Pernod Ricard Reports 21% Rise in Profits
Profit from recurring operations rose by 21% to € 1,846 million and the operating margin amounted to 25.6% of sales, an improvement of 250 bps compared with the previous financial year.
3 Sep 2009 --- Pernod Ricard has reported that 2008/09 full-year sales increased by 9% to € 7,203 million (excluding tax and duties). The 14 strategic brands (excluding Absolut), declined by 4% in volume and were unchanged in value (2). 5 of these 14 strategic brands continued to report organic growth in value: Martell (+ 12%), Jameson (+ 8%), The Glenlivet (+ 7%), Mumm (+ 3%) and Havana Club (+ 3%). Conversely, Perrier-Jouët (- 11%), was severely impacted by its exposure to the US, where the champagne market proved especially difficult. Montana sales (- 13%) reflected a significant destocking effect, whereas consumption of the brand grew in its principal markets.
Otherwise there were very good successes on many local brands, the volumes of which increased significantly: Royal Stag in India (+22%), Something Special in Latin America (+18%), Wyborowa in Poland (+17%) and Clan Campbell in France (+8%).
Additional sales relating to Vin&Sprit totalled € 915 million over eleven months and seven days. In the US, the Absolut brand is in decline, impacted by a year of transition, including changes of distributors, destocking by retailers and the decline of the on-trade where the brand achieves a significant portion of its sales. Conversely, Absolut confirmed its strong growth in several other countries: Spain, United Kingdom, Poland, Brazil, France, Germany, Greece, Italy, Australia, and gained market share.
Over the 4th quarter 2008/09, consolidated sales amounted to € 1,646 million, which is an increase of 10%, reflecting organic sales decline of 3%, positive foreign exchange effect of 2% and positive group structure effect of 11%. The limited decline of 3% (2) over the quarter, following a third quarter which was severely impacted by destocking by wholesalers and distributors and had declined by 12%(2), confirms the strength and resilience of Pernod Ricard’s portfolio and commercial network. The foreign exchange effect, which turned positive by 2% over the fourth quarter, resulted mainly from the appreciation of the US Dollar and the Chinese Yuan, compared to the fourth quarter of the previous financial year.
Gross margin (after logistics costs) increased by 12% to € 4,208 million, which is 3 percentage points of growth ahead of sales. The gross margin/sales ratio, improved strongly to 58.4% in 2008/09, compared with 57.2% over the previous year (+120bps), mainly due to the positive effects of the integration of Absolut, a highly profitable brand, and favourable foreign exchange movements. The continued implementation of a high-value strategy across the whole portfolio enabled the Group to offset the effect of price increases on certain raw materials.
Advertising and promotion expenditures were up 5% to € 1,237 million. This is primarily due to the inclusion the Absolut. On an historic basis, we have reduced our advertising and promotion investments over the second half-year, benefiting from the fall in media cost, reduction in on-trade activities and efforts to improve the efficiency and targeting of our advertising and promotion expenditures. This enabled us to slightly reduce the advertising and promotion expenditures / sales ratio of the Group to 17.2% in 2008/09, compared with 17.9% over the previous financial year, while maintaining a strong commitment behind the 15 strategic brands.
Overall, the contribution after advertising and promotion expenditures rose by 15% to € 2,971 million and represented 41.2% of sales, an increase of 190 bps compared to the previous financial year.
Structure costs recorded an increase of 6% to € 1,125 million, but remained stable on a like-for-like basis, confirming the control of these costs within an uncertain environment. This control, combined with the accelerated implementation of synergies relating to the Vin&Sprit acquisition, led to a further reduction in the structure costs / sales ratio to 15.6%, a decrease of 60 bps compared with the previous financial year.
Profit from recurring operations rose by 21% to € 1,846 million and the operating margin amounted to 25.6% of sales, an improvement of 250 bps compared with the previous financial year.
All regions experienced growth in their profit from recurring operations:
- Remarkable growth of 17% in Asia/Rest of World (organic growth of 7%), notably resulting from dynamic sales of Martell in China and local brands in India and good performances in Australia, South Africa and the Middle East.
- Spectacular 51% growth in the Americas region, primarily due to the integration of Absolut and the favourable exchange rate. The US proved a difficult market, penalised by distributor and retailer destocking and declining on-trade consumption. However, Latin America and Canada reported an excellent year.
- 1% growth in Europe reflecting both a difficult situation in Western Europe and a good performance in Eastern Europe. However, the latter experienced a sharp trend reversal in the second half-year and an unfavourable foreign exchange effect due to the devaluation of the Rouble.
- Outstanding growth of 19% in France, due to the commercial performance of Ballantine’s, Mumm and Clan Campbell, as well as the significant increase in operating margin, related to cost reduction and the positive foreign exchange impact on Scotch whisky costs (fall in the Pound Sterling).
Foreign exchange movements had a negative effect on sales but were positive for profitability, due primarily to the fall in the currencies of two of our main producing countries: the Pound Sterling and the Australian Dollar. Over the full 2008/09 financial year, foreign exchange movements had a € 67 million effect on profit from recurring operations.
The integration of Vin&Sprit’s sales over eleven months and seven days generated € 272 million in profit from recurring operations for the 2008/09 financial year, thereby greatly contributing to Group growth.
Net financial expenses from recurring operations totalled € 619 million: Debt-related financial interest totalled € 581 million, plus € 15 million in finance restructuring charges, i.e. an average cost of borrowing of about 4.8%, and other financial expenses € 23 million.
Income tax on recurring operations was an expense of € 204 million, a rate of 16.6%, in line with our forecasts. Lastly, minority interests and other amounted to a negative € 13 million.
In total, the Group’s share of net profit from recurring operations amounted to € 1,010 million, a 13% increase on the 2007/08 financial year.
Other operating income/expense was an € 89 million expense, including a € 225 million net capital gain on disposals, primarily due to the sale of Wild Turkey, € 146 million in intangible asset writedowns primarily relating to the Spanish wine brands, and charges relating to the integration of Vin&Sprit, of which € 48 million related to the early exit from distribution contracts and € 117 million to acquisition and integration costs. Net non-recurring financial expenses came to € 71 million, primarily relating to foreign exchange effects, the impact of volatility on the time value of interest rate hedging and the accelerated amortisation of fees. Lastly, non-recurring tax is an income of € 96 million, primarily due to the deduction of non-recurring expenses and the favourable impact of foreign exchange movements (deductible exchange losses).
Consequently, net profit - Group share totalled € 945 million, a 13% increase on the 2007/08 financial year.
Net debt at 30 June 2009 amounted to € 10,888 million. The change in net debt over the financial year was primarily affected by:
? The acquisition of Vin&Sprit and the exit from Maxxium and Future Brands distribution contracts
? The effects of the rise in the US Dollar (€/$= 1.41 at 30 June 2009, compared to 1.58 at 30 June 2008)
? The strong generation of free cash flow from recurring operations over the period of € 1,275 million including € 351 million related to the implementation of programmes for factoring receivables
? The € 1 billion share capital increase carried out on 14 May 2009
? The successful launch of an asset disposal programme
? The payment of cash dividends relating to the 2007/08 financial year
Note also that the Group successfully carried out an € 800 million bond issue, finalised on 15 June 2009.
The Group confirms that debt reduction remains its priority today, with the continuation of the asset disposal programme of € 1 billion (€ 700 million achieved to date, including the sale of Tia Maria for € 125 million in July 2009), and the generation of free cash flow from recurring operations of close to € 3 billion over the three years 2008/09 to 2010/11.
For 2009/10, Pernod Ricard anticipates a general economic environment that will remain difficult and an overall stagnation of the Wines & Spirits industry, with contrasting situations depending on countries and categories. The comparison basis of the first half-year, and in particular that of the first quarter will be unfavourable, due to the very strong performance reported over the first half of the 2008/09 financial year. Conversely, the comparison basis of the second half of 2009/10 will be favourable, due to a second half-year 2008/09 adversely affected by the impact of the crisis and a strong destocking effect.
Pierre Pringuet, Chief Executive Officer of the Group, stated: “Despite a particularly difficult environment, the Group achieved a very satisfactory performance in the year just ended: this reflects the effectiveness and strength of our strategy, and also the commitment and responsiveness of our teams around the world. We start 2009/10 with confidence and determination: our priorities are clear, continue to reduce debt and strengthen investments behind our strategic brands.”
