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Overview of activities, risk factors
2.7 Risk factors
DANONE
REGISTRATION DOCUMENT 2015
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RISK IDENTIFICATION
RISK MONITORING AND MANAGEMENT
Liquidity
Danone does not use debt in either a recurring or a significant
way in connection with its operating activities. Operating cash-
flows are generally sufficient to finance Danone's business
operations and organic growth.
Danone may, however, take on additional debt to finance exter-
nal growth transactions or, occasionally to manage its cash
cycle, particularly when dividends are paid to the Company's
shareholders.
The Company's objective is always to keep this debt at a level
enabling it to maintain the flexibility of its financing sources.
Liquidity risk arises mainly from the maturities of its (i) inte-
rest-bearing liabilities (bonds, bank debt, etc.), and (ii) non-
interest-bearing liabilities (liabilities on put options granted
to non-controlling interests), and from payments on derivative
instruments.
As part of its debt management strategy, Danone regularly
seeks new financing, especially to refinance its existing debt.
In countries where centralized financing is not accessible, when
medium-term financing is unavailable and/or in cases where
certain financing existed at a company prior to being acquired
by Danone, then Danone is exposed to liquidity risk on limited
amounts in these countries.
More generally, it is possible that in the event of a systemic
financial crisis, Danone could be unable to access the financing
or refinancing it needs on the credit or capital markets, or to
access it on satisfactory terms, which could have an adverse
impact on its financial situation.
Meanwhile, Danone's ability to access financing and its interest
expense may depend in part on its credit rating from credit
rating agencies. The Company's short-term and long-term
credit ratings and their possible downgrade could result in
higher financing costs and affect Danone's access to financing.
Finally, most of the financing agreements entered into by the
Company (credit facilities and bonds) include a change of control
provision, which offers creditors a right of early repayment in
the event a change in control of the Company causes its rating
by the financial rating agencies to fall below investment grade.
Under its refinancing riskmanagement policy, Danone reduces
its exposure by (i) centralizing its financing sources, (ii) bor-
rowing from diversified financing sources, (iii) arranging a
significant portion of its financing as medium-term financing,
(iv) maintaining financing sources available at all times, and (v)
ensuring that it is not subject to any covenant relative to main-
taining financial ratios in connection with financing contracts.
In those countries where centralized financing is not available,
when medium-term financing is unavailable and/or in the case
of some existing financing in a company prior to the acquisition
by Danone of a controlling interest in it, some Danone companies
may, for operational reasons, be required to borrow from local
sources. From a Company perspective, the amounts borrowed
are relatively small, whether considered individually or in total,
given the level of operating cash-flow that is generally sufficient
to finance their operations and organic growth.