Pernod Ricard: Gradual Improvement in Sales vs. 2013/14

Stable Profit from Recurring Operations in H1

2014/15 Guidance Confirmed:

Organic Growth in Profit from Recurring Operations between +1% and +3%

PARIS--()--Regulatory News:

Press release - Paris, 12 February 2015

Pernod Ricard (Paris:RI):

SALES

Sales for the first semester of 2014/15 totalled €4,621m. Organic Sales growth was +1% (+2% when restated for later Chinese New Year1). Reported H1 Sales growth was +1% with a modestly positive FX impact on H1 (likely to significantly improve in H2).

This gradual improvement was driven regionally by:

  • an improving trend in Asia-Rest of World (stable / +3% restated for CNY phasing vs. -4% in H1 2013/14), with a continued strong performance in India, Africa-Middle East and Travel Retail, and a gradual improvement of underlying trends in China vs FY 2013/14 (yet to be confirmed with upcoming CNY)
  • growth in the Americas: +2% (vs. +3% in H1 2013/14) with a good performance in Brazil and Travel Retail but a challenging business environment in the US
  • stable sales in Europe (vs. +4% in H1 2013/14), resulting from a slowdown in Eastern Europe (partly due to a technical impact in Poland), Germany and Travel Retail, but improving trend in Spain and UK.

In terms of categories, growth was driven by Whiskies (continued strong performance of Jameson, The Glenlivet, Ballantine’s and Indian whiskies) and also of champagnes Mumm and Perrier-Jouët, both in high single digit growth. Martell displayed an improving trend, with volumes up but Sales still declining due to unfavourable mix. Absolut was impacted by a challenging US market but grew outside the US.

The Top 14 returned to +2% volume growth driven by whiskies and champagnes, but Sales were flat (+2% restated for CNY phasing) due to broadly flat pricing in a more challenging and competitive global business environment and negative mix, largely driven by Martell (increasing weight of Noblige vs. Cordon Bleu/XO in China.)

Priority Premium Wines declined (-2%) due to Jacob’s Creek, despite the continued growth of Campo Viejo (strong momentum in UK).

The 18 Key Local Brands (+3%) reported strong volume growth +11% linked to the Indian whiskies, Passport and 100 Pipers, but unfavourable mix.

Q2 Organic Sales growth was -1% due to the negative impact of CNY phasing. Reported Q2 Sales were up +1%, due to a stronger USD, partly offset by weaker Rouble.

PROFIT

H1 Profit from Recurring Operations was flat at € 1,358 m (+2% restated for later CNY.) There was a small decline in Operating Margin (-22bps), driven by:

  • Gross margin decline (-106 bps) due to stable pricing and negative mix from both geography (India growth vs. China decline) and quality (mix of Martell) and exacerbated by technical reasons (CNY phasing and high comparative basis on Cordon Bleu in H1 2013/14)
  • slight reduction in A&P ratio to 17.7%, while increasing support for key innovation projects (Elyx, Tequila Avión)
  • favourable impact of structure cost reduction (-3%), driven by Allegro. Structure costs are expected in slight decline for the full FY 2014/15.

FX impact on reported profit from recurring operations was +€2m (+0%) in H1 but is expected to be +€140m2 for the full year 2014/15.

The cost of debt was stable at 4.6% in H1 and is still expected to be close to 4.5% for the full FY 2014/15.

The corporate income tax rate on recurring items slightly decreased in H1 2014/15 to 25.3%. The full year 2014/15 tax rate still expected to be near 26%.

Reported group share of net profit from recurring operations was up +1%.

Reported Group share of net profit was down -5%, due to the variation in non-recurring items.

FREE CASH FLOW AND DEBT

Reported Free Cash Flow from recurring operations improved (€492m, +38%) due to tight working capital management.

Non-recurring Free Cash Flow items were -€90m in H1, mainly relating to the Allegro cash-out.

Net debt increased by +€681m to €9,034m mainly driven by a mechanical FX impact (+€517m due to variation of €/$ parity between 30 June 2014 @1.37 and 31 December 2014 @ 1.21.)

As part of this communication, Alexandre Ricard, Chairman and Chief Executive Officer, declared, “Our H1 results are solid and in line with the guidance given in October. Our Sales are gradually improving despite an environment that remains challenging. Heartened by this encouraging first semester, we confirm our full year guidance of growth in Profit from Recurring Operations between +1% and +3%.

I am confident in the strength of our portfolio of premium brands and of our global network that support our three strategic growth pillars: premiumisation, expansion and innovation.”

A detailed presentation of sales and results for the first semester of 2014/15 can be downloaded from our website: www.pernod-ricard.com

Note: All growth data specified in this press release refers to organic growth (constant FX and Group structure), unless otherwise stated. Data may be subject to rounding.

About Pernod Ricard

Pernod Ricard is the world’s co-leader in wines and spirits with consolidated Sales of € 7,945 million in 2013/14. Created in 1975 by the merger of Ricard and Pernod, the Group has undergone sustained development, based on both organic growth and acquisitions: Seagram (2001), Allied Domecq (2005) and Vin&Sprit (2008). Pernod Ricard holds one of the most prestigious brand portfolios in the sector: 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, Kahlúa and Malibu liqueurs, Mumm and Perrier- Jouët champagnes, as well Jacob’s Creek, Brancott Estate, Campo Viejo, Graffigna and Kenwood wines. Pernod Ricard employs a workforce of approximately 18,000 people and operates through a decentralised organisation, with 6 “Brand Companies” and 80 “Market Companies” established in each key market. Pernod Ricard is strongly committed to a sustainable development policy and encourages responsible consumption. Pernod Ricard’s strategy and ambition are based on 3 key values that guide its expansion: entrepreneurial spirit, mutual trust and a strong sense of ethics.

Pernod Ricard is listed on Euronext (Ticker: RI; ISIN code: FR0000120693) and is part of the CAC 40 index.

1 3 week difference in timing of Chinese New Year (“CNY”): 19 February 2015 vs. 31 January 2014. Restatement of H1 shipments by 19 days of additional shipments
2 based on average FX rates for full FY 2014/15 projected on 9th February 2015, particularly EUR/USD = 1.21

Appendices

List of Emerging markets

Asia-Rest of World       Americas       Europe
Algeria       Malaysia Argentina Albania
Angola Mongolia Bolivia Armenia
Cambodia Morocco Brazil Azerbaijan
Cameroon Mozambique Caribbean Belarus
China Namibia Chile Bosnia
Congo Nigeria Colombia Bulgaria
Egypt Persian Gulf Costa Rica Croatia
Ethiopia Philippines Cuba Georgia
Gabon Senegal Dominican Republic Hungary
Ghana South Africa Ecuador Kazakhstan
India Sri Lanka Guatemala Kosovo
Indonesia Syria Honduras Latvia
Iraq Tanzania Mexico Lithuania
Ivory Coast Thailand Panama Macedonia
Jordan Tunisia Paraguay Moldova
Kenya Turkey Peru Montenegro
Laos Uganda Puerto Rico Poland
Lebanon Vietnam Uruguay Romania
Madagascar Zambia Venezuela Russia
Serbia
Ukraine
 

Top 14 brands organic sales growth

  Net Sales   Volumes   Price/mix
 
 
Absolut -1% -1% -1%
Chivas Regal 0% 1% -1%
Ballantine's 5% 6% -1%
Ricard -3% -3% 0%
Jameson 10% 8% 2%
Havana Club 0% 2% -2%
Malibu -5% -5% 0%
Beefeater 4% 2% 2%
Kahlua 4% 3% 1%
Martell -9% 2% -11%
The Glenlivet 14% 11% 3%
Royal Salute -8% -9% 0%
Mumm 8% 14% -6%
Perrier-Jouët 9% 10% -1%
Top 14 0% 2% -2%
 

Sales analysis by period and region

Net Sales

(€ millions)

  Q1 2013/14   Q1 2014/15   Change   Organic Growth   Group Structure   Forex impact
           
Europe 666 33.1% 652 32.0% (15) -2% (4) -1% (4) -1% (6) -1%
Americas 532 26.4% 530 26.0% (2) 0% 16 3% 6 1% (24) -4%
Asia / Rest of the World 814   40.5% 855   42.0% 41   5% 34   4% 0   0% 7   1%
World 2,013   100.0% 2,037   100.0% 25   1% 46   2% 3   0% (24)   -1%
                                     
Net Sales

(€ millions)

Q2 2013/14 Q2 2014/15 Change Organic Growth Group Structure Forex impact
 
Europe 946 37.0% 927 35.9% (19) -2% 11 1% (3) 0% (27) -3%
Americas 677 26.5% 712 27.5% 34 5% 6 1% 8 1% 20 3%
Asia / Rest of the World 934   36.5% 945   36.6% 11   1% (38)   -4% (2)   0% 51   5%
World 2,558   100.0% 2,584   100.0% 26   1% (22)   -1% 3   0% 45   2%
                                     
Net Sales

(€ millions)

H1 2013/14 H1 2014/15 Change Organic Growth Group Structure Forex impact
 
Europe 1,612 35.3% 1,579 34.2% (33) -2% 7 0% (7) 0% (33) -2%
Americas 1,209 26.5% 1,242 26.9% 32 3% 21 2% 15 1% (4) 0%
Asia / Rest of the World 1,749   38.3% 1,801   39.0% 52   3% (4)   0% (2)   0% 58   3%
World 4,570   100.0% 4,621   100.0% 51   1% 24   1% 6   0% 21   0%
 

Summary consolidated income statement

     
(€ millions) 31/12/13 31/12/2014 Change
       
Net sales 4,570 4,621 1%
Gross Margin after logistics costs 2,909 2,889 -1%
A&P expenditure (821) (819) 0%
Contribution after A&P expenditure 2,088 2,070 -1%
Structure costs (729) (712) -2%
Profit from recurring operations 1,359 1,358 0%
Financial income/(expense) from recurring operations (227) (235) 3%
Corporate income tax on items from recurring operations (295) (284) -4%
Net profit from discontinued operations, non-controlling interests and share of net income from associates (11) (6) -40%
Group share of net profit from recurring operations 826 834 1%
 
Other operating income & expenses (20) (28) NA
Non-recurring financial items 2 (11) NA
Corporate income tax on items from non recurring operations 20 (7) NA
       
Group share of net profit 828 788 -5%
Non-controlling interests 11 7 -35%
Net profit 839 795 -5%
 

Profit from recurring operations by region

 

                       
World
                                     
(€ millions) H1 2013/14 H1 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 4,570 100.0% 4,621 100.0% 51 1% 24 1% 6 0% 21 0%
Gross margin after logistics costs 2,909 63.6% 2,889 62.5% (19) -1% (33) -1% 4 0% 10 0%
Advertising & promotion (821) 18.0% (819) 17.7% 2 0% 12 -1% (1) 0% (9) 1%
Contribution after A&P 2,088   45.7% 2,070   44.8% (18)   -1% (21)   -1% 2   0% 1   0%
Profit from recurring operations 1,359   29.7% 1,358   29.4% (1)   0% (3)   0% 1   0% 2   0%
 
Asia / Rest of the World
                                     
(€ millions) H1 2013/14 H1 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 1,749 100.0% 1,801 100.0% 52 3% (4) 0% (2) 0% 58 3%
Gross margin after logistics costs 1,089 62.3% 1,093 60.7% 4 0% (38) -4% (0) 0% 42 4%
Advertising & promotion (298) 17.1% (296) 16.4% 3 -1% 12 -4% 0 0% (9) 3%
Contribution after A&P 791   45.2% 797   44.3% 6   1% (27)   -3% (0)   0% 33   4%
Profit from recurring operations 584   33.4% 570   31.7% (13)   -2% (41)   -7% (0)   0% 28   5%
 
Americas
                                     
(€ millions) H1 2013/14 H1 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 1,209 100.0% 1,242 100.0% 32 3% 21 2% 15 1% (4) 0%
Gross margin after logistics costs 794 65.7% 808 65.1% 14 2% 1 0% 5 1% 8 1%
Advertising & promotion (231) 19.1% (242) 19.5% (11) 5% (6) 2% (2) 1% (4) 2%
Contribution after A&P 563   46.6% 566   45.6% 3   1% (4)   -1% 4   1% 4   1%
Profit from recurring operations 356   29.4% 375   30.2% 19   5% 14   4% 2   1% 3   1%
 
Europe
                         
(€ millions) H1 2013/14 H1 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 1,612 100.0% 1,579 100.0% (33) -2% 7 0% (7) 0% (33) -2%
Gross margin after logistics costs 1,025 63.6% 988 62.6% (37) -4% 4 0% (1) 0% (40) -4%
Advertising & promotion (292) 18.1% (282) 17.9% 10 -3% 6 -2% 0 0% 4 -1%
Contribution after A&P 734   45.5% 706   44.7% (27)   -4% 10   1% (1)   0% (36)   -5%
Profit from recurring operations 419   26.0% 412   26.1% (7)   -2% 24   6% (1)   0% (29)   -7%
 

Foreign exchange impact

Forex impact H1 2014/15

(€ millions)

Average rates evolution  

On Net

Sales

 

On Profit

from

Recurring

Operations

     

2013/14

 

2014/15

 

%

   
US dollar USD 1.34 1.29 -4.1% 43 23
Chinese yuan CNY 8.20 7.92 -3.4% 15 10
Indian rupee INR 83.44 78.85 -5.5% 19 8
Venezuelan bolivar VEF 16.79 64.35 283.4% (14) (12)
Russian rouble RUB 43.89 53.98 23.0% (32) (25)
Other currencies         (11) (2)
Total         21 2

Note : Impact on PRO includes strategic hedging on Forex

Foreign exchange estimated impact FY 2014/15 (profit from recurring operations)

Over the full 2014/15 financial year, the forex impact on profit from recurring operations is estimated at approximately € 140 million, based on average FX rates for full FY 2014/15 projected on 9th February 2015, particularly EUR/USD = 1.21

Sensitivity of profit and debt to EUR/USD exchange rate: Estimated impact of a +1% appreciation of the USD and linked currencies(1)

 

 
Impact on the income statement(2) (€ millions)
Profit from recurring operations +15
Financial expenses (2)
Pre-tax profit from recurring operations +13
 
Impact on the balance sheet (€ millions)
Increase/(decrease) in net debt +53

Notes : (1) CNY, HKD, (2) Full-year effect

Balance sheet (assets)

Assets

(€ millions)

  30/06/2014   31/12/2014

 

(Net book value)
Non-current assets
Intangible assets and goodwill 16,449 17,522
Tangible assets and other assets 2,594 2,824
Deferred tax assets 1,926 2,091
Total non-current assets 20,968 22,437
 
Current assets
Inventories 4,861 4,962
of which aged work-in-progress 3,963 4,127
of which non-aged work-in-progress 65 68
Receivables (*) 1,051 1,729
Trade receivables 990 1,657
Other trade receivables 61 71
Other current assets 194 214
Other current assets 188 209
Tangible/intangible current assets 6 6
Tax receivable 37 36
Cash and cash equivalents and current derivatives 503 624
Total current assets 6,646 7,565
 
Assets held for sale 2 26
 
Total assets 27,616 30,028
 
(*) after disposals of receivables of: 479 733
 

Balance sheet (liabilities and shareholders’ equity)

Liabilities and shareholders’ equity

(€ millions)

  30/06/2014   31/12/2014

 

 
Group Shareholders’ equity 11,621 12,780
Non-controlling interests 157 165
of which profit attributable to non-controlling interests 11 7
Total Shareholders’ equity 11,778 12,945
 
Non-current provisions and deferred tax liabilities 4,174 4,414
Bonds 6,844 7,813
Non-current financial liabilities and derivative instruments 915 647
Total non-current liabilities 11,933 12,873
 
Current provisions 251 202
Operating payables 1,463 1,669
Other operating payables 887 760
of which other operating payables 600 719
of which tangible/intangible current payables 287 41
Tax payable 56 126
Bonds 929 1,199
Current financial liabilities and derivatives 319 253
Total current liabilities 3,905 4,209
 
Liabilities held for sale 0 0
 
Total current liabilities 27,616 30,028
 

Analysis of Working Capital Requirement

(€ millions)   June

2013

 

December

2013

  June

2014

  December

2014

     

H1 13/14

WC change*

 

H1 14/15

WC change*

 
Aged work in progress 3,617 3,706 3,963 4,127 78 89
Advances to suppliers for wine and ageing spirits 6 12 6 14 7 8
Payables on wine and ageing spirits 91 138 97 149 45 52
Net aged work in progress 3,532 3,580 3,872 3,992 39 45
 
Trade receivables before factoring/securitization 1,595 2,309 1,469 2,390 783 910
Advances from customers 12 2 3 3 (9) (1)
Other receivables 266 251 243 266 (1) 15
Other inventories 799 797 833 767 29 (61)
Non-aged work in progress 69 65 65 68 (0) (1)
Trade payables and other 2,079 2,155 1,963 2,236 134 224
Gross operating working capital 638 1,264 645 1,252 686 639
 
Factoring/Securitization impact 505 684 479 733 (188) (240)
Net Operating Working Capital 133 580 165 520 498 399
 
Net Working Capital 3,665 4,160 4,037 4,512 536 444
   
* without FX effects and reclassifications 537 444
(1) 1
 

Change in Net Debt

(€ millions)   31/12/2013   31/12/2014
 
Self-financing capacity before interest and tax 1,417 1,389
Decrease (increase) in working capital requirements (536) (444)
Financial result and tax cash (414) (406)
Net acquisitions of non financial assets (134) (137)
Free Cash Flow 332 402
Disposals/acquisitions assets and others (70) (122)
Change in Group structure - -
Dividends and others (441) (445)
Decrease (increase) in net debt (before currency translation adjustments) (179) (165)
Foreign currency translation adjustment 281 (517)
Decrease (increase) in net debt (after currency translation adjustments) 102 (681)
Initial net debt (8,727) (8,353)
Final net debt (8,626) (9,034)
 

Debt Maturity at 31 December 2014

[Missing charts are available on the original document and on www.pernod-ricard.com]

Gross debt maturity at end December 2014: 6 years and 2 months
Syndicated credit not used
Available cash at end December 2014: € 0.6 billion in cash and € 2.3 billion in available credit facilities
New € 650 million bond issue in September 14 (20-year maturity, coupon 2.125%)

Gross Debt Hedging at 31 December 2014

[Missing charts are available on the original document and on www.pernod-ricard.com]

Natural debt hedging maintained: EUR/USD breakdown close to that of EBITDA
Large part of gross debt at fixed rates (90%)

Bond Details

Currency   Par value   Coupon   Issue date   Maturity date
 
EUR € 800 m 7.000% 6/15/2009 1/15/2015
€ 1,200 m 4.875% 3/18/2010 3/18/2016
€ 1,000 m 5.000% 3/15/2011 3/15/2017
€ 850 m 2.000% 3/20/2014 6/22/2020
€ 650 m 2.125% 9/29/2014 9/27/2024
 
USD $ 201 m Libor 3M + spread 12/21/2010 12/21/2015
$ 1,000 m 5.750% 4/7/2011 4/7/2021
$ 1,500 m 4.450% 10/25/2011 1/15/2022
$ 2,500 m o/w:
$ 850 m at 5 years 2.950% 1/12/2012 1/15/2017
$ 800 m at 10.5 years 4.250% 7/15/2022
$ 850 m at 30 years 5.500% 1/15/2042
 

Number of shares used in diluted EPS calculation

(x 1,000)       H1       H1
13/14 14/15
Number of shares in issue at end of period 265,422 265,422
Weighted average number of shares in issue (pro rata temporis) 265,422 265,422
Weighted average number of treasury shares (pro rata temporis) (2,156) (1,493)
Dilutive impact of stock options and performance shares 2,501 2,115
Number of shares used in diluted EPS calculation 265,766 266,043
 
(€ millions and €/share)       H1       H1       reported
13/14 14/15 D
Group share of net profit from recurring operations 826 834 1%
Diluted net earnings per share from recurring operations 3.11 3.13 1%
 

Contacts

Pernod Ricard
Julia Massies, +33 (0)1 41 00 42 02
VP, Financial Communication & Investor Relations
or
Sylvie Machenaud, +33 (0)1 41 00 42 74
Director External Communications
or
Alison Donohoe, +33 (0)1 41 00 42 14
Investor Relations
or
Carina Alfonso Martin, +33 (0)1 41 00 43 42
Press Relations Manager

Contacts

Pernod Ricard
Julia Massies, +33 (0)1 41 00 42 02
VP, Financial Communication & Investor Relations
or
Sylvie Machenaud, +33 (0)1 41 00 42 74
Director External Communications
or
Alison Donohoe, +33 (0)1 41 00 42 14
Investor Relations
or
Carina Alfonso Martin, +33 (0)1 41 00 43 42
Press Relations Manager