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|Full Year Results 2009|
February 11th, 2010
Q4 delivering strong sales growth momentum going into 2010
“2009 marks the end of numerous adjustments which we have implemented in the past 18 to 24 months in order to strengthen our model and adapt it to the new environment: this includes the change in our Asian footprint, the strengthening of our financial structure, the improvements of the category trends in Waters and the focus on global brands in Baby and Medical. It obviously includes as well our reset plans in the Dairy division, which - beyond immediate strong results - have resiliently improved the competitiveness of our brands. These adjustments have been implemented with an unparalleled speed and efficiency by our teams. While facing an environment which, we believe, will remain challenging in 2010 in many respects, Danone is emerging stronger from these two years, and ready to grab the many opportunities that exist in our categories. Our organic sales growth accelerated quarter after quarter in 2009, reaching 5.5% in the fourth quarter, our margins have continued to progress in the second half and our cash flow generation has grown a remarkable 20% in 2009. Last, our underlying EPS has grown +10% on a like for like basis and excluding the impact of the rights issue. But 2009 is already over and we are now entirely turned to 2010, with the ambition to continue to develop our categories, to further strengthen our brands, to keep increasing our competitive position and to continue to expand our cash flow generation.”
Financial highlights full year 2009
 like-for-like = at constant scope of consolidation and constant exchange rates  excl. impact of rights issue
Sales by business line and geographical area for the fourth quarter and full year 2009
 : like-for-like = at constant scope of consolidation and exchange rates
Danone’s Board of Directors convened on February 10, 2010 to close the Company’s statutory and consolidated accounts for the full year 2009. The certification process of the accounts by the Company’s auditors has been largely completed at this date.
Overview of sales performance – FY 2009
Consolidated reported sales decreased by 1.6% to € 14,982 mln in 2009. Excluding the effects of changes in exchange rates (-3.4%) and in scope of consolidation (-1.4%), total sales increased by +3.2% on a like-for-like basis. This like-for-like sales growth was driven by a +5.2% rise in volume and a -2.0% decline in price/mix. The aforementioned effects of changes in exchange rates were mainly driven by the depreciation of the Russian ruble, the Polish zloty, the Mexican peso and the British pound. The change in the scope of consolidation was predominantly driven by the divestiture of Frucor, a beverage-based business based in Australia and New Zealand, which was sold to Suntory Limited and deconsolidated as of January 2009.
Overview of sales performance – Q4 2009
Consolidated reported sales remained stable at € 3,682 mln compared to the fourth quarter of 2008. Excluding the effects of changes in exchange rates (-4.2%) and in scope of consolidation
Trading operating margin improved +61 bps in FY 09 on a like-for-like basis
 like-for-like = at constant scope of consolidation and constant exchange rates
Danone’s trading operating (EBIT) margin improved by +61 bps to 15.31%, on a like-for-like basis, in 2009. The overall very strong margin improvement can mainly be attributed to a significant improvement of the gross margin due to lower raw material prices, mix, leverage as well as ongoing efficiency and productivity gains and the last part of the Numico cost synergies. In Fresh Dairy, the majority of the positive effect stemming from lower milk prices has been passed on to the consumer through the Reset initiatives which came into full effect in the second half of 2009. The EBIT margin of the Waters division was supported by the positive effect of lower packaging costs due to, on average, lower PET prices which was partly offset by lower fixed cost absorption as well as general cost inflation. The Baby Nutrition division’s strong EBIT margin improvement mainly reflects a strong gross margin improvement as a result of lower raw material prices and productivity gains which was partly offset by a step-up in A&P spend. The EBIT margin of the Medical Nutrition division showed an underlying improvement as a result of lower input prices and operational leverage which was offset by several non-recurring elements, including inventory adjustments and organisational restructuring costs. The group’s margin performance was achieved on the back of A&P spend that increased by 39 bps to 12.3% as a percentage of sales in 2009.
Underlying like-for-like fully diluted EPS increased by +10.2% to € 2.57 in FY 09
Cost of net debt decreased substantially in 2009 driven by the capital increase, the strong free cash flow generation as well as the proceeds from the disposal of selected non-core activities. Other financial items substantially increased due to the higher cost of currency hedging in emerging countries as well as due to IAS 39 mark-to-market valuation of forex hedges which had a positive effect in 2008 and a negative effect in 2009.
The underlying tax rate in 2009 remained stable at 23.4% compared to the preceding year.
Non-current result from continued operations reflects among others the net capital gain from the disposals of Frucor and Britannia, the one-off costs related to the bond buy-back, the contribution of € 100 mln to the Danone Eco System Fund and the divestiture of Wahaha.
 excl. impact of rights issue
Cash flow and debt position
Free cash flow from operations increased by 20.6% to € 1,427 mln, or 9.5% of sales, in 2009, compared to 7.8% of sales, in the same period last year. Capital expenditure was € 699 mln, or 4.7% of sales.
Danone assumes it will continue to face a challenging financial, economic and social environment in 2010, with continued difficult consumption trends in western economies, weak emerging currencies, and inflation of raw materials.
In this context, we will continue to focus on the development of our categories, the strengthening of our competitive positions and on the development of our brands. The growth of our free cash flow will continue to be one of our key priorities, and we will use productivity gains as well as selective and competitive pricing to manage cost inflation.
Based on the medium-term objectives that were announced in November 2009, Danone targets the following for full year 2010:
In addition, Danone targets a stable trading operating (EBIT) margin versus 2009 on a like-for-like basis.
Danone will propose to the Annual General Meeting of Shareholders on Thursday 22 April 2010 to pay a dividend related to 2009 of € 1.20 per ordinary share in cash. This implies a stable level of dividend per share compared to 2008, despite the increase in the number of shares that resulted from the capital increase. The ex-dividend date will be Tuesday 4 May 2010. The dividend 2009 will be payable from Friday 7 May 2010 onwards.
Driven by the strength of its free cash flow generation, Danone also considers to start using its share buy-back authorization again in 2010.
On December 10th 2009, Danone and Clover SA announced that Clover SA had agreed to sell its 45% shareholding in the joint-venture Danone Clover to Danone, for an amount of Rand 1,085 mln (close to € 100 mln) in cash. Post completion of this transaction, Danone holds 100% of Danone Clover, the market leader in fermented fresh dairy products & desserts in South Africa.
On November 18th 2009, Danone stated that it hosted an Investor Seminar in Amsterdam, the Netherlands, on November 17th and 18th 2009. These two days focused, among others, on the Company’s corporate mission and strategy, as well as on the long-term business growth drivers of its divisions. At the end of the Investor Seminar, Emmanuel Faber, co-COO of Danone, elaborated on the Company’s financial objectives and set the following medium-term objectives:
On November 16th 2009, Danone announced the launch of a public Tender Offer to purchase some of its bonds. The proposed transaction would enable Danone to reduce its gross debt, optimise its debt structure and lower its average cost of debt from 2010 onwards.
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A live and on-demand video web cast of the analyst & investor presentation on Thursday 11 February 2010 will be available as of 9.00 hrs CET today. The related presentation slides will be available on our website (http://www.finance.danone.com/) as of 07.30 hrs CET today.
This press release contains certain forward-looking statements concerning DANONE. Although DANONE believes its expectations are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those anticipated in these forward-looking statements. For a detailed description of these risks and uncertainties, please refer to the section “Risk Factors” in DANONE’s Annual Report (which is available on http://www.danone.com/).
APPENDIX – Sales Overview