Danone — Earnings Release 2018

Feb 19, 2019

2018 Full-Year Results Press release – Paris, February 19, 2019

Solid performance in 2018:

Accelerating sales growth and efficiencies

2018 results: guidance delivered

• Very strong recurring EPS growth: +12.8% at constant exchange rate(1) excluding Yakult Transaction Impact
• Sales growth acceleration vs. 2017: +2.9% on a like-for-like basis(2) (+3.6% excluding the Morocco boycott impact(3) ), with +2.4% in the fourth quarter
• Recurring operating margin improvement: 14.45%, up +51bps on a like-for-like basis(2)
• o Record-high efficiencies, at above €900 million in 2018
• o Protein efficiency program delivering ahead of plan, around €300 million during the year
• Operating margin adversely impacted by impairment of Centrale Danone in first half (-€662mllion)
• Capital gain from reduction in Yakult's stake: €701million
• Strong free cash flow delivery, up +7.1% at €2.2billion
• Proposed dividend: €1.94 payable in cash

2019 guidance

• Like-for-like sales growth of around 3%
• Recurring operating margin above 15%
• (1) Excluding IAS29 impact – please see page 9 for further details
• (2) "Like-for-like New Danone" (3) See "additional information section" for more details on page 8

2018 Key Figures

in millions of euros except if stated otherwise	FY 2017	FY 2018	Reported Changes	Like-for-like New Danone
Sales	24,812	24,651	-0.7%	+2.9%
Recurring operating income	3,537	3,562	+0.7%	+6.7%
Recurring operating margin	14.26%	14.45%	+20 bps	+ 51 bps
Non-recurring operating income and expenses	192	(821)	(1,013)
Operating income	3,729	2,741	-26.5%
Operating margin	15.03%	11.12%	-391 bps
Recurring net income – Group share	2,186	2,304	+5.4%
Non-recurring net income – Group share	263	46	(217)
Net income – Group share	2,449	2,349	-4.1%
Recurring EPS (€)	3.48	3.56	+2.2%
EPS (€)	3.90	3.63	-7.0%
Free cash flow	2,083	2,232	+7.1%
Cash flow from operating activities	2,958	3,111	+5.2%

All references in this document to "Like-for-like (LFL) New Danone" changes, Recurring operating income and margin, Recurring net income, Recurring income tax rate, Recurring EPS, Y2,958 akult % T2,958 akult 11 84m 0 0.125 0.376 rg 0 0.125 0.376 RG [(-)] TJ 49.56 12.cur 84m 0 0.125 0.376 rg 0 0.125 0.376I2.72 re W* n BT BT /F5 6.96 Tf 1 0 0 1 225.41 104.42 Tm 0 0.125 0.376 rg 0 652 230.376 RG [( 84m 0 0.125 0.376 rg 0 0.125 0.376(a)11p(t)6(i12.c)9(u).72 re W* n BT BT /F5 6.96 Tf [(-)] TJdt)-22(e)12Ne95.32 -6(n)-10(f )-ax x rc8871 0nd] 41(tr)8b0(r)t.62 49nr akult 愀歵氀琀 11

Emmanuel Faber: Chairman and Chief Executive Officer statement

"I am proud of the results achieved by our teams at Danone in 2018.

Our company is becoming more agile every day. We keep adjusting our ways of working and delivering efficiency. And we adapt to the ever changing world around us, as exemplified by the impressive acceleration of our innovation rate, supplying a quarter of our total sales in 2018 from only 16% two years ago, and our 40% growth in e-commerce last year.

With Specialized Nutrition, Waters and our global plant based brands from WhiteWave continuing to post strong growth despite a very volatile environment, the year has seen the encouraging progress of our Essential Dairy and Plant-based business in Europe, which stabilized in the fourth quarter last year. This could not have happened without the multi-faceted reinvention of Activia, which shows that after years of decline, embracing with no fear the new paradigms can turn around a large global brand.

We are actually further delayering our organization, as another step to move away from the pyramidal model that built the giant food companies of the past. With this, we are becoming the most localized of our peers, prepared to capture the underlying value of the biodiversity of local food cultures and agricultures in tune with the new eating and drinking paradigms.

I am also thrilled that we are entering a very special year in 2019, as we will celebrate the 100th anniversary of Danone by welcoming each of us at Danone as a shareholder of the company this year. In addition, after a 100 000 people worldwide consultation that we launched last year, the voice of all our team members will now routinely inform the management of our long term goals and our Board of Directors decisions.

I would like to finish by thanking our teams for their demonstrated ability last year to both deliver on our short-term commitments through a balanced model of gradually accelerating growth and significant margin enhancement, and simultaneously walk the path to our 2020 commitments and prepare the future, an imperative for those companies, like ours, that have a true ambition to thrive through the food revolution, with the support of many partners."

€ million except %	Q4 2017	Q4 2018	Reported change	LFL Sales Growth	Volume Growth	FY 2017	FY 2018	Reported change	LFL Sales Growth(1)	Volume Growth (1)
BY REPORTING ENTITY
EDP International	2,129	2,007	-5.7%	+2.0%	-5.1%	8,612	8,015	-6.9%	+0.1%	-5.5%
EDP Noram	1,246	1,309	+5.1%	+2.2%	+1.9%	4,492	5,041	+12.2%	+1.5%	+2.5%
Specialized Nutrition	1,791	1,754	-2.1%	+1.1%	-0.6%	7,079	7,115	+0.5%	+5.9%	+1.2%
Waters	974	939	-3.7%	+5.6%	+1.1%	4,630	4,480	-3.2%	+5.3%	+2.1%
BY GEOGRAPHICAL AREA
Europe & Noram	3,398	3,422	+0.7%	-0.3%	-0.1%	13,192	13,654	+3.5%	-0.8%	-0.4%
Rest of the World	2,743	2,587	-5.7%	+5.7%	-2.7%	11,620	10,997	-5.4%	+7.6%	-0.6%
TOTAL	6,140	6,009	-2.1%	+2.4%	-1.4%	24,812	24,651	-0.7%	+2.9%	-0.7%

2018 fourth quarter and full-year sales

(1) "Like-for-like New Danone"

In 2018, consolidated sales were €24.7bn, up +2.9% on a "like-for-like New Danone" basis. Sales grew by +3.6% in value, led by a continued mix and portfolio valorization, largely offsetting a -0.7% decline in volumes. All reporting lines contributed to the growth. In the fourth quarter, sales grew +2.4% on a like-for-like basis.

Excluding the impact of the Morocco boycott, sales were up +3.6% and volumes rose +0.6% in the full-year, and +3.2% in the fourth quarter with volumes up +0.2%.

Full-year reported sales were down -0.7% vs. 2017, including:

• the White Wave base effect corresponding to the consolidation of WhiteWave from April 12, 2017 (+4.0%) and other changes in the scope of consolidation (-0.8%), primarily from the disposal of Stonyfield (August 2017);
• a negative currency impact (-6.6%) reflecting the appreciation of the euro against the Argentinian peso, the US dollar, and emerging currencies, including the Russian Ruble, the Turkish Lira, and the Brazilian Real; and a negative impact (-0.2%) linked to the adoption of IAS29 hyperinflationary accounting in Argentina (see further details page 9).

ESSENTIAL DAIRY AND PLANT-BASED (EDP) INTERNATIONAL

Essential Dairy & Plant-Based (EDP) International posted net sales growth of +0.1% in 2018 on a like-for-like New Danone basis and +2.1% excluding the impact of the Morocco boycott.

Growth accelerated across the year, up +2.0% in the fourth quarter on a like-for-like basis. Excluding the impact of the Morocco boycott, EDP International sales were up +4.5% in Q4, with volumes down -0.8%. Performance was driven by a stabilization of Europe, a consistent strong momentum in CIS as well as an improved performance in Latin America. Europe confirmed its continued progress since the beginning of 2017, driven by Activia sales now roughly flat, Danone brand growing consistently since the second quarter and a continued double-digit sales growth of Alpro. In the CIS region, sales continued to grow strongly through new launches, powerful communication campaigns, and a positive mix evolution driven by fresh dairy products. Latin America registered strong growth, driven by Mexico where sales grew high-single-digit, thanks notably to innovations and expansion of plant-based offering, and by the progress registered in Brazil, where sales benefited from a revamped distribution network and product offering. In Morocco, the sales trend was in line with the previous quarter.

ESSENTIAL DAIRY AND PLANT-BASED (EDP) NORAM

Essential Dairy & Plant-Based (EDP) Noram posted net sales growth of +1.5% in 2018 on a like-for-like New Danone basis.

Q4 was another quarter of solid sales growth with sales up +2.2% in the quarter on a like-for-like basis, up +0.3% in value and up +1.9% in volumes. Excluding Fresh Foods, sales were up +3.1% in Q4. Yogurt sales showed moderate growth in a highly competitive category, especially in the Greek segment, with very strong performance of the Activia brand and plant-based products, as well as a good performance in Canada. In Plant-based segments, performance was solid, continuing to be driven by the nut-based segment, while the soy category is declining. Coffee creamers continued to deliver strong growth. Premium Dairy posted positive growth in the fourth quarter for the first time since the acquisition of WhiteWave, driven by increasing volumes with market share gains, thanks in particular to the success of value-added offers and single-serve drinks designed for kids. The FDA alert on the US romaine salads category in November penalized Fresh food sales.

SPECIALIZED NUTRITION

Specialized Nutrition posted net sales growth of +5.9% in 2018 on a like-for-like New Danone basis.

Growth was positive in the fourth quarter, improving versus the previous quarter, at +1.1% on a like-for-like basis, with a -0.6% decline in volume and a +1.7% increase in value. Advanced Medical Nutrition delivered high-single digit sales growth in Q4, with a positive contribution from all the regions. Europe posted a solid quarter. China registered strong double-digit growth, mostly thanks to an excellent performance of allergy treatment products. In Early Life Nutrition, sales growth was slightly negative in the fourth quarter. Sales growth was solid and broad-based outside China, with a material acceleration in most European countries and increased contribution from Africa, the Middle-East, and the US, where Happy Family, the leader in organic baby-food, has become the second largest player in the overall baby-(h)-2(a)3(s )-rg -0.4723 Tm 0 0.125 0.376 rg 0 0.125 0.376 RG -0.018 Tc[(baby)] TJ ET Q q 0.076 rg 0 0.125 0.376 RG [( )] TJ channels continued to grow very strongly, gaining market share in the most dynamic direct channels, like mom and baby stores.

WATERS

Waters posted net sales growth of +5.3% in 2018 on a like-for-like New Danone basis.

Sales growth in the fourth quarter was strong, in line with the first nine months of the year, with sales up +5.6% on a like-for-like basis, including a +1.1% growth in volume and a +4.5% rise in value. In Europe growth was moderate, facing a high base of comparison, supported by successful activations of brands, like the evian campaign around the Mickey Mouse 90th anniversary. Local brands in the Nordics and in Poland posted very strong growth. In North America, evian sales were up by more than 20%, including first acceleration benefits of the distribution agreement recently signed with Keurig Doctor Pepper in the US. In Asia, growth was mid-single digit positive. The local Aqua brand in Indonesia was a key contributor to the performance. The performance in China was penalized by the consequences of a weak summer season, although market share remained stable in volume. Latin America contributed to the overall growth notably through valorization, while volumes remained weak.

FY 2018 RECURRING OPERATING MARGIN: +51bps ("like-for-like New Danone")

In 2018, Danone's recurring operating income stood at €3.6 bn. Recurring operating margin reached 14.45%, up +20 bps on a reported basis including:

• the dilutive impact resulting from WhiteWave contribution from January 1 to April 12, 2017 (-28 bps);
• other scope effects (+6 bps), resulting from the disposal in August 2017 of Stonyfield;
• negative impact from currencies (-10 bps, including -9bps linked to the adoption of IAS29 hyperinflationary accounting in Argentina).

On a "like-for-like New Danone" basis, recurring operating margin increased by +51 bps, and +58 bps excluding the impact of the Morocco boycott. This strong improvement was achieved despite an inflationary cost environment, in particular for PET packaging and US transportation costs.

It reflects:

• Danone's profitable growth model, based on valorized innovations and positive mix improvement;
• growing efficiencies, achieved mainly through more than \$180 million cumulative synergies from the integration of WhiteWave, and around €300 million of cumulated savings from the Protein efficiency program, offsetting an inflationary cost environment;
• continued discipline in resource allocation.

Recurring operating margin (%)	FY 2017	FY 2018	Change ("like-for-like New Danone")
BY REPORTING ENTITY
EDP International	8.81%	9.06%	+29 bps
EDP Noram	12.31%	11.71%	+25 bps
Specialized Nutrition	23.82%	24.77%	+139 bps
Waters	11.66%	10.79%	-82 bps
BY GEOGRAPHICAL AREA
Europe & Noram	15.45%	14.12%	-55 bps
Rest of the World	12.90%	14.86%	+182 bps
Total	14.26%	14.45%	+51 bps

FY 2018 CASH-FLOW AND DEBT

Free cash flow stood at €2.2bn in 2018, up +7.1% from 2017, supported by the rise in recurring operating income, with capex amounting to €941 million, or 3.8% of sales.

Danone's net debt decreased by €2.6 bn from December 31, 2017, ahead of its deleverage plan, as a result of the sale of part of its stake in Yakult and a very strong free cash flow delivery. Net debt stood at €12.7 bn on December 31, 2018, with Net Debt / EBITDA reaching 2.9 times at the end of 2018, decreasing from 3.3 times at the end of 2017.

DIVIDEND

At the Annual General Meeting on April 25, 2019, Danone's Board of Directors will propose to shareholders to approve the distribution of a €1.94 dividend per share in cash in respect of the 2018 fiscal year, increasing in line with the recurring EPS growth. This dividend reflects the reinforced confidence of both the Board and management in the Company's strong financial position and the good progress of its agenda towards superior sustainable profitable growth. Assuming this proposal is approved, the ex-dividend date will be May 7, 2019 and dividends will be payable on May 9, 2019.

SOCIAL, ENVIRONMENTAL AND HEALTH FOOTPRINT

To achieve its mission of "bringing health through food to as many people as possible", in line with its "One Planet. One Health" vision, Danone strives for the highest standards regarding social, environmental and health performance, notably when it comes to health and nutrition, fighting against climate change, circular economy and inclusive diversity.

• Health and Nutrition: In 2018, 89% of volumes sold are in healthy categories and recommended for daily consumption¹ . Danone has committed to improve its products' nutritional profile building on its in-depth knowledge of eating and drinking habits, local and cultural context and public health priorities.
• Fight against climate change: Danone has pledged to be carbon neutral by 2050. To meet this goal, Danone has set intermediate greenhouse gas (GHG) reduction targets for 2030, with a 2015 baseline: to reduce full scope (scopes 1, 2 and 3)² emission intensity³ by 50%; and to achieve a 30% absolute reduction in scope 1 and 2 emissions as defined by the greenhouse gas protocol. Both targets were officially approved by the Science-Based Targets initiative. By the end of December 2018, Danone has reduced its GHG emission intensity⁴ by 15.6% on its full scope since 2015 and achieved 20.3% absolute reduction in scope 1 and 2 emissions. Danone's ranking in the CDP Climate Change program was upgraded in 2018 to the "A List".
• Circular Economy: In 2018, Danone has issued its new Packaging Policy, emphasizing the Company's new commitments towards packaging circularity. This policy is structured on three pillars: packaging designed for circularity; reused, recycled and composted in practice; preservation of natural resources by expanding the amount of recycled and bio-plastic used in packaging (see page 8 for more details).
• Inclusive Diversity: In 2018, 50% of the manager, director and executive population of Danone are women. Danone is committed to promoting greater diversity within its organization. The objective is to achieve a total of

¹ Refers to water, yogurts, milks and other daily dairy products, beverages with 0% sugar, early life nutrition products (except biscuits and beverages for children under 3 years old) and medical nutrition. The remaining categories are mainly low sugar beverages and indulgent products.

² Scope 1, 2 and 3:

^• Scope 1 covers direct emissions from equipment that is company-owned or under the operational control of Danone

⁽combustion of fuels in boilers, mobile combustion sources and fugitive emissions linked to leakages of refrigerant gases) • Scope 2 refers to indirect energy emissions related to the generation of electricity, steam, heat or cold purchased and

consumed by Danone.

^• Scope 3 covers all indirect emissions due to Danone's activities, including emissions from raw materials used, the transport and distribution of products, the use and the end-of-life of products.

³ Grams of CO² equivalent per kilo of products sold.

⁴ Based on constant scope of consolidation and constant methodology

30% female executives and 30% of executives representing countries outside Western Europe by 2020. At the end of 2018, these two indicators were 28%.

• B Corp: Danone's global ambition is to be certified as a B CorpTM. The Company has achieved key progress in 2018 by achieving Danone North America and Danone Canada B CorpTM Certification, two years ahead of target. As of December 31st, 2018, 11 entities were certified B CorpTM, and approximately 30% of Danone's consolidated sales are covered by B CorpTM certification.

2019 OUTLOOK

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 2019, Danone is targeting like-for-like sales growth around 3% and recurring operating margin above 15%.

Cécile Cabanis, Chief Financial Officer, said:

"In 2018, we delivered a solid performance and continued to successfully transform Danone for the future. Our reinforced operating model was able to absorb unexpected headwinds and deliver our guidance for the year. In 2019, we expect growth and margin to accelerate throughout the year, as the unfavorable base of comparison in the first half of the year unwinds, exiting the year at a growth rate consistent with our 2020 topline objective. We are well on track to reach our objectives and will continue to drive positive change towards superior sustainable profitable growth. Confident in the financial strength and outlook, we propose the payment of a cash dividend of €1.94, increasing in line with our earnings."

MAJOR FINANCIAL TRANSACTIONS AND DEVELOPMENTS OVER THE PERIOD

(Summary of press releases issued since the beginning of the fourth quarter of 2018)

• On October 22, 2018, Danone reaffirmed during its investor seminar in London its ambition to deliver superior sustainable profitable growth, through the activation of high quality drivers across all its business lines. Danone notably confirmed at this occasion its mid-term objectives: like-for-like sales growth of 4% to 5%, recurring operating margin above 16%, and net debt / EBITDA < 3 times by 2020. Return On Invested Capital is expected to reach around 12% by 2022.
• On October 25, 2018, Danone announced its accelerated transition towards a circular economy of packaging, through the publication of an updated packaging policy based on following commitments. All packaging should be designed for circularity, and notably be fully recyclable, reusable, or compostable by 2025. All packaging should be reused, recycled and reusable in practice, and by 2025 Danone should have initiated or supported collection and recycling initiatives in every one of its top 20 markets. The amount of recycled PET in waters and other beverage bottles should be increased to 50% by 2025 and the use of renewable, bio-based materials will be developed.
• On January 10, 2019, Véronique Penchienati Bosetta, former EVP Growth & Innovation, member of the Executive Committee, was appointed EVP Specialized Nutrition.

GOVERNANCE

At its meeting on February 18, 2019, Danone's Board of Directors approved draft resolutions that will be submitted to the Annual General Meeting on April 25.

Acting upon the recommendation of the Nomination and Compensation Committee, and after a thorough examination of Danone's governance structure, the Board of Directors renewed the appointment of Emmanuel Faber as Chairman and Chief Executive Officer, subject to the approval of the renewal of his term as Director by the Annual General Meeting of April 25, 2019.

The Board of Directors also proposes that shareholders renew the appointments of Directors whose current terms are expiring: Franck Riboud, Honorary Chairman of Danone, and Clara Gaymard, Board member since April 2016.

ADDITIONAL INFORMATION

• Impact of Morocco boycott: Danone is facing a consumer boycott in Morocco since April 2018. The impact of this boycott on net sales in 2018 has been estimated by the company as the difference between 2018 net sales and 2017 net sales excluding exceptional items in Morocco. In 2018, the impact on total net sales was a decrease of -€178 million versus 2017 net sales, of which around two thirds come from losses in milk sales, and one third from losses in dairy products. With the same principles for recurring operating income, the impact of the consumer boycott in Morocco on the recurring operating income of Danone in 2018 was a decrease of -€43 million versus 2017, including remediation measures.
• Financial statements: As its meeting on February 18th, 2019, the Board of Directors closed statutory and consolidated financial statements for the 2018 fiscal year. Regarding the audit process, the statutory auditors have substantially completed their examination of financial statements as of today.

CHANGES IN IFRS STANDARDS

IAS 29: Adoption of hyperinflationary accounting in Argentina from July 1st, 2018 with effect from January 1st, 2018

A consensus has been reached that all necessary conditions (3-year cumulative rate of inflation for consumer prices and wholesale prices exceeding the 100% threshold being the last one reached during the first half 2018) are in place to now consider Argentina as "hyperinflationary" as defined by IFRS rules and therefore that IAS 29 rule related to Financial Reporting in Hyperinflationary Economies becomes applicable to the country.

Consequently, Danone is applying IAS 29 in Argentina from July 1 st, 2018 with effect from January 1st, 2018. Adoption of IAS 29 in this hyperinflationary country requires its non-monetary assets and liabilities and its income statement to be restated to reflect the changes in the general pricing power of its functional currency, leading to a gain or loss on the net monetary position included in the net income. Moreover, its financial statements are converted into euro using the closing exchange rate of the relevant period.

Impact on reported data:

• from July 1st, 2018: Danone is applying IAS 29 in Argentina with effect from January 1st, 2018;
• Q3 and Q4 2018 sales: reported data incorporates the IAS29 hyperinflation adjustment over the sales of the quarter with no cumulative effect;
• Q1 and Q2 2018: reported data is presented as previously published (ie not restated to reflect IAS29 adjustments);
• FY 2018: reported data incorporates IAS29 with effect from January 1st, 2018.

IAS29 impact on reported data € million except %	Q4 2018	FY 2018
Sales	+1	-51
Sales growth (%)	+0.0%	-0.2%
Recurring Operating Income		-30
Recurring Net Income – Group share		-47

Breakdown by quarter of full-year 2018 sales after application of IAS 29

The breakdown of 2018 full-year sales by quarter after application of IAS 29 in Argentina is provided in the table below for information (data not audited).

€ million	Q1 2018	Q2 2018	Q3 2018	Q4 2018	FY 2018
EDP International	2,074	1,997	1,937	2,007	8,015
EDP Noram	1,192	1,247	1,293	1,309	5,041
Specialized Nutrition	1,807	1,828	1,727	1,754	7,115
Waters	965	1,322	1,254	939	4,480
Total	6,038	6,393	6,211	6,009	24,651

Impact on "like-for-like"

For 2019, since Argentina is now considered as hyperinflationary, Danone will exclude from its "like-for-like" definition the contribution of its Argentinian entities starting from January 1st, 2019 (see revised definition page 11).

For 2018, as "Like-for-like" current definition already excludes the effects of changes in applicable accounting principles during the year, IAS29 in Argentina has no impact on like-for-like sales growth and like-for-like margin improvement of the Company.

For reference, Argentinian entities as a whole contributed:

• In Q4 2018 for 3.0% to Danone's sales and for around 70 bps on sales growth,
• In FY 2018 for 2.6% to Danone's sales and for around 30 bps on sales growth.

IFRS 15: restatement starting January 1, 2018

Danone applies IFRS 15 on Revenues from contracts with customers starting January 1, 2018 and elected to restate the comparative financial statements (see 2018 annual registration document).

CHANGES IN REPORTING AND IN LIKE-FOR-LIKE DEFINITION WITH EFFECT FROM JANUARY 1st 2019

As detailed hereafter, starting January 1st, 2019, Danone is adapting its reporting to the organization of its Essential Dairy and Plant-Based activities and adjusts its like-for-like definition in connection with hyperinflation in Argentina. 2018 data presented according to the new reporting structure and based on the new like-for-like definition are detailed in Appendix 2.

Changes in reporting

To reflect its organization under a single business leader, EDP International and EDP Noram reporting will be merged into a single EDP reporting entity.

Changes in like-for-like definition

Since Argentina is considered as hyperinflationary, Danone excludes from its "like-for-like" definition the contribution of its Argentinian entities (see revised definition below).

FINANCIAL INDICATORS NOT DEFINED IN IFRS

Due to rounding, the sum of values presented may differ from totals as reported. Such differences are not material.

Additional indicator of like-for-like changes: "like-for-like New Danone" changes until end of 2018

Since the completion of the WhiteWave acquisition, WhiteWave and Danone's activities have been combined and are generating synergies. Separate reporting of WhiteWave and Danone in their pre-acquisition forms thus no longer reflects their real performance. This being the case, Danone decided to monitor and then report its performance by integrating the contribution of WhiteWave as a whole into its organic growth from the time of the acquisition by using an additional indicator - "like-for-like New Danone" changes.

This indicator is a variation on the "like-for-like" changes indicator used by Danone which integrates WhiteWave's performance starting at the date of acquisition:

• for periods in previous years compared, and
• based on WhiteWave reported data after restatement to allow comparison with Danone data.

This indicator is used starting with the second quarter of 2017 and running through the end of 2018.

During this period, Danone has not monitored internally nor published like-for-like changes. Indeed like-for-like changes would not reflect accurately the Company's real performance, which is reflected in like-for-like New Danone changes and, by extension, the difference between like-for-like changes and like-for-like New Danone changes would not accurately reflect the contribution to this real performance of WhiteWave and its companies.

Financial indicators not defined in IFRS

These indicators are calculated as follows:

Like-for-like changes in sales and recurring operating margin reflect Danone's organic performance and essentially exclude the impact of:

• changes in consolidation scope, with indicators related to a given fiscal year calculated on the basis of previous-year scope and, starting January 1st, 2019, previous-year and current-year scope excluding Argentinian entities;
• changes in applicable accounting principles;
• changes in exchange rates with both previous-year and current-year indicators calculated using the same exchange rates (the exchange rate used is a projected annual rate determined by Danone for the current year and applied to both previous and current year).

"Like-for-like New Danone" changes (or "Like-for-like including WhiteWave starting in April 2017" changes until end of 2018) in sales and operating margin reflect the organic performance of Danone and WhiteWave combined. This indicator corresponds to like-for-like changes for Danone and WhiteWave combined, considering the activity of WhiteWave as a whole by integrating its companies during the fiscal years prior to and following their acquisition in April 2017:

• from April 1 to December 31 for periods compared until 2017 included2(xc)-5(h)-2(a)3(n)-2(g)6(e)-2( )37(r)-5(a)3(t)6(e)-2(s)] TJ

Non-recurring results from associates include significant items that, because of their exceptional nature, cannot be viewed as inherent to the recurring activity of those companies and distort the reading of their performance. They include primarily (i) capital gains and losses on disposal and impairment of Investments in associates, and (ii) when material, non-recurring items as defined by Danone included in the net income from associates.

Recurring net income (or Recurring net income – Group Share) corresponds to the Group share of the consolidated recurring net income. The recurring net income measures Danone's recurring performance and excludes significant items that, because of their exceptional nature, cannot be viewed as inherent to its recurring performance. Such non-recurring income and expenses mainly include other operating income and expense, other non-recurring financial income and expense, non-recurring tax, and non-recurring income from associates. Such income and expenses excluded from Net income are defined as Non-recurring net income and expenses.

Recurring EPS (or Recurring net income – Group Share, per share after dilution) is defined as the ratio of Recurring net income adjusted for hybrid financing over Diluted number of shares. In compliance with IFRS, income used to calculate EPS is adjusted for the coupon related to the hybrid financing accrued for the period and presented net of tax.

	FY 2017 restated		FY 2018
	Recurring	Total	Recurring	Total
Net income-Group share (€ million)	2,186	2,449	2,304	2,349
Coupon related to hybrid financing net of tax (€ million)	(2)	(2)	(14)	(14)
Number of shares
• Before dilution	626,954,761	626,954,761	642,721,076	642,721,076
• After dilution	627,121,266	627,121,266	643,450,446	643,450,446
EPS (€)
• Before dilution	3.48	3.90	3.56	3.63
• After dilution	3.48	3.90	3.56	3.63

Yakult Transaction Impact corresponds to the amount to deduct from Danone's 2017 recurring net income to reflect an interest in Yakult in 2017 identical to the interest prevailing in 2018 following the completion of the partial disposal finalized at the end of Q1 2018. It is computed as the difference between Danone's interest in Yakult after the transaction (6.61%) and 21.29% applied, prorata temporis, to 2017 profit from Yakult as estimated by Danone for its 2017 consolidated financial statements. Yakult Transaction Impact amounts to -0.6% of H1 2017 recurring EPS and -1.5% of FY 2017 recurring EPS.

Free cash flow represents cash flows provided or used by operating activities less capital expenditure net of disposals and, in connection with IFRS 3 (Revised), relating to business combinations, excluding (i) acquisition costs related to business combinations, and (ii) earn-outs related to business combinations and paid subsequently to acquisition date.

(€ million)	FY 2017	FY 2018
Cash flow from operating activities	2.958	3,111
Capital expenditure	(969)	(941)
Disposal of tangible assets & transaction fees	95	61
related to business combinations1
Free cash flow	2,083	2,232

¹ Represents acquisition costs related to business combinations paid during the period.

Net financial debt represents the net debt portion bearing interest. It corresponds to current and non-current financial debt (i) excluding Liabilities related to put options granted to non-controlling interests and (ii) net of Cash and cash equivalents, Short term investments and Derivatives – assets managing net debt.

(€ million)	December 31, 2017	December 31, 2018
Non-current financial debt1	15,716	14,343
Current financial debt1	3,792	3,546
Short-term investments	(3,462)	(4,199)
Cash and cash equivalents	(638)	(839)
Derivatives — non-current assets2	(16)	(81)
Derivatives — current-assets2	(19)	(27)
Net debt	15,372	12,744
• Liabilities related to put options granted to non-controlling interests — non current	(38)	(46)
• Liabilities related to put options granted to non-controlling interests — current	(569)	(463)
Net financial debt	14,765	12,235

¹Including derivatives-liabilities

²managing net debt only

o o O o o

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements concerning Danone. In some cases, you can identify these forward-looking statements by forward-looking words, such as "estimate", "expect", "anticipate", "project", "plan", "intend", "objective", "believe", "forecast", "guidance", "foresee", "likely", "may", "should", "goal", "target", "might", "will", "could", "predict", "continue", "convinced" and "confident," the negative or plural of these words and other comparable terminology. Forward looking statements in this document include, but are not limited to, predictions of future activities, operations, direction, performance and results of 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 "Risk Factor" section of Danone's Registration Document (the current version of which is available on www.danone.com).

Subject to regulatory requirements, Danone does not undertake to publicly update or revise any of these forwardlooking statements. This document does not constitute an offer to sell, or a solicitation of an offer to buy Danone securities.

The presentation to analysts and investors, held by Chairman and CEO Emmanuel Faber, and CFO Cécile Cabanis, will be broadcast live today from 9.00 a.m. (Paris time) on Danone's website (www.danone.com). Related slides will also be available on the website in the Investors section.

	First	quarter	Second	quarter		Third quarter	Fourth quarter			Full Year
	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018
BY REPORTING ENTITY
EDP International	2,131	2,105	2,261	2,011	2,091	1,922	2,129	2,007	8,612	8,015
EDP Noram	642	1,192	1,328	1,247	1,275	1,293	1,246	1,309	4,492	5,041
Specialized Nutrition	1,694	1,812	1,756	1,831	1,838	1,723	1,791	1,754	7,079	7,115
Waters	1,026	976	1,361	1,325	1,268	1,248	974	939	4,630	4,480
BY GEOGRAPHICAL AREA
Europe & Noram2	2,649	3,311	3,623	3,453	3,523	3,468	3,398	3,422	13,192	13,654
Rest of the World	2,844	2,774	3,084	2,961	2,949	2,719	2,743	2,587	11,620	10,997
Total	5,493	6,085	6,707	6,414	6,472	6,186	6,140	6,009	24,812	24,651

APPENDIX 1 – Sales by reporting entity and by geographical area (in € million)

APPENDIX 2 – Reported sales and margins in 2018 with combined Essential Dairy and Plant-Based

Net Sales (m€)	First quarter 2018	Second quarter 2018	First half 2018	Third quarter 2018	Fourth quarter 2018	Full year 2018
EDP	3,296	3,257	6,554	3,214	3,316	13,056
Waters	976	1,325	2,301	1,248	939	4,480
Specialized Nutrition	1,812	1,831	3,644	1,723	1,754	7,115
Total	6,085	6,414	12,498	6,186	6,009	24,651

Like-for-like sales growth excluding Argentina	First quarter 2018	Second quarter 2018	First half 2018	Third quarter 2018	Fourth quarter 2018	Full year 2018
EDP	-0.4%	-1.3%	-0.8%	+0.8%	+1.5%	+0.1%
Waters	+3.9%	+4.9%	+4.5%	+6.9%	+4.2%	+5.1%
Specialized Nutrition	+13.9%	+10.3%	+12.1%	-1.7%	+0.8%	+5.5%

Recurring operating margin	First quarter 2018	Second quarter 2018	First half 2018	Third quarter 2018	Fourth quarter 2018	Full year 2018
EDP	-	-	9.00%	-	-	10.09%
Waters	-	-	11.45%	-	-	10.79%
Specialized Nutrition	-	-	25.53%	-	-	24.77%

Total	-	-	14.27%	-	-	14.45%

Like-for-like margin improvement excluding Argentina	First quarter 2018	Second quarter 2018	First half 2018	Third quarter 2018	Fourth quarter 2018	Full year 2018
EDP	-	-	-1 bp	-	-	+51 bps
Waters	-	-	-73 bps	-	-	-59 bps
Specialized Nutrition	-	-	+110 bps	-	-	+136 bps

Total -	-	+53 bps	-	-	+68 bps
------------	---	---------	---	---	---------

For more information, please contact: Corporate Communications: +33 1 44 35 20 75 – Investor Relations: +33 1 44 35 20 76 Danone: 17, Boulevard Haussmann, 75009 Paris, France