PERNOD-RICARD - URD 2021-22 EN

Risk management Risk factors

4. Major litigation

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Like other companies in the Wine & Spirits sector, the Group may be the subject of legal action or other litigation and complaints from consumers or government authorities. In addition, the Group routinely faces litigation in the normal course of business. The Group records provisions for all disputes in which it is involved and all risks it faces. At 30 June 2022, these provisions totalled €441 million, compared with €366 million at 30 June 2021 (see Note 4.7 – Provisions to the consolidated financial statements ).

Major litigation of any type could have an adverse impact on the Group’s financial position (in the event of a fine or damages), or the Group’s image and reputation due to media coverage and posts on social networks, and may result in the loss of rights, in particular intellectual property rights (such as in the event of the cancellation of a trademark).

RISK CONTROL AND MITIGATION

To avoid litigation, the Legal Department, in charge of the Group’s protection and defence, has implemented preventive measures. Marketing and operational teams are made aware of legal issues on an ongoing basis, model agreements are made available, and the legal teams provide support in the very early stages of projects. Legal functions have been established at the regional and local levels to ensure better local monitoring. Furthermore, a quarterly report listing the major risks identified by local legal teams, particularly with regard to compliance, counterfeiting, cyberattack, personal data and potential major disputes is sent to staff at head office, who are responsible for coordination.

Financial risks IV. The Group’s main financial risks are market, credit and liquidity risks. They are subject to risk management policies and procedures put in place to measure and manage them and reduce their occurrence or impact. In an economic context that remains uncertain and in order to manage the liquidity risk that may result from the repayment of financial liabilities at their contractual maturity, Pernod Ricard has taken precautionary measures to ensure sufficient liquidity to meet its needs and continues to diversify its sources of financing, thereby limiting dependence on various lenders. Thus, the Group anticipated the refinancing of a portion of its bonds in October 2021 (issuance and early redemption of existing bonds in euros via the exercise of the make-whole option provided for in the contract, for an equivalent amount).

The Group also issued in April 2022 a bond of €750M with a maturity of 7 years (1) . The transactions made it possible to substantially extend the average maturity of the Group’s bond debt. As of 30 June 2022, the Group’s cash position stood at €2.5 billion, plus around €3.3 billion in undrawn secured credit lines, including a €500 million revolving credit line set up in March 2022. The Credit Agreements also set out obligations, including a commitment to provide lenders with adequate information, compliance with a solvency ratio at each half-year end (which must be less than or equal to 5.25) and compliance with certain commitments customary in this type of credit agreement (including the maintenance of the credit’s pari passu ranking). Fluctuations of this nature may therefore have an impact on Pernod Ricard’s results and shareholder equity. They include: conversion risk for the financial statements of consolidated affiliates with a functional currency other than the euro; and operational risks on operating cash flows not denominated in the entities’ functional currency. Moreover, fluctuations in currencies against the euro (notably the US dollar) may impact the nominal amount of these debts and the financial expense reported in euros in the consolidated financial statements, and this could affect the Group’s reported results. POTENTIAL IMPACTS ON THE GROUP

4.

1. Foreign exchange risk (2)

RISK IDENTIFICATION AND DESCRIPTION

Due to its international footprint, the Group is naturally exposed to fluctuations in foreign currencies (excluding the euro, its functional and reporting currency) in which its operations are carried out (transaction and translation risks) and in which its assets and liabilities are denominated.

RISK CONTROL AND MITIGATION

As a rule, it is Group policy to invoice end customers in the functional currency of the distributing entity. The resulting net foreign exchange exposures are hedged by the use of forward transactions. Residual risk may be partially hedged by the use of financial derivatives (forward purchases, forward sales or options) intended to hedge highly probable receivables or payables or to secure the receipt of dividends. For asset risk, financing foreign currency-denominated assets acquired by the Group with debt in the same currency provides natural hedging.

This bond is described on page 197 of the Universal Registration Document. (1) Note 4.9 to the consolidated financial statements. (2)

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Pernod Ricard Universal Registration Document 2021-2022