Pernod Ricard S A

Good morning, everyone. We are pleased to have you for our H1 FY26 results. Alexandre Ricard and Hélène de Tissot will take you through the highlights before we open the Q&A session. Over to you, Alexandre.

Well, thank you very much, Joëlle, and good morning to all of you. I suggest we go into our first half of fiscal year 26 sales and results. Now, before we deep dive into all the details of this first half, I would like us to, for a couple minutes, just sit back and think about the underlying, I would say, mindset that underpins these results and what we're about to share with you for the short and medium term. So, steering with agility, discipline, and strategic conviction in what we call a transition period. So, first of all, and I hope you'll get a gist of this in a few minutes, but we are clearly adapting our organization and executing strategies to go and capture growth where it lays. Because at the end of the day, in a contrasted environment, there are, of course, some challenges, but clearly as well, some opportunities in an environment as well where consumer trends are continuously evolving, which is not new. Second, you'll see we have made rapid progress on the delivery of our 1 billion euros operational efficiency program, which we introduced exactly a year ago. You'll see where we stand on that program. Third, you'll see as well we have a clear focus on on cash generation to preserve our strong balance sheet with, and we'll focus and deep dive on this with Hélène in a few minutes, normalizing strategic investments and improved operating working capital. Finally, and this will be a conclusion later this morning, we remain absolutely confident in the attractive fundamentals of the industry, in our strategy, in our operating model and we confirm our outlook for this fiscal year, the medium term framework with some lowered strategic investments that we'll detail and the financial policy as well, which remains unchanged. So, in terms of results, net sales are down roughly 6% organically with a soft first half in, as I mentioned, a contrasted environment. By the way, excluding the U.S. and China, our sales are broadly stable, with many markets in growth across all regions. The second quarter trajectory is improving. Q1 was down roughly 8%. Q2 is down roughly 5%. This is notably due to the acceleration in India and led as well by global travel retail. I would also mention that in Q2, excluding China and the U.S., the rest of the world is in growth of 1%. The declines in the U.S. and China are amplified by inventory adjustments. And as well, our first half gets a negative impact from currency and perimeter effects. When it comes down to our PRO, which is in decline, organic decline of minus 7.5%, We have done a lot of work to defend our organic operating margin through operational efficiencies. We have indeed been hit by the trade tariffs on one side, by some COGS inflation, particularly on aged liquids, which have been partially mitigated through some strong operational efficiency levers. You'll see sharp reduction in structure costs. They're down 10% in this first half, driven clearly by the implementation of our fit for purpose, fit for future operating model and ongoing strong cost discipline. Finally, with 482 million euros of free cash flow, We see a strong improvement of roughly 10% and this despite the decline in profit from recurring operations leading to an enhanced cash conversion with, and you'll see this later, normalizing strategic investments and discipline around our operating working capital management. And we've continued and pursued our active portfolio management, notably with the disposal of Imperial Blue in India. You have here a synthesis of the key figures for our first half, which we'll deep dive on with Hélène in a few minutes. So I mentioned, by the way, broadly stable sales over the first half if we exclude U.S. and China, with growth in many markets across all regions, whether it's mature markets such as Ireland up 3% or the Nordics up 7% or then again Canada up. up three percent or by the way uh japan up six percent but as well or poland uh up one percent with some acceleration over this over the second quarter and then in other uh emerging markets uh with uh the continued excellent performance of turkey up 27 and so on and so forth This, I think, is important to stress because, again, we believe that our global balanced and diversified footprint is a key competitive advantage for Pernod Ricard. So I mentioned in the introduction, what I wanted to take away from today's session as well is that we are constantly or continuously adapting our strategies to really go capture growth where it is and to really address our consumer needs that are constantly as well evolving. So we'll touch upon these four growth levers, which are underpinned, by the way, by data and artificial intelligence. The first one is meeting or addressing evolving consumer trends. particularly with convenience and affordability. At the same time, and leveraging the depth of our portfolio, really capturing that opportunity which is on the very high end, the prestige opportunity, in a way addressing as well the K-shaped economy paradigm. Third, accelerate on the consumer-centric innovation at scale. We've always innovated over the last decade or so, but I think that the inflection point on that front is scaled innovation with global impact. And finally, elevating cultural relevance with increasing consumer experiences and brand associations again. leveraging our scale, which is the nuance and the inflection point there. So if I start with meeting involving consumer trends with convenience and affordability, you have here our small formats. They now represent 17% of our value in the U.S. if I take this market alone. They're much more affordable and they are driving, they are growing very nicely. Likewise, in our premiumization strategy, we are addressing the affordability question with price positionings that are on what we call various sweet spots from one market to another. Here you have the example of Jameson Triple Triple, which is up roughly 20% over the first half. Of course, you'll know RTDs, convenience, are a trend that we had identified just pre-COVID as an emerging trend, which post-COVID has significantly accelerated. We're investing behind RTDs, behind our brands, as well from an innovation standpoint. We are collaborating or partnering as well with some very well-known household brand names, such as Ocean Spray and soon to come, Dole. And finally, in terms of affordability as well, we have stepped up when it comes down to revenue growth management, leveraging our AI tool, Vista RevUp, which is now really embedded in our ways of working. So meeting evolving consumer trends, which is at the core of our focus right now. I mentioned that leveraging the depth of our portfolio, including prestige. We gave one example with Paris Wet, which is up 25%. over this first half. We have rare and collectibles. We really invest behind experiences. Money can't buy our brand homes, but sometimes as well, we bring our brand homes to our consumers across the world with amazing experiences as well. We see our private client society keep on growing quite significantly across the world, particularly in Asia, but not only. Third, as I mentioned, accelerating consumer-centric innovation at scale. We have selected here a number of lunches that we did in the first half. Exclamation, which was lunched Broadly, exactly the same month, we closed the Imperial Blue disposal. This is a range of different propositions, which is at a more premium price point versus what used to be Imperial Blue. and basically to meet the premiumization of the entire spirits industry in India, which is in fact accelerating. Cooler Duncan, we already mentioned it last time, but again, meeting that specific taste for indulgence, which is spreading around. We have also listed here a number of key innovations for the whole fiscal year. You have what we have already launched in the first half, and you also have our innovation pipeline for the second half. This is not exhaustive, but these are the key, main, I would say, impactful innovations with Malibu Pink, which was launched, in fact, a couple of weeks ago in the U.S. Absolute Tabasco, I'll get back to that, and as well, so the Ready to Drink Malibu Dole, which is in the process of being launching and soon to come as well. The non-ALC innovation here with Lilie Zero, which is going to be launched in the coming couple months. So, speaking of impactful innovation at scale, it was difficult to go unnoticed. Hopefully, you've all heard about it. You have here Apps for Tabasco. It was launched on January 28th. It is, let's be clear, it is our first ever global launch. So it was launched simultaneously across 50 markets with huge media impact, although it's still global. Early times, because it was just launched a couple weeks ago, to give you exact numbers, were quite positive. In fact, very positive on the impact. And on that front, I think there's a short video on absolute Tabasco. Great. If you haven't tasted it, please don't hesitate. By the way, this innovation is also designed to address another new consumer need, which is a desire for more spiciness. So we have the spicy margarita, we have the spicy lemonade, we have the spicy Bloody Mary, which is growing amongst the new as well. consumer occasion, which is that Sunday brunch, which people are increasingly enjoying. And finally as well, elevating cultural relevance through consumer experiences and brand associations at scale. and it's it's uh not a mystery if you look at these five brands and in the following order jameson our number one brand in terms of uh profit uh martel our second largest brand chivas our third largest brand absolute our fourth largest brand and valentine's our fifth largest brand we're really leveraging the scale of these billionaire brands in retail sales value to drive big, impactful, and skilled partnership and experiences, particularly if I take just the middle one with Tomorrowland. That moment of consumption is one of the fastest growing, what we call mux moments of consumptions in our industry, which is festivals. And all these initiatives are leveraging our key digital programs or KDPs that are all powered with artificial intelligence. I won't go through them. You are all familiar with them. We started this exactly five and a half years ago, almost six years ago. They're now deployed across the group and embedded in our ways of working. There are further opportunities in terms of additional efficiencies powered by AI. And we took here one example on the marketing front with Jenny, which is generative AI. And we gave an illustration of the impact the development of Jenny can have on our business. You see here the cost of development of the latest Glenn Livitz brand campaign, which was down 80%. So better quality, faster time to market, in fact, a lot faster time to market, and significantly reduced costs. That's on the marketing front, but of course, we are also leveraging AI across the entire supply chain. Now, if we look at our sales by region, starting with the US, the US is down 15%. The spirits market there continues to remain soft, albeit some green shoots in Jan and February. Too early to make any specific call. Let's remain cautious. But that being said, we're happy to see some of these green shoots in this new year. Our sellout value gap to market has continued to narrow to roughly two points. In fact, the most recent numbers are closer to one point. So we're on track to close the gap. And we have some of our key brands that are gaining share in their respective competitive sets. with the likes of Jameson, Kahlua, or yet again, Glenlivet. It's worthwhile noting as well that our H1 numbers were impacted by inventory adjustments, as expected, down 15%, which is not a reflection of our sell-out performance, which is somewhere between 4% to 5% decline. India, so net sales up 4%. If we exclude Imperial Blue, which is now disposed and closed, the performance is plus 8% in line with what we're used to see in India. And despite... By the way, our first quarter, which was severely impacted by the very strong tax increase in Mahashtra. We expect to see this momentum continue over the second half. It's worthwhile as well noting that our international space brands are enjoying strong double-digit growth in India as the market continues to premiumize. China down 28%. driven by a number of factors. The first is a tightened regulatory environment. Number one, which is impacting the high-end on trade. Number two, the persistent macroeconomic headwinds. And number three, the continuation, I would say, of a weak consumer sentiment. So, of course, this is impacting Martel and Chivas. Our premium brands portfolio is continuing to grow with a strong performance, particularly of Absolute and Jameson and our tequila brands in China. It's worthwhile noting as well we're at February 19th. Two days ago was Chinese New Year. What we can stress is cautious trade sentiment ahead of Chinese New Year. Finally, global travel retail down 3% over the first half with a very strong rebound as expected in the second quarter with the resumption of Martel sales in China duty-free. Asia beyond China continues to see some weakness, but very good underlying growth both in Europe and Americas. More broadly, if we go beyond our four must-wins market, Europe down 3%. with market contraction in France impacted by some phasing, some softness in Germany and Spain, but pretty strong resilience in the U.K., good growth in Poland, and very good performance as well from a market share point of view, but as well in terms of growth of Jameson and Absolute, Bamboo, and PJ. America's organic net sales down 12%. I won't go back to Canada, up 3% with very good momentum across the whole portfolio. Brazil suffered from the methanol crisis over the first half with a return to growth. as of January and more generally speaking over the second half and Mexico in decline due to weak market conditions. So Asia rests as well, finally down 4%, with very strong growth in Turkey, up 27%, as I mentioned. South Africa in strong growth as well, with very strong performance of Martel. Japan up 6%. Australia very resilient. And the rate of decline is strongly moderating and expected to keep doing so for South Korea. So I will go through all of these brands. The aim of these numbers is just to show you that excluding the The U.S., which has been impacted by stock adjustments, you see that we have brands such as Jameson, which are in growth, mid-single-digit growth. Absolute, outside the U.S., is in growth as well, plus 2%. The plus 20% for Martel, excluding China, means that our diversification strategy, diversifying the sources of growth of Martel outside of China, which is a 10-year strategy, is starting to pay dividends, plus 20%, again, excluding China. Shiba is globally stable. I mentioned the 25% on BJ. Our Agave portfolio is growing quite significantly. Overall, double-digit growth for it. And it's nice to put Bamboo on the spot here with 16% growth. This brand has now become the number one super premium rum across the globe with more than half a million cases sold. And we keep on investing behind our brands, behind brand equity, to drive desirability across the portfolio of our brands. And this translates into gaining or maintaining share in the majority of our markets, with that one notable point, which is that linear closure of gaps to market in the U.S., which is, of course, a very strong focus. And now, Hélène, let's deep dive into the financials.

Thank you, Alex, and good morning, everyone. So let's start with the profit from recurring operations. I confess it's a quite busy slide. So in this first half, the profit from recurring operations declined by 7.5% organically and 18.7% on a reported basis, largely impacted by foreign exchange. We have actively defended our organic operating margin, limiting the decline to 55 basis points, We responded with agility to a contrasted environment through disciplined resource allocation and the fast implementation of our efficiency program. So let's start with gross margin. The gross margin evolution of minus 216 bps reflects three main elements. First, price and mix had a moderately negative impact of around 50 basis points. Second, Gross margin was impacted by approximately 70 basis points from tariffs in the US and China, as expected. Third, as anticipated, we faced inflation on aged liquids and lower fixed cost absorption in a softer volume environment. We were successful in partially mitigating this cost inflationary pressure with the implementation of operational efficiencies across procurement, manufacturing, and supply chain. Now, moving to A&P. Advertising and promotions stood at circa 13% of net sales in H1, with phasing over the full year weighted toward H2, supporting our innovation rollout, notably Absolute Tabasco launch we shared with you earlier. We continue to prioritize brand investment to support long-term brand equity, so no change to our full year guidance to maintain A&P at circa 16% of net sales for the full year. and strengthening return on investment discipline through digital tools, and increasing as well the proportion of working versus non-working ANP. And now on structure costs, Alex mentioned the decline of 10% organically, which is reflecting the rapid implementation of our Fit for Future operating model and very strict cost discipline, both set to continue in the second half. Reported operating margin declines by 142 VIPs, driven by the decline in organic profit from recurring operations, plus a significant negative FX impact of 187 million euros, while the perimeter impact on the margin was positive by circa 50 VIPs, thanks to our margin-accretive plan disposal. I note that excluding the adverse foreign exchange impact, the reported margin would have been sustained. Moving now to the earning per share. So the EPS is down at minus 20% due to lower reported profit from recurring operation, mainly linked to the negative translation effects. From a financing perspective, the recurring financial expenses decreased and our cost of debt improved from 3.4 to 3.2. Income tax on recurring operation reduced in line with a reduction in profit from recurring operation. Moving now to the cash and to the free cash flow of 482 million euros on this first half, which is an improvement in terms of generation through optimized strategic investment and operating working capital management. Indeed, we delivered an increase in free cash flow of 42 million euros, which is plus 9.5%, with strong improvement in operating working capital, notably trade receivables and continued focus on finished goods inventory optimization. CapEx investments coming off their peak in fiscal year 2024, continuing to normalize as expected, now at €217 million, down circa €150 million versus the same period last year, lapping high investments last year on capacity expansion programs. Optimized strategic inventories, the increase now is at €111 million, which is €92 million less than last year. Though normalizing from their peak, those investments remain key to secure our long-term growth. This strong focus on cash generation has led to an improvement in cash conversion up 11 points with 61%. So let's deep dive on the cash generation and the net debt evolution. Regarding net debt, we are committed to preserve the strength of our balance sheets and maintain strategic flexibility, and hence we are focused on cash generation. As of December, our net debt stands at 11.2 billion euros, which is a decrease of circa 0.9 billion euros over 12 months, thanks to the improving free cash flow generation and proceeds from margin accretive brand disposals. As I explained in the previous slide, free cash flow in H1 grew by 9.5%, with optimized strategic investment and strong operating working capital management supported by our efficiency program. We also benefited from the positive contribution from brand disposal, notably Imperial Blue, for which we received the proceeds this H1. Moving now to the net debt to EBITDA ratio, it stands at 3.8 times. This ratio has increased primarily as a function of the softer reported profit from recurring operation. We remain focused on cash generation to support deleveraging and to preserve a strong balance sheet. Our clear intention is to deleverage and to bring our net debt to EBITDA ratio below 3 times by fiscal year 2019. We expect the ratio to improve with four levels. Number one, strategic investment normalizing, reducing from peak levels. Number two, ongoing operating working capital management improvement initiative, including with the support of our operational efficiency program. Number three, dynamic portfolio management. And number four, with a return to growth of the profit from recurring operations. Regarding the strategic investment, which is the first lever I just mentioned, strategic investments are now expected to reach circa 750 million euros in fiscal year 26 and no more than 800 million euros per annum for the period 27 to 29. This reduction will have a cumulative benefit to our cash conversion acceleration of circa 800 million euros compared to our earlier strategic investment guidance that we shared last August. Back to you, Alex, for the strategic update.