PERNOD RICARD - 2018-2019 Universal registration document

4.

RISK MANAGEMENT Risk factors

Supply disruption 7.

Risk identification and description

Potential impacts on the Group

Some raw materials that the Group uses for the manufacture of its products are commodities that are subject to price volatility caused by changes in global supply and demand, weather conditions, agricultural uncertainty and governmental controls. The industry has also witnessed a trend towards the consolidation of raw material and packaging suppliers. Today, many of our affiliates work with the same suppliers, which has the effect of creating risk-charged interdependence should one of them fail to fulfil its obligations (e.g. following a major accident at one of its production sites or production quality issues).

An unexpected rise in the cost of raw materials or packaging materials could significantly increase its operating costs. The Group may not be able to increase its prices to offset these increased costs without suffering reduced volume, sales and operating profit, which could negatively impact the Group’s results. Another impact could stem from a break in the supply chain of certain rawmaterials or packaging, halting the production of some of our products.

Risk control andmitigation Controlling the risk of a break in the supply chain is part of the Group’s purchasing policy, with a commitment to selecting quality suppliers applying responsible environmental, social and ethical practices, through the so-called “Blue Source” process. The Group also recommends that its affiliates systematically identify alternative sourcing possibilities to cover cases of single sourcing risk. This is a critical scenario taken into account in the business continuity plans of our strategic brands.

Talent management 1 8.

Risk identification and description

Potential impacts on the Group

Pernod Ricard’s success depends on the commitment of its employees and its ability to attract and retain them as well as develop their skills, particularly in highly-competitive labour markets, such as Asia, Africa and Eastern Europe, where turnover rates are higher than in the rest of the world. This context of tension in the talent market is heightened by the search for scarce skills (e.g. digital jobs), and by changes in the aspirations of new generations. Moreover, employee development through geographic mobility is a key issue (diversity of career paths, management of the partner’s career, cost control, etc.).

The Group is aware that talent management must remain an area of long-term vigilance to ensure the sustainability of the business and ensure the transmission of key know-how within the organisation. Excessively high turnover or unduly long job vacancies could have a financial impact and demotivate existing teams. This could potentially slow the implementation of key Group development projects and have an adverse impact on its business, results or reputation.

Risk control andmitigation To mitigate risk, the Group has established an ambitious skills development policy facilitating dynamic career management; as such, shared processes and tools have been developed to allow all affiliates to optimise the assessment of skills and performance, to formalise the detection of potential, to encourage internal mobility and to monitor employee satisfaction. Moreover, Pernod Ricard University trains the Group’s future leaders through leadership development courses. Lastly, measures are carried out regularly to improve quality of life at work. They include the facilitation of telework, measures related to well-being at work, the modernisation of work spaces and managerial awareness-raising programmes.

Note that this risk is also covered in Section 3.3.2.1 of the Extra-Financial Reporting. 1

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PERNOD RICARD UNIVERSAL REGISTRATIONDOCUMENT