Danone // 2020 Universal Registration Document

Overview of activities, risk factors 2.6 Risk factors DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 22 DESCRIPTION OF MAIN RISK FACTORS Strategic risks DESCRIPTION MANAGEMENT MEASURES strong Over reliance on principal markets In 2020, Danone’s top-5 markets (USA, China, France, Russia and Indonesia) accounted for 50% of its consolidated sales. Any poor performance (by one or more of Danone’s businesses within one or several of these 5 countries), due to economic slowdown, political instability, health crisis, increasing taxes, more stringent regula- tions, or for any other reasons, would be likely to have a negative impact on Danone’s activities and results of the whole Company, thus jeopardizing the achievement of its strategic mandates and financial objectives. This is particularly relevant for China, Danone’s second largest country in terms of contribution to the Company’s sales (around 10%) and the largest in terms of contribution to its profits. Danone’s business in China is concentrated around two segments: Waters and Specialized Nutrition. Within the latter segment, infant formula products sold to Chinese consumers are currently manufactured in factories lo- cated outside China, and partly sold through cross-border channels (such as daigou traders, and purchases done by individuals when travelling to Europe, Oceania, or in Honk Kong). Changes in public policies leading to bordure closures with mainland China, interna- tional travel limitations, more stringent regulation of cross-border trade could limit Danone’s ability to pursue or develop its business activities and/or expose Danone to incur additional constraints, costs or investments. This could lead to significant adverse effects on the sales, margin and financial position of Danone in China and globally. As an example, infant formula sales in China through cross-border channels declined severely in 2020 and notably in the second half of the year, decreasing 60% in the third quarter and 45% in the fourth quarter, in the Covid-19 context. Danone has developed a reporting system to monitor its activity and the potential impact of economic conditions in countries where it is present. Danone has elaborated a strategy building (i) strong positions in the markets in which it operates with special attention to the principal markets, and (ii) significant synergies across regions to mitigate local risks such as global innovation or global procurement of important raw materials. Danone regularly reviews its portfolio with an objective to balance its strategic opportunities and risks across categories and geographies. Danone’s actions to continuously build a sustainable platform of growth for SpecializedNutrition activities in China and lower exposure to cross-border risks include investments to strengthen the local anchoring of the business in China and notably accelerated invest- ment in a local management, commercial, marketing, distribution and manufacturing. This was illustrated in 2020 by a €100 million investment covering the opening of an R&D facility in Shanghai, the acquisition of a local manufacturing facility for infant milk formula, and the broadening of local medical offering.