PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Challenges related to brand portfolio management and non-adaptation to new trends 5.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Pernod Ricard faces the challenge of adapting its organisation, portfolio, business model and route-to-market to new trends (e.g. craft spirits, low/no alcohol) and to the digital era (notably digital marketing and e-commerce) and continuing to innovate. Given the significance of ageing spirits within the Group portfolio, Pernod Ricard takes continuous care to correctly align product allocation and product ageing management with demand forecasting through long-term strategic inventory management.

Potential impacts associated with this risk include loss of market share or missed growth opportunities linked to Pernod Ricard’s inability to properly satisfy customer/consumer demand, negative impact on brand equity and/or on its reputation and potential surplus inventory or missed sales resulting from out-of-stock situations.

RISK CONTROL AND MITIGATION To mitigate risk, Pernod Ricard acts across its entire organisation:

from a strategic point of view, diversification of the business model, route to market and portfolio management are closely monitored; — a new innovation organisational infrastructure has been created, including the creation of Conviviality Ventures in 2017, to invest in new — businesses. There is global monitoring of the innovation portfolio and innovation roadmap in terms of services and experiences; the Group continues to accelerate its digital transformation. The Group's HQ Digital Marketing and e-commerce teams have been — established, including teams dedicated to monitoring trends and the Group's performance in these areas, issuing guidelines, sharing expertise and services, and coordinating subsidiaries. Pernod Ricard has also invested in an e-commerce platform (Drinks&Co, formerly Uvinum). Moreover, new human resources and financial performance management systems (in progress) have been adopted and appropriate training has been put in place. Finally, the main contributions of new digital technologies, Artificial Intelligence and Big Data have been identified, enabling the launch of six Key Digital Programs that will be implemented over a three-year period to allow a better presence of the Group's growing portfolio in an increasing number of communication and distribution channels around the world; and keen attention is paid to monitoring strategic, local and trade inventory levels, with a particular focus on ageing spirits given the — investment involved (FY20: approximately €5 billion on the balance sheet). The latter includes regular meetings involving the Chairman & CEO, EVP Finance, IT & Operations and Brand Companies to define appropriate long-term forecasts and investments.

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Pernod Ricard Universal Registration Document 2019-2020