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4.1 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Information concerning the Group's operating activities
DANONE
REGISTRATION DOCUMENT 2015
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NOTE 5. INFORMATION CONCERNING THE GROUP'S OPERATING ACTIVITIES
Note 5.1. Accounting principles
Net sales
The Group's sales mainly comprise sales of finished products. They
are recognized in the income statement when the risks and benefits
incident to ownership are transferred.
Sales are stated net of trade discounts and customer rebates, as
well as net of costs relating to trade support and listing or linked
to occasional promotional actions invoiced by customers. These
amounts are estimated when net sales are recognized, on the basis
of agreements with the concerned customers.
Cost of goods sold
The cost of goods sold mainly comprises industrial costs (including
rawmaterial costs, depreciation of industrial assets and overheads
dedicated to production activity) and certain logistics and transport
costs.
Selling expense
The selling expenses mainly comprise marketing spends and
consumer promotions as well as sales force overheads.
General and administrative expense
The general and administrative expenses mainly comprise other
overheads and administrative costs.
Research and development expense
Development costs are generally expensed as incurred due to the
very short time between the date on which technical feasibility is
demonstrated and the date on which the products are launched.
Certain development costs are recognized under assets in the
consolidated balance sheet (see Note 9 of the Notes to the conso-
lidated financial statements).
Note 5.2. Operating segments
General principles
Danone's strategy is in line with its mission of '“bringing health
through food to as many people as possible”. Since 2007 and the
acquisition of Numico, this mission has been implemented through
four divisions:
•
the Fresh Dairy Products Division (production and distribution
of yogurts, fermented dairy products and other fresh dairy
specialties);
•
the Waters Division (production and distribution of packaged
natural, flavored and vitamin-enriched water);
•
the Early Life Nutrition Division (production and distribution of
specialized food for babies and young children to complement
breast-feeding);
•
the Medical Nutrition Division (production and distribution of
specialized food for people afflicted with certain illnesses or
frail elderly people).
The key indicators reviewed and used internally by the Group's
primary operational decision-makers (the Chief Executive Officer,
Emmanuel FABER and the Chief Financial Officer, Cécile CABANIS)
to assess operational performance are:
•
net sales;
•
trading operating income;
•
trading operating margin, which is defined as the trading ope-
rating income over net sales ratio;
•
free cash-flow, which represents cash flows provided or used
by operating activities less capital expenditure net of disposals
and, in connection with Revised IFRS 3, excluding (i) acquisition
costs related to business combinations, and (ii) cash flows
related to earn-outs related to business combinations and paid
subsequently to the acquisition date;
•
free cash-flow excluding exceptional items, an indicator published
by the Group since the first half of 2013, in connection with its
plan to generate savings and adapt its organizations in Europe
corresponding to free cash-flow before cash flows related to
initiatives that may be taken by the Group in connection with
the plan;
•
net financial debt, which represents the interest-bearing portion
of net debt. It corresponds to Current and non-current financial
debt, excluding Liabilities related to put options granted to non-
controlling interests and net of Short-term investments, Cash
and cash equivalents and Derivatives – assets.
Among the key indicators reviewed and used internally by the Group's
primary operational decision-makers, only Net sales, Trading
operating income and Trading operating margin are monitored by
Division, the other indicators beingmonitored at the Group level. The
primary operational decision-makers monitor the four Divisions: it
should be noted that the Group has not carried out a reorganization
of its operating segments.