Cécile Cabanis - Chief Financial Officer Regis Massuyeau - Director, Investor Relations Marion Cazenave - IR Officer

Jon Cox - Kepler Cheuvreux Alain Oberhuber - MainFirst Jeremy Fialko - Redburn Partners Adam Spielman - Citi Investment Research James Edwardes Jones - RBC Capital Markets

Thank you. Good morning to all.

Thank you for your attendance and welcome from Paris. I'm sitting here with Regis and Marion and we are going to go through the presentation of the results of Q1.

But first, before I start, I would like you to go through the Safe-Harbor statement that you have on your presentation on our Web site. So, as an introduction, I would like to say the following.

With 4.8% organic sales growth, the performance in Q1 is in line with our expectation. It's in line with our guidance for the year and it builds the growth condition for the quarters to come.

As well, as explained during the full year communication recently, it is our main objective this year to build a sustainable profitable growth equation. So before I take the time during the presentation to illustrate some of our actions, let's maybe take a quick look at the reported growth that you have on page 3.

So on reported basis, we are delivering the growth of 8.1% for Q1. As you can see, foreign exchange has a favorable impact of 3.7%, as expected with some positive impact of U.S.

Dollar, Chinese Renminbi and Indonesian Rupiah and this positive impact offset the ruble negative impact. The scope effect is 0.4% negative, mainly due to the divestment of our dairy operation in Indonesia that we did last year.

And as you might remember, this will have a positive impact on margin. So, as I mentioned, coming back to organic growth, this is 4.8% and it's made of the slightly negative impact in volume of 0.2% and a price mix effect of 5%.

The value part is the result of both the price increases that we did last year and the work that has been turned out on improving our overall mix. It of course affects different dynamics between categories and regions.

But overall, it is the reflection of the steps that we are taking towards sustainable profitable growth. So moving on page 4.

As I first comment, I would say that Q1 performance is in line with expectations for all our divisions. Sequentially, we are coming back to a more normalized level of comparison.

Even so, we still have some favorable comparison base from the impact of the Fonterra false alert in Early Life Nutrition performance last year, but to a lower extent than we observed in the last two quarters. So let's move to geographical dynamics on page 5 to have a certain understanding of the trends.

Overall, as you can see on the chart, all our regions are contributing to growth. If I start with Europe, Europe remains solid and confirms positive trends.

As we had in the fourth quarter of last year, Europe is positively impacted by the success of our international Early Life Nutrition brands for the Chinese market. But overall, I can say that the results continue to show sign of improvement.

And this is the case, in particular, in Waters, where we see progresses in many countries. I could take the example of UK with Aquadrinks, Volvic and Evian in France and Turkey.

So, we continue to implement all the actions to create and develop the conditions for profitable growth. Moving to Noram and CIS.

The 2.8% growth reflects the capacity of Danone to confirm its category leadership even in a tough environment. When we take into account the current background of these two important platforms, and I will through the detail in a minute.

And lastly, ALMA is as well is reporting a very strong growth in Q1 despite some destocking mainly in Asia water and Chinese infant milk formula. And we do not see any reason to question the region of growth in this part of the world where Danone continue to invest behind its core categories.

So let’s moves to the categories dynamic, and I will start with Fresh Dairy products. Page 7, so as expected, the Fresh Dairy product performance was a less negative volume trend.

This is the result of CIS that is improving this quarter. It is really difficult to make the simple global message as the states are different from one region to another, and I will go through the different regions.

But, what I can say globally on the division is that we are on track with roadmap. Across regions, we continue to optimize the way we operate, being more disciplined, making sure we create within the division the right conditions for investment, supporting the right bits in a pay-as-you manner and we continue to build the categories through innovation and new initiatives with retailers.

So let's go by region, and we start with Europe on page 8. As you see, our agenda of Dairy Europe remains unchanged and aims at occurring the new solid model of growth.

And for that purpose 2015 is a key to good profitable model of growth through the monitoring of the gross margin in a disciplined manner in order to be able to nurture investments behind our brands and product’s uniqueness. If you look at the Q1 top-line, this is as expected in a similar trend that we had in Q4 2014.

It continues to be impacted by the carryover effects of our profitable revenue cost management program that you remember started at the end of H1 last year. As we shared previously, part of the volume decline is related to the management of this program.

And this is program is aiming at having a stronger portfolio going forward, looking at assortments, promotion efficiencies, that is delivering significant gross margin improvement and will create and create the conditions for the return to growth in Dairy Europe. Sequentially, we do expect that we get an improvement of this along the year with complexities contraction between volume and value contribution.

If we go to more concrete results and here is some illustration on the chart. Aptamil continues to perform.

The global European performance is positive this quarter with countries like UK growing double-digit. And we have severance that is Aptamil Kids being double-digit positive also this quarter.

We have also some good first times and initiatives around indulgence, it’s the case of Danette Spain. It’s the case of Danette Liegeois in France growing nearly 50%.

And we've just launched a range of white indulgence under the brand of Gervais in France. Activia remains negative but with signs of improvements in some countries.

So let’s turn to U.S. In the U.S., we continue building our agenda to create new dynamic of growth.

The global category is still growing also at lower pace. And in this environment, we've been successful in maintaining Danone leadership, having been able to reach the position of co-leader in the Greek segment where we still see opportunities of growth and where we’re having successes with our new launched Oikos Triple Zero.

Also, as we shared in our full year 2014 results, the category has expanded around 4% in terms of shelf space as a result of the Greek expansion. We now need to rationalize the shelf and make sure that velocities are increasing.

As category leader, we are best placed to work with retailer on managing the shelf. As well and as you can see, we continue to animate the category with different initiatives.

Here you see the Light & Fit Protein Shake, which open new moment of consumption and which is starting well. And as well, new type of availability of products with our alliance with Starbucks that is now live and will come soon in groceries.

So basically, for the U.S. in 2015, our agenda remains to invest behind the category to reignite growth in a category with great potential.

Let’s move to CIS on page 10. So in CIS, as you see, Q1 is showing some improved growth with volume development continuing to be negative overall.

We need to remain cautious and we continue to monitor the consumption trends very closely. But this confirms that our model is very resilient and our market shelf is solid.

And as you can see, our key brands, remains strong pillars for the development of the category, with double-digit value growth. As well, what we've done recently was the launch of the Danone range and it shows our capacity to well adapt to new market condition and also leverage our international expertise for consumer preference.

In a very uncertain environment, we ensure that we have the right discipline behind our initiatives and we continue to work on efficiencies in signifying the organization. So to finish for the Fresh Dairy division, I would like just to come back on page 11 on some of the innovations that we had in Q1.

Because innovation remain of course a key part of the Dairy agenda. And some examples that you see this quarters show initiatives around the hunger need scope and this is the case with Oikos Triple Zero and Taillefine Plus and also around the segment of indulgence and I was mentioning earlier the white indulgence with the launch of Gervais in France where you see the pack on the chart.

So, let’s go to Waters, page 12. With nearly 9% growth to Water division confirms again its capacity to keep building a very balanced model with volume growth and value creations for new brands through better mix and geographical dynamics.

The growth is solid in all regions. And despite the destocking effect in China after a high level of sales from Chinese New Year in Q4 last year, the performance is very strong and is now back at the same level as we had last year.

Overall, Danone won market share. In Europe, Evian remains very solid and we have very good reception by consumer of the 500 milliliter new packs.

Volvic maintains its growth packs more particular on in Aquadrink, and we have a very good mid-teens performance in Turkey as well. Going to Asia, Asia remains a key engine of growth.

The Mizone keeps growing its market share. And we have recent launches of new flavor with Mizone that prove again that the potential of the brands in this region.

Overall on Aquadrinks, we can say that this continues to be a very resilient flavor to expand categories through healthy hydration offers. So to make a long story short, on Waters, I would say that all elements are deeply achieved to support in the divisions a profitable and sustainable model of growth that will deliver the same quality top line results in the coming quarters.

And as you can see on the next page, this agenda is also supported by a great innovation pipeline. You have some example on the chart that shows a very dynamic portfolio to a new packaging, new brands, flavor extension and lot to gain this quarter all around the world.

So, let's move to Early Life Nutrition, on page 14. With 11.6% organic growth this quarter, the growth performance in Early Life Nutrition is strong.

The basis for comparison remains favorable but is more normalized, I would say, than it was the case in Q3 and Q4. And we have a performer that is solid in all regions.

Europe keeps growing double-digit. We have flat volume in winning food and continued strong dynamics in infant milk formula.

And it’s mostly driven again by the success of international brands like Aptamil or Nutrilon for the Chinese market. Sales also keep growing double-digit in the rest of the world with continued market share gains in Latin America.

We have solid business trends in Indonesia, Malaysia and Australia. So, maybe let's go to the Chinese market.

Regarding China, what I can say is that I can confirm the trend that we explained when we commented the Q4 and the full year results of 2014. What does it means?

It means that first, the category keeps moving toward more e-commerce balanced model made of successful international brand. So for Danone basically that means that today we are quite close to the position of the packs in term of market share but what was -- two-third base on Dumex is now two third based on e-commerce including local and international.

On top of this and this is the second part, the Nutrilon Platinum in moment that has started gaining market and the specific Chinese Nutrilon product is starting strongly in the channel of Mom & Baby store that is dynamic. And the third thing is that unfortunately Dumex is still having difficulties to find positive trends also because as we expected, the retail channel continues to decline.

So, in a nutshell, China market remains a key part of our agenda. And the success of our international brands like Aptamil, Nutrilon and Cow&Gate, confirm that what matters to Chinese model is the equity of brands made of 60m quality.

Moving to page 16, you can see also some examples on new product launches this quarter. I would specifically outline products for pregnant and breastfeeding mum like Nutrimum, and specialties you have here the Nutrilon without lactose.

And I think these are focusing on key segment for growth for many pregnant lactating moms and on the second hand the specialties. So, Medical Nutrition, page 17, I am pleased to report an excellent Q1 growth performance for the division that is outperforming historical average.

We have, on one hand Europe. We brought in a very solid performance that is above mid-single digit with UK, Poland and Turkey, being very dynamic.

And on other hand, in terms of products, this quarter Neocate and pediatrics have Nutrison in tubes perform very well and the division confirms its strong potential of growth outside Europe with level of growth for both mid-teens again. As a part of this performance, we continue to have a good innovation agenda, as you can see on page 18.

So, you can see some innovation around Nutrison, which I just mentioned as a very dynamic brand. And then, you have a new improved formula and new flavor around Fortimel.

So this is the end of the world tour. And probably let’s move to our roadmap and I will start with page 20.

It’s a chart that you’ve already seen. Just to tell you that the teams are fully focused on an agenda that we summarized around four keywords; optimize, invest, build, and nurture.

It’s about optimizing the model and improving gross margins through portfolio management, efficiencies and discipline. It’s about investing behind the right initiatives to a sustainable profitable growth.

It’s about building our categories and regions and shaping our Danone 2020 guiding vision. So within that roadmap 2015 will be and is and should stay, both a year of delivery and preparation.

In an overall context, that will continue to be complex and volatile. Delivery of profitable growth in 2015 and preparation for 2016 and beyond to make sure that profitable growth is sustainable beyond 2015 and that become -- that'll accelerate growth toward 2020.

So turning now to the guidance, I can confirm our objective of delivering 4% to 5% Fresh growth with the margin that will be slightly up. And please remember that when we say slightly up it’s also because we want to make sure that we have enough investments in order to prepare 2016.

So, to conclude, what I would say is that Q1 is fully in line with this agenda and rightly sets the condition for the next quarter. Thanks a lot for your attention.

And I am now ready to take your questions.

Good morning it’s Jon Cox with Kepler Cheuvreux here. I have a couple of questions for you actually I will go for three.

First question, just on the gross margin improvements, you are seeing in that Dairy business in Europe. Can you give us an idea where you are in terms of the plan?

I think you lost about 500 basis points of gross margin over the last couple of years in Dairy. Just wondering where we are in terms of the rebuild.

The second question, on your guidance for the year, trading operating margin slightly up on an underlying basis, I wonder if you can just give us an idea of what you think the non-underlying elements will be this year, should we be factoring in something like 30 basis points improvement just on currencies and the change you mentioned regarding the Indonesian stake. And then last question on minorities generally with what you’ve done in Spain.

How much will that benefit your earnings this year, because obviously you now have reduced minorities Spain and how much did you pay for that stake you mentioned in your Annual Report and today again? Thank you.

Thank you, Jon. So, about your question regarding Europe, I can confirm and we've the several occasions to talk about it, that with that vision plan and with what we’re doing as a work in terms of profitable growth for the new management, we’re significantly improving the margin.

And it’s all part of building new virtual circle of growth. So, we’re building gross margin in order to make sure that we can invest behind our brands and create the right conditions in order to get back to growth and stabilization in Europe.

So I would not give you a number. But I can tell you that gross margin has significantly improved.

Then if I go to your second question on different items, so on scope it’s basically what we have said already meaning that there will be a positive impact on scope and it will be somewhere between 10 basis points and 15 basis points in margin. And as far as ForEx is concerned, there will also be a positive impact and we estimate that based on current rates that you will have to be careful because it keeps evolving.

There will be a positive impact on EPS between mid single and high single digit for this year. Coming to your question on Spain, so on Spain -- but the price we have paid slightly lower than the value that we had booked in our debt.

And I think that that fits. And yes there will be a very slightly positive impact of the fact that we have bought some part of the minority in the events that it won’t be material.

Okay. Just as a bit of an add-on, on that minorities.

Is the plan to basically take that all in house this year? Or is that really up to the minority holders and whether they want to participate?

Today, there is no plan. We have now 91% and then it will be between sent to minorities to see at what base and how far we go.

Good morning, everybody. Alain Oberhuber, MainFirst.

I have two questions. First, could you elaborate a little bit on the Activia development and when do you think the volume growth or the organic growth in Activia becomes positive again?

And the second question is also in Fresh Dairy, about Mexico and Brazil, if you could give us a little bit of development in these two bigger markets for Fresh Dairy? And the last question is about Waters, in Mexico as well.

What was the development, in particular, regarding the tax increase we've seen of beverages in Mexico last year, if you could benefit from it or if Aquadrinks had some issues or negative development?

I will start with Activia, and on Activia you have to remember to separate between different geographies because the dynamic of Activia is different in the geographies. So I guess your question was on Europe, which is the one I mentioned in the presentation.

In Europe, this is basically what we explain. So today it’s still negative.

And it’s a still a bigger of the sales. But we are working and we are seeing some signs of improvement, especially in Spain to name it in Q1.

And we continue to work in order to improve the overall sequential volume and with the objective to stabilize it somewhere end of this year beginning of next year. So that’s what would be the plan for Europe Activia.

Then about your question about Fresh Dairy in Mexico and Brazil, in Mexico, the performance is very solid and has been for a few months already. So, we have a position that is very strong.

And the growth that is dynamic there around the mid single-digit, I would say. And then, in Brazil, Brazil is having a difficult context overall.

But it really depends on the category. We are -- really the dynamic on all the categories but in Dairy we have been seeing in the past month some softened of the gross that we need to monitor.

But we have the right actions in order, especially to push again behind Activia in Danone, so it’s holding. And then regarding your question on Waters Mexico and the tax, you have to remember that the tax was on all sugar beverages.

So, it also included the Aqaudrinks. However, we continue to have in Mexico a very strong platform with a very solid market share and what I can say -- but the tax is at -- it didn’t give any competitive disadvantage or advantage because it was applied to all sugar beverage.

Thank you, Cécile. Just an add-on question.

Did I understand you right that in Q1, Fresh Dairy development in Brazil was already negative?

No, not at all, I said the growth has softened. But it’s still -- we are holding well and it's still positive.

Good morning. It's Jeremy Fialko from Redburn here, a couple of questions.

First of all, can you just give us some more details on de-stock in China you mentioned that in both the Waters and the Nutrition side of things. Is that just a post New Year phenomenon do you think it’s just more an underlying signal of the steady economy there.

And then the second question is on your Fresh Dairy volumes, and clearly the sequential trend there was better having done with minus 8% in Q4, 2014. How close on the divisional basis do you think you can get to flat volumes by the second quarter or third quarter of this year?

Thank you.

So, I will probably comment on Fresh Dairy volumes first. So here again, we need to be careful not to have one global message, because it’s different amongst the regions.

And you have to keep in mind that what I mentioned about CIS that is improving in Q1. And about CIS, we need to be very cautious because the consumption is fragile and we need to monitor it closely.

About volume, what we've said and it’s still the same agenda is that we’ll have a sequential improvement in Europe quarter-after-quarter and that we expect in Europe to stabilize between end of this year and mid next year. So we’re still on this agenda.

And regarding the rest, we still have positive volume of course in ALMA. So, I think that would complete what I can say on Fresh Dairy volumes.

Then the destocking in China, so we've two elements respectively, we've the Waters China. And what I say is that basically we had some impact entering the year in January, February.

March was fully back to a level our growth at the same level as we commented last year. So, this is for Waters.

And we had also some stocking effects in infant milk formula that had some impact in January and February trends.

But similarly, March, back to normal there as well?

Yes, we think -- we believe it is back to normal, yes.

Just a couple of questions, just a follow-up stressed on that destock question. Are you able to quantify what the Waters’ like-for-like sales would have been without the destock that’s my first question.

Another question please, on if I turn to European Dairy, I’m interested to know what’s happening to pricing. Now clearly -- and I wanted to try and exclude your actions.

So if I look obviously infant milk prices have come down. But I want to know at full for the SKUs and I am expressing this badly.

But your price mix is being boosted because you’ve reduced -- you've taken out some low value SKUs. If you try and remove the mix effects, can you talk about pricing in Europe?

So on pricing in Dairy Europe, basically, we have not seen -- and I think I commented that earlier. We've not seen any material impact of price decrease following the fact that the milk price has decreased.

And we've not seen that because what we've been saying about the category is that we are in a category of differentiated products. So we’re not expecting that, and this has not happened.

There have been some adjustments here and there. But overall what you see in price is the carryover of the price increase of last year, but nothing specific in terms of price decrease from this year.

So that’s what I would answer on Dairy Europe pricing. In terms of destocking, I think what is important is what I said earlier, meaning we are back to the trends that we had last year, which is double-digit growth, very dynamic.

And I think that matter. So we had some impact between Q4 and Jan-Feb, but now we’re back to the kind of normalized level that shows that there is still great potential and I think that’s what matters rather than trying to do many calculations on precise impact.

And just very quick follow-up on the European Dairy pricing question. Have you seen any change in pricing for private label?

No.

Yes, good morning, Cécile. I have two questions, please.

First, your comment in the statement that you expect dairy prices to rebound in the second half. Is that a result of what you're seeing right now or is that just caution on your part?

And secondly, what am I missing? It seems to me that your comps clearly get much more difficult as you go into the second half of the year as far as like-for-likes are concerned.

So why shouldn't we be expecting a significant deceleration in organic revenue growth as we move into second half of the year?

But the milk price, this is not crucial and this is what we continue to see when we commented in the full year 2014 results. We already said that we had favorable impact that was specifically strong in H1 and that we expected the rebound.

And it's not to be cautious it’s because of different factors, including the fact that we expect that the Chinese import will start again and they will be more pressure on demand. Hence have an impact of -- on the prices.

So today the latest projection that we had from the teams is still showing and basically the recent revolution of SMP is still showing that there would be a rebound somewhere between Q3 and Q4, and beginning of next year. So, it's an assumption that is sales and that we continue to have in our forecast.

Then on the comps, I think there are two different effects. You’re right to say that on Early Life Nutrition, there will be less favorable comparative base and that’s I mentioned in the presentation.

But on the other hand, we are in Waters some seasonality. And the fact the gross will accelerate a bit.

And then we have also the fact that, as we mention the volumes will sequentially improve in Dairy Europe. So, all-in-all, we have no reason to change what we say into full year, which was we expect that the growth will be quite balanced between H1 and H2 as a percentage.

Thank you everybody for attending the call. And I wish you a very good day and I'm sure we stay in touch.

Bye-bye.