Good morning, ladies and gentlemen, and welcome to Pernod Ricard's first half fiscal 2018 results presentation. We are hosted this morning by Alexandre Ricard, our Chairman and CEO, and Gilles Bogaert, our Finance, IT, and Operations Managing Director. We will take you through a brief presentation and then take your questions. Thank you. Alexandre, over to you.
Thank you very much, Julia, and good morning to all of you. Without further ado, let's start with the performance of our first half-year sales and results. While we've had a very good semester, with organic net sales growing slightly more than 5%, also profit from recurring operations growing a little bit less than +6%. We can talk about a performance acceleration, perfectly in line with the implementation of our medium growth roadmap we had shared with you back in June 2015. What I believe is actually a very strong point is the diversification of our growth, because all of our regions are growing, and I would even say that all the sub-regions are growing, as well as all the categories. We have an improving price mix of 2.4%. The negative impact of a later Chinese New Year is offset by strong demand for our cognac, Martell.
Finally, it's fair to say that the first half is somewhat favored by a low basis of comparison in some geographies. If I had to name a few, Middle East, travel retail, Brazil, and India. Very strong financial delivery. We'll see this in more detail later on with Gilles, with, as I mentioned, profit from recurring operations, organic margin that has improved by a little bit more than 20 basis points, and clearly driven by our operational excellence initiatives. Very strong cash flow, EUR 800 million, up 21% versus the first semester a year ago. Currency is mainly impacted by the weakness of the U.S. dollar. For the first half, we see a hit of EUR 83 million on our PRO, and only EUR 30 million on our free cash flow.
That's the good side of the coin, we have a EUR 245 million positive impact on our net debt, which is declining by almost half a billion EUR. We'll see this right here to EUR 7.4 billion at the end of December, which leads to a net debt to EBITDA ratio below three at 2.9 times. I won't spend any time on this slide, You see the numbers in detail. Just to mention, mature markets are growing by 2%. Emerging markets, which represents roughly 40% of our business, growing by 10%. I mentioned all categories are growing and are dynamic and, in a way, the magic number is 5 because our strategic international brands are growing 5%, our strategic local brands are growing 5%, our wine portfolio is growing 5%, and other, which represents approximately 13% of our business, is growing 5% as well.
The improvement, geographically speaking, is driven by Asia, with in particular China, which is up 8%. We'll see this later on. Despite the adverse Chinese New Year phasing impact and also driven by good momentum in India and travel retail Asia. You see there, Americas growing 6%, Asia, rest of the world growing 7%, and finally, continued good performance in Europe, growing 3%. Here you have the half sales result. The only messages here are the negative impact of the U.S. dollar, mainly, and to some extent, a little bit of Chinese yuan. Also the fact that Q2 is perfectly in line, I would say, or in the continuity of our Q1 performance. Here you have the split by region. If we start with Americas, with the U.S. specifically, U.S. has grown 3%.
The market, the U.S. spirits market, we believe is growing globally between 3% and 4%, which is slightly below the historic average. Last year, that average was at 4%. You see here the market numbers for the entire spirits industry in Nielsen close to 2% and NABCA value at 5.6%. You see it's some slight decline in the growth rates, which remain quite healthy. Pernod Ricard USA, well, happy to see that we're approaching market growth rates. Actually from a Nielsen point of view, we're perfectly in line with the industry average and NABCA just slightly below. We have some positive pricing coming from a number of our brands. Could mention Jameson, but also our tequila, for instance. Diversification of the growth.
We have a very clear portfolio strategy and more and more brands as time goes by and our investment strategy delivers that are contributing to our overall American performance. Specifically, continued good growth of Jameson. Jameson Growing anywhere in the mid-teens in the U.S. with the launch, I think this week, if I'm not mistaken, of our second Caskmates edition, which is Jameson IPA. Absolut remains in decline 3%. Lime was the best innovation from a Nielsen panel point of view in calendar year 2017. Good performance and outperformance actually, of Malibu in its category. Glenlivet's still growing, although in transition mode, following our new strategy with the launch of Founder's Reserve last year. We're gaining share in the cognac category with Martell and specifically with our two big innovations there, Martell Blue Swift on one side and Martell VS Single Distillery on the other.
Finally, very strong growth, double-digit growth for both of our tequila brands, Altos and Avión. Outside the U.S., on double-digit growth, plus 10%. Good performance in travel retail Americas, despite a high basis of comparison. Last year, we had grown 14% over the same period. The growth is driven, no surprise, because these are our strategic brands in the channel, in Americas, Absolut, Martell, and Chivas. Stable performance in Canada with a better second quarter following destocking in Q1, but with very strong performance, both of Jameson and Jacob's Creek. Brazil, up 11%. We see macroeconomic conditions improving there, although, we need to remain vigilant. Uncertainty does remain. We're experiencing growth across the portfolio. Clearly, our strategic Scotch portfolio with Chivas Brothers, Ballantine's, and Passport, and also our strategic investment brands like Absolut, and more recently, Beefeater.
Strong growth in Mexico, driven by our strategic international brands following our strategic refocus. If you recall, last year, we had sold our local brandy. We have increased our prices last July. Strong double-digit growth in Cuba, for now a number of years, driven clearly by tourism, which is still growing there. Finally, a strong growth in Argentina, partly favored by inflation, but also by an improving environment. Asia, rest of the world, we see there clearly a growth acceleration. China is up 8%. Last year over the full fiscal year, China was up 2%, and this despite the later Chinese New Year. Martell is up 5% in sales, with strong acceleration of demand across the range, VSOP, XO, and so on.
We have a value strategy there with reduced promotional pressure and price increases, that we've deployed across the whole range in the second half, which will mainly impact next year. As you know, when we increase our prices, it takes time to go through the whole pipe. Chivas has enjoyed a very good first half in China. Thanks to the launch of Chivas Regal Extra and our partnership with the NBA. Obviously, it takes time to really confirm the success relaunch of Chivas, but so far, the feedback we're getting is extremely positive. Finally, strong double-digit growth across our premium brands portfolio, more specifically Absolut, Ballantine's, and Jacob's Creek. As you know, a year and a half ago, we restructured or reorganized our Chinese organization with two clear pillars.
One focusing on prestige, which is delivering, one focusing on premium brands, which was brand new, and which is clearly starting to deliver. India, up 9%, we see an acceleration versus last year. To be fair, as I stated earlier, this is enhanced by a low basis of comparison. Resilience through the highway ban, it's fair to say this, by now, all of the reorganization of the market further to this ban is close to being complete. We see continued double-digit growth for our strategic international portfolio of brands and also our wines. We have increased our prices on our local whiskeys, the Seagram's whiskeys, to offset the GST. That being said, we need to remain vigilant. The regulatory environment remains uncertain. Africa, Middle East is up double-digit. The economic context and political is improving.
We see stability in Turkey, as I mentioned as well, we have a favorable basis for comparison. Our strategic brands continue to develop, whether it's Martell, which we're trying to globalize, Jameson and our Scotch brands, as well as Absolut Vodka. Again, with some positive pricing. Travel retail Asia, up strong double-digit. Very good rebound, partly favored by a favorable basis of comparison. We expect this to reverse in the second half. That being said, the activity for travel retail Asia is positive. Japan, up 5%, driven by our champagne brands, both PJ and also the launch of our new Mumm Grand Cordon. Also our whiskey brands, particularly Jameson and Chivas and The Glenlivet are developing quite well there. Korea, I don't really know if it's a positive or a negative, but actually, I would look at it from a positive point of view.
Only mid-single digit decline. It is a clear improvement versus last year, in line with the turnaround plan of our local team. Imperial is still decreasing, but the trend is improving, thanks to recent innovation. We launched a number of brands within the Imperial franchise over the first half in Korea. Market difficulties in Taiwan, and the decline clearly linked to our Scotch portfolio, but Martell Cognac is actually growing. Western Europe has grown by 1%. I'd say that the two negatives here are France and Spain, both declining by 4%. Specifically in France, the environment remains very difficult. Ricard is in decline. There are some phasing issues. The underlying trend, though, is not extremely positive, -3%. We do see growth behind brands such as Absolut, Ballantine's, Havana Club, Beefeater, and Malibu, which is a change versus past trends for that specific brand.
In Spain, as I said, -4%. The market itself has decelerated following the post-crisis strong rebound of the previous years and the more recent political situation there. Our underlying trend is closer to a slight growth, +1%. Continued dynamic growth in the U.K., driven by Monkey, but also by Campo Viejo on the wine side and Absolut and Jameson, which are the two focus investment brands there. We've had a good semester in Germany. Very strong performance of Lillet there, but also good growth coming from our rum, Havana Club, and also some of our whiskey brands, Chivas and Jameson, and obviously, Monkey 47. We've returned to growth in travel retail Europe, principally driven by Martell and Ballantine's. Eastern Europe continues to be very dynamic, +12%, with Russia +15%.
Continued strong double-digit growth there, driven by our focus strategic brands, Chivas, Jameson, Ballantine's, Havana Club, and Absolut, as well as our strong local brand, which is our iconic Armenian brandy, Ararat. Good performance in Poland, driven by our strategic international brands, driven by the whiskey portfolio, and driven by a sound promotional strategic focus and strong investment behind our brands. I have to say, our team there is doing an excellent job. Other markets, it's fair to underline the dynamism in Kazakhstan, which is growing strong double digits. It's not a tiny market. It's actually, I'd say, starting to have an overall impact. Ukraine as well is back to very good growth, and Romania is growing as well. Very briefly by brand, I mentioned all categories growing by 5%, which is synonymous of diversification of our growth. The two things I would mention is innovation.
Out of the 5% upline growth, innovation represents 2% of that. That's beyond our long-term objective. The price mix is 2.5%. More specifically, on the strategic international brands, well, Martell, value growth of 10%, and that represents a volume growth of 8. China, +5%. Travel retail Asia, very strong growth. Double-digit increase with no surprise in Americas, thanks clearly to the U.S. travel retail and Mexico. Mexico, where we're leaders. Favorable price mix. Really reflecting our ongoing focus on value. I mentioned earlier, price increases in H2, but the impact will be next fiscal year. For the full year of 2018, we should expect high single-digit volume growth and a little bit, of course, of value. Jameson +12%.
12% in the U.S., double digit in Europe, double digit in Africa, Middle East, double digit in Eastern Europe, double digit in Germany, well actually double digit everywhere. I'm remembering all the numbers. Absolut, +2%. Confirmation of the return to growth for Absolut Vodka, which was already up 2% last year. Strong international development, almost double digits, so up 9% outside of the U.S., again, driven by all, if not most of the regions. Still decline in the U.S., I think -3%, but actually faring quite well, relatively speaking. Scotch whiskies with Chivas +2%, so return to growth. Last year, first semester, the brand was slightly down. Ongoing strength in Europe. Growing 8% in Europe and clear positive impact of the turnaround plan. In China, Ballantine's growing +2%, very dynamic in Eastern Europe and Africa, Middle East.
That's offset by some difficulties, as I mentioned, both in Spain and Taiwan. The Glenlivet growing +1% with very good development in Asia, but still in transition mode in the U.S. post the launch of Founder's Reserve there and the repositioning of The Glenlivet 12 at a much higher price position. For the other spirits, our champagne brands are +2%. Ricard, I mentioned, is basically at a trend -3%, -4%. The 8% is due to phasing. Beefeater +3%. Havana Club and Malibu both +7%, so growing very nicely. Local brands are accelerating, +5%. This is clearly driven by an improvement in our Seagram's Indian whiskies, which have grown by +9%. That's partly favored as well by a low basis of comparison. The underlying trend, might I add or say, is healthy. Acceleration of Olmeca Altos, our premium tequila.
I mentioned Ararat earlier on in Russia. Passport. Imperial is still declining, but as I said, the trend is improving. We have positive pricing, in particular on Seagram's Blenders Pride and Imperial Blue in India, as I said, which was aimed at compensating or offsetting the GST. Strategic wines growing +5% for the second or third year in a row. Campo Viejo is really driving that. Great performance in many parts of the world, and with strong price increases, plus in the U.K. As I said, innovation has clearly driven our top-line growth by two points. Very successful launch of Chivas Extra, of Jameson Caskmates. I could have added there Absolut Lime, which is still doing well.
Monkey 47 is being rolled out to now many new markets with the introduction of the one-liter-size bottle, which is the reference SKU in the on-trade channel in the U.S. Finally, our luxury Le Cercle portfolio, which is accelerating, growing double digit, principally led by Martell, but not only. Many initiatives on the marketing front, so I won't go through all of them. I mentioned Blue Swift earlier on. Midleton Very Rare, which is part of our Le Cercle strategy. Ballantine's that has launched its very first single malt range of products. I spoke about Monkey 47. I'd like to pause here and show you two new campaigns which have been launched or are being launched this week. The first one being on Absolut. The vodka with nothing to hide.
Basically asked our teams in Sweden to be more creative and more audacious, they decided to walk the walk with this new ad. One of the issues we had on Absolut is we focused maybe a little bit too much on lifestyle and not enough on quality. To be fair, it is, from a quality point of view, probably the best vodka in the world. It's extremely authentic. It all comes from a single community south of Sweden called Åhus, every bottle is produced there. I think, as far as I'm aware, I may be wrong by now, but it is the only CO2 carbon neutral distillery in the world, or at least it was the first one, and the team are proud of that.
They came up with an engaging way, should I say, if not intimate way, of describing the production process that they're proud of. Maybe if we can see the movie.
Hi. If you are watching this, then congratulations. You now work for Absolut. We do things a little different around here. Don't believe me? Let me show you. Unlike other vodkas, we only use wheat that comes from around Åhus, Sweden, we know each farmer by name. Hey, Lars.
Hey, Gunnar.
Yes. Sweden is famous for its water, and we only use the purest Åhus water. Everybody at our distillery is a local commuter. Oh, rush hour. We make up to 600,000 bottles a day, and each one needs to be flawless. We have very high standards.
I can't bear to look at it.
How many times do we distill our vodka? We distill it countless times until it's perfect. The same way our founder did 150 years ago. Our production process is CO2 neutral, and we don't like to waste a thing. That's why our excess distillates is used to feed local pigs and cows every day. Like Leif here. The most important ingredient that goes into Absolut is our people. You see, every single drop that goes into every single bottle of Absolut Vodka anywhere in the world comes from here in Åhus. That's why we're the vodka with nothing to hide. Welcome to Absolut.
Just one piece of recommendation, when you dare your teams to be more creative and especially more audacious, just make sure they don't ask you to do the same. There we go. Another new ad, which is launching this week, is on Jameson. Here, again, what the teams wanted to do is to basically share the Irishness of Jameson and the wittiness that the Irish people have, with the sense of humor on one side, and go back to the roots as well, of Jameson. We have an archive down in Midleton with somebody who really looks at the entire story, because everything has been documented ever since 1780. It started with John Jameson himself, and we're still documenting everything to this day.
By looking at the brand's story, we found that there is so many very engaging and rich true stories that happened throughout the whole Jameson adventure over that now more than 235 years. The team decided to share some of these true stories with their consumers in an Irish way. Let's look at the new Jameson campaign. Poor Bill Scully. It was a terrible thing to have happened. Then again, everyone knows that Jameson is smoother because it is distilled three times. Everyone, it seems, except Bill Scully. 428 gallons gone. It says it right here. Scully was to blame. Well, now he knows we always distill three times, and he knows why. Jameson. Taste. That is why. There we go. Taste. That is why. Many more initiatives. There is a new campaign as well for Jacob's Creek. We are keeping on our partnership with Usain Bolt.
A new campaign, I think we shared with you last time, for The Glenlivet. Our partnership with the NBA in China. Everything, by the way, all these campaigns are now run digitally as well. Many assets, five second, 10 second, 15 second, 30 second assets as well. Also, on the sustainability and responsibility front, we have been extremely active as well. There we go, and I hand over to Gilles.
Thank you, Alexandre. Good morning, everybody. Let's go back to the figures from the Absolut and the Jameson movie to the IFRS 15. As this norm will be implemented as from fiscal year 2019, a few technical comments. It will lead to some reclassification of certain A&P expenses in relation of sales and to a lesser extent, there will be also the integration of the activity of certain third-party bottlers in India into sales and COGS. The main pro forma estimated impacts as is for next year, which would be neutral on operating profit from recurring operations, but the operating profit margin should be up organically 70 basis points because of that norm. Sales will be reduced by more or less 3%. Gross margin down circa 170 basis points.
The A&P to net sales ratio will be down 300 basis points from circa 19% to circa 16%. Let's have a look at the financial performance of the first half. A good piece of news is gross margin improved significantly in the first half, 65 basis points. It was partly favored by H1 phasing, but we benefit from a positive evolution of the price impact. The mix also is positive, thanks in particular to the growth of Martell, Jameson, and Chivas. At the same time, we had a tight management of our cost of goods sold thanks to our operational efficiency initiatives, which more than offset the negative impacts of the agave cost and the Goods and Services Tax, the GST, in India. You have, on that chart, the evolution of the gross margin, organically in the last few years.
As you can see, after three years when we were negative or stable, we are back to a positive territory. A&P were up 7% in the first half, with a growth ahead of the top line linked to phasing and also some accelerated spend to internationalize Martell. Our structural cost ratio was organically stable, as a consequence, our EBIT margin was up organically 21 basis points, up to 29.4%, largely driven, as we saw, by the gross margin improvements. We had a negative hit coming from the Forex, minus EUR 83 million in the first half, mainly due to the US dollar and Chinese yuan depreciation against euro. As you know, we have a very limited Forex hedging as per group policy. At the same time, as Alexandre said at the beginning, we benefit from the natural hedging through the debt breakdown by currency.
You have here an overview of our 16/20 operational excellence roadmap. It's on track. It's delivering in line with expectation. As a reminder, twice EUR 200 million. EUR 200 million gross saving on P&L and EUR 200 million on the cash. We added, in the recent months, a new initiative to improve our promotional effectiveness with some pricing specialist teams in place in most countries. We have started also a two-year program rollout to our market companies to improve our promotional effectiveness. You have here the different impacts explaining the variation of the operating profits from recurring operations. 5.7% positive impact coming from the organic growth. The group structural impact is not significant. We had the minus EUR 83 million, minus 5.5% negative impact coming from the Forex.
For the full year of FY 2018, we now estimate the Forex impact on the operating profit from recurring operation to be circa EUR 180 million negative. It's based on the Forex rates at the end of January 2018, in particular, a parity euro/dollar of 1.25. The extrapolation of those rates till the end of the fiscal year. Let's quickly have a look at the performance by region. You have here the split of sales and profits between mature markets and emerging markets. 59% mature markets, 41% emerging markets. Our emerging markets are back to strong growth, 10% in the first half, and are contributing strongly to the overall performance of the group, whereas the mature market are still resilient with a growth of 2%. By region, as you can see, a healthy geographical balance between Asia, rest of the world, Americas, and Europe.
Performance in the Americas. Top line growth, as we saw earlier, organically 6%. It's fueled by higher investments. A&P were up 9% due to phasing and also due to investment to support our priority brands, in particular Martell in the U.S.A. Also more investments in Brazil and Mexico to help us gain market share there. We had the adverse effects on the Forex on reported figures, because obviously of the weakness of the dollar versus euro and other European currency like the Swedish krona. Asia, rest of the world, that's the region where the acceleration was the strongest one, both in sales and profits. Sales acceleration 7%, thanks to China, despite the later Chinese New Year, India, travel retail and Africa, Middle East. Even if we had some favorable comps.
There was some gross margin enhancements, 104 basis points in the first half in Asia, rest of the world, due to the positive mix impact, in particular from travel retail. We increased the A&P 13% in the period. There is some A&P rebuild in some of those countries, in particular in China, behind Chivas, Martell, and all the premium brands. This leads to a healthy organic profit growth, organically 6%, but as for the Americas, we have to face adverse Forex. Europe, good sales performance and tight resource management driving significant operating profit growth. Plus 3% organic growth of the net sales. Gross margin up 81 basis points, thanks in particular to price increases, U.K., Germany, and positive mix with Russia and important growth. A tight management of A&P, in particular in Western Europe.
This combination of good top line growth and strong discipline on resources and costs allow it to generate 8% organic growth of the operating profits. Let's have a look at the P&L below the operating profits. Starting with the financial expenses improving strongly, EUR 48 million, thanks to, first, the reduction of the cost of debt from 4% to 3.4%. This explains EUR 20 million of improvements. This is due to the bond refinancing we've done in the last months, and also some optimized short-term financing, especially the use of very cheap commercial papers. EUR 90 million of improvement came from the strongly improved cash flow in the last 12 months. We also benefited from EUR 9 million positive Forex impact because of the fact that 55% of the debt is in U.S. dollars, in order to match our profits and cash flow by currency.
For the full year fiscal 2018, we expect now the cost of debt to be circa 3.6% versus 3.8% that we had expected in our end of August 2017 communication. Corporate income tax on recurring items, close to 25%. The improvement is mainly linked to improved country mix. For the full year fiscal 2018, we expect a tax rate close to 25%. It's a bit lower than the 26% we had anticipated in our last full year communication. A comment on the USA tax reform. We don't expect significant future impact on the effective tax rate, as the federal tax rate decrease to 21% is offset by the broadening of taxable basis and some other technical impacts. As a consequence, the group share of net profit from recurring operations is up 4% despite the adverse Forex, thanks mainly to the reduction in financial expenses.
At constant Forex, it is up 10%. A word on the non-recurring items. They are largely positive in that first half. We have EUR 62 million positive non-recurring operating results, driven principally by the disposal of the GlenAllachie distillery and assets, and also the one-off sale of some bulk Scotch inventory as part of our policy of active assets management, which have been partially offset by restructuring expenses. We also had EUR 87 million positive evolution of the non-recurring tax results, due mainly to the reimbursements of the 3% tax on dividend in France. Also, because of the USA tax reform, a EUR 55 million one-off positive net impact on the P&L because of the revaluation of different tax assets and liabilities at the new corporate income tax rates.
As a consequence, the group share of net profit after recurring and non-recurring items is up 25%, again, despite the adverse ForEx. A few word on the cash flow and the debt evolution. You have here the key figures. An improvement of 21% up to EUR 799 million, an improvement by EUR 141 million in the first half. We had a favorable variation of strategic inventory, in particular due to the strong cognac shipments that we had in the first half. We had an increase in the operating working capital variation versus first half, linked in particular to the business growth, impacting mainly the inventory, and in particular in Russia and Turkey. It was also impacted by the CNY phasing in China. The CapEx was slightly down in the first half, but this is mainly due to phasing.
For the full year, we still target a CapEx to assets ratio close to 4%. Financial expenses as for the P&L were significantly down, thanks to the lower cost of debts and also the improved cash flow. We also benefited, as for the P&L, from the positive impact on some non-recurring cash items, the one-off sale of the bulk Scotch inventory as part of our asset management and the reimbursement of the French 3% tax on dividends. As a consequence, net debt was significantly down, almost half a billion EUR in that first half. Let's say half of the decrease of the debt was due to the strong net cash generation, EUR 231 million, despite the fact that, as you know, in the first half we paid the full year dividend and that we normally have an adverse H1 working capital seasonality in the first half.
The other half, EUR 245 million, is coming from the positive translation adjustment, mainly on the USD denominated debts, which represents, as I said, 55% of the gross debts. Obviously, this EBITDA growth combined with this net debt reduction leads to a further decrease of the net debt to EBITDA ratio, which is now at 2.9 at the end of December at average rates. I hand over to Alexandre for the conclusion and the outlook.
Well, thank you, Gilles. As we said, a very strong first half with an acceleration versus our fiscal year 2016, 2017, driven by Asia mainly, but with all regions growing. Good diversified growth. We expect this to continue across regions and brands. We expect as well pricing to start to improve versus last year. We will keep on focusing on our operational excellence and cash flow. Yes, we expect based on the euro-dollar rate of 1.25 projected till the end of our fiscal year, a negative FX impact of EUR 180 million on our profit from recurring operations. We've decided, based on that, to upgrade our fiscal year 2018 guidance. Previously, we expected organic growth in profit from recurring operations to grow between 3% and 5%, and we've upgraded that guidance to anywhere between plus 4% and plus 6%. There we go.
Maybe before going on to Q&A, Julia, I'd like to say a few words. If you've seen this morning's second press release, you'll know that it's the last time Gilles and myself are sitting here in front of you in that composition, because Gilles is moving to a new position. Gilles is going to be taking over EMEA/LATAM as a region. Next time I'll be presenting without Gilles, but with Hélène that I'll introduce you in a couple of minutes. Gilles' performance, actually, when we'll go into the region. I wish you all the best. Gilles, I have to say that
Thank you, Alexandre.
You've been in that position for 9 years. We've worked hand-in-hand for the last 3 years, really. I've enjoyed the way we worked. I have the chance that I'll keep on working with you quite closely, especially during budget times, Gilles, of course. You'll be on the other side of the table, but I'm sure you'll understand my side
I'll try, Alexandre. I'll do my best.
Again, Gilles, it's been really great working with you. I consider you not only as a professional partner, but as well as a friend, and I have no doubt that in your new job, you're going to excel, clearly. Next time you'll see me here, you'll see me here with Hélène de Tissot, who's been with us for a very long time, who's traveled quite a bit, who's going to take over from Gilles. Hélène is currently VP in charge of strategy and M&A. Again, I'm looking very much forward to working with Hélène as well, and I'm sure you'll get to know Hélène extremely well in the coming months and years.
Thank you.
Thank you very much.
Thank you very much. On to your questions. We'll start with some questions from the room. I see Hermine there with a question to start, please.
Good morning. Hermine de Bentzmann, Raymond James. I have a few questions, please. The first one is on the deceleration of the U.S. spirits markets. How do you explain this deceleration we are seeing since a few months, and which categories are driving this? My second question is about China. I wanted to know if you share the optimism of one of your competitors in Cognac ahead of the Chinese New Year. It seemed that they are very optimistic. I wanted to know if you share this optimism, and if you can give us some feedback about the momentum in China currently. My last question, sorry, Gilles, for the A&P question, it seemed that they increased more than sales growth in H1. Looking at H2 and the Chinese New Year, I wanted to know if we can expect A&P to keep growing ahead of sales growth in H2.
Thank you very much.
Maybe on your first two questions. Deceleration in the U.S., we believe the U.S. was growing around 4% a year ago. The new belief we have, which I think is shared by the market, is around anywhere between 3% and 4%. By the way, Nielsen data is less and less reliable from my point of view. I really hope they get their act together. That's a message for them. Other than that, 3% is still healthy growth for the number one spirits market in the world. It is driven as well by premiumization. That's a clear trend, and it's still driving the growth of the market. It is driven by a number of categories which are whiskey, generally speaking, with the likes of, in our case, Jameson and The Glenlivet.
It is driven by tequila as well, on the higher end, so super premium and prestige tequila with the likes, by the way of Olmeca Altos or Avión in our case. It is driven by Cognac, in particular, Martell, which is gaining market share after close to three years of investment behind the brand. Martell and our tequila brands are considered as medium-term growth relays, investment brands. Premiumization, I would say, and some clear categories which are winning categories. The vodka segment is still extremely competitive, I would say. The value and standard segments as well are extremely competitive. All in all, 3% growth for the first market in the world is still a healthy number. As for China Cognac optimism, if I had to use this expression that you used.
The fact that we raised our guidance at this point in year probably translates into confidence. China was up 2% in our case last year for the full fiscal year and has been up 8% in net sales for the first half. Will Chinese New Year be as successful? It's next week, if I'm not mistaken. What day are we today? It's next week. Next time we speak, I'll give you the right answer on China. So far, China has rebounded. The one big difference I would underline overall in China is the on-trade is back to growth.
Martell on a global scale was up high single digit in volumes in the first half. That's the kind of performance you could expect for the full year, so similar to the first half. I think your last question was on the A&P. In the last six years, our A&P to net sales ratio pre IFRS 15 was close to 19%. Sometimes it was a bit lower than that, sometimes it was a bit higher than that, broadly stable. That's still our intention for the year and for the full year. You could expect the ratio to be close to 19%, maybe slightly up, depending on the dynamics on the top line, not a major shift.
Thank you. Do we have another question from the room? We'll turn to our callers, please.
Thank you. Our first question is from Sanjeet Aujla in Credit Suisse.
Morning, Alex, Gilles. Three questions from me, please. Firstly, on the guidance increase, given you've delivered 5.7% organic EBIT in H1, what's holding you back from being more positive? Secondly, on India, a very strong rebound in Q2. Within that, have you felt any changes from the route-to-market changes in places like Haryana, Punjab yet? Thirdly, on China, can you give us a sense of the magnitude of the pricing you will be putting through? Is that across the whole portfolio? Within that, what is your Scotch business growing at now? Thank you.
I'll take the first one. Maybe I'll let the other two to Gilles. On the guidance, first of all, we've increased our guidance. We did suggest, very clearly we wrote it, that H1 was slightly, let's put it that way, favored by some favorable basis of comparison. Actually, one being India, but the other ones being travel retail, where we expect a technical reversal for the second half. A third one being Brazil, and a fourth one being Africa, Middle East. That's point 1. Point 2, Chinese New Year is in a week's time, we'll see what happens on Chinese New Year. We are clearly confident, of course, the real question is by how much. I do think that this guidance is a fair reflection of what we believe the business is undergoing for the full year.
For the first half, we do believe that this 5% type performance is probably in line with our underlying trend. That's as far as I will go.
In India, yes, you well noted that there will likely be some route-to-market changes in the states of Punjab and Haryana taking place in H2. What it means for us is that there could be some volume decrease because of disruption there. We also manage our shipments to our current clients very carefully to manage properly our receivable exposure. Let's say you already had some of that impact of prudence in shipments and management of receivable in the first half, and you will still have some impact in the second half. Your last question on pricing. Well, yes, we have announced some price increases on Martell in China in the second half. On the top of that, we have started also already in first half to reduce the promotional intensity on the brand ahead of the Chinese New Year.
We'll benefit from that double positive impact, lower promotion intensity, and higher pricing on the brand. Price increases are different depending on the different items of the range. They together represent, I would say, a few % of increase.
Many thanks.
We will now take our next question from Simon Hales from Citi. Please go ahead.
Thank you. Morning, everyone, and congratulations, Gilles, on your new role. Three questions, please. Firstly, on the FX guidance, I don't know, Gilles, if you could give us some help with how we should think about the FX impact as we move into fiscal 2019. If we look at the second half of your current fiscal year, you're looking at around about EUR 100 million headwind now on FX for that six-month period. Is there any reason we should not expect a similar level of impact in the six months to end December this year? Any help there would be great. Secondly, back to India. Could you maybe help us with perhaps what the underlying trend you think is overall in the market for your portfolio over the first six months and how we should think about that developing some of those technical effects?
That you've highlighted. Finally, Alexandre, you talked about the reversal in the duty-free, the travel retail business in the second half of the year. Do I take your comments to indicate actual decline in second half sales, or is it just a slowdown in the rate of growth that we've seen recently?
Well, thanks. The first one on Forex. The estimation we gave for the full year is, as you know, EUR 180 million negative. First half, the average parity euro dollar, which is a big driver of that Forex impact, was more or less 118. What we did is that we considered that for the remaining 5 months of the year, from Feb to June, it would be 125, which was the rate when we did the extrapolation. It's a bit lower today. It would give more or less an estimated average parity between euro and dollar for the full fiscal year 2018 of a bit less than 121.
I think considering the current Forex rates, considering the average rate that we had in the last fiscal year, half by half, because that's an information that we share with you in each communication, I think you should have all the elements to assess what could be the impact for the coming year. We are very little hedged, 121 is the average rate for the current year. For next year, it depends on your assumption of the evolution of the dollar versus euro.
Maybe on India, we grew 9% over the first half. It was partly favored by November, December, where last year, demonetization occurred, which also impacted January for that matter. The underlying trend is positive in India and has always been, by the way. The question is, as always, how much? It will be positive as well, as far as we're aware, for the second half. As for travel retail, travel retail grew in part favored by both a low basis of comparison and in other, some more technical things, including customers that bought ahead of the full year. It doesn't mean the second half will be negative. It just means that you should expect it to be much lower. That's it.
Thank you. We'll turn to our next caller, please.
We will now take our next question from Olivier Nicolai from Morgan Stanley. Please go ahead.
Hi. Good morning, Alexandre, Gilles. Just two questions on our side. In Europe, EBIT margin increased strongly. That was partly due to lower marketing spend. Should we expect this to reverse in H2 or are you in a kind of new normal for this region? Just looking on slide 34, looking at the A&P effectiveness, you are about two-thirds into this project. Could you give us any idea of what still needs to be done? For instance, did you move all the analytics in-house? Do you still outsource content production? More colors on this would be great. Lastly, on following up on this, how should we think about the A&P to sales ratio on a full year basis or even midterm? Thank you.
In Europe, the lower marketing in the first half is partly due to phasing. It makes also some sense that the level of investment in Western Europe should be different from the one we have in Asia or Latin America, for instance, which are clearly areas where we are investing more to be able to gain share, and where the dynamism of the top line is stronger. I think that level of investment is also consistent with our strategy and our allocation of resources to the best opportunities. Back to your comments on A&P effectiveness. Yes, we've done some good progress there. The main drivers of the savings are coming from the shift to programmatic media buying, the internalization of the content production, and also the optimization of the procurement of POS and value-added pack through a more coordinated process.
We estimate that the A&P effectiveness represents more or less 40% of the EUR 200 million total gross savings that we should deliver between FY 2016 and FY 2020 as part of the operational excellence roadmap. That's a significant piece of it. As you know, our intention is to reinvest that into A&P so that we can put more resources behind our best new opportunities, our new growth relays, and our new emerging geographies.
Thank you very much, Gilles, congratulations on your new job.
We will now take our next question from Edward Mundy from Jefferies. Please go ahead.
Hi. Morning, everyone. Three questions, please. Alexandre, I was interested in the creation of the global business development role. Historically, Pernod has been quite decentralized when it comes to the brand companies. What best practices or what do you think is going to be different as to how the brand companies operate once this role has been established and embedded relative to today? The second question is on innovation, which was added 2% to your 5% growth. I think last year it was 1%. Could you please flesh out what were the big drivers of the step-up in the innovation to growth. Finally, one for Gilles. On promotional effectiveness, which is one of the new initiatives, I was wondering whether you could flesh out what is the ambition. Is it more on the top line or is it really a margin piece?
Thank you for your questions. On the first one, let's be very clear. Decentralization is a clear competitive advantage for us, which means basically those who are closest to our consumers and our brands are empowered to make the right decisions. That being said, I would just add, just in front of the word decentralization, efficient decentralization in today's world. One might understand that with the emergence of digital becoming so important, for instance, and consumers becoming more and more global, that they don't have the same boundaries business units might have. The fact that we will now have a managing director global business development, which encompasses brand companies, does not mean that we're getting out of our brand company terroir approach.
Every single one of our brands, let's say most of our brands, have a home, have a terroir, have local teams, and that will not change. What will change is efficiency and speed of decision-making. There are more and more themes and initiatives that are not brand specific, but transversal. Digital is one of them. That's first thing. Second, I think that this will allow us to be much more rapid when it comes to resource allocation from one brand market combination to another. Third, innovation. Again, I think that a much more coordinated approach from an innovation point of view will also help. It's basically to have and favor much more collaboration, much more transversality. It doesn't take away decentralization, absolutely not, or the terroir heritage of our brands.
On the front end, front line, it will have a much more portfolio-focused approach than just single brands. It's finding the right balance. That's what you should expect. This leads me to the second point on innovation, which over the last three years has become more and more value creative. This is a direct consequence of our focused strategy from an innovation portfolio approach, identifying those projects we believe have the legs to drive additional growth and putting the right resources behind them. Our overall long-term sustainable objective on that front is to have innovation represent approximately one-fourth of our growth. That being said, it has been slightly more in recent years, but that's because some of our innovative projects like Jameson Caskmates, like Chivas Extra, or such as Absolut Lime, or such as Monkey 47, have grown quite significantly.
Well, at some point, we'll have to see. We'll have to drop them out of our innovation reporting and put them in our core brands reporting for sure. You should still expect some good growth coming from innovation, which is a key strategic pillar.
I think you've quoted all the brands which are actually contributing to the acceleration of the contribution of innovation. I could add also 35 by Imperial, which is an innovation done on the Imperial brand in South Korea at a lower alcoholic content in order to try and turn around the decline on the brand in South Korea. I think your last question was on the promotional effectiveness. Well, the ambition is to be smarter in the way we manage promotions, both in terms of frequency and in terms of depth, because we have made the diagnosis that we can do a better job there. First, putting the right skills and the right people in place in the key geographies. Second, putting in place the right processes and tools to be able to make live and reactive decisions.
We would expect, after this rollout program is implemented, we would expect that it should have a positive impact on the net pricing for Pernod Ricard, and as a consequence, a positive impact on our margins, which obviously I will not quantify at this stage.
Thank you. Do we have any final questions in the room? No. In which case, we'll take three more callers, please.
We will now take another question from Andrea Pistacchi from Deutsche Bank. Please go ahead.
Yes. Good morning. I have a couple of questions, please. First one on China. 6, 12 months ago on China, you were saying that in the new China post-recovery, your vision was growth of around mid to high single-digit. Probably, I mean, it's fair to say that the rebound in the past 6 months has maybe been stronger than, I don't know, what you would have expected, but it's been, of course, quite a strong rebound. I'd be interested to hear your vision of China going forward now, whether you think actually maybe double-digit growth. Also, if possible, how you think about margins in China. There's a lot of moving parts. Mix probably will be a bit unhelpful, but as you grow sales on a fixed cost base, you should get leverage. How we should think about margins going forward. The second question on pricing.
In the outlook comments, you said you expect prices to start to improve versus last year. China is one area, of course. How do you think about pricing in the U.S.? How difficult is the environment there in the context of some price increases you said you've put through on Jameson, for instance?
Okay. On China, while the good news is what we said last year, our vision of mid to high single-digit is a reality. We grew 8%. Now we're not going to share with you a vision after semester results. I think that a capital market day, which I think is in China next time-
strangely enough. Full year results might be the right time to share with you our longer-term vision in China. Let's just say that the previous vision we shared with you is now a reality for that. Gilles, do you have anything to add, maybe on the margin side in China?
China keeps high margins. They are still above the group average. As you've seen in the first half, the Asian margins were up and, clearly, China contributed to that. I think you said it yourself, probably looking at the mix of the growth will have a stronger contribution from the premium brands. Martell will also largely contribute to the growth of China. We don't expect that the internal mix should change so dramatically. At the same time, we'll keep increasing our investments and our structure in the country to make sure that we can keep delivering strong growth going forward. Net-net margins are high in China, and we expect them to remain high.
On pricing in the U.S., yes, we've put in some pricing on Jameson. As we mentioned, we have significantly repositioned The Glenlivet 12 and reintroduced, at a different price point, Founder's Reserve. Paul Duffy during his call on the North America did hint that we were increasing prices on the tequila front, and particularly on Altos. As you know, agave prices have soared, you should expect to see some pricing, obviously, on the tequila segment. On white spirits, vodka, no, I don't see any positive pricing for the time being. We're holding our price. We're just, as Gilles mentioned earlier, trying to be more efficient from a promotional effectiveness point of view across the portfolio. Pricing, by the way, if you look at the U.S. spirits market, is still there. The growth is principally driven by price and mix premiumization and a little bit by volume.
Okay.
We will now take our next question from Chris Pitcher from Redburn. Please go ahead.
Hi there, Chris Pitcher here. A couple of questions, please. Firstly, on India, just to be specific, you said that you're getting price increases through. Your main competitor commented in their last results that the price increases and productivity savings would now more than offset the GST impact. Did you still expect Indian margins to be down on the back of GST, or has that improved? Secondly, on the cash flow, you've had another one-off sale of bulk Scotch, and maturing stocks didn't grow in the period. Can you talk about the working capital requirements for the maturing stocks? You've always talked about EUR 250 million strategic inventories. Will this be another year below that level? How much more bulk Scotch is there potentially to go? Thanks.
Maybe on your question on India, we increased our prices to offset GST, that's it. We are in strong investment mode. By the way, our performance in India, which is up 9%, is directly linked to the fact that our team there is investing. Both behind the brands at the marketing side and, of course, in our route to market. We should just expect prices to offset GST. India is for us a significant growth driver for the foreseeable future, so we're in investment mode.
On your question on cash flow and Scotch. First, the bulk sales we did in the first half is purely opportunistic. It's a good way for us to manage our asset base efficiently. These were inventories from some years, from some qualities that we did not need to grow and develop our brand. It was a better way to create value, to sell them than to keep them. For the rest, for the full fiscal year 2018, you can expect the variation of strategic inventories to be circa EUR 200 million.
That is to say, a higher figure than the one you had last year, because I would say we are going back to a kind of normal supply policy after one year of lower long-term supply on Scotch, just to adjust to the fact that the growth on our Scotch portfolio had been a bit weaker in the last year. You can see, our Scotch portfolio is back to growth. Chivas is back to growth. Let's say we are going back to a normal supply policy.
Gilles, if I could just follow up slightly. I know we've talked about currency on the call thus far, obviously euro sterling, dollar sterling is important. You had said beforehand that you'd hedged some of your sterling euro exposure. Is that still the case? Can you give us an idea of what rate you're assuming for your sterling costs?
This sterling pound hedging is now behind us, so we are exposed to it. You can assume that the parity between Euro and sterling pound is a good proxy for the forex impact we should have in the next 12 months.
Thank you.
We will now take our last question from Fernando Ferreira from Bank of America.
Morning, Alexandre, Gilles. Thanks for the question. Just one question left from me. On the U.S. tax reform, you mentioned that it will benefit for you. Is that because of the 55% of your debt being in dollars and the limits that were imposed on interest rate deductibility? If that's the case, is there a plan for you to start moving maybe some of your debt to other geographies, like Europe, for example? Thank you.
No, it has nothing to do with that. The EUR 55 million positive net impact on deferred tax is just the actualization of the deferred tax liabilities, which are mainly linked to the brands. Also, new calculation of the deferred tax asset with the new rates. Nothing to do with our debt split by currency. We have no plans whatsoever to do the kind of debt structure changes that you mentioned.
I think that brings us to a close. Ladies and gentlemen, thank you very much. Alexandre, Gilles, thank you.
Thank you.
Thank you.