Danone // 2020 Universal Registration Document

4 107 DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 4.1 Consolidated financial statements and notes to the consolidated financial statements Note 13. Organization of financial risks and derivatives management Management of raw material price volatility risk As of December 31, 2020, the commodity portfolio consisted of diesel, plastic, dairy, sugar and natural gas derivatives, in accordance with the Groupʼs management policy, and all of the hedging instruments were qualified as future cash flow hedges. Note 13.4. Counterparty risk Counterparty risk inherent to financial risk management Risk identification The Group is exposed to counterparty risk, especially on banking counterparties, as part of its financial risk management activities. As part of its normal activities, the Group has financial institutions as counterparties, mainly to manage its cash and foreign exchange rate and interest rate risks. The failure of these counterparties to comply with one or more of their commitments could adversely affect the Group’s financial situation. Risk monitoring and management The Group’s overall exposure to counterparty risk has been si- gnificantly reduced through the centralization of financial risks and implementation of centralized applications as well as its cash management policy of minimizing and managing surpluses. The Group’s banking policy aims to apply deposit limits per counter- party and emphasizes the importance of their credit rating quality by concentrating its transactions among first-tier counterparties that (i) have credit ratings at least in the BBB+ category; (ii) possess international branch networks and (iii) provide it with financing. Moreover, in order to manage its short-term surpluses, the Group mainly invests in eithermoney-market funds (French OPC monétaires ) or short-term money-market funds (French OPC monétaires court terme ), which are not rated. These funds are liquid and diversified. The other short-term investments are made in accordance with the Group’s banking policy as described above. Finally, in certain countries, the Group may be obliged to conduct transactions with local banks that have lower credit ratings. Exposure related to short-term investments See Note 11.4 of the Notes to the consolidated financial statements. Exposure related to derivative instruments As of December 31 (as a percentage of the total fair value as of December 31) (a) 2019 2020 Counterparty rating (Standard & Poor’s) AAA, AA and A 86% 98% BBB, BB and B 13% 2% Unrated – – (a) Total, when positive, of fair values of outstanding derivatives by counterparty as of December 31. Fair value associated with derivatives counterparty risk The fair value associated with derivatives counterparty risk is calculated on the basis of historical default probabilities derived from the calculations of a leading rating agency, to which a recovery rate is applied. As of December 31, 2020 and December 31, 2019, the impact associated with the adjustment required by IFRS 13 was not material. Note 13.5. Equity securities risk As of December 31 (in € millions) Notes 2019 2020 Risk on Company shares Treasury shares 14.2 1,610 1,595 Risk on other shares Investments in associates 5 2,055 915 Assets held for sale 5.6 – 851 Investments in other non-consolidated companies 12.2 131 225