Pernod Ricard S A

Hello, everyone, and welcome to our Q3 FY25 sales calls. I guess you've all seen the press release this morning. Hélène de Tissot, our Group CFO, will provide a brief opening comment before we move to your questions. To allow everyone to ask a question, please ensure you have two question maximums for Hélène. Thank you. Hélène, over to you.

Thank you, Florence, and good morning, everyone. Thank you for joining this Q3 sales call. We report a resilient performance with organic materials minus 3% in Q3, minus 3% reported, and year-to-date minus 4%, organic minus 5% reported. Volumes are growing year-to-date at plus 1%. Price mix is minus 5%, primarily caused by strongly negative market mix effect. Note that there are some phasing technicalities impacting Q3 that will reverse in Q4. In India, to start with, the implementation of new automated customs clearance procedures that has delayed the clearance of our imported brands, and a temporary production interruption in a third-party production facility in one major state, which is now resolved. Second technicalities, global travel retail. In addition to the impact of the suspension of cognac in duty-free, the quarter is impacted by cycling a very high compression basis. Then the third technicality, which is impacting a number of markets, especially in Europe, is the later date of Easter, with Easter Sunday falling on April 24, which is three weeks later than last year. The global macroeconomic and geopolitical environment remains challenging and very fluid as regards to tariffs. Our balanced and both-based geographic breadth and our diversified portfolio remains key in mitigating some of the impacts caused by the environment. While three out of four of our must-win markets are significantly down, the rest of the world, accounting for two-thirds of sales, is in growth. As explained in our H1 results, we are actively managing what is within our control as we adapt to these challenging circumstances. We are continuously adapting our resources with agility, deploying our efficiency program, and steering the organization to fuel our future growth and optimizing our cash generation. For fiscal year 2025, we are confirming our outlook of low single-digit decline in organic made sales while sustaining our organic operating margin. I am confident in sustaining our organic operating margin given the progress we are making in operational efficiencies. which is our ongoing process of continuously improving both how we operate and how we are organized. I emphasize that this outlook incorporates the expected tariffs based on the information we have today. At H1 communication, we explained that our outlook was predicated on a tariff scenario with a good analyzed risk of circa 200 million euro, with circa 140 million euro in China, and circa 60 million euros in the U.S. This risk scenario remains in line with current tariff situation, i.e. 10% baseline tariffs and including 20% reciprocal tariffs on the EU. E&P will be maintained at circa 16% of net sales and strict discipline applied to structure costs. Maximizing cash generation remains a core focus for the group. Regarding foreign currencies, At H1, we reported a negative FX impact of 110 million euros on profit from recurring operations, and that we expected this FX to be positive over H2, leading to an improvement for the full year versus H1. The US dollar and emerging market currencies have subsequently weakened, and based on current spot rates, we can expect FX to be broadly neutral in H2, and for full year, FX impact to be broadly in line with H1 at profit from recurring operation level. Turning now to our performance in our markets. So on sales performance, starting with the U.S., net sales Q3 at 2% year-to-date, minus 5%. So the U.S. period market remains totally stable. Q3 organic net sales are ahead of sell-out and were supported by wholesalers' orders ahead of established announcements. Our set-up gap to market continues to reduce on both value and volume. This improvement, in particular with Jameson, Absolute, and Kahlua, reflects our ongoing focus on execution, with actions being taken on pricing, commercial excellence, and marketing excellence. For example, reinforcing our own trade brand advocacy team and developing partnerships and collaborations that ensure cultural relevance for our brands through media, sponsorship, and product innovation. I can mention Malibu Media, featuring actor Brian Cox, Jameson's sponsorship of Major League Soccer, and Kahlua Chocolate Chips launch. Overall, for the U.S., we remain confident in the recovery of the market, convinced that the current challenges are primarily cyclical in nature, and we expect to see continuing gradual improvements in our seller performance. Moving to China, net sales Q3 minus 5%, year-to-date minus 22%. The macro context remains challenging. We see sharp declines on Martel, and as expected, CNY was very soft, with significant declines in gifting. We are delivering very strong growth on premium brands, with Absolute, Allmaker, and Jensen, and Q3 sales benefit from cycling a favorable comparison basis. We've been taking price from Artel at the level of missing all digits in February. Moving now to India, net sales to three plus 1%, year-to-date plus 5%. Board-based growth year-to-date with strong underlying market demand and continuing premiumization trends. We are delivering a softer Q4 due to phasing, caused in part by the implementation of the new custom clearance procedure impacting imported spirits. and also a temporary production interruption in a third-party production site in a major state which interrupted sales of domestic spirits and which is now resolved. We see continuing strong growth, let's say very strong growth, of Chimpsons, Ballantines, and Royal Salutes, good growth on C1 whiskeys, notably Royal Style. So we are expecting a strong momentum in Q4, which includes catch-ups on Q3. Global travel retail, next year's Q3, minus 31%. Yesterday, it's minus 17%. As expected, sharp decline in travel retail, driven by suspension of the duty-free regime from cognac in China travel retail. And with a very high comparison basis, Q3 last year, again, was at plus 38%. Europe travel retail continues to grow. The Americas continue to enjoy good traveler numbers and growth from cruisers. In other markets, Europe continues to demonstrate overall resilience, with growth in France and UK, offset by ongoing macroeconomic-driven decline in Germany, as well as high comp basis in Germany last year of 36%, and the impact in Spain from the later Easter timing, which is impacting as well other markets like UK and Germany. In Asia, Japan is in good growth year-to-date, though Q3 impacted by high comparison basis. In America, Brazil enjoyed good growth with favorable comparison basis and consumer demand recovery, and Canada enjoyed good growth year-to-date. And in Middle East and Africa, we are having strong growth in Turkey and in South Africa. That concludes my opening comments, and now we can open the line for questions.

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. First question is from Andrea Pistacchi, Bank of America. Please go ahead.

Yes, good morning, Hélène, Florence. Two questions, please. The first one is on Europe. Europe was a bit softer than most were expecting, I think, in Q3. So could you give a bit more perspective on what drove the deterioration? You called out Easter phasing, which is clearly a factor. But what is also an underlying? What geographies are performing better? Which ones look more challenging? The second question, please, is on the U.S., I was wondering whether you're able to quantify the impact of the shipment phasing ahead of tariffs. Will this phasing effect unwind in Q4? And considering the level of stocks that you have in the U.S. now, either with distributors or at Perlman USA, when should we start to see an impact from the tariff on your P&L, assuming the current sort of situation of 10% is confirmed. Will the impact be delayed into the next fiscal? Thank you.

Thank you, Andrea. I think it's probably more five questions than two, so please try to make it to two. That's a very fair question. Let me start with Europe. As I mentioned in my introduction comments, there is an Easter impact, so three weeks which makes it obviously very different from what it was last year. Let me maybe reiterate that we are posting solid results, resilience for Europe globally, and with some growth in a very significant market for us like France and the UK. Maybe let me then zoom on two markets for which the performance in Q3 It's a bit more challenging, so Spain and Germany. So starting with Spain, obviously, it's trying to impact, as you mentioned, and the market is in a modest decline. So that's what we are as well delivering in Spain. For Germany, the macroeconomic situation is obviously, as you know, challenging and has an impact on the consumer demand. But for us in Q3, there are some technicalities linked to this high count. And last year, Germany was growing at 36% in Q3, which was obviously as well boosted by some technicalities. To be very clear, there were some replenishments post-conversion conflict in Q3 last year. So We don't manage our business on a quarterly basis in Europe and in any other region, to be fair. And on top of that, just maybe as a reminder, Q3 is a very small quarter in Europe, so there are probably some extreme technicalities impact because it's a low quarter. But globally, Europe is resilient. The second question, yes, so the shipment spacing, so obviously when you look at the numbers of Q3, let's say that plus 2%, you have obviously the same information that we have in terms of sell-outs, and we are probably more right now delivering sell-outs, which are, I would say, at circa minus 6%, probably more moving to minus 5% in value for these days and months. gap there linked to the wholesaler's order ahead of the tariff announcement. It's a bit difficult to be extremely, I would say, prescriptive on what to expect in Q4 because obviously the tariff situation is quite fluid, as we say, so the inventory might continue to be impacted by the tariff uncertainty. But as far as our portfolio of brands is concerned in terms of performance expected for Q4, we are, as you know, continuously closing that gap to market. It's quite visible in the past three months' numbers, so we expect that to continue to happen in Q4 with some improving performance, especially on big brands like Jensen, Absolute, and Caloua. And in terms of One activation, Q4, is quite an exciting quarter in terms of business with many, I would say, collective seasons happening with Easter, but as well as Saturday, Cinco del Mayo, and we have a lot of activation happening with festivals, Absolute at Coachella, Codigo at Stagecoach. We have as well the media launch, which I think we're Quite funny, a money book lock-off with Ryan Cox and lots of other events with innovation and absolute. So our teams are extremely motivated to have our brands very desirable and visible in Q4.

Thanks. Just to clarify here, Q4, then you should be still quite shielded from the impact of the tariff, right? Not a material impact in the U.S.?

Yes. Yes, exactly. So for us, basically, in fiscal year 25, the main impact of tariffs is China, which we are, you know, completely accepting. That's why we are confirming our ability and our confidence to sustain the operating margin in fiscal year 25.

Thank you.

Next question is from Gen Cross, BNP Paribas Exxon. Please go ahead.

Good morning, everyone. Thank you for the questions. You called out a number of technical phasing impacts in Q3 that you expect to reverse in Q4. I just wonder if you comment with ease in mind, would you expect to return to directionally positive group organic sales growth in Q4? And then I know that there wasn't any comment on FY26, which I think is probably quite typical with the Q3 trading update, but can you just reiterate that Your expectations with respect to an improvement in organic sales growth next year hasn't changed. Thank you.

Thank you. And these are only two questions. So thank you for that. So Q3 technical phasing to reverse in Q4. Yes, that's what I said. By the way, what I can as well add to that is that if we are, let's say, adjusting Q3 numbers from all those technicalities, Q3 underlying growth would have been at circa minus 2%, which means slightly better than Q2. So with those reversal of technicalities and to obviously deliver a little bit of decline, you're right, Q4 would be probably in modest growth. And by the way, as I said as well, two-thirds of our business are growing in H1 in year-to-date. So this is as well our expectations for the full year, probably growing at circa plus 1%. So for fiscal year 26, yes, we are ready to rate the sequential improvement in the top line that we are sharing for the H1 communication.

Thank you very much.

Next question is from Edward Mundy Jeffries. Please go ahead.

Good morning, Alain. Two questions, please. First is on India, clearly some phasing impacts within the third quarter. Can you perhaps double-click on what's going on within India and sort of degree of comfort that as we look to Q4 and fiscal 26, it's a much cleaner outlook and probably more in line with underlying trends. And then the second question is just perhaps a quick lap of the world in terms of inventories. We've touched a little bit around the U.S., given some of the volatility there from a tariff standpoint, but perhaps you could talk about inventories around the world. Where may they be heavy? Where are they looking normalized? And how are you thinking about the overall health of inventories if we are going into a potentially slower macroenvironment?

Yes, thank you, Ed. So I'll start with the inventory. You're right, this is obviously something that we are always carefully monitoring throughout the year with a clear focus on lending with a healthy level of trade inventory at the end of June. So nothing new for us. This is something that we're actively monitoring, I would say, as usual. When it comes to the inventory at the end of March, So they are slightly elevated in the U.S. and China, given the macro circumstances. Obviously, in the U.S., as I said, this is due to the wholesalers buying ahead of tariffs. And in China, as well, slightly elevated with some trade buying ahead of price increases. Again, we have increased our price in February for Martel. So India, the underlying performance is quite strong, and for all the reasons you know, we are in a very strong position in terms of market share. Our portfolio of brands is very well exposed to the consumer dynamics opportunities, both for the local portfolio of brands, but as well for the imported brands. So that's what we expect for the year, a solid growth in India, and we have the same ambition for PCOS26 and beyond. Then, to tell you that there will not be some technicalities from one quarter to the other, especially in a country like India, I think it's impossible, but again, that's not what matters. What matters is the continuous deployment of our strategy and strong growth, which is as well relying on a very strong premiumization trend. So we are as well very ambitious for this year 26 in India.

Thank you.

Next question is from Trevor Sterling Bernstein. Please go ahead.

Hi, Ellen. Just one from me, Ellen. So you're getting better as they go on. The U.S. sellout gap, Hélène, so just double checking, so if the market's flat and you're at minus five, that's a five percentage point gap, when I look at some of the public data, it looks like you're closer than that. I'm just wondering if there's anything else going on and maybe some sense on how quickly that gap is being closed. That would be great. Thank you.

Thank you very much for this question. I was obviously running the APUs, and there is obviously some weekly updates. So what matters is the trend, and it's quite visible now, especially in terms of volumes, that we are closing the gap strongly. We are probably now at only one point gap in terms of volume performance versus the market. We are still a bit paralyzed by a negative trend, which is obviously going to be moving forward because as you know we've been adjusting some of our pricing position and as well increasing some promotional efforts behind our brands where it was necessary and this started already a year ago but because of the creature system it can take a bit of time to reach the shelf so we're going to be moving quickly to a comparison basis where both price adjustments were in place. And that will obviously help us to reduce and close that gap even faster. So you're right, it's probably slightly better than this latter minus 5% depending on the period we are looking at. But this is obviously something that we expect to see accelerating in the near future.

Very helpful. Thank you, Hélène. Thank you.

Next question is from Simon Hales, City. Please go ahead.

Thank you. Morning, Hélène. Morning, Florence. And then can I just sort of come back and clarify your comments around the underlying performance in Q3 if we X out the U.S. stock bill, the Easter phasing, the India issues? I think you said you all going to say we've been down minus two. So a hundred bits better than the headline you reported this morning. If that's correct, as we head into Q4, I'm just trying to understand how we get back into positive growth, given that I think the comps in China are tougher. We won't be seeing such a stock build again in the U.S. in Q4. I just wonder what the moving part is, which markets are really going to move forward in Q4 significantly to get you into positive growth. I appreciate India will improve, but where else? could be better. And then secondly, I wonder if you could just talk a little bit about the Asian duty-free situation at the moment. Are you still not able to ship into that trade channel?

Yeah. So let me come back to first the question in the Q3-Q4. So, as I said, we would be at minus 2.1% precisely. We were adding back positive and negative phasing effects in Q3, which are mainly, maybe to repeat them to make sure that this is clear for everyone, some of the positive phasing effects in the U.S. with the wholesalers buying ahead of the tariff announcements. These technicalities in India, some easier impact in different European markets, and as well, the travel retail, very high comp in Q3. So now moving to Q4, to be fair, if you are restating from those technicalities, we don't expect a significant change in the underlying performance in Q4, but if you want, I can be a bit more specific looking at our not-win markets. So India again expects to see a strong momentum in Q4 with a reversal of those Q3 phasing effects. So India was at plus 1 in Q3, so we expect a strong growth in Q4. So travel retail, it would be a much less significantly severe decline than Q3. Because of the favorable comparison basis, we're going to enjoy in Q4. And despite the suspension of cognac listing in China, so maybe I can as well answer your second question here. The most recent announcements are more linked to the ability for customers to sell the cognac brands that they already bought than anything that could impact our selling in 2004. At least that's what the situation is as we speak today. And then Easter, obviously, will have a positive impact in Q4 in a number of markets, including Spain. And for the U.S., it's likely to be rather soft, given the underlying sellout I was referring to, even if, to be fair, the tariff situation is bringing some uncertainty in terms of what to expect in Q4. And for the rest of the business, which is 60%, again, we expect it to be at least flat or growing in Q4, which is very consistent with the year-to-date. I hope it's helpful.

Very helpful. Thanks, Hélène.

Next question is from Olivier Nicolai, Goldman Sachs. Please go ahead.

Hi, good morning, Hélène and Florence. Just regarding the U.S., you mentioned good growth in Screwball for the first time, I think, since you bought the brand. I remember you had some distribution issues in the past, post the acquisition. Has it been resolved now, and do you see that growth as sustainable? And similarly, just to stay on the U.S., regarding Jameson, would you be able to comment on St. Patrick's Day performance? Although I will understand if we have to wait mid-May for the update from Conor.

Thank you. Thank you. Scruble is obviously a brand that we are very excited about. We bought it quite recently. This is obviously tapping into the opportunity of the flavored whiskey in the U.S. You're absolutely right. There is some disruption in terms of the distribution, which is now over. Scruble is now and we are obviously expecting to grow much more in the future. And to be fair, there's lots of things that are happening. We had a very successful and funny media campaign. We are now increasing the presence and visibility of Scruble, both in the on trade and the off-trade. We believe it's absolutely critical to give the opportunity to the consumer to taste the product, which is, I mean, the quality of the liquid is very strong. So, obviously, more to come on Scubo. And Jensen, obviously, very big and stubborn for us in the U.S. We are in a much... stronger place when it comes to the performance of Jameson recently, especially when you look at the performance of the competitive set. Jameson is, I would say, overperforming. St. Patrick's Day, we have some early insights. So, as you know, it happened on the Monday, which is not ideal, but we managed to quite nicely used that as an opportunity to talk about more of St. Patrick's Day season than St. Patrick's Day, or St. Patrick's season rather than St. Patrick's Day. And according to those early insights, Jenison has performed well versus competitive sets. It has not been the best St. Patrick's Day ever because of this timing.

We're going to take the last question, please.

Last question is from Chris Pitcher, Redburn Atlantic. Please go ahead.

Thank you very much, Helen Florence. A quick follow-up on the US. You mentioned that you're putting through the pricing adjustments and some promotional activity. At the group level, you talk about sustaining operating margin. Has Conor been given the leeway to actually invest margin in the US with the rest of the group covering this? And then a clarification, apologies if I've missed it, but In terms of the completion of the wine sale, is that still on track for the end of the fiscal year? Thanks.

Yes, thank you. So you didn't miss anything. I didn't mention that. For the closing of the wine disposal, our expectation is that it will happen around spring. So spring started two days ago. We are confident that this will happen. happen in the next weeks, very likely before the end of the fiscal year. So I would say completely in line with our expectation and our teams are working hard to finalize the closing. When it comes to your question on sustaining the margin and investing in the U.S., if I can summarize it like this, Again, the U.S. is our number one market. We are investing strongly in that market, and we have the ability to sustain our limit margin this fiscal year without, obviously, compromising on the level of investment we want to put behind our brands in the U.S. So maybe just to... rate-to-rate, our confidence to sustain the margin this year. So, first, volumes are stable or growing in the year-to-date, which is helping to absorb our fixed cost. We have some pricing, more subdued than at the time of the high inflation, but we are still increasing prices in some markets, and you can see, by the way, in both markets, especially emerging markets, but not only We are impacted by a negative market mix, for sure, when you look at the net sales numbers of markets like U.S., China, and strawberry retail. But we are delivering significant efficiencies, both at COG level and as well at social COG level, I would say, behind every line of the P&L. I guess you remember that we were mentioning this 900 million euro efficiency program that we intend to deliver from 2023 to 2025. Half of it is going to be delivered this fiscal year, and that's why we have that confidence of sustaining our working margin without compromising in terms of investments behind our capabilities, by the way, not only in the US, but everywhere else. Thank you very much. Thank you so much.

Have a great weekend, everyone.

Thank you. Bye.