PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Financial risks IV. The exceptional measures taken as part of the response to the crisis brought on by the spread of Covid-19 will have a significant impact on the Group. This year, this has notably resulted in asset impairments of €1 billion, in particular on the Absolut brand. In order to face the potential fallout from this crisis on the Group's cash flow, Pernod Ricard has taken necessary precautions to ensure that it has sufficient cash to cover its needs, for example by suspending the share buyback programme of up to €1 billion for FY20 and FY21. Moreover, the Group has anticipated the refinancing of part of these bond maturities by raising €2 billion in the form of a bond issued in two 5- and 10-year tranches. This amount is in addition to the October 2019 issues for an amount of €1.5 billion maturing over 4, 8 and 12 years.

In May 2020, the Group also set up a €7 billion EMTN (medium term note) issuance programme. To date, no drawdowns have been made under the programme. As of 30 June 2020, the Group’s cash position stood at €1.9 billion, plus €3.4 billion in undrawn secured credit lines, including a €600 million revolving credit line set up in March 2020. At 30 June 2020, the Group’s net financial debt stood at €8.4 billion. The next bond maturities are US$200 million in January 2021 and US$500 million in April 2021.

Foreign exchange risk  (1) 1.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Due to its international footprint, the Group is naturally exposed to fluctuations in foreign currencies (excluding the euro, its functional and reporting currency) in which its operations are carried out (transaction and translation risks) and in which its assets and liabilities are denominated.

Fluctuations of this nature may therefore have an impact on Pernod Ricard’s results and shareholders’ equity. They include: conversion risk for the financial statements of consolidated — affiliates with a functional currency other than the euro; and operational risks on operating cash flows not denominated in the — entities’ functional currency. Moreover, fluctuations in currencies against the euro (notably the US dollar) may impact the nominal amount of these debts and the financial expense reported in euros in the consolidated financial statements, and this could affect the Group’s reported results.

RISK CONTROL AND MITIGATION As a rule, it is Group policy to invoice end customers in the functional currency of the distributing entity. The resulting net foreign exchange exposures are hedged by the use of forward transactions. Residual risk may be partially hedged by the use of financial derivatives (forward purchases, forward sales or options) intended to hedge highly probable receivables or payables or to secure the receipt of dividends. For asset risk, financing foreign currency-denominated assets acquired by the Group with debt in the same currency provides natural hedging.

(1) Note 4.9 to the consolidated financial statements.

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Pernod Ricard Universal Registration Document 2019-2020