Pernod Ricard: FY19 Half-year Sales and Results
VERY GOOD H1 FY19
+7.8% ORGANIC SALES GROWTH (+5.0% REPORTED)
+12.8% ORGANIC GROWTH IN PRO¹ (+10.6% REPORTED)
+11% NET PROFIT FROM RECURRING OPERATIONS²
CONTINUED DELEVERAGING: NET DEBT / EBITDA AT 2.6X³
UPGRADE OF FY19 GUIDANCE⁴:
ORGANIC GROWTH IN PRO BETWEEN +6% AND +8%
FY19-21 PLAN “TRANSFORM & ACCELERATE”:
SALES +4 TO +7% WITH OPERATING LEVERAGE OF C. 50-60 BPS PER ANNUM
Sales for H1 FY19 totalled €5,185m, with organic growth of +7.8% and reported growth of +5.0%, due to negative FX.
Growth continued to be dynamic, thanks to the consistent implementation of the medium-term growth and operational excellence roadmap:
-good diversified growth
-strong price / mix, in particular on the Strategic International Brands
-positive impact of earlier Chinese New Year⁵ which will unwind in H2
-significant progress on FY16-20 Operational Excellence roadmap: expectation is to complete €200m P&L savings by end June 2019, one year ahead of plan
Strong dynamism reflected consistent long-term investment:
-Americas: robust growth +4%, with USA growing broadly in line with market
-Asia-Rest of World: strong acceleration +16%, thanks to China and India (with both markets further enhanced by technical factors5) and Africa Middle-East
-Europe: stable overall, with continued momentum in Eastern Europe but contrasted performance in Western Europe
Very strong performance across portfolio, with strong price/mix at +2.3%:
-Strategic International Brands: +10%, strong growth driven by Martell, Jameson, Scotch, Gin and Champagne and very good price/mix effect (+5.9%)
-Strategic Local Brands: +11%, acceleration thanks to Seagram’s Indian whiskies (including positive pricing)
-Specialty Brands: +11% with very strong growth of Lillet, Monkey 47 and Altos
-Strategic Wines: -8%, due to implementation of value strategy and high comparison basis on Campo Viejo (+23% in H1 FY18.)
Q2 Sales were €2,798m, with +5.6% organic growth (+3.2% reported), following a Q1 that was enhanced by phasing and the comparison base.
H2 growth is expected to moderate due to Martell sustainable growth management, wholesaler inventory optimisation in USA and a commercial dispute in France and Germany.
H1 FY19 PRO¹ was €1,654m, with organic growth of +12.8% and +10.6% reported. For full-year FY19, the FX impact on PRO is estimated at c. +€30m⁵.
The H1 organic PRO margin was up very significantly, by +148bps, thanks to:
-Very strong topline growth
-Gross margin expansion +71bps, partially favoured by earlier CNY
---improved pricing driven by Martell, Seagram’s Indian Whiskies, Chivas, Jameson and Perrier-Jouët
---negative mix impact due to acceleration of Seagram’s Indian Whiskies, although their margin is improving
---COGS inflationary pressure mostly offset by Operational excellence initiatives
-A&P: +5% with reduction in A&P ratio due to H1/H2 phasing
-Structure cost discipline: +5%.
H2 margin to be softer due to managing Martell growth sustainability, finished goods’ inventory optimisation in USA and A&P phasing.
The H1 FY19 corporate income tax rate on recurring items was c.25%; the rate is expected at c. 26% for full-year FY19.
Group share of Net PRO¹ was €1,105m, +11% reported vs. H1 FY18, thanks mainly to excellent improvement in PRO.
Group share of Net profit was €1,023m, -11% reported vs. H1 FY18, despite excellent improvement in PRO due to lapping positive non-recurring items in H1 FY18 (one-off Scotch bulk sale, tax reimbursement and re-evaluation of deferred tax pursuant to the USA tax reform.)
FREE CASH FLOW AND DEBT
Free Cash Flow was €585m, in decline vs. H1 FY18, due to positive non-recurring one-offs in H1 FY18.
Net debt decreased by €152m vs. H1 FY18 to €7,223m at 31 December 2018 despite the €93m increase in the dividend payment. The Net Debt/EBITDA ratio at average rates³ was down significantly to 2.6x at 31 December 2018.
The average cost of debt was 3.8% for H1 FY19 and expected at c. 3.9% for full year FY19.
TRANSFORM & ACCELERATE 3-YEAR PLAN
“Transform & Accelerate” started in FY19 with the objective of embedding dynamic growth and improving operational leverage, in line with the objective of maximising long term value creation.
- +4% to +7% topline growth, leveraging key competitive advantages and consistent investment behind key priorities
- focus on pricing and building on operational excellence initiatives, with new plan aiming at delivering additional savings of €100m by FY21
- strong A&P investment, maintained at c.16% of Sales, with careful arbitration to support must-win brands and markets while stimulating innovation
- discipline on Structure costs, investing in priorities while maintaining agile organisation, with growth below topline growth rates
- Operating leverage of c.50-60 bps, provided topline is in +4 to +7% bracket.
REMINDER OF FINANCIAL POLICY
-progressively increase dividend distribution to c. 50% of Net profit from Recurring Operations by FY20 (NB FY18 dividend at 41%)
-commitment to active portfolio management and value-creating M&A while retaining investment grade rating.
As part of this communication, Alexandre Ricard, Chairman and Chief Executive Officer, declared,:
"H1 FY19, the first semester of our new Transform & Accelerate 3-year plan, was very strong. While enhanced by phasing, it confirms the acceleration of our growth, resulting from our long-term investment strategy. For full year FY19, in an environment that remains uncertain, we aim to continue dynamic and diversified growth across our regions and brands. By the end of June 2019, we will have completed our operational excellence plan announced in 2016, delivering €200m of P&L savings one year ahead of plan. We are increasing our guidance for FY19 organic growth in Profit from Recurring Operations to between +6% and +8% while improving operating leverage by c. 50bps. We will continue to roll out our strategic plan, focused on investing for sustainable and profitable long-term growth."
(Groupe Pernod Ricard)