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DANONE
REGISTRATION DOCUMENT 2015
Danone's business highlights in 2015 and outlook for 2016
3.6 Financial indicators not defined by IFRS
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3.6 FINANCIAL INDICATORS NOT DEFINED BY IFRS
Information published by Danone uses the following financial indi-
cators that are not defined by IFRS:
•
like-for-like changes in sales, trading operating income, trading
operating margin, recurring net income and recurring EPS;
•
trading operating income;
•
trading operating margin;
•
recurring net income;
•
recurring income tax rate;
•
recurring EPS;
•
free cash flow;
•
free cash flow excluding exceptional items;
•
net financial debt.
Given severe deterioration in consumer spending in Europe, Danone
has set a target for savings and adaptation of its organization to
regain its competitive edge. Starting in the first half of 2013, the
Company has published a free cash flow indicator excluding cash
flows related to initiatives deployed within the framework of this plan.
Calculation of financial indicators not defined in IFRS and used by
Danone is as follows:
Like-for-like changes
in Sales, Trading operating income, Trading
operating margin, Recurring net income and recurring EPS reflect
Danone's organic performance and essentially exclude the impact of:
•
changes in consolidation scope with indicators related to a given
fiscal year calculated on the basis of previous-year scope;
•
changes in applicable accounting principles;
•
changes in exchange rates, (i) with both previous-year and cur-
rent-year indicators calculated using the same exchange rates
(the exchange rate used is a projected annual rate determined
by the Company for the current year and applied to both previous
and current year), and (ii) correcting differences caused by the
exceptional volatility of inflation in countries that are structurally
subject to hyperinflation, which would otherwise distort any
interpretation of Danone's organic performance.
Since inflation in Argentina—already structurally high—accelerated
further in 2014, in particular following the sharp, steep devaluation
of the peso in January, using an identical exchange rate to compare
2014 figures with those for the prior year did not reflect Danone's
organic performance in that country accurately. As a result, the
Company fine-tuned the definition of like-for-like changes to in-
clude in its exchange-rate impact the differences caused by the
exceptional volatility in structurally hyperinflationary countries.
Danone is applying this methodology, which is applicable only to
Argentina starting with the release of 2014 full-year results. More
specifically, this methodology leads to (a) limit the inflation of price
and cost of goods sold per kilo to their average level for the past
three years and (b) cap trading operating margin at its prior-year
level; this methodology has been applied to each division operating
in Argentina. With respect to 2014, adjustment for the full year had
been recorded in the fourth quarter of 2014.
Trading operating income
is defined as Danone's operating income
excluding Other operating income and expenses. Other operating
income and expenses is defined under Recommendation 2013-03
of the French CNC (format of consolidated financial statements
for companies reporting under international reporting standards),
and comprises significant items that, because of their exceptional
nature, cannot be viewed as inherent to its recurring activities.
These mainly include capital gains and losses on disposals of fully
consolidated companies, impairment charges on goodwill, signif-
icant costs related to strategic restructuring and major external
growth transactions, and costs related to major crisis and major
litigations. Furthermore, in connection with of IFRS 3 (Revised) and
IAS 27 (Revised) relating to business combinations, the Company
also classifies in Other operating income and expenses (i) acquisi-
tion costs related to business combinations, (ii) revaluation profit
or loss accounted for following a loss of control, and (iii) changes
in earn-outs relating to business combinations and subsequent to
acquisition date.
Trading operating margin
is defined as Trading operating income
over Net sales ratio.
Recurring net income (or Recurring net income – Group Share)
corre-
sponds to the Group share in the Total Recurring net income. Total
Recurring net income measures Danone's recurring performance
and excludes significant items that, because of their exceptional
nature, cannot be viewed as inherent to its recurring performance.
Such non-recurring income and expenses mainly include capital
gains and losses on disposals and impairments of Investments in
associates and in other non-fully-consolidated entities and tax in-
come and expenses related to non-recurring income and expenses.
Such income and expenses excluded from Net income are defined
as Total Non-recurring net income and expenses.
Recurring income tax rate
measures the income tax rate related to
Danone's recurring performance and corresponds to the ratio Tax
income and expenses related to recurring income and expenses
over Total Recurring net income.
Recurring EPS (or Recurring net income – Group Share, per share
after dilution)
is defined as Recurring net income over Diluted
number of shares ratio.
Free cash flow
represents cash flows provided or used by operating
activities less capital expenditure net of disposals and, in connection
with of IFRS 3 (Revised), relating to business combinations, exclud-
ing (i) acquisition costs related to business combinations, and (ii)
earn-outs related to business combinations and paid subsequently
to acquisition date.
Free cash flow excluding exceptional items
represents free cash
flow before cash flows related to initiatives deployed within the
framework of the plan to generate savings and adapt Danone's
organization in Europe.
Net financial debt
represents the net debt portion bearing interest. It
corresponds to current and non-current financial debt (i) excluding
Liabilities related to put options granted to non-controlling interests
and (ii) net of Cash and cash equivalents, Short term investments
and Derivatives – assets.