PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Interest rate risk  (1) 2.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Pernod Ricard is exposed to changes in interest rates on its financial liabilities and its liquid assets; such changes may have a positive or negative effect on its financial expense. At 30 June 2020, the Group’s debt consisted of floating-rate debt (14%) and fixed-rate debt (86%), to which should be added a hedging portfolio intended to limit the negative effects of interest rate fluctuations.

The Group is naturally affected by changes in interest rates in its functional currency and, more marginally, by changes in the interest rates of other currencies contributing to its consolidated Net debt. A rise or fall of 50 basis points in interest rates (euro or US dollar) would result in an increase or decrease of €8 million in the cost of net financial debt. A relative fluctuation of 50 basis points in interest rates (euro or US dollar) would generate a shareholder equity gain or loss of approximately €0.5 million as a result of changes in the fair value of the derivatives documented as cash flow hedges (swaps).

RISK CONTROL AND MITIGATION As part of its financial policy, Pernod Ricard seeks to limit interest rate risk by focusing on fixed-rate funding for a significant portion of its financial debt.

Credit risk  (1) 3.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Credit risk for the Group is dominated by the risk of financial loss stemming from a default (cash flow difficulties or liquidation) among customers indebted to a Group affiliate.

The non-recovery of a commercial receivable in the event of non-payment or liquidation of customers would have a negative impact on the Group’s financial statements.

RISK CONTROL AND MITIGATION The diversity and multiplicity of the Group’s distribution network, spread over many countries, and the diversification of the main customers from the large retail sector, limit its exposure. Moreover, internal procedures are in place to assess the financial health of the Group’s customers and adapt credit terms and activity as appropriate. Lastly, risk of this nature is limited by the subscription of credit insurance with the standard guarantees. The Group’s risk hedging policy is based on the partial transfer of risk to insurers.

(1) Note 4.9 to the consolidated financial statements.

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Pernod Ricard Universal Registration Document 2019-2020