Danone // 2020 Universal Registration Document

2 Overview of activities, risk factors 2.4 Other elements related to Danone’ s activity and organization DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 19 RESEARCH AND INNOVATION Research and Innovation underpins Danone’s strategy by enabling it to develop innovative products that contribute to its results and to the food revolution. It is also central to developing its One Planet. One Health frame of action as its mission is to prepare for the future with a focus on major scientific and technological challenges such as microbiota and biotics, plant-based matrices and new sources of protein, naturalness and organic, packaging and beyond plas- tic, perceived sweetness and taste, the development of allergies, nutrition and hydration and healthy aging. To achieve this, Research and Innovation relies on: • approximately 1,800 people spread across two internatio- nal research centers (in Paris-Saclay, France and Utrecht, Netherlands), six specialized centers (Packaging in France, Precision Nutrition D-Lab in Singapore, Fresh Dairy Technology in Spain and in Russia, Plant-based in Belgium and the USA, Specialized Nutrition in Shanghai) and local teams at 55 sub- sidiaries; • cooperation initiatives and partnerships with the academic and scientific world, especially with top universities and research centers worldwide. In addition, the Research and Innovation teams develop consumer centricity to offer more innovative solutions in terms of consumer experience, nutritional quality and respect for the environment, and to better meet their needs as well as market expectations. To that end, they notably work with consumers to co-build products and use agilemethods (Design Thinking, Fast Prototyping, Lean Startup, etc.) that enable them to adapt and act quickly. Further details about Research and Innovation’s strategy and acti- vities are available at danone.com. PRODUCTION SITES AND EQUIPMENT Danone has production facilities around the world in its principal markets. Danone’s general policy is to own its production facilities. Danone has many, widely dispersed production facilities, except for the Specialized Nutrition Reporting Entity, whose sites are more concentrated. As of December 31, 2020, Danone had 180 production sites. Lastly, Danone rents some facilities, notably offices and warehouses. The production sites are inspected regularly to assess possibilities for improving quality, environmental protection, safety and productivity. RAW MATERIALS PURCHASING Danone’s principal raw material needs consist primarily of: • materials needed to produce food and beverage products, mainly milk, sugar and fruit. In terms of value, milk is the main raw material purchased, primarily in the form of liquid milk, for which the operating subsidiaries typically enter into agreements with local producers or cooperatives. Its price is set locally, over contractual periods that vary from one country to another. The other main food raw materials are fruit-based preparations; • product packagingmaterials, in particular plastics and cardboard (“packaging”). Packaging purchases are managed through regional or global purchasing programs to optimize skills and volume effects. Prices are influenced by supply and demand at the global and regional levels, economic cycles, production capacities and oil prices; • energy supplies, which account for only a limited portion of its purchases. Danone’s strategy increasingly focuses on the upstream portion of its activities and in particular its supply of raw materials, not only to manage its costs but also to make it a source of value creation and differentiation relative to the competition. Since the price trends of major raw materials may af fect the structure of its results, Danone takes the following measures to manage cost volatility: • continuous productivity gains: Danone strives in particular to optimize its use of rawmaterials (reductions in production waste, lighter packaging andmore effective use of milk sub-components in its products) and take advantage of pooled purchasing, for example through centralized management of purchases other thanmilk for the EDP and Specialized Nutrition Reporting entities; • purchasing policy (Market RiskManagement) that defines the rules for securing the physical supply and price setting with suppliers and/or on financial markets when they exist. The monitoring of exposures and the implementation of this policy are carried out for each rawmaterials category by the central purchasing team. REGULATORY ENVIRONMENT Danone carries out its activities in a complex, fast-changing and increasingly stringent regulatory environment. Danone’s products are subject to various local, national and regional laws and regulations in such varied fields as product safety, health and nutrition claims, production, labelling, packaging, storage, transport, distribution, price-setting, marketing, product advertising and use. In the many countries where the Company operates, it is also subject to a wide range of environmental laws and regulations regarding the use of plastics, foodwaste, energy, wastemanagement, water treatment, greenhouse gas emissions and, more generally, environmental protection. Moreover, some countries regulate Danone’s activities by issuing permits and inspecting its plants and production sites, by requi- ring registration before it can sell or refund certain products, by applying standards for some food products and by classifying food products and/or regulating commercial practices related to the sale and price-setting of food products. Many of the food ingredients used by Danone in its activities are subject to the governmental agricultural policies and intervention. The focus on issues related to human rights in the sector’s supply chains has led to the drafting of regulations in many countries. These regulations and policies are subject to regular governmental and administrative controls.