Danone // 2020 Universal Registration Document

3 Business highlights in 2020 and outlook for 2021 3.2 Consolidated net income review 45 DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 RECURRING OPERATING INCOME AND RECURRING OPERATING MARGIN Consolidated recurring operating income and recurring operating margin Danone’s recurring operating income reached €3.3 billion in 2020. Recurring operating margin stood at 14.0%, down -117 bps on a reported basis and -150 bps on a like-for-like basis. This includes a negative -62 bps effect from €150 million incre- mental costs directly related to Covid-19 incurred during the year to keep employees safe and ensure business continuity. It also includes around -100bps of negative mix, mostly driven by negative category mix, with lower sales fromSpecialized Nutrition, Danone’s most profitable business, and negative country mix, reflecting the slowdown of China. To mitigate these headwinds, Danone stepped-up its efforts on efficiency and cost discipline, especially in the second half of the year, allowing the company to deliver over 280 bps of productivity in 2020 and unlock close to €850 million of savings. In 2020, the Protein program delivered more than €300 million of incremental savings, bringing its total savings to €1.3 billion since 2017. Reportedmargin also reflects a positive effect from change in scope (+7bps) and currencies (+38bps), and a negative effect of -11bps reflecting Argentina’s impact on margin. Cost of goods sold totaled €12,267 million in 2020 (€12,878 million in 2019), or 51.9% of consolidated sales (50.9% in 2019). Global input costs inflation was slightly below 5% for the company in 2020, notably accelerating in the second semester. Selling expense totaled €5,366million in 2020 (€5,773million in 2019), or 22.7% of consolidated sales, broadly in line with 2019 (22.8%). General and administrative expense totaled €2,285million in 2020, or 9.7%of consolidated sales (9.4% in 2019). Research and Development costs totaled €323 million in 2020, slightly below 2019 (€351 mil- lion) (see section 3.1 Business highlights in 2020 ). Other income and expense stood at €61 million in 2020 (€53 million in 2019). Recurring operating income and recurring operating margin by Reporting Entity Year ended December 31 (in € millions except percentage and bps) Recurring operating income Recurring operating margin Reported changes Like-for-like changes 2019 2020 2019 2020 EDP 1,345 1,303 10.2% 10.2% -6 bps -36 bps Specialized Nutrition 1,908 1,763 25.3% 24.5% -74 bps -126 bps Waters 593 251 13.0% 7.0% -601 bps -574 bps Total 3,846 3,317 15.2% 14.0% -117 bps -150 bps EDP recurring operating margin remained broadly stable (-6 bps), slightly above 10%, despite Covid-related costs. Specialized Nutrition recurring operating margin decreased by -74bps to 24.5%, notably reflecting the negative country mix from Infant Nutrition in China, as well as Covid-related costs incurred this year. However, product mix had a positive contribution in 2020, reflecting the resilience of our portfolio and strength of our innovation. Waters recurring operating margin decreased -601bps to 7.0%, hit by reduced operating leverage, negative channel and format mix, and additional costs directly linked to Covid-19. Recurring operating income and recurring operating margin by geographical area Year ended December 31 (in € millions except percentage and bps) Recurring operating income Recurring operating margin Reported changes Like-for-like changes 2019 2020 2019 2020 Europe & Noram 1,999 1,823 14.6% 13.6% -98 bps -117 bps Rest of the World 1,847 1,494 16.0% 14.6% -132 bps -189 bps Total 3,846 3,317 15.2% 14.0% -117 bps -150 bps The recurring operating margin of the Europe & Noram region was 13.6% in 2020, down -98bps vs 2019. The recurring operating margin of the Rest of the World was 14.6% in 2020, down -132bps vs 2019.