Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2020 Sales. At this time, all I must advise you that this conference is being recorded today, Thursday, 17th October 2019. And now, I would like to hand the conference over to one of your speakers today, the VP of Financial Communication and Investor Relations, Julia Massey. Please go ahead.
Good morning, ladies and gentlemen, and welcome to our Q1 sales call. As said, we'll go through a brief presentation and then give you a for some questions. We're hosted this morning by Helene Le Tissot, our Finance, IT and Operations Director. Helene, over to you.
Thank you, Julia. Good morning, everyone. So let's start with this Q1 sales performance. The organic sales growth is +1.3 percent for this quarter, plus 4% reported sales. So this is a moderate growth, which is in line with our expectation on a very high basis of comparison.
As a reminder, last year, the growth was plus 10.4% for the Q1. So if I may, I will go through the key markets first, and then we move to the brand. So start with our number one market, the U. S. So this is a good start in the U.
S, plus 6%, thanks in particular to innovation and these as well some advanced shipments in that quarter performance. Moving to China and India. A good growth, plus 6 percent for China, plus 3% for India on a very high basis of comparison. Global Travel Retail is in declined by 6%, following a very strong Q1 last year with double digit growth in Q1 fiscal year 2019. And we have a good growth in Europe, plus 3%, thanks to strong sales in Eastern Europe and return to growth in Western Europe.
So moving to the brands. Our strategic international brands are growing by 3% for this Q1 with a growth moderation, which is due to the high basis of comparison we had, especially on Martell and Scotch last year, but an acceleration of Jameson in this Q1, but as well Befitter, Malibu and Havanagh Le. So strategic local brands, plus 2%, with a softer growth due to a very high Q1 last year for Seagram's Indian whiskies. Specialty brands, which is the new category in our hot tub brands that we started to communicate about in the H1 last year is performing well, plus 15%, a very dynamic performance, particularly for Lillet, Monkey 47, but as well our Algarve portfolio with Delmaguay and Altus. Strategic wines, minus 2%, which is a modest decline linked to the continued implementation of our value strategy on Jacob's Creek, mainly in the UK.
Pricing is positive, plus 2% on strategic brands. So let me now deep dive into the key markets. So USA, plus 6%, as I mentioned, is a good start. Jameson, which is our sub brand, is in strong growth with the dynamic development of Black Barrel. We have as well continued dynamism on our growth release, in particular, the Glenlivette, which is driven by Founders Reserve and the launch of the Glenlivette 14 years old.
Talking about our Bastion, solid growth for Malibu and Kalua, but absolute is still in decline despite a promising launch of absolute juice. I take the opportunity of talking about new American whiskey portfolio with the completion of the Castonbrine acquisition and of the Jefferson acquisition as far as American whiskey are concerned since the 9th October. Trade tariffs are going to be applied as soon as tomorrow to the single malt scotch and Spanish wine. Global Travel Retail, I mentioned it, minus 6%, and this is mainly due to a high basis of comparison but as well some promotional phasing in Europe. And we have a very strong pricemix in Global Travel Retail in this period.
Moving to China. So good growth, plus 6% versus a very high comparable basis, plus 27% last year. So overall, good growth despite some softer on trade environment. Martell, strong pricing impact in this performance. As I'm sure you remember, we increased our price by 5% last February.
So we have the effect the full impact of that in the Q1 performance with softer volumes, which is perfectly in line with our midterm strategy in terms of sustainable inventory management. Chivas is in decline due to the challenging on trade environment. We continue as well to have a very dynamic development of growth relays, in particular with double digit growth of Absolut and Ballantine's Finest. Moving to India now. So good growth, plus 3% versus a very high plus 34% last year.
There is some softening macroeconomic environment happening in India. And we had as well some impacts of very severe flooding in the Q1. Seagram Indian whiskies are driven by a dynamic growth of Imperial Blue. And we have as well continued strong double digit growth for our strategic international brands and for our Jacob O'Cree. So moving now to the other key markets, Europe.
So France is growing by 3%. This is due to promotional phasing in a market which stays difficult. You have Nielsen volume indication in our presentation of minus 3%. Having said that, absolute is again in a double digit growth in France. Spain is stable with a gene portfolio, mainly Bifida and CGM genes that are now gaining share.
UK, minus 1%, with a very strong dynamism in gene, offset by the value strategy of Jakob Street, I was mentioning before. So we are continuing to gain share in that market. Germany, strong growth, thanks mainly to Lilly, Habanakkla and Absolut with strong pricing as well. Russia, we mentioned Eastern Europe a bit before. So Russia is in as well strong continued double digit growth, driven by strategic international brands, in particular, whiskeys and Martell.
Moving to Americas. So Canada is in decline. It's mainly linked to phasing despite double digit growth of Jameson. Latin America, modest growth overall with strong dynamism in Brazil. Asia, Rest of the World.
So Japan, Payajuet and good prospects. Korea, significant decline with improving performance on strategic international brands, offset by the transfer of Imperial distribution to 3rd party. And Africa Middle East, plus 9%, driven mainly by strong growth in Turkey, Nigeria, West Africa and as well Angola. So maybe let me now move to the outlook for the full year. So in a particularly uncertain environment, Panerica expects to obviously continue the execution of our Transform and Accelerate strategic plan that we presented to you a few months ago, focusing on embedding dynamic growth and delivering operating leverage, obviously, in line with our objective to maximize long term value creation.
We are as we are going to be focusing on the implementation of the Reconcrier project in France that we announced a few days ago with the main objective to return to growth in medium term in that country. We expect dynamic sales growth to continue, albeit growth rates will moderate versus fiscal year 2019 in India and China, which is fully consistent with our strategic plan assumption. We expect as well a dynamism in the U. S. Following the inventory optimization we implement last year and with as well the integration of the new American Whiskey portfolio I was mentioning before.
As mentioned as well in our full year communication, we're going to keep invest and increase our investments behind strategic investments, meaning key CapEx and strategic inventory priorities. We are starting our share buyback program from tomorrow, and you have some more details on the execution of that first tranche in the presentation. And we expect significantly positive FX impact on our profit from recurring operation. So we are confirming our guidance for the year, which is an organic growth in profit from recurring operation between +5% and+7%.
Thank you. And ladies and gentlemen, we will now begin the question and answer you. And the first question comes from the line of Simon Hales from Citi. Please go ahead. And the next question comes from the line from Edouard Mondy.
Please go ahead.
Hi. Good morning, Helene. Good morning, Julia. Three questions, please. Hi.
Can you hear me?
Yes, absolutely.
Great. So the first question is on Slide 5 on your outlook, which is unchanged. That's 3rd bullet, dynamic sales growth to continue in line with sort of medium term. Does that imply that for the year, you're still comfortable with your medium term expectations for both China and India of high single digits to low double digits for China? And I think low double to mid teen for India.
Given that the Q1 was always going to be very, very tough given the very tough basis of comparison in those two markets, my first question. The second question is on Global Travel Retail. I was wondering whether you're able to provide a bit more color around the minus 6 by region. And then the third question is on FX guidance, you're being slightly more, I think, optimistic guiding now for a significant positive impact. I was wondering whether you're able to quantify what that might mean?
Okay. Thank you very much. So I will start with your first question. So as you rightly mentioned, we are obviously cycling a very high comparable basis for this first Q1 and especially in China and India, which obviously was fully expected. So that's why this was as well mentioned in the full year communication in terms of what should be the outlook for fiscal year 2020.
So I would say absolutely no surprise in that. Yes, we are comfortable that the midterm ambition we are having for those markets, by the way, not only for those markets, but for China and India, are still very valid. This is obviously the whole focus of the Transform and Accelerate strategic plan, and we've been investing consistently in the past to deliver that type of ambition. So Q1, very, very high for those both markets, China and India. By the way, H1 as well is quite high in terms of comparable basis for those markets as well.
And the soft Q1 was fully expected, so no change in terms of our ambition in those markets. And that's exactly what you mentioned. If I may move that now to Global Travel Retail. So we don't give the figures by sub region, I would say, because as you know, it's very volatile for our travel retail and especially on a quarterly basis, I don't think it will be very meaningful. So this is mainly linked to the very high comparable basis that we had globally last year and as well some phasing in Europe.
The FX guidance, well, I think obviously, we have 3 months more than last time we talked about it, and there's already some positive impact in this Q1, as you can see. We don't want to quantify it precisely right now. It's obviously early in the year, and there's lots of sensitivity linked to what could be the euro, U. S. Dollar rate for the full year.
But I'm sure you have all the information you need to make your own computation. If you refer to the sensitivity analysis that we gave at the time of the communication, knowing that the average rate last year was €1.14 for U. S. Dollar. So that should help.
But fair to say that we assume currently looking at the current euro, U. S. Dollar rate that the impact could be significantly positive for us.
Great. Thank you.
Thank you. And the next question comes from the line of Trevor Stirling from Bernstein.
Three questions from my side, please, Alan. So in Asia, you talk about the China on trade being slightly weak.
And I wonder if you
could just give us a little bit more color. Is that related to countdown and corruption? Or is it underlying consumer trends? In the Americas, U. S.
Was very strong at 6%, but the region was only 2%. And I wonder if you could tell us what was the big drag on growth in the Americas? And finally, on currency, you've given guidance based on the spot rates for the 1st October. Over the last couple of weeks, sterling has rallied strongly, which presumably will put some offset to that in terms of transactional FX on Scotch COGS. And I was wondering if you could just make any comment on how significant that could be?
Okay. So maybe I'll just start by the final one on the FX and the impact sterling. I think we're not commenting, especially on such a short period, what could be the impact. So that's the only thing I can tell you, I'm sorry, at this time of the year. Maybe I'll start now with your question on China.
So it's fair to say that we mentioned in the communication that we have a softer on trade environment in this 1st few months of the year. And this is mainly due to the recent closures that happened in the on trade environment, mainly in the night outlets, to be more specific. And this started late spring, to be fair. And it's leading, in some cases, to temporary closures of KTVs and as well as some modern clubs have to close a bit earlier than they should, let's say. So this is the reason why we mentioned this softer on trade environment.
And this is as well impacting especially Chivas in this Q1. Moving to your question on Americas. So yes, it's plus 6% for the U. S. And Americas is plus 2%.
This, as we mentioned as well, has some phasing impact in Canada in this Q1, which is in decline due to that phasing. There is as well Travel Retail Americas, some phasing as well there. And LATAM is in modest growth. So that's how you get to the 2%.
And the next question comes from the line of Ewan Mittel from Barclays. Please go ahead.
Good morning, both. I'm wondering if you could just talk through some kind of depletion trends that you've seen in China in
a bit more detail. I know
you said the on trade has been tough, but is that broadly in line with what we've been seeing? And then secondly, Hong Kong, has that affected travel retail? I know you said it's volatile, but is there something that we should be continuing to be aware of there?
Yes. Thank you. So back to China. So the performance of, again, up plus 6% is a good one due to this very high comparable basis of plus 27%. So we were expecting this growth to moderate.
And by the way, as we mentioned, not only for the Q1, but for the full year. And we believe the growth will moderate to be in line with our midterm ambition, which is high single digit, low double digit for China. So talking about depletion, I'm afraid that I cannot tell you much more than what I just said about on trade because we don't have the Middleton Festival and Golden Week decision so far. It's too early in the year. So I cannot comment those decision trends.
Hong Kong. So Hong Kong, well, we have obviously a market a distribution company there, sorry. So we have some decline in the Hong Kong domestic markets and as well some impact in travel retail, as you mentioned. I would say both are quite limited for us because we have I mean, it's a small business for us, Hong Kong from a domestic point of view. And Travel Retail is impacted, especially because of the reduction of Chinese travelers, but it has a limited impact globally.
Okay. Thank you very much. If I may, one more on absolute in the U. S. Is this in line with what you're expecting post the launch of Juice?
Or are you expecting an upturn from here? Can you just give a little bit more color on how you're seeing that
go? Yes. Thank you. So I mean, there are 2 things important to remember as far as Absolute in U. S.
Is concerned is, 1st, the launch of the new campaign Planet Earth Vodka that has been launched end of April last year, so only 6 months ago, but which is strongly activated in the U. S. And as well, as you mentioned, the launch of Absolut Juice, which this one happened in July. So it's even more recent. So the distribution is expanding.
The I would say the early signs of the launch are quite positive, and we're obviously monitoring the development of that launch. Maybe just to give you some more details, the distribution gains we are having in Absolute Juice are faster than Lime in the same period post launch. And as you know, probably Absolute Lime was a good success in the U. S. So it's still early days, and we are carefully monitoring the development of that launch.
Thank you. And our next question comes from the line of Marion Mujeron from MainFirst. Please go ahead.
Hi. Good morning, everyone. Just two questions for me, please. The first is on the several phasings you've seen. There were some positives, some negatives.
So what would be in your view the good underlying growth assumption for Q1? I mean, did you see major changes in sellout trends also in some key markets? And the second question is
on Marie, sorry to interrupt you. We didn't hear the beginning of the
It's about I mean, there have been several phasing impact in Q1 and some technical. So I was just trying to get a better understanding of the underlying trends you've seen in some markets and notably on travel retail, I think last year you were up 6%. So if we strip out some effects, I mean, are the is it still similar what you're seeing this year? I guess some if there was some phase changes in sellout trends in some markets could be a good proxy. And then the second question is on France.
So there was obviously some help in Q1. Now what's the underlying is the minus 3% from Nielsen? You mentioned a good read of the underlying trends, because I think Q4 last year was probably much worse due to the Egalim low. So just trying to see what we should expect for the upcoming quarters there.
Okay. Thank you. So I mean in terms of underlying trends, I think we already covered the key markets, talking about China and India. And maybe just to remind as well that in the U. S, the our expectation for the full year is fully consistent with our midterm ambition, which is mid single digit growth.
So nothing I can add to that. So if we talk about then the other geographies, it's fair to say that the Western Europe is now back to growth, and this is mainly due to Germany's strong growth. So it's difficult, obviously, to talk about an underlying trend by only referring to 1 quarter because as you rightly mentioned, there's many things that can happen in terms of phasing or technicalities. Germany is exiting commercial disputes. So that's part of the reason of the dynamism, but the underlying trends are good, especially on the brands that I mentioned before.
Moving to France, because that's Janet's question, but I think it's as well probably the right market to flag in terms of underlying trends, unfortunately, being less favorable than the first sales Q1 sales performance. The market is still in decline, and we are obviously still facing the same difficulties in term of environment, which is deflationary environment and as well some categories that we are very exposed that are in decline. You mentioned about the aluminum law is obviously still very relevant because the law is enforced. So and has been enforced since February or March last year. So we're going to have the impact of getting low in the coming months.
So I don't think we should expect short term any improvement in that market. What is obviously very relevant to mention is that we have an ambitious plan to be back to market share gain in France with a significant organization to put agility and more efficiency in France to recover in that market, which is obviously quite relevant for us. But it's a midterm plan. The teams are going to be focused in the implementation of that plan this year. And this return to growth is the midterm ambition.
Okay. Thank you.
Yes, I think you mentioned as well something on Travel Retail. So there was a high comp basis, double digit growth last year in the quarter.
And the next question comes from the line of Chris Pitcher from Redburn. Please go ahead.
Thank you very much. Good morning. A couple of questions. Firstly, on the wine value strategy, how long till that stops being a drag on sales? And can you give us some indication of how the value strategy is impacting profitability for wine?
Can you just give us a bit more color on the U. S. Shipment phasing? You've just spent 2 quarters reducing inventories, and now there's been some advanced shipments. Can we just understand what's going on there?
And then finally, just on India. Some other companies are talking about a slowing environment in India, particularly in the rural region. Can you give us any indication whether you're seeing something similar and what your split would be, say, rural versus urban, if
you have that figure? Thank you.
Thank you. So I'll start with the wine. So the value strategy is impacting us as well in this quarter, as you rightly pointed out. This is mainly a Jack up streak in the UK. So we don't exactly quantify how long this is going to last.
But I mean, it is a strategy, so we're going to keep implementing it. What I think is very important to point is that we have as well other brand and brand market combination on which the dynamism is much stronger. For instance, talking about Jack O'Creek, this is a very dynamic brand in key markets such as China and India with very strong double digit growth. And this was is as well a brand which is very dynamic in Eastern Europe. And we have as well a strong growth relays in our wine portfolio, such as Campo Viejo in the U.
S. So I would like to reduce the conversation on wine on the situation of Jacob Street in the UK. There's much more dynamism in some other geographies and with as well some other brands. So then the U. S, so you are talking about the phasing of the shipments.
So maybe let me use that question to clarify that we did implement this optimization of wholesalers inventory in the second half last year, mainly, I would say, in the last quarter, to be fair. So this has been done by June 2019. Talking about the Q1 phasing. So the shipments are plus 6%, and we mentioned that the underlying trend is circa plus 4%, which is very consistent with what it was last fiscal year. So there is some difference in those numbers.
There is some advanced shipments that have been done by wholesalers, let's say, anticipating the risk of U. S. Tariff, where for which, as you know, there was lots of uncertainty in the list of products and the quantum as well of the tariff until the, I would say, probably the last minute. So that's one of the explanation. The other one, which is a very usual one, is that obviously, this is a quarter just before a very festive season of October November December in the U.
S. So shipments, we are accelerating to ensure that our products are at the right location in terms of point of sale and consumption for this very busy quarter in the U. S. So talking about India, your last question. So it's fair to say that there is a softening of the macroeconomic environment.
As an illustration, as you know, the GDP of the second quarter was only plus 5%, which was quite low compared to what it used to be previously. So this is, let's say, softening. As obviously, you know, India is a key market for us. We have a very strong ambition in India. Our midterm ambition is low double digit.
And we believe this is the right as well underlying trend to expect for this fiscal year. So I would say no change at all in the fundamentals for us in India. The softening of the environment for the Q1 has probably lead to some, let's say, softer demand and some trading down. That's why we have some stronger performance of Imperial Blue compared to the other Seagram whiskies in this Q1. But there is no change in the strategy and no change for us in terms of the ambition for the year.
Please remind as well that in the Q1, we had severe flooding, heavy rain and flooding in some key states in the eastern and western parts of India, especially Haryana and Maharashtra, which impacted our performance in this Q1. And again, there was a very high comparable basis because last year was recycling the Q1 of the previous year with the highway van and GST implementation.
And the next question comes from the line of Sreed Aul from Credit Suisse. Please go ahead.
Yes, thanks for the question. Just going back to Global Travel Retail, I think you said Q1 last year was double digit. Can you just give us a sense of what Global Travel Retail was up last year on a full year basis so we can get a sense of the phasing of the comparatives there? And then my second question is on the U. S.
Your underlying performance still seems to be around 4%, which is pretty in line with last year. Are you seeing any benefits yet from the stepped up investments from your wholesalers following the inventory optimization across the portfolio?
Okay. Thank you. So on Global Travel Retail, again, I would say, 1st, a quarter is a quarter. And second, Global Travel Retail can be very volatile. So that's, I would say, 2 very good reasons not to spend too much focus on what is the expectation from 1 quarter to the other.
But to answer your question, Global Travel Retail last year was growing by 6% for the full year, and it was double digit in the Q1. So moving to the U. S. So this plus 4%, as you mentioned, is very consistent with our performance last year, and it's broadly in line with the market. Obviously, we have strong ambition in the U.
S. As I mentioned, midterm ambition is mid single digit. This is our number one market. We have significantly increased our investments 2 years ago to support that ambition. And we are obviously keeping a strong focus and investments in that key geography for us.
So no change obviously in our ambition. The right outcome for the full year and the following years. As far as the wholesales support are concerned, as you rightly mentioned, we did negotiate with them stronger activation in the context of the inventory optimization. And this is going to be happening in the full year. So there is, let's say, no need to focus on 1 quarter versus the other in terms of activation.
What matters is a continued investment strategy and focus on our teams and of our customers to deliver that ambition.
Got it. And just a quick technical one on tax. Since you last updated, I think, there's been a reduction in the corporate tax rate in India. Are you able to give us some sensitivity on that to your business here?
Well, we don't quantify this. And obviously, this is a sales call. But I think what I can say is that this recent tax reform obviously appears to be good news. This should as well help the dynamism of that of the economy in that key market for us. So we'll probably be able to give you more flavor than that in our next communication.
Okay. We'll take our 2 last callers now, please.
Thank you so much. And the next question comes from the line of Simon Pales from Citi. Please go ahead. So we will pass to the next question that comes from Andrea Pistacchi from Deutsche Bank. Please go ahead.
Yes. Good morning, Helane and Giulio. Three questions, please. The first one, could you talk a bit about the stock levels in China? How you feel about these stock levels going into Chinese New Year and whether we should expect a bit of a replenishment of stocks as you go into New Year?
And in terms given the timing of the Chinese New Year a bit earlier this year, whether this will have an impact a positive impact on Q2? The second question on your guidance. You've confirmed 5% to 7% EBIT guidance organic. At the full year, you were saying that this guidance was factoring in some of the obviously risks in the environment. Now the biggest one of these risks was tariff risk presumably, which for now seems to have gone away.
Now of course, this may change, but for now it's gone away. Does this mean I don't quite know how to say it, but this mean that you are, if anything, even more confident about this guidance? I'm saying this in the context of consensus being close to 8%, still above your guidance range. And then if I may, the final question is on the U. S, on Jameson, which you're saying is performing strongly.
Can you just give an update on Jameson, in particular on those SKUs of Jameson like Castmates, which were underperforming that you were working on to improve?
Yes. Thank you very much. So I'll start with your first question about China stock levels and Chinese New Year phasing. So maybe just to remind you that we are monitoring very closely the stock evolution. We have a very good visibility on a monthly basis.
So we did have a very healthy trade inventory stock at the end of last fiscal year, and then we are following that all along the year. Obviously, there is some increase just before some significant festive season. That's obviously quite usual. So talking about the phasing of Chinese New Year, it's going to be the 25th Jan. Last year, it was the 5th February, so it's a bit earlier.
So it could have some impact in term of stronger Q2 for us. Having said that, the intake barriers can really change year on year on Chinese New Year. So I wouldn't elaborate too much on that. It's too early to give as well the trend of what could be the phasing of the replenishment of stocks. And I would like to highlight that we have a high comp last year for the full H1, even if the Chinese New Year was a bit later than it's going to be this year, plus China was at plus 28% for the year first half.
So we're going to have a high comp there. For the guidance. So I think as you rightly mentioned, the guidance that we are confirming today has been built end of August in a context that we qualify as particularly uncertain and that we still qualify as particularly uncertain. Unfortunately, I just need to amend what you said. The tariffs are not going away.
They are implemented as of tomorrow. So the risk and the uncertainty around the risk have been clarified, let's say, but it has been as well. It is materialized, and it's going to happen tomorrow. And obviously, it's not good news. So I just wanted to clarify that.
So the guidance right now is confirmed as well because the environment remains particularly uncertain. As I mentioned, the U. S. Risk was and is one of the factor. By the way, there's still uncertainty of this U.
S. Tariff impact for the full year because as you might have seen this, what is called a carouseling process, which means that there will be a review of the list subject to this 25% tariff in 120 days and then again in 180 days. So the risk is still there. That was not the only one. The environment, as obviously, you know, is as well especially, let's say, impacted by the trade war, and I should say, trade wars that could escalate between U.
S. And China, but as well between the U. S. And the European Union. And this as well other risks, Brexit, but as well the global GDP forecast, which is reducing.
And this is usually an ending up impacting the consumption. So we are very early in the year. The environment is particularly uncertain. And this is why we are confirming the guidance. Your last question was on Jameson.
So Jameson, obviously, our star brand in the U. S, the dynamism was good. It's a strong growth for Jameson in this Q1. Our outlook for the brand is high single digit, low double digit value growth. Original is in high single digit growth.
And to be more specific about your question on Castmate, it's performing better, but it's still cycling the IPA launch. And we should as well mention Black Barrel. There is a strong momentum on Black Barrel, which is enjoying a double digit growth.
Thank you. Very clear.
You're welcome.
Ladies and gentlemen, I think that brings our call to a close. Thank you very much, Helene, and thank you very much, ladies and gentlemen, for your time. Have a good day. Thank you very much.
That does conclude our conference for today. Thank you for participating. You may all disconnect.