PERNOD RICARD - 2018-2019 Universal registration document

4.

RISK MANAGEMENT Risk factors

Financial risks IV. Foreign exchange risk 1 1.

Risk identification and description

Potential impacts on the Group

Due to its international footprint, the Group is naturally exposed to fluctuations in foreign currencies (excluding the euro, its functional and reporting currency) in which its operations are carried out (transaction and translation risks) and in which its assets and liabilities are denominated.

Fluctuations of this nature may therefore have an impact on Pernod Ricard’s results and shareholders’ equity. They include: conversion risk for the financial statements of consolidated — affiliates with a functional currency other than the euro; and operational risks on operating cash flows not denominated in the — entities’ functional currency. Moreover, fluctuations in currencies against the euro (notably the US dollar) may impact the nominal amount of these debts and the financial expense reported in euros in the consolidated financial statements, and this could affect the Group’s reported results.

Risk control andmitigation In all cases, it is Group policy to invoice end customers in the functional currency of the distributing entity. The resulting net foreign exchange exposures are hedged by the use of forward transactions. Residual risk may be partially hedged by the use of financial derivatives (forward purchases, forward sales or options) intended to hedge highly probable receivables or payables or to secure the receipt of dividends. For asset risk, financing foreign currency-denominated assets acquired by the Group with debt in the same currency provides natural hedging.

Interest rate risk 1 2.

Risk identification and description

Potential impacts on the Group

Pernod Ricard is exposed to changes in interest rates on its financial liabilities and its liquid assets; such changes may have a positive or negative effect on its financial expense. At 30 June 2019, the Group’s debt consisted of floating-rate debt (9%) and fixed-rate debt (91%), to which should be added a hedging portfolio intended to limit the negative effects of interest rate fluctuations.

The Group is naturally affected by changes in interest rates in its functional currency and, more marginally, by changes in the interest rates of other currencies contributing to its consolidated Net debt. A rise or fall of 50 basis points in interest rates (EUR and USD) would result in an increase or decrease of €8 million in the cost of net financial debt. A relative fluctuation of +/-50 basis point in interest rates (USD and EUR) would generate an equity gain or loss of approximately €1.4 million as a result of changes in the fair value of the derivatives documented as cash flow hedges (swaps).

Risk control andmitigation As part of its financial policy, Pernod Ricard seeks to limit interest rate risk by focusing on fixed-rate funding for a significant portion of its financial debt.

Note 4.9 to the consolidated financial statements. 1

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PERNOD RICARD UNIVERSAL REGISTRATIONDOCUMENT