Registration Document - Pernod Ricard

3 Risk
66
MANAGEMENT REPORT
factors
Liquidity risk
At 30 June 2009, cash and cash equivalents totalled €520 million. An
additional €1,532 billion of medium-term credit facilities with banks
were confirmed and remained undrawn at this date. Group funding is
provided in the form of long-term debt (syndicated loans, bonds, etc.)
and short-term financing (commercial paper, bank overdrafts, etc. ),
which provide adequate financial resources to ensure the continuity
of its business. N et short-term financial debt was €383 million.
While the Group has not identified any significant short-term cash
requirements other than those pertaining to its recurr ing operations,
it cannot be fully guaranteed that it will be able to continue to get
the funding and refinancing needed for its day-to-day operations
and investments under satisfactory conditions, given the prevailing
economic climate.
In addition, the Group’s bank and bond debt contracts include
covenants. Breaches of these covenants could force the Group to
make accelerated payments. As of 30 June 2009, the Group was in
compliance with the covenants (consolidated EBITDA/net financing
cost and total net debt/consolidated EBITDA) under the terms of its
syndicated loan .
Similarly , while the vast majority of the Group’s cash surplus is placed
with branches of global banks enjoying the highest agency ratings,
it cannot be ruled out that these Group investments may experience
reduced liquidity and severe volatility.
Market risks (currency
and interest rates)
Currency risk
As the Group consolidates its financial statements in euros, it is
exposed to fluctuations against the euro by the currencies in which
its assets and liabilities are denominated (asset risk) or in which
transactions are carried out (transaction risk and translation of
results).
While some hedging strategies allow exposure to be limited, there is
no absolute protection against exchange-rate fluctuations.
For asset risk, financing foreign-currency-denominated assets
acquired by the Group with debt in the same currency provides natural
hedging. This principle was applied for the acquisition of Seagram,
Allied Domecq and Vin&Sprit assets denominated in American dollars
and Japanese yen.
Fluctuations against the euro (particularly by the American dollar)
can have an impact on the nominal amount of debt and the amounts
of interest expense reported in financial statements audited in euros,
thereby deteriorating the Group’s results.
With respect to operational currency risk, its international operations
expose the Group to currency risks bearing on transactions carried
out by subsidiaries in a currency other than their operating currency.
In all cases, it is Group policy to invoice end customers in the
functional currency of the distributing entity. Exposure to exchange-
PERNOD RICARD
rate risk on invoicing between producer and distributor subsidiaries
is managed via a monthly payment centralisation procedure involving
most countries with freely convertible and transferable currencies
and whose internal legislation allows this participation. This system
hedges against net exposure using forward exchange contracts.
Residual risk is partially hedged using financial derivatives (forward
buying, forward selling or options) to hedge certain of highly probable
non-Group operating receivables and payables.
Interest-rate risk
When the syndicated loans for the acquisition of Seagram and Allied
Domecq assets were put in place, the Group exceeded the hedging
obligation required by the banks. The hedging portfolio includes
swaps and interest-rate options in addition to fixed-rate debt.
Additional information on the above risks is provided in Notes 18 –
Financial instruments and 19 – Currency and interest rate derivatives
in the notes to the consolidated financial statements.
Insurance and risk coverage
For Pernod Ricard, use of insurance is a solution for the financial
transfer of the major risks facing the Group. This transfer is
accompanied by a policy of prevention for the purpose of reducing
contingencies as far as possible. The Group evaluates its risks with
care in order to best adjust the level of coverage of the risks it incurs.
The Group has two types of cover: Group insurance programmes
and local policies. The programmes at Group level are monitored
by an insurance manager who coordinates the insurance and risk
management policy, and also by a person in charge of monitoring
industrial risk prevention.
Insurance policies
In order to cover the main risks, Pernod Ricard has set up international
insurance programmes for all Group subsidiaries, barring exceptions
due to local regulatory constraints in certain countries or as a result
of more attractive conditions offered by the local market. These
programmes provide the following cover:
◆ property damage and business interruption losses;
◆
operating and product liability;
◆ costs and losses incurred by the Group due to accidental and/or
criminal contamination;
◆ Directors’
civil liability;
◆ damage during transport (and storage);
◆
credit insurance for trade receivables;
◆ fraud.
A number of subsidiaries have taken out additional insurance for
specific needs ( e.g. insurance for vineyards in Australia and Spain,
insurance for vehicle fleets, etc.).
I REFERENCE DOCUMENT 2008/2009 I