Pernod Ricard Struggles in Q1

There was a 3% organic decline, against high comparatives and within a varied economic and market environment. Business remained indeed dynamic in emerging markets, in particular in China and India while France showed good resilience and the situation remained difficult in Western Europe and the US.

18 Feb 2010 --- Pernod Ricard has reported that 2009/10 1st half-year consolidated net sales (excluding tax and duties) declined by 10% to € 3,789 million, compared to € 4,212 million in 2008/09 HY1.

There was a 3% organic decline, against high comparatives and within a varied economic and market environment. Business remained indeed dynamic in emerging markets, in particular in China and India while France showed good resilience and the situation remained difficult in Western Europe and the US. There was a 4% negative foreign exchange effect, primarily due to the depreciation of the Venezuelan Bolivar and of the US Dollar. Meanwhile a 3% negative group structure effect was reported, primarily due to the disposals of Wild Turkey and Tia Maria, and to the termination of Stolichnaya distribution.

The 15 strategic brands declined by 5% in volume and 3% in value, reflecting market conditions, but also the positive price/mix effect. These 15 strategic brands represented 58% of Group sales over the 1st half-year 2009/10. A number of them continued to grow in value*, including Jameson (+7%), Absolut (+5%), Martell (+3%) and Ricard (+2%). Others proved rather resilient: The Glenlivet (stable), Havana Club (-1%) and Beefeater (-2%). Champagne brands Mumm (-11%) and Perrier Jouët (-16%) reflected their category trend and still wines Jacob’s Creek (-6%) and Montana (-4%) declined with the continuation of the high value strategy.

In addition, the 30 key local brands, which represented 22% of Group sales over the 1st half-year 2009/10, confirmed their resilience at a time of crisis, with stable volume and sales*. This performance was mainly due to the vitality of our local whisky brands in India, including Royal Stag and Blender’s Pride.

In the second quarter 2009/10, consolidated sales decreased by 13% to € 2,143 million, including a 2% organic decline, a 7% negative foreign exchange effect and a 4% negative group structure effect. The improved organic growth trend over the second quarter, from a 4% decline in the first quarter to a 2% decline, resulted from a lower comparison basis and the recovery in a number of markets, such as Duty Free, South Korea and Russia.

Gross margin fell by 10% to € 2,263 million, resulting from a 2% organic decline, a 2% negative group structure effect and a 6% negative foreign exchange effect. The improved gross margin ratio, which increased from 59.4% to 59.7% of sales, an increase of 30 bps, was due to a positive price/mix effect and a good control of cost of goods sold.

Advertising and promotion expenditure was maintained at a high level, totalling € 642 million, in line with the Group’s strategy of developing its strategic brands over the long term. This represented 23% of sales for the 15 strategic brands and was targeted over the most promising brand/market combinations. Certain expenditures were postponed to the second half-year (Asia linked to a later Chinese New Year). Overall, the advertising and promotion expenditure to sales ratio reached 17.0% over the 2009/10 1st half-year, in slight decline compared to 17.3% over the same period of the previous financial year.

The Group intends to raise this ratio over the full 2009/10 financial year.

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