PERNOD RICARD - Universal Registration Document 2019-2020

6. CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements

Accounting principles and significant events NOTE 1 Accounting policies Note 1.1 Principles and accounting standards governing 1. the preparation of the annual consolidated financial statements

Impact of the first-time application of IFRS 16 2.1 and IFRIC 23 IFRS 16 (Leases) 2.1.1

In January 2016, the IASB (International Accounting Standards Board) published a new standard for the recognition of leases. This mandatory new standard replaces IAS 17 and the associated IFRIC and SIC interpretations. It removes the distinction previously made between finance leases and operating leases by requiring all lease commitments to be recorded in the balance sheet. The Group has therefore reviewed all its leases. Accounting principles amended following the application of IFRS 16 are presented in Note 4.8 – Financial liabilities . The Group also analysed the decision by the IFRS Interpretation Committee in November 2019 with regard to the determination of the enforceable period of contracts and the depreciation period for fixtures and fittings and installations inseparable from the leased property. This decision has no material impact on the Group's consolidated financial statements and the judgements made in determining the term of the leases. The Group has applied the simplified retrospective transition method to 1 July 2019. The choice of this transition method means that comparative information from prior periods has not been restated. The standard introduces various simplification measures. In particular, the Group has chosen exemptions from recognition to exclude leases with a term of less than 12 months (including residual period at the transition date) and leases relating to assets with a low replacement value. The value of leases classified as finance leases under IAS 17 remains unchanged. Variable leases or the provision of lease-related services are not taken into account when determining the amount of the right-of-use asset and lease liability and are recognised as expenses when they are incurred. In addition, the value of the right-of-use asset is deemed to be equal to the amount of the liability, adjusted for prepaid rents, initial direct costs, benefits received from lessors and, where applicable, remediation costs. Lease liabilities have been measured at the present value of the lease payments outstanding. The discount rates applied at the transition date are based on the Group’s borrowing rate plus a spread to take into account country-specific economic environments. The discount rates were determined taking into account the term of each lease. The weighted average incremental borrowing rate applied to lease liabilities at 1 July 2019 is 3.94%.

Because of its listing in a country of the European Union, and in accordance with EC Regulation 1606/02, the Group’s consolidated financial statements for the financial year ended 30 June 2020 have been prepared in accordance with IFRS (International Financial Reporting Standards) as adopted by the European Union. The accounting principles used to prepare the consolidated financial statements to 30 June 2020 are consistent with those used for the consolidated financial statements to 30 June 2019, with the exception of standards and interpretations adopted by the European Union applicable to the Group from 1 July 2019 (see Note 1.1.2 – Changes in accounting standards ). The Group does not adopt early application of standards or interpretations. The Group’s financial year runs from 1 July to 30 June. Changes in accounting standards 2. Standards, amendments and interpretations for which implementation is mandatory for financial years commencing from 1 July 2019 The standards, amendments and interpretations applicable to Pernod Ricard with effect from 1 July 2019, are as follows: IFRS 16 "Leases"; — IFRIC 23 “Uncertainty over Income Tax Treatments”; — amendments to IFRS 9 "Prepayment features with negative — compensation"; amendments to IAS 19 "Employee Benefits: Plan Amendment, — Curtailment or Settlement"; amendments to IAS 28 "Investments in associates and joint ventures"; — the IFRS improvements cycle 2015/17. — Other than IFRS 16 and IFRIC 23, whose impacts are described in Notes 1.1.2.1.1 and 1.1.2.1.2 below, these amendments and interpretations have no impact on the Group’s financial statements.

The reconciliation between the commitments relating to operating leases, disclosed in Note 6.3 to the consolidated financial statements at 30 June 2019, and the lease liability recognised at 1 July 2019 under the first-time application of IFRS 16, is as follows:

€ million Operating lease commitments at 30 June 2019

555

Leases exempt from recognition under IFRS 16

(4)

Leases with a commencement date after 1 July 2019

(201)

Finance leases previously recognised under IAS 17

28

Other items

13

Undiscounted lease liabilities at 1 July 2019

391

Discounting effect

52

Lease liabilities recognised at 1 July 2019

339

At 30 June 2020, following the application of IFRS 16, the Group’s balance sheet includes lease liabilities totalling €522 million and right-of-use assets totalling €448 million.

171

Pernod Ricard Universal Registration Document 2019-2020