Pernod Ricard S A

and welcome to Peron Ricard 2022 4-Year Sales and Results Conference Call. At this time, all participants are in list and holding mode. After the speaker presentation, there will be a question and an answer session. To ask a question, you will need to press star 1 and 1 on your telephone. I would now like to end the conference over your speaker today. Please go ahead.

Good morning, ladies and gentlemen, and welcome in Paris, at the island, for a FY22 full-year sales and results presentation, followed by Q&A. Before I leave the floor to Hélène and Alexandre, you're going to see a short movie from the Glenlivet. The Glenlivet

Well, good morning to all of you. I do hope you have spent a very nice summer, enjoying very convivial moments, and more importantly, around the right brands. So welcome to the island for our fiscal year 22 full year sales and the results. And let's start directly with the executive summary. Maybe, Hélène, I'm going to grab yours. Nope. There we go. So fiscal year 22 has been a historic year for Bernard Ricard, with our net sales growing by 21%, hitting the 10 million euro milestone at 10.7 billion euros, with market share gains across most markets, leveraging both our very wide portfolio of brands and our geographic breadth. we've increased prices basically everywhere with an average mid single digit price increase globally and our growth has been driven by the strong recovery of the on trade by the strong resilience as well of the off trade and the rapid rebound of the travel retail channel Strong growth as well driven by balanced and diversified sources. I think this is absolutely important. And if we start with our must-win markets, strong dynamism across all must-win markets. You see India at a whopping plus 26%. Travel retail at plus almost 50%, the U.S. at plus 8%, and China at plus 5%. Performance has been outstanding across all regions, but in particular in Europe, in Africa, and Central and South America. And finally, excellent broad-based growth across the portfolio, with our strategic international brands growing by 18%. Our specialty brands growing by 24%. And finally, our strategic local brands, in particular, our Indian whiskeys growing by 18%. And this has delivered a record profit from recurring operations at 3 billion euros, driven as well by revenue growth management, as I mentioned, but as well by operational efficiencies, which have offset the impact of the inflation. This has also allowed us to deliver gross margin expansion and finally delivering a record operating margin of 28.3 with an expansion of 80 basis points or 52 basis points on an organic basis. These results demonstrate the strength, the agility, and the resilience of Pernod Ricard's business model. We are deploying the Conviviality platform at pace. I hope most of you were here for Capital Markets Day before summer, where we presented the Conviviality platform. And by the way, I'd like to take this opportunity as well to mention that we will be announcing in the coming days a partnership with a very emblematic French partner company, regarding the data portal we have been developing over the last three years. So stay tuned for that new news. So anyways, we are deploying our consumer-centric strategy at scale now, leveraging our portfolio of brands, leveraging our distribution network to really further stretch our growth and now accelerating thanks to data. We have strengthened our portfolio of brands through additional investments, through innovations, and of course continuing our bolt-on acquisition strategy, which this year included the Whiskey Exchange, more recently Chateau Sainte-Marguerite, and a minority stake in sovereign brands. Our specialty brands portfolio is now double what it was just pre-COVID in 2019 and now represents 6% of our net sales. And this growth and the development of our strategic roadmap has been done responsibly. So we're well advanced as well on delivering our sustainability objectives within good times from a good place. we've also delivered a record high cash generation and continuing to deliver our business so we have the highest ever free cash flow at 1.8 billion euros and finally a net debt ratio at 2.4 we are investing in the future growth of our business with increased strategic investments And all these results allow us to accelerate the returns to our shareholders with a strong dividend growth of plus 32% versus last year and the announcement of a new share buyback program of roughly 500 to 700 million euros for this fiscal year. You see here the key figures. I won't dwell upon them. Hélène will go through them in detail, just to underline the reported net profit up at 53%. And I think it's important to just sit back for a second and look at our willing formula or the way I like to see it, which is our unique competitive advantages, our fundamentals, which, number one, are comprised of what we believe is the widest, the largest, the most comprehensive portfolio of premium spirit brands, number one. number two are diversified and global footprint and scale which is even more so important when the environment is volatile and cycles are uneven between regions between segments between markets and most importantly our unique culture which blends conviviality and performance where people really want to go the extra mile with a very high level of engagement and by the way We recently had a very successful participation to our second ever employee stock ownership plan. This formula is also fueled by very favorable underlying dynamics or drivers, demographics to start with, with the legal drinking age population. The growth of middle and affluent classes in emerging countries, not just China, not just India, not just Sub-Saharan Africa, not just LATAM, basically all these markets. Consumer trends, and that's true for the whole world with premiumization. which is an established long-term fundamental trend, and the resilience, and we've seen it over the last few years, of wine and spirits during economic downturns. Finally, the global spirits market value growth of plus 11% versus pre-COVID 2019 shows that premium plus spirits are outperforming. Again, and I think this is critical, diversification of the sources of growth of Pernod Ricard, which was, still is, and is going to continue to be a very strong strategic intent, having diversified sources of growth, which is a big change versus 10 years ago, 80%. of our growth comes from six spirits categories. You see here by category the contribution of each category to our fiscal year's growth and the weight in the portfolio. I'd like to stress the Scotch whisky performance which has weighed for 30% in Pernod Ricard's growth and that represents a little bit more than 20% of our net sales. Irish whiskey as well, very strong contributor to our growth with 16% contribution to growth and weighing for 12% of our business. The Seagram's whiskey as well, 11% contribution and weighing for 9% of our business. Vodka, in particular, Absolute, of course, weighing 9% of our growth and 8% in our business. Gin has been a strong contributor to growth. And finally, cognac and brandies as well. So really diversified sources of growth when it comes to our portfolio of brands. And by the way, with a clear skew to premium plus, 76% of our net sales come from premium and above categories. And they contribute to 80% of our growth. And likewise, not just from a portfolio standpoint, but as well from a geographical standpoint, you have here the similar analysis where you have the contribution to growth from our regions, the weight of our regions in our business, and the growth of our regions for fiscal year 22. There's double digit everywhere. I won't go through these numbers. I just think that what they clearly stress and underline is the balanced nature of our growth, the diversified sources of our growth, which is absolutely critical. And as I mentioned, our growth, our excellent results were driven responsibly. So you have here our strategic roadmap from an SNR point of view. It is at the core of everything we do. Our SNR objectives are now embedded throughout the whole business. It's really every single function in the business is today perfectly concerned. You have here progress to date on a number of objectives we set ourselves. As you know, this roadmap was launched back in 2018. We update it regularly. And I'm particularly proud of the recent investments we made, especially in Scotland and in Ireland, with more announces to come, so please stay tuned. And again, this is perfectly in line with our long-term sustainable value creation strategy. This is a quick recall of what we presented to you during Capital Markets Day. Our medium term financial framework, where it's all about growing our top line between 4% and 7% growth, aiming at the up range of that interval, powered by what we call the conviviality platform. Leveraging data at scale. Focus on pricing, of course, for sure. Continuous improvement in operational efficiency as well, as we've done this year again, with significant investment behind our strategic priorities in terms of brands. with efficiency on return on spend, of course, discipline, of course, on our structures and on the organization to drive operating leverage of roughly 50 to 60 bits on average every year. Financial policy, as I mentioned, our objective has been and will continue to be to maintain investment grade rating, of course. Number one, priority number one is to invest in the future organic growth of our business, in particular through our strategic inventories and CapEx, which we've done this year and will highlight what we intend to do in the coming year. Continued active portfolio management, including value creating M&A. So please expect our bolt-on acquisition strategy to continue. Dividend the distribution of roughly 50% of our net profit from recurring operations. And finally, share buyback when the above priorities are fulfilled. And this is what happens. So, you know, our strategic plan four years ago, which was updated this year for the next three years, what this shows is We say what we do and we deliver what we say we will deliver. We're perfectly in line with our plan. And just to remind you what our plan is about, it's a story that started with top line growth, focus on growth, which then became focus on profitable growth with profit margin expansion of roughly 50 to 60 bps per year. focus on diversifying the sources of growth and of course by delivering strong cash flow. We said we would deliver this and we have delivered this. Very briefly, you have here our sales, as I mentioned, very strong growth, pretty well balanced and broad-based by region. Number one, a quick focus on our must-win markets with the U.S. that has grown on average 8% over the last three years, delivering again 8% over the last fiscal year. I would just stress maybe two things on the U.S. First of all, very strong price mix following basically broad-based price increases in fiscal year 22. with additional price increases to be implemented as early as now, in fact, in September and October. Number two, I would also stress the very strong performance of our specialty brands portfolio in the U.S., in particular our American whiskeys, Jefferson, Rabbit Hole, TX Whiskey, Smooth Amber, but as well our agave-based portfolio and Red Rest. China, well, again, a three-year average growth rate of 9%, delivering 5% over the last fiscal year. We've had a good start of the year last fiscal year, which was a little bit impacted by strict containment measures, as you know, which impacted our Q4 at Pernod Ricard. The trend has improved since the month of June with the easing of restrictions, and so far we've had a pretty good start to the year in China. Travel retail up roughly 50%, with three-year CAGR still negative, down 13%. However, I would stress two things. Our value leadership has been reinforced quite significantly in travel retail. And for this new fiscal year, we expect travel retail profit to be back to pre-COVID levels, which I believe is is great news for the channel and, of course, for Pernod Ricard, given the weight of the channel. And finally, India, which has grown on average 7% over the last three years with a clear acceleration over the last fiscal year, where India grew 26%, where we reinforced our leadership position. And not only did the strategic local brands perform well, our strategic international brands performed exceptionally well, principally led by our Scotch portfolio, by Jameson Whiskey, which is becoming a cult brand in India, and finally by our Vodka Absolute. I think it's worthwhile still spending a couple minutes on the rest of the world because there's been a very strong performance as well with pricing across all markets as well. If you look at Europe, a three-year average growth rate of 6%. I think that's really what surprised me. Strong continued growth with a whopping plus 19% for the last fiscal year. If you look at the performance of Spain, up 36%. And again, we've had a good start of the year with a great summer in Spain. There was some growth as well in France, albeit with a margin squeeze given the inflationary context here in France. Very strong growth in Germany, up 10% with a very strong on-trade rebound. A whopping 42% in Italy, which had a great summer as well. When it comes down to Eastern Europe, well, very strong performance in Poland, but obviously the performance is impacted by the conflict, the war in Ukraine since mid-February. And you should expect, again, a significantly subdued activity for fiscal year 23, particularly in Russia. Strong on-trade rebound in the UK with great sales growth driven by Jameson, Absolute, Havana Club, and more generally our specialty brands like Monkey 47 and Malfi. With regards to Americas, which is up 12%, with a strong KGAR, a three-year KGAR of 8%, would just stress the whopping 52% growth in Brazil. Asia, rest of the world, up 19%, with a three-year average growth rate of 4%, would just stress, while Korea, up 33%. South Africa up 38%, Nigeria up 81%. Outstanding performance in Turkey and very strong performance for our Champagne and Scotch in Japan. From a category point of view, in terms of segments, as I mentioned, strong growth across all spirit categories. Soft performance though for our wine portfolio, which was particularly hit by a lower harvest for our Sauvignon coming from New Zealand. I would just like to stress the excellent performance of Jameson up 24% with a three-year double-digit KGR of 12%. We've broken the 10 million case milestone for Jameson this year which is just amazing with the fastest growth rate in 30 years for the brand. double-digit growth in the U.S. with a very successful launch of our innovation Jameson Orange. But I'd like to stress as well the success of the internationalization strategy of Jameson with growth accelerating to 38% outside of the U.S. with great performance in India, as I mentioned, but South Africa as well, Nigeria, and many, many other markets across the world. And I'd like also to underline the very strong performance of Jameson Black Barrel, up 43%. Absolute up 19% with a 4% CAGR. Again, we've broken a milestone with Absolute, 12 million cases this year with global expansion driving an acceleration of the performance for Absolute. European markets are core growth drivers for the brand, where the brand grew double digit, but as well, growth basically everywhere else. Scotch is up 25% with a 5% average annual growth for the last three years. And this growth is driven by the entire portfolio of brands. You see Chivas up 29%, Ballantines up 28%, Glenlivet up 21%, and Royal Salute up 38%. Martel finally, which grew 7% with good growth on the basis of a very high comparison, notably in China. Excellent growth with Martel Blue Swift in the US and with a very successful marketing campaign. Some moderate growth in China, as I explained, especially between March, April and May due to some of the lockdowns and continued global expansion of the brand with particularly strong results in sub-Saharan Africa. As I mentioned in the introduction, specialty brands have now doubled in the last three years. You see our specialty whiskey up 23%, our specialty agave brands up 21%, specialty gin 43% growth. And finally, I would like to stress as well the great performance of Lillet and Italicus that has doubled over the last fiscal year. Finally, the rest of the portfolio, I won't dwell upon it, but good balanced growth across all brands, in particular Beefeater. And finally, I'd like to stress the very, very strong growth of our RTD portfolio, particularly in the US and in a number of European markets. Innovation has been a strong contributor to growth, perfectly in line with our strategic roadmap. Our innovation portfolio grew 45%. I mentioned the very successful launch of Jameson Orange, and we have also launched Jameson RTDs with Ginger and Lime. Avion Cristalino, great success, such a great success where we ran out of stock. So if you find any bottles of Avion on shelf, just make sure you buy them. Some more to come, great performance of our innovation around the Beefeater as well and the launch of Royal Salute 21 blended grain. And before handing over to Hélène, we've really stepped up in terms of media investments and media activation. You have here a number of examples and why not introduce the Jameson campaign before handing over to Hélène. So please enjoy.

At Jameson we've met them all. Those people you meet who just get you. And make moments like these. I guess you really ought to be there. smoother since 1780 we've known you can bump into them anywhere and when you do join them with the Jameson the smooth triple distilled Irish whiskey that brings everyone to the table Jameson widen the circle

Thank you, Alexandre. Hi, everyone. So let's look at the profit. So this strong top line that you've been describing, Alexandre, and our purposeful investment are driving margin expansion. Look at the growth of our profit from recurring operations. So it's growing by 25% from a reported point of view and plus 19%. when you look at the organic performance with margin expansion of 80 basis point reported and 52 basis point organic. So our gross margin is expanding by 12 bps as price mixed and fixed cost absorption offset the COGS increase. We have maintained our E&P ratio at circa 16% of the net sales with a very dynamic allocation of our resources between brands, markets and as well activities with enhanced efficiencies thanks to the digital transformation and as well enhancing the focus on working NP, the one that our consumers are exposed to. Purposeful increases as well in structure costs, notably with recruitments to support the digital transformation, and as well benefiting from a favorable FX impact of circa 160 million euros due mainly to the USD and the Chinese yuan appreciation versus euros. Moving now to the earning per share, so a very significant EPS growth in fiscal year 2022, a growth of 33%. And this increase is driven by the growth from our profit from recurring operation, but as well lower recurring financial expenses and the share buyback. We've been successfully refinancing the bond debt, and this is driving lower financial expenses in fiscal year 2022, with an average cost of debt of 2.3%. It used to be 2.8% a year ago. We have a recurring effective tax rate at 23.2%, and there's as well a reduction in number of shares as a result of the execution of a €750 million share buyback during the year. Moving now to the net profit. So the net profit is growing very strongly at plus 53% net profit, which is slightly below 2 billion euros. And this increase is a combination of the growth of our profit from recurring operation, reduced financial expenses and the positive FX impact I was just referring to. Moving now to the cash performance and as well the evolution of our debt. So let's look first at the cash generation, a record high generation that we have delivered this year, the recurring free cash flow. is at 1.9 billion euros with an increase in strategic inventories to support the future growth of our brands, especially obviously the H product. And this investment is expected to accelerate further in fiscal year 23. We have as well increased strongly our capex. which represents roughly 4.5% of the net sales in fiscal year 2022 to support key investment priorities and this as well is expected to increase further in fiscal year 2023. There is a negative working capital requirement variation which is explained by the strong business momentum we had this year in a context of supply chain tensions and we have been increasing our finished goods inventories across the world to protect the growth of our business. There is this reduced financial expenses that I mentioned for the P&L, which is as well impacting favorably on cash generation due to the successful refinancing. And cash tax is increasing following the business profit growth and the recovery post-COVID. Non-recurring items are mainly impacted by restructuring and bond debt early repayment costs. and we are delivering a highest ever free cash flow at 1.8 billion euro. Moving now to the evolution of our debt. So this strong performance is driving our leverage down with a net debt to EBITDA ratio at 2.4 at the end of June. It was 2.6 at the beginning of fiscal year 2022. So an increase of the net debt of 1.2 billion euros, which is mainly linked to the increased M&A and share buyback, so quite active year for us in terms of M&A. You have here the exact amount of cash out, and this is obviously the execution of our transaction with sovereign brands, the Whiskey Exchange and Chateau Sainte-Marguerite. We have as well an increase in dividend and you have all the numbers on that slide, a resumption of the share buyback with the execution of the 750 million euro program in fiscal year 2022 and some negative FX impact impacting our debt. In this context, we are accelerating the returns to shareholders in line with our financial policy with a proposed dividend of €4.12 per share, which is 32% versus the previous year. This is obviously subject to the approval of our shareholders at our next shareholders meeting. And we are announcing today a new share buyback program for fiscal year 23 of €500 billion to €750 million, following our financial policy priorities. Back to you, Alexandre, for the conclusion and outlook.

Well, thank you very much, Hélène. So listen, for fiscal year 22, it's been a historic year for Pernod Ricard with an excellent performance, which, as I said, really demonstrated the strength, the resilience and the agility of our business model in an environment that we can qualify as turbulent. With regards to our medium term over the years, fiscal year 23 to fiscal year 25, we remain absolutely confident to deliver our strategic ambition, leveraging our key fundamentals, which is our portfolio, our geographical footprint, deploying at pace our consumer-centric conviviality platform and our ability to adapt very swiftly to volatile situations. So for this new fiscal year, for fiscal year 23, what do we expect? First of all, we expect dynamic, broad-based net sales growth, obviously on a normalizing comparison basis, with a pretty good start to Q1. We'll continue to focus intensively on revenue growth management and pricing, of course, as well as on operational efficiencies in what we can qualify as a high inflationary environment. We'll maintain our A&P ratio at approximately 16% of net sales with continuous improvement of return on spend or return on investment. We'll continue to invest in our structures, notably supporting the rapid deployment of the Conviviality platform that we presented to you just before summer. We expect as well to increase our capex at roughly 7% of net sales and our strategic inventories will fuel our future growth, as you may have seen. As Hélène mentioned, we will proceed with a share buyback of roughly 500 to 750 million euros. And finally, and based on current spot rates, which of course are not locked in, but at least if we project the current spot rates, we should expect as well a very significant positive currency effect. I think before handing over to Florence for the Q&A, I thought it quite appropriate as well, just because summer is not completely over, to showcase another of our media activations, in that case behind Absolute.

Welcome to the Absolute world of cocktails. In this exclusive yet inclusive world, everything is mixed. Expression, personalities, friendship. The more we mingle, the more we create, the stronger we become. Absolute. Born to mix.

Thank you, Hélène and Alexandre. Let's now move to the Q&A session and opening the line. Please have two questions maximum per caller, and then we will take turns. Alexandre and Hélène, back to you.

Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star 1 and 1 on your telephone. We got our first question. Please stand by. The first question from Samuel from Citi.

Thank you. Morning, Hélène, Alex, and Florence. So I've got two questions then, please. Firstly, I wonder if you could just provide a bit more colour on the current situation in China. When, Alex, you mentioned that trading trends have clearly improved since June, I appreciate that you were also managing inventory through your Q4. But perhaps you could talk a little bit about the underlying depletion trends you've seen in recent months and into Q1, and in particular, how you're thinking about Mid-Autumn Festival and how wholesalers are preparing for Mid-Autumn Festival. And then secondly, on the whole issue of COGS inflation in fiscal 2023, clearly we're seeing higher energy costs and they'll be impacting, I suppose, your glass supply in particular. But how vulnerable are you to that ongoing energy cost volatility we're seeing? Are there any areas in your supply chain where you're experiencing disruption or could be vulnerable to disruption in the coming months? So any colour there would be very helpful. Thanks.

Thank you, Simon. I'll answer the first question. I'll let Hélène answer the second question. Listen, on China, the answer is more or less in your question. First of all, Q4 was difficult, in particular April and May, because of the lockdowns, to put it bluntly. As we mentioned in the presentation, since the month of June, we've seen a clear improvement in trends in China. So over the month of June, July and August. So I would say maybe two things. We started the year, this fiscal year, or we ended last fiscal year in China with very, very healthy stock levels, which is very important, which allowed us to pass, by the way, pretty good price increases in May. And second, the trade has been preparing quite intensively for mid-autumn festival, which, by the way, is next week. And the sell-in to the trade has been particularly strong. Now, how will the sellout perform through Mid-Autumn Festival? I don't know, is the answer. I'll have the answer in approximately... I'll have a qualitative answer in a couple of weeks from now and a more detailed mathematical answer in six to eight weeks from now when we'll look at stock and trade. But so far, so good for China.

So transition to COGS inflation. So far, not so good, I must say. That's obviously a very fair question. We've been facing inflation already in fiscal year 22, as you know. This has been probably accelerating in H2 and impacting our COGS. We were obviously expecting that, ready to face that and working hard. to offset the COGS inflation with all the initiatives we mentioned in terms of price increase and operational efficiency. Back to your specific question for fiscal year 23, so we believe this is obviously something which will remain in the coming months. Your point on the glass supply is very relevant and we believe that the high cost of energy is going to impact us in fiscal year 23 in terms of dry goods because of the impact on glass supply. And again, same focus for us to offset that and protect margin with the price increase, revenue growth management and all the operational efficiency. Back to the specific question on the energy and the risk in terms of having energy across the year to protect our So obviously this is as well something that we are definitely monitoring very closely and very carefully through first an optimization of our plant production management, meaning what we are producing and securing the production of our finished goods as we speak and ahead of what might be much more tougher times in the coming weeks and months. There is as well something which is, I believe, important to flag is that some countries are less exposed to that risk. For instance, UK and Ireland are probably less exposed than France to the Russian gas. So this is obviously a good thing for us. when you know how big is our business in Scotland and Ireland and that there are even some countries for which there is some protection to get the supply of energy for our industries among others like for instance Sweden.

That's very helpful. And just to check, you were able to absorb the cost inflation that you saw in 2022 through pricing and the revenue management action you took. Do you expect to be able to do a similar sort of thing, therefore, in 2023?

Let me answer to that question a bit more broadly in terms of margin expansion. This is a key focus, as Alexandra mentioned. So we are already working hard on it, I would say. So in terms of top line dynamics, There's a lot that we've been doing in the very recent past in terms of price increase everywhere, starting in H1, fiscal year 22, probably with some acceleration as well in H2. And we will benefit from that carryover price increase in fiscal year 23. But we are not only, let's say, leveraging that. We are working already, as you saw, for two key markets, China and China. and the U.S. an additional price increase in China as of May. So we'll have the full impact in fiscal year 23 in the U.S. in the coming days and weeks. And there's more to come in many markets, I would say all the markets. So this is obviously something that will definitely help. Again, promotional intensity is something that we will as well improve and optimize very strongly. And we have the support on our key digital program On that front, operational efficiency is as well something which will be very intense. And when I talk about operational efficiency, it's very broad. It's going to impact the manufacturing, the procurement, obviously, the packaging, lots of value engineering as well. and supply chain, obviously, SNOP, and so on, and so on. So all the objective of that is to protect our margin, starting with gross margin. We want to secure a deployment of solid investments in terms of A&P and structure, and we have the intention to deliver some operating margin in fiscal year 23.

Very clear, very helpful. Thank you.

Thank you for your question. We are now taking one next question. The next question from from Jefferies.

Please go ahead.

Good morning, Alex, Alain, and Florence. Two questions for me, please. First of all, in your guidance, you're talking about broad-based growth on a normalising comparison basis as opposed to a normalised comparison basis. When you look at slide 15 and 16, you can see the travel retail is still down on a three-year basis relative to where it probably would have been had COVID not taken place. And Asia as well is still probably running slower than what it would have done. Can you talk to which parts of the business still have some bounce-back potential in that context? And then the second question is really around any changes in consumer behavior that you're seeing. Clearly, we read a lot about the cost of living crisis in the papers. Can you talk about either channel behavior, downtrading from premium to mainstream, pack format changes, or geographical changes, anything you can highlight? And I guess as a second part of that question, one of your peers yesterday, your U.S. peers yesterday, was talking to spirits of unaffordable luxury and unaffordable indulgence. Do you subscribe to this theory? that could give you a degree of protection in a weaker consumer environment.

Sure, maybe you want to start with the first question. Yes, with pleasure.

So normalization, obviously, what we want to flag is that our performance this year is delivered on a favorable, comparable basis and is obviously boosted by the recovery of the on-trade, which is obviously a key channel for us. And I'm sure that you saw with the excellent performance this year that we definitely benefit from that recovery and leverage that, I would say, at scale. So this, let's say, is almost normalized in many, many countries. So that's why the environment, we believe, would be normalizing for fiscal year 23. I think you flagged the two main points. geographies or channels for which there might be still some room for improvement in terms of recovery, or I would say additional dynamism. So travel retail, as you mentioned, is not yet back to what it used to be pre-COVID. And obviously, this is mainly linked to the Asia situation and the gradual recovery in passenger traffic in Asia, which is happening quite recently outside China. By the way, when you think about fiscal year 22, the passenger traffic was still quite down. In H1, there was some improvement, probably around October and November. Then again, some additional restrictions because of the Omicron variant and the recovery gradually materializing, especially in America and Europe. So long story short. There is some room for additional recovery in travel retail, and as Alexandre mentioned, there is already a strong performance in fiscal year 2022, and we expect travel retail for our business to be back to what it used to be pre-COVID in terms of profit, which is obviously great news. And then Asia, and probably more specifically China, has been impacted, obviously, in H2. with the zero-covid policy and with some significant lockdown of cities like Shanghai early spring. So we are obviously very aware of the volatility of what could still be at stake in terms of COVID restrictions in China. The year is starting in a positive way in terms of shipments. We will be obviously monitoring the situation very closely across the year, starting with what would be the outcome of Mid-Autumn Festival in nine days now.

Ed, on your second question, there are a few things I'd like to highlight in the post-COVID world. The first one and the most important one that we have witnessed, and I'm sure you have witnessed it over summer, basically everywhere in the world, is what I like to qualify as the newfound appreciation for conviviality. people getting back in the trade, people still home painting as well, basically people getting together around our brands, not just our brands, but our brands to celebrate what I like to call togetherness. This is more pronounced than ever before and I think this is a clear positive and we've seen it across summer in terms of sales. Second, and you said it, our premium plus spirits are what we like to call affordable indulgence. And we've seen a number of studies that show that premium plus spirits tend to be very resilient in difficult times. So the first things consumers will do when things get difficult are not about spirits' linked behaviors. we're a lot more resilient than many, many other categories. And it all depends on which way the economy is heading and if there's a hard landing, a soft landing, and so on and so forth. And I would just stress a couple of other topics. Post-COVID, again, in terms of behavior, convenience is increasingly big. And we're playing in that space. Hometainment is extremely resilient as well. So as people go back in the on-trade, and we've recovered quite significantly in terms of on-trade, the off-trade has remained quite resilient, which means that our increased household penetration across the world is sticking to some extent, clearly. And this is led also by convenience, ready-to-serve cocktails, and so on and so forth. Listen, I don't know if there will be some trade down. I often get the question. At this stage, as far as our portfolio is concerned, we have not yet seen any kind of trade down. But it's going to be interesting to see what happens in the coming months.

Thank you.

Thank you for your question. We are now taking our next question. Please stand by. The next question is from Oliver Nicolai from GS. Please go ahead.

Hi, good morning, Alexandre, Hélène, and Florence. I've got two questions, please. First of all, pricing was missing a digit across the group in 2022, as you said initially. However, looking at the strategic brands, price mix was more than 3%, and many of the key brands like Jameson, Shiba, Absolute, and Martel were actually below that. Should we expect more pricing power for these strategic brands in 2023? Now, I acknowledge that this table on slide 37 is globally, and obviously you have some difference between countries, but that would be interesting to hear your thoughts on pricing for these key brands. And second question, on the FX guidance, could you please help us quantify the very positive FX impact that you are expecting in Fulia 23? Now, looking at the historical sensitivity that you have provided, is it fair to expect at least 200 million positive FX impact on EBIT in Fulia 23, or my math is not correct? Thank you.

It answers your question on price, on currency. You have the answer in the appendix, at least for one currency, which is the impact of the dollar. So for every single percent of appreciation of the dollar, you have on a full year basis 14 million euros of additional profit from recurring operations. And that's just the dollar. So if you take our average rate last year of 1.13, If you take current spot rates, and again, we're not hedged. We have what we like to call a natural hedge, so nothing is locked in. But if you take one, that's a 13% on average, a 13% over the full year, assuming rates stay at this level, which frankly, I have no clue. But if they were to stay at this level, you already have 13 times 14, and that's just for the dollar. So I hope this helps for your calculation. And so Hélène, what are we doing on pricing?

are we doing i'm not going to give a such a quantified view on pricing but let me first clarify because as you mentioned olivier the the price mix is what it is for strategic brands and knowing that we have as well some quite positive mix coming from specialty brands that are impacting those numbers so back to price and the pricing impact in fiscal year 22 is mid-single digit. I think that's really the number you should have in mind. And what to expect in fiscal year 23. So we want to work intensively on additional price increase. And we are executing that strategy quite soon in the year with China in May and with the US number one market in the coming days and weeks. So that means that in fiscal year 23, we expect our pricing to be as strong and probably, hopefully, even stronger than what it was in fiscal year 22 because of the carry forward impact of fiscal year 22 price increase and additional price increase we're going to implement with, again, a focus on the excellence in the execution across the world.

Thank you very much.

Thank you. Thank you for your question. We're now taking our next question. Please stand by. The next question for Laurence Wyatt from Barclays.

Good morning. Thanks very much for the questions. A couple from me, please. Firstly, on your travel retail expectations of getting back to pre-2019 profitability levels, do you have any expectations on what might happen in the travel situation In China, of course, at the moment, there's a quarantine period required. And, of course, if the Chinese travelers were to start traveling a bit more, then that would help travel retail. What's baked into your expectation of getting back to FY19 profitability? And secondly, on your net debt levels, we're now at 2.4 net debt EBITDA. I think historically you used to have a target of between 2.5 and 3 EBITDA. I was just wondering, given we're below that historic target, if you could update us on any current target you have, that would be great. But given the share buyback, this year is currently expected to be a little bit lower than last year. I was just wondering if you were to have net data below that level, if you would consider changing your share buyback target. Thank you, Keith.

Maybe on your first question, and I'll let Hélène speak about our target, or our non-target in fact, but anyways. On GTR, clearly we expect for this new fiscal year to be back to pre-COVID profit levels, so to the profit we had delivered back in 2019. By the way, it's quite interesting to see that versus 2019 volumes will be down and value will be significantly up. And that's how we're going to be delivering a similar number of profit than pre-COVID. For China, listen, it can only be what I would call the cherry on the cake. So far, our duty-free sales in China are focused on Hainan, where The situation can be volatile as well with lockdowns and goes and no-goes, etc. And that's our key assumption for the current year. But irrespective of this, we will be delivering pre-COVID level profits. which I think is quite impressive. What it does show is the strong resilience of GTR if you allow people to travel. So we'll see what happens to Chinese travelers. But in the meantime, it's great to see travel retail coming back to pre-COVID levels in terms of profits.

So financial policy, just to clarify, as you alluded to, Alexandre, we don't have a target in terms of the debt to EBITDA. So the announcement of this share buyback program for this year is very consistent with our financial policy priorities, knowing that the share buyback is the number four priorities. I'm sure you remember the first three priorities, which are strategic investments, M&A and dividend. And by the way, this is a range which is quite consistent with what we've been executing in fiscal year 22. Great.

Thank you very much.

Thank you for your question. We are now taking our next question. Please stand by. The next question from Credit Suisse.

Hi, morning, Alexandra, Helene. A couple from me, please. Firstly, can you give us a sense of how your sellout trends are evolving in the U.S.? Q4 seems to be a little bit soft. I appreciate that was impacted by some shipment phasing, but love to get an update on underlying sellout trends and where inventory levels are at the moment there. My second question is just on India. One of your competitors there has been pulling back some of the Scotch portfolio to try and seek pricing. Just curious how you're handling the pricing situation there in your Scotch portfolio. Thank you.

I'll start with India and I'll let Hélène answer on inventory levels and sell out in the U.S. Vis-à-vis India, we are continuing to sell our brands. As you've seen, our performance is quite remarkable, up 26%. overall in india with very very strong double-digit growth levels of our imported brands of course we are working to increase our prices so the way we are doing it is through discussions and dialogues with with the key the key people there to increase our our prices and we'll see how this pans out In the meantime, our performance is very strong in India and across the whole portfolio and the country.

So the U.S. in Q4, first, as you rightly mentioned, we have monitored our shipments, our net sales in Q4 to land with very healthy level of train inventory. That's what we've been announcing back in Q3, and that's exactly what we've been saying. doing it in Q4, meaning that our sell-in performance in fiscal year 2022 reflects exactly the wholesalers' depletion. When it comes to the sell-out, and especially if you look at Nielsen and NAPCA, as you know, the coverage is quite limited, so we are tracking that, of course, but as well using all the information our wholesalers are sharing with us monitor our performance and to lend with this very healthy level of trade inventory in the U.S. By the way, I use the opportunity of that question to clarify that we have very healthy level of trade inventory everywhere in the U.S., but for instance, as well in China.

Thank you. Thank you for your question. We are now taking our next question. Please stand by. The next question from Chris Beecher from Breburn. Please go ahead.

Good morning, all. Thank you for the questions. A follow-up question on the COGS and pricing comments that you said earlier, Alain. Forgive me if you did quantify this, but do you think that the mix of pricing that you've talked about is enough for you to be able to expand gross margins in fiscal year? 23. Followers, as I say, have already said this, but it would be useful to understand. And then secondly, on your higher capex number, 7% is significantly ahead of the long-term average. How long do you expect this to remain elevated? And can you give us a bit more color on where the extra spend is going? And is there an element of inflation within your sort of maintenance capex here, or is it all driven for growth? Thanks.

Okay, so maybe I take both, if that's okay with you, Alex. So on pricing and COGS evolution, I didn't quantify it. Obviously, there's a lot that can happen. What I can reiterate is our ambition and our confidence to protect gross margin thanks to pricing. and operational efficiency, despite COGS inflation, which will remain quite high. So on CAPEX, you're right, it's an acceleration. It makes lots of sense when you look, by the way, at our strong performance, especially when you look at the performance of our aging portfolio. whiskeys, Scotch whisky, Irish whisky, but as well US whisky, and as well obviously the ambition for Martel. So the main driver of this acceleration is to protect the future growth of those brands, meaning our distillation capacity, casks, and warehousing.

there is some inflation impacting those numbers but i think what is really key to have in mind is this acceleration of growth that we are protecting through those uh those investments and perhaps to qualify that is it a one-year investment to to make the capacity for a five-year growth scenario or or are you is it a two to three-year program to sort of catch up and try to model how how elevated capex will be because your competitor is talking Your main competitor is talking elevated capex for a few years.

Thanks. Thanks for the additional question. It's fair to say that when you talk about expanding your distillation capacity, things are unfortunately taking more than a few months. So there will be some increased investment over the next few years. But this guided number is for fiscal year 2023.

Thank you very much. Thank you for your question. We are now taking our next question. So please stand by. And the next question from Mitch Collett from Deutsche Bank.

Please go ahead.

Good morning. I know you've reiterated the medium-term guidance, but I just wanted to ask for my first question. Whether you expect F23 guidance be within that medium term guidance range. And then my second question is, can you maybe comment on AMP to sales in F23? It was flat as a percentage of sales this year. Do you expect it to be flat again or potentially to go up? And do you think you're holding share of voice within spirits? Thank you.

Maybe I'll start with the first one. So for the guidance, I think for Fiscal Year 23, obviously we are leveraging the excellent performance of Fiscal Year 22, which is giving us confidence for delivering our medium-term strategic framework of Fiscal Year 23 to Fiscal Year 25, which is obviously a three-year strategic plan. and fiscal year 23 is the first year of that plan. So when it comes specifically to the guidance for fiscal year 23, you have what we believe is quite a solid qualitative guidance, starting with this dynamic broad-based net sales growth and again with this ambition, intention to deliver some operating leverage.

And maybe on your second question in terms of ANP, we are guiding towards a similar ratio, similar which is approximately 16%. As it's been over the last few years, I really believe and we collectively believe in Pernod Ricard that this is at this day, the right type of ratio with which we can clearly maximize return on spend, return on investment. And as you may have seen during Capital Markets Day, the key digital project called Matrix is all about maximizing and optimizing this ratio. And by the way, we've gained market share basically almost everywhere with that kind of ratio. We've been growing brand equity across our portfolio almost everywhere as well with that kind of ratio. And it's always nice to give a framework to our teams because otherwise there's never any limit. And this is typically the kind of framework I believe maximizes value creation over a long period of time. Maybe that ratio can move on in a few years' time, but so far, At this stage, we believe it's an optimal ratio where we can maximize return on spend through brand equity building across markets. And by the way, we've significantly increased our media spend within A&P, just to give you that example. So that's one example we've done this year. You saw all the new media campaigns. There's a slide on that, and we showed you three new commercials recently. that have been launched or are about to be launched as we speak. So you should stay tuned to see more of that. But I think 16%, not only do I think I'm convinced, it's currently the optimal ratio to do what it is we want to do. Thank you both.

Thank you for your question. And now taking on our next question. The next question from Cedric Lexard from Stifo. Please go ahead.

Thank you very much. Good morning, all. Two follow-ups on questions that have been raised already on CapEx and on the midterm guidance, on the 23 guidance for the margin. On CapEx, maybe could you help us understand which would be the main projects where you will lift investments considerably? You mentioned this to me. Maybe can you help us, you know, understand where it happens and what's a big driver for raising from 5 to 7? You already flagged some stronger capacity in your CMD, but could you be a little more precise for us to understand your day-to-day business? And the second one on the mid-term guidance, plus 50 to 60 basis points on margin expansion, is it fair to assume that this average over a three-year period would be more back-end loaded given all the short-term pressure? especially if you neutralize the cost of inflation through a stable plus growth margin. Do you think you have enough room on operating leverage to offset the cost of inflation this year, or does it look too ambitious and will 24 and 25 help you to come back on this trajectory of 50-60 basis points? Thank you very much.

Maybe just before handing over to Hélène on CapEx, we will be making a pretty significant great announcement next week. And I don't want to spoil the news for the teams who have been working on that. So I usually am very happy when we invest because it's not a cost, it's a real investment. So we will be announcing something pretty nice next week on that front. By the way, we've already announced a number of CapEx initiatives during this past year which are impacting this new year. We don't invest in one day, it takes time. We announced significant investments both in Scotland and as well in Ireland. with the aim, by the way, in Ireland to become carbon neutral in 2026. So more to come on that front, I'm afraid to say, next week. I don't want to spoil the news. But again, it's for the good cause. I mean, when you look at our growth rates and our medium-term ambition, which is a great transition for an end, we need the strategic stock and the capacity to fuel that growth.

So I was not about to spoil anything. I would be too nervous to do so. I can only say, add to what you said, Alex, that this is our number one priority in terms of financial policy, CapEx and strategic inventory. This is absolutely critical to protect the future growth and as well to protect our current investment because this is, as you flagged, around maintenance, around expansion capacity, again on distillation, casks, warehousing. There is as well some significant investment to deliver on our sustainability roadmap, from a good place. And all of that will contribute to this circa 7% of net sales next year. On the mid-term guidance, I'm sorry, I'm probably going to repeat myself. So the fiscal year 2023 to 2025 ambition is a three-year ambition. The first year is fiscal year 2023. At this beginning of fiscal year 2023, what I can share with you again is our ambition and our intention to deliver some operating leverage. So let's see later what would be then the exact contribution of every year to that operating leverage target. What I believe matters is our confidence and our focus to deliver that by fiscal year 25.

So I'm being told there's time for one last question.

Thank you for your question. We are now taking our last question. So please stand by. And the next question from Jeremy Felco from HSBC.

Good morning. A couple of questions from me, a bit more detail on some parts of the business we haven't discussed. So firstly, if you could give your views on Cognac in the U.S. and how you think that category... And the second area of great strength has been Latin America, phenomenal growth from that business. And so again, would you think that sort of, I think not 50% growth, but the sort of dynamism that you had in markets like Brazil can continue into next year or whether there's some elements which you think could end up reversing things.

You want to talk about cognac in the U.S.?

I would love to. So I think this is obviously a very exciting category for us. We have a fantastic brand, Martel. We have as well a solid strategic inventory. We've been building over the years, back to the previous question, to support the growth of Martel and the growth of Martel globally. not only in Asia, and obviously the US is a very exciting market for Martel. We had quite an active year in fiscal year 2022 with as well some great media campaigns, and this is as well a key contributor to the growth in fiscal year 2022, back to what we said, a very broad-based growth coming from many strong brands, and especially in the US. This is as well, again, a key contributor to growth together with Jameson, together with the Glenlivet, together with U.S. Whiskey, together with Agave Portfolio and with Malibu and Kahlua. So a lot to be excited about for us. Solid investment, acceleration of those investments to deliver as well future growth in the U.S.

And with regards to LATAM, we don't give specific guidance by region, but what I can tell you is we do expect dynamism to continue across Latin America, driven by our Scotch whiskey portfolio, in particular Chivas, Ballantines, and to a lesser extent, Jameson, and Absolute, and Absolute Vodka, so across LATAM. And I think that is it. Yes, I'm being told that unfortunately we need to stop here. So again, thank you for joining us this morning and wishing you a great day.