the Letter to Shareholders

Dear Shareholders,

Winter 2012

While our roots go back much further, 2012 marks Danone Groups 40th official year in business. Forty is young, yet we already have a long and rich history. A heritage that reflects the personalities of our two visionary founders, Antoine Riboud and Daniel Carasso, as well as the two business cultures BSN and Gervais Danone that joined forces to create our Group in 1972.

As for what our role should be, Danone has the same answer for 40 years: a business should be profitable and sustainable.

Franck Riboud, extract from Acteurs de lconomie , May 2012

We still have the intangible riches we inherited from them: the drive to win new territory and build a stronger company. An entrepreneurial spirit, with the culture and instincts that go with it. Strong values. Plus our willingness to meet and overcome adversity to take on new challenges, to bounce back every time, to innovate and develop brands acclaimed by consumers around the globe. Obviously we have changed a lot in 40 years, but Danone is still Danone. Weve changed our look, our shape and our size, but we still have the same character and the same DNA. Were fast on our feet. Our people are confident and empowered. Danone has posted a solid growth in turnover the first nine months of 2012, in line with its annual objectives, thanks to very robust sales throughout the world. Europe is the exception as consumption remains under pressure. In this context, our priorities are clear: continue to deploy our model in growth regions by investing in our product categories, our brands and our people. In Europe, we need to adapt our model to the slump of consumption and to the needs of our consumers, while building new sources of growth. Our teams will pursue these priorities with determination. For me this is essential, since profitability is not sustainable without continuity, loyalty and rocksolid founding principles. Lets not forget that 2012 is also the 40th anniversary of Antoine Ribouds benchmark speech to French business leaders in Marseille during which he formalised the founding principles of our unique culture which still continue to inspire Danone in its quest for performance and growth. We have the responsibility of continuing to develop this culture and this mindset in our subsidiaries, for it is on the basis on this history that we will continue to build and invent the future of this amazing adventure. Let us remember that Danone has always been able to take advantage of current difficulties in order to reinvent itself and become even stronger.
Franck Riboud

Focus on
Solid growth in sales for the first nine months of 2012 with contrasts from region to region and full-year targets for 2012 reconfirmed
Danone reported solid growth in sales for the first nine months of 2012, in line with full-year targets, thanks to very strong momentum continuing worldwide except in Europe, stresses Franck Riboud. Sales for the first nine months of 2012 (+5.6%*) and for the third-quarter (+5.0%*) show a solid overall performance, with contrasts from region to region. Sales grew by over 10%* in emerging markets and North America combined. In Asia, Africa-Middle East and Latin America, operations expanded very rapidly in all product categories. Yet pressure on consumer spending in Europe continued, and the situation deteriorated further in Southern Europe, affecting sales for the business lines most exposed to this region. Fresh Dairy Products division sales were up +0.7% like-for-like in the third quarter of 2012, reflecting a slight -0.7% easing in volume and a +1.4% increase in value. Sales in Latin America and the Africa-Middle East region remained extremely buoyant with continued double-digit growth, while the CIS region and North America are performing according to plan, with sales growing at a faster pace each quarter.The CIS region has thus continued to grow since the beginning of the year and is on track to meet growth and margin targets. Unimilks priority brands continued to report double-digit growth this quarter, following the example of Prostokvashinostill the top contributor to growth in this area as well as the Bio Balance and Tma brands. Integration of Danone-Unimilks operations is moving ahead, with shared systems being deployed and a gradual merger of logistics and sales force resources. Sales have also continued to gather pace in the United States, strengthening Danones leading position in a market that has grown more competitive than in the first half. In particular, the Group is winning further market share in the very fast-growing Greek yogurt segment with its Oikos and Light&Fit Greek brands, benefiting from new production capacity added on July 1. Operations in Europe fell back more sharply this quarter as conditions deteriorated in Southern Europe, particularly Spain and Italy, where sales declined by over -10%.

The third-quarter performance is very much the reflection of the geographical transformation of the Group, with on one hand very strong dynamics in our growth markets in Americas, Asia Pacific, CIS, Middle East and Africa, and on the other hand Europe under pressure.
Pierre-Andr Trisse, Chief Financial Officer
02 the Letter to Shareholders winter 2012

Focus on

Sales by business line and geographical area in the 3rd quarter and first 9 months of 2012
millions Q3 11 Q3 12 Change[1] Volume growth [1] 9M 11 9M 12 Change[1] Volume growth [1]

Growth in sales in the third quarter *

By business line
+0.7% +12.3% +11.5% +4.9%

By business line
Fresh Dairy Products Waters Baby Nutrition Medical Nutrition 2,785 816 906 298 2,910 962 1,062 323 +0.7% +12.3% +11.5% +4.9% -0.7% +5.4% +3.6% +5.9% 8,457 2,483 2,723 869 8,816 2,817 3,152 948 +2.2% +10.5% +11.4% +6.0% -0.4% +5.3% +4.8% +6.7%

By geographical area
Europe Asia Rest of World Total
1

 resh Dairy F Products Baby  Nutrition

* Like-for-like

Waters  edical M Nutrition

2,661 740 1,404 4,805

2,682 946 1,629 5,257

-1.5% +18.3% +10.5% +5.0%

-2.6% +8.9% +5.0% +1.6%

8,203 2,135 4,194 14,532

8,231 2,708 4,794 15,733

-0.6% +18.2% +11.3% +5.6%

-2.6% +12.4% +4.4% +2.0%

By geographical area
-1.5% +18.3% +10.5%

like-for-like Europe Asia Rest of the world

As for the Waters division, it reported strong third-quarter growth, with a +12.3%* increase driven by a +5.4% rise in sales volumes and a +6.9% rise due to the price/mix effect. Strong growth in emerging markets continues to drive the divisions performance. In Western Europe, sales benefited from a favorable basis of comparison with Q3 2011, which helped offset adverse weather conditions that prevailed in July 2012. Growth in value continues to benefit from aquadrinks and their positive price/mix effect, and also reflects the strong performance in Western Europe this quarter. The impact of price increases introduced in emerging countries in 2011 is tapering off. The Baby Nutrition division also reported robust growth in all geographical markets, with sales up +11.5%* in the third quarter of 2012. This includes a +3.6% rise in volume and +7.9% growth in value. Key to the divisions success is a very strong performance in Asia, particularly China, where the Dumex rangeDanones

flagship brand for baby nutrition in this countryhas been completely revamped. (read p.6) As for Danone Medical Nutrition, sales increased +4.9%* like for like in the third quarter of 2012, driven by volume growth of +5.9%. Slowing growth reflects deteriorating conditions on some markets in Western Europe. In contrast, China, Turkey and Brazil maintained their momentum, driving strong growth for keybrands like Nutrison, Nutrini and Neocate. Given the context, Danone set clear priorities last February: continue to deploy our model in growth regions by investing in our product categories, our brands and our people. In Europe, we need to adapt our model to the slump in consumption and to the needs of our consumers, while building new sources of growth. Danone reconfirms its fullyear targets for 2012: sales growth at +5-7%*, trading operating margin down 50 bps*, and free cash flow of 2 billion.
*like-for-like

Growth in sales in the first 9 months of the year *

By business line
+2.2% +10.5% +11.4% +6.0%

 resh Dairy F Products Baby  Nutrition

* Like-for-like

 aters W Medical  Nutrition

By geographical area
-0.6% +18.2% +11.3%

Europe

Asia

Rest of the world

winter 2012 the Letter to Shareholders 03

Group news

Russia:

a region of growth for Danone-Unimilk

ussia became Danones leading market thanks to its merger with the local dairy giant, Unimilk (2010). Back to the resources invested by the group to accelerate its growth in the country. Danone has celebrated its 20th anniversary of operations in Russia. In 1992, the group opened its first store in Moscow. This was the worlds first store dedicated entirely to Danone products. Since then, Danone has established itself as the

countrys leader in Fresh Dairy Products: a unique position that was supported by the acquisition of Unimilk in December 2010, which was ranked second in the market at the time. Thanks to this merger, Danone tripled in size and opened itself up to all of Russia, from Moscow to Novosibirsk. Today Danone-Unimilk employs more than 15,000 employees and owns 21 plants in Russia. The key strength of the new Danone- Unimilk entity is the complementarity of its portfolio of brands adapted to a Russian market

that is characterised by both a very strong tradition of consuming dairy products, such as milk or kefir (a traditional drink), as well as strong growth in the so-called modern fresh dairy product segment (yogurt, dairy desserts, etc.). Danone was already the leader in the latter segment, with a market share of over 25%, while Unimilk had a strong presence in the so-called traditional dairy product segment (milk, sour cream, cheese, etc.). Finally, the market shows promise in regard to fresh dairy product consumption, which is around

04 the Letter to Shareholders winter 2012

Baby Nutrition in Russia: another market full of promise

15kg per person per year (twice fewer as French consumers). To achieve a fully successful integration, the group defined three priority areas of focus: segmentation and support for the brand portfolio, the implementation of Danone standards within production facilities and finally, support for the milk industry. In 2011, the teams focused in particular on optimising the former Unimilk brand portfolio and on providing support for leading brands. Results in 2012 underline the success of the actions carried out during the last two years: three of Unimilks main brands experienced double digit growth during the first quarter of 2012 (Prostokvashino, BioBalance and Tyoma). The leading brand, Prostokvashino, was relaunched with a new identity to make it more visible. At the same time, the Danone brands (such as Activia) continued to deliver solid performance. The childrens brand Danonino (Rastishka in Russia) was the focus of a large naturalness project with a new formula, with no artificial colouring and flavouring, to meet the new expectations of Russian consumers. In the meantime integration continued. In 2011, the group set up a joint management team and merged the core functions and regional teams respectively. Production standards were upgraded to comply with those of Danone, particularly in terms of employee safety. All the supply chain, production

and quality processes were also reviewed (or are currently being reviewed). This year, one of Unimilks historic plants (Samara) started producing Danone plain yogurt. The distribution resources and networks were streamlined in order to take advantage of the strengths of each: Danones expertise in large-scale distribution and Unimilks solid understanding of local retailers. At the same time, the Group addressed other local challenges such as ensuring the quality of supplies in a country where the milk sector is still under construction. To support and train its 600 partner producers, Danone set a partnership with the Institut de llevage* and opened a training centre in 2012 in the rural region of Lipetsk, 500km from Moscow. On the agenda: theoretical courses and hands-on training on a model farm**. Danone is approaching 2013 with confidence in Russia, even though integration remains a long-term process. The group plans to increase its margin in the country over the coming years by more than 100 basis points per year.

* Partner of the Danone Ecosystem Fund ** Milk Business Academy is a farm school that offers on-site training as well as a strong foundation in agronomics in order to ensure the sustainable growth of productivity on Russian farms and guarantee a long-lasting, high-quality sourcing process for Danone-Unimilk.

The consumption of infant formula in Russia represents only 18kg per baby, compared to 36kg in Germany or 40kg in Poland, meaning Nutricia is still a long way from achieving its full potential in this vast country. In order to take advantage of the promise of growth in the baby nutrition market in Russia, Nutricia has launched works at a total cost of 50 million at its plant in Istra, near Moscow. After four years of works, the plant recently reopened its doors. The result is modern equipment that complies with European standards for quality and excellence. Starting in 2014, a third production line should be added to the two existing production lines, which have a capacity of 24,000 tons per year. This will increase the total production capacity to 50,000 tons.

winter 2012 the Letter to Shareholders 05

groupnews
Yolado, an innovation between yogurt and icecream
Danone has broken new ground in Spain with Yolado. With its exclusive formula, it has no equal: a dairy product with a fresh milk yogurt base, no preservatives, no colouring agents, enjoyed frozen. With less than 100 kcal in each cup (half the calories of traditional icecream), the result combines the enjoyment of icecream with the goodness of yogurt. Yolado comes straight from the new Innovation and New Business department created in Spain two years ago to promote innovation. With its multidisciplinary approach and clear focus on product development, this unit has encouraged the creation of a new product category and from that a new way to eat yogurt. Available since May in Barcelona, Spain, Yolado comes in five flavours and two sizes: 125ml (plain, strawberry and lemon) and 500 ml (blackcurrant and stracciatella).

Light & Fit Greek, the light Greek yogurt melting the hearts of Americans
Greek yogurt is the first segment in value in the US market and is continuing to win followers in America. So much so that light yogurt consumers had already started to switch to this protein-rich, creamytextured product. The only thing lacking, to meet their needs, was a low calorie product. But no longer: Dannon US launched Light&Fit Greek in July 2012. This 0% fat Greek yogurt has twice more protein than classic light yogurt and only 80 calories per cup. Available in strawberry, vanilla, blackcurrant and cherry, Light&Fit Greek met with instant success. With its 740,000 Facebook fans, Light&Fit is now one of Danones favorite brands for American consumers. To secure production, Dannon has stepped up investment in two of its factories: Minster in Ohio and West Jordan in Utah.

Dumex China,

standing by babies as well as by mothers

A strong focus of the new Baby Nutrition strategy is to support both babies and mothers by responding to the latters specific needs. This strategy has already paid off in China, where Dumexs revamp in 2012 has fostered a two digits growth for the range between April and September 2012 in comparison to the same period in 2011. What are the reasons behind this success? Entirely redesigned products and marketing tailored to the specific needs of Chinese mothers, eager for help in order to become the best mothers possible. For these mothers, Dumex developed in August 2012, a tailored offer focused on two areas: products and services. Products: the range was repositioned and the formulas were revamped in products with targeted benefits for specific ages. Services: the 1,000 days* programme was redesigned to be available on all digital devices (website, mobile app and social networks), providing useful information and advice. Hard work by the teams enabled us to reach 74,000 health professionals, 48,000 retailers. Furthermore, the 360-degree marketing campaign (TVC, internet, social networks and print) reached nearly 30 million mothers.
* In 2011, Baby Nutrition launched a support programme for Chinese mothers. This program is primarily provided through nutritional advice centres during the babys first 1,000 days (birth to 3 years).

Medical Nutrition: Souvenaids* introduction in four countries

After ten years of clinical study and testing, Danone Medical Nutrition launched its new Souvenaid product in Belgium, Brazil, Germany and the Netherlands in September. Souvenaid is a product developed to help manage the nutrition ofpeople suffering from early-stage Alzheimers. Scientists have proven that specific nutrients can
06 the Letter to Shareholders winter 2012

have a positive effect on bone and muscle innovation. It represents an opportunity health. Following on from that, Danones to help millions of patients manage their science has shown that the right food can illness in the early stages. be beneficial for brain health. Danone Medical Nutrition carried out clinical studies on patients already diagnosed as suffering from various stages of * Nutritional product that meets the specific medical needs in the diet of a person suffering from Alzheimers. For all the Medical Nutrition early-stage Alzheimers. Souvenaid must division teams, Souvenaid is a unique be only used under medical supervision.

groupnews

La Salvetat: still sparkling at twenty!

Twenty years after its launch, La Salvetat sparkling mineral water became the leading mineral water consumed by the French in 2011. Despite being discovered in 1848, it was only in 1990 that Danone, convinced of the properties of the Rieumajou spring (the springs original name), invested in it with an industrial facility. La Salvetat is famed for its low sodium content and calcium richness. It posted a double digit growth in volume between 2011 and 2012 in a dynamic French sparkling water market. To meet this demand and boost the bottling lines capacity of the factory, 6 million were invested last year.
employees in 2012 compared to some 10 employees twenty years ago

La Salvetat industrial site figures >No. 1 employer in the town with 70

>1 fully automated production line >34,000 bottles per hour production capacity >2.5-3 million bottles leave the site every week > 98% of factory waste is recovered

Innovation: Danone ranked 3rd on the European Forbes list

Danone was ranked 3rd on the European list of top 100 innovative companies published by Forbes Magazine in September 2012. Forbes focused on the innovative potential and popularity of companies as seen by investors, who were asked to evaluate the companies capacity to develop beyond their current business activities. With Danone, the Forbes ranking rewarded the following notable innovations: the new Kiss yogurt cups (Keep it simple and safe), inspired by Danones early 20th century porcelain cups, and the Blackshelves project (in France and Spain, in 2011, Danone experimented new shelves to promote the fresh dairy product section which had remained unchanged for 40 years). We were also rewarded for our Bringing health through food to as many people as possible project, adapting our products to populations needs in emerging countries.

On track to 2 billion in free cash flow

Having free cash flow is key, especially in economically uncertain times. Three years ago, in order to ensure it has sufficient internal funds to invest in the groups future growth, Danone fixed itself the ambitious target of generating 2 billion in free cash flow in 2012. Cash flow improvement has long been part of Danones teams expertise: initially gained in the Fresh Dairy Product division due to the very short product life cycles, this skill has subsequently been spread to the other divisions. This year, a major effort has been made to accelerate the sharing of best practices between divisions and countries. All areas have been mobilised to help free up the targeted 2 billion and strengthen the groups ability to generate solid free cash flow.

Pepenadores Project: a better life for Mexican waste pickers

The Pepenadores* project was launched by Bonafont Mexico with financing from the Danone Ecosystem Fund. In 2010, Bonafont Mexico was the groups first business unit to put a 100% rPET** bottle on the market. The aim was to improve work conditions and income for waste pickers who carry out 90% of recycling in Mexico under very difficult working and living conditions while guaranteing Bonafont rPET supplies. By building a recycling centre close to Mexico City landfills, efficiency was improved (by 15 to 50%), thanks to the right equipment and infrastructure put in place, and, as a result, the Pepenadores income rose. In this way, the recycling centre can prohibit the very prevalent Pepenadores child labour (some 10% of workers) without affecting families income. In addition, the project also provides Pepenadores families with basic services such as medical treatment and education. To date, the project has recycled 2,250 tons of PET and aims to reach 5,000 tons in 2013. Thanks to this project, 400 Pepenadores already benefit from better living and working conditions in Mexico.
*Spanish word for scavengers. **PET: Polyethylene terephthalate (recycled plastic used for bottles).

winter 2012 the Letter to Shareholders 07

SHAREHOLDER
INFORMATIONS
Danone share price compared with international indices
31december 2011 to 28 november 2012 (Base 100 at 31/12/2011)

Important dates
> 19 February 2013: 2012 Final Audited Results > 16 April 2013: 2013 First Quarter Sales > 25 April 2013 2 :30 p.m.: Shareholders Annual Meeting at the Carrousel du Louvre (Paris) > 29 July 2013: 2013 First Half Sales and Results > 16 October 2013: 2013 Nine months Sales

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Danone shares
>NUMBER OF SHARES on June 30, 2012: 643 162 000 >NOMINAL VALUE: 0.25 euros per share >QUOTED STOCK MARKETS: company shares are quoted on the NYSE Euronext Paris, on the Swiss Stock exchange and are quoted under American Depository Shares/Receipts (ADS/ADR) on the Over-the-Counter (OTC) market in the United States with the ratio:1 current share = 5 ADS.

by phone:

N: 0 800 320 323 or +33 (0) 1 58 16 71 75

If you wish to receive a print version of your letter, please address a mailing request to the Investor Relations direction at the following address: 15 rue du Helder, 75439 Paris Cedex 09.

Other information:
The sustainibility report on

Share buy back

>On the basis of steady debt ratios and taking into account its robust generation of free cash flow, Danone expects to buy back from 500 million to 700 million worth of shares between October 2012 and January 2013.

www.danone.com

The 2011 annual report is on

www.danone.com and http://danone11.danone.com

the Letter to Shareholders is

08 the Letter to Shareholders winter2012

a publication of Danone: 15, rue du Helder, 75009 Paris. Publication management: Sabrina Schneider, Chief editor: Sandrine Fossard, Design and production: Photography: Eric Manas, Laurent Vautrin, Danone DR.+33 1 55 34 46 00 (ref. LAAC 212)