Published On 02/08/2018

FY18 Half-year Sales and Results

Very good H1 FY18
+5.1% Organic sales growth (+0.4% reported)
+5.7% Organic growth in pro (-0.3% reported)
+25% Net profit

Very strong free cash flow growth: +21%

Upgrade of FY18 guidance:
Organic growth in pro between +4% AND +6%

 

Sales
Sales for H1 FY18 totalled €5,082m
, with organic growth of +5.1% and reported growth of +0.4%, due to negative FX.

Performance accelerated, thanks to the the consistent implementation of the medium-term growth roadmap:
• Sustained and diversified growth, with all regions and categories performing well
• improving price / mix
• negative impact of later Chinese New Year4 offset by strong Martell demand (high-single digit volume target for full FY18)
• favourable basis of comparison in some geographies (as in Q1.)

All categories were dynamic, each growing +5%:
• Strategic International Brands continued their strong growth, driven in particular by Martell and Jameson
• Strategic Local Brands accelerated thanks to Seagram’s Indian whiskies, Olmeca/Altos and improving trend on Imperial (Korea)
• Strategic Wines accelerated due to Campo Viejo’s momentum
• “Other” improved significantly driven by fast-growing premium brands, in particular Monkey 47, Lillet and Avion.

In terms of geography, the acceleration was driven by Asia, in particular China (despite adverse Chinese New Year phasing), India and Travel Retail Asia
• Americas: continued dynamism +6%
• Asia-Rest of World: acceleration +7% vs. +3% in H1 FY17
• Europe: continued good performance +3%

Q2 Sales were €2,790m, with +4.6% organic growth (-0.8% reported), broadly consistent with underlying trends in Q1.

Results
H1 FY18 PRO1 was €1,496m, with organic growth of +5.7%
and -0.3% reported, due to USD weakness. For full-year FY18, the FX impact on PRO is estimated at c. -€180m3.

The organic PRO margin was up +21bps, driven by:
Gross margin ratio: +65bps (partly enhanced by phasing)
       • price impact improving
       • positive mix thanks in particular to Martell, Jameson and Chivas
       • tight management of Cost Of Goods Sold thanks to operational efficiency initiatives, but negative impact of agave cost and Goods & Services Tax in India
• A&P1: +7%
       • growth ahead of topline in H1 due to phasing and accelerated spend to internationalise Martell
• Structure costs ratio stable.

The H1 FY18 corporate income tax rate on recurring items was c.25% and this rate should carry through for full-year FY18. The USA tax reform is not expected to have a material impact on the corporate income tax rate in future.

Group share of Net PRO1 was €994m, +4% reported vs. H1 FY17, despite adverse FX, thanks to a reduction in financial expenses. At constant FX, growth was +10%.

Group share of Net profit was €1,147m, +25% reported vs. H1 FY17, due to a reduction in financial expenses and positive non-recurring items (including a one-off sale of bulk Scotch inventory, the reimbursement of the French 3% tax on FY13-17 dividends and a €55m one-off P&L positive net impact further to the reevaluation of deferred tax assets pursuant to the USA tax reform.)

IFRS 15 will be implemented from FY19, leading to the reclassification of certain A&P expenses in deduction of Sales and the integration of the activity of certain third-party bottlers in India into Sales and Cost of Goods Sold. The main proforma estimated impacts are:
• neutral on PRO but PRO margin up c. 70bps
• Sales reduced by c.3%
• Gross Margin down c. 170bps
• A&P / Sales ratio down c. 300bps to c.16%.

Free cash flow and debt
Free Cash Flow increased very strongly to €799m, +21% vs. H1 FY17, resulting in a Net debt decrease of €476m to €7,375m. The Net Debt/EBITDA ratio at average rates was down significantly to 2.9x at 31 December 2017.

The average cost of debt reduced to 3.4% vs. 4.0% in H1 FY17. The expected cost for full-year FY18 is c. 3.6%.

As part of this communication, Alexandre Ricard, Chairman and Chief Executive Officer, declared,
“H1 FY18 was a very good semester, with an acceleration vs. FY 17, in particular in China, India and Global Travel Retail. For full-year FY18, we will maintain our focus on digital, innovation and operational excellence (including pricing.) We expect sustained and diversified growth to continue across our regions and brands. We are therefore increasing our guidance for full-year FY18 organic growth in Profit from Recurring Operations to between +4% and +6%.”

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About Pernod Ricard

Pernod Ricard is the No.2 worldwide producer of wines and spirits with consolidated sales of €9,182 million in FY19. Created in 1975 by the merger of Ricard and Pernod, the Group has developed through organic growth and acquisitions: Seagram (2001), Allied Domecq (2005) and Vin&Sprit (2008). Pernod Ricard, which owns 16 of the Top 100 Spirits Brands, holds one of the most prestigious and comprehensive brand portfolios in the industry, including: Absolut Vodka, Ricard pastis, Ballantine’s, Chivas Regal, Royal Salute, and The Glenlivet Scotch whiskies, Jameson Irish whiskey, Martell cognac, Havana Club rum, Beefeater gin, Malibu liqueur, Mumm and Perrier-Jouët champagnes, as well Jacob’s Creek, Brancott Estate, Campo Viejo, and Kenwood wines. Pernod Ricard’s brands are distributed across 160+ markets and by its own salesforce in 73 markets. The Group’s decentralised organisation empowers its 19,000 employees to be true on-the-ground ambassadors of its vision of “Créateurs de Convivialité.” As reaffirmed by the Group’s three-year strategic plan, “Transform and Accelerate,” deployed in 2018, Pernod Ricard’s strategy focuses on investing in long-term, profitable growth for all stakeholders. The Group remains true to its three founding values: entrepreneurial spirit, mutual trust, and a strong sense of ethics. As illustrated by the 2030 roadmap supporting the United Nations Sustainable Development Goals (SDGs), “We bring good times from a good place.” In recognition of Pernod Ricard’s strong commitment to sustainable development and responsible consumption, it has received a Gold rating from Ecovadis and is ranked No. 1 in the beverage sector in Vigeo Eiris. Pernod Ricard is also a United Nation’s Global Compact LEAD company.
Pernod Ricard is listed on Euronext (Ticker: RI; ISIN Code: FR0000120693) and is part of the CAC 40 index.

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