PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

c. Regulatory environment

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

The Group’s businesses throughout the world are subject to a growing number of regulations. Regulatory decisions and changes in legal and regulatory systems could have adverse impacts on Pernod Ricard’s business, particularly in the areas of product recall, advertising and promotion, labelling and access to distribution. The regulatory environment governing the production and marketing of alcoholic beverages could undergo change worldwide. Similarly, advertising and promotion of alcoholic beverages are subject to increasingly stringent rules aimed at changing consumer behaviour and reducing alcohol consumption. In addition, in its capacity as a distributor of international beverage brands, the Group is subject, in the various countries in which it operates, to numerous regulatory requirements concerning production, product responsibility, distribution, marketing, advertising (such as the Evin Law in France), labelling and imports. More broadly, it is also subject to issues relating to competition and consolidation, commercial and pricing policies, pensions, labour law and environmental concerns.

Regulatory decisions and changes in legal and regulatory requirements in these areas could have a negative impact on Pernod Ricard’s business: product recalls : regulatory authorities in the countries in which — the Group trades could subject the Group to measures including product recalls, product seizures and other sanctions, any of which could have an adverse effect on its trading or harm its reputation, with negative consequences on its operating profit; advertising and promotions : regulatory authorities in the — countries in which the Group trades could impose restrictions on advertising for alcoholic beverages (e.g. television advertising or sport sponsorships). One effect of these limitations is to prevent or restrict the Group’s ability to retain or recruit consumers for its brands in a challenging competitive environment. Restrictions on advertising freedom also constrain the Group’s ability to launch new innovations. They thus have a significant impact on the Group’s business; labelling : changes to labelling requirements for alcoholic — beverages could diminish the appeal of these products for consumers, who might switch to other less tightly regulated products, resulting in a decline in sales. Furthermore, such changes could have the consequence of increasing costs, thereby affecting the Group’s results; and access to distribution : government authorities in the countries — where the Group operates could seek to restrict consumer access to the Group’s products, for example the prohibition of alcohol in Bihar (India), which led to the termination of Pernod Ricard’s operations in this state, and restrictions on trading hours or sales outlets in many countries. These restrictions tend to shift consumption to illegal or parallel distribution channels, which compete with the Group’s lawful business.

RISK CONTROL AND MITIGATION Pernod Ricard actively participates in legislative and/or administrative thinking by presenting its positions and solutions to industry and other stakeholders, be they local decision-makers or lawmakers. Pernod Ricard does this through professional bodies to which it belongs, or directly when the subject specifically concerns the Group. This causes the Group to express positions on topics that constitute risk factors, advocating alternatives to exclusively repressive solutions for treating alcohol abuse. Pernod Ricard believes that: governments, producers and other stakeholders need to work together to reduce the harmful use of alcohol, particularly illegal and/or — counterfeit alcohol. Counterfeits account for a significant proportion of alcoholic beverages consumed worldwide, particularly in low- and middle-income countries; the Wine & Spirits sector has a role to play in reducing the potential harm associated with alcohol consumption. Pernod Ricard wishes to — play an active part in this process; alcohol consumption patterns are heavily influenced by cultural and religious factors; — the effectiveness of initiatives aimed at reducing the harmful consumption of alcohol must be scientifically evaluated; and — we need to target at-risk consumers and behaviour, taking into account cultural differences. — These proposals are generally well grasped by Pernod Ricard’s contact, and can prompt them to adopt rules on the trade, consumption and sale of alcohol that are both respectful of the need for efficiency as regard health-related issues and mindful of the economic constraints weighing on sector companies. These interlocutors are often sensitive to a factual demonstration of the ineffectiveness of radical repressive measures, which generally have little impact on at-risk consumer behaviour. Pernod Ricard also runs awareness campaigns – either alone or in association with other stakeholders – aimed at reducing the negative externalities of alcohol consumption. By effectively tackling excessive consumption, Pernod Ricard seeks to avoid regulatory measures that could be detrimental to its business (while lacking any real health benefits).

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Pernod Ricard Universal Registration Document 2019-2020