + 9% +8.7% EPS [4] (`)

[4] By geographical region Free cash flow 1,427 1,713 + 20.0% [3] (`m) Europe 8,960 9,449 + 1.9% +3.8%

Asia 1,877 2,386 + 14% +12.6% Trading operating margin Rest of World 4,145 5,175 + 14.9% +11.8%

2009 2010 Change [2] Group 14,982 17,010 + 6.9% +7.6% By business line

Fresh Dairy 14.54% 14.03% - 3 pb

Waters 12.56% 12.93% + 13 pb

Baby Nutrition 18.32% 18.92% + 17 pb Medical Nutrition 20.57% 19.65% - 62 pb Dividend distribution: 1,30 `per By geographical region share Danone will propose to the Annual General Meeting of Europe 16.04% 15.70% - 1 pb Shareholders on April 28, 2011, to approve Asia 17.72% 18.66% + 63 pb distribution of a `1,30 dividend per share, to be paid in cash Rest of World 12.64% 12.55% + 1 pb in respect of the 2010 fiscal year. This amount represents a

Group 15.31% 15.16% + 3 pb +8.3% rise from 2009. The ex-dividend date will be Tuesday,

[1] Net sales May 10, 2011 and the dividend will be payable as from [2] Like for like see page 8 for definition [3] Reported figures Friday, May 13, 2011. [4] See page 8 for details on calculation of financial indicators not defined in IFRS [5] TERP adjusted Share buyback Following receipt of income on disposal of non-strategic Targets for 2011 interests in Huiyuan and Wimm Bill Dann, Danone launched • a 6% to 8% rise in sales [1] on a like-for-like in October 2010 a share buyback for a total amount of basis [2], `500 million. As of February 4, 2011, Danone purchased • an increase of around 0.20% in trading operating 9,180,100 shares for a total amount of `423 million. margin [2], like-for-like. This will be fueled by all the group’s activities, but especially by Unimilk and Considering robust generation of free cash flow and assu- synergies from its integration in the second half, ming steady debt ratios, Danone plans to continue to buy • a rise in free cash flow [2] in keeping with the back shares in the first half of 2011, up to a maximum of an `2 billion target set for 2012. additional `500 million.

MARCH 2011 LETTER TO SHAREHOLDERS 03 GROUP NEWS

SUSTAINABLE MILK, a major issue for value creation in the food chain depends on what kind of agriculture we use” explains Emmanuel Faber, co- Chief Operating Officer. Inspired by the dual economic and social project, the Dairy division has, for many years, been helping stockbreeders worldwide achieve improved performance and produce a better quality milk. But the group wants to go further today by concurrently committing to four major themes: nature, centred on environ- mental protection; health, by improving the quality and nutritional balance of milk; economic, through partnerships supporting the development and long-term survival of farms; and, lastly, social, in reasserting the value of the cattle-raising trade. anone’s milk is a network of its upstream slag is the challenge that over 20 000 stockbreeders Danone must surmount to create Trade-tailored support Daround the world and 4.5 billion maximum value in this sector of the for stockbreeders liters of milk collected annually directly food business, where for years the In this spirit, Danone Fresh Dairy France from milk producers, including 1 billion model was that of working each step (DPFF) launched the “Acteurs pour un for France. These figures highlight the in this chain separately: “Globalisation lait durable” (“Actors for sustainable interdependencies existing between has weakened the ties between farm- milk”) project in late 2010 for the 3,300 the company and all its stakeholders, ers and consumers. Each actor, now French dairy producers who supply foremost among milk producers. confronted with this disconnection DPFF with a billion liters a year. This Danone needs milk to process and between the agricultural world and the five-year programme entails a number market its products and stockbreeders food industry, must become aware of of specific commitments within all four need Danone to find an outlet for their the place he holds in the entire chain. themes. Supporting and promoting the production and improve quality, par- We’ll no longer be able to talk about upstream dimension of this supply ticularly small farmers sometimes at the bringing health through food if we chain and the cow breeder’s role is a head of very small farms in emerging don’t talk about the health of the key component of Danone’s strategy markets.Thus, strengthen and sustain products and ingredients, wich today to focus on the virtuous work

04 LETTER TO SHAREHOLDERS MARCH 2011 A «barometer breeders» which will be conducted annually by Danone Fresh Dairy France will measure the quality of the relationship with its collect and its evolution, and may also identify ways to improve the approach in relations with farmers.

with this part of the chain. The idea is which Danone agrees to collect and to be able to produce a better milk resell. The “Reine Mathilde” project, and, consequently, a better product also backed by the Ecosystem Fund, for the consumer. In this spirit, Danone focuses on developing an organic milk gives voice to farmers and wants to supply chain around the Molay-Littry help them to enhance their business. plant in Normandy, which produces The programme, known as “Horizon Les 2 Vaches brand yoghurts and 2015,” offers customised support to fromage frais. show a significant reduction in cows’ those cow breeders who desire it, with methane discharges when linseed is training and individual guidance Less methane and higher- added to their food. There are major provided by technicians from inde- quality milk: a first french pilot stakes involved here, because methane pendent professional organisations, experience discharge accounts for 50% of the all made possible by co-financing from Linus, another pilot experiment begun yoghurt manufacturing carbon footprint. DPFF and the Danone Ecosystem in 2008, is joining the “Actors for And, in parallel, working on cattle feed Fund. A pilot experiment begun in Sustainable Milk” project and address- helps bring about the improved milk southwest France, for example, es both the nature and health themes: nutritional quality that Danone is looking gives 650 cow breeders the option of 60 farms spread over the group’s entire for: increased protein and Omega 3 undergoing technical audits as well as milk collection area in France will test content and a reduction in certain satu- brainstorming on their farms’ com- various food sources for their milch rated fatty-acids. The growing number petitiveness in this era of ECAP reform cows, with the dual objective of reduc- of these pilot projects should make it (European Common Agricultural ing methane discharge and improving possible to find the best diets for the Policy). milk’s nutritional quality. This dual diverse geographical settings and local To provide cattle-raising professionals ambition will be implement worldwide, cultures. Respecting this diversity is one with greater financial security, DPFF along with groups of 10 to 60 farms in of Danone’s fundamental values and also launched a “double price - double 10 countries: Germany, Belgium, Brazil, one of the conditions of the desired volume” mechanism through which it Canada, Spain, France, the Czech “reconnection” of the food chain and, commits to an initial price for the Republic, Hungary, Slovakia and the consequently, the value chain. volumes the group needs, and then to U.S. The experiments performed with More information: a second price, equivalent to market support from the INRA (French National www.noseleveursetvous.com price, for the producers’ surpluses, Institute for Agricultural Research)

MARCH 2011 LETTER TO SHAREHOLDERS 05 GROUPNEWS

Institut Pasteur and Danone Research organised the first International Symposium «Microbes for health»

The Institut Pasteur and role in certain metabolic Danone Research organ- diseases (as obesity). ized jointly the Conversely, the consumption Danone-Unimilk International Symposium of certain strains of bacteria «Microbes for Health» on appears to exert beneficial a Russian dairy giant 22nd and 23rd November effects on the balance of the is born 2010 in Paris. More than 300 flora and to alleviate certain international researchers took inflammatory diseases. The Danone-Unimilk joint venture, finalised on part in this Symposium which Finally, the researchers out- November, exemplifies the group’s strategy of fortify- was highlighted the essential lined a number of potential ing its presence on several key high-growth markets. role for health of bacteria unob- explanations for the mecha- This means that Russia and three other CIS* countries trusively at work in the depths nisms potentially accounting (the Ukraine, Kazakhstan and Belarus) constitute of our intestine, that is to say for the health benefits of Danone’s leading dairy market with sales of nearly two the microbiota. The major certain bacteria, thus providing billion euros. This operation will help accelerate the teachings of two days devoted further openings for the devel- group’s growth. to microbiota (comprising all opment of health foods which, Upon the agreement establishing the joint venture was finalised, the bacteria found in the by providing certain bacterial the objective was clear: maintain the double-digit growth both human gut) were the extent, strains, promote the develop- companies had individually enjoyed, and make the most of the hitherto underestimated, of the ment of populations of synergy between the two companies to generate even greater genome of this microbiota, beneficial bacteria within value. Merging Danone CIS and Unimilk (registering a growth of which comprises 1000 bacteri- the microbiota. sales from 27.1% in December 2010) unites two different al species and more than 3.3 dynamics, each built upon a different model. Danone has been million genes ... i.e. 150 more in Russia since 1992 and literally invented the yoghurt category than are present in the human For more information: there. Even before the Unimilk operation, the group was already www.microbesforhealth.fr the value leader there in the dairy segment with a 26% market genome! This microbiota was www.pasteur.fr also widely shown to play a www.danone.com share, seeing annual growth rates of 25% to 50% between 2002 and 2007. With the success of Aktivia, , Danissimo and the premium children’s brand Rastishka, the production capac- ity of the Tchekhov factory near Moscow, opened in 2000, had Danone, stratégic partner to be increased twice, reaching 430,000 tons since 2009. Established in 2002, Unimilk rose to the number two position on of the Planetworkshops the dairy product market by integrating some thirty former state- Last November, held in the 5th edition of the Global run dairies between 2002 and 2007. These production facilities, Conference on the theme: «Is innovation enough to face spread evenly over the entire territory, were modernised and the great challenges of sustainable development?». More rationalised. Similarly, the offer was restructured around six or than 400 people from politicians, manufacturers, NGOs, media… seven national name brands, including Prostokvashino, the CIS’ attended the event which aims to promote concrete experiences leading dairy brand, just five years after being launched. and disseminate good practice to accompany the shift to sus- The joint venture Danone Unimilk in this region now represents a tainable models. Very involved on issues of sustainable develop- force of nearly 2 billion euros of annual sales, perfectly positioned ment, in the way they irrigate the business decisions at every to grow on the two major market segments, traditional products level or through initiatives such as the Danone Fund Ecosystem (kefir, sour cream ...) very popular with local consumers and or Danone Fund for Nature, it is very logical that Danone wished more innovative dairy products, promising high growth rates. to join in this landmark event.

For more information : http://www.planetworkshops.org *CIS: federation of 11 Republics of the former USSR And more: http://lespiedssurterre.danone.com

06 LETTER TO SHAREHOLDERS MARCH 2011 GROUPNEWS

Nutricia launches Volvic goes green NutriniDrink Smoothie with its bottle plant A green revolution! Volvic proposes for the A traditional diet is not first time in France a bottle partly of plant always enough to provide origin. An innovation that marks a new step in the nutrition needed the overall approach of Volvic for the environ- Mexico : water by children experiencing ment. This new Volvic 50cl bottle is more environ- and behaviors food growth difficulties. mentally friendly. She is always 100% recyclable, but it So created is now produced from PET to 20% vegetable waste Mexico ranks 2nd in the Nutrinidrink Smoothie, the from sugar cane. With the results of reducing the world in consumption of first product of its kind in the carbon footprint by 35% compared to conventional soft drinks, and ranks 2nd world of paediatric medical 50cl bottle of Volvic. A step that determines the in overweight or obesity nutrition, to diversify its dairy eco-packaging design of Volvic, which together too: 70% of the popula- product range for children. reduced the weight of 50cl bottles and 1.5l respec- tion is concerned (OCED The smoothie contains 15% tively 12% and 13%. This relief has the effect of 2009). To face this worrying fruit and comes in a colourful, significantly reducing the carbon footprint of packag- situation, Danone Waters 20cl bottle that’s easy hold. ing. The brand is also a pioneer in the field of bottle launched a huge project to sizes: with the Eco Fontaine and the Eco Volvic bottle develop healthier beverages 3l , to offer both formats more convenient, cheaper, by replacing artificial sweet- and have the advantage of containing more water and eners by natural ones. To this less plastic. end, many challenges had to be taken into account: • Pleasure is a key issue for Mexican consumers who do not wish to sacrifice the Each country has its flavour for fewer calories; • Light beverages represent Danonino thus only 5% of the soft The figure drinks market because Danone is committed to continual improvement in sweeteners are perceived as 15.2% the nutritional value of its products. Improving them “unhealthy”. without compromising their organoleptic properties is The influence of these two With 15.2% sales growth a nutritional and technical challenge that can be suc- factors led to explore Stevia, in 2010, the Aptamil brand cessfully achieved using a step-by-step policy, which the natural sweetener, with (Instant Milk Formula) means making very gradual adjustments to sugar and fat content zero calorie. After 2 years of is now the first growth so as to make the transition imperceptible. In this way, the Dairy work to find the right formula contributor to Danone R&D teams have been working since 2007 to reduce the fat and to attenuate the sweetener’s Baby Division in 2010. sugar content of the German formulation of Danonino. The result bitter flavour – rather similar The Aptamil brand is also lea- is that, despite having the lowest sugar content in to liquorice, “Bonafont con ding the Instant Milk Formula the market, Danonino is still the consumer’s Jugo Lemon”, the first Stevia segment of the market in the favourite (65%). This work has also been sweetened Danone beverage world with a 15.8% value recognised by the German Child Nutritional was launched with very share in the 35 countries Organisation, which has included Danonino successful data: 33% of where Danone Baby Nutrition in its ‘Optimix’ healthy snack recommenda- sugar reduction and 20 kcal is present. tion of 1 piece of fruit, 1 multigrain roll, 1 pot per 200 ml of decrease. of Danonino and 1 glass of water.

MARCH 2011 LETTER TO SHAREHOLDERS 07 SHAREHOLDER INFORMATIONS Danone shares

> NUMBER OF SHARES ON JUNE 1st, 2010: 647 921 840 Share price and indices > NOMINAL VALUE : ` 0.25 per share Danone share price compared with international indices (base 100: 31/12/2010) > QUOTED STOCK MARKETS: company shares are quoted on the NYSE Euronext, on the Swiss Stock exchange and are quoted under ADS / ADR (American Depository Share / Receipt) with the ratio: 1 current share = 5 ADS, on the Over the Counter US market (OTC).

Calendar > April 14, 2011 : 2011 First Quarter Sales > April 28, 2011 : Shareholder’s Annual Meeting

Dec.09 Jan.10 Feb.10 Mar.10 Apr.10 May10 Jun.10 Jul.10 Aug.10 Sep.10 Oct.10 Nov.10 Dec.10 > July 28, 2011 : 2011 First Half Sales and Results > October 18, 2011 : Key market data 2011 Nine Months Sales at Dec. 31, 2010 Market capitalization at Dec. 31 (in millions `) 30 465 Closing price for the year (in `) 47.02 High for the year (in `) 48.50 Contacts Low for the year (in `) 39.35 For important dates and financial thousands of shares information concerning Danone, Average number of shares traded daily 2 344 go to http://finance.danone.com or call ours Shareholder hotline: 0800 320 Identifiable holders of bearer shares at July 31, 2010 323 % capital Institutional investors 83% You may opt to automatically receive France 27% Danone financial information by e-mail. United Kingdom 9% To choose your options for e-mail Germany 5% notification, please enter your e-mail Benelux 6% address on: http://finance.danone.com Rest of Europe 7% United States 22%

Rest of the World 7% The LETTER TO SHAREHOLDERS is a publication of Danone: 17, boulevard Haussmann, 75009 Paris. Individual shareholders and FCPE (Danone employee fund) 12% Publication editor: Stéphanie Rismont. Design and production: Photography: Danone pictures Treasury stock 5% library, DR. +33 1 55 34 46 00 (ref. LAAC311) Total 100%

08 LETTER TO SHAREHOLDERS MARCH 2011