PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Pension funds  (1) 4.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

The Group’s unfunded pension obligations amounted to €605 million as of 30 June 2020. During FY20, the Group’s contributions to pension plans totalled €53 million. The Group’s pension obligations are for the most part covered by balance sheet provisions and partially covered by pension funds or insurance. The amount of these provisions is based on certain actuarial assumptions, including, for example, discounting factors, demographic trends, pension trends, future salary trends and expected returns on plan assets.

The asset/liability balance is subject to, among other factors, the performance of invested assets. A liquidity crisis or major financial shock could significantly undermine the performance of financial assets and jeopardise the asset/liability balance. A pronounced asset/liability imbalance may require an increase in the Group’s pension liabilities recognised in the balance sheet and result in an increase in the allowance for retirement provisions. This could have a significant negative impact on the Group’s financial results.

RISK CONTROL AND MITIGATION Specific governance and a management policy have been implemented and are regularly reviewed in line with the risk profile of the Group’s various pension plans. The investment strategy is subject to frequent review in order to minimise the volatility of assets. The buy-in transaction achieved for the largest Pension Fund of the Group in September 2019 is a concrete example of the active derisking strategy. The Fund’s Trustee has purchased an insurance policy from a highly-rated and well established insurance company to cover the majority of the pensions obligations. The insurance policy therefore reduces the Group’s exposure on that Fund to funding deficits arising from market risks, including inflation and interest rate risks, and longevity risks. In addition, defined benefit plans (mainly affiliates in North America, the United Kingdom and the rest of Europe) are subject to an annual actuarial valuation on the basis of country-specific assumptions.

(1) Note 4.7 to the consolidated financial statements.

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Pernod Ricard Universal Registration Document 2019-2020