27.08.2015 07:30:00

Pernod Ricard: Good FY14/15 Business Performance: +2% Organic Sales Growth (+8% Reported), in an Environment That Remains Challenging

Regulatory News:

Pernod Ricard (Paris:RI):

Press release - Paris, 27 August 2015

SUMMARY

Solid results

  • Confirmation of the gradual improvement in Sales: +2% vs. flat in FY 13/14 (+8% reported)
  • Market share gains in most key markets
  • Profit from Recurring Operations (PRO) organic growth: +2%, in line with the guidance of +1% to +3%. Reported PRO growth was +9%, with a very favourable FX impact.
  • Recurring Free Cash Flow: + 38%
  • Group share of Net PRO +12%. Group share of Net profit -15% due to impairment charge on Absolut (+25% excluding net impairment charge of €404m)
  • Leverage ratio further reduced
  • Proposed dividend: €1.80, up +10% vs. FY 13/14

Healthy growth

  • Increase in A&P investment: +2%, in particular to support innovation
  • Negative mix, but stable pricing
  • Strong cost discipline

As part of this communication, Alexandre Ricard, Chairman and Chief Executive Officer, declared, "Our full year results are solid, delivering improving Sales and Profit from recurring operations in line with guidance. Our strategy has remained consistent and is delivering results.

For FY15/16, despite a challenging and volatile macroeconomic environment, we aim to continue gradually improving our business performance. We will continue to support priority brands and innovations while focusing on operational excellence.”

SALES

Sales for the full year 2014/15 totalled €8,558m. Organic Sales growth was +2%. Reported Sales growth was +8% with a very favourable FX impact.

This gradual improvement was driven by:

  • Asia-Rest of the World: +4% return to growth thanks to improving Sales in China (-2% vs. -23% in FY13/14) and continued very strong dynamism in India (+18%);
  • Americas: +2% with USA stable for full year (improving in H2) and growth in rest of region;
  • Europe: stability with a return to growth in Spain +2% but difficulties in Eastern Europe and Travel Retail.

In terms of categories, growth was driven by whiskies (continued strong performance of Jameson, The Glenlivet, Ballantine’s and Indian whiskies) and also of champagnes Mumm and Perrier-Jouët, both in high single digit growth. Martell returned to growth, despite negative mix (China). Absolut was impacted by a challenging USA market but grew outside the USA.

The Top 14 returned to growth: +2% (vs. -2% in FY13/14), with a performance improvement driven by Ballantine’s and Martell and continued strong growth of Jameson and The Glenlivet.

Key Local Brands performed well: +5% driven by Indian whiskies and standard Scotch brands, despite the decline of Imperial in Korea.

Priority Premium Wines were stable with the growth of Campo Viejo offsetting Jacob’s Creek.

There were market share gains in most key markets.

Q4 Organic Sales growth was +3%, with a favourable basis of comparison (destocking in Q4 13/14.) Reported Q4 Sales were up +15%, due to a stronger USD.

RESULTS

Full year PRO increased +9% (+2% organically) to € 2,238m and the PRO margin to 26.2% thanks to a favourable FX impact. Key organic margin drivers were:

  • Decrease in Gross Margin ratio: -105bps, with stable pricing in a challenging and competitive environment, negative mix due to geographic mix and quality mix (Martell) yet good cost control
  • Increase in A&P: +2%, overall in line with top line, with a focus on Top 14 and new business opportunities and double-digit increase in support for key innovation projects, partly financed by €25m reinvestment from Allegro, as expected
  • Strong decrease in structure costs driven by Allegro: -3%, better than initially planned due to vacancies linked to implementation of new organisation.

FX impact on reported PRO was +€155m, mainly driven by USD.

The cost of debt was lowered to 4.4% and is expected to be close to 4.2% for FY15/16.

The corporate income tax rate on recurring items slightly decreased to 24.4%.

Reported group share of Net PRO was up +12%. Reported Group share of Net profit was down -15%, due to an impairment charge on Absolut (+25% excluding the impairment charge.) The latter was driven by lower growth in the USA, but has no cash or business impact. Group mid- to long-term prospects presented during the Capital Market Day in June are unchanged.

FREE CASH FLOW AND DEBT

Reported Free Cash Flow from recurring operations improved significantly, close to historically high levels (€1,154m, +38%) due in particular to tight working capital management. EBIT cash conversion was excellent at 88%, +6pts vs FY13/14, while the Group continued to invest in the long-term.

Free Cash Flow increased +€53m to €808m, impacted by non-recurring items of -€346m, mainly relating to the settlement of accrued tax and restructuring liabilities.

Net debt increased by +€668m to €9,021m mainly driven by a mechanical FX impact (+€964m due to variation of €/USD parity between 30 June 2014 at 1.37 and 30 June 2015 at 1.12.)

The leverage ratio at average rates was reduced to below 3.5 from 3.6 for FY13/14 (with €/USD parity at 1.36 in FY13/14 vs. 1.20 in FY14/15.)

PROPOSED DIVIDEND

A dividend of €1.80 is proposed for the AGM, +10% vs FY13/14, corresponding to a pay-out ratio of 36%, in line with the customary policy of cash distribution of approximately one-third of Group net profit from recurring operations.

Audit procedures on the consolidated financial statements have been carried out. The Statutory Auditors’ report will be issued following their review of the management report.

A detailed presentation of Sales and Results can be downloaded from our website: www.pernod-ricard.com

In line with its standard practice, Pernod Ricard will communicate earnings guidance for the current financial year as part of its Q1 2015/16 sales communication on 22 October 2015.

Note: All growth data specified in this press release refers to organic growth (constant FX and Group structure), unless otherwise stated. Data may be subject to rounding.

About Pernod Ricard

Pernod Ricard is the world’s co-leader in wines and spirits with consolidated Sales of € 8,558 million in 2014/15. Created in 1975 by the merger of Ricard and Pernod, the Group has undergone sustained development, based on both organic growth and acquisitions: Seagram (2001), Allied Domecq (2005) and Vin&Sprit (2008). Pernod Ricard holds one of the most prestigious brand portfolios in the sector: Absolut Vodka, Ricard pastis, Ballantine’s, Chivas Regal, Royal Salute and The Glenlivet Scotch whiskies, Jameson Irish whiskey, Martell cognac, Havana Club rum, Beefeater gin, Kahlúa and Malibu liqueurs, Mumm and Perrier- Jouët champagnes, as well Jacob’s Creek, Brancott Estate, Campo Viejo, Graffigna and Kenwood wines. Pernod Ricard employs a workforce of approximately 18,000 people and operates through a decentralised organisation, with 6 "Brand Companies” and 80 "Market Companies” established in each key market. Pernod Ricard is strongly committed to a sustainable development policy and encourages responsible consumption. Pernod Ricard’s strategy and ambition are based on 3 key values that guide its expansion: entrepreneurial spirit, mutual trust and a strong sense of ethics.

Pernod Ricard is listed on Euronext (Ticker: RI; ISIN code: FR0000120693) and is part of the CAC 40 index.

Appendices

Top 14 brands and Priority Premium Wines organic sales growth

                             
Volumes

FY 2014/15

Net Sales Volumes Price/mix
(in 9Lcs millions)
 
Absolut 11.2 -1% 0% -1%
Chivas Regal 4.5 0% -1% 0%
Ballantine's 6.2 3% 4% -1%
Ricard 4.9 0% 2% -2%
Jameson 5.1 10% 9% 2%
Havana Club 4.0 0% 1% -1%
Malibu 3.4 -3% -3% 0%
Beefeater 2.6 3% 2% 1%
Kahlua 1.5 2% -1% 3%
Martell 2.1 2% 8% -6%
The Glenlivet 1.1 11% 7% 3%
Royal Salute 0.2 -8% -9% 2%
Mumm 0.7 7% 13% -6%
Perrier-Jouët 0.3 9% 11% -2%
Top 14 47.8 2% 2% 0%
Jacob's Creek 6.0 -3% -4% 0%
Brancott Estate 2.2 1% 6% -5%
Campo Viejo 2.2 9% 9% 0%
Kenwood 0.5 na na na
Graffigna 0.2 -22% -18% -4%
Priority Premium Wines 11.2 -1% 1% -1%
 

Sales analysis by region

                                             
Net Sales

(€ millions)

FY 2013/14   FY 2014/15 Change Organic Growth Group Structure Forex impact
                 
Europe 2,773 34.9% 2,731 31.9% (42) -2% 8 0% (11) 0% (40) -1%
Americas 2,142 27.0% 2,382 27.8% 240 11% 51 2% 13 1% 176 8%
Asia / Rest of the World 3,031   38.1% 3,446   40.3% 415   14% 120   4% (6)   0% 301   10%
World 7,945   100.0% 8,558   100.0% 613   8% 180   2% (4)   0% 437   6%
 
                                         
Net Sales

(€ millions)

Q4 2013/14 Q4 2014/15 Change Organic Growth Group Structure Forex impact
 
Europe 638 36.3% 647 32.1% 9 1% 5 1% (2) 0% 6 1%
Americas 529 30.1% 637 31.6% 107 20% 10 2% (2) 0% 100 19%
Asia / Rest of the World 592   33.7% 732   36.3% 140   24% 30   5% (2)   0% 113   19%
World 1,759   100.0% 2,016   100.0% 257   15% 45   3% (6)   0% 218   12%
 
                                           
Net Sales

(€ millions)

HY2 2013/14 HY2 2014/15 Change Organic Growth Group Structure Forex impact
 
Europe 1,161 34.4% 1,152 29.3% (9) -1% 1 0% (3) 0% (6) -1%
Americas 932 27.6% 1,140 29.0% 207 22% 30 3% (2) 0% 179 19%
Asia / Rest of the World 1,282   38.0% 1,645   41.8% 363   28% 124   10% (5)   0% 244   19%
World 3,375   100.0% 3,937   100.0% 562   17% 156   5% (10)   0% 416   12%
 

Summary consolidated income statement

             
(€ millions)   30/06/2014   30/06/2015   Change
             
Net sales 7,945 8,558 8%
Gross Margin after logistics costs 4,987 5,296 6%
A&P expenditure (1,503) (1,625) 8%
Contribution after A&P expenditure 3,484 3,671 5%
Structure costs (1,428) (1,433) 0%
Profit from recurring operations 2,056 2,238 9%
Financial income/(expense) from recurring operations (444) (457) 3%
Corporate income tax on items from recurring operations (416) (434) 4%
Net profit from discontinued operations, non-controlling interests and share of net income from associates (11) (18) 68%
Group share of net profit from recurring operations 1,185 1,329 12%
 
Other operating income & expenses (240) (649) NA
Non-recurring financial items (41) (32) NA
Corporate income tax on items from non recurring operations 111 213 NA
       
Group share of net profit 1,016 861 -15%
Non-controlling interests 11 19 69%
Net profit 1,027 880 -14%
 

Profit from recurring operations by region

                                     
World
                                                 
(€ millions) FY 2013/14 FY 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 7,945 100.0% 8,558 100.0% 613 8% 180 2% (4) 0% 437 6%
Gross margin after logistics costs 4,987 62.8% 5,296 61.9% 309 6% 27 1% (3) 0% 284 6%
Advertising & promotion (1,503) 18.9% (1,625) 19.0% (122) 8% (32) 2% (2) 0% (88) 6%
Contribution after A&P 3,484   43.9% 3,671   42.9% 187   5% (5)   0% (5)   0% 196   6%
Profit from recurring operations 2,056   25.9% 2,238   26.2% 182   9% 33   2% (7)   0% 155   8%
 
Asia / Rest of the World
                                                 
(€ millions) FY 2013/14 FY 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 3,031 100.0% 3,446 100.0% 415 14% 120 4% (6) 0% 301 10%
Gross margin after logistics costs 1,848 61.0% 2,073 60.2% 225 12% 16 1% (1) 0% 210 11%
Advertising & promotion (550) 18.1% (627) 18.2% (77) 14% (23) 4% 0 0% (54) 10%
Contribution after A&P 1,298   42.8% 1,446   42.0% 148   11% (7)   -1% (1)   0% 156   12%
Profit from recurring operations 884   29.2% 999   29.0% 115   13% (11)   -1% (1)   0% 127   14%
 
Americas
                                           

 

   
(€ millions) FY 2013/14 FY 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 2,142 100.0% 2,382 100.0% 240 11% 51 2% 13 1% 176 8%
Gross margin after logistics costs 1,394 65.1% 1,519 63.8% 125 9% 15 1% 0 0% 110 8%
Advertising & promotion (412) 19.3% (478) 20.1% (65) 16% (27) 7% (3) 1% (35) 9%
Contribution after A&P 982   45.8% 1,041   43.7% 59   6% (12)   -1% (3)   0% 74   8%
Profit from recurring operations 579   27.0% 632   26.5% 53   9% 11   2% (5)   -1% 46   8%
 
Europe
                                                 
(€ millions) FY 2013/14 FY 2014/15 Change Organic Growth Group Structure Forex impact
 
Net sales (Excl. T&D) 2,773 100.0% 2,731 100.0% (42) -2% 8 0% (11) 0% (40) -1%
Gross margin after logistics costs 1,745 62.9% 1,704 62.4% (41) -2% (3) 0% (2) 0% (35) -2%
Advertising & promotion (541) 19.5% (521) 19.1% 20 -4% 18 -3% 1 0% 2 0%
Contribution after A&P 1,204   43.4% 1,183   43.3% (21)   -2% 15   1% (2)   0% (34)   -3%
Profit from recurring operations 593   21.4% 608   22.2% 14   2% 33   6% (2)   0% (17)   -3%
 

Foreign exchange impact

                         
Forex impact FY 2014/15

(€ millions)

Average rates evolution

On Net
Sales

On Profit
from
Recurring
Operations

      2013/14   2014/15   %
                       
US dollar USD 1.36 1.20 -11.4% 233 105
Chinese yuan CNY 8.33 7.43 -10.7% 87 56
Russian rouble RUB 45.95 59.35 29.2% (54) (40)
Indian rupee INR 83.36 74.48 -10.7% 77 30
Hong Kong Dollar HKD 10.52 9.32 -11.5% 12 (13)
Korean won KRW 1.45 1.29 -10.6% 25 13
Venezuelan bolivar VEF 23.48 60.07 155.8% (11) (10)
Other currencies               70 12
Total               437 155
 

Note: Impact on PRO includes strategic hedging on Forex

Sensitivity of profit and debt to EUR/USD exchange rate: Estimated impact of a +1% appreciation of the USD and linked currencies(1)

     
Impact on the income statement(2)   (€ millions)
Profit from recurring operations   +17
Financial expenses (3)
Pre-tax profit from recurring operations +14
     
Impact on the balance sheet   (€ millions)
Increase/(decrease) in net debt +56
 
(1) CNY, HKD (2) Full-year effect
 

Balance sheet (assets)

         

Assets
(€ millions)

6/30/2014   6/30/2015
 
(Net book value)
Non-current assets
Intangible assets and goodwill 16,449 17,706
Tangible assets and other assets 2,594 2,933
Deferred tax assets 1,926 2,339

Total non-current assets

20,968 22,978
 
Current assets
Inventories 4,861 5,351
of which aged work-in-progress 3,963 4,430
of which non-aged work-in-progress 65 73
Receivables (*) 1,051 1,152
Trade receivables 990 1,084
Other trade receivables 61 68
Other current assets 194 260
Other operating current assets 188 245
Tangible/intangible current assets 6 15
Tax receivable 37 61
Cash and cash equivalents and current derivatives 503 595
Total current assets 6,646 7,419
 
Assets held for sale 2 1
Total assets 27,616 30,398
 
(*) after disposals of receivables of: 479 591
 

Balance sheet (liabilities and shareholders’ equity)

         
Liabilities and shareholders’ equity 6/30/2014 6/30/2015
(€ millions)    
 
Group Shareholders’ equity 11,621 13,121
Non-controlling interests 157 167
of which profit attributable to non-controlling interests 11 19
Total Shareholders’ equity 11,778 13,288
 
Non-current provisions and deferred tax liabilities 4,174 4,427
Bonds 6,844 6,958
Non-current financial liabilities and derivative instruments 915 587
Total non-current liabilities 11,933 11,972
 
Current provisions 251 173
Operating payables 1,463 1,696
Other operating payables 887 920
of which other operating payables 600 623
of which tangible/intangible current payables 287 297
Tax payable 56 116
Bonds 929 1,514
Current financial liabilities and derivatives 319 719
Total current liabilities 3,905 5,138
 
Liabilities held for sale 0 0
Total current liabilities 27,616 30,398
 

Analysis of Working Capital Requirement

                       
(€ millions) June

2013

June

2014

June

2015

FY 13/14
WC
change*

FY 14/15
WC
change*

 
Aged work in progress 3,617 3,963 4,430 258 233
Advances to suppliers for wine and ageing spirits 6 6 8 1 1

Payables on wine and aging spirits

91 97 107 4 8
Net aged work in progress 3,532 3,872 4,331 254 226
 
Trade receivables before factoring/securitization 1,595 1,469 1,674 (92) 129
Advances from customers 12 3 3 (8) (0)
Other receivables 266 243 305 (11) 47
Other inventories 799 833 847 47 (13)
Non-aged work in progress 69 65 73 (1) 1
Trade payables and other 2,079 1,963 2,208 (77) 115
Gross operating working capital 638 645 689 28 50
 
Factoring/Securitization impact 505 479 591 25 (84)
Net Operating Working Capital 133 165 98 53 (34)
 
Net Working Capital 3,665 4,037 4,428 308 193
   
* without FX effects and reclassifications Of which recurring variation 319 192
Of which non recurring variation (12) 0
 

Change in Net Debt

         
(€ millions)   30/06/2014   30/06/2015
   
Self-financing capacity before interest and tax 2,157 2,296
Decrease (increase) in working capital requirements (308) (193)
Financial result and tax cash (841) (992)
Net acquisitions of non financial assets (253) (302)
Free Cash Flow 755 808
Disposals/acquisitions assets and others (142) (51)
Change in Group structure
Dividends and others (448) (461)
Decrease (increase) in net debt (before currency translation adjustments) 165 296
Foreign currency translation adjustment 209 (964)
Decrease (increase) in net debt (after currency translation adjustments) 374 (668)
Initial net debt (8,727) (8,353)
Final net debt (8,353) (9,021)
 

Debt Maturity at 30 June 2015

[Missing charts are available on the original document and on www.pernod-ricard.com]

Gross Debt Hedging at 30 June 2015

[Missing charts are available on the original document and on www.pernod-ricard.com]

Bond Details

                 
Currency Par value Coupon Issue date Maturity date
 
EUR € 1,200 m 4.875% 3/18/2010 3/18/2016
€ 1,000 m 5.000% 3/15/2011 3/15/2017
€ 850 m 2.000% 3/20/2014 6/22/2020
€ 650 m 2.125% 9/29/2014 9/27/2024
USD $ 201 m Libor 3M + spread 12/21/2010 12/21/2015
$ 1,000 m 5.750% 4/7/2011 4/7/2021
$ 1,500 m 4.450% 10/25/2011 1/15/2022
$ 2,500 m o/w: 1/12/2012
$ 850 m at 5 years 2.950% 1/15/2017
$ 800 m at 10.5 years 4.250% 7/15/2022
$ 850 m at 30 years 5.500% 1/15/2042
 

Diluted EPS calculation

                         
(x 1,000)    

FY
13/14

     

FY
14/15

         
Number of shares in issue at end of period 265,422 265,422
Weighted average number of shares in issue (pro rata temporis) 265,422 265,422
Weighted average number of treasury shares (pro rata temporis) (2,107) (1,441)
Dilutive impact of stock options and performance shares 2,502 2,250
Number of shares used in diluted EPS calculation 265,816 266,230
 
 
                       
(€ millions and €/share) FY FY reported
      13/14       14/15      

?

Group share of net profit from recurring operations 1,185 1,329 +12%
Diluted net earnings per share from recurring operations 4.46 4.99 +12%
 

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