PERNOD RICARD - 2018-2019 Universal registration document

4.

RISK MANAGEMENT Risk factors

Major litigation 2.

Risk identification and description

Potential impacts on the Group

In common with other companies in the Wines & Spirits sector, the Group is occasionally subject to class action or other litigation and complaints from consumers or government authorities. In addition, the Group routinely faces litigation in the normal course of business. The Group records provisions for all disputes in which it is involved and all risks it faces. At 30 June 2019, these provisions totalled €524 million, compared with €548 million at 30 June 2018 (see Note 4.7 – Provisions to the consolidated financial statements).

Major litigation of any type could have an adverse impact on the Group’s financial position (in the event of a fine or damages), or the Group’s image and reputation due to media coverage and posts on social networks, and may result in the loss of rights (in the event of the cancellation of a trademark or termination of a sourcing contract).

Risk control andmitigation To avoid litigation, the Legal Department, in charge of the Group’s protection and defence, has implemented preventive measures. Marketing and operational teams are made aware of legal issues on an ongoing basis, model agreements are made available, and the legal teams provide support in the very early stages of projects. Legal functions have been established at the regional and local levels to ensure better local monitoring. Lastly, the legal teams send a monthly report to teams at Headquarters in charge of coordination.

Counterfeiting/IP rights 3.

Risk identification and description

Potential impacts on the Group

The Group’s brands are a fundamental element of its competitiveness. The unauthorised reproduction of the Group’s brands, their imitation or the use of signs liable to create confusion in the public mind with the Group’s brands, and the refilling of genuine bottles with fraudulent liquids are key concerns in a large number of markets, particularly in developing markets. Practices of this nature are liable to cause serious danger for consumers, including endangering their health.

Fraudulent use of the Group’s brands damages the Group’s image and reputation, and impacts its development prospects and results, as it could cause consumers to shun the Group’s products if their reliability is not guaranteed (in the case of refills) or if third parties deliberately create confusion with the Group’s brands (brand imitation). It also increases operating costs. While avenues for legal recourse are generally satisfactory, it may be difficult in some countries to obtain swift and dissuasive and sanctions against counterfeiters. For instance, the Group is currently in a dispute over the “Havana Club” brand (see Note 6.5 – Disputes in the notes to the consolidated financial statements).

Risk control andmitigation The protection and defence of the Group’s intellectual property rights is based on a triangular organisation established to maximise the desired efficiency while minimising costs. First component: at the end of 2014, the Group set up a centralised team (the “Group Intellectual Property Hub”) dedicated notably to protecting the brands. This team ensures the protection of rights and defends them against any attempt by third parties to file similar rights in order to avoid confusion among consumers and the undermining or dilution of the Group’s brands. Second component: the Brand Companies are in charge of proceedings brought against any counterfeit goods and/or imitations that may be present on the markets. Third component: a Brand Security team leads the fight against illicit trade in the Group’s products globally by coordinating all action taken against counterfeiting and other forms of trafficking. This action can take the form of investigations on the ground or on the Internet, legal action combined with initiatives to raise awareness of local authorities, and technical/technological measures taken to step up the protection of Group products. Examples of such measures include a programme built on the principle of the smart bottle, introduced in strategic markets such as China (where it is known locally as "The Code"), allowing consumers to check the authenticity of Martell, Chivas Regal and Absolut products themselves using a QR code integrated into the packaging of these products. The defence of intellectual property rights also involves operational staff, who are called on to identify imitations (products/brands) in the field and to pass all necessary information on to the aforementioned teams for action.

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2018-2019

PERNOD RICARD UNIVERSAL REGISTRATIONDOCUMENT