PERNOD RICARD - Universal Registration Document 2019-2020

6. CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements

Weighted average cost of debt The Group’s weighted average cost of debt was 3.6% over FY20 compared to 3.9% over FY19. This weighted average cost for FY20 includes the cost of lease liabilities recognised under IFRS 16. Given that the impacts of this standard are relatively minor, as described in Note 1.1.2.1, its implementation has no significant impact on the Group’s weighted average cost of debt. Weighted average cost of debt is defined as net financing costs plus structuring and placement fees as a proportion of average net financial debt outstanding plus the average amount outstanding on factoring and securitisation programmes.

At 30 June 2020, the net cost of financial debt included financial expenses of €273 million on bonds, €5 million on interest rate hedges, €11 million on factoring and securitisation agreements, €14 million on interest on lease liabilities, and €16 million in other expenses. Other financial income and expenses were mainly due to the $500 million bond repurchase, for €19 million, and negative foreign exchange impacts during the period, also for €19 million.

Corporate income tax Note 3.3 Analysis of income tax expense

30.06.2019

30.06.2020

€ million

Current income tax

(483)

(364)

Deferred income tax

(99)

106

TOTAL

(582)

(258)

Analysis of effective tax rate – Net profit from continuing operations before tax

30.06.2019

30.06.2020

€ million

Operating profit

2,375

978

Financial income/(expense)

(310)

(366)

Taxable profit

2,064

611

Theoretical tax charge at the effective income tax rate in France  (1)

(711)

(210)

Impact of tax rate differences by jurisdiction

228

111

Tax impact of variations in exchange rates

(1)

0

Re-estimation of deferred tax assets linked to tax rate changes

(9)

(77)

Impact of tax losses used/not used

1

(6)

Impact of reduced/increased tax rates on taxable results

0

0

Taxes on distributions

(47)

(25)

Other impacts

(44)

(52)

EFFECTIVE TAX CHARGE

(582)

(258)

EFFECTIVE TAX RATE

28%

42%

At the standard rate of 34.43%. (1)

The increase in the effective tax rate is mainly due to the revaluation of deferred taxes following rate changes in the United Kingdom and India.

Deferred tax is recognised on time differences between the tax and book values of assets and liabilities in the consolidated balance sheet and is measured using the balance sheet approach. Deferred taxes relating to right-of-use assets and lease liabilities are recognised on a net basis. The effects of changes in tax rates are recognised in shareholders’ equity or in profit and loss in the year in which the change of tax rates is decided. Deferred tax assets are recognised in the balance sheet when it is more likely than not that they will be recovered in future years. Deferred tax assets and liabilities are not discounted to present value. In order to evaluate the Group’s ability to recover these assets, particular account is taken of forecasts of future taxable profits.

Deferred tax assets relating to tax loss carryforwards are only reported when they are likely to be recovered, based on projections of taxable income calculated by the Group at the end of each financial year. All assumptions used, including, in particular, growth in operating profit and financial income (expenses), taking into account interest rates, are reviewed by the Group at the end of the financial year based on data determined by the relevant senior management.

179

Pernod Ricard Universal Registration Document 2019-2020