PERNOD-RICARD - URD 2021-22 EN

4. Risk management Risk factors

2. Interest rate risk (1)

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Pernod Ricard is exposed to changes in interest rates on its financial liabilities and its liquid assets; such changes may have a positive or negative effect on its financial expense. As of 30 June 2022, the Group’s debt consisted of floating-rate debt (10%) and fixed-rate debt (90%), to which should be added a hedging portfolio intended to limit the negative effects of interest rate fluctuations.

The Group is naturally affected by changes in interest rates in its functional currency and, more marginally, by changes in the interest rates of other currencies contributing to its consolidated net debt. A rise or fall of 50 basis points in interest rates (euro or US dollar) would result in an increase or decrease of €4 million in the cost of net financial debt.

RISK CONTROL AND MITIGATION As part of its financing policy, the Pernod Ricard Group seeks to limit interest rate risk by focusing on fixed-rate funding for a significant portion of its financial debt.

3. Credit risk (2)

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Credit risk for the Group is dominated by the risk of financial loss stemming from a default (cash flow difficulties or liquidation) among customers indebted to a Group affiliate. Although the effects of the Covid-19 pandemic have severely affected some of the Group’s customers – in particular those operating in the hospitality and nightclub sectors – the rate of non-recovery of receivables remained extremely low.

The non-recovery of a commercial receivable in the event of non-payment or liquidation of customers would have a negative impact on the Group’s financial statements.

RISK CONTROL AND MITIGATION

The diversity and multiplicity of the Group’s distribution network, spread over many countries, and the diversification of the main customers from the large retail sector, limit its exposure. Moreover, internal procedures are in place to assess the financial health of the Group’s customers and adapt credit terms and activity as appropriate. Lastly, risk of this nature is limited by the subscription of credit insurance with the standard guarantees. The Group’s risk hedging policy is based on the partial transfer of risk to insurers.

4. Pensions (3)

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

The Group’s unfunded pension obligations amounted to €361 million as of 30 June 2022. During FY22, the Group’s contributions to pension plans totalled €64 million. The Group’s pension obligations are for the most part covered by balance sheet provisions and partially covered by pension funds or insurance. The amount of these provisions is based on certain actuarial assumptions, including, for example, discounting factors, demographic trends, pension trends, future salary trends and expected returns on plan assets.

The asset/liability balance is subject to, among other factors, the performance of invested assets. A liquidity crisis or major financial shock could significantly undermine the performance of financial assets and jeopardise the asset/liability balance. A pronounced asset/liability imbalance may require an increase in the Group’s pension liabilities recognised in the balance sheet and result in an increase in the allowance for retirement provisions. This could have a significant negative impact on the Group’s financial income/(expense).

RISK CONTROL AND MITIGATION

Specific governance and a management policy have been implemented and are regularly reviewed in line with the risk profile of the Group’s various pension plans. The investment strategy is subject to frequent review in order to minimise the volatility of assets. The buy-in transaction achieved for the largest of the Group’s Pension Fund in September 2019 is a concrete example of the active derisking strategy. The Fund’s Trustee has purchased an insurance policy from a highly rated and well established insurance company to cover the majority of the pensions obligations. The insurance policy therefore reduces the Group’s exposure on that Fund to funding deficits arising from market risks, including inflation and interest rate risks, and longevity risks. In addition, defined-benefit plans (mainly affiliates in North America, the United Kingdom and the rest of Europe) are subject to an annual actuarial valuation on the basis of country-specific assumptions.

Note 4.9 to the consolidated financial statements (1) Note 4.9 to the consolidated financial statements. (2) Note 4.7 to the consolidated financial statements. (3)

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Pernod Ricard Universal Registration Document 2021-2022