PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Loss of major site/strategic inventory 2.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Today, the main identified causes that could result in the loss of a major industrial site or strategic inventory are: a fire and/or explosion related to the manufacture and handling of — our flammable products (e.g. alcohol); a natural catastrophe such as an earthquake, hurricane or flood; — and a malicious act. — Several Group sites are located in seismic zones, particularly in New Zealand, Armenia, California and Mexico. Certain sites, including the San José plant in Cuba, are exposed to risk of cyclones. Lastly, the Group has significant stock of ageing products, such as Scotch whisky, Irish whiskey, cognac, rum, brandy and wines, which are highly flammable.

The loss of a major industrial site or strategic inventory is considered a major risk for Pernod Ricard. The materialisation of this risk could result in a significant operating loss and as such a sharp drop or prolonged interruption in the supply of certain products, thereby preventing the Group from meeting consumer demand.

RISK CONTROL AND MITIGATION To manage this risk, an Operations Risk Manager reporting to the Operations Department is responsible for coordinating the actions of affiliates in the implementation of preventive measures (design and maintenance of facilities, training, operating procedures, etc.) and physical protection mechanisms (automatic extinguishing, retention basins, emergency procedures, etc.). In cooperation with the insurer, more than 40 industrial sites are reviewed each year, resulting in an appraisal of the quality of risk, and as such, recommendations for improvement for each. In addition, a Group monitoring programme for business continuity and management systems is in place. Strategic affiliates have identified the various scenarios that could affect their operations and have drawn up business continuity plans including the implementation of emergency solutions and access to alternative means of production in the event of the loss of a site.

Toxic contamination  (1) 3.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

The Group purchases most raw materials (grapes, cereals, agave, etc.) used in the manufacture of its wines & spirits from farmers or industrial producers (alcohol, sugar, flavourings, etc.). The presence of undesirable substances in these raw materials or a defect in the distillation, fermentation or bottling process could result in the presence of chemical (contaminant), biological (microorganism), physical (foreign body) or allergen contamination.

The Group’s reputation and image may at any time be undermined by one-off incidents at an industrial facility or relating to a specific product. For example, contamination, whether arising accidentally, or through an act of malice, could cause injury or intoxication to a consumer, thereby exposing the Group to litigation and causing business and/or reputational harm to brands.

RISK CONTROL AND MITIGATION The Group has implemented protection and control systems to limit the risk of contamination. The control of this risk is based both on the application of the HACCP method, which aims to identify the risks involved in the manufacturing process and to bring them under control, as well as on the implementation of specific internal guidelines. This approach is also accompanied by the implementation of management systems compliant with the ISO 22000 standard for food safety management, which is aimed specifically at controlling such risk. The Group conducts a programme of in-depth analyses covering all contaminants deemed possible. In 2019 and 2020, it focused on all Strategic International Brands and the biggest Strategic Local Brands. Active monitoring is also implemented in order to monitor changes that may lead to new risks, particularly those relating to components present in packaging, raw materials and water, that are liable to pose a risk to consumer health.

(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