Danone // 2020 Universal Registration Document

DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 102 4.1 Consolidated financial statements and notes to the consolidated financial statements Note 12. Other financial assets, Other financial income (expense) Note 11.7. Cost of net debt Accounting principles Cost of debt comprises mainly interest charges (calculated at the effective interest rate) on current and non-current financing and the effects of the derivatives relating to said financing. Interest income comprises mainly interest received and, if appli- cable, the effects of the measurement at fair value through profit or loss of the short-term investments and cash and cash equivalents. The related cash flows are presented within Cash flows provided by (used in) operating activities. Cost of net debt in 2020 During 2020, cost of net debt decreased from €(220) million in 2019 to €(207) million in 2020, reflecting the Group’s gradual debt reduction strategy. Note 11.8. Financial risks associated with the net debt and the financing activity Interest rate risk Risk identification The Group is exposed to interest rate risk on its financial liabilities as well as its cash and cash equivalents. Through its interest-bearing debt, the Group is exposed to the risk of interest rate fluctuations that affect the amount of its financial expense. In addition, pursuant to IFRS 9, interest rate fluctuations may have an impact on the Group’s consolidated results and consolidated equity. Risk monitoring and management The Group has implemented a policy to monitor and manage this interest rate risk in connection with its net debt management, as detailed in Note 13.3 of the Notes to the consolidated financial statements, in the section related to Cost of net debt management. Exposure Net debt breakdown between fixed and floating rates As of December 31, 2020 and December 31, 2019, all of the conso- lidated net debt was fixed rate debt. Sensitivity of the cost of net debt to changes in the short-term interest rate In 2020 as in 2019, the impact of changes in short-term interest rates would not have had a significant impact on the cost of the Group’s net debt. This sensitivity analysis to interest rate changes reflects the following factors: • financial debt net of short-term investments, cash and cash equivalents. It excludes the financial liabilities related to put options granted to non-controlling interests as these are not interest-bearing; • active interest rate hedges as of December 31. Financial currency risk Risk identification Due to its international presence, the Group could be exposed to foreign exchange rate fluctuations in relation to its financing activities: in application of its risk centralization policy, the Group manages multi-currency financings and liquidities. Risk monitoring and management Themanagement policy regarding financial currency risk is detailed in Not 13.3 of the Notes to the consolidated financial statements, section Management of currency risk related to financing activities and translation risk on net assets . Exposure In applying its management policy related to financial currency risk, the residual exposure is not significant. NOTE 12. OTHER FINANCIAL ASSETS, OTHER FINANCIAL INCOME (EXPENSE) Note 12.1. Accounting principles Investments in other non-consolidated companies Investments in other non-consolidated companies are recognized at fair value in the consolidated balance sheet. Changes in fair value and gains or losses on disposals are recognized according to the intention of the management (i) in profit or loss in Other financial income (expense) or (ii) in consolidated equity in Accumulated other comprehensive income and are not recycled to profit or loss. Fair value For listed companies, fair value is assessed according to the stock price as of the end of the period. For unlisted companies, fair value is assessed based on recent transactions entered into with third parties, put or call options negotiated with third parties or external appraisals. Other financial assets Other financial assets mainly comprise bonds and money-market funds and security deposits with uncertain maturity dates pursuant to the applicable regulations of certain countries in which the Group operates. Bonds and money-market funds are recognized at fair value in the consolidated balance sheet. Changes in fair value are recognized under consolidated equity in Accumulated other comprehensive income. They are not subsequently recycled to profit or loss except for bonds and money market funds with an equity underlying, for which fair value changes are recognized directly in profit or loss in Other financial income or Other financial expense. Their fair value is calculated on the basis of listed prices on active markets. Loans Loans are measured at amortized cost using the effective interest rate method.