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4.1 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Financing and financial security, net debt and cost of net debt
DANONE
REGISTRATION DOCUMENT 2015
119
Impairment review of the main brands with indefinite
useful lives
As of December 31, 2015, the Group reviewed the value of the
Nutri-
cia
and
Milupa
brands in accordance with the methodology and the
valuation model described above and on the basis of assumptions
based on those of the groups of CGUs concerned, while the
Dumex
brand was valued on the basis of the disposal agreement (see Note
6.2 of the Notes to the consolidated financial statements).
This review did not result in the recognition of any impairment
provisions.
In addition, analysis of the sensitivity of the value in use to the key
assumptions was carried out on each of these other main brands.
The key assumptions involved in the valuation model used by the
Group are (i) the growth in Net 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 review,
i.e.
the absence of any impairment:
•
100 bps decrease in Net sales (decrease applied, each year, to
the assumptions concerning growth in Net sales, including the
final year, on the basis of the 2015 projections);
•
50 bps decrease in the royalty rate (decrease applied, each year,
to the assumptions concerning royalty rate, including the final
year, on the basis of the 2015 projections);
•
50 bps decrease in the long-term growth rate;
•
50 bps increase in the discount rate.
Other brands with indefinite useful lives
As of December 31, 2015, following the impairment review of the
other brands with indefinite useful lives, the Group recognized
impairment provisions on certain brands in the Fresh Dairy Products,
Waters and Early Life Nutrition Divisions in an aggregate amount
of €125 million, which was recorded under Other operating income
(expense) for the period.
As of December 31, 2014, following the impairment review of the
other brands with indefinite useful lives, the Group did not recognize
any impairment provision.
NOTE 10. FINANCING AND FINANCIAL SECURITY, NET DEBT AND COST
OF NET DEBT
Note 10.1. 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.
When the fair value risk of a debt is hedged by a derivative, the change
in 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 the-
reby offsets the change in fair value of the derivative instrument.
When future cash flows of a debt are hedged by a derivative, 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.
Short-term investments
Short-term investments comprise marketable securities and other
short-term investments.
Marketable securities comprise highly liquid instruments with short
maturities that are easily convertible into a known amount of cash.
They aremeasured as securities held for trading within themeaning
of IAS 39, Financial Instruments: Recognition and Measurement and
are carried at their fair value.
Other short-term investments are measured at their fair value as
securities held for trading within the meaning of IAS 39, Financial
Instruments: Recognition and Measurement.
Changes in fair value of short-term investments are recognized
directly under the heading Interest income 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 exchange rates on that date.
Foreign exchange gains and losses arising from the translation of
borrowings or other instruments denominated in foreign currencies
that are used to hedge long-term investments denominated in the
same currencies are recognized in consolidated equity under the
heading Cumulative translation adjustments.
Note 10.2. Liquidity risk and management policy
Risk identification
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 the Group's business operations and
organic growth.
Danone may, however, take on additional debt to finance acquisi-
tions 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) interest-
bearing liabilities (bonds, bank debt, etc.), and (ii) non-interest-bea-
ring 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 to refinance its existing debt.