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Groupe DANONE (OTC:GDNNY)

Q2 2007 Earnings Call

July 30, 2007, 12:00 PM ET

Executives

Antoine Giscard d'Estaing - EVP - Finance, Strategy and Information Systems

Emmanuel Faber - EVP, Asia-Pacific

Analysts

Alex Molloy - Credit Suisse First Boston

Arnaud Langlois - JP Morgan

James Amoroso - Helvea SA

Xavier Croquez - Exane - BNP Paribas

Carl Short - Standard & Poor's

Jeremy Fialko - ABN AMRO

Vicky Buffery - Thomson

John Parker - Deutsche Bank AG (UK)

Cédric Lecasble - Kepler Equities

Andrew Wood - Sandford Bernstein

Marco Gulpers - ING Bank N.V

Christopher Wickham - MainFirst Bank

Presentation

Operator

Hello ladies and gentlemen and welcome to the Groupe DANONE 2007 First Half Sales and Results Conference Call. My name is Wendy and I will be your coordinator for this call. During the presentation, you will be on listen-only. However, at the end of the conference, there will be an opportunity to ask a question. [Operator Instructions]. I will now hand you over to your host, Mr. Antoine Giscard d'Estaing, CFO. Thank you.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Thank you. Hello everyone. I am sitting here with Emmanuel Faber. We are happy to host this conference call and give you some feedback on the first half results and some update on Wahaha. Unfortunately, Franck couldn't join us for different reasons in his agenda, so we'll do the presentation, just the two of us.

What I would suggest is what you can see on page 3 of the presentation is give you some update on the recent strategic moves of the Group. Then I will turn the floor to Emmanuel and I will then elaborate a little deeper on the results of the company.

So if you turn on page 4, it is true that first semester 2007 was a very important one for our Group with a significant repositioning, two big M&A transactions that you... that we'll discuss with you are already, the sale of the biscuit activity and the friendly offer to acquire Numico, and I will elaborate a little further on where we stand vis-à-vis those two subjects.

The other important thing for us is to say that this very intensive M&A activity didn't prevent us from achieving a very good performance, as you will see it, both in top line, in margins improvements and in EPS growth.

Let's talk a little bit of the baby food contemplated acquisition. The first thing I wanted to express is the fact that we have been working on the Numico files for a couple of months now and it happened that this acquisition took place very shortly after the biscuit divestment. But this a subject which we have been reviewing carefully for a couple of months, if not quarters. As you know, the first step was to reach a friendly deal with the Numico Board. We are now in a phase where we are expecting the different regularity approvals. The first thing we need to get to start this offer is an authorization... not the authorization... the consultation of the workers council in the Netherlands. This is taking place this week and next week. Then we will file the deal with the stock market regulator. And last but not least, the antitrust process will probably start as of early September and will, we hope, last a couple of weeks, which would lead us to a closing in the middle of the month of October. So this is where we stand on this subject.

As you know, we have acquired almost 30% of Numico stake, which we have financed from day one. And then the second thing I wanted to mention that I think you are aware of is the Group has secured its financing for this acquisition. So we don't have any risk in front of us in terms of financing this deal. So we are, as we speak today, in a process which is running smoothly.

The other big transaction was the sale of the biscuit division to Kraft. Here again, the conditions are related to consultations with the employees, which have started which would... which an important date is around mid September most probably. For the same reasons, there is a filing with the antitrust authorities which is being... shall be prepared. The first discussions have started and here again, we expect these different discussions to end with the antitrust regulators in the middle of the fourth quarter. So a closing should take place at the end of the year. We think the process is on track for this subject, and the business performance for the biscuit division in the first half was, as you will see, very good with a good business almost in all geographies.

On page 7, just to mention that of course having done those two, or having started those two big occasions, the Group is in a transition mode and will have a really new configuration from the beginning of next year. Our priorities are still very clear. We need to apply the same level of attention to our operational execution, our business environment is getting tougher for reasons we will discuss later on and of course it is our top priority to stay very focused on this performance. We confirm our guidance for 2007, both top line and margin in the present perimeter and we will of course give fully detailed new mid-term targets once the acquisition of Numico is finalized. We have to take some weeks, not months but to go deeper in Numico and of course we will come back to the market with more details and deeper plans probably in the middle of... end of Q3 or beginning of Q4 this fall.

Now I turn the floor to Emmanuel maybe to give you an update on the Wahaha situation.

Emmanuel Faber - Executive Vice President, Asia-Pacific

Thank you, Antoine. Good evening everybody. China has obviously been an important aspect of our business over the last couple of quarters and I am happy to have this opportunity to share with you where we think we are in the process of the Wahaha dispute.

I will try to be brief during this first part of the presentation in order to make sure that those who already have their answers don't hear them for the second time and make sure that we have also appropriate time for the questions. However, let me maybe just briefly go back to where we think it all started and give you a brief outline of the past and potentially where we think we are going for the next few months.

The whole story started a few years ago when we agreed at the Board level of Wahaha to start co-packers operations in... as part of our global sourcing strategy for the Wahaha business in China. To our surprise, those co-packers became related party companies and also took an increasing role and room in the... as a proportion of the total industrial capacity of the company with clear acceleration in '04 and '05 and '06.

Most of '06 has been used to try to settle the case in an amicable manner and we actually entered into an agreement at the end of last year which we felt was satisfactory to both parties. However, the few days, weeks and months that followed that agreement basically showed that our partner has a different view of his level of satisfaction about the agreement and basically tried everything he could not to implement it.

The early part of the year was I think another chance of trying to settle the case and mitigate this agreement in a manner that would still be satisfactory to parties. Unfortunately, that ended in the early part of April where after a long Board meeting, Mr. Zong chose to basically publicize most of our discussions into the largest Internet site in China. That turned the whole thing into another stage where basically the whole of the second quarter has been one where both parties have been pretty active in setting up the legal framework and the arbitration framework of the case. There are a number of cases running right now, some of them are important, a few, I would say probably three. Most of the others are, or would be called ancillary procedures.

Going into the public was obviously not our first option, but one of the good aspects of that is that it had... it has basically forced the parties to act in a manner which is consistent and basically made the public aware generally and more specifically within government and administration about what the parties attitude in the case was. That's essentially where we are and I think where you can see we are from outside in the Wahaha case.

I think that the third quarter is marking a turn in this overall strategy and entering into new phase of the dispute with the litigation [ph] process with essentially an increased focus on the negotiation front even if there will obviously be a continuation of the procedural aspects.

In terms of our numbers, I think the Q1 numbers have been shared with you already. Q2 has seen continued growth of our joint venture product sales into the marketplace, but a total discontinuation, complete discontinuation of the sales of the non-JV manufactured products through our sales company. As a result, there has been no product transferred through our sales company during this period and therefore that has significantly impacted the overall performance of Wahaha as we consolidate those sales basically around the 20% decline, order of magnitude overall, which is minus 100% on one side and still double-digit growth in joint venture manufactured products. And I will offer more comments during questions, if you have any on those.

Looking ahead at what Q3 and Q4 could look like in terms of the numbers we consolidate, first of all, we anticipate that until we resolve the conflict, there will be no further sales of non-joint venture products through our sales company. And therefore, we should expect the minus 100% trend to continue in Q3 and Q4. This is at least our current assumption. This will be even more impactful than in the second quarter because, particularly in Q4, those products have represented an increasing share of the total number of products and volumes of products going through our sales company.

The other aspects to keep in mind is that our Q4 was globally extremely high last year preparing for some loadings for Chinese New Year and potentially as well linked to the dispute strategy of Mr. Zong and his preparation for a separate sales company. Whatever the reason was, the fact is that we had extremely strong numbers for Q4 and therefore a very solid base for comparison. As a result, our current assumption for the sales of Wahaha, as we report them in China, is going to be probably a decline of about a third of our total sales compared to what they were last year on the same period on the second half of the year.

Looking ahead at the other aspects of the short and potentially the negotiation, I would like to share a comment which is that, as I think you have been well exposed to information, has proven to be a very key tactical material being used in this dispute, and whatever public disclosures or guidance in terms of timing or sharing in terms of objective has so far largely been used against our interest when we have being doing so in the past few months. In light of this, we have carefully reviewed the situation and with a balance of sharing with you what is legitimate for your understanding of the case and the global efficiency of the negotiation, we have basically come up with the conclusion that it wouldn't be appropriate and not in the best interest of Danone to be sharing specifically where we are going and where we think we are going through the negotiation process, which I mentioned earlier as being the increased focus of that phase of the dispute resolution.

Having said that, in order for you to have a general guideline and before we take questions at the end of this call, let me maybe share a few quick points. First of all, our view is that any solution should be consistent with the vision and the desire to keep or restore a unified business environment for Wahaha in terms of brands and factories and distribution network in a manner that prevents a further conflict of interest to exist around the business. The second is that we have acted so far consistently with this vision is our approach to the case and we intend to continue to do so as long as practicable. Third, despite several months of dispute, some of them fairly visible, the brand is still a fantastic brand in terms of its equity to the consumers. We see a lot of ownership in the employees and also in the distributors communities of Wahaha which continue to push the brands to the market.

So overall, I think we can say that from a demand side, the situation is a healthy one and from a supply side, and although this is a very general comment, I would say that despite some supply chain disruptions from time to time in localized situations, overall, the supply chain is working and delivering the products to our consumers.

The last point is that we have said all along that our general preference was for a negotiated solution and we continue to believe that this would be best for everybody's interest. We continue to be open to what I would call the right negotiation platform, which also means that there has to be an appropriate negotiation and discussion process and disciplined governance for this process. All those conditions need to be met for a successful amicable "resolution" of the current dispute and we are working actively with a number of parties including government to try to create those conditions.

As a result of that, I think you should expect that despite the continuation of the legal and arbitration procedures obviously within Q3 and potentially in Q4, there should be an overall quieter approach of the matter which we will emphasize through appropriate channels to create a solution.

In a nutshell, I would say that after a quick set up of the legal framework and positioning within the general public and the media, we think that we are now entering into the more Chinese phase of the discussion where we will essentially be as patient as what it takes to come to our objectives. And I will leave to Antoine obviously to comment how that will or will not impact our overall guidance to the market. Thank you.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

So from page 9 onwards, a couple of explanations on the H1 numbers, which I propose go through before we take your questions. On page 10, just a reminder, which is where we present those numbers to you in this presentation. As you know, under IFRS, once you have taken a decision to sell a business and once you have taken a step in that direction, which obviously we did, you need to count those activities as a discontinued operations; that is to say you do not report the sales or the EBITs in the Group reported numbers. This is what you have in the press release under the column IFRS.

For comparison purposes, we have decided to discuss with you the performance of the Group as if the biscuit business was still part of our payment term [ph]. As you will see, the numbers we will discuss both in terms of top line or margin improvements are a little better without biscuits, but the discussion we'll have is around the numbers including the biscuits business.

Remember that by the way, this business will remain consolidated till closing, and most probably, as I've just said in my introduction, the closing will take place at the end of this year.

So on page 11, our numbers in our opening perimeter, so to speak, says €7.5 billion, which is plus 8.6% on a like-for-like basis, a little less than 5% as a reported number. Trading operating income a little less than €1.1 billion. Trading operating margin 14%, which is a very sound 47 basis point improvement, very similar to the reported number. I will explain that later on. The underlying net income is up 8.1% at €663 million. The EPS is €1.38, which is 10% higher than a year ago. Free cash flow is down by 14%. I will explain that a little more in detail later on.

So when we look at these numbers, we think they illustrate a very sound and good performance. And if we start page 13 by the top line expansion, the plus 7.3% in the second quarter including a situation where Wahaha started to decline is a very good one. As you will read it in the little blue bubbles under the line, you will see that we had this specific situation, the gross profile, the rest of the business has been extremely solid, close to 10% in each of the two quarters even if of course the comparison was a bit more difficult in certain geographies from the second quarter. We discussed that last time when we commented the first quarter sale. So for sure a very good top line impacted by this decline in sales of Wahaha, but overall a very good number for the second quarter again.

On page 14, a break down of these sales and the impact of currency, which was a little lower than in the first quarter, a little less impact of consolidation; hence, a reported net sales number which is north of 5% in the second quarter.

On page 15, our traditional analysis have changed in the sales growth, little impact of currencies, little impact of a deconsolidation of some businesses mostly in the biscuit a year ago and in the Canadian HOD [Home and Office Delivery] operations and the inclusion of our dairy operations both in Japan and Algeria. The plus 8.6% on a like-for-like basis is made up... is some 6.5% in volume and a mix and value impact of 2.1%.

If I move now to division by divisions, the Fresh Dairy Product business on page 16 did very well again, extremely strongly in the second quarter, very good growth all major geographies, built as I said already on stronger '06 comparatives. It's good news that our growth strength in our mature markets are... we will call mature home markets our two largest European markets: France and Spain. These markets have been growing very nicely again in the second quarter, which is good news. Good top line in expansion in the Eastern Europe, good numbers in Latin America. The U.S. is growing low double digits with a good market share position.

So overall a very good picture. As you know, we report under this segment as of today our baby food business and the operating performance in the first half of this year was again very good, which is a good sign of the situation of this division, which we will of course merge of or manage under the Numico organization once the Numico acquisition has been authorized.

Page 17, some... just some example of the innovation, some of the innovations that were launched during the quarter.

I'll move now to page 18 to discuss the beverage situation, which, as such, is impacted by the negative trends of the Wahaha sales. Without this, here again, if you look at the trend that has been established since last quarter of last year, the growth is pretty solid, around 10%... 9% to 10%. Europe is growing in mid single digits. The weather has had some impact in some geographies, but not everywhere, so probably the current quarter might be weak as well in Europe because the month of July was, as you know, in many European countries relatively unfavorable to the beverage business. The momentum is very good in Latin America and the momentum is very good in Indonesia as well.

Skip to page 19, which is about some of the innovations of the beverage division. I move to the biscuits division, which has had a very nice and solid growth again in the second quarter, driven by a couple of very good entities like Spain, but good news is France has continued to deliver a good and solid mid single-digit growth. The other European countries are doing very well. It's the case, for instance, of the Netherlands. So our vision is that the business is developing quite well. Performance in Eastern Europe has improved slightly with good performance in Poland and Asia is good as well.

I'll skip to page 21. Page 22 is just a geographic vision of these trends which I have already discussed. I don't think it's necessary to stress the fact that for the Group profitability the fact that the European business is almost ready to track around about 8% in the last two quarters is of course excellent. And the emerging countries are still going at about the same pace as they did in the previous quarters.

I move now to page 23 to discuss the trading operating margin. Plus 8.6% in absolute numbers, almost 14% EBIT margin rate, which is analyzed on page 24. I think as we discussed it already with some of you, we didn't expect any major impact from consolidation scope or translation in this first half. And as you see these, we were not impacted by these different elements which were almost neutral.

The second element which was a bit different from previous quarters was the country mix, which was almost neutral. It's a balance between a positive impact of the lower growth at Wahaha and the negative impact of some other geographies. So, overall, the country mix is equal to zero. Of course the most significant business impact was related to the increase of raw materials and input costs, which have been increasing month after month. So you see that the level of the Group, the impact was equivalent to almost €70 million, which turns into 94, 95 basis points. Three-fourths of that is related to the milk which is our most important commodity, and this has been a very adverse element this first half.

Now against that, the Group has been capable to demonstrate its capacity to generate a very good level of operational performance related to of course the significant growth we have and some of course mix and pricing initiatives that we had taken. I am sure you will have question on the second half this year, and I'll be happy to take your questions on that.

Page 25, the division... the performance per division and geographies. Very clearly, performance is driven by Fresh Dairy Products on a comparable basis. Beverage is doing a little better, Biscuit is showing a decline on a comparable basis, but this is related to the fact that the first half '06 was impacted by exceptional gains. So on a comparable basis, we get this negative deviation. Europe has shown its capacity to generate a good profitability again, which is consistent with what I said on the growth. Asia is of course impacted by the decline in Wahaha and the rest of the Group. The rest of the world is showing its capacity to catch up with the Group average profitability.

Page 26, just one word on the income tax levels, which I think you... which need to be explained a little deeper. You remember that the H1 '06, we benefited from a deferred tax asset which was equivalent to something like €25 million or €26 million, and which of course helped our tax rate. We get a negative impact about the same magnitude for deferred tax liability on... in H1 '07 which is non-recurring. So if you adjust for those two exceptional items positive in '06, negative in '07, you will get to a very similar effective tax rate around 29%.

I'll move to Page 27, which is an explanation of net income attributed to the parent, which is in '07 a little less than 660, which is less than the previous year. But you must remember that in 2006 we booked the profits which we made on the disposal of the Sauce business, the Amoy business in Asia at the beginning of the year. So this was an exceptional capital gain which helped our results on a purely comparable basis. The underlying net income from continuing operations is up 8.1%.

Page 28, this translates into plus 10% per share.

I'll move now to the sources and application of funds. Just to say that in the first half, we were impacted by a negative change in our working capital. This is related to the decline of sales at Wahaha. So probably we get a swing between '06 and '07 something like €100 million negative, which is related to the strong decline of sales. We get a little more CapEx; hence, the decline of the free cash flow from operations.

Page 30, just how we used this free cash flow. We had investments in the first half of this year mostly for the acquisitions of shares in companies like Wimm-Bill-Dann or Hualian. We had some disposals, a little less than a year ago. Share buy back program was relatively strong. We expensed a little less than €470 million, which gives us a negative change in net financial debt of €550 million, which of course is not representative at all of the second half of the year in which we have both stronger cash flows, most probably very limited investments and of course no dividends and no buy backs.

At the end of the semester, the net debt including the productions of 2.4 was €3.3 billion.

I will skip the remaining slides which are related to the IFRS accounts. They are just exactly the same numbers without the biscuits contribution to our earnings... to our top line and EBIT margin, sorry. And we are now ready to take your questions.

Question And Answer

Operator

Thank you. [Operator Instructions]. Our first question is from the line of Alex Molloy from Credit Suisse. Please go ahead.

Alex Molloy - Credit Suisse First Boston

Hi there. A couple of questions on China please. Would it be fair to say that if you look at the two businesses, Mr. Zong has basically got his own business co-packing and selling your products? And then in relation to the business which is not to do with co-packers where you manufacture and sell the products, who is now running and in control of that business? And then finally, are you still able to make a decent margin with the business that is where you manufacture and sell the products in China?

Emmanuel Faber - Executive Vice President, Asia-Pacific

Thanks for the question Alex. I am not sure I fully understood the first part that you will correct if my answer is not appropriate. I am not sure that your description is a fair description of the reality. The reality is that Mr. Zong has sold us [ph] the network of factories which now entirely sells a to single sales company which channels and uses the sales force and the distribution network of Wahaha. This is part of the current awkward situation where we have decided that in order to mitigate the potential effects of the dispute on the brand's equity and its supply to the consumers, we would not think at this stage to ask distributors from or prevent them from sourcing their products, some products from Mr. Zong's co-packers or entities. This is all the more true that all operations are basically running at full capacity, whether on our side, on the JV side his non-JV network. So essentially, we are serving the market while we are discussing about how we can resolve the dispute.

In terms of the margin, there is no evidence that other through a mix effect, this transitory situation is creating a margin issue by itself. As you probably remember, the organization of the JVs, which has been copied into the non-JVs, is such that most of the profit is actually made by the manufacturing companies and very little of the profit is made by the sales company. So the fact that we are losing and have lost essentially the volumes from the co-packers... ex co-packers and Mr. Zong's business today is not affecting our margin or our profit rather in a manner which is consistent with the sales decline hopefully. And therefore, as a result, the apparent margin for the overall business will improve. So again, other than through mix effect of the overall consolidated Wahaha business, there is no structural issue with the current situation.

This being said, back to who is running and who controls, I think this is very clear on our side with both the majority of ownership in all the joint ventures as well as the majority at the Board level in terms of control. In terms of running, this is the situation that I just described, which is that we have chosen to mitigate the disruptions and therefore I think both parties are currently taking care of the Wahaha baby in a manner where parents dispute will basically not affect his health in the short term. This is not to say that we believe this is a satisfactory situation nor do we believe this is a situation that can last. And this is why I was reemphasizing to start with the fact that we continue to strongly support the view that whatever solution is being found, there needs to be a resolution of any conflicts, or material conflicts of interest in the situation. And this today I think shows to everybody including to the Chinese government that has been led to believe in the initial stage of this dispute that Mr. Zong's strategy was one that would or could make sense without affecting Danone's interest. It is clearly a demonstration that this is just not realistic. So I think that's where we are in terms of short-term running of the company.

Alex Molloy - Credit Suisse First Boston

Thank you very much.

Operator

Thank you. Our next question is from the line of Arnaud Langlois from JP Morgan. Please go ahead.

Arnaud Langlois - JP Morgan

Yes, good evening. I have two questions. The first one is related to your comments around working capital. Could you explain maybe in more details why the working capital is actually increasing as a result of Wahaha sales declining? And also could you maybe --?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Arnaud, I think you have to start again because we just lost you for a couple of seconds.

Arnaud Langlois - JP Morgan

Okay, I will start again. Okay. I was asking about this year working capital and to get more details as to why this year working capital is increasing while Wahaha sales are declining, and then to clear as to why this is happening. And also if you could give us more details on the performance of your French and Spanish business. I was actually surprised to hear your comment that France was still doing very well. Apparently, looking at Nielsen data, there seems to be small deceleration in second [ph] quarter. So I was wondering what was happening there.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Maybe I'll start with this one first. Yes, there is a small deceleration, but you remember that we had a very strong first quarter in France. So there is a slight deceleration, as you may say, but still a solid mid digit... mid single-digit, sorry, growth in France in Q2. So for us it's discussing the dairy operations, it's a solid performance. In Spain, it was... the trend is a very good one in the second quarter. So overall, when we look at these two markets, we are relatively confident on our capacity to grow significantly in this year.

In terms of working capital, this is related to the fact that in the Chinese operations, as you know, the distributors finance part of their future orders through deposits. And of course the higher the volumes of sales, the higher the deposits. So when you get less sales, you get a decline, a corresponding decline in the level of deposits which are done by the distributors.

Arnaud Langlois - JP Morgan

Okay, that's clear. Maybe just one last more point on your tax rate. Would you recommend us to use a 29% underlying tax rate going forward or is there any potential to optimize your tax payment?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Optimization is never finished, and I would tend to say yes, there will be further optimizations. They will be pretty much related to the financing of Numico. At this stage, it is a little too early to know exactly which rate we will end with because this is of course related to where we will put a lot of the acquisition debt. It is our intention to push down part of the acquisition debt to the extent where it is feasible in the different businesses of Numico. So I would not recommend at this stage to change the rate, but most probably at the end of the year, once the acquisition has been finalized and once the financing scheme will be put in place, we'll be in a position to explain what we can do. Probably, there are tax optimizations in a certain number of European countries on the top of the optimization, which that's... which will be generated by the acquisition debt at the level of the mother company.

Arnaud Langlois - JP Morgan

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of James Amoroso from Helvea. Please go ahead.

James Amoroso - Helvea SA

Yes, hello. I've got a question on China again. I mean, you're talking about the two parents making sure that the baby is still in good health. I mean, who is actually paying for the advertising promotion, new product development, ex cetera?

Unidentified Company Representative

James, this is [indiscernible].

James Amoroso - Helvea SA

Hi.

Unidentified Company Representative

The rule has always been one of cost allocation within the joint ventures. As I said, profits are generated in the manufacturing companies. So that's how the rule continues to apply.

James Amoroso - Helvea SA

So in other words both Zong and yourselves are sharing those costs?

Unidentified Company Representative

Absolutely.

James Amoroso - Helvea SA

Okay. Sorry, can I... if I can follow up with that, I mean how is the whole new product and launch program run when there is a split of interest like this?

Emmanuel Faber - Executive Vice President, Asia-Pacific

I am not sure I will comment right now on the particular aspect of the new launches and new product development. One important factor to just keep in mind is that in China this is a very seasonal business. It means that by July basically, we more or less have a view on what the full year outlook is going to be because from a distribution standpoint, nearing the second to third week of August, unless there is very big short-term news, distributors would start unloading until the back end of the year. So as far as 2007 is concerned, the season is well behind us and particularly in terms of new product development and innovation.

As far as next year is concerned, I think that the innovation pipe of Wahaha continues to be strong. How are we going to work on the cooperation that needs any new idea to eventually hit the market means that both parties have to cooperate to do it in a meaningful manner? So I won't comment further on this other than to say this illustrates that one of the reasons why both parties beyond all the words and media pressure and demonstrations, I think are acting in a responsible manner while the developments of the case are going on.

James Amoroso - Helvea SA

Okay. And finally, if I may, it's more of a sort of your best feel of the situation. I mean I assume that you continue as a company to believe that, right as it were legally speaking, as on your side, I think the big question is to what extent has the Chinese environment changed versus a couple of years ago so that the rule of the law is actually applied? What's your best feeling having been out there now for some time?

Emmanuel Faber - Executive Vice President, Asia-Pacific

I think this call is going to be too short to discuss this issue. So, I mean it's everybody's guess. The only thing I can say is that we are in close contact with government and administrations. No doubt that some side of the case are quite clear, some other sides are probably more debatable. But I wouldn't be able to serve the truth forever during this call. The rest is really work in progress, and I can only say that governments and administration are taking the case extremely seriously now.

James Amoroso - Helvea SA

Okay, thanks.

Operator

Thank you. Our next question comes from the line of Xavier Croquez from Exane. Please go ahead with your question.

Xavier Croquez - Exane - BNP Paribas

Yes, good evening gentlemen. Xavier Croquez, Exane - BNP Paribas. Two questions, and to start with I just want to double check one thing regarding the Wahaha situation. It means that the salesmen that are selling the products manufactured in the entities of Mr. Zong are actually on Danone's payroll. Did I got you right on this?

Emmanuel Faber - Executive Vice President, Asia-Pacific

They are not on Danone's payroll. They are either on the JV's payroll --

Xavier Croquez - Exane - BNP Paribas

Yes. I mean the JV is fully consolidated. In that sense, I mean it's -- they are on Danone's payroll?

Emmanuel Faber - Executive Vice President, Asia-Pacific

Yes, they are either on the... again, Danone's payroll, if this is what you mean by Danone's payroll, there is some support at management level which are not the JV's payroll but on the central shared service, I would say, entity of Wahaha Group, which is ultimately a state-owned, predominantly owned business. And there are some outsourced salesman, essentially part-time and seasonal employees --

Xavier Croquez - Exane - BNP Paribas

Okay.

Emmanuel Faber - Executive Vice President, Asia-Pacific

Which, in China, is a fairly standard market practice given the seasonality of the business. So there is not a unique answer to your question.

Xavier Croquez - Exane - BNP Paribas

Okay, sorry. My two questions are, the first one is the level of A&P to sales. Between the lines, I get a feeling that it might have been perhaps a best flat during H1. Could you give us some flavor on this? And secondly, I would like to come back, if possible, a little bit on Numico, if possible, at this stage and if not, could you tell us when we will be able to discuss Numico a little bit more in detail? I mean the market has been surprised by the multiple, and that means that somehow the long-term assumptions are different between you and most of us. Can you comment a little bit on that aspect of your acquisition case, what the standalone key core, key aspects were in your call, or if not, when you will be able to do so?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

I think we have to wait. I am sorry to say so. We have to wait for a couple of additional weeks or month, and this is related to the fact that Numico is still an independent company which is still listed. You know that they will publish their numbers in the coming days, so this will give you a first flavor of where these people will move this year. And of course after that, as you know, we have to be extremely careful in terms of what we can say vis-à-vis the integration of this company and the way it will be managed and the type of synergies. So I m sorry to say that we have little to say today. We have plans. We have made some assumptions. We have some... we have been working in the last days on the possible plans, we are now capable [ph] to implement them and this is preparation work. So please be patient and we'll be in a position to give many more details once the acquisition has been cleared, and again this is the rule and we have to abide by the rule.

Now I move to your question on A&P. The first thing I want to mention is, as you know from last year, we comply with the standard, which... the accounting standard under which the A&P is booked as it is spent. There is no type of smoothing of any type. So the numbers which we book are the numbers as they appear depending on the type of plans we have. It's fair to say that there is a slight decline as a percentage of sales that we are talking is maybe of 0.2% or 0.3% of sales. And this is in a context where, as you have seen, the sales are extremely good. So we are not nervous with that. We watch very carefully the type of efficiency we get with all the different A&P programs. You have to realize that at the level of the Group, we consolidate businesses with very different profiles and with very different type of costs for the ERPs [ph]. So the global figure we don't think is itself a figure which should be looked at as something very meaningful for the Group, especially when you look at the very good performance we have in sales in most of our CBUs. And at the end of the day when you look at the global amounts it's growing in absolute values year-over-year. So here again, it's more a question of advertising efficiency rather than anything else.

Xavier Croquez - Exane - BNP Paribas

Thank you.

Operator

Thank you. Our next question is from the line of Carl Short from Standard & Poor's. Please go ahead.

Carl Short - Standard & Poor's

You've mentioned that there were some exceptional gains taken within trading operating income in the first half of last year. I would be quite interested to hear what the exceptional gains were and what the total amount was for the whole year last year.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Very small ones. When I mentioned exceptional gains, they are related to disposal of lands or plants or things like that. So we talking some little tens of millions of euros which we had a year ago, and this is part of our everyday life.

Carl Short - Standard & Poor's

Okay. So for the full year, it might have been, what, €20 million, €30 million?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Something like that, yes, probably. I don't have it right now. You can ask to Jean [ph] to see the full number for last year, but this is the magnitude, yes.

Carl Short - Standard & Poor's

Okay. And I've just got a second question.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Sorry. And for a Group like ours, most probably, we will have that every year because we have a relatively large capital base and every year we sell land or building or something like this. So it's a --

Carl Short - Standard & Poor's

Yes, I was more thinking about it from Kraft's point of view, whether they are going to have these exceptional gains every year. Just a second question on Wahaha, just going back to that. What was the problem that prevented there being a negotiated settlement in 2006? Because I think you indicated on a number of occasions that you felt you were close to getting a settlement within Mr. Zong. So what was the issue then that prevented a settlement occurring?

Emmanuel Faber - Executive Vice President, Asia-Pacific

Hi, it's Emmanuel here. If I knew, we wouldn't be talking about this now. We basically executed after several months of negotiation a settlement agreement whereby Mr. Zong agreed to transfer control of all the non-JVs, more than 20 companies to Danone in order to transform non-JVs into JVs for an agreed price. Why in the few weeks and months following the execution of this agreement in December, he changed his mind or in any case made about everything possible not to implement this agreement, it's something I don't have a fully clear answer.

Carl Short - Standard & Poor's

Okay. So in the process this time around, what safeguards are you hoping to put in place to prevent that sort of issue happening again?

Emmanuel Faber - Executive Vice President, Asia-Pacific

I am not sure I can elaborate on this at this stage. I would say the one overall comment I would make is that there won't be an enforceable agreement and stable agreement without clear government support to the solution. And this is something that we take as a very serious factor in building the solutions and also building the process for the solutions.

Carl Short - Standard & Poor's

And presumably at this stage, you would be optimistic about eventually securing some government support for your... for an agreement?

Emmanuel Faber - Executive Vice President, Asia-Pacific

Yes. I mean it's a chicken and egg story depending on the agreement and where we seek to obtain it, how fast et cetera. The whole process is actually becoming part of the solution itself, so I won't be commenting further on this.

Carl Short - Standard & Poor's

Okay. All right, thank you very much.

Operator

Thank you. Our next question comes from the line of Jeremy Fialko from ABN AMRO. Please go ahead.

Jeremy Fialko - ABN AMRO

Hi there. Just for some of my questions, just one clarification on your answer to Xavier's question. With the A&P down by between 2 and 300 basis points as a percentage of sales, does that... have I understood that correctly?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

0.2.

Jeremy Fialko - ABN AMRO

0.2. So 20 to 30 basis points?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Yes.

Jeremy Fialko - ABN AMRO

Fine. Okay. My two questions are, the first one is on input costs. We were looking at about €70 million for the first half. Can you give us a figure from what you think this is likely to be in the second half and whether the dairy margin progression that you saw in H1 is likely to be sustained? And the second one on Wahaha. Can you just confirm what Mr. Zong's role within the sort of businesses? Has he resigned entirely 100% from the part of the business of which you own 51% with no managerial role whatsoever?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

On raw materials, it's say to say that we will have more negative impact in the second half than in the first half. So probably we have maybe 30 to 40% of the total impact of the year in the first half. So that is to say that the impact in the second half will be significantly higher. Against that, as you know, we started some pricing initiatives in many counties one by one. So part of this negative trend will be offset by these passing initiatives. And of course, we'll have a full impact for next year. So it's clear that we had some pricing increases, some pricing initiatives in first half, but most of it will take place in the second half. And that is why we mentioned that probably the performance in the second half for the dairy is likely to be not exactly the one we had in the first half.

Jeremy Fialko - ABN AMRO

And the question on Mr. Zong?

Emmanuel Faber - Executive Vice President, Asia-Pacific

So Mr. Zong has resigned from all his Chairman positions in the Board of our joint venture companies. He had a blanket agreement whereby he played a role of coordinating all the joint venture companies on a basis which is not one which is linked to the legal entities. And that's why I am calling it a blanket; it's an overlay role for the 39 joint ventures. Some of his obligations under this agreement remain after his resignation as Chairman. And the joint venture companies themselves, from a legal standpoint, have a general manager and those general managers have stayed in place after Mr. Zong's resignation in early June. So that's the answer to the question, and this is... through this scheme of things that we currently operate in a manner where, as I've said, there is a mutual understanding to sort of mitigate the impact of, or potentially negative impact on the various single entities from the shareholders dispute. Sometimes it works, some other times it doesn't work. So as I said earlier, there maybe from time to time some disruptions, but the overall direction is the one I described, and therefore Mr. Zong continues to provide guidance and some coordination, although this is not on the basis of a legal obligation from him side.

Jeremy Fialko - ABN AMRO

Alright. Okay, thanks.

Operator

Thank you. The next question comes from the line of Vicky Buffery from Thomson. Please go ahead.

Vicky Buffery - Thomson

Hi. Earlier in the year, you gave guidance for 10% growth in underlying EPS for the full year. I may have missed it, have you reiterated that?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

We have not reiterated it as such for a very easy reason, which is a technical one, which is related to the fact that it's very difficult for us to read exactly when the biscuit disposal will take place. So we will consolidate the earnings till closing, but closing might take place say in October or November. And the same is true for the Numico acquisition for which, as you know, we can consolidate only from the day once we have a good control of this. So we have not given a full... we are not in a position with these assumptions to know exactly when we will have this impact. That being said, of course, we will give a full 2002-2008 guidance, as I said, probably around October or November once we get a clear picture. And by that time probably we will know where we will end this year. What is clear is that on the current perimeter, as you've seen in the first half, our EPS is doing very well, in line with our initial guidance on the top of a first half last year which was very strong as you remember.

Vicky Buffery - Thomson

Okay. Thanks very much.

Operator

Thank you. The next question is from the line of John Parker from Deutsche Bank. Please go ahead.

John Parker - Deutsche Bank AG (UK)

Yes, good evening. I thought you said at one point in the call that the business environment was getting tougher, and I couldn't quite understand the context of that. Could you perhaps just clarify it?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

That point was mostly related to raw materials, which, as you remember, have started to be, especially the milk prices and to a lesser extent some other commodities. So it's an environment where of course the increases have been relatively steady, and there was a point maybe some quarters ago where people would think things might reverse, which is not the case. So we are building our budget for next year in an environment where the people know that a lot of these raw materials will remain very expensive. Now against that, as I've said, it's our responsibility to selectively increase our prices and to find right ways to... some ways to change in the equation because, as you know, especially in dairy, the price was relatively stable. So we are confident we can learn how to live with this new equation, but it's is a different equation. Now the good news is when you... when we look very carefully, the cost of different entities, the growth is very strong. It's fueled by our positioning, by the fact that our portfolio is getting more and more premium everywhere. So I was more referring to this commodity environment; I was not referring to our market share or to our capacity to launch innovations. On the contrary, these are the answers to these complaints.

John Parker - Deutsche Bank AG (UK)

Thank you. And why are you also suggesting in dairy that as you put price increases through, overall, the growth rate in dairy might slow in the second half?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

This is not the way we see it today. Quite frankly, this is not the way we see it. So we remain strongly optimistic on the capacity to continued expansion of the dairy business. Now this is a new environment. We have to watch very carefully what happens here and there, and of course we'll very carefully look at the way our consumers will react. But this is not the way we look at it today. We still can fit in [ph] on the gross potential of the dairy in the coming quarters.

John Parker - Deutsche Bank AG (UK)

Okay. And a quick update on Essensis as a final question. How is that --

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

It's a minor... as you know, it's an innovation which is more here to explain the type of new products we might be strong with in future. In terms of numbers, we are talking some thousands of tons and some tens of millions of euros. So is not really significant in the global numbers of the Group. It's been started, as you know, in four or five countries and of course it's a very... these are the very early stages of this innovation, so it's too early to have a very clear-cut conclusions.

John Parker - Deutsche Bank AG (UK)

Thank you very much.

Operator

Thank you. Our next question is from the line of Cédric Lecasble from Kepler. Please go ahead.

Cédric Lecasble - Kepler Equities

Yes, good evening. I have two questions. The first one is related to the increase in food raw material prices. Could you update us on the kind of discussions you have with the trade? I understood that there might be, by the end of this summer, some big discussion with the trade to adjust the price that you sell to the trade. And more specifically, in France, maybe you can comment a little bit on this and do you expect the consumer prices to be up substantially on some products going forward? And the second question is related to CapEx, as has been quite a significant move in H1. Could you precise maybe your full year guidance? Is there any change? What has driven CapEx? Is that high versus last year? What were the main projects in H1? And you seem to believe that there will be more cash flow and less CapEx in H2. Could you be a little more precise? Thank you.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Well, on CapEx, they represent, as I said, around 4% phase. They are more... they related to capacities, additional capacities which we have put, especially in the U.S. and in Eastern Europe, especially in Ukraine. We have some significant investments in the beverage business for our flavored beverages. So it's made of, on the top of that, of a lot of small size things. It's true that we need to put more capacities in certain number of geographies just to keep up with the very significant growth we have in all those new countries. I was mentioning Eastern Europe, to the same extent what's happening in Latin America is about the same thing. Probably, our CapEx ratio in 2007 will be in the high part of the range, 4.5% to 5%. And this is... here again, that's pretty much related to the type of growth we experience and a very, very significant portion of these new investments are done in the new geographies. So we look at them as extremely profitable for the Group and with usually very good cash payback. So your first question I think was on --

Cédric Lecasble - Kepler Equities

Yes, on to

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

On price increases.

Cédric Lecasble - Kepler Equities

Who will pay for these raw material hikes? Will it be the consumer? Will it be the food manufacturers? Will it be the trade? How do you think it will be split between the different components of the chain?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Well there is not one single answer to the question because, as you have understood, this constraint in happening in all geographies. So we have started these price increases in Latin America, in the U.S., in Europe, in other geographies. So they are very broad based. As always in the early stages, the people tend to... I mean the trade tend to say there's no need for that, and at some point of time people realize that when there is inflation everywhere, this has to be paid by the consumers. So it's too early to say how the trade will react, but probably it's a trend which is seen in many other products in the food industry. And it's very likely that this inflation of raw material will translate into some inflation at the level of the consumer prices. This is always the same mechanism.

Cédric Lecasble - Kepler Equities

Thank you.

Operator

Thank you. The next question comes from the line of Andrew Wood from Sandford Bernstein. Please go ahead

Andrew Wood - Sandford Bernstein

Yes, good afternoon. I have got couple of questions. Firstly, early this year you seemed to be giving the guidance that the first half performance would be somewhat weaker than the second half performance of 2007. Today, I am hearing that commodities is going be tougher in the second half, that the Wahaha effect is going to be tougher in the second half, that Europe has started a little bit weak in terms of beverages, in the third quarter at least. So are you in a position to confirm that the second half performance will be stronger than the first half performance, or have things changed since your earlier statement? And the second question is back to the Numico deal, if I may. You mentioned that you've secured the financing for the deal. I would just like you to confirm, if possible, that you did achieve the 4.75% rate. I mean I was a little bit confused because I know that European bond rates are about 4.4% and for a A rated company like yourselves, the spreads are around about 75, 85 basis points, which gets me to 5.25%. So I was just wondering how you manage to achieve such a great rate if in fact you did get the 4.75%. Thank you

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

On this one, I think you have to realize that this is not the way it works. The way it works is we don't of course finance value [ph] as a percent of the operation through one single transaction. So at the end of the day, our funding cost will be made of a lot of different things in different currencies. Of course, we will finance part of the Numico acquisition in U.S. dollar related currencies for certain geographies.

The second thing is we have taken some options to cap the cost of this financing in the early years. But you know that the yield rate curve for the one year or two year is well under this number. So when we look at our financing strategy, it's made of different type of financing, different type of maturities, options and that... at least let's not make public the type of margin we have with our banks, but it's much lower than the number that you've put on the table. So I am relatively confident that we'll be capable to achieve an all in cost of funding towards the number which we discussed some weeks ago. Future will tell. But I think we have taken the necessary steps to cap these costs. So we have a cap and we have the capacity to benefit from lower shorter term rates in the early years of this financing.

On the question of the balance of the business between H1 and H2, H1 was very good. Let's face it, it's a good first half with very good numbers in a lot of geographies with a very good capacity of the Group to generate strong margin improvements in a lot of the geographies. Now we are still confident on our capacity besides Wahaha to grow the business nicely. No one I think was capable to envisage that certain numbers of these raw materials would be so expensive at the end of this first half. We have to adapt to this situation and we will do so as we did in the past. Once again, I think you have to see the two sides of the situation. On one side, there is very good growth in a lot of geographies. This is by the way related to the fact that some of these emerging geographies generate growth from their capacity to export raw materials to have a very strong situation with some of their exports. And on the other side, it's true that some of these input costs are higher. So it's a question of adaptation and the capacity of the Group to adapt its business model and put more price increases if there is more inflation. But inflation at the same moment is something which is here in many economies. Just look at the situation in Russia, for instance, which is very representative of the new dynamics in some of these countries. The underlying inflation is very strong, and that's the way it works and it does not prevents the Group from improving its profitability.

Andrew Wood - Sandford Bernstein

Okay. Just a quick follow through. Again, and I forget to mention earlier this year you did mention that you planned to spend more in A&P in the first half of the year. Again, you guided that that would be stronger in the first half, the increase would be stronger in the first half than it was in the second half. I understand that you've have now said you've spent 20, 30 basis points less in A&P. Again, have you changed that guidance in relation to the amount you're going to invest behind the business in the second half?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

I don't think so. Once again, this is not managed centrally. This is something which is very decentralized, which is done country by country depending on the type of speed at which the people can develop the business. The numbers are extremely good in the first half with very good advertising efficiency. Once again, we'll adapt in the second half to see how we can best optimize this cost equation.

Andrew Wood - Sandford Bernstein

Okay, thanks very much.

Operator

Thank you. Our next question comes from the line of Marco Gulpers from ING. Please go ahead.

Marco Gulpers - ING Bank N.V

Yes, good evening. My question would be on your guidance for the full year. You've stated including the biscuits division, how would it look in your guidance under IFRS, i.e., excluding the biscuits division? Would then still be your like-for-like sales growth between the targeted 6 to 8 and also your trading operating profit between 7 and 10? And the second question is could you update us on --

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

The answer is yes. The answer is yes.

Marco Gulpers - ING Bank N.V

Alright, thank you. The second question is on dairy, on the regional growth. Maybe you can highlight again what the regional growth was in North America. Thank you.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

I said the growth was... if I go back to what I just mentioned... low double digit with a good market share improvement. We still have some constraints of capacity at Anthony [ph], which may be have put some pressure on us. But we are very happy with the market share we have in on a global basis for both the Danone company and Anthony [ph]. So we are doing very well. Activia is in a very good consolidation phase. As you know, we put most of our resources behind Activia and DanActive and less for the more traditional co ventures [ph]. So we have a very strong repositioning of the portfolio around the big benefits-based brands.

Marco Gulpers - ING Bank N.V

Okay. Final question, if I may. What incurred the swing factor with respect to the HOD [ph] line? Thank you. From minus 64 to plus 35? Any specific in there?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Last year, we booked some depreciation for the HOD business in Europe, which was the reason for this number to be so negative.

Marco Gulpers - ING Bank N.V

And no specific issues there with respect to this year?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

No specific number.

Marco Gulpers - ING Bank N.V

All right. Thank you.

Operator

Thank you. The next question is a follow up from the line of Xavier Croquez from Exane. Please go ahead.

Xavier Croquez - Exane - BNP Paribas

Good evening again. I just want to clarify one thing on the raw material cost that you mentioned was 94 bps input cost. Are we talking here of a growth impact before pricing or after pricing?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

This is before pricing, as always. This is net of our purchasing productivity.

Xavier Croquez - Exane - BNP Paribas

Okay. And because it's always not easy to follow a bit in your value factor of organic sales growth, it was 3% in Q1, it's 1.3% in Q2. I remember that Wahaha has a huge mix impact. Can we get a sense of what the underlying pricing has been throughout the half year to get a sense of what it could be in H2?

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

As you know, it's not only pricing. So it's a very complex equation. I don't want to give you a wrong number at this stage. I think it would be misleading because once again, it's made up of both mix and price adjustments.

Xavier Croquez - Exane - BNP Paribas

Okay.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

If I may maybe for... we might take one or two additional questions and of course both Juan and Loha [ph] will be ready to answer additional and detailed questions if you still have some after the two last questions.

Operator

Thank you. The next question is from the line of Chris Wickham from MainFirst Bank. Please go ahead.

Christopher Wickham - MainFirst Bank

Yes, thank you. You've given us the adjusted number for what beverages would have done if you haven't had the dispute. I was just wondering if you could tell us what Asia would have done, which fell 5.6% in the second quarter.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

You have it in the same bubble. So Asia would have been plus 9.2% in Q2 instead of minus 5.6%. This on slide 22 and plus 9% in Q1.

Christopher Wickham - MainFirst Bank

Yes, it's in the bubble on the press release. That's all. Thanks.

Operator

Thank you. The next question is from the line of from Hans Juergen [ph] from Natexis. Please go ahead.

Unidentified Analyst

Good evening. I have a follow-up question about working capital requirement impact from Wahaha. Due to the seasonality, is it fair to assume that we have seen the worst of the impact on that dream of stabilization of working cap requirements over the year for the Group? And second one about raw material prices. You guided to us €100 million of unit price impact for the year. I guess that is not true anymore. It is partly due to the fact that so far you did not have liquid milk price increase that it may happen during the summer? And I just wanted to be sure if the biscuits are being impacted by raw material prices as well. And I was thinking that would be about a better price [ph]. Thank you.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Well the biscuit is mostly impacted by the increases in some of the cereal prices or cereal-based products like flour and things like that. So it is a much lower impact at the level of the Group. And the milk, it's true that the number we'll have for the full year is probably double the number you have just mentioned. Why is it so? Just look at the curves and the increases in a lot of the geographies. This is a very strong trend which has been there in many countries. So I think we have to be ready to live in an environment where the prices are higher. Anywhere we adapt to that, we increase the prices. And if it happens that there is a decline in those prices, it will be good for margins because we'll have the full impact of our prices... price increases next year. On the deposit, it's probably true that a big proportion of the impact has taken place.

Unidentified Analyst

Thank you very much.

Operator

Thank you. That was our last question, so I will now hand back to your host to wrap up this conference call.

Antoine Giscard d'Estaing - Executive Vice President - Finance, Strategy and Information Systems

Well thank you for your attention. As you have understood, this first half was for us a period in which the performance of the Group was very solid, a good growth, extremely broad based, good capacity to build strong positions from our existing acquisitions, very good capacity to generate profitable growth. A specific situation which Emmanuel has covered at length, and which also we will update you when we think it will be relevant to show. And we will most probably, as I have just discussed in more detail, there are good prospects for our Group next year, end of October or the beginning of November once the Numico acquisition has been finalized. Thank you for your attention and happy to talk to you on a bilateral basis. Bye bye.

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