PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Description of key risk factors 4.2.2 Risks relating to business activities I. Pressure on prices 1.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Consolidation and alliances between retailers both at local and international levels are putting a strain on Pernod Ricard’s margins and reducing its ability to increase prices. The competitive environment can on occasion also lead Pernod Ricard to organise more aggressive or more frequent promotions. In addition, e-commerce is putting pressure on traditional retailers. The Group also faces heightened competition from both major international players on its strategic brands and local groups or producers on its local brands, driven by the increasing success of craft products, as is the case with vodka in the United States. The fierce competition in mature markets and the increasingly competitive nature of emerging markets could require the Group to boost its advertising and promotional investments, or even to reduce or freeze prices in order to protect market share, thereby weighing on results.

Potential impacts include: the increased negotiating power of Pernod Ricard’s customers — leading to margin erosion and/or loss of market share; pressure on Pernod Ricard to align prices across markets within — a region; temporary delisting and/or loss of promotional support; and — cheaper prices eroding brand image. —

RISK CONTROL AND MITIGATION To mitigate risk, Pernod Ricard is committed to maintaining A&P investment at approximately 16% of sales to reinforce brand equity and, in turn, the ability to increase prices. Further, Pernod Ricard launched a global Revenue Growth project in 2017, including rolling out a sophisticated promotional effectiveness tool and dedicated pricing management resources at market and HQ levels.

Geopolitical and macroeconomic instability 2.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

The Covid-19 pandemic has significantly increased the risk of another global macroeconomic crisis and fuelled social tensions in different parts of the world. In addition, a growing protectionist movement has been observed in recent years with the United Kingdom’s exit from the European Union and the trade war between the United States and China and the European Union.

These economic crises and social tensions could negatively impact consumer spending power and consumption patterns. Ultimately, this instability could result in difficulties for the Group in distributing its products in the markets concerned, negatively impacting its sales or margins, as has been observed in Travel Retail during the Covid-19 pandemic. Indeed, the decline in the number of passengers at airports in Asia from February, and then worldwide from March, due to travel restrictions and border closures, affected the Group’s Travel Retail net sales, which declined by 27% over FY20.

RISK CONTROL AND MITIGATION The Group’s best protection is the diversification of its business both by geography and category. The Group is present today in 73 countries and has leading brands in all major international spirit categories. Pernod Ricard is continuing to actively develop new channels (e.g. e-commerce and hometainment) and new consumer occasions, such as the low/no alcohol trend and opportunities linked to female consumption. Accordingly, the Group regularly reassesses its routes-to-market and local partners. In addition, Pernod Ricard has implemented crisis management plans in all affiliates. Similarly, in certain cases, the Group may increase prices in order to mitigate the impact on margins. Finally, under certain circumstances, production and logistics infrastructures can be adapted.

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Pernod Ricard Universal Registration Document 2019-2020