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Overview of activities, risk factors
2.7 Risk factors
DANONE
REGISTRATION DOCUMENT 2015
39
Financial market risks
RISK IDENTIFICATION
RISK MONITORING AND MANAGEMENT
Financial market risks
As part of its normal business, the Group is exposed to financial
risks, especially foreign currency, financing and liquidity, interest
rate, counterparty, securities-related and commodity risks.
The Company's policy consists of (i) minimizing and managing
the impact that its exposure to financial market risks could have
on its results and, to a lesser extent, on its balance sheet, (ii)
monitoring andmanaging such exposure centrally, (iii) whenever
the regulatory and monetary frameworks so allow, executing
the financial transactions locally or centrally, and (iv) using
derivative instruments only for the purpose of economic hedging.
Through its Financing and Treasury Department, which is
part of the Company Finance Department, Danone possesses
the expertise and tools (trading room, front and back office
software) to act on different financial markets following the
standards generally implemented by first-tier companies. In
addition, the Internal Control and Internal Audit Departments
review the organization and procedures applied. Lastly, a
monthly financing and treasury report is sent to the Company
Finance Department, enabling it to monitor the decisions taken
to implement the previously approved management strategies.
Currency risk related to operating activities
Danone mainly operates on a local basis and consequently in
the currency of the country in which it is operating, thereby
incurring no foreign exchange risk. However, the location of
some of Danone's production unitsmay result in inter-company
billings in foreign currencies. This applies particularly to the
Early Life Nutrition and Medical Nutrition Divisions and, to a
lesser extent, to the Fresh Dairy Products Division. Similarly,
some rawmaterials are billed or indexed in foreign currencies,
in particular as regards the Waters and Fresh Dairy Products
Divisions. Lastly, Danone is also developing some export acti-
vities. The sales and operating margin of some subsidiaries
are therefore exposed to fluctuations of foreign exchange rates
against their functional currency.
Pursuant to its operational currency risk hedging policy, Danone's
residual exposure after hedging was significantly reduced
during the year (see Note 5.7 of the Notes to the consolidated
financial statements).
Currency risk related to financing activities
In conducting its risk centralization policy, Danone manages
multi-currency financings and liquidities. Consequently, fluc-
tuations in exchange rates of foreign currencies against the
euro may have an impact on Danone's consolidated income
statement and balance sheet.
Pursuant to its financial currency risk hedging policy, Danone's
residual exposure after hedging is not material (see Note 10.7
of the Notes to the consolidated financial statements).
Financial statements translation into euros
When translating Danone subsidiaries' financial statements
denominated in foreign currencies into euros, the currency
fluctuations against the euro may have an impact on the
consolidated income statement and the carrying amount in the
consolidated balance sheet of assets and liabilities denominated
in currencies other than euro.
The impacts of changes in exchange rates on Danone's sales and
trading operating income are described in section 3.2
Consolida-
ted net income review.
Also, Danone's top 10 countries in terms
of sales are presented in section 2.2
Presentation of Danone
.
With respect to currency translation risk, Danone has esta-
blished a policy for monitoring and hedging the net position of
certain subsidiaries, with regular assessments of risks and
opportunities to use hedging instruments.