Nature and scale of the risks arising from financial instruments

The Group’s main financial instruments include current accounts, short-term deposits, short and long-term bank loans, finance leases and bonds. The purpose of these is to finance the Group’s operating activities. In addition, the Group has trade receivables and payables resulting from its operations. The main financial risks, to which the Group is exposed, are market (currency and interest rate risk), credit and liquidity risk. These risks are described below, together with an explanation of how they are managed.

To cover these risks, the Group makes use of derivatives, primarily interest rate swaps, cross currency swaps and forward contracts, to hedge interest rate and exchange rate risks.

Credit risk

With regard to trade transactions, the Group works with medium-sized and large customers (mass retailers, domestic and international distributors) on which credit checks are performed in advance. Each company carried out an assessment and control procedure for its customer portfolio, partly by constantly monitoring amounts received. In the event of excessive or repeated delays, supplies are suspended.

As a result, historical losses on receivables represent a very low percentage of revenues and annual outstanding receivables and do not require special coverage and/or insurance. The maximum risk at the reporting date is equivalent to the carrying amount of trade receivables. Financial transactions are carried out, with leading domestic and international institutions, whose ratings are monitored in order to minimize counterparty insolvency risk. The maximum risk at the reporting date is equivalent to the carrying amount of these assets.

Liquidity risk

The Group's ability to generate substantial cash flow through its operations allows it to reduce liquidity risk to a minimum. This risk is defined as the difficulty of raising funds to cover the payment of the Group’s financial obligations. The table below summarizes financial liabilities at 31 December 2015 by maturity based on the contractual repayment obligations, including non-discounted interest.

For details of trade payables and other liabilities, see note 41 - ‘Trade payables and other current liabilities’.

31 December 2015 On demand Within 1 year Due in 1 to 2 years Due in 3 to 5 years Due after 5 years Total

_{€ million € million € million € million € million € million}

Payables and loans due to banks 29.3 1.6 1.6 0.4 32.8

Bonds 411.8 43.0 222.5 1,051.0 1,728.3

Derivatives on bond issues 2.8 2.8 13.1 0.0 18.7

Private placement 103.4 8.1 8.1 105.1 224.6

Property leases 0.1 0.1 0.1 2.0 2.2

Other financial payables 0.5 0.5

Total financial liabilities 547.8 55.5 245.3 1,158.4 2,007.1

31 December 2014 On demand Within 1 year Due in 1 to 2 years Due in 3 to 5 years Due after 5 years Total

€ million € million € million € million € million € million

Payables and loans due to banks 36.7 6.9 2.1 - 45.7

Bonds 128.6 394.4 25.6 604.5 1,153.2

Liabilities for derivatives

on bond issues (1.1) 1.8 1.8 (6.3) (3.8)

Private placement 13.4 92.7 7.2 101.5 214.8

Property leases 0.1 0.1 0.1 1.1 1.3

Other financial payables 8.2 - - - 8.2

consolidated financial statements The Group’s financial payables, with the exception of non-current payables with a fixed maturity, consisted of short-term bank debt. Thanks to its liquidity and close management of cash flow from operations, the Group has sufficient resources to meet its financial commitments at maturity. Additionally, there are unused credit lines that can cover any liquidity requirements.

Market risks

Interest rate risk

The Group is exposed to the risk of fluctuating interest rates with respect to its financial assets, short-term payables to banks and long-term lease agreements.

Among the long-term financial liabilities, fixed rates apply to certain loans obtained by Sella & Mosca S.p.A.. The Campari America private placement also pays interest at a fixed rate. The Parent Company’s bond, issued in 2003, originally had a fixed interest rate in US dollars, but this became a variable rate in euro through a derivatives contract; a portion of the debt was subsequently transferred to a fixed rate in euro through an interest rate swap. The Parent Company's 2009, 2012 and 2015 bond issues pay interest at a fixed rate. It should be noted that, at 31 December 2015, around 95% of the Group’s total financial debt was fixed-rate debt.

Sensitivity analysis

The following table shows the effects on the Group’s income statement of a possible change in interest rates, if all other variables are constant. A negative value in the table indicates a potential net reduction in profit and equity, while a positive value indicates a potential net increase in these items. The assumptions used, in terms of a potential change in rates, are based on an analysis of the trend at the reporting date.

The table illustrates the full-year effects on the income statement in the event of a change in rates, calculated for the Group’s variable-rate financial assets and liabilities. With regard to the fixed-rate financial liabilities hedged by interest rate swaps, the change in the hedging instrument offsets the change in the underlying liability, with practically no effect on the income statement.

Net of tax, the effects are as follows:

Increase/decrease Income statement

in interest rates in basis points Increase in interest rates Decrease in interest rates

31 December 2015 +/- 5 basis points € million € million

Euro (0.3) 0.3

Dollar 0.3 (0.1)

Other currencies 1.1 (1.3)

Total effect 1.2 (1.1)

31 December 2014 +/- 5 basis points

Euro (0.3) 0.3

Other currencies 0.5 (0.5)

Total effect 0.2 (0.2)

Exchange rate risk

The expansion of the Group’s international business has resulted in increased sales in markets outside of the Eurozone, which accounted for 56.2% of the Group’s net sales in 2015. However, the establishment of Group entities in countries such as the United States, Brazil, Australia, Argentina, Russia and Switzerland allowed this risk to be partly hedged, given that both costs and income were denominated in the same currency. Moreover, in the case of the US, some of the cash flows from operations have been used to redeem the US dollar-denominated private placement taken out locally, to cover the acquisitions of certain companies. Therefore, exposure to foreign exchange transactions generated by sales and purchases, in currencies other than the Group’s functional currencies, represented an insignificant proportion of consolidated sales in 2015. For these transactions, Group policy is to mitigate the risk by using forward sales or purchases. In addition, the Parent Company issued a bond in US currency, where the exchange rate risk has been hedged by a cross currency swap.

Sensitivity analysis

An analysis was performed on the economic effects of a possible change in the exchange rates against the euro, keeping all the other variables constant. This analysis does not include the effect on the consolidated financial statements, of the conversion of the financial statements of subsidiaries denominated in a foreign currency following a possible change in exchange rates. The assumptions adopted in terms of a potential change in rates are based on an analysis of forecasts provided by financial information agencies at the reporting date.

The types of transactions included in this analysis were as follows: the Parent Company’s bond issue, denominated in US dollars, and sales and purchase transactions in a currency other than the Group’s functional currency. The Parent Company’s bond issue was hedged by cross currency swaps, while the other transactions were hedged by forward contracts; in both cases, therefore, a change in exchange rates would entail a corresponding change in the fair value of the hedging transaction and hedged item, but this would have no effect on the income statement. The effects on shareholders’ equity are determined by changes in fair value of the Parent Company’s interest rate swap and forward contracts on future transactions, which are used as cash flow hedges. The results of this analysis showed that the effects would not be significant.

48.

Commitments and risks

The main commitments and risks of the Campari Group on the closing date of the accounts are shown below.

Non-cancellable operating leases

The following table shows the amounts owed by the Group, broken down by maturity, in future periods for leases on property.

Minimum future payments under operating leases 31 December 2015 31 December 2014

€ million € million

Within 1 year 8.8 7.8

1-5 years 17.4 17.9

After 5 years 7.6 11.1

Total 33.7 36.8

The amount reported in the table relates to leases on cars, computers and other electronic equipment; rental fees for buildings and offices are included.

Non-cancellable financing leases

The table below shows the commitments relating to the finance leasing contract entered into for the Finale Emilia production facility, and the commitment to purchase vehicles. The contract stipulates future minimum payments, as set out in the table, which also show the relationship between the payments and their present value.

31 December 2015 31 December 2014 Minimum future payments Present value of future payments Minimum future payments Present value of future payments

€ million € million € million € million

Within 1 year 0.4 0.2 0.2 0.1

1-5 years 1.6 1.1 0.8 0.4

After 5 years 1.1 0.9 1.1 0.9

Total minimum payments 3.0 2.2 2.0 1.4

Financial charges (0.8) (0.6)

Present value of minimum future payments 2.2 2.2 1.4 1.4

Existing contractual commitments for the purchase of goods or services

These commitments total € 145.3 million, of which an amount of € 114.3 million matures by the end of the year. Commitments mainly relate to the purchase of raw materials, semi-finished goods and merchandise (€ 95.7 million), the purchase of A&P and sponsorship services (€ 17.5 million), and the purchase of packaging and pallets (€ 24.9 million).

consolidated financial statements

Existing contractual commitments for the purchase of property, plant and equipment, and intangible assets.

These commitments total € 15.5 million, of which an amount of € 14.9 million will mature by the end of the year. The commitments mainly relate to the purchase of tangible assets (€ 12.7 million) and intangible assets (€ 2.8 million).

Restrictions on the title and ownership of property, plant and equipment pledged to secure liabilities

The Group has several existing loans, with a residual balance of € 5.1 million, secured by mortgages on land and buildings and liens on machinery and equipment for an amount of € 7.9 million.

Other guarantees

The Group has issued other forms of security in favor of third parties such as customs bonds for excise taxes totaling € 66.6 million, and € 7.4 million for the promotion of wines at 31 December 2015.