Good morning, ladies and gentlemen, and thank you for joining us to Pernod Ricard Q3 fiscal 2022 sales presentation. We are hosted this morning by Hélène de Tissot, our EVP Finance, IT & Operations. Hélène will take you through a quick presentation and then turn to your question. Hélène, over to you.
Thank you very much, Florence. Good morning, everyone. Let's start with the executive summary of our nine-month fiscal year 2022 sales. Our sales are growing by 21% in this nine months. This is the reported figures, and +18% organic growth. This is a very strong sales performance, with a Q3 organic growth at +20% with strong price mix. Let's start by a brief summary of the performance by market. A very dynamic must-win domestic market with the USA growing at +13%. This is enhanced by phasing. I'll come back to that in a minute. India is maintaining strong growth at +19%, and China is growing at +12% following a softer Chinese New Year impacted by COVID.
Excellent growth in Europe with some deceleration in March, notably due to the impact of the conflict in Ukraine. Rest of the world sees very strong growth in LATAM, Africa, Middle East and Asia, notably Korea and Japan. Travel retail is growing at +33% with increasing passenger traffic outside of China. Let's move now to the performance by brand. So starting with our strategic international brands that are delivering an excellent performance, +20% on this nine-month period. The performance for Q3 is +22%. This is driven by Jameson, Martell, Chivas Regal, Absolut, Ballantine's and The Glenlivet. Our strategic local brands are well growing double-digit, +14% nine months, +15% for Q3. Delivering notably strong growth in Q3 of Blenders Pride, Royal Stag, and Passport. Our specialty brands are growing at +28%.
Q3 is at +45% with very dynamic performance across portfolio, notably our U.S. Whiskies, Malibu, Monkey 47, Avión, Lillet, Redbreast, and Del Maguey. Our strategic wines are at -3% with Q3 at +3%, which is overall soft, in particular due to the New Zealand lower harvest. If I move now to our must-win markets, starting with our number one market, the U.S. nine months performance is at +13% with a Q3 at +23%. Very strong net sales year to date, enhanced by phasing in Q3, which is accounting for circa 3% of the USA year to date, net sales growth. This phasing is expected to reverse in Q4.
Very solid underlying performance on our key brands in the US market, starting with Jameson, but as well Malibu, Kahlúa, Jefferson's, Martell, and our Agave portfolio. We have put in place a broad-based price increase early February, and we would like as well to highlight the successful start of our innovation, Jameson Orange. Moving now to China. China nine months performance is at +12% with a Q3 at +8%, so softer Chinese New Year performance, lapping an exceptional fiscal year 2021 Chinese New Year. This year we have the impact of COVID disruptions in these figures. Dynamic Martell sales continued very strong developments of The Glenlivet, Royal Salute, and Absolut, and we expect some COVID-related restrictions to impact our performance in Q4. Moving now to travel retail.
Nine months is growing by +33% with a Q3 at +24% with a recovery of international passenger traffic accelerating outside of China. Return to growth in all regions on very favorable comparable basis, but the activity is still below pre-COVID levels. Now moving to India. India is posting an organic growth of +19% for the nine months with a Q3 fully in line with that number. Strong growth continuing with solid premiumization trends, very dynamic performance of Royal Stag, Blenders Pride, and Imperial Blue. I must say an outstanding growth of our strategic international brands, in particular, Jameson, Ballantine's and Absolut. Moving now to Europe.
Europe is growing at +20% over nine months, and the same numbers for Q3 with a good performance in France driven by Champagne, Ballantine's, Absolut and Havana Club. Spain is in a very continued strong rebound fueled by the on-trade recovery. Strong rebound driven by Gin, Ballantine's and Absolut. We have as well implemented the broad-based price increase in March. Germany is posting a strong growth, thanks notably to Absolut, Lillet and Jameson. We have as well a good growth in the U.K. benefiting from strength in the on-trade, in particular with Absolut, Jameson and Havana Club. Eastern Europe, our performance is impacted by conflict since mid-February, and we have a continued strength in Poland.
Asia, rest of the world, the nine months organic growth is at +16%, and with the Q3 at +17%. Starting with Japan, we rebound on a low comparable basis with price increase on Perrier-Jouët implemented in February. Korea, continued strong development in strategic international brands in off-trade and on-trade rebound. Price increase as well in that market on whiskeys and Tequila in March. Africa and Middle East, strong double-digit growth driven by Turkey, South Africa, and Nigeria, and this is as well enhanced by strong pricing. Americas, the growth is at +17% for nine months. Q3 is at +24% with exceptional results in Central and South America, +43%. With Brazil, delivering outstanding growth, notably on Absolut, Chivas Regal, Ballantine's and Beefeater, and this is as well enhanced by pricing.
Mexico is as well posting a very strong growth led by Chivas Regal, Absolut and Martell as on-trade recovers along with off-trade resilience. Canada is delivering a low single-digit growth with strategic international brands dynamism partially offset by decline on wines. We have as well increased our price in Canada in March. Moving now to our conclusion and outlook for the fiscal year 2022. We are delivering a very strong nine-month sales at +18%, enhanced by phasing and with strong price mix, which is confirming overall the business rebound and the consumer resilience. Despite an increasingly challenging and inflationary context, Pernod Ricard expects for the full year strong diversified sales momentum across the regions due to on-trade rebound, off-trade resilience, and a continuing recovery in travel retail.
Softer Q4 sales driven by COVID disruptions in China, phasing normalization in the U.S., and conflict in Ukraine. A dynamic top line growth and increased investments driving some operating margin expansion. Continuing the implementation of Transform and Accelerate, including the digital transformation and a positive FX impact of circa +EUR 110 million on profits from recurring operations. Our guidance for fiscal year 2022 is an organic growth in profit from recurring operations at circa +17%.
Thank you very much, Hélène. We'll turn to your questions. Operator, if you can, open the call to our first caller, please.
Excuse me. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. We will pause for a moment as callers join the queue. The first question is from Simon Hales with Citi. Please go ahead.
Thank you. Morning Hélène, morning Florence. A couple of questions, please. Hélène, could you talk a little bit more, maybe provide a bit more color with regards to what you have seen so far with relation to the COVID restrictions in China, maybe to the back end of March and into early April. I wonder more specifically with regards to China, what you're really assuming the impact will be through Q4 when we think about that in context, in the context of your 17% organic operating profit growth guidance for the group. Are you assuming lockdowns continue through Q4? Do they get worse from here or do they get better in China? That's the first question. Then secondly, just on the U.S.
business, I may have missed it, but could you give us an underlying depletion number, for the business in Q3? When you talk about, you know, the unwind of the phasing in Q4, do you expect sort of, you know, a full destock of the Q3 benefit, or do you still expect at the end of Q4 that wholesalers will be running with elevated levels of inventory, versus, normal periods? Thank you.
Thank you. Let's start with your question on China. As you rightly point, we see obviously we face a volatility since mid-March in China due to the restrictions happening linked to the COVID resurgence. This was definitely impacting the Q3, especially in the on-trade. In terms of geographic impact, it was probably the worst impact in South and Central China. The situation right now, as you know, is that Shanghai is still under lockdown. Some cities have reopened like Shenzhen, Xiamen, and Guangzhou.
There is some mass testing starting in Beijing, so the environment is for sure disrupted by these new restrictions. It's difficult to know how long it's gonna last. At the same time, the experience shows, especially when you look at what happened two years ago, is that it could be as well quite fast in terms of reopening those cities depending on the impact of those restrictions. I will not give you. I don't have a crystal ball, so I'm not sure of what's gonna happen. What I can tell you is that the impact has been obviously still already significant in our numbers in Q3. We expect some disruptions in Q4 and this is factored in our guidance.
In terms of consumer behaviors, those restrictions are having an impact in terms of cautiousness of the consumer, especially when you look at the on-trade. We believe that those disruptions and impact on consumer behaviors are short term. We are very confident in the long term fundamentals on that market and the attractiveness of Chinese market and the strength of our brand. Q4 again would be impacted by those restrictions depending on their duration. For our business, as you know, Q4 is always a kind of quarter for adjustment so that we can land and close the year with very healthy level of trade inventory. This is no exception.
This year, this is as well our objective in China and in all geographies, by the way. We will adjust our sales in Q4 to land in this very healthy territory I was referring to. Moving maybe to the U.S. The performance in the U.S. is strong. As you see the numbers, I think we've been quite, let's say specific in terms of what is the impact of this advanced shipment. By the way, I take the opportunity of your question maybe to give you a bit more colors on the reason for those advanced shipments.
That's mainly to, let's say, adapt to the current very challenging environment in terms of supply chain and the tensions we are facing, especially in terms of lead time. As you know, we are importing to the US most of our brands from Europe. The situation in terms of global shipping crisis is impacting us as well with lead times that are increasing quite significantly. It's more than doubling for our brands like Jameson, for instance. That's why we have increased our shipments in Q3 to really be as agile as we can and protect our business from those supply tensions.
This would be reversing in Q4, again, to close the year with a healthy level of trade inventory. When it comes to our underlying performance, as I mentioned, the impact of this advanced shipment is capped at 3%, when you look at the nine-month figures for the U.S. You can do the math, I would say.
When I'm talking about the underlying trends, I think there's as well some good indication when you look at Nielsen numbers that we are closing the gap to market in the recent weeks, which is obviously quite positive and quite consistent as well with the I would say our business momentum and activation of the brands. We've accelerated and increased activation versus H1. We were I believe announcing that already in our H1 communication that we would be accelerating our investments in H2 in the U.S. This happened in Q3. This will as well be the strategy for Q4.
We are very busy planning in the weeks to come to support the business momentum and our innovation, notably Jameson Orange, for which the start is quite exciting, I must say. Q4 in the U.S., you should expect a reversal of this advance shipments to land with a healthy level of trading inventory.
That's great. Thanks, Hélène. Very clear.
Thank you.
The next question is from Edward Mundy with Jefferies. Please go ahead.
Morning, Hélène. Three questions from me, please. Just to follow up on Simon's question on China. You're indicating that you expect some disruption in the fourth quarter. Do you expect China to be positive or negative within the fourth quarter to get to your guidance of 17% for the year? The second question is, you know, coming back to the US, you know, you did H1 +9%. You're implying, you know, nine months +10% if you back out the shipment impact. There has been an underlying uptick in momentum. What would you attribute that uptick to? Is it just the launch of Jameson Orange or is the broader portfolio also accelerating?
Thirdly, just around margins, could you remind us what your assumption for margins is for the second half?
I'm not sure I heard you very well on the question in the U.S., but if my answer is not accurate enough, I'm sure you will rephrase your question. Starting with China, I mean, we are not guiding on for Q4 specifically by market, but you can expect the Q4 to be adjusted and to be softer to obviously reflect what I said in terms of trade inventory management for the end of June. That would be, I would say directly connected to what would be the business momentum in Q4, depending again on the timing of the release of restrictions in the main cities where we are exposed.
For the U.S., I think the question was, in terms of the underlying trends and probably back to my comments on the Nielsen trends. I think it's coming obviously for first. It's obviously some diversification of the portfolio and great exposure to the different categories. We are investing with very strong activations for the past few months, and there's more to come, as I said, in Q4 and as well obviously in summertime. This is as well probably a good driver of this momentum. It's not only innovation, even if our agenda in terms of innovation is quite busy. I mentioned Jameson Orange.
We have as well some innovation with Jameson Ginger & Lime. There is as well the launch of Avión Cristalino, and so on. But I can as well highlight a very strong performance of our U.S. whiskeys with Jefferson's, Rabbit Hole. We have as well a strong acceleration on Martell, where we are, as you probably know, investing with a great campaign and with the Janelle Monáe media campaign. There's a lot happening in the U.S. as we speak. Your final question was on margin. Just to come back on our comments on margin, we have obviously a dynamic top line, and we expect that the top line to full year, and this is driving some operating leverage.
In H1, I'm sure you remember we were mentioning that it would be fair to expect some moderation for the full year versus the H1 numbers in terms of operating leverage. This was the main expectation is to reach circa 16% of the net sales. We have as well a strong rebuild of the cost structure after the year before, which was a bit impacted by the measures we put in place to face the COVID crisis. Since H1, obviously, there are some incremental news, I would say. Some of them that are probably gonna trigger some negative mix.
This is for sure the case with the China COVID situation that was just developing and is as well the impact of the Ukraine conflict in Q4 that started in March to impact our business. On top of that, there's some renewed pressure in terms of inflation that will impact the gross margin. We are as well implementing more and more price increases in several markets. We were already increasing prices in significant numbers of emerging markets in H1. I listed a few additional price increase that we were able to put in place in H2 in many other markets starting, for instance, with the U.S.
That's why we believe there will be some approaching leverage in this full year 2022.
Thank you.
The next question is from Jean-Olivier Nicolai with Goldman Sachs. Please go ahead, sir.
Hi. Good morning, Hélène de Tissot and Florence Tresarrieu. Just three questions, please. First of all, on travel retail, you mentioned it has recovered, albeit not at pre-COVID levels. How does it compare today compared to where it was in, let's say, 2019? And which brand will benefit the most from this recovery? That's the first question. Then a bit of a technical question on FX. You have guided for EUR 110 million impact on FX for this year. I was just wondering how much of it is transactional effects or is it mostly still translational effects so far? And just lastly, I believe you were both in Les Embiez recently for your annual meeting.
I was just wondering if there was anything you could share with us on the Transform and Accelerate Season Two program. Thank you very much.
Thank you. I'll start with the global travel retail. That's fair to say that there is some improvement in Q3 in terms of environment, because as you remember, there was some slowdown in the recovery of passenger traffic happening end of November and especially in December with the Omicron variant. January was still impacted by that. Since, I would say, February, the situation is gradually improving, and especially in the very recent weeks with some reopening of the border in geographies like Pacific, but as well some Southeast Asia countries. Many markets have reduced their restrictions in the recent three months.
I can as well add to that list, by the way, India, where the situation is much better. It's probably when you look at the full world in terms of recovery, I would say America is probably the one which is recovering the most as we speak. Then MEA and then the markets I mentioned, like India, Pacific and those Southeast Asian markets, plus probably as well Korea and Japan. In terms of passenger traffic, we are now at probably something close to minus 50% versus pre-COVID. We expect that recovery to improve in the coming months. But obviously we will not be back to a pre-COVID level for fiscal year 2022.
In terms of brands, the rebound is obviously benefiting from our many brands that are exposed to travel retail. You can probably think of a brand like Martell, but as well our Scotch whisky portfolio and some other brands like Jameson, Absolut and, I mean, mainly I would say strategic international brands. Your second question on FX. Yeah. First, it's an estimate for the year. I will not give you a split as we speak between those transactional and conversion split.
Les Embiez, I would like to say first, what comes to the top of my mind when I think about Les Embiez is that it was absolutely fantastic to reconnect with our teams, with our colleagues. We felt a fantastic energy all over the place by this ability to regroup and to meet physically and to talk about our ambition and I would say as well, the great performance of the business. This was a very key moment for us internally.
Obviously there will be more to share with you at our Capital Markets Day in terms of strategic framework because this was as well the key topic for us to regroup and align and I would say re-energize and look forward in terms of what should be the right level of ambition for the group, building up our strengths and looking at how fast we are implementing our transformation. More to come early June, if that's okay with you.
Thank you.
The next question is from Chris Pitcher with Redburn. Please go ahead.
Thank you. A couple of questions from me. Firstly, on Turkey, could you give us an idea of how big your business was in Turkey last year and how you're managing through the current very high inflationary environment? Can you give us a sense for, you know, how strong volumes are and whether your price increases are anywhere near the current level of inflation being seen? Secondly, on the U.S., could you talk perhaps a bit more broadly about your strategy for ready-to-serve cocktails? You talked about innovation in Jameson being a big focus, but how are you targeting that category? Thanks.
Thank you. On Turkey, I'm not gonna give you the exact weight of Turkey in our numbers. We are not so specific. What I can tell you is that Turkey is a very dynamic market where we are growing our business very significantly in a very inflationary context for sure. That's why we are as well increasing our prices quite strongly to protect as well the health of our business moving forward, but with a very strong underlying demand from consumers and a fantastic performance especially on our Scotch whisky.
Our price increase are double digit, and we are implementing them as soon as we believe that makes sense in that context. For the U.S., I mean, innovation is obviously critical in many different categories. We want to be obviously very consumer centric in everything we do, including innovation.
The cocktail trend and category including ready to serve is obviously something we are monitoring closely, and for which we believe by the way that this new trend in terms of U.S. consumers is quite favorable to some of our big brands, for which they could as well play a strong role in RTD and in ready to serve. There's some projects on that front because we believe that makes lots of sense. There is as well some quite I would say exciting premiumization happening in that category.
You could think of some brands like Jameson, Malibu and Absolut that have a role to play there, and we have already some exciting RTD in that space.
Thank you.
The next question is from Trevor Stirling with Bernstein. Please go ahead.
Good morning, Hélène and Florence. Two questions from my side, please. The first one, Hélène, you talked about pricing in emerging markets, in the U.S., but are you succeeding getting price increases through in Europe as well? Second question, also staying in Europe, could you tell us the status of your Russian business at the moment?
Yes. I start with your question on pricing. I mean, we are again focusing on our pricing power and the elasticity of pricing for our brands in all geographies to be fair. I named a few. I can add to that list of markets where we've been increasing prices Spain for which we increased prices quite recently. This is one example of what we can do as well in Europe. We are looking at pricing opportunity in many geographies, including Europe. For Russia, I think we've been quite clear since the beginning of the conflict.
I would like to say first our top priority is obviously to protect our teams, and we've been fully mobilized to assist our colleagues in the region. I must say, there was as well some quite exceptional behaviors from our colleagues for instance in Central Europe to support and help their colleagues from Ukraine including their families. When those people were trying to, I mean to leave their country and to find a place to be safe with their family. This is an absolute priority for us. When it comes to our business in Russia, we have stopped exporting to Russia and our activation as well in that country.
Thank you very much, Hélène.
You're welcome.
The next question is from Sanjeet Aujla with Credit Suisse. Please go ahead.
Hi, Hélène. A couple of questions from me, please. Firstly, just love to get your thoughts on the consumer backdrop in Europe. Your business has rebounded phenomenally quickly post pandemic. How sustainable do you think that is, particularly in light of the rising inflation backdrop in the region? Secondly, can you just give us a sense of how significant the price increase was implemented in the US across your portfolio? Thank you.
Okay. First, I would like to say that the performance in Europe is very strong and it's obviously very much driven by the resilience in the off-trade and the strong rebound in the on-trade. Knowing that, we will have some normalization in terms of comparable basis in the months to come, by the way, quite globally in terms of on-trade, because if you remember, the on-trade was starting to recover strongly in the US probably in February, March last year, and in other geographies, more like I would say late spring, early summer. We will not benefit from this strong rebound in the on-trade, probably starting I would say end of Q4 in Europe.
Having said that, the underlying demand is strong, and our brands are performing quite strongly in that context. We don't see slowdown in the consumer demand linked to the inflationary pressure. When you look at, let's say, the crisis we faced a few decades ago, premiumization has always been quite, I would say, a resilient trend. We're quite confident that with that, the strength of our brands, the consistent strategy in our brand activation, we should benefit from a continued growth, I would say. When it comes to inflation, we are increasing our prices again whenever we can.
No, nothing I would say to flag in terms of consumer slowing down or downtrading in Europe or elsewhere, I would say. Your next question was the U.S. pricing. We don't give the exact number, to be fair, but we are talking about price increases, I would say between low single digits up to double digits.
Great. Thank you.
This was implemented across the portfolio from the first of February.
We're gonna take our last question. The next question is from Andrea Pistacchi with Bank of America. Please go ahead.
Thank you. Hi, Hélène. Hi, Florence. Two questions, please. One, well, a couple on pricing. Going back to pricing in the U.S., you say it's been broad-based, the price increases you have put through. Are we? I mean, have you been able to take price even on things like Absolut, some of those brands where literally there's been no pricing for many years, not just you, I mean, across the industry? Also on price on China, you didn't mention China. Normally, when you take pricing in China, it's just after Chinese New Year. Are you taking a pause there this year, which obviously given the environment would be understandable? If I may, the last one, around Europe, I think someone was asking about consumer sentiment.
I wanted to focus on the Eastern Europe part of the business where you have a strong business, whether you're seeing any impact on consumer sentiment in places like Poland or down to Czech, Romania, impact from the conflict in Ukraine. Thank you.
Okay. Thanks. I start by that last question. I mean, we have nothing significant to report, I would say, in terms of Central Europe performance. Very short term, I would say the performance from the beginning of the year has been quite strong in that geography as well. For your questions on pricing in the U.S., obviously, we are looking at our pricing strategy, depending on the category and depending on our brand positioning versus as well competition and taking into consideration the competitive landscape. We have not increased the price of Absolut early February. Your last question, I think, was on China.
Sure.
the price increase.
Yeah.
Yeah. Sorry. China?
Yes, yes.
I mean, first, we have increased our prices early April in China for the single malts, and this is a price increase between, I would say, high single digit and high teens for The Glenlivet in China. For the rest of the portfolio, as you know, we never announce price increase before announcing it to the market, which I believe makes sense. We've been as well in China as everywhere else, quite keen to increase our prices whenever we can. On Martell, there's no exception for that. We have a very strong brand equity and a very strong as well leadership position. We'll see what we'll be able to announce.
Super. That's very clear. Thank you.
Okay.
Thank you very much, Hélène. This bring us to the end of our Q&A session. Maybe one final point on our upcoming communication. As you know, our Capital Markets Day is taking place in about six weeks in Paris on June the eighth. In addition, some of you had highlighted to us the close proximity of the Asia call, which was initially scheduled late June. In that spirit, we shall postpone it to after summer, and we will confirm the new date in due course. In the meantime, we're really looking forward to speaking with you on our Capital Markets Day early June in Paris. Thank you very much, Hélène, again, and thank you to all our callers and listeners.
Thank you very much. Talk to you soon.