H1 2019: Good execution driving profitable growth

2019 First-Half Results Press release - Paris, July 25, 2019

Good execution driving profitable growth

On track to deliver guidance

• Consolidated sales up by +1.3% on a reported basis to €6,496m in second quarter
• Like-for-likesales growth rebound in Q2 as expected: +2.5%, with all businesses growing at more than 2%
• Recurring operating margin improving for the 7th consecutive semester at 14.69%, up +42 bps
• Strong recurring EPS growth: +6.3% at €1.87
• Reported EPS at €1.58 reflecting sale of Earthbound Farm and non-recurring restructuring costs
• 2019 guidance confirmed: like-for-like sales growth of around 3% and recurring operating margin above 15%

Emmanuel Faber: Chairman and Chief Executive Officer statement

"Our first-half results demonstrate our continued focus on the combination of strong execution and progress in the transformation of Danone, in order to drive agility and resilience, and deliver consistent profitable growth. I was pleased to see top-line accelerating in the second quarter, with growth across all our businesses. The innovation momentum remains strong, while we have addressed most of the underperformers in our portfolio. Our margin improvement was of high quality, driven by gross margin progression, and further savings from our Protein efficiency-program. As this short term delivery is served by our long-term focus on creating value in a responsible and inclusive way, we are well on track for our 2020 objectives. With unchanged expectations for the full year, I am confident that the improved fundamentals of our business will continue to drive top-line growth acceleration and margin expansion throughout rest of the year."

2019 Half-Year Key Figures

	in millions of euros except if stated otherwise		H1 2018		H1 2019		Reported			Like-for-like
				Change			(LFL)
Sales	12,498	12,648		+1.2%		+1.7%
	Recurring operating income		1,784		1,858		+4.2%			+6.4%
	Recurring operating margin		14.27%		14.69%		+42 bps			+68 bps
	Non-recurring operating income and expenses	(695)	(314)		+381
Operating income	1,089	1,543	+41.8%
Operating margin	8.71%	12.20%	+349bps
	Recurring net income - Group share		1,132		1,221		+7.8%
	Non-recurring net income - Group share	72	(186)		-258
Net income - Group share	1,204	1,035	-14.1%
	Recurring EPS (€)		1.76		1.87		+6.3%
EPS (€)	1.87	1.58	-15.4%
	Free cash flow		1,104		1,083		-1.9%
Cash flow from operating activities	1,427	1,435	+0.6%

All references in this document to Like-for-like (LFL) changes, Recurring operating income and margin, Recurring net income, Recurring income tax rate, Recurring EPS, Free cash-flow, and Net financial debt, correspond to financial indicators not defined in IFRS. Their definitions, as well as their reconciliation with financial statements, are listed on pages 7 and 8.

For more information, please contact:

Corporate Communications: [phone] - Investor Relations: [phone]

Danone: 17, Boulevard Haussmann, 75009 Paris, France

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2019 second quarter and half-year sales

	€ million		Q2	Q2	Reported	LFL Sales	Volume	H1	H1	Reported	LFL Sales	Volume
	except %		2018	2019	change	Growth	Growth	2018	2019	change	Growth	Growth
	BY REPORTING ENTITY
	EDP		3,257	3,283	+0.8%	+2.2%	-1.2%	6,554	6,600	+0.7%	+1.2%	-2.5%
	Specialized Nutrition		1,831	1,866	+1.9%	+3.2%	-1.3%	3,644	3,696	+1.4%	+1.8%	-1.1%
	Waters		1,325	1,346	+1.6%	+2.1%	-0.4%	2,301	2,352	+2.2%	+2.8%	+0.2%
	BY GEOGRAPHICAL AREA
	Europe & Noram1		3,453	3,471	+0.5%	+1.1%	-0.7%	6,764	6,851	+1.3%	+0.1%	-1.5%
	Rest of the World		2,961	3,025	+2.2%	+4.2%	-1.5%	5,735	5,797	+1.1%	+3.6%	-1.3%
	TOTAL		6,414	6,496	+1.3%	+2.5%	-1.0%	12,498	12,648	+1.2%	+1.7%	-1.6%

1North America (Noram) : United States and Canada

In the second quarter of 2019, consolidated sales stood at €6.5bn, up +2.5% on a like-for-like basis. Sales grew by +3.5% in value, with a continued sales/kg improvement. Volumes slightly declined by -1.0%. All reporting lines contributed to the growth and posted like-for-like sales growth over 2%. Reported sales were up +1.3%, including a negative scope effect (-1.4%), primarily linked to the deconsolidation from April 1st of Earthbound Farm, that was sold in April 2019, a minor negative impact of currencies (-0.1%), and +0.3% from the organic contribution of Argentina to growth.

ESSENTIAL DAIRY AND PLANT-BASED (EDP)

Essential Dairy & Plant-based(EDP) posted in the second quarter net sales up +2.2% on a like-for-like basis, including a +3.4% increase in value, and a -1.2% decline in volumes. Performance was driven by a stabilization at global level of Dairy activities, while Plant-Based activities continued to deliver consistent strong growth. All regions grew in Q2.

Europe delivered slightly positive growth, including a good performance in Southern Europe with Spain and France stabilized for the first time in the last 7 years. Alpro continued to post double-digit growth, with balanced contribution from core business and new markets. North America delivered moderate sales growth, with solid growth in Plant- Based driven by almond-based beverages and adjacent categories, strong growth in Coffee creamers supported by a dynamic demand and gains in market shares in ready-to-drink coffee, flat sales in Yogurts impacted in the US by competitor promotion activity, notably in the Greek yogurt segment. CIS growth slowed down in Q2, as core segments were impacted by a softer consumer environment while kids and indulgence offerings performance remained sustained. In Latam, Brazil kept growing and Mexico posted solid growth driven by increasing plant-based penetration in the country. Morocco delivered sales growth of around +10%, with Centrale Danone progressively recovering market share and regaining market leadership, following strong consumer engagement and a reshaping of the portfolio.

SPECIALIZED NUTRITION

Specialized Nutrition sales growth accelerated in the second quarter, up +3.2% on a like-for-like basis (vs. +0.4% in Q1), with an increase in value of +4.4% and a decrease of -1.3% in volumes. Performance was driven by strong fundamentals of Advanced Medical Nutrition and a return to growth in Early Life Nutrition.

Advanced Medical Nutrition delivered mid single digit sales growth in the first-half, with all segments (adult and pediatric care) and all regions performing strongly. China led the growth, with double-digit sales growth, alongside robust dynamics in Europe and in rest of the world.

For more information, please contact:

Corporate Communications: [phone] - Investor Relations: [phone]

Danone: 17, Boulevard Haussmann, 75009 Paris, France

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Early Life Nutrition registered moderate sales growth. After 3 quarters of decline, ELN China delivered slightly positive growth, supported by the good execution of development plans in the direct channels, in particular in low tier cities, as well as, in the indirect channels, by an increase in sales through social e-commerce. The rest of the world posted solid growth, with strong performance in rest of Asia, benefiting from the successful relaunch of Bebelac in Indonesia, and double-digit growth in the Americas. Performance in Europe was still negative but improving, notably in France, getting positive results from the large pipeline of Bledina innovations.

WATERS

In Waters, net sales were up +2.1% on a like-for-like basis, with a +2.5% increase in value and a -0.4% decline in volumes.

In Europe, sales were slightly down in the second quarter, adversely impacted by poor weather conditions in May with temperatures below the average of the season. Volvic infusions and Bulles de Fruits by Badoit continued to performed well in the Aquadrinks segment. In Asia, growth was solid, led by Indonesia benefiting from expanding geographical reach of Aqua and by Turkey with strong growth driven by Hayat and Sirma market share gains. In China, the brand model of Mizone is being adapted to better reflect fast-changing category dynamics. In Latin America, Bonafont registered strong growth in Mexico, driven by good plain waters performance.

H1 2019 RECURRING OPERATING MARGIN: +68bps LIKE-FOR-LIKE

In H1 2019, Danone's recurring operating income stood at €1.9 bn. Recurring operating margin reached 14.69%, up +42 bps on a reported basis.

This was driven by a +68 bps margin improvement on a like-for-like basis, reflecting notably Danone's valorized growth model and operational savings from 'Protein' efficiency-program, offsetting raw materials gross inflation; sales and marketing expenses optimization, as the company pursues the shift of its marketing spending towards digital; and overheads management. Overall, 'Protein' efficiency program delivered an additional ~€150 million gross savings in H1 2019.

In addition, reported margin included:

• a +10 bps positive scope effect, resulting primarily from the divestiture of Earthbound Farm on April 1st;
• a -9 bps negative impact from currencies entirely linked to the application of IAS29 hyperinflationary accounting in Argentina;
• a -27 bps linked to the deterioration of margin in Argentina due to imported inflation.

	Recurring operating profit			H1 2018			H1 2019		Change
	(€m) and margin (%)			€m			Margin (%)			€m			Margin (%)		Reported			Like-for-like
	BY REPORTING ENTITY
	EDP		590	9.00%		621	9.41%		+40 bps			+58 bps
	Specialized Nutrition		930	25.53%		934	25.28%	-25 bps			+55 bps
	Waters		263	11.45%		303	12.87%	+142 bps			+110 bps
	BY GEOGRAPHICAL AREA
	Europe & Noram2		878	12.98%			942	13.75%	+77 bps			+102 bps
	Rest of the World		906	15.80%			915	15.79%	-0 bps			+15 bps
	Total			1,784			14.27%			1,858			14.69%		+42 bps			+68 bps

2North America (Noram) : United States and Canada

For more information, please contact:

Corporate Communications: [phone] - Investor Relations: [phone]

Danone: 17, Boulevard Haussmann, 75009 Paris, France

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H1 2019 RECURRING EPS: +6.3%

		H1 2018				H1 2019
		Non-	Total			Non-	Total
in millions of euros except if stated otherwise	Recurring	recurring		Recurring	recurring
Recurring operating income	1,784		1,784		1,858		1,858
Other operating income and expense		(695)	(695)			(314)	(314)
Operating income	1,784	(695)	1,089		1,858	(314)	1,543
Cost of net debt	(115)		(115)		(118)		(118)
Other financial income and expense	(60)	3	(57)		(65)	0	(65)
Income before taxes	1,608	(692)	916		1,675	(314)	1,361
Income tax	(475)	63	(412)		(453)	126	(327)
Effective tax rate	29.5%		45.0%		27.0%		24.0%
Net income from fully consolidated companies	1,134	(629)	504		1,222	(188)	1,034
Net income from associates	46	701	747	51	1	51
Net income	1,180	71	1,251		1,273	(187)	1,085
• Group share	1,132	72	1,204		1,221	(186)	1,035
• Non-controlling interests	48	(1)	47	52	(1)	51
EPS (€)	1.76		1.87		1.87		1.58

Other operating income and expense stood at -€314 million, mainly related to a non-cashpre-tax charge of -€150 million recorded in the first half of the year, as a result of the divestiture of EarthBound Farm on April 2019, as well as restructuring costs of around -€150 million, including provisions linked to the further integration of Early Life and Medical Nutrition organizations, reorganisation of operations notably in Africa, and the integration of WhiteWave.

The net financial result slightly increased in absolute amount, from -€172 million in H1 2018 to -€182 million in H1 2019, mainly reflecting a negative impact on the USD-denominated portion of net debt from the USD revaluation since the beginning of the year.

The recurring income tax rate decreased to 27.0%, more than 2 points down vs. last year, driven by a positive geographical mix.

Recurring net income from associates increased to €51 million, despite the reduction in Danone's stake in Yakult from 21.3% to 6.6% in March 2018, reflecting good results from the participation in Mengniu and Yashili.

Recurring minority interests increased to €52 million, notably as the result of the good performance of Aqua in Indonesia, and recurring EPS increased by +6.3% to €1.87.

Total non-recurringnet income amounted to -€186 million in H1 2019 (including a post-tax loss of around -€50m from the sale of Earthbound Farm), down from an exceptional positive amount of €72 million last year that was linked notably to the capital gain from the partial sale of Danone's stake in Yakult. As a result, reported EPS was €1.58, down -15.4% versus last year.

H1 2019 CASH-FLOW AND DEBT

Danone delivered a consistent €1.1bn of free cash flow in the first semester. Capex amounted to €359 million, or 2.8% of net sales, in line with H1 18.

Danone's net debt stood at €13.9 bn as of June 30, 2019, up +€1.2 bn from December 31, 2018. The application of IFRS16 increased net debt by €0.7 bn (please refer to IFRS Standards section page 6).

For more information, please contact:

Corporate Communications: [phone] - Investor Relations: [phone]

Danone: 17, Boulevard Haussmann, 75009 Paris, France

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2019 OUTLOOK

(From press release issued on February 19, 2019)

Macroeconomic outlook

In 2019, Danone expects further cost inflation with a mid-to-high single digit inflation in the costs of raw and packaging materials, including:

• milk price inflation high-single digit overall, on the back of a rebalancing supply and demand dynamic,
• continued inflation in PET cost driven by sustained market demand,
• inflationary conditions in other raw materials, including sugar and fruits.

2019 guidance

In 2019, Danone will continue to progress towards its 2020 objectives by strengthening its operating model through its priorities: accelerate growth, maximize efficiencies and allocate capital with discipline. Delivery of its agenda of sales growth acceleration and improved recurring operating margin will be supported by valorized innovations, active portfolio management, and further savings from the Protein efficiency program and WhiteWave integration synergies. For the year, Danone is targeting like-for-like sales growth around 3% and recurring operating margin above 15%.

MAJOR FINANCIAL TRANSACTIONS AND DEVELOPMENTS OVER THE PERIOD

• On April 25th, 2019, the Shareholders' Meeting approved all proposed renewals of terms of office of the members of the Board of Directors : Emmanuel Faber, Chairman and Chief Executive Officer, Franck Riboud and Clara Gaymard. At this occasion, it was also confirmed that within the 'One Person, One Voice, One Share' program, each of the 100,000 Danone employees across the world would be granted a free share combined with a global annual dividend-based incentive scheme with immediate effect. Furthermore, the Board of Directors decided to further integrate the 'One Person, One Voice, One Share' participative governance through the creation of a new Purpose & Engagement Committee, in charge of ensuring that this approach of consultation and engagement with employees is properly coordinated with the work and strategic orientations of the Board.
• On June 3rd, 2019, Danone announced the launch of its first global Employee Share Subscription Plan as part of the "One Person. One Voice. One Share" program. As from June 7, 2019, Danone employees in eight countries have the opportunity to subscribe to new Danone shares. Including French employees, who already benefit from a local company savings plan, this represents 50% of all Danone employees worldwide.

OTHER INFORMATION

• The condensed interim consolidated financial statements for the 2019 First-Half Results were approved by the Board of Directors at its meeting on July 24, 2019. A limited audit has been carried out by the statutory auditors of Danone on the condensed interim consolidated financial statements.
• The 2019 half-year financial report is available on Danone's website (www.danone.com).

For more information, please contact:

Corporate Communications: [phone] - Investor Relations: [phone]

Danone: 17, Boulevard Haussmann, 75009 Paris, France

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