Pernod Ricard Raises Annual Forecast After Strong First-Half

There was an improvement in margin rates (gross margin: 62.1%, +124bps) while maintaining a strong advertising and promotional support to brands, particularly to the benefit of innovation and accelerated growth of profits: +17%.

Feb 17 2012 --- Pernod Ricard has raised its full-year profit goal, saying it banked on strong Asian demand and a recovering U.S. market to outpace a soft economic climate in Western Europe.

The company reported strong sales dynamism (+11%), driven by the Top 14 (+14%) and emerging markets (+18%). There was an improvement in margin rates (gross margin: 62.1%, +124bps) while maintaining a strong advertising and promotional support to brands, particularly to the benefit of innovation and accelerated growth of profits: +17%.

On this occasion, Pierre Pringuet, Chief Executive Officer of Pernod Ricard, declared that: “We are very pleased with the excellent business and financial performance of Pernod Ricard in the half year 2011/12. It demonstrates the strength of our business model (vast portfolio of premium brands, wholly-owned global distribution network) as well as the pertinence of our choices (sustained brand investment, development in emerging markets): this constitutes a real competitive advantage in the current economic environment. Confident in the continuation of solid underlying trends we hence upgrade our full year 2011/12 guidance as follows: organic growth in profit from recurring operations close to +8% and a net debt/EBITDA ratio close to 3.9 at 30 June 2012.”

Half-year sales totalled € 4,614 million (excl. tax and duties), a sustained growth of +8%, resulting from:
•    organic growth of +11%, with continued dynamic growth in emerging markets, up +18%, and solid growth in mature markets (+6%). This growth was boosted somewhat by stock building by the trade in France prior to an excise tax increase on spirits (effective as of 1 January 2012). Adjusting for “French pre-buying, growth in mature markets was solid at +3%. At the Group level, organic growth in net sales, excluding “French prebuying” would have been +8%.

• an unfavourable foreign exchange effect of € 99 million for a -2% negative effect over the half year, primarily from the depreciation of the US dollar and certain emerging market currencies (Indian rupee, Mexican peso...),
• a negative group structure effect of -1%, primarily due to the disposal of certain activities in New Zealand in half-year 2010/11.

Consolidated sales for the 2nd quarter 2011/12 increased +9% to € 2,627 million, resulting from +11% organic growth, a negative -1% foreign exchange effect and a negative -1% Group structure effect.

Regions:
Growth in all regions in the half year:
• Asia/Rest of the World, with growth of +15% (organic growth of +18%), remained the driving force for Group growth, primarily due to Asia (particularly China, India, Vietnam, Taiwan, Duty Free markets) and Africa/Middle East. Martell, Scotch whiskies in the Top 14 and Indian whiskies once again led growth. Seeding categories such as wine, champagne and vodka are gaining in significance.
• Americas reported growth of +1% (organic growth of +6%). Net sales in the US (+5%) showed favourable price-mix. Jameson in the US (+37%) remains the leading growth driver, but other brands also posted solid growth (The Glenlivet, Malibu...). Absolut was stable in the US. Sales also grew in most other markets of the region, except Mexico (implementation of a new business model). Brazil’s sales grew +14%, driven by the Top 14 (+34%), particularly due to the success of Absolut, Chivas and Ballantine’s. Canada logged accelerated growth (+5%) with double-digit growth from Kahlua and Malibu.
• In Europe excluding France, the half year was satisfying, with net sales +2% compared to stability over the full financial year 2010/11. The trends were divergent, with accelerated growth in Eastern and Central Europe (+15%) and a moderate decline in Western Europe (-2%) due primarily to Spain (-5%, no market recovery as of yet), UK (-6%, due to wine) and Italy (-11% , tight control of stocks by the trade). Other markets in Western Europe were resilient (Germany +2%, Duty Free).
• In France, sales grew an exceptional +25% due to trade pre-buying (3-4 months of stocks) prior to the excise duty increase on spirits (+14% on average). The impact on net sales is estimated at € 98 million. Excluding the estimated “pre-buying” impact, net sales grew +1%, The Top 14 brands (+26%), in particular Ricard, Ballantine’s, and Jameson, benefitted from the trade “pre-buying.”

In the half year the Top 14 brands (61% of group sales) grew +9% in volume and +14% in value with seven of the brands reporting double-digit growth: Royal Salute (+34%), Ricard (+32%, benefitting from the “France pre-buying”), Martell (+28%), Jameson (+25%), Perrier Jouët (+22%), The Glenlivet (+19%), Chivas Regal (+13%). Absolut net sales grew +4% with growth in all regions. Havana Club net sales were stable due mainly to deceleration in Spain and Italy. Kahlua slipped -3% due to shipments being down in the US. However, depletions in this market are stabilizing, and other markets posted strong growth (Canada +14%; Russia +42%).