Pernod Ricard S A

Good morning, and thank you for joining our FY26 Q3 Net Sales Call. I'm Joëlle Ferrand, VP of Investors Relations, and I'm pleased to welcome Hélène de Tissot, our Global EVP Finance and Tech. Hélène will begin with a brief overview of our Q3 performance, after which we'll open the call for questions. Please note, unless otherwise stated, all sales growth figures discussed today refer to organic net sales. With that, I'll hand it over to you, Hélène.

Thank you, Joël, and good morning, everyone. Before I begin discussion on our Q3 sales results, I will say a word regarding our press release of March 27, in which we confirmed discussions are taking place regarding a potential business combination with one firm. As stated, We did not intend to communicate further until either an agreement is reached or discussions are terminated. Discussions are ongoing, so at this stage, I have no further comments to make. Returning to the topic for our call of sales performance in Q3, today we report, as expected, a sequential improvement in organic head sales in Q3 compared to H1, with plus 0.1%. Reported sales are down minus 14.6%, with negative effects at minus 7%, and perimeter impact of minus 7.7%. The effect is mainly due to U.S. dollar, Indian rupee, and Turkish lira, and the perimeter effect is due to the disposals of our wines, the interior blue business, and Finnish brands. Volumes in Q3 are back to growth, with plus 4%, within which, and important to note, we have strategic international brand volumes growing in Q3 at plus 3%. When excluding the US and China markets, which contracted minus 12% and minus 7% respectively, sales in the rest of the world are growing strongly at plus 5%. Sales have improved in markets across all regions in Q3, with strong momentum in emerging markets, and continued growth in several mature markets. Markets that have turned to growth in Q3 include travel retail at plus 11%, UK, mid-single-digit growth, Spain, double-digit growth, Korea, double-digit growth, and Brazil, low single-digit growth. Markets in which organic growth momentum is maintained or is accelerating include India, plus 11%, Japan, high single-digit growth, and Turkey, double-digit growth. We are exploiting evolving consumer trends to capture growth. This includes actions that address consumer trends and needs, including, for example, addressing affordability with revenue growth management, smaller formats, and standard and premium brands, experiences with music festival activations, convenience, including through RTV and through targeted store activations, and broadening the consumption location with the launch of low and low alcohol products. Moving now to our year-to-date performance. Year-to-date organic sales are down minus 4.4%, with the U.S. minus 14% and China minus 24%. Reported sales are down minus 14.8%, with FX negative minus 5.9%, and perimeter minus 4.5%. Excluding the U.S. and China, sales in the rest of the world are in growth plus 1%. Volumes year-to-date down minus 1.6% in total, of which strategic international brands volumes are down minus 1.4%. When excluding the U.S. and China markets, strategic international brands volumes are up plus 1.4%. We are actively managing what is within our control, adapting our resources with agility, deploying our efficiency program, steering the organization to fuel our future growth, and optimize our cash generation. The global environment remains volatile and uncertain, notably with the conflict in the Middle East. In these circumstances, along with our diversified premium brand portfolio, we benefit from our balanced and goals-based geographic footprint. Our direct exposure to the Middle East is circa 2% of group sales. We expect a pool of sales to be impacted. Though the scale will naturally be dependent on the duration of the conflict, I will return to this in an updated outlook. We are monitoring the situation closely. Coming now to take a closer look at sales in our markets and regions, beginning with our number one must-read market, the U.S. we have organic sales down minus 12% in Q3 and minus 14% year-to-date. Market conditions in the U.S. remain soft, with the spirit market, excluding RTG, down circa minus 5% compared to circa minus 3% one year ago. After a soft Q2 holiday season, Q3 bubble spirit market performance improved to minus 4%, slightly ahead of the year-to-date trend, The on-trade channel is performing better than the off-trade, demonstrating that channel's relevance for consumers who are prioritizing experiences and social connections. Gains made over the past year in our sell-out gap to market were sustained in Q3, with that gap holding at CECA 2 points. Consumer sentiment in the U.S. remains low, and affordability remains a key issue for some consumers. We see shoppers readily expand on discretionary items. We are adapting to these changing conditions, for example, with small pack sizes and targeted promotional investment on key brands so our products remain relevant and affordable for consumers. We have as well launched significant innovation in 1526, recruiting new consumers and maintaining desirability and bringing incremental value to our customers. Notable recent examples include Absolute Tabasco, targeting key evolving consumer occasions, such as brunch, and expanding the absolute drink strategy to be observed, such as the Bloody Mary or Spicy Lemonade, which particularly lean into daytime consumption occasions. Within the Jameson family, we launched Jameson Triple Triple, expanding our Jameson offer for whiskey enthusiasts and leveraging the more affordable wholesale opportunities. and as well money looping for fun, flavored recruitment of new consumers. We believe that our bold portfolio is well positioned within the U.S. market, and we continue to activate our brands to meet consumer needs across price points. We are maximizing the consumer impact and value creation of price promotions. Our teams leverage our regular management expertise and AI tools to plan and execute those promotions at the optimum depth and frequency. While the U.S. market remains soft, we are convinced that the current challenges are primarily cyclical, linked to affordability issues. However, we are not complacent, and we monitor with vigilance the changing consumer trends, adapting and flexing our brand strategies in response. We remain confident in the recovery of the spirit market. Moving to India, our number two market by net sales, with double-digit organic sales growth in Q3, plus 11%, year-to-date, plus 6%. When excluding Imperial Blue, year-to-date sales are growing by 9%. I remind you that the Imperial Blue disposal closed end of November, so sales are excluded from organic performance since December. The Indian market continues to enjoy dynamic consumer fundamentals, and sales benefit from strong underlying demand and continuing premiumization. Growth in Q3 is growth-based across the portfolio, with imported spirits in strong double-digit growth, including Jemison, Absolute, and Scotch brands, the Genivet, Chivas, and Royal Salute, and with strong growth from local brands, especially Brands Pride, and with the launch of the new exclamation range of spirits. Moving to China, organic sales in Q3 contracted, minus 7%. Year-to-date is at minus 24%. Q3 sales benefited from the later timing of Chinese New Year. However, underlying sellout was soft in line with the cautious sentiment of the trade ahead of the festive period. The market is not yet stabilized. The macro context remains challenging with weak consumer confidence and tightened regulatory environments. Year-to-date sales of Martel and then Scotch whiskeys are declining, while premium brands enjoy positive sales momentum. Let's move now to global travel retail. Global travel retail Q3 organic sales by growth plus 11% and plus 2% year-to-date. Global travel numbers remain strong and continue to present positive dynamics with all regions showing travel numbers ahead of pre-COVID. Within this positive environment and as expected, Sales in global travel retail are rebounding, with a resumption of cognac sales in China duty-free. Sales in Asia also benefited from an active festive marketing program celebrating Chinese New Year, including travel retail limited editions, leading to strong double-digit sell-out growth for Martel over the period. I am encouraged to see Chinese travels demonstrating enduring strong attraction and consideration toward Martel, and our ability to engage with them through impactful activations. Remaining in Asia with duty-free, I also want to highlight that Korea duty-free is now back to growth this quarter. Elsewhere, Europe and the Americas continue to present positive momentum in sell-out, notably cruises in the Americas. As you can imagine, the Middle East faces travel disruptions as a result of conflict there and full-year sales in global travel retail, are now expected to be in slight decline. In the rest of the world, and beginning with markets in Europe, we see conditions improving in a number of important markets there. Organic sales in Europe are back to growth in Q3 with a prescribed descent, including in Spain, which benefits from the earlier Easter, also back to growth in the UK, and with growth continuing in Ireland as well as in Eastern Europe. France and Germany continue to decline in Q3. In Asia, rest of the world region, Q3 organ sales and growth at the 60%. Focusing on Asia, when we exclude India and China, sales grew strongly in Q3 with double-digit growth, benefiting from the timing of Chinese New Year in some of the Southeast Asian markets. Here, Japan continued its good momentum, and Korea, which was in decline in 2020, the first semester, is now back to growth, supported by the timing of the Lunar New Year. In America, Brazil is back to growth this quarter, following the easing of the impacts of the methanol crisis. Canada continues to enjoy its good momentum. And finally, in Africa and the Middle East, which is admissible due to organic growth, Q3 sees organic growth continue notably in Turkey, and strong underlying momentum continues in South Africa. Now, moving to our outlook. In a context that remains volatile and uncertain, we continue to see fiscal year 26 as a transition year, and in line with our expectations, organic net sales strongly improve in Q3. Given the ongoing conflict in the Middle East, we now expect organic net sales to decline by minus 3 to minus 4% for the full year. E&P investment ratio expected to remain at circa 16%, We continue to invest to increase our brand's desirability with sharp allocation, efficiency, innovation, and experiences. We continue to defend our organic operating margin to the fullest extent possible, supported by strict cost control and the implementation of our Fiscal Year 26 to Fiscal Year 29 $1 billion operational efficiency program, including the adaptation of our Fit for Future organization. I remind you that we are on track to deliver one-third of those efficiencies within this fiscal year. Our focus on cash generation continues, with strategic investments for fiscal year 26 now expected to be below €700 million and maintaining strong operating working capital management. We are aiming for cash conversion of circa 80% and above this fiscal year. We expect FX impact to be significantly negative. In conclusion, we have two of our four must-win markets in strong growth in Q3, with growth in India accelerating and with a rebound in global travel retail. We have markets that are maintaining the already positive momentum, such as Canada, Ireland, Turkey, and Japan. And we have markets that are now coming back to growth, having declined in H1, including the UK, Korea, and Brazil. I believe this demonstrates the resilience of our diversified model from both the portfolio and geographic footprint point of view, the key strengths of the Pernod Ricard business model. On that note, I will now conclude my prepared remarks.

Thank you, Hélène. We will now take your questions, but please, I must ask you to respect that this call is to discuss Q3 sales results, and we won't be able to address any questions regarding brand performance. So no more than two questions each, please. Over to the operator.