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Overview of activities, risk factors

2.7 Risk factors

DANONE

REGISTRATION DOCUMENT 2015

28

RISK IDENTIFICATION

RISK MONITORING AND MANAGEMENT

Competition

Danone conducts its business in highly competitive markets

that include largemultinational companies and numerous local

players of different sizes:

•

in Western Europe and North America, Danone's markets

tend to be relatively mature, and competition is therefore

particularly intense, both in terms of pricing and innovations;

•

with respect to Danone's activities in the rest of the world, a

few international food and beverage groups also hold strong

positions in some emerging markets and seek to expand

such positions or enter new markets.

In addition, certain retail and grocery chains, having developed

their own brands, could reduce the shelf space occupied by

Danone's products in favor of their own products.

Danone is thus facing national and international competitors,

which are described in section 2.5

Other elements related to

Danone's activity and organization

related to Competition

.

This

competition could lead Danone to increase its advertising and

promotional expenditures, reduce its prices in order to defend

its market shares or prevent it from raising its prices in order

to overcome cost increases, which could have a significant

adverse effect on Danone's strategy and results.

Danone limits the effects of competition from the leading players

in its markets, notably through its strategy of (i) differentiation

relative to its competitors, especially in terms of product lines,

price/quality ratios and positioning, and (ii) development through

organic and external growth. These elements of Danone's stra-

tegy are described in sections 2.3

Strategic growth areas

and

2.5

Other elements related to Danone's activity and organization

.

Geopolitical environment

Danone's activities and employees can be subject directly or

indirectly to the effects of a period of economic, political, social

or military instability in countries susceptible of experiencing

or having recently experienced such a period, in particular in

Africa, Argentina, and CIS countries.

Also, some countries where Danone operates have regula-

tions that are not very developed and/or not very protective (in

particular with respect to intellectual property rights), and are

often unstable due to the influence of powerful local interests.

Some of these countries maintain foreign exchange controls

and/or control the repatriation of profits and invested capital,

impose taxes and other payments and impose restrictions,

sometimes retroactively, on the activities of multinational

groups. In some countries, national and/or local authorities

may also have recourse to laws and regulations, or to any

other measure having a similar effect, notably to foreign

interests, that restrict the ownership rights and/or access to

liquidity and assets availability and/or the freedom to exercise

its activity and/or equivalent to confiscation, nationalization or

expropriation of assets.

Lastly, Danone conducts business in certain countries, notably

Iran and Russia, which may be targeted by economic and

financial sanctions imposed in particular by U.S. or European

regulations. These regulations prohibit notably transactions

with certain financial institutions and require prior authorization

with the proper authorities before executing any fund transfers.

If the Company and/or its subsidiaries do not comply with these

regulations, Danone could be the subject of criminal penalties

and/or significant financial penalties. Any period of political or

economic instability in a country in which Danone operates or

any economic, regulatory or political measure such as the ones

described above that may be implemented in some countries

could have a negative impact on Danone's activities, results

and reputation.

Danone's international growth results in a geographical distri-

bution that diversifies and limits the concentration of this risk

for a given country. In addition, Danone prepares action plans

and implements measures aimed at reducing the potential

impacts of this risk in the areas of human resources, finance

and legal affairs.

Depending on the situation, Danone's Safety Department may

participate in the development and implementation of these plans

and measures. In certain regions, it creates or consolidates

relationships with State or private partners, whichmay be called

upon if necessary. The Safety Department also gets involved

in situations where the safety of the State and/or international

crisis may affect the activities of the Company's subsidiaries.

However, Danone cannot guarantee that its results will not be

significantly affected by a disruption in economic, political or

regulatory conditions or by a crisis in some of the countries

where it is present.

Sales by geographic region and Danone's top 10 countries in

terms of sales are presented in section 2.2

Presentation of Danone

.