Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2020 sales. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this conference is being recorded today, Thursday, the 17th of October, 2019. Now, I would like to hand the conference over one of your speakers today, the VP of Financial Communication and Investor Relations, Julia Massies. Please go ahead.
Good morning, ladies and gentlemen. Welcome to our first quarter sales call. As said, we'll go through a brief presentation and then give you a chance with some questions. We're hosted this morning by Hélène de Tissot, our Finance, IT and Operations Director. Hélène, over to you.
Thank you, Julia. Good morning, everyone. Let's start with this Q1 sales performance. The organic sales growth is + 1.3% for this quarter, + 4% reported sales. 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 + 10.4% for the first quarter. If I may, I will go through the key markets first, and then we move to the brand. Start with our number one market, the U.S. This is a good start in the U.S., + 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, +6 % for China, + 3% for India on a very high basis of comparison.
Global travel retail is in decline by 6%, following a very strong Q1 last year with double-digit growth in Q1 fiscal year 2019. We have a good growth in Europe, + 3%, thanks to strong sales in Eastern Europe and regional growth in Western Europe. Moving to the brand, our strategic international brands are growing by 3% for this first quarter, with a growth moderation, which is due to the high basis of comparison we had, especially on Martell and Scotch last year. An acceleration of Jameson in this first quarter, but as well Beefeater, Malibu, and Havana Club. Strategic local brands, + 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 house of brands that we started to communicate about in the H1 last year, is performing well, +15%. A very dynamic performance, particularly for Lillet, Monkey 47, but as well our agave portfolio with Del Maguey and Altos. Strategic wine, -2%, which is a modest decline linked to the continued implementation of our value strategy on Jacob's Creek, mainly in the U.K. Pricing is positive, +2% on strategic brands. Let me now deep dive into the key end markets. USA, +6%, as I mentioned. This is a good start. Jameson, which is our star brand, is in strong growth with the dynamic development of the Black Barrel.
We have as well the continued dynamism on our growth relays, in particular The Glenlivet, which is driven by Founder's Reserve and the launch of The Glenlivet 14 Year Old. Talking about our bastion now, solid growth for Malibu and Kahlúa, but Absolut is still in decline, despite a promising launch of Absolut Juice. I take the opportunity of talking about the U.S. to mention the add of a new American whiskey to our as well new American whiskey portfolio with the completion of the Castle Brands acquisition and of the Jefferson's acquisition as far as American whiskey are concerned since the 9th of 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, -6%, and this is mainly due to a high basis of comparison, but as well some promotional phasing in Europe. We have very strong price mix in global travel retail in this period. Moving to China, good growth, +6% versus a very high comparable basis, +27% last year. 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 full impact of that in the Q1 performance with softer volumes, which is perfectly in line with our midterm strategy in term 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, good growth, +3% versus a very high, +34% last year. There is some softening macroeconomic environment happening in India. We had as well some impacts of very severe flooding in the Q1. Seagram's Indian whiskies are driven by a dynamic growth of Imperial Blue. We have as well, continued strong double-digit growth for our strategic international brand and for Jacob's Creek. Moving now to the other key markets, Europe. France is growing by 3%. This is due to promotional phasing in a market which stays difficult. You have a Nielsen volume indication in our presentation of -3%. Having said that, Absolut is again in a double-digit growth in France.
Spain is stable with a gin portfolio, mainly Beefeater and Seagram's gins that are now gaining share. U.K. is -1% with a very strong dynamism in gin, offset by the value strategy of Jacob's Creek, as I was mentioning before. We are continuing to gain share in that market. Germany, strong growth, thanks mainly to Lillet, Havana Club, and Absolut, with strong pricing as well. Russia, we mentioned Eastern Europe with default. Russia is in, as well, strong continued double-digit growth, driven by strategic international brands, in particular whiskeys and Martell. Moving to Americas. Canada is in decline. It's mainly linked to phasing, despite double-digit growth of Jameson. Latin America, modest growth overall with a strong dynamism in Brazil. Asia, rest of the world. Japan has continued strong growth in Japan, led by Chivas and good prospects.
Korea, a significant decline with improving performance on strategic international brands offset by the transfer of Imperial distribution to third party. Africa, Middle East, +9%, driven mainly by strong growth in Turkey, Nigeria, West Africa and as well, Angola. Maybe let me now move to the outlook for the full year. In a particularly uncertain environment, Pernod Ricard 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 approaching leverage, obviously in line with our objective to maximize long-term value creation. We are as well going to be focusing on the implementation of the Reconquer 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. You have some more details on the execution of that first tranche in the presentation. We expect a significantly positive FX impact on our profit from recurring operation.
We are confirming our guidance for the year, which is an organic growth in profit from recurring operation between + 5% and + 7%.
Thank you very much. We will turn to your questions now, please.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question, and the hash key to cancel your request. The first question comes from the line of Simon Hales from Citi. Please go ahead. Simon Hales, please go ahead. The next question comes from the line from [Edward Mundy]. Please go ahead.
Morning, Hélène. Morning, Julia. Three questions, please. Hi, can you hear me?
Yes, absolutely.
Great. Morning. The first question is, on slide five on your outlook, which is unchanged, that third 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 first quarter was always going to be 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 -6% by region. The third question is on FX guidance, where you're being slightly more, I think, optimistic, guiding now for significant positive impact.
I was wondering whether you're able to quantify what that might mean?
Okay. Thank you very much. I will start with your first question. As you rightly mentioned, we are obviously citing a very high comparable basis for this first Q1, and especially in China and India, which obviously was fully expected. That's why this was as well mentioned in the full-year communication in terms of what should be the output for fiscal year 2020. I would say absolutely no surprise on 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 purpose of the Transform and Accelerate strategic plan, and we've been investing consistently in the past to deliver that type of ambition. Q1, very high for those both markets, China and India.
H1 as well is quite high in terms of comparable basis for those markets as well. The soft Q1 was fully expected, no change in terms of our ambition in those markets. That's exactly what you mentioned. If I may move now to global travel retail, 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. This is mainly linked to the very high comparable basis that we had globally last year, and as well some phasing in Europe. FX guidance, well, I think, obviously, we have three months more than last time we talk about it, and there's already some positive impact in this first quarter, as you can see.
We don't want to quantify it precisely right now. Obviously, it's early in the year and there's lots of sensitivity linked to what could be the EUR-USD rate for the full year. 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 full-year communication, knowing that the average rate last year was $1.14 for EUR-USD. That should help. It's fair to say that we assume currently, looking at the current EUR-USD rate, that the impact could be significantly positive for us.
Great. Thank you.
Thank you. The next question comes from the line of Trevor Stirling from Bernstein. Please go ahead.
Good morning, Hélène. Three questions from my side, please, Hélène. In Asia, you talk about the China on-trade being slightly weak, and I wonder if you just give us a little bit more color. Is that related to clampdown on corruption or is it underlying consumer trends? In the Americas, U.S. was very strong at 6%, but the region was only 2%. I wonder if you could tell us what was the big drag on growth in the Americas. Finally, on currency, you've given guidance based on the spot rates the 1st of 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. I was wondering if you just make any comment on how significant that could be.
Maybe I'll just start by the final one, on the FX and the impact on the sterling. I think we're not commenting, especially on such a short period, what could be the impact. 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. It's fair to say that we mentioned in the communication that we have a softer on-trade environment in this first few months of the year. This is mainly due to the recent closures that happen in the on-trade environment, mainly in the night outlets, to be more specific. This started late spring, to be fair, and it's leading in some cases to temporary closures of KTVs and as well, some modern clubs have to close a bit earlier than they should, let's say.
This is the reason why we mentioned this softer on-trade environment. This is as well impacting especially Chivas in this first quarter. Moving to your question on Americas. Yes, it's +6% for the U.S. and Americas is +2%. This, as we mentioned as well, some phasing impacting Canada in this first quarter, which is in decline due to that phasing. There is as well travel retail Americas, some phasing as well there. LATAM is in modest growth, so that's how you get to the 2%.
Thank you very much, Hélène.
You're welcome.
Thank you. The next question comes from the line of Ewan Mitchell from Barclays. Please go ahead.
Morning, both. I wonder if you could just talk through some of the 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? 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? Thank you.
Yeah. Thank you. Back to China. The performance of, again, up + 6% is a good one due to this very high comparable basis of + 27%. We were expecting this growth to moderate. By the way, as we mentioned, not only for the first quarter but for the full year. We believe the growth will moderate to be in line with our midterm ambition, which is high single digits, low double digits for China. Talking about depletion, I'm afraid I cannot tell you much more than what I just said about on-trade, because we don't have the Mid-Autumn Festival and Golden Week depletion so far. It's too early in the year. I cannot comment those depletion trends. Hong Kong. Hong Kong, well, we have obviously a market, a distribution company there, sorry.
We have some decline in the Hong Kong domestic market and as well as some impact in travel retail as you mentioned. I would say both are quite limited for us because it's a small business for us, Hong Kong, from a domestic point of view. Travel retail is impacted especially because of the reduction of Chinese travelers. It has a limited impact globally.
Okay. Thank you very much. If I may, one more on Absolut in the U.S. Is this in line with what you're expecting post the launch of Juice? Are you expecting an upturn from here? Can you just give a bit more color on how you're seeing that go?
Yeah. Thank you. There are two things important to remember as far as Absolut in the U.S. is concerned. First, the launch of the new campaign, Planet Earth's Favorite Vodka. That has been launched end of April last year, so only six months ago, but which is strongly activated in the U.S. As well, as you mentioned, the launch of Absolut Juice, which this one happened in July, so it's even more recent. The distribution is expanding. I would say the early signs of the launch are quite positive, and we obviously are monitoring the development of that launch. Maybe just to give you some more details, the distribution gains we are having on Absolut Juice are faster than lime in the same period post-launch. As you know, probably Absolut Lime was a good success in the U.S.
It's still early days, and we are carefully monitoring the development of that launch.
Thank you.
Thank you. Our next question comes from the line of Marion Boucheron from MainFirst. Please go ahead.
Hi. Good morning, everyone. Just two questions from me, please. The first is on the several phasings you've seen. There were some positive, some negatives. What would be, in your view, a good underlying growth assumption for Q1? Did you see major changes in sell-out trends also in some key markets? The second question is on-
Marion, sorry to interrupt you. We didn't hear the beginning of the question. Would you mind repeating it? The line was blurred. We couldn't hear you. Sorry about that.
Yeah, sure. Sorry. There have been several phasing impact in Q1 and some technicals. 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%. If we strip out some effects, is it still similar, what you're seeing this year? I guess if there was some changes in sell-out trends in some markets could be a good proxy. The second question is on France. There was obviously some help in Q1. Now, what's the underlying? Is the - 3% from Nielsen, you mentioned, a good read of the underlying trends? I think Q4 last year was probably much worse due to the Egalim Law. Just trying to see what we should expect for the upcoming quarters there.
Okay. Thank you. In terms of underlying trends, I think we already covered the key markets, talking about China and India. Maybe just to remind as well that in the U.S., our expectation for the full year is fully consistent with our midterm ambition, which is mid-single digit growth. Nothing I can add to that. If we talk about the other geographies, it's fair to say that Western Europe is now back to growth. This is mainly due to Germany's strong growth. It's difficult, obviously, to talk about an underlying trend by only referring to one quarter. Because as you rightly mentioned, there's many things that can happen in terms of phasing of technicalities. Germany existing commercial disputes. That's part of the reason of the dynamism. The underlying trends are good, especially on the brands that I mentioned before.
Moving to France, because that's your next question, but I think it's as well, probably the right market to flag in terms of underlying trends unfortunately being less favorable than this first quarter sales performance. The market is still in decline, and we are obviously still facing the same difficulties in terms of environment, which is a deflationary environment, and as well, some categories that we are very exposed at are in decline. What you mentioned about Egalim Law is obviously still very relevant because the law is in force, and has been in force since February or March last year. We're going to have the impact of Egalim Law in the coming months. 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. 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.
Yeah, I think you mentioned as well something on travel retail.
Yeah.
There was a high comp basis, double-digit growth last year in the quarter.
Thank you so much. As a reminder, please, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. 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? 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 two quarters reducing inventories, and now there's been some advance shipments. Can we just understand what's going on there? 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. I'll start with the wine. The value strategy is impacting us as well in this quarter, as you rightly pointed out. This is mainly Jacob's Creek in the U.K. We don't exactly quantify how long this is going to last. 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 Jacob's Creek, this is a very dynamic brand in key markets such as China and India with a very strong double-digit growth. This is as well a brand which is very dynamic in Eastern Europe. We have as well a strong growth relays in our wine portfolio, such as Campo Viejo in the U.S.
I wouldn't like to reduce the conversation on wine on the situation of Jacob's Creek in the U.K. There's much more dynamism in some other geographies and with as well some other brands. The U.S. You are talking about the phasing of the shipment. 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. This has been done by June 2019. Talking about the first quarter phasing, the shipments are +6%, and we mentioned that the underlying trend is a share gap +4, which is very consistent with what it was last fiscal year. There's 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, for which, as you know, there was a lot of uncertainty in the list of products and the quantum as well of the tariff until the, I would say probably the last minute. 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 and December in the U.S. Shipments are well accelerating to be sure that our products are at the right location in term of point of sale and consumption for this very busy quarter in the U.S. Talking about India, your last question.
It's fair to say that there's a softening of the macroeconomic environment. As an illustration, as you know, the GDP of the second quarter was only + 5%, which was quite low compared to what it used to be previously. This is, let's say, softening. Obviously you know, India is a key market for us. We have a very strong ambition in India. Our midterm ambition is low double digits, and we believe this is the right, as well, underlying trend to expect for this fiscal year. I would say no change at all in the fundamentals for us in India. The softening of the environment for the first quarter has probably led to some, let's say, softer demand and some trailing down. That's why we have some stronger performance of Imperial Blue compared to the other segment whiskies in this first quarter.
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 first quarter. Again, there was a very high comparable basis because last year was recycling the first quarter of the previous year with the highway ban and GST implementation.
Thank you very much.
You're welcome.
Thank you. The next question comes from the line of Sanjeet Aujla from Credit Suisse. Please go ahead.
Thanks for the question. Just going back to global travel retail, I think you said Q1 last year was up 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? 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?
Thank you. On global travel retail, again, I would say first, a quarter is a quarter, and second, global travel retail can be very volatile. That's, I would say, two very good reason not to spend too much focus on what is the expectation from one quarter to the other. To answer your question, global travel retail last year was growing by 6% for the full year, and it was double digit in the first quarter. Moving to the U.S. This +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 investment two years ago to support that ambition, and we are obviously keeping a strong focus and investment in that key geography for us. No change, obviously, in our ambition. This is again, only a quarter. Everything which is put in place is there to give us the right outcome for the full year and the following years. As far as the wholesalers support are concerned, as you rightly mentioned, we did negotiate with them stronger activation in the context of the inventory optimization. This is going to be happening in the full year. There is, let's say, no need to focus on one 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. 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?
We don't quantify this, obviously this is a sales call, 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 the economy in that key market for us. We'll probably be able to give you more flavor than that in our next communication.
Okay.
We'll take our two last callers now, please. Thank you so much. The next question comes from the line of Simon Hales from Citi. Please go ahead. Hi, Simon, can you check if your line is on mute? Can you press star six? Simon, can you check if your line is on mute? Can you press star six on your telephone keypad? Seems we have technical difficulties with this line. Simon?
We will pass to the next question that comes from Andrea Pistacchi from Deutsche Bank. Please go ahead.
Yes. Good morning, Hélène and Julia. 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? 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%-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. The biggest one of these risks was tariff risk, presumably, which for now seems to have gone away. Of course, this may change, but for now it's gone away.
Does this mean, I don't quite know how to say this, but does 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. 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 Caskmates, which were underperforming that you were working on to improve?
Yes, thank you very much. I'll start with your first question about China, stock levels and Chinese New Year phasing. Maybe just to remind you that we are monitoring very closely the stock evolution. We have a very good visibility on a monthly basis. We did have a very healthy trading 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. Talking about the phasing of Chinese New Year, it's going to be 25th of Jan. Last year it was the 5th of February, so it's a bit earlier. It could have some impact in terms of a stronger Q2 for us. Having said that, the intake periods can really change year on year on Chinese New Year.
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. 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, because China was at +28% for the first half. We're going to have a high comp there. For the guidance, 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 tariff has not gone away. They are implemented as of tomorrow.
The risk and the uncertainty around the risk have been clarified, let's say. It has been as well. It is materialized, and it's going to happen tomorrow, and obviously, it's not good news. I just wanted to clarify that. 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 factors. 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. 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. These as well other risk, Brexit, but as well the global GDP forecast, which is reducing and this is usually ending up impacting the consumption. 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. Jameson, obviously our star brand in the U.S., the dynamism was good. It's a strong growth for Jameson in this first quarter. Outlook for the brand is high single digit, low double-digit value growth. Original is in a high single-digit growth.
To be more specific about your question on Caskmates, it's performing better, but it's still cycling the IPA launch. We should as well mention Black Barrel. There's 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, Hélène, 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.