Fresh Dairy Products General Strategy Bernard HOURS
World 3.3 +4.6% The World Fresh Dairy Market 47,2 bn / 23,1 mn tones NORTH AMERICA 7.2 +5.3% WESTERN EUROPE 20.1 +2.8% 6.3 EASTERN & CENTRAL EUROPE +5.9% LATIN AMERICA 3.6 +6.8% AFRICA & MIDDLE EAST 1.1 +6.5% 0.9 ASIA PACIFIC +5.7% KG per cap Var Source: Euromonitor 2005
Some figures about Dairy Division 7.5 Billions euros 32 Countries 20.1% Market share Worldwide 35.7% Market share (in the countries we operate) 400 000 tons additional every year 4 millions pots in 1 hour
Healthy Sales Growth Sales in billion 8 Reported figures 7.5 7 6 5 4 3 2 1 1.0 1.1 1.3 1.4 1.4 1.4 1.6 1.8 1.9 2.3 2.7 2.8 2.9 2.9 2.9 3.5 3.8 4.1 4.6 5.1 5.2 5.4 6.0 6.8 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 E
Building share of market dominance +0.8 pts/an 17.7 % 20.1 % 2002 2005 Source: Euromonitor 2005
Almost tripling our operating income over last 10 years Operating income in million 1000 900 800 700 600 500 400 300 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Dairy Profitable Growth Equation Sales +8.9% CAGR 02-06 06 like-for-like Mix and Productivity Costs Reinvested 1/2 To EBIT ½ A&P EBIT Year on year margin improvement
Growth generates cash through structurally negative working capital Inventory DSO receivables Payables Capex Very low FG inventory Very low raw milk inventory 20-30 days 50-60 days average (milk paid within 1 month) Closely monitored
Operations Lower Cost of Good Sold despite strong inflation, thanks to Dairy s productivity methodology Higher line utilization, due to our Virtual Plant approach in Europe O.U. 81% 107 105 103 101 99 97 95 100.0 100.0 Track Record COGS index In progress O.U. 74% 101.9 98.2 104.8 97.6 2004 2005 E 06 Market+Inflation COGS / ton. After Productivity 300,000t of new installed capacity
Operations Purchasing Track Record Strong yields from our Productivity program Purchasing Productivity 4.2% 4.4% 4.2% 2004 2005 2006 E Direct Sourcing of 50% of fruit needs 50kt > 10% of savings over 2 years enhanced fruit quality
Operations Manufacturing Track Record Output/employee (t/fte) Operational Efficiency Manufacturing losses ( /t) 15.9 14.5 13.1 360 385 420 62 64 66 2004 2005 2006 E Line Simplification 14 km/shift 2 operators 2004 2005 2006 E 2004 2005 2006 E 24 km/shift 1 operator
Make our blockbusters affordable 2003-2006 Inflation +3.7 % / year Net prices +0.5 % / year + 10 Pts Affordability vs inflation
Getting close to Sales in billion USD 10 9 10 Bn 8,3 9,5 8 7 USD 6,1 7,4 6 5 4 3,4 3,3 3,5 4,0 3,8 3,9 4,3 4,4 4,1 4,6 4,9 3 2,3 2,7 2 1 0,9 1,0 1,0 1,0 1,3 1,5 1,8 1,8 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
How big can be our ambition Be the fastest moving 10 Bn USD company Provide active tasty health solutions for everyone on earth
Our Growth Drivers Roll out BB to the limit Create new Blockbusters Enter New geographies GLOBAL = BACKBONE LOCAL = DRESS CODE
Our Growth Drivers Roll out BB to the limit Create new Blockbusters Enter New geographies GLOBAL = BACKBONE LOCAL = DRESS CODE
Our Blockbusters Growth Protection Transit Digestion Weight Management 800 M 1000 M 1300 M 900 M
Polishing our blockbusters Putting science into food Getting real critical size Constant renovation
2006: Fastest growing Blockbuster 661 % +46% Activia Turnover 661 +36% % +36% +26% +28% +25% +7% 0 1999 2000 2001 2002 2003 2004 2005 2004 2004 YTD 2006
Global O.A.M. Model Organically Adaptative Marketing A model of knowledge which understands brands as a living entity, evolving and improving at every experience, sharing its success among countries
ACTIVIA GLOCAL MODEL LOCAL = DRESS CODE FRANCE YOGURT F. CHEESE POLAND YOGURT F. CHEESE MEXICO DRINKS YOGURT AUSTRIA YOGURT KEFIR
ACTIVIA GLOCAL MODEL THE LIVING ORGANISM SHOULD FIT THE ECOSYSTEM Respect the ecosystem at launching phase Change is feasible when strong position
Actimel DNA Diamond +11% +19% +31% +35% +30% +36% +50% +92% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Actimel AU
Adapting the organism to US Ecosystem Brand name : DAN ACTIVE Clearer message on Active effect on health Moe Unique / less confusion with others brands Colour code: Stronger impact on a growing but still small fresh dairy shelf Actimel AU
Vitalinea & Danonino Sales 1 000 800 600 400 200 0 580 900 2000 2006 E Sales 900 800 700 600 500 400 300 200 100 0 545 + 320 M + 255 M 800 2000 2006 E
Danone & Modern Trade Partnership for growing the Dairy category 1. Category management process execution 2. Blockbusters in store acceleration % Shelf Space TODAY >= Expected % Vol Sales Y+1 a) Active Health Segments grow faster b) -Sales/Kg. are higher c) Rotation are higher vs average Category Visibility double is better Assortment the right size % Shelf share INVEST IN SPACE Active Health Segments DESINVEST IN SPACE Space get our fair share Average Category Segments Declining Category Segments % Vol sales Promotion make offer unique Innovation speed up OSA
Proximity Route To Market: Deeper and controlled distribution and visibility A detailed 10 steps process giving strong results in 2006: + 100,000 new POS in 2006 40% Contrib to growth vs 25% business weight PROXIMITY dominance ECE: 58% MODERN TRADE dominance LATAM: 66.1% AME: 62%
Strategic Brand Observatory: an Innovative Quality tool Targeting systematically consumer loyalty SBO Seeking continuously for better efficiency THROUGH OUT A TRANSVERSAL CROSS FUNCTIONAL WW NETWORK Delivering consumer critical criteria Assuring Nutritional Profiles Respecting Key Scientific Attributes
Our Growth Drivers Roll out BB to the limit Create new Blockbusters Enter New geographies GLOBAL = BACKBONE LOCAL = DRESS CODE
Preparing Tomorrow Diamonds Segmented Active Natural Tasteful Easy
Preparing Tomorrow s Diamonds Beauty Cardio??
Launch plan Q4 04 2005 2006 S1 07 S2 07 2 years process
Danacol 2006 CA 2006: 100 M Outstanding Growth: + 100 % Market leadership My anti-cholesterol partner Dominant Leader in the 8 countries we operate 38.4 % vs 29.6 % Nr 2 Close to leader in the 16 Cholesterol countries despite present in 8 out of 16 33.9% vs 34.8 % Nr 1 Strongest market share winner in 2006
Our Growth Drivers Roll out BB to the limit Create new Blockbusters Enter New geographies GLOBAL = BACKBONE LOCAL = DRESS CODE
3 - step model Sales / Step 1 Per cap. Launching Step 2 BB Building Step 3 Inventing the future Media + PR Distribution Media: GRP Health Marketing POS New PHOOD New media New Channels
Step 1: Launch of core Egypt PR launch : Danone WW expert Heavy media launch TV / Print / Outdoor POS dominance Distribution Build Up Porfolio management 2006 :Launch Core range 2007: Launch of BB
Step 1: Launch of Activia China Step 1: Launch of Activia China 2.5 Bio China Sales in M 2.0 1.5 1.0 0.5 0.0 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 66 t / day 7t / day
Step 1: Launch of Activia Japan Step 1: Launch of Activia Japan 4 Bio Japan Sales in M 3.5 3 2.5 2 1.5 1 0.5 0 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 2006: TVC & promo 4+2 2006: TVC & promo 4+2
Step 2: Russia + 72% + 57.2% 2002-2006 + 34.1% Sales CAGR +30% SOM :15.5% 23.1% EBIT CAGR +75%
Step 2: Germany + 10.4% + 158% 2002-2006 + 6.6% Sales CAGR +14% SOM :10.1% 13.6% EBIT CAGR +33%
Step 3: Spain Spain Push Involvement thru Credibility Actimel AU + 17.9 % Launch Of Essensis : Feb + 86.2% 33 M 2002-2006 Sales CAGR +4% New media & W.O.M Lab SOM : 60% EBIT CAGR +7%
Building our BB in the population pyramid Affluent 300 M Aspiring 1.2 B Striving 3.2 B
Production hubs Set Up a Production Hub wherever possible: 100 M$ Sales Average margin: 14% in Yr 8
Hub creates superior value within 6/10 years 100 80 Sales EBIT 60 40 20 0-20 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Cash out Y1-Y3 20 / 30 M Capex and / or Goodwill Value Y8: 100 M +
Accelerating geographical expansion 2002-2006 2007-2011 2 new countries / year 5 + new countries / year
Operations Outlook Deployment of the mini-plant modular concept in new Geographies Colombia 30kt capacity 3 product families Cups and bottle packaging capability Capex 15M
A company you live We develop our resources to support the growth 80% from our key positions worldwide are staffed internally, 88% of our GMs are promoted internally Personalized carrier paths for Key resources with international assignments. Engagement is a major asset: 87% of our managers are highly engaged, 92% are proud to work for Danone, 95% support our culture and values In some countries Danone is recognized as Number One Employer of choice in the Country-ex. Spain and Mexico With a distinctive culture and values
UNIQUE GLO-CAL ORGANIZATION MODEL: with a balance between local and WWBU At local level, Cbus: - Autonomy with full P&L responsibility - Presence of all functions - Proximity: with our consumers, clients, employees and local environment - Seeks to fit the specificity of the local field At the WWBU Level: Acceleration Units in charge of the blockbusters - Accelerate brands deployment & best practices, - Define brand vision and innovation plans Business Acceleration teams : - Foster transversal projects, focus on customer. Innovation central team & Incubators - Develop innovation Pipeline 2007-2010
Our vision for 2011: double our sales Two main levers: Accelerate profitable growth in existing businesses Expand our business model to new geographies 6.6 Bn 13 Bn 2005 2011 Including acquisitions & New geographies