Press releases

 

- Marked improvement in Net Debt⁽¹⁾ / EBITDA ratio (on average forex rates): 4.9⁽²⁾ at 30 June 2010 vs 5.4⁽²⁾ at 30 June 2009

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The Pernod Ricard Board of Directors’ meeting of 1 September 2010, chaired by Patrick Ricard, approved the financial statements for the 2009/10 financial year ended 30 June 2010.

 

Pernod Ricard achieved a good performance over the 2009/10 financial year, including:

- Renewed sales growth⁽³⁾, following a stable 2008/09 financial year⁽³⁾

- Satisfactory growth in earnings, with advertising and promotion expenditure concurrently increased to support strategic brands

- Significant debt reduction of € 1,090 million, excluding translation adjustment.

 

Within a contrasting economic environment, which nonetheless improved overall in the second half-year and with:

- Strong growth in most new economies

- Very gradual recovery of consumer spending in the US against a continuing uncertain backdrop

- A contrasting situation in Europe, with some signs of a recovery but also the impact of austerity measures

- High foreign exchange volatility (especially EUR/USD rate) and historically low interest rate levels for EUR and USD 


Sales

Full-year sales totalled € 7,081 million (excluding tax and duties), a moderate decline of 2% that resulted from:

● organic growth of 2%, including a significant 9% upturn in the second half-year,

● a foreign exchange effect limited to a negative € 50 million, or -1% over the full financial year, compared to a negative effect of € 184 million at the end of the first half-year,

● and a 3% negative group structure effect, primarily relating to the disposal of Wild Turkey, Tia Maria and Bisquit and the impact of the termination of Stolichnaya distribution.

 

The Top 14 brands (55% of Group sales), grew by 2% in volume and 4% in value⁽³⁾. Two of them reported double-digit growth⁽³⁾, Martell (+12%) and Jameson (+12%) and seven other continued to grow⁽³⁾,in particular: The Glenlivet (+7%), Absolut (+6%), Chivas (+5%) and Havana Club (+5%). Conversely, Mumm (-7%) reported a decline⁽³⁾, due to the French champagne market, which proved especially difficult in the on-trade.

As for our priority premium wine brands, the decline in Jacob’s Creek sales (down 5%⁽³⁾) reflected our premiumisation strategy for the brand.

The 18 key local spirits brands grew as a whole by 4% in value⁽³⁾, featuring in particular continuing very strong growth by local whisky brands in India (Royal Stag up 30% and Blender’s Pride up 22%), as well as renewed growth by premium Scotch whisky Imperial in South Korea (+12%).

Premium brands ⁽⁴⁾ represented 69% of Group sales over the 2009/10 financial year, an increase of one point compared to 2008/09.

 

Over the 4^th quarter 2009/10, consolidated sales amounted to € 1,755 million, an increase of 7%, reflecting organic growth of 3%, a positive foreign exchange effect of 6% and a 2% negative group structure effect. The trends observed since the start of the 2010 calendar year were confirmed in the 4^th quarter, including strong growth in emerging markets, a rebound in certain markets (Russia, South Korea and Duty Free), a gradual recovery in the US, as well as persisting difficulties in Western Europe, especially in Spain, the UK, Ireland and more recently in Greece. Group sales for this quarter were also affected by shipments brought forward in the 3^rd quarter due to earlier Easter celebrations in 2010 than in 2009 and sales achieved ahead of price or excise duty increases.

 

 

Gross margin (after logistics costs) increased by 4%⁽³⁾ to € 4,218 million, which was twice the pace of sales growth. The gross margin to sales ratio improved significantly to 59.6% in 2009/10, compared to 58.4% over the previous year (up 115bps), mainly due to a favourable mix effect, price increases (averaging 1.8% on Top 14) and stable cost of goods sold.

 

Advertising and promotion expenditure was up 5%⁽³⁾to € 1,262 million. As announced, Pernod Ricard significantly increased investment to support its brands, as reflected in the advertising and promotion expenditure to sales ratio of 17.8%, compared to 17.2% in 2008/09 and 17.9% before the crisis in 2007/08. The Top 14 attracted 3/4 of expenditure and benefited from an advertising and promotion expenditure to sales ratio of 24% over 2009/10. The mix of the advertising and promotion expenditure also improved in 2009/10, with an 11% increase in media⁽³⁾.

 

Overall, the contribution after advertising and promotion expenditure rose by 4%⁽³⁾to € 2,956 million and represented 41.7% of sales, an increase of 50 bps compared to the previous financial year.

 

 

 

Structure costs recorded an increase of 3%⁽³⁾ to € 1,160 million. Excluding other income and expenses, the increase in structure costs was limited to 1%⁽³⁾, which testifies to the Group’s cost control efforts. In addition, the distribution network was strengthened in high potential emerging countries. Overall, the structure costs / sales ratio was 16.4% over the 2009/10 financial year.

 

 

Profit from recurring operations rose by 4%⁽³⁾ to € 1,795 million. The operating margin was 25.4% of sales, compared to 25.6% over the previous financial year.

 

- Outstanding 14% organic growth in Asia/Rest of World, notably resulting from dynamic sales ofMartell in China and local brands in India, the sales upturn in South Korea and the Duty Free markets and strong growth in Africa and the Middle East.

- Slight growth (+1%⁽³⁾) in the Americasregion, with sales stable overall in the US but showing a marked improvement in the second half-year. Latin America reported satisfactory growth due to Chivas, Absolut and Something Special. However, the Americas region was strongly penalised by the foreign exchange effect, especially on the Venezuelan Bolívar. 

- Europe excluding France was the region most affected by the crisis, posting a 3%⁽³⁾ decline in profit from recurring operations. The situation remained difficult in Western Europe (Spain and the UK) even though a number of countries achieved growth, such as Germany and Sweden, and Duty Free markets noted a recovery. In Eastern Europe, Russia and Ukraine reported a strong upturn in the second half-year but the situation was more difficult for local vodka brands in Poland.

- Satisfactory 7%⁽³⁾ growth inFrance, due to strong increase by Absolut and Havana Club and the good performance of Ricard and whiskies (Chivas, Ballantine’s, Jameson and Clan Campbell). The increase in the proportion of high gross margin brands and controlled structure costs generated a significant increase in PRO and PRO as a percentage of sales.

 

Over the full 2009/10 financial year, foreign exchange had a negative effect of € 58 million on profit from recurring operations. It was solely attributable to the devaluation of the Venezuelan Bolivar.

The € 63 million negative group structure effect on the 2009/10 profit from recurring operations was primarily due to the disposal of Wild Turkey and Tia Maria.

 

 

Net financial expenses from recurring operationstotalled € 497 million: € 446 million in debt-related financial interest, plus € 11 million in finance restructuring charges and € 40 million in other financial expenses, primarily related to pension commitments.

 

Income tax on items from recurring operations was an expense of € 271 million, a rate of 20.9% in line with our forecasts. Lastly, minority interests and other had a € 26 million negative effect.

 

In total, the Group’s share of net profit from recurring operations totalled € 1,001 million, a slight decline of 1% compared to the 2008/09 financial year. It grew by 7% on constant foreign exchange rates.

 

 

Other operating income and expenses from non-recurring operations was a net € 88 million expense, including a € 16 million net capital loss on disposals (primarily related to the sale of Tia Maria and certain Scandinavian and Spanish assets), € 116 million in intangible asset writedowns (more specifically relating to the Kahlua brand for € 100 million), restructuring costs for € 44 million as well as other non-recurring income and expenses that amounted to an € 88 million net income. Net non-recurring financial expenses came to € 10 million. Lastly, tax on non-recurring items was an income of € 48 million, primarily due to the deduction of non-recurring expenses and the favourable impact of foreign exchange movements (deductible exchange losses).

 

Consequently, net profit – Group share totalled € 951 million, a 1% increase on the 2008/09 financial year.

Net debt at 30 June 2010 amounted to € 10,584 million, which was a face value decline limited to € 304 million due to highly unfavourable foreign exchange movements (EUR/USD rate of 1.23 at 30 June 2010 vs 1.41 at 30 June 2009).

Excluding foreign exchange movements, the 2009/10 reduction in debt was very substantial (down € 1,090 million), with:

- Strong Free Cash Flow generation of € 1,110 million

- Non-recurring cash optimising items:

- disposals (Tia Maria, Scandinavian assets, etc.) for about € 200 million

- cash dividend limited to € 0.50 / share in respect of the 2008/09 financial year

 

The change in the Net Debt / EBITDA ratio also shows that the 2009/10 financial year was a further significant stage in the reduction of Group debt. This ratio, calculated by converting non euro-denominated debt at average rates for the financial year (in particular the EUR/USD rate at 1.39), decreased from 5.4 at 30 June 2009 to 4.9 at 30 June 2010.

The average cost of borrowing came to 4.3% over the full 2009/10 financial year, which was a marked improvement compared to the 4.8% noted over the previous financial year. Based on current interest rates, our 2010/11 target is to maintain the average cost of borrowing below 5%.

 

It should be noted that the Group successfully carried out a € 1.2 billion bond issue in March 2010.

 

 

A dividend of € 1.34 / share in respect of the 2009/10 financial year will be submitted for approval to the Annual General Meeting of 10 November 2010. Considering the 0.61 € / share interim dividend paid on July 7th 2010, this means a final dividend of 0.73 € / share.

 

 

As announced, this dividend signals a return to the usual policy of distributing about 1/3 of net profit in cash.


Conclusion and outlook

Pernod Ricard has demonstrated its capacity to withstand the crisis and to keep growing in new economies, while remaining true to its premiumisation strategy and giving priority to       long-term investments, through:

- Growth in profit from recurring operations in excess of initial guidance and significant debt reduction

- Strong growth in organic sales (+8%*) in new economies markets

- Substantial increase in gross margin due to Top 14, with virtually all key brands benefiting from a favourable price / mix effect

- Increase in A&P expenditure to support strategic brands

 

According to Pierre Pringuet, Chief Executive Officer of the Group: “Our performance over the 2009/10 financial year was a strong and sound one. Our priorities for the 2010/11 financial year remain the development of our premium strategic brands, a continuing strong marketing investment  level, and the reduction in Group debt.”

 

Pernod Ricard, in line with its practice, will communicate its earnings guidance for the current year at the Annual General Meeting to be held on 10 November next.

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