Danone // 2020 Universal Registration Document

2 Overview of activities, risk factors 2.6 Risk factors DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 27 External environment risks DESCRIPTION MANAGEMENT MEASURES strong Unpredictability of duration and effects of the Covid-19 pandemic The Covid-19 pandemic has already had a significant impact on Danone’s business in 2020 as national lockdowns led to significant changes in channels’ dynamics, including closure of out-of-home channels, proximity stores, borders, and travel limitations, resul- ting in less revenues notably from high-value small-size formats in Waters, fromdairy products sold in proximity stores and away-from- home outlets or from infant formula products sold in China through cross-border channels. It also led to reduced efficiency of operations and supply chain resulting frommanagement of swings in demand, distancing requirements, lower productivity, rising transportation costs and logistic constraints. In 2020, Danone’s sales in out-of- home channel (representing around 10% of the 2019 sales globally) declined by 30%on a like-for-like basis and incremental costs directly related to Covid-19 (including sanitary costs, extra-logistic costs and specific bonus for employees working frontline during the first pandemic lockdowns) represented €150 million. The Covid-19 pandemic has an impact on many of Danone’s risks, namely: • over-reliance on principal markets (especially China); • fast changes in consumer preferences; • retail shift; • cybersecurity. It has already been seen that the relaxation of government restric- tions could lead to a renewed increase in country infection rates, resulting in countries being locked down again or in targeted local lockdowns of affected regions. Restrictions can and do change daily with immediate effect. It is therefore very likely that targeted local ‘stop and go’ lockdowns will continue in 2021 until a vaccine is widely rolled-out and made available to mass. In this uncertain environment, both clients and consumers remain cautious. The continued spread of the virus and a significant rise in infection rates and their economic consequences could mean: • delay in further opening-up of foodservice channels whereWaters and EDP activities are exposed; • slower return of mobility levels to pre-Covid levels, resulting in less revenue from sales done in impulse channels; • continued border closures and travel restrictions, impacting sales of Waters in large touristic sites and of infant formula in China; • structural shift in consumers food habits and lifestyles to which the Company would need to adapt its portfolio; • impact on consumers’ income and purchasing power leading to trading down buying behaviors; and therefore, a decline in sales and profitability of Danone. Danone’s actions to adapt to this exceptional situation include: • close and regular monitoring of situation by country to anticipate potential restrictions; • greater empowerment of local teams allowing them to take agile decisions to ensure business continuity and product avai- lability: portfolio adaptation (refocused range) and supply chain management (supplier duplication, alternative transportation) to notably focus available production capacities on the most relevant formats and channels; • pro-active management of workforce and ways of working to ensure employees’ health and security, but also to adapt to sharp swings in demand; • monitoring of employees’ morale and energy level through a strengthening of the Dan’Cares program and regular surveys leading to agile decision-making, for example on remote working conditions.