Pernod Ricard S A

Good morning, everyone. We're very pleased to welcome you at our fiscal year 2024 full year sales and results presentation. Alexandre and Hélène will take you through the slides and then we will follow up with a Q&A session. Alexandre, it's to you.

Great. Well, thank you and good morning to all. I really hope you had a great supportive summer. So let's directly dive into our fiscal year 24 sales and results. So we've had a robust performance in what we can qualify a normalizing spirits market with organic net sales broadly stable at minus 1%, which would have been plus 1% excluding the exit from Russia. as a very strong performance in many mature and emerging markets, offset a still normalizing United States and a weak China. We've experienced sequential volume recovery throughout the second half of our fiscal year in most markets. Pricing, operational efficiencies, and cost discipline have led to organic gross margin expansion and organic operating margin expansion of respectively 108 basis points and 80 basis points. We've continued to invest in our brand's desirability and sustainability for long-term growth with a very sharp and consistent marketing policy, and to prepare the future, an acceleration in our strategic investments. and as you may have seen over the summer we continue to actively manage our portfolio with a number of disposals the most recent one announcement being the disposal of our strategic wine brands So in a nutshell, you have here our financial performance with organic net sales, as I said, broadly stable at minus one, and profit from recurring operations growing organically by plus 1.5%. We'll go in much more detail in a few minutes with Hélène. A core strength beyond our premium and broad portfolio of brands is our broad-based geographic footprint. We have balanced regional exposure and we have balanced exposure in terms of both mature and emerging markets. These results exemplify the benefit of our global breadth, mitigating the impact of weaker results this last fiscal year, both in the U.S. and in China. We have growth in two out of our three regions, if we exclude the one-off impact of the exit of Russia, and we have positive price mix across the board, benefiting from the carry forward of our price increases the previous year. And finally, we've gained or held share in most markets across the world. The broadly stable organic top line results are to be seen in the context of market normalization following the outsized what we will call revenge conviviality growth enjoyed in the post-COVID period that lasted two years. Normalization is well exemplified with volumes in most markets being broadly stable or even growing now in the second half of the year and this is obviously a very important KPI which underlines the strength of our business. Our focus as a consumer-centric company is clearly to understand and address swiftly our consumers' desires and aspirations and really invest behind all of them. And this has been a very active year, and we've been increasingly agile in doing so based on our new organization and new governance. a number of examples with, number one, time-to-market media campaigns that are much shorter, with a recent launch of the new media campaign around screwball whiskey. We've been very active on the innovation front. We've launched, I think, a record result of limited editions this year, with the Lille Emily in Paris limited edition, but as well the Absolute Warhol, the ricard limited edition which was all over the place over summer in in france and the malfimi sony limited edition and we launched absolute ocean spray the ready to drink range which is currently enjoying a huge success before we move on i'd like to have a quick video please Yes, so Don't Drink and Dive campaign, which just stresses as well, every single one of our brands has a responsible consumption roadmap as well. So we've been actively as well involved in partnerships because it is absolutely critical for all our brands to be relevant, culturally relevant and engage with our consumers who are big sports fans. And I'm very pleased to announce basically the signing of three great partnerships over summer. Chivas is now the official whisky partner of Arsenal. Jameson is now the official partner of the English Football League. And I think since yesterday, we've just signed a partnership with Paris Saint-Germain, which will benefit the entire portfolio of brands of Pernod Ricard. And I'd like to say more to come very soon, and not just in football. We've also been very active in terms of portfolio management. In fiscal year 23, we were mainly very active on the acquisition front with a record number of acquisitions. This year, this past fiscal year, was more skewed towards a number of disposals. So we disposed of Clank Campbell. We disposed of Becherovka. We recently announced the disposal of our strategic wines, basically the Australian, New Zealand, and Spanish wines to really focus our portfolio of brands on the very premium end of spirits and champagne. That transaction is expected to close in that second half of this new fiscal year around spring. That being said, we continue to focus on fast growing and attractive categories. And I'm also pleased to announce, and I think the announcement took place six minutes ago, if the teams are very disciplined, that Pernod Ricard has joined Lewis Hamilton and Casalumbre Spirits to enhance the success of Almave. And Almave is a super premium distilled non-alk blue agave spirit. So that brand, by the way, the taste is... It's quite amazing, and by the way, this is one of the two expressions of Almarve. It is at the confluence of three accelerating global trends, tequila, as you know, non-alcoholic alternatives, and the desire for authenticity. So I'm very excited about Pernod and Richard joining this adventure and accelerating the development of Almarve across the world. so we're a performance driven business and that means driving sustainability in everything we do to have and drive sustainable growth over time so we've made a number of progress around obviously our strategic roadmap good times from a good place you have here four key areas where we've made significant progress and which remain a clear focus for our performance across the business. Speaking of, so our revised reduction targets in line with the 1.5 degree trajectory have been validated by the science-based targets initiative. We have action plans across distillation, packaging, transportation, and agriculture. In distillation, it's around renewable electricity. It's about mechanical vapor compression. That's one of my favorites. Anyways, in packaging, it's about reducing packaging weight. It's about increasing recycled content and many, many other initiatives. Transportation, about optimizing shipping loads, about exploring alternative transportation modes, and so on. Agriculture, about regenerative agriculture. keep on quite for a while but this is very important for our business performance so this year we've delivered a robust performance in a normalizing market with a number of technical impacts as well but at the end of the day our business model we aim to deliver sustainable stretched profitable growth and I think it's important to go back to some of the key fundamentals. So we clearly want to build on our strengths, and our strengths are based on what I call that triptych of The most premium, complete portfolio of brands in the industry, number one. Our balanced and broad-based geographic footprint, number two. And our people, our winning culture, number three. And their commitment to driving performance across the business. To leverage as well our growth model. which is designed to fully empower our teams to seize growth opportunities where they see them in a very agile and swift way with a strong and continuous resource allocation strategy. And finally, leveraging tech and data to do so by developing our capabilities across the business and deploying our key digital projects. Again, our business is based on underlying very favorable trends, which will sustain and which sustain our long-term growth for premium spirits. There are very powerful megatrends. Again, global growth of the legal drinking age population, global growth of middle and affluent classes across many emerging markets, and women increasing their share of consumption. Evolving consumer needs, to which we adapt through our brands, the way we activate our brands, and through innovation and, as I mentioned earlier on as well, acquisitions, so experiences, self-expression, and convenience, for instance, RTDs. And the increasing penetration of spirits consumption amongst the American Gen Z. And over the last four years, that penetration has increased by three points, growing from 71% to 74%. I was mentioning leveraging tech and data. So the foundational layer of consumption occasions, which we master through Maestria, and then underpinned here with marketing effectiveness through Matrix, with promoting and pricing effectiveness with Vista RevUp, and Salesforce effectiveness. which are all powered by tech and data, artificial intelligence algorithms. Right now, we have 28 markets covering three quarters of our business that are now equipped with at least one KDP, and we're still deploying with the end vision to have what we call the CODI cockpit, which is doing the entire strategic planning for the year across the portfolio, leveraging the full tools. I mentioned we put in place a little bit more than a year ago now, Project Tomorrow. That was an organization and a governance to facilitate and speed decision making, particularly around resource allocation in a world which is quite volatile, one could say. So we have the exec, which is now fully operational, and we have a very, I would say, agile operating model, where the HQ are ten management entities and are seven brand companies. Well, what for? Well, to drive what we call now stretched profitable growth. So while year-to-year performance may vary, obviously, in a volatile, I would say, environment, we're clearly delivering our top-line growth framework and our growth margin expansion. This consistency over time is a clear feature of Pernod Ricard, of our performance over time. We do what we say and we say what we do and we deliver over time. I'll give you a couple of illustrations on one of our key strengths, which is our broad-based geographic footprint. I mentioned half of our exposure is to emerging markets. The other half is towards mature markets. And if you take one example in terms of emerging markets, and the reason why I took India for that presentation is India this year for the first time in terms of net sales is now our second largest market. Well, India enjoys very strong and favorable macro fundamentals. obviously strong GDP growth and the middle and affluent class population is growing and we have every single year 25 million people joining the legal drinking age population. There's a strong presence of premium plus Western style spirits in the Indian spirits market. And it is indeed the world's largest whiskey market. Well, we've grown on average over the last few years, over the last five years, By 8%, by the way, in line with our algorithm for India, which is high single, low double digit for that market. We do enjoy a strong leading position with, broadly speaking, half of the market. And with a great portfolio of brands, which continues to enrich itself with some innovation, as you can see. Now, with regards to mature markets, I thought it was interesting as well to illustrate the way we operate with the likes of Germany, with double digit growth, by the way, consolidating our market leadership in that very specific market. So Germany does face mixed macro fundamentals with, I would say, subdued GDP and some degree of cost of living squeeze. with pride labels in in germany and discount retailers that are very strong in that market but a spirits market which is growing roughly at four percent so we've grown on average i would say three times the market rate we've grown double digits on average every year over the last five years Our portfolio has been adapted to address consumer trends. Absolute is now the number one premium vodka in Germany. Lille has grown almost 30% year on year on year over the last few years. And Germany was one of the pioneer markets for our key digital projects and our key digital acceleration roadmap. And we see here the results. So again, that was just to illustrate our business model. So at the end of the day, this model is here to drive long term, sustainable value creation. And I think it's important to remind you what our medium term financial framework looks like. 47% top line growth aiming for the upper end of the range and driving organic operating leverage of 50 to 60 basis points on average. Now, with the industry's leading and most complete portfolio of premium spirit brands and our broad-based and balanced geographical footprint, I can only reiterate our confidence in that medium-term framework. Obviously, for this fiscal year 25, and I'll mention it during the outlook, we're not yet giving any guidance. But we're clearly confident on the underlying fundamentals to drive that medium term financial framework. Very briefly, in terms of our top line update, on the must win markets, the US down 9%. As I mentioned, the spirit market in the U.S. continues to normalize but remains resilient with sellout for the market in positive territory. Our depreciation value is down 7%. Our sellout for Panorica is down 4%. Our acquired brands have enjoyed and are enjoying good growth. Jameson is holding its share. There have been, as we mentioned, retailer and distributor inventory adjustments throughout the year. But in the environment with interest rates that are still quite high, we expect to see some further inventory adjustments, probably at wholesaler level in this new fiscal year, which leads us to anticipate a declining Q1 for the U.S. For China, down 10%, allows to be very straightforward, a very challenging macroeconomic environment, which caught us a bit by surprise basically a year ago. We were the first ones to share that surprise with you. We do see continuing weak consumer sentiment, which is directly impacting demand. Our brand equity metrics are growing, are remaining very strong, in fact, are even strengthening. And we have very strong price discipline in that environment. We have gained shares throughout the year. Stable sales for Martel Noblige. Good performance. I would say very good performance, very good because it's double digit performance for brands like Absolute Jameson, Omega, Beefeater, all growing double digit. We do expect a strong decline in the first quarter with subdued trade sentiment ahead of MAS. MAF, which is going to take place in a couple weeks. That's what our teams clearly shared with us. And we are cycling a stronger consumer sentiment last year in Q1. But for the full year, clearly we expect, I would say, a similar trend to fiscal year 24. India, listen, at the end of the day, let's not spend too much time on India. All of the lights are green for the Indian market. It is a buoyant market. Our teams are very bullish for India. Travel retail up 2%. So remember, four-year sales growth. with the soft first half of the year and good growth in the second half, still impacted to some degree by weak Chinese traveler demand. From a regional point of view, Europe up 2%, excluding Russia, with a strong performance as you've seen in Germany, but also in Poland and a number of other markets. We've held our gain share in most European markets and across most of our portfolio. America is down 5%, by the way, excluding the US. Basically, a pretty good performance across the board. with some good market share gains in Brazil and Mexico, for instance. Asia, rest of the world, I would say good with 3% growth and a very good performance in Japan and Taiwan. uh where we've gained share as well and the very strong results across africa middle east led by turkey but also countries such as nigeria a flat south africa with within a difficult macro economic environment Very briefly, in terms of our house of brands, strategic international brands down 3%. Martel is impacted by China. Strong growth for Jameson outside Russia, across the board, I would say. for absolute strong growth in Europe, excluding Russia again, and in Asia, both in China, I mentioned double-digit, but also in India, etc. On the strategic local brands front, again, very strong performance for us, Three Grims Whisky particularly, Rollstag and Blender's pride. Strong growth as well of Kahlua, very strong growth of Kahlua, not just in North America, it's stronghold, but as well in Europe and in many other markets as well. And finally, in terms of specialty brands, broadly stable with good growth across Asia, Middle East, Africa, Central Europe, LATAM. and a soft western europe and again u.s impacted by retailer destocking but very good growth by the way experienced on bamboo screwball altos and lily and now i'd like to let elena go in much more detail in terms of our financial performance thank you alex good morning everyone so let's come back to the financial performance

So I'll start with the gross margin expansion and the impact on the organic profit from recurring operation, which has been growing by 1.5% in the context of a broadly stable top line. So we have achieved strong organic gross margin expansion of 108 bps, which is as well translating into organic growth. operating margin expansion of 80 bps this is coming from the top line and especially from the strong price increase of their fiscal year 24 which is mainly coming from the full year impact of fiscal year 23 significant price increase at that time in a context of high inflation and as well some additional price increases a bit more tactical in fiscal year 24 especially in inflationary markets we have as well worked hard on the price and promotion with a strong focus on revenue growth management. And this is obviously quite helpful to upset the impact of COGS inflation, which has been moderating, but which was not a tailwind in fiscal year 24, so remains a headwind as far as COGS are concerned. with obviously a very consistent focus on ongoing operational efficiencies just let me give you two examples that for instance removal of secondary gift box packaging was as well accelerated in fiscal year 24 and we have reduced energy consumption as a result of the implementation of the mechanical vapor compression that alex was alluded to in the snr roadmap Naturally, we had some negative market mix in fiscal year 24, which is impacting our margin with the weight of the US and China in our performance. When it comes to resource allocation, we've been very agile, keeping a strong level of investment, €1.9 billion, which is circa 16% of the net sales, with a very agile deployment of this investment across the world, across the markets and across the brands, with always that priority of maximizing efficiency and, of course, leveraging our key digital programs to secure that maximum efficiency, and especially in terms of consumer touchpoints. As well, I would like to insist on discipline on structure costs, which was absolutely necessary and that has been pursued in fiscal year 24 very consistently. So, on a reported basis, the group faced a negative foreign currency impact, quite a sizeable one of 425 million euros, which was primarily a translation effect, notably a rising on Turkish Lira, Argentinian Peso, US Dollar and Chinese Yuan. This negative currency impact has been partially mitigated by a positive parameter impact of 140 million euros, which is then leading to a decline in reported profit from recurring operation of minus 7%. So moving now to the EPS, which is down 13% due to the softer reported profit from recurring operation I was just presenting to you, and as well higher financial expenses as a result of recent refinancing at higher rates, with an increase in the average cost of debt to 3.2%. As a result, the group share of net profit from recurring operation has decreased by 14.5%, while EPS benefits from the share buyback and has declined by 13%. So moving now to the group share of net profit, we report a decline of 35%, which is due to the increase in non-recurring expenses, especially the recording of impairment arising from the planned disposal of the wine business, which is partially compensated by the reversal of historical impairment on Kahlua. As we mentioned, Kahlua has been delivering a quite strong performance in the recent past. Additionally, we record an increase in non-recurring income tax caused by changes in deferred tax, one which is driven by the reversal of the KALUA impairment, and a second one which is linked to the change in value of foreign tax credit in the US in the context of the changes of the US tax legislation. Let's move now to cash and debt. starting with the cash generation. So we are reporting a robust cash generation with free cash flow close to 1 billion euro, 963 million euro, which is a decline on the prior year due to lower reported profit from recurring operation. and an increased investment in terms of strategic investment to support future growth. So let me illustrate that with the capex of €766 million, which is increasing by roughly €160 million in the prior year. driven by very strategic priority in terms of capacity expansion, mainly in Ireland, in the US and in Scotland. So you can assume that this is linked to a very exciting whisky portfolio there. And as well, maturing inventory increasing by €645 million, which is an increase of €136 million versus the previous year, largely as a result of lower usage in a context of softer volumes performance rather than additional cash out. Just a word on the operating working capital, which is broadly stable. As previously shared, CAPEX is expected to remain at similar elevated level for fiscal year 25 and fiscal year 26 with the continued expansion in terms of capacity, especially with our new distilleries in Ireland and in the US. Moving now to the nadepta. so which is increasing by 700 million euro, leading to a net debt to EBITDA ratio of 3.1 times, which has reduced from the 3.3 times at H1, though an increase of 0.3 times compared to last year. So this is reflecting the lower year-on-year reported profit from recurring operation and higher net debt. We have a strong balance sheet which is consistent with our solid investment grade rating. With this 963 million euro free cash flow, we then have a limited impact from M&A in fiscal year 24, with some cash out especially for the acquisition of Ace Beverage, offset by the disposal proceeds of Clancobel and Becherovka. There is the execution of the share buyback for 300 million euro and a dividend payment in line with our policy. Our leverage ratio is to improve as reported profit from recurring operation growth normalises. Our commitment is to long-term shareholder value creation and we are proposing a dividend per share which is flat versus last year of €4.70 per share, fully aligned with our financial policy. And finally, I can reiterate our financial policy, which outlines our capital allocation priorities, which I believe you know. So while maintaining investment grade rating, our first priority is to invest in future organic growth, in particular through strategic inventories and capital expenditure. We will continue active portfolio management, including value creating M&A, dividend distribution at circa 50% of debt profit from recurring operations, aiming at consistently growing dividends, and last priority, share buyback, when the above priorities are fulfilled. And then back to you, Alex, for the outlook.