Danone // 2020 Universal Registration Document

4 69 DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 4.1 Consolidated financial statements and notes to the consolidated financial statements Note 2. Highlights of the year • a €51 million expense in Net income - Group share (a €73 million expense in 2019). As regards Iran, application of IAS 29 resulted in a negative impact of €104 million on consolidated equity as of January 1, 2020. It did not have a material impact on the year ended December 31, 2020. Note 1.4. Application of the amendment to IFRS 9 For Danone, interest rate benchmark reform concerns its financial instruments (interest rate derivatives, syndicated credit facility and committed credit facilities) indexed to Euribor or Libor. The Group does not anticipate a material impact from this reform. It did not change any of its benchmarks in 2020 and will make any such changes and the resulting contractual amendments required as from 2021. The Group has not applied the phase 2 amendment to IFRS 9 before their mandatory application date. NOTE 2. HIGHLIGHTS OF THE YEAR Notes Implications of Covid-19 for Danone 3 Transformation of Danone’s organization and operations 7.2 Disposal of the Group’s residual interest in Yakult (EDP, Japan) 5.6 Impairment of intangible assets 10.3 Subsequent events 17 NOTE 3. IMPLICATIONS OF COVID-19 FOR DANONE The management has assessed the impacts of Covid-19 on the basis of reasonably available information and conditions at the end of the financial period presented and considering estimates, assumptions or appraisals (the main ones of which are described in Note 1.1 of the Notes to the consolidated financial statements). In view of the uncertainty as to the magnitude and duration of the impacts of Covid-19, the Group has been particularly vigilant in determining these assumptions. Note 3.1. Impacts of Covid-19 on the Group’s activities and performance in 2020 In 2020, consolidated sales stood at €23,620 million, down by 6.6% mainly driven by the negative impact of exchange rates and reflec- ting negative category and country mix, especially in Waters and Specialized Nutrition. Regarding more specifically impacts of Covid-19, out-of-home channels have been penalized by waves of restrictions, especially in Europe, Latin America and Africa. Infant formula sales done in China through cross-border channels have been also penalized by the ongoing border closure with Hong-Kong and travel limitations with mainland China. On the other hand, e-commerce accelerated significantly in 2020. Danone’s recurring operating income reached €3,317 million in 2020. Recurring operating margin stood at 14.0%, down by 117 basis points. It includes a negative effect from €150 million incremental costs (sanitary, industrial, and logistic extra-costs) directly related to Covid-19 incurred during the year to keep employees safe and ensure business continuity. To mitigate these headwinds, Danone stepped-up its efforts on efficiency and cost discipline, especially in the second half of the year. Note 3.2. Other impacts of Covid-19 on the Group’s consolidated financial statements and liquidity situation Covid-19 did not have significant impacts on the consolidated financial statements for the year ended December 31, 2020, other than those detailed in Note 3.1 of the Notes to the consolidated financial state- ments. In particular, the Group did not encounter any obstacles in implementing its processes related to the preparation and processing of financial and accounting information as of December 31, 2020. Besides, Covid-19 did not have any impact on the recurring operating activity, other than those described in Note 3.1 of the Notes to the consolidated financial statements. In particular: • the Group has not identified any risk of major defect among its customers and thus did not account for significant additional impairment for expected credit loss on its trade receivables; • its inventories’ valuation is not called into question as of December 31, 2020; • Covid-19 did not lead to any substantial change or renegotiation of contracts concluded by Danone that could have had significant impacts on the consolidated financial statements. The Group has reviewed its non-current assets in the context of Covid-19, notably in view of its impacts on the out-of-home channels: • the Group has not identified any conditions that significantly call into question the valuation of its tangible assets or the recovery of its deferred tax assets (see Note 9.2 of the Notes to the conso- lidated financial statements); • regarding Investments in associates and intangible assets, the Group has taken into account the impacts of Covid-19 and the uncertainly as to their magnitude and duration when carrying out impairment testing (see Notes 5.7, 5.8 and 10.3 of the Notes to the consolidated financial statements). Finally, the Group considers that Covid-19 did not impact either its exposure to financial risks associated with operating and financing activities or the monitoring of those risks. In particular: • the Group has continued, in 2020, to apply its management po- licies, as described in Notes 6.7, 11.2 and 13 of the Notes to the consolidated financial statements;