Danone // 2020 Universal Registration Document

4 75 DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 4.1 Consolidated financial statements and notes to the consolidated financial statements Note 6. Information concerning the Group’ s operating activities Impairment review as of December 31, 2020 The Group noted significant volatility in the Yashili stock price which, as of December 31, 2020, remained below the shares’ average pur- chase price, which constituted an indication of impairment. As of December 31, 2020, the carrying amount of the investment in Yashili (€219 million) was subjected to an impairment test based on estimated future cash flows of the business plan prepared by its management in respect of the 2021 to 2025 period and taking into account the effects of Covid-19 on the 2020 fiscal year. Meanwhile, the assumptions for the discount rate and long-term growth rate are 8.6% and 3.0%, respectively. The test carried out at end-2020 did not result in the amount of the impairment provisions recognized in previous fiscal years being revised. Lastly, the sensitivity analyses on the key assumptions used to cal- culate this value in use, taken individually, gave the following results: Assumptions Indicators Additional impairment (in € millions) -500 bps Sales growth rate (a) (3) -500 bps Recurring operating margin (a) – -100 bps Long-term growth rate – +100 bps Discount rate – (a) Decrease applied each year as per the long-term (five-year) plan. Impairment review as of December 31, 2019 The Group noted a significant decrease in the Yashili stock price which, as of December 31, 2019, remained below the shares’ average purchase price. This decrease constituted an indication of impairment. As of December 31, 2019, the carrying amount of the investment in Yashili (€329 million) was subjected to an impairment test based on estimated future cash flows of the business plan prepared by its management and covering the 2020 to -2024 period. Meanwhile, the assumptions for the discount rate and long-term growth rate are 8.1% and 3.0%, respectively. The test resulted in a review of the amount of the impairment provision recognized in previous fiscal years and the recognition of an additional impairment provision of €109 million recognized in Share of profit of associates for the year ended December 31, 2019. Note 5.8. Impairment review of other Investments in associates Impairment review as of December 31, 2020 Following the impairment review of other investments in associates, the Group did not recognize any impairment. Impairment review as of December 31, 2019 Following the impairment review of other investments in associates, the Group recognized an impairment charge totaling €36 million in respect of a company in the fresh dairy products business. NOTE 6. INFORMATION CONCERNING THE GROUP’S OPERATING ACTIVITIES Note 6.1. Accounting principles Sales Danone’s sales mainly comprise sales of finished products. They are recognized in the income statement when the control of goods is transferred. They 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 and commitmentswith the customers concerned. Cost of goods sold The cost of goods sold mainly comprises industrial costs (including raw material costs, depreciation of industrial assets and person- nel costs relating to production activity) and certain logistics and transportation costs. Selling expense Selling expensesmainly comprisemarketing expenses and consumer promotions as well as sales force overheads. General and administrative expense General and administrative expenses mainly comprise other per- sonnel 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 10 of the Notes to the conso- lidated financial statements). Note 6.2. Operating segments General principles In 2020, the primary operational decision-makers (the Chairman and Chief Executive Officer, Emmanuel FABER, and the Chief Financial Officer, Technology &Data, Cycles and Procurement, Cécile CABANIS) continued to monitor Danone’s businesses by category (see Note 7.2 of the Notes to the consolidated financial statements). The operating segments correspond to the EDP, Specialized Nutrition and Waters Reporting Entities. The key indicators reviewed and used internally by the primary operational decision-makers to assess operational performance are: • Sales; • Recurring operating income;