The Pernod Ricard Group, a Western liquor manufacturer that owns the world’s top brands such as Chivas Regal and Perrier-Jouët, announces the results of 2023/24.
*Pernod Ricard Japan Co., Ltd.*
Press release: September 11, 2024
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The Pernod Ricard Group, a Western liquor manufacturer that owns the world’s top brands such as Chivas Regal and Perrier-Jouët, announces the results of 2023/24.
*Business performance is strong as the spirits market normalizes* Organic sales growth rate decreased by 1% (4% decrease based on financial results announcement)
*Organic growth in operating profit from continuing operations (PRO) of 1.5% (down 7% on announced results)*
Alexandre Ricard, Chairman and CEO of Pernod Ricard Group, said:
“Economically and geopolitically unstable, and after two years of remarkable growth since the end of the pandemic, the
As the Ritz market normalizes, Pernod Ricard’s performance for the fiscal year ending June 2024 was strong. Our global scale,
responsiveness and brand portfolio, the broadest portfolio in the industry, combined with our ability to understand and invest in our customers’ demands and expectations, enable us to meet these challenging demands. We were able to maintain our superiority despite the environment. I would like to thank our team for their quick response and tireless efforts to put Pernod Ricard on a path to long-term sustainable and profitable growth.”
* executive summary *
*Main highlights for the fiscal year ending June 2024*
– *Sales remained generally flat, with an organic growth rate of approximately 1%, excluding Russia. *
Strong performance in a number of mature and emerging markets largely offset weakness in the still-normalizing US and weak Chinese markets.
– Volumes continued to recover in most markets* throughout the second half of the year. *
– *Pricing, operational efficiency and cost discipline* resulted in organic gross margin and operating margin expansion of 108 bps and 80 bps, respectively.
– We invested in brand appeal and sustainable long-term growth through an aggressive advertising and sales promotion spending policy and accelerating strategic investments. *
– Continued active portfolio management, including the sale of some strategic local brands and the announcement of the sale of a strategic wine brand. * [1]
[1] Subject to fulfillment of transaction closing requirements, including regulatory approvals (expected to occur in the second half of fiscal 2025).
*Sales*
Sales for the fiscal year ending June 2024 amounted to 11,598 million euros, with organic growth of -1% (-4% on announced results). Although there were positive peripheral effects (€395 million), the headwinds were negative currency impacts (€784 million), mainly related to the Argentine peso, Turkish lira, US dollar, renminbi, and Indian rupee. I did.
*By region:*
■ *North and South America: 5% decrease, *Price/product growth in low single digits.
○ * US: * Down 9%, prices/products down low single digits.
– Spirits market continues to normalize.
– Deliveries decreased by approximately 7% and sellouts decreased by approximately 4% (both on a value basis).
– Acquired growing brands Jefferson’s and Codigo and launched screwball marketing efforts in May.
– Acquired a stake in Jameson.
– Inventory adjustments by retailers and distributors continued throughout fiscal 2024.
– In an environment where interest rates remain high, inventory adjustments will continue in fiscal 2025, and sales are expected to decline in the July-September period (first quarter).
○ *Canada*: Generally unchanged. We expanded our share due to strong growth in ready-to-drink (RTD) products.
○ *Brazil*: Slight increase. The second half of the year was better than the previous year, with consumer demand recovering and our market share increasing.
○ *Mexico*: Slight increase. Although it decreased compared to the previous year and the tourist season was weak, our share expanded.
■ *Asia and Rest of the World: 3%, *Price/Product growth in low single digits.
○ * China: * 10% decrease, prices/products unchanged.
– Demand was negatively impacted by the challenging macroeconomic environment and weak consumer sentiment.
– Strong brand power supports price discipline.
– Market share has increased.
– Martel
Sales at Norbridge were stable, with premium international brands Absolut, Jameson, Olmeca and Beefeater performing well.
–
A significant decline is expected in the first quarter, partly due to the subdued trade mood ahead of the 2025 MAF and a rebound from strong consumer sentiment in the first quarter of last year. However, we expect the trends for the full year to be the same as in fiscal 2024.
○ * India: * 6% increase, price/product growth in mid-single digits. – Strong broad-based performance accelerated, supported by strong consumer demand.
– Sales of premium products are increasing.
– International brands, mainly Jameson, Absolut, and The Glenlivet, grew significantly.
–
Seagram’s whiskey sales increased, driven by premium whiskeys such as Royal Stag and Blender’s Pride. We have successfully started selling single malt Longitude 77.
○ While the Japanese and Taiwanese markets showed extremely strong growth and expanded market share, in South Korea both sales and market share declined.
○ Sales in Africa and the Middle East were very strong, with Turkey, where Chivas Regal performed particularly well, and Nigeria driving sales.
○ South Africa’s performance was flat against the backdrop of severe macroeconomic conditions.
■ *Europe: down 5%, *prices/products flat.
○ Sales in Europe excluding Russia were strong (up 2%), with Germany and Poland performing particularly well.
○ We maintained or expanded our share in some major markets. ○ Sales of brands such as Jameson, Ballantine, Absolut, and Bamboo were strong. ○ RTDs, mainly Lillet and Absolut, performed well.
■ * Global duty-free retail sales: up 2%, * Prices/products down low single digits.
○ Although sales were weak in the first half due to the effects of prolonged negotiations, sales showed strong growth in the second half, resulting in an increase in sales for the full year.
○ The number of tourists has completely normalized, except that the number of Chinese tourists is still in the recovery process. ○ Despite the impact of weak macroeconomic conditions in China, performance in the Asian region was strong.
○ Most whiskeys showed strong growth, including Royal Salute, The Glenlivet, Ballantine’s and Jameson.
* By category: *
Jameson continues to grow globally, and Absolut is growing rapidly in Asia and the rest of the world, as well as in Europe. Scotch brands faced headwinds from the US and China.
* ■ Strategic international brands: down 3%*
○ Martel’s sales plummeted in China.
○ Jameson showed strong growth excluding the impact of the United States and Russia.
○ Sales of Absolut increased significantly in Europe, excluding Russia, and Asia (especially China and India).
○ Scotch brands performed well in Asia (excluding China), Europe (excluding Russia), the Middle East and Africa.
* ■ Strategic local brands: 5% increase*
o In India, Seagram’s whiskies, particularly Royal Stag and Blenders Pride, showed strong growth.
○ Kahlua has grown significantly in North America and Western Europe.
* ■ Specialty brands: 2% reduction*
○ Strong growth was seen across Asia, the Middle East, Africa, Central Europe, and Latin America, but weakness was seen in Western Europe and the United States.
○ Sales of Bumbu, Screwball, Altos, and Lillet were very strong.
Across the portfolio, * price growth was in the mid-single digits, but * volumes were down and the price/product mix worsened.
*Profit*
PRO for the period ending June 2024 was €3,116 million, with an organic growth rate of 1.5% (-7% on an announced basis).
– Gross profit margin grew 108 bps on an organic basis due to pricing, operational efficiency and strict cost controls.
– Advertising and promotional expenses amounted to 1.9 billion euros, accounting for approximately 16% of sales. General and administrative expenses remained disciplined.
– Operating profit margin improved by 80 bps to 28.4% on an organic basis, but decreased to 26.9% on an announced financial results basis. – Operating margin on an announced basis was affected by negative currency effects (425 million euros) and positive peripheral effects (140 million euros).
– The majority of the currency impact comes from the Turkish Lira, Argentine Peso, US Dollar and Renminbi.
Net PRO attributable to the Group amounted to €2 billion, a decrease of 14.5%. The cost of debt averaged 3.2% as financing costs for continuing operations increased due to rising interest rates. Corporate income taxes on continuing operations also decreased, similar to PRO.
Net profit attributable to the Group amounted to 1,476 million euros, a decrease of 35%. One-time operating expenses included an impairment loss on the wine business, partially offset by the proceeds from this sale and the reversal of an impairment loss on Kahlua. One-time income taxes include deferred taxes from Kahlua impairment reversals and the impact of deferred tax impairments on foreign tax credits in the United States.
Earnings per share (EPS) decreased to €7.90. This reflects the decrease in net income from continuing operations attributable to the Group and the effect of share buybacks.
*Free cash flow and debt*
Free cash flow decreased by 33% compared to the previous year to approximately €963 million. This was due to a decline in profits based on financial results announcements and an acceleration of strategic investments planned to accelerate future growth.
Net debt amounted to 10,951 million euros, an increase of 677 million euros compared to the previous year. The net debt to EBITDA ratio, translated at the average exchange rate during the period (EUR/USD = 1.08), rose to 3.1 times. This is due to a decrease in PRO based on financial results announcements and an increase in net debt compared to the previous year.
The proposed dividend is 4.70 euros per share, subject to shareholder approval at the annual general meeting on November 8, 2024. As a result, the average annual growth rate of dividends from FY2019 will be 8.5%.
There are no changes to Pernod Ricard’s financial policy.
While maintaining our investment grade rating, we will:
1. Investments to support future organic growth, centered on strategic inventory deployment and capital investment
2. Continue active portfolio management, including M&A to realize value creation
3. Maintain a dividend payout ratio of approximately 50% of net income from continuing operations while aiming for continuous dividend increases
4. Implement share buybacks after implementing the above priorities
*Business outlook*
By leveraging its diversified portfolio and balanced global footprint, Pernod Ricard aims to achieve organic sales growth of 4-7% and operating profit margin of 50-60 bps, at the upper end of its medium-term financial framework. We are reaffirming our confidence that improvement is possible.
The following assumptions are made for fiscal 2025.
– Due to the recovery in volume, the organic growth rate of full-year sales returned to a growth trajectory, and the operating profit margin on an organic basis was maintained.
– Although strong performance is expected in regions other than the US and China, the first quarter will be weak due to additional inventory adjustments in the US and the continued weakness of China’s macro economy.
* Pernod Ricard Japan’s performance *
Champagne and Scotch whiskey performed well, and sales continued to steadily exceed last year’s levels.
All growth rate data provided in this press release refer to organic growth rates (assuming constant exchange rates and continuing group structure), unless otherwise stated. Data may be rounded.
For details on the financial results for the fiscal year ending June 2024, please visit our group’s website (www.pernod-ricard.com)