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Overview of activities, risk factors
2.7 Risk factors
DANONE
REGISTRATION DOCUMENT 2015
27
Operational risks associated with Danone's business sector
RISK IDENTIFICATION
RISK MONITORING AND MANAGEMENT
Raw materials: price volatility and availability
Danone's principal raw material needs consist primarily of:
•
materials needed to produce food and beverage products,
primarily milk and fruits (“food raw materials”);
•
materials needed for packaging its products, primarily
plastics and cardboard (“packaging”);
•
energy supplies. They account for only a limited portion of
Danone's purchases.
Variations in supply and demand at global or regional levels,
weather conditions, government controls, regulatory changes
and geopolitical events (changes in production methods, trade
saturation, etc.) could substantially impact the price and avai-
lability of (i) rawmaterials, and (ii) materials needed to package
certain Danone products, which could have an adverse effect
on its results. In particular, a potential increase in the prices
of these raw materials (especially milk) and other materials
may not be passed on, either in full or in part, in the sales price
of Danone's products, notably in countries whose economic
environment has deteriorated, which could have a significant
adverse effect on Danone's activities and results.
In the context of high raw materials price volatility and to limit
its impact on Danone's activity and results to the greatest extent
possible, Danone manages this cost inflation through actions
described in section 2.5
Other elements related to Danone's
activity and organization.
Danone's supply policy and exposure to principal rawmaterials
risks, including milk, are described in Note 5.7 of the Notes to
the consolidated financial statements.
Concentration of distribution, customer default
While the end customers of Danone products are individual
consumers, Danone sells its products mainly to major retail
and grocery chains. Overall, the distributionmarket has become
increasingly concentrated globally and locally. A continuation
of the trend to concentrate distribution at the global level along
with the emergence of key players at the local level would result
in a smaller number of customers for Danone companies and
could lead to retailers demanding better terms. This could
affect the operating margin of these companies and therefore
of Danone, change their market shares and/or represent a
counterparty risk in the event of a default by a major customer,
and consequently have a significant adverse effect on Danone's
activities and results.
In addition, certain subsidiaries of the Early Life Nutrition and
Medical Nutrition Divisions also have commercial relations
with public and quasi-public organizations, health insurance
and supplementary health insurance companies, as well as
hospitals, which sometimes impose long payment terms. It is
possible that some of these organizations would collaborate
and issue joint tenders, which could have a significant negative
impact on the results of the respective Divisions.
The presence of Danone brands in different types of distribution
channels helps to mitigate the potential negative impact of the
concentration risk.
The risk associated with the default of a given customer is limited
thanks to Danone's international development. The relative
share of Danone sales generated with its leading international
customers in 2015 is described in Note 5.4 of the Notes to the
consolidated financial statements.
Danone has also takenmeasures that help to reduce this risk, in
particular action programs related to the trade policy towards
key customer accounts (see section 2.5
Other elements related
to the Danone's activity and organization
) and Credit Committees
or their equivalent established in certain subsidiaries.
As of December 31, 2015, Danone's exposure to unpaid trade
receivables not yet depreciated was limited (see Note 5.4 of the
Notes to the consolidated financial statements).