Thank you all for standing by, and welcome to today's First Quarter 2022 Sales Conference Call. Our presentation Please be advised the call is being recorded. I would now like to hand the call over to your speaker, Julia Massey. Thank you.
Good morning, ladies and gentlemen, and thank you for joining us for Pernod Ricard's Q1 fiscal 2022 sales presentation. We're hosted this morning by Helene for Kiso, our EVP for Finance, Operations and IT. Helene will take you through a quick presentation and then turn to your questions. Thank you very much. Helane, over to you.
Thank you very much, Julia. Good morning, everyone. So let's start with the executive summary of our Q1 sales performance for this new fiscal year 2022, so very dynamic Q1, is growing at plus 20% on a low comparison basis with a strong demand in most markets. So starting now with the market's performance, a very dynamic start in all regions with a robust demand and strong shipments ahead of the festive season. The off trade remains resilient and markets are supported by the on trade reopening.
Travel Retail is still very subdued, is benefiting from a low basis of comparison. If I move now to the brands performance, starting with our strategic international brands, They are growing by 24%, which is a broad based growth, in particular, a strong contribution to that growth by Martell, Jameson, Ballantine's, Chivas Regal and Absolut with the positive price mix. Strategic local brands are growing by 15% and this is driven by strong double digit growth of our Seagrams Indian whiskies. For Specialty Brands growing by 21%, in particular to Malci, Avion, Del Maguet, Auberlure, for the quarter is now in the Q1 of 2019. Our U.
S. Whiskies and Lillet. And our strategic wines are declining by 7%, That is a plus 9% in the Q1 of last year, and this is due in particular to the supply constraints we are facing for New Zealand wines. If I move now to the must win markets performance, starting with the U. S, which is our number one market.
So the U. S. A. Are growing by 9%, which is a strong Q1 gross portfolio with as well for good replenishment ahead of festive season. Jameson is rebounding in on trade, but lapping high comparison basis in the off trade.
And we have as well the continued dynamism of the Glenlivette, of Malibu, of Calua, of our super premium whiskies like Abert Loa, Redbreast for U. S. Whiskies, but as well Martell and Tequila's. Moving now to China. So China is growing by 22%, is dynamic growth with a good mid autumn festival and positive pricing, thanks to the Martell price increases that we implemented back to for fiscal year 2021.
Talking about Martell, we have strong sellout with the off trade growing will be posted with offsetting softer trends in the end trade, which is due to the recent localized lockdowns. We have as well continued strong development of scotch, in particular, the Glenlivette and Absolut. Moving now to Global Travel Retail. Global Travel Retail is growing by 55% with a return to growth in all regions on a very favorable basis of comparison. International travel is recovering very gradually with some easing of travel restrictions and progressive reopening of borders.
Moving now to India. India is growing by 27%, Very strong rebound on the low basis of comparison with as well as strong mix driven by faster growth of strategic international brands and as well faster growth of our Indian whiskey, real estate. Moving now to Europe. Europe is growing by 22%, with France having a strong growth with good on trade recovery this summer, enhanced by for favorable shipment phasing. UK is delivering a good growth driven by Jameson, Absolute and Havana Club.
For Spain had a very dynamic rebound led by the on trade reopening. Germany is is continuing on a strong growth trajectory driven by Absolute, Lilly and JEMCEEN. Eastern Europe is in very strong growth and this is led by Russia. Moving now to Americas, including the U. S, is growing by 13% with an outstanding start of Brazil, which is as well supported by price increases we implemented in July.
Mexico is as well posting strong growth with positive mix driven by strategic international brands. If I move now to the Asia Rest of the World, growing by 23%. We have good resilience in Japan despite extended state of emergency. Korea is growing double digit with continued dynamism in the off trade. For the quarter is really the region which is very still very impacted by pandemic and trade disruptions.
And Africa Middle East, very strong start in South Africa after the removal of the alcohol ban in August and as well continued strong momentum in Turkey. Moving now to the conclusion and outlook. So as mentioned, a very dynamic Q1 is on low comparison basis with a strong demand in most markets. For the fiscal year 2022, Pernod Ricard expects good sales growth to continue, will be moderating versus Q1. As well, we intend to have significant investment in A and P and structure costs to support Future growth.
We will continue the implementation of Transform and Accelerate strategy, including our digital transformation. And we have our €500,000,000 share buyback program, which is well in progress with half of which expected You have then in our communication the usual appendices. And if I can just spend 1 minute And the appointments that we shared as well early this morning, starting with Giulia, who is going The appointed CFO of Panuica, EMEA and LATAM, and this is effective after our shareholders' meeting in a couple of weeks. So Julia, I take the opportunity to thank you very warmly for all your contribution In that role for the past 7 years, we will miss you. I will miss you for sure, but I'm very happy for you, and I'm sure you're going to have a great time in this great region, which is Eine LatAm.
So thank you again, Julia. And Florence, welcome to this new role. Florence is already our Group Treasury Director and is now appointed Global EVP, Investor Relations and Treasury effective after the shareholders' meeting. So Florence, welcome to the team.
Thank you very much, Helane. On a personal note and also for the presentation, we'll now turn to your questions.
First question is from the line of Andrea Pistacchi from Bank of America. Your line is now open.
Yes. Good morning, Helene and Julia and Florence and congratulations Julia for your new role, very exciting. So I have two questions, please. The first one is about the shipment phasing that you mentioned, shipment ahead of the for I was wondering whether you could maybe quantify or give us a sense of the magnitude of that. And also say maybe what markets have benefited most from this shipment phasing?
I imagine the U. S. Or is it maybe a bit broader than that? And then on China, please, you talk about a good mid autumn festival again. I was wondering whether you could 1 to 5 maybe depletion growth that you've seen through the quarter or at Mid Aorton Festival?
And how is the stock situation now in China ahead of Chinese New Year? And also on China, please, Helane, there's been A lot of moving parts in the last couple of years in China. So I was wondering whether you're able to give a bit of a breakdown of your portfolio in terms of for consumption occasion give us a sort of idea of the size of how big nightlife occasion is or gifting or home consumption. Thank you.
Okay. Thank you very much. So let's start with your first question. So the underlying trend for the Q1 is, as expected, quite good. We have a very dynamic Q1 sales With the continued good sales momentum, with as well below base effect because as you remember, Q1 last year was at minus 6% And was particularly weak in India and Global Travel Retail.
We have as well some good replenishment trends ahead of festive season. And just to clarify your question, it's in particular the case in the U. S. And France. So for your second question, in terms of China, so yes, we have already some Trends in terms of Middleton Festival, so good Middleton Festival for us in China and obviously especially for Marseille.
So the depletions are, let's say, double digit in value for Mid Autumn Festival. You had as well a question. I'm sorry, your question, we are a bit long on China. So I hope I remember all of them. It was a question on Chinese, do you are facing?
So If I understood correctly, just to clarify, we don't expect at that stage a significant phasing In the H1, even if Chinese New Year is 2 weeks almost 2 weeks earlier Then last year, but shouldn't have a significant impact. Stock situation, if I remember well, that was your third question, It's quite healthy, I must say. 1st, beer festival. And then your last question was in terms of
Of consumption and case breakdown.
General performance and so on and so. Yes, maybe just as well Let me clarify what is the what was the dynamism in this Q1. So a good performance for sure, some soft on trade and this is obviously very much linked to the temporary lockdown of cities that happened During the summer, starting with the 1st wave of, let's say, rise of local cases that happened at the end of July and that was then triggering some temporary lockdown of some cities and there was the second wave in Fujian from the beginning of September. So this had some impact in terms of on trade because as I'm sure you know some The night outlets and some restaurants in those cities were closed. So this has some impact.
But all in all, the performance was strong and the NDA of trade was was strong. In terms of, I would say, more structural trends, no significant changes Two highlights, obviously, as you remember, we had a strong performance last year in China and the beginning of the year is quite strong as well. So this is largely due to Martell, but we have as well a very strong performance With the rest of our portfolio, including our Scotch brands and as well brands
please to give everybody a chance. Thank you very much. Operator, if you could put through the next caller, please.
Thank you. Our next question is from the line of Edward Mundy from Jefferies. Your line is now open.
Good morning, everyone. Good morning, Alain. And also from this end, congratulations to Giulio and thanks for the help over the last 7 years. Two questions for me, please. The first is on China.
Any views on this stage that you're able to share with us on a potential consumption tax And what this could mean for Western style imported spirits in your business? And then the second question, I appreciate it's still very early on in the year. I think the messaging from your results back in September was to grow probably ahead of the 4% to 7% range and that could lead to more than 50 to 60 basis points of margin expansion, with 1 further quarter under your belt, is there anything you're able to share with us around the shape of 2022 at this stage?
Okay. Thank you. So let me start with the question on consumption tax in China. So there were Some potential news on that topic very recently around the expansion of consumption tax collection. To be fair, it's very early days.
There is no details at all known yet. So it's really too early to comment So me, in terms of what could be the implications. Your other question is on the margin. So obviously, as you remember, we have a very strong margin improvement in fiscal year 2021. And the focus for us in this fiscal year 2022 is really on growth opportunities and to support that growth momentum I was referring to A few minutes ago.
It's still obviously very early days. We only have 1 quarter behind us. So Too early to tell in terms of gross margin what would be at stake because there are obviously lots of moving parts, Some positive ones around prices and the environment, it's fair to say, is more favorable than it was for the quarter was the gradual recovery of Travel Retail, which should be accretive, but there is as well some negative for the Q1 2019, like the inflation and COGS and everything around the Supply chain pressures, I'm sure we'll have the opportunity maybe to elaborate a bit more on that this morning. When it comes to our Resources, as mentioned in the conclusion, we want to have a sizable investment to support growth in terms of A and P. And As you know, we believe that circa 16% in P2 net sales ratio is a reasonable assumption for us this year.
And our structure cost, which will increase strongly to really drive future growth. It's is going to be done and it's happening on a very purposeful way, I would say.
Great. Thank you.
Our next question is from Lawrence Wyatt from Barclays. Your line is now open.
Morning, Helen, Julia. Thanks very much for the questions. A couple from me. In terms of your U. S.
Performance, it's somewhat it was slightly below some of your peers. Do Do you think you need an additional tequila brand to maintain your share in the U. S? And secondly, you just mentioned around the structure costs. Is that significant investment?
Does that necessarily mean double digit growth? And could you give us a bit of indication of where those where that extra money is going? Thank you very much.
Okay. Maybe I'll start with the second question on structural costs. 1st, you have to keep in mind that last year was obviously a year where we had a very strict monitoring of our structure costs with measures that were, I would say, very adapted to crisis management mode With decisions like recruitment freeze, salary freeze, when I talk about recruitment freeze, this was as well, Including the vacancy position, there was obviously as well a full travel ban. So We are really, let's say, talking about structured cost investment on a basis Which was the one I just described. So we believe and especially when you look at the good sales momentum, which is happening for the quarter is absolutely critical for us to reinforce our structure and have the right resources behind our strategic priorities.
So we are obviously back to salary increase to have the right recognition and reward And thank as well our team for the very strong engagement in the recent past and to keep a very attractive, I would say, We will policy. We would be as well recruiting behind strategic priorities. And but at the same time, we are is very, I would say, motivated to keep a strong discipline in term of structure cost evolution and fit for purpose organization Everywhere. So maybe now back to your first question in terms of the U. S.
Performance. Well, first, I would like to say that this is quite early days for us to have a full view of What would be our performance in terms of market share? This is only 1 quarter. This plus 9% is quite dynamic in terms of sales based on replenishment occurring ahead of festive season. As you know, O and D is a critical quarter for us in the U.
S. And this replenishment is, I would say, quite usual at this time, but bigger. And we have as well a quite dynamic performance on some of our brands like Jameson for sure, which is benefiting from the rebound in the on trade, but as well Continued dynamism of other brands like the Glen Yvette as well our liquor brand, U. S. Whiskey and so on And as well Tequila, so with Avion and Alto.
So Tequila's category is extremely dynamic. So it's the cognac category by the way and we have a strong ambition for Martell. Our brands
Our next question, it's from the line of Simon Hales from Citi, you may ask your question.
Thank you. Good morning, Ellen. Good morning, Julia. Congratulations on your new roles. A couple of quick questions from me.
And then can I just go back to the replenishment that you've seen in Q1? I mean, clearly, you mentioned for the quarter was the supply chain bottlenecks we've got going on around the world generally at the moment. I mean, how much higher are stock levels in some of your key markets Sort of now than they would be typically as we head into sort of Q4 festive season. Have you seen just much more buy in By wholesalers to make sure they have inventory for this year. And how should we think about the knock on impact that, that might have when it comes to us forecasting Maybe Q2 sort of shipment momentum.
And then secondly, I don't think you did, but did you give a depletion rate for the U. S.
Okay. So thanks for the question. If I may, I will answer on the stock level in a kind of broader way. So we believe that we have broadly quite normative level of stock everywhere given the period of the year, which means just to maybe repeat what I said on the replenishment trends In the U. S, there is some replenishment in anticipation of O and D in the U.
S, which again is quite usual at this time of the year and which is probably as well good for us to prepare what we hope would be a great festive season In the context that you alluded to, which is obviously lots of pressure in terms of supply chain, I would say, by the way, especially in the U. S, so it's a hot topic for us and our Teams are really fully mobilized to be sure that we have, let's say, the best supply chain efforts, collaboration and focus to be ready for this festive season in the context where it's It's difficult, as you know, to find containers to have our goods, I mean, reaching ports And being clear in terms of customs and then to have truck drivers to bring our products to the shelf and to the points of I would say so. Having the right level of stock in this particular time is obviously extremely important. So Boldly normative everywhere. We are not, to be clear, managing our stocks on a quarterly basis.
What we want is to have a very healthy inventory management, I would say. By the way, as you know, you should probably this year that we have for the full year selling equal sell out and this is true for all markets. So the last question was I think on the depletion and our sellout in the U. S. So Maybe I think I tried to answer that question, but let me clarify.
1st, well, it's still quite early. We only have 3 months of performance. So it's Too early to give you a very precise sellout number. I hope you will understand. But to To give you some flavors, directionally, we are probably a bit below the plus 9% in sales because of this replenishment Recurring ahead of the festive season, so a bit below.
Brilliant. Thanks so much.
Thank you. The next question is from the line of Sanjit Aula from Credit Suisse.
Good morning, Helen and Julia. Just a quick question on Europe, please. Can you just talk a little bit about the on trade recovery you're seeing across for the various markets and if you're able to put a figure on where you think the on trade is now relative to pre pandemic levels across your business there. That's my first question. And then if you're able to quantify the impact of the French shipment phasing, that would be very helpful as well.
Thank you.
So maybe I'll start with the second question because I tried to answer that question several times. We are not quantifying that. But again, it's really replenishment that is quite usual, I would say, at this time of the year. And it's mainly the fact of the U. S.
Market and France. So hopefully, that's clear enough. Moving to Europe, so a strong performance on Europe, I would say, very strong one. And as you rightly pointed out, it's really as well linked to the on trade recovery With the off trade, by the way, remaining quite resilient, so the situation in the on trade for In Europe, it's obviously much better after the lockdown and restrictions that we had in fiscal year 2021. I would say it's almost a kind of revenge conviviality trend that we are facing and that we are very pleased about to be clear.
In Europe, it's probably now really progressively normalizing and not very far from the We have still, I would say, some on trade channels that could be Not yet back to full recovery, for instance, night clubs are definitely not. We are aware pre COVID. So But a very good performance for us in Europe and in many markets.
Thank you. We will take our next question. It's from the line of Mitch Collett from Deutsche Bank.
Good morning. I've got two questions, please. The first one on your strategic lines. Can you comment on the New Zealand supply constraints? And did that lead to lost sales, do you think, this quarter?
Or did it ultimately lead to inventory reductions at your customers? And is that problem or that issue now fixed? And then a follow-up to that is, given the performance by brand type,
Would it
be fair to assume that Strategic International Brands and Specialty Brands growing ahead of local brands and strategic wines is quite helpful for margin.
Okay. So maybe I'll start with the second question. I think on margin and especially when we talk about the performance 4th quarter only. I would say back to my previous comments, it's really too early days. For us, what really matters is that we have a broad based growth across our brands portfolio, which is, I would say, Great news and exactly what we want to do in terms of strategic intention.
So that's great news. And anyway, as you know, our strategy is really to premiumize across our portfolio and all our, I would say, strategic for the French categories are contributing to that strategy. The question on wine. So first, Again, please keep in mind that last year we had a strong start. So our performance is to be analyzed, taking into consideration that high comparable basis and this was last are notably driven by a strong growth in the off trade in the UK and in Canada.
This year, we have 2, I would say, for the Q1 of 2019
is the key drivers of
the performance in this beginning
of the year, some negative impacts of the for tariffs in China for Jacobs Creek and as well some supply constraints on New Zealand wine. So To be a bit more specific, this very low 2021 Sauvignon Blanc harvest, which is impacting the whole industry. So This is something that we will have to live with in the coming months. Understood. Thank you.
Welcome.
Thank you. The next question is from Oliver Nikolay from Goldman Sachs.
Hi, good morning, Helane, Julien and Florent. Just two questions, please. First of all, a bit of a follow-up on China. 1 of your competitor I was saying that mid autumn festival was below the expectations. So it's good to see that you had a good mid autumn festival.
Do you I see yourself as gaining share in China. Perhaps could you give us a bit of an update on the performance of the SOP, Noblis, Caordobla and Ekso? And then second question, a bit more beyond the Q1 results. You bought Whiskey Exchange recently. Could you perhaps go back to the rationale for the acquisition and how does it integrate into your broader e commerce and DTC strategy?
Thank you.
Okay. Thanks for those questions. So I'll start with China. So Honestly, in terms of market share evolution, I will not comment based on the quarter. For sure, what we know is that we have a good math with Martell in good growth and it's in particular the case for Cordon Bleu and Noblis.
Your question on the Whiskey Exchange, so I must say this is an acquisition which is very much expectation and obviously in the context of a very solid e commerce growth and strong demand from premiumization, we believe that the Skip Change acquisition is ticking all those boxes. We are very happy with that acquisition and the whisky exchanges is, I must say, one of the biggest and most successful online drink retailers and with a fantastic catalog, etcetera. So A truly omnichannel player, which we are very happy to welcome, I would say, within Bernorica, having said that, the business will continue to operate independently with its current management for the Forseeable future. So for us, again, very consistent with our strategy. Obviously, e commerce is a very dynamic
Thank you, Helane. We'll take the questions and thank you, Olivier. We'll take our questions from the final two callers, please.
Thank you. The next question is from Trevor Stirling from Bernstein.
Good morning, Elen, and congratulations, Julia, and welcome, Phil Holt. Two questions from my side. First one, Helene, the first one I think I opened with a question on Europe in a positive dilemma. But the it's really remarkable quarter in Europe. I think most of my calculations, up 17% on pre COVID.
So what you're saying, it sounds a bit the on trade is largely back. And what's responsible for that 17% growth is that the surge in off trade consumption is sticking. Is that the right way to look at it? And the second question coming back to travel retail. Do you have sort of rough estimate, Elen, of where we are Now compared to pre COVID in travel retail, and does that vary quite substantially from region to region?
Okay. Thank you for your questions. So I think on Europe, I would say globally, I agree with your analysis. So great again, great start and in a region where globally, the consumer trends is quite positive and strong, which is, I would say, the translation of the fact that people are really keen to come back to their lifestyle and to be able to socially connect, we are really benefiting from that. Your second question?
Travel Retail, yes. Thank you, Giuliano. Sorry. So On Travel Retail, I would say we are definitely not yet back to pre COVID. And again, as you know, we believe that it's going to take time.
When we look at the passenger traffic, it's probably now around, I would say, minus 50% on average for the Q1. So and I would say our recovery is probably quite aligned With that type of passenger traffic trend, the situation is quite different by region. So in Asia Pacific, it's definitely not as good as in rest of the regions. For our performance, We have in this region the support of the more dynamic trend in Henan And Jeju in Korea, but for the obviously international travel, as you know, this is still a very subdued. Europe is probably the most advanced in term of recovery.
And obviously, as you are following that as much as we do, there is some for the quarter is going to be, I would say, better in terms of trends for Americas moving forward. So for us, the recovery of Travel Retail is going to be really gradual, Especially for fiscal year 2022, as we believe that Asia will still be quite subdued in the coming months.
Many thanks, Helane.
Welcome. Thank you. The next question is from Mr. Chris Beecher from Redburn. Thank you very much, everyone.
A couple of questions. Firstly, on France. We're sort of 2 years now since you announced Project Reconquer. And I appreciate there's a lot of moving parts that's happened in the last 2 years, and you're not giving us a sort of underlying number for France. But In terms of how that strategy project has developed, are you on track to stabilizing, you think, your French performance?
And could you comment specifically how for has been performing more recently. And then Latin America, I have some Julia in her new role. But can you confirm you're getting volume and price In Brazil, Mexico and across the region. Thanks.
Okay. Thank you. So can I start with France? As you said, it's obviously, the environment is not fully normalized. So it's difficult to know Where we stand versus what was the initial intention, what is for sure is that first, the reorganization was implemented in due time and fully, I would say, implemented 1st July 2020.
So for the full year 2021, which was probably a great thing in the current environment, We want, as you know, to be back to a conquest mode, if I can call it this way. So all our teams are really mobilized to do that. The performance in the Q1 was strong. This is as well from a favorable shipment phasing in those numbers. But This is a good quarter for France.
And back to your question, Ricard was, I would say, stable in that period. On LatAm, your question on price increase, yes, we did increase our prices starting in July in Brazil and we have as well Positive mix in the rest of this region. So a very strong start, I must say, for those countries in the Q1.
But you got volume growth as well as price, just to check?
Say that again, sorry?
You've got volume
and price growth in Latin America. It's not just a price led.
Yes, correct.
Thank you.
Thank you. That brings us to the end of our Q and A session. Thank you very much, Thank you very much, ladies and gentlemen, and we wish you a good day and please continue to enjoy the On Trade responsibly. Thank you very much.
Thank you. That concludes our call for today. You may all disconnect. Thank you all for participating.