Danone // 2020 Universal Registration Document

DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 96 4.1 Consolidated financial statements and notes to the consolidated financial statements Note 11. Financing and financial security, net debt and cost of net debt (i) the growth in sales, (ii) the royalty rate, (iii) the long-term growth rate used to calculate the terminal value, and (iv) the discount rate. The following changes, deemed reasonably possible, in the key assumptions do not alter the findings of the impairment test, i.e. the absence of any impairment: • 50bps decrease in sales (decrease applied, each year, to the assumed growth in sales, including the final year, on the basis of the 2021 projections); • 50bps decrease in the royalty rate; • 50bps decrease in the long-term growth rate; • 50bps increase in the discount rate. Impairment review of the other brands with indefinite useful lives As of December 31, 2020, the tests carried out on brands with indefinite useful lives other than Nutricia , International Delight , Silk and Alpro required partial impairment (totaling €288 million) of four brands in the EDP Reporting Entity and one brand in the Specialized Nutrition Reporting entity, in light of the new assumptions made in their strategic plan. In addition, Danone assessed the sensitivity of the impairment amount to changes in the key assumptions in respect of the main brands concerned. Taken individually, none of the following assumptions would require additional impairment totaling more than €25 million in respect of these brands: • 50bps decrease in sales (decrease applied, each year, to the assumed growth in sales, including the final year, on the basis of the 2021 projections); • 50bps decrease in the royalty rate; • 50bps decrease in the long-term growth rate; • 50bps increase in the discount rate. As of December 31, 2019, following the impairment tests of the other brands with indefinite useful lives, the Group recognized an impairment provision in respect of two brands in the EDP Reporting Entity and one brand in the Specialized Nutrition Reporting Entity in the aggregate amount of €84 million. NOTE 11. FINANCING AND FINANCIAL SECURITY, NET DEBT AND COST OF NET DEBT Note 11.1. Accounting principles Financing Debt instruments are recognized in the consolidated balance sheet (i) under the amortized cost method, using their effective interest rate, or (ii) at their fair value. They may be hedged by a derivative instrument as follows: • fair value hedging: the change in the fair value of the hedged component of said debt is recognized in the consolidated balance sheet, with the counterpart to the entry being to the heading Other financial income (expense), which thereby offsets the changes in fair value of the derivative instrument; • cash flow hedging: the change in the fair value of the effective portion of the derivative hedging said debt is recognized in the consolidated balance sheet, with the counterpart to the entry being to consolidated equity, and is recycled to profit or loss when the hedged item (the interest flows relating to the hedged debt) impacts the consolidated net income. Hybrid financing Since the contractual terms of the perpetual subordinated debt se- curities issued by Danone do not stipulate any redemption or coupon payment obligation (payment of a coupon is mandatory mainly in the event of the payment of a dividend to Danone’s shareholders): • they are classified as equity instruments; • the related coupons are recognized as a deduction from conso- lidated equity, net of the related tax income. In the consolidated statement of cash flows, they are included in Cash flows provi- ded by (used in) financing activities, with the related tax being included in Cash flows provided by (used in) operating activities. Short-term investments Short-term investments comprise: • Marketable securities: highly liquid instruments with short ma- turities that are easily convertible into a known amount of cash; • Other short-term investments. Other short-term investments are measured at their fair value, changes in their fair values being recognized under the heading Interest income on cash equivalents and short-term investments in the consolidated income statement. Translation of transactions denominated in foreign currencies At period-end, trade receivables and trade payables denominated in foreign currencies are translated using the exchange rates on that date. Foreign exchange gains and losses arising from the translation of instruments that are used to hedge long-term in- vestments (borrowings or other instruments) denominated in the same currencies are recognized in consolidated equity under the heading Translation adjustments.