Pernod Ricard S A

Good morning, ladies and gentlemen, and welcome to Pernod Ricard's fiscal 21 sales and results presentation. We're hosted this morning by Alexandre Ricard, our chairman and CEO, and Hélène de Tissot, our EVP, finance, IT, and operations. We'll follow our usual format and take you through a brief presentation and then turn to your questions. Thank you very much. Without further ado, over to you, Alexandre.

Thank you very much, Julia. Good morning to all. And I do hope you had a wonderful summer, as I did. So may I suggest we start directly with the executive summary. Well, listen, excellent rebound with our sales and profit from recurring operations above pre-crisis levels with 10% organic growth of our top line. and 18% organic growth from our profit from recurring operations, pre-COVID crisis levels at constant currency, of course, and strong growth momentum. So the growth is very diversified with all regions growing. Our domestic must-wins, two of them have reached record sales. The first one being the U.S. with 16% organic growth and reaching the milestone of $2 billion of net sales. And the second one, which is China, with a whopping growth of 44%, as well hitting an important milestone, which is above the billion euro of net sales. Significant premiumization, of course, thanks to our strategic international brands that have grown double digit and our specialty brands portfolio, which has grown significantly by almost 30%. And we have gained share in most markets across the world. Our business transformation is clearly underway. We are continuing to deploy our transform and accelerate strategic roadmap, significant investment behind our priority brands and markets, and I would call this dynamic management of our resources, strong progress in our digital transformation, which is in fact accelerating with an outstanding growth for our e-commerce channel, which grew by 63%, and that growth is widely spread. And finally, acceleration of our sustainability and responsibility roadmap. I'll come back to that. So excellent performance with very active resource management and achieving a significant operating leverage of 213 basis points. Outstanding cash performance, reaching a record high level for our free cash flow and free free cash flow as well as recurring operations, which has driven our net debt to EBITDA ratio to 2.6 times, and therefore leading to an increased shelter returns with a proposed dividend back to pre-crisis levels of 3.12 euros, which was a historical high in fiscal year 2019, and as well the proposed resumption of our share buyback. So here you have the numbers. I won't dwell upon them. I already mentioned most of them. Just to mention the significant adverse FX impact of slightly more than half a billion euros on our net sales and 253 million euros on profit from recurring operations. As I mentioned in the executive summary, acceleration of our sustainability and responsibility roadmap There are two things we clearly accelerated during this COVID crisis and with clear purpose. Number one, digital acceleration and number two, equally as important, our responsibility and sustainability roadmap. And I'm proud to announce today our new collaborative agreement and we're the first private company to do so with the IUCN, the International Union for conservation of nature. And I will be going to Marseille on Friday to participate there. This is a very, very important partnership. I'm extremely excited about it and very enthused at the idea of what we will be doing together in the coming months and years. Second as well, we've introduced a new global diversity and inclusion roadmap. which is titled Live Without Labels, to drive more inclusion and diversity within Pernod Ricard. Just to mention as well, the gender pay gap has been reduced to 1.8%, which is very low. We have also revisited our targets in terms of carbon. So our new carbon targets are to reach net zero in scope one and two, by the latest in 2030 and hopefully, and this is what we're going to try and drive even before 2030 and scope three by 2050. We are a signatory of business ambition to 1.5% Celsius, which is an SBT initiative. Finally, packaging and waste. As we mentioned, we accelerated some of our targets there. starting with the removal of single-use plastic point-of-sale material. The initial target was 2025. It's done, with the exception of cups for the time being, which we are currently addressing. And finally, in terms of responsible hosting and responsible consumption, we launched over summer, and hopefully some of you have seen this, our Drink More Water, of course, campaign, which is really targeting binge drinking amongst young adults. First results of that campaign are extremely positive, and we now have three logos. The aim is to have three logos on all our labels throughout the world, where obviously it's legal. No drink driving, no underage drinking, and obviously if and when you are pregnant, no drinking as well. So these are all our initiatives, just a summary of some of the most important ones, but obviously the roadmap is much more detailed and it is something we're extremely proud of and which is embedded today throughout our entire business. I wanted to take a little bit of time as well to go beyond just the numbers and talk a little bit about our strategy. At the end of the day, I wouldn't say numbers are a detail, but numbers are a consequence of strategy. And I really believe strategy is what matters. And the numbers come there afterwards. So three years ago, we shared with you our Transform and Accelerate Strategic Roadmap. It was a three-year roadmap. And if you look at some of the results, Number one, some of the key milestones in our most important markets and in terms of portfolio management. I already mentioned the US and China with record sales and some very symbolic milestones that have been reached. Our leadership in global travel retail, in China, and in India has been reinforced over the last three years. I already mentioned e-commerce, which is really enjoying significant growth and will continue to do so in the coming years. And also I mentioned dynamic management of our resources in terms of allocation, in terms of reinvestment across markets and brands, what really matters with a clear return on investment strategy there. In terms of digital, I mentioned again, we accelerated our digital transformation. And this is across all functions with six key, what we call key digital projects, KDPs touching really every function. We are building industry leading data science capabilities across the business and it's starting already to pay dividends. I mentioned it as well, we have an ambitious sustainability and responsibility roadmap and mentioned some of our ambitious targets. And as well to remind you, we are a UN global compact lead. And finally, of course, as a consequence, in terms of financial performance, we have strong top line momentum. Before crisis, we had reached six. We're now above our pre-crisis levels at current constant FX. We have gained operating leverage with a record year this year with 213 basis points, historical high cash performance, and as I mentioned in the introduction, increased shareholder returns. I often now get the question on our strategic roadmap. It was a three-year strategic roadmap. What's next? First of all, To deliver this roadmap and to work on that strategy, we had done a lot of work and in-depth analysis of market trends, of emerging trends, driven by a consumer insight. These trends have not changed during the crisis. I would even go as far as to say they have accelerated due to the crisis. The first of them and the most important one was changing consumer values and expectations from brands and corporations. We had mentioned within the framework of our strategic roadmap that consumers had radically changed. They were much more open, much more connected due to the rise of digital and social networks. They were more fickle. They were no longer faithful or loyal to one brand but to a repertoire of brands depending on the moments of consumption. They were increasingly demanding with an increased thirst for purpose. for new experiences and services. This has not changed. It has accelerated during the COVID crisis, and we have organized ourselves to address these needs. We also had designed this strategic roadmap within a new, what we call a new world order framework, as you can see, with a radically new geopolitical context. And this, in fact, has accelerated during the COVID crisis. We had mentioned the real emergence of middle and affluent classes representing over half of the global population. For the first time in history, middle and affluent classes represent more than 50% of the world's population, reaching 3.8 billion people, which is expected to reach 5.6 billion people by 2030. Thus, the importance of our leadership presence in China, in India and our investment strategy as well beyond China and India in Southeast Asia in Sub-Saharan Africa and in Latin America and this is very important we also had mentioned the tech and data revolution well no need to dwell on that one which is obvious to everybody as you can see how digital has increased and digital penetration and ways of working have increased during the COVID crisis and finally And this goes back to three years ago. It's still more than ever a true unprecedented change in the workplace. And clearly there is an increasing war for talent. And by the way, the island, which is Perna Records headquarters from which we are here live, is the perfect physical illustration of what we want to do. Be extremely attractive, have people wanting to come and work at the office. And by the way, we're fully booked today. And really facilitating a collaboration within our working space. So no more silos. So these fundamental insights are even more true today than they were ever before. And we are continuing our transformational journey. We have a very compelling vision. It's extremely aspirational. It's more than ever true, that desire that people have to really to connect, to meet socially. And we saw during the crisis when this doesn't happen, how difficult it is for people. So very compelling vision. We have a single-minded ambition, which is to become the number one wine and spirit company globally. In 2015, we introduced a consumer-centric business model based on business fundamentals, which you have here on the slide, the essentials for Bernard Ricard, and also based on what we call our business accelerators, which you also have on the slide. We have a very clear strategy around winning in key geographies, building passion brands, valuing our people and funding the journey. These are the four big battlegrounds. And finally, in terms of mission, everything is evolving. Our mission has evolved over time. I would say that during the decade from 2000 to 2010, well, we played a leading role in industry consolidation with big transformative transactions and deals with Seagrams, with Allied Domecq, with VIN and Sprint. So that was from 2000 to 2010. Then during the decade of 2010 to 2020, it was all about route to market. I mentioned earlier capturing that emerging middle class and emerging markets. So we developed our route to market in Southeast Asia. We developed a new route to market and opened a lot of affiliates in sub-Saharan Africa. We started really increasing our investment levels in Latin America. So that was the decade from 2010 to 2020. And now as we embark in this new decade from 2020 to 2030, our next mission is to build what I call Pernod Ricard as a conviviality platform company. What does it mean? Well, at the end of the day, it's all about developing direct, transparent interactions that bring together all those in our professional environment, consumers, customers, clients, partners, brands, employees, et cetera, using all the data generated by our activities to offer products and services that are ever more relevant. It's all about having the right product at the right place at the right time to the right consumer everywhere where it matters, and leveraging data to do this in the most efficient and effective way. That's what it's all about. So our framework, which we had shared with you three years ago, which is over time to maximize long-term value creation is still here. So our medium-term ambition framework is very clear. 4% to 7% top-line growth, leveraging key competitive advantages and consistent investment behind key BMCs, brand market combinations, focusing on pricing and building operational excellence initiatives. Significant AMP investment, and the global framework ratio for that is at around 16% of net sales, with very strong arbitrations behind the relevant brands and markets. Discipline on structure costs, as you may have seen over the last few years. Investing in priorities while, of course, maintaining an agile organization. And finally, delivering over time, medium term, operating leverage of circa 50 to 60 basis points, obviously provided that 47% top line framework. And from a financial policy point of view, our priorities are still extremely clear. Number one, invest behind our business to drive organic growth in terms of resources, whether it's ANP, whether it's HR, our people, our structures, But, of course, as important in terms of strategic inventories, of course, and CapEx. Second priority, M&A, bolt-on acquisitions, continue and pursue our active portfolio management. And we've been extremely active from that point of view and with the new announcement of a great partnership this morning with Sovereign Brands, a great company, great people, I'm very excited about our collaboration to come together. Third priority, dividend, of course, to thank our shareholders with a payout policy of circa 50%. And finally, share buyback. And we are going to resume our share buyback program, as I mentioned earlier. I will make an announcement as well. We will be holding a capital market day sometime during this fiscal year, probably during spring. But we need to see if all the agendas work. And again, depending on the sanitary situation. But this is more or less what we are aiming at. So we'll give you a comprehensive strategic update by then. Very briefly, in terms of our top line sales by region, you see that all our regions are growing, two of which are growing double digits, starting with the Americas up 14%. Excellent broad-based, by the way, growth across the region, obviously with the USA up 16%, but I could mention Canada and South America with a great performance both in Brazil and Mexico. Asia, rest of the world up 11%, very strong growth, driven principally but not limited to, of course, China, but as well South Korea and Turkey, strong, strong growth in Turkey. And by the way, as well, India, which grew 9%, second highest top line ever in India, not record sales yet. Hopefully by the end of this year it will be. And finally, Europe, of course, 4%, very dynamic rebound, extremely good growth in the UK, extremely good growth in Germany and in Eastern Europe, by the way, gaining share in all these markets, offsetting, more than offsetting, the decline in Spain for obvious reasons and travel retail. All of this leading to a great growth of 10% of our top line. Well, I won't dwell into these, but again, USA very strong growth of 16%. Global travel retail, unfortunately, down 40% for understandable reasons, but gaining strong market share in that channel. And we are big believers of a rebound of that channel in the future. For this year, we expect a gradual recovery. Very strong growth in China, record growth and record year, up 44%, growing across all segments and across all brands with a very strong mix. And India, I mentioned, up 9%, by the way, very resilient given the environment in India, while the underlying consumer-driven trends are clearly there. Europe, market share gains in France, market share gains in Spain, market share gains in the UK, market share gains in Germany, market share gains in Russia, market share gains in Poland. And you have here some of the numbers. Americas, I mentioned the US, but as well, good growth in Canada, excellent growth in Brazil and Mexico, as I mentioned. Mexico up 32%, for instance, where we also gained quite a lot of share. And finally, Asia, rest of the world, which includes China and India, up 11%, as I mentioned. Difficult situation in India, in Japan, but gaining value share. Successful refocus in South Korea on our strategic imported international brands. Triple digit growth in Nigeria. And great performance in South Africa, given the circumstances. And finally, as I mentioned, market share gains in Turkey. Finally, just a brief overview in terms of category. Strategic international brands up double-digit 11%. Strategic local brands up 7%, driven by the recovery of our Indian deluxe Seagram's whiskey brands. But as well, Kahlua, Passport, Ramazzotti, in particular in Germany. Our specialty brands gain 28%, which is quite amazing, driven by Lillet, but also by Aberlauer. Amazing growth of Malfi, of our American whiskey portfolio, but as well of our Tequila Avion, or of our prestige craft Irish whiskey brand, Redbreast. And finally, our strategic wines, which are stable with good growth by Campo Viejo, which is offset by the decline of Jacobs Creek, and finally Kenwood. So you have here the detail by category. I won't spend time on it to leave time for Q&A, and I'd like to pass on to the profit section to Hélène.

Thank you, Alex. So let's move now to the profit and to the full P&L shape. So profit from recurring operation is growing organically by 18.3%, with a very strong organic operating margin expansion of 213 basis points. If we start with the gross margin, it's expanding by 64 basis points, driven by stable pricing, with fewer price increases in the COVID context, and better fixed cost absorption from volume growth and operational excellence savings. ANP ratio at circa 16%, resulting from purpose-based investment with quick response to channel shifts. So we've been really actively managing our resources with strong investments in market and categories returning to growth. Structure cost, limited growth of plus 1%, which is delivering 136 basis points of improvement with a very strict discipline. and the full impact of fiscal year 20 reorganization. We do expect a strong increase of our structure in fiscal year 22 to support the growth. So profit from recurring operation is including profit of 28 million euros that we communicated last week in US dollars, so 28 million euros in this P&L. A significant effects impact that you mentioned already earlier. Alex, impacting our profit from recurring appropriation by €255 million, which is mainly due to US dollar and emerging market depreciation versus euro. Moving now to the EPS, it's growing by 13% thanks to increased profit and lower cost of debt. So starting with the financial results from recurring operation, it is improving by 66 million euros versus the previous year, which is the direct results of very successful bond refinancing at lower interest rates, especially the most recent one that we did refinance in November 20 on the US dollar market, and to a lesser extent, a positive FX impact, improving the financial results. Average cost of debt is decreasing very significantly. It is now at 2.8% versus 3.6% in fiscal year 20, thanks to this successful bond refinancing. Tax rate on recurring items is at 24.3%, which is quite stable versus the previous year, with a geographical mix which is offsetting the positive effects of the reduction of the French corporate income tax. And the reduction in number of shares is reflecting the share buyback that we carried out in fiscal year 20. Moving now to the group share of net profit, with a strong increase, a very significant increase in net profit, which is due mainly to the non-recurring items in fiscal year 20, in particular the €1 billion impairment charge that we booked last year. If we zoom now on the non-recovering operating items at minus 62 million euros, this is mainly driven by restructuring and reorganization costs linked to the transformation of the group and as well to the impairment of our Korean whiskey imperial. And then these total costs are partly offset by the USA drawback. Increase in corporate income tax, which is driven by the re-evaluation of the deferred tax, further to the increase in the UK tax rate, which has been enacted in Fiscal Year 21. And as well, the Fiscal Year 20, which was impacted by reduction in deferred tax liabilities related to the impairment. And this is not repeated in Fiscal Year 21. Moving now to the cash performance. So Alex mentioned that already in the introduction. We are delivering a very strong cash performance this year with an outstanding recurring free cash flow at historical high of 1,745,000,000 euros, which is increasing by 74% versus last year. If we look at the different drivers of this great cash performance, starting with the strategic inventory, So lower increase in strategic inventories, which is driven by the higher usage of stock linked to the business recovery and dynamic top line growth, partially offset by cash out increase, obviously, to support our midterm growth. Strong improvements in the operating working capital, which is very much linked to the rebuilding of payables with the acceleration of A&P, especially in the second half of the year. partly offset by higher receivables due to the business rebound. Increased capex to drive future growth. The amount of capex for the year is 388 million euros. We are expecting our investment in capex to increase in fiscal year 2022 to support our strategic ambition to an amount which is expected at roughly 5%. Significant reduction in financial expenses, which is the cash translation of what I mentioned in terms of P&L. So this is thanks to the successful refinancing. Reduction in our tax cash out linked to the lower prepayments in the UK and favorable phasing resulting from the COVID impact in fiscal year 20 in France and China. Non-recurring items due mainly to restructuring and medical exercise with the 2 billion bond early repayment done last year. partly offset by USA drawback cash collection. Moving now to the evolution of our net debt, so a very significant decrease of leverage from very strong free cash flow, which is enabling us to reduce net debt down to 7.4 billion euros at the end of June. So 972 million euro decrease in net debt, which is driven primarily by the very significant free cash flow improvement I just detailed, linked to the business recovery, and to M&A cash out, reflecting active portfolio management, a reduction in dividend paid in fiscal year 21, linked to the reduction of fiscal year 20 profit linked to COVID, 95 million euro debt from additional lease liabilities, and a positive translation adjustment, mainly due to the USD depreciation versus euros. which is bringing our net debt to EBITDA ratio down to 2.6. Moving now to the return to shareholders and even to stakeholders, a significant return to stakeholders. This year, in the context of our strong P&L and cash performance, we are proposing a dividend of 3.12 euros per share, which is an increase of 17% versus fiscal year 20, back to the historical high of fiscal year 19 and you have on that slide the historical dividend from fiscal year 16 our share buyback program that has been stopped in April 20 is going to resume for the remaining amount being 0.5 billion euro and we are resuming as well our employee ownership program the first program was launched in fiscal year 19 so the second program is going to take place in fiscal year 22 And back to you, Alex, for the conclusion and outlook.