PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Product quality issues  (1) 6.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

The main product quality issues encountered within the Group arise from the level of quality and compliance of the:

The success of the Group’s brands depends upon the positive image that consumers have of those brands. A quality issue with one of our products affecting the integrity of its brand or its image among consumers could have a negative impact on the Group’s sales.

ingredients; — packaging; — production process; and — development process of our new products. —

RISK CONTROL AND MITIGATION Quality risk management is based on a joint quality management approach implemented worldwide in all production affiliates. Coordinated by the Group’s Operations Department, this risk management policy is based on internal Pernod Ricard standards and on systematic risk analysis. It draws on the standards setting out best practices and minimum requirements in each of the areas concerned by quality: foreign bodies (e.g. glass particles); — contamination; — traceability; — quality control; and — product recall. — It is also backed up by an ambitious quality certification process for Group production sites based on the following two international standards: ISO 9001 for quality management; and — ISO 22000 for food safety management. — At the end of June 2020, 79% of bottling sites were ISO 9001 and ISO 22000 certified, covering 99.8% of total bottled production.

Supply disruption 7.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Some raw materials that the Group uses for the manufacture of its products are commodities subject to price volatility caused by changes in global supply and demand, weather conditions, agricultural uncertainty and governmental controls. The industry has also witnessed a trend towards the consolidation of raw material and packaging suppliers. Today, many of our affiliates work with the same suppliers, which creates risk-charged interdependence should one of them fail (e.g. in the event of a major accident at one of their production sites).

An unexpected rise in the cost of raw materials or packaging materials could significantly increase the Group’s operating costs. As it is not certain that this increase can be offset by higher prices, the Group’s results could be affected. Another impact could stem from a break in the supply chain of certain raw materials or packaging, halting the production of some of our products.

RISK CONTROL AND MITIGATION Controlling the risk of a break in the supply chain is part of the Group’s purchasing policy, with the aim of selecting quality suppliers applying responsible practices in their ethical, environmental and social commitments, via the “Blue Source” process. The Group also recommends that its affiliates systematically identify alternative sourcing possibilities to cover cases of single sourcing risk. This is a critical scenario taken into account in the business continuity plans of our Strategic Brands.

(1) Note that this risk is also covered in Section 3.3.3.5 of the Extra-Financial Reporting.

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Pernod Ricard Universal Registration Document 2019-2020