We're delighted to welcome you to our FY25 Sales and Results Call. Alex and Helene will take you through the presentation before we open for your questions. Alex, over to you.
Thank you very much, and good morning to all of you. I do hope you had a nice and enjoyable summer. Welcome to our fiscal year 2025 sales and results. Let's dive into them directly. First of all, the title is a pretty clear reflection of the mindset of Pernod Ricard, of all the teams in Pernod Ricard. Steering through a challenging environment with agility, with discipline, and, more importantly, with strategic conviction. At the end of the day, this has delivered organic margin expansion. We have kept on investing behind our brands and their desirability, and investing for the long-term growth of Pernod Ricard. Our net sales are down 3% organically and -6% in our reported terms, basically impacted by currency impacts. What I believe is very important is the continued volume recovery at +2% for the full fiscal year, with the third consecutive semester of volume growth.
Volume has resumed and is confirmed for the third consecutive semester. Declines in China, U.S.A., and Global Travel Retail GTR Asia, which we'll get back to in detail later, have negatively impacted our mix. The rest of the world has been resilient in many, many markets where we have been gaining or maintaining our share in most of them. From a profit from recurring operations, down slightly better than -1% organically, and -5% from a reported point of view, we have completed EUR 900 million of operational efficiencies or efficiency program this year. We've concluded that one and have kept on having a very strong cost discipline. This has led to very strong organic operating margin expansion, up 64%. By the way, up 6% from a reported point of view. This is despite significant adverse currency impacts.
We have focused on free cash flow, which is now at EUR 1.133 billion, up 18%, with strong operating working capital management leading to strong improvement in our cash conversion. We have invested in CapEx and strategic inventories to prepare the future growth of Pernod Ricard, but at EUR 1.2 billion, which has passed the peak of fiscal year 2024, as we had announced, by the way, in last February. We have continued the dynamic management of our portfolio, including the closing of the disposal of our wine business and the announcement of the disposal to come of our Imperial Blue business in India. Finally, we are proposing a dividend of EUR 4.70 per share, which is stable versus last year. I will not dwell upon these numbers, which Helene will get back to in detail in a few minutes from now.
Our broad-based and balanced geographic footprint has definitely helped us mitigate the impact of the sharp declines in both China and Travel Retail Asia, and the softness in the U.S. Americas excluding U.S.A. is up 2%. Europe excluding Russia is flat. By the way, this is the final time you'll hear us talk about this, now that the exit in Russia has been fully lapped. Finally, excluding China, the rest of the world and Asia is up 3%. Beyond our balanced geographical footprint, there's also a diversified portfolio that has posted strong performances across all regions, with, for example, Jameson, which is now above 11 million cases, that has grown organically by 3%.
I will only mention, amongst all these examples, the first line strong double-digit growth in India, where Jameson this past fiscal year has now become the number one imported bottled in origin spirit brand in India. Absolut up 2% in terms of net sales above 12 million cases, with good growth in many parts of the world. Good performance as well of Chivas, up 2%, led by the premium part of the portfolio and clearly by Turkey, where we experienced double-digit growth. Not only Turkey, Latin America, Poland to take a few examples. Very strong growth for Kahlúa up 7%, led by the U.S. Ballantine's has been flat. Finally, just one word on Malibu, huge, huge success now above half a million cases, with double-digit growth more or less everywhere, globally posting a 24% growth. Malibu has now become globally, and that's official, the number one super premium rum.
I mentioned it, three consecutive semesters of volume growth. I think it's a good idea to update this chart, which we started sharing with all of you last February, just to show the pre-COVID type of volume growth we had. Then the impact of COVID, where over two semesters we were down 12%. The post-COVID revenge conviviality, in a way, rebound, where we had four semesters, not two, but four of +12%. The normalization and what we now qualify as the recovery. As I mentioned in my introduction, while basically gaining share or maintaining share in the majority of our markets, we've mapped them out here. Basically, we are gaining or maintaining our share in 12 of our 17 top markets. The way we qualify our markets at Pernod Ricard is we have the G18, which are the 18 largest markets in terms of sales and profits.
Out of these, there's GTR, which is not a market per se. Then our top 17, you have 12, where we're gaining or maintaining our share. By the way, we are closing our performance gap in the U.S. Innovations and marketing investments are driving long-term sustainable brand equity. We measure brand equity on a consistent basis many times a year, at the very least quarterly, if not in some cases even monthly. Innovation is really kicking off big time in terms of scaled innovation for Pernod Ricard. We've mentioned a few successful launches in the past fiscal year with around our ready-to-drink business.
We gave one example with Absolut Ocean Spray, as well with a couple of innovations around Kahlúa, with innovations around non-alc propositions, with here you see Ramazzotti Arancia Zero, which is expected to, which has already become the number two non-alc brand in Germany, and many more innovations over the past fiscal year. I think it's important as well to stress our current innovation pipeline and innovations expected for our current fiscal year. Can help but start with the Ricard RTD in France, which, by the way, good news or bad news, depends on which side of the fence you're sitting, but is out of stock. Jameson, Jefferson's Rye, which was launched, I think, in May, so which comes into full effect in terms of distribution and activation this fiscal year.
The current launch, as we speak of Kahlúa Dunkin, the launch in a couple of weeks from now of the Screwball tin can, the launch which is due to happen as we speak as well within the next few days or a couple of weeks of a new range in India called Exclamation. A launch expected for very early calendar year 2026 around our ready-to-drink business, which is very dynamic with Malibu Dole and a few other launches expected. Two innovations which are expected for the second half of this fiscal year, which we cannot disclose as of yet, unfortunately, but which we are very much looking forward to. Speaking of Malibu Dole, I think there's a nice little video that introduces it. Great. It's a little bit early, but it's the right spirit. We've continued to deliver sustainable growth throughout our value chain.
Here there is strong progress on our 2030 Good Times From a Good Place roadmap. Very specific topics which we monitor on a regular basis. Very strong progress on that front. A quick update on sales. To start with our largest market, which is roughly 20% of our business, U.S.A., organically down 6% top line. The market, the spirits market, which includes RTDs, is in slight growth, far below its traditional average mid-single-digit growth, but still in slight growth, impacted by, let's be clear, subdued consumer confidence and economic moderation. PR U.S.A. is narrowing the gap to market through very sharp execution. Sell at volume and value gap to market continues to narrow.
It is a direct consequence of the execution I mentioned and strong investment behind the brands, which expect that gap to keep on narrowing and accelerated, by the way, by the innovations I just mentioned a few in the previous slide. By the way, Jameson is back in green territory based on the latest panels, including yesterday's panel from NAPCA. Absolut and Kahlúa as well are performing clearly above their competitive set. We finalized the revisit of our route to market over the summer. We now have brand new agreements with our distributor partners across the US. They were designed to align us and increase our executional capabilities. Of course, no need to mention the prolonged tariff uncertainty, which has impacted distributor inventory, as we had already mentioned during our Q3 communication messages. This has impacted distributor inventory levels at year-end.
These adjustments are expected to take place throughout fiscal year 2026, particularly skewed towards Q1. India, which is now 13% of our global business, is now our second largest market, with organic net sales up 6%. + 8% with the exclusion of Imperial Blue, which, as I mentioned, we announced the disposal of Imperial Blue, which is a great brand, by the way, but no longer had a strategic fit in our portfolio of brands from a profitability point of view and from a growth point of view. That disposal is expected to be immediately accretive to both our margins and growth in India. The underlying consumer demand is still very strong in India, and the premiumization trends are still very dynamic.
I think it's important to mention here the excise policy changes in Maharashtra state, where they increased by 50%, five-zero which will impact negatively our sales throughout the year, which will still be very nicely growing. That impact is skewed most significantly towards Q1. Moving on to China, which is now our third largest market, representing basically 8% of our business, with organic net sales, unfortunately, but as expected, down 21%. This is basically the macroeconomic environment, which is still challenging and still continuing to impact the consumer sentiment, which is weak and therefore very soft demand. Decline in sales in Martell and our Scotch brands, but our premium brands portfolio is still growing very strongly. We are starting to see developing consumer awareness for the Chuan, which we inaugurated five years ago. Think about it, about the whiskey, which is now in barrel for five years.
Getting to the right level. We're keeping seeing increasing penetration of premium spirits among the growing middle class in China. Again, a soft consumer demand in Q4, combined with anticipation of the conclusion of the anti-dumping investigation, by the way, which lasted exactly 18 months, which came to an end based on an agreement, a mutually agreed agreement, which came into effect on July 5th. Five days after the closing of our fiscal year. This will lead to distributor inventory overhang at the year-end and therefore some degree of adjustment in Q1, where we expect strong decline in China. Global Travel Retail down 13%, basically impacted as well by the prohibition of sales of cognac duty-free in China, which came into effect December 6th and ended at the beginning of July.
We do expect GTR to return to growth in fiscal year 2026. GTR Asia will still be impacted in our first quarter as our duty-free operators resume sales and are replenishing their shelves, leveraging their warehouses, and will start shipping in the coming months and is skewed towards resuming in Q2. Rest of the world, so the regions, Europe net sales down 2%. Quite a resilient Europe, to be fair, with dynamic sales in Eastern Europe and contrasted Western Europe with good growth in France and declines offset by declines in Germany and Spain, which is exactly the reverse of the previous year. We're gaining market share in France. We're gaining market share in Germany.
We're maintaining our share in the U.K. driven principally by the on-trade and very good brand performances across the portfolio, particularly Bamboo, Jameson, Zhi-Qiang Zhang, Ballantine's, PJ, Altos to name but a few. Americas down 3% with good growth in Canada, good growth in Brazil, gaining growth in Brazil and Mexico. Asia, rest of the world, down 4%, which includes China, with very good strong performance in Japan, which has grown 6%, gaining share, particularly in Champagne, but globally and led also by our whiskey brands. Very strong growth as well in Africa, principally Turkey and South Africa, where we're gaining share as well. Finally, not to forget, Australia, where we have experienced good growth and where we are gaining share as well. Now to the financial update with Helene.
Thank you. Thank you, Alex. Good morning, everyone. Let's deep dive into the financial performance, starting with the operating margin trajectory, which is strongly expanding from an organic point of view. Despite the top line and decline, we've sustained brand-building investments and a very strong discipline on cost. Yet again, another year, we have delivered margin expansion, which is a core element of our ambition. We have reacted with agility to the challenging conditions with sharp resource allocation to maximize growth opportunities and very strong discipline, leading to profit and recurring operations being broadly stable organically at -0.8%. Gross margin is impacted by negative market mix, notably the impact of decline in the U.S., China, and Travel Retail Asia, while benefiting from our COGS efficiency program. Investing behind our brand is a paramount element.
As such, A&P is consistently in our range of circa 16% to net sales, with further increased focus on the return on spend thanks to our digital tools. A very notable reduction in structure cost organically by -4%, which illustrates the very strict discipline and improvement we continue to supply throughout the organization. Reported operating margin was sustained despite negative FX impact of EUR 112 million and a negative perimeter impact of EUR 29 million, mainly linked to brand disposals. To note that the brand disposals are accretive to the margin. We will address it in more detail later in the presentation. Maybe let's deep dive on the efficiency initiatives. I'm sure you recognize that slide, which we shared in February. There are some updates and some granular, I would say, as well, efficiency by nature that we are very happy to share with you today.
We have successfully completed this phase of our program of Feed for Future and operational efficiencies, which I'm happy to remind you represent EUR 900 million efficiencies delivered between 2023 and fiscal year 2025, half of which in fiscal year 2025. Efficiency concerned principally COGS and cash savings, especially finished good inventory reduction. Of those efficiencies, two-thirds or circa EUR 600 million are from operation contribution, and the remaining one-third, circa EUR 300 million, from structure, supported by a circa 12% reduction in SG&A headcount. Starting with operational efficiencies, many details on the slide, but they concern three main areas. Procurement, where the majority of efficiencies are delivered, production, and supply. One illustrative example is the short and deep sea tenders, which are to allow us to significantly optimize those associated costs.
On the structural cost efficiency, we want to ensure that we are running a consistent, sustainable, fit-for-purpose organization with very strict discipline and as well adapting to the changing market circumstances while prioritizing customer-facing role and activities and without undermining business development program. Still more to come on the efficiency front, as it is an ongoing initiative. I will touch on it later in the presentation. Let's move now to the earning per share down at -8% due to lower reported profit from recurring operation. This is mainly linked to negative translation effects, increased recurring financial expense as we continue to refinance very low interest maturing debt at current interest rates, which are more elevated, partially offset by a reduced income tax on recurring operations in line with a reduction in profit from recurring operation.
Group share of net profit increased by 10% as non-recurring costs are significantly lower than fiscal year 2024. Non-recurring costs are mainly due to restructuring and are lapping last year wine business impairment and the reversal of Kahlúa impairment. Cash now. Strong focus on cash generation, obviously, during the year, which has delivered an improvement of the free cash flow of EUR 170 million, leading to a free cash flow of EUR 1.1 billion, with strong improvement in all elements in operating working capital, notably finished good inventory optimization as part of our efficiency initiatives. Moving now, zooming on the strategic investments, starting with CapEx. CapEx investment coming off their peak as announced, remaining our number one financial policy priority.
The amount of CapEx spent has been EUR 656 million in fiscal year 2025 and in reduction by EUR 110 million versus the previous year, with investments notably in capacity expansion programs initiated in previous years. Similarly, with strategic inventories at EUR 557 million, which is EUR 88 million lower than last year, given less significant cash out, also coming off their peak from fiscal year 2024. As you know, CapEx and strategic stock investment are key to secure long-term growth. Moving to the balance sheet. We finished the year with closing net debt of EUR 10.7 billion, which was EUR 300 million lower than at the start of the year due to, again, strict discipline applied to operating working capital, positive contribution for M&A, and favorable currency impact on U.S. dollar debt, which represents 31% of our net debt.
Given the lower reported EBITDA year on year, our leverage ratio increased to 3.3x , ahead of where we ended in the prior fiscal year. Subject to shareholder meeting approval and in line with our financial policy, we propose a stable dividend per share of EUR 4.70 per share. Back to you, Alex, for the strategic update.
Thank you, Helene. I think it's important to give you an update on our strategic framework. Where does Pernod Ricard stand? I think the overall title, "Navigating a Challenging Context with Sharper Strategic Choices and a Fit for Future Organization," is exactly what we're doing. Over the past two fiscal years, over the past fiscal year 2024 and that fiscal year 2025, we have been navigating through what we call the perfect storm. Geopolitical tensions, macroeconomic challenges, and this, after two decades of growth, we've adapted to that environment, as you've seen from a financial performance point of view, with very strong discipline and agility to the environment. Finally, we have protected our margin even more so, and you'll see this in a couple of minutes. At the same time, which let's not forget, this is what we're all about, building our brand and gaining share everywhere we can.
Looking forward, starting with this current year, we see the current environment as a transitional environment with then a new era of volatility on one side, but clear opportunity on the other. We will leverage, as we have done so in the past, in the present, and in the future, our competitive advantages. Geographic breadth and balance and diversified portfolio of premium spirits, we have the most balanced footprint in the industry. We have the most diversified portfolio in the industry. If we're agile enough in terms of our allocations and sharper in terms of allocations, we can leverage these advantages for us. Finally, most importantly, a very engaged organization, people, and I would say a winning culture. We are working, and we have been working on evolving our operating model to be fit for the future. What does this mean?
It means combining our scale, which we now clearly have, and business proximity to use these as a strategic enabler, integrated operations to deliver even more efficiencies and resilience, as you've seen and as you will see in terms of our operational efficiencies. Of course, focused as well on our frontline transformation, our digital transformation, and more recently with GenAI. To what objective? To be value creative and cash generative, to deliver value creative and cash generative growth. On that front, three clear messages. This current year is a transition year with improving top line trends versus the current trends of 2025, number one. Number two, fiscal year 2027 through fiscal year 2029, top line is expected to be in the range of + 3% to + 6% organic growth with margin expansion. Finally, improving our cash conversion and maintaining our balance sheet flexibility.
I think you have here our current equity story and clearly the objectives that all the teams around the world are focusing on as we speak. Let's not forget that beyond the current short-term disruptive environment because of geopolitical issues and because of macroeconomic context, the trends, the underlying trends are favorable for the long-term growth of premium spirits. I won't go into the demographics, but that clearly play in our favor, whether it's in Southeast Asia, India, Africa, LatAm, and so on and so forth, even in the U.S., and so on and so forth. The evolving consumer needs driving innovation, where we believe we have a pipeline of innovation this year, which is probably our strongest ever, centered around experiences, self-expression, convenience, like the RTDs, for instance.
Finally, that long-lasting human insight-driven enduring premiumization trend, leveraging that less but far better trend, which started exactly 25 years ago when it comes down to spirits. We are still facing economic and cyclical headwinds in some of our key markets. If we had to name two of them, clearly, as you all know, it's the U.S. and China, where we have weaker consumer confidence, which is leading to subdued or even weak consumer demand. Again, we'll clearly use our agility to exploit our global presence and balanced presence across all regions, whether it's in mature or emerging markets, across America, across Europe, across Asia, Pacific, rest of the world. That's where agility can be very, very useful. That's where resource allocation and continued resource allocation, and that's how we are reorganizing ourselves to, you know, a one-time per year budget is no longer valid in today's world.
Likewise, I think we're blessed and lucky, and it's not a coincidence. This is the direct result of the strategy that has been developed, by the way, by our predecessors and their own predecessors, which is to have that diversified portfolio, which is pretty well balanced. In that specific case, perfectly well balanced between an aged portfolio of brands, which is very anchored into terroir, which is timeless, timely, which is based on legacy and innovation, but more importantly, craftsmanship skews towards the super premium plus end of the portfolio, which is somewhat capital intensive, of course, but as well, that's a barrier to entry.
On the other side, our non-aged portfolio, which is mostly more geomodular, a bit more flexible, of course, in terms of global flows, which relies more on creativity and innovation, more mixable as well, more skews towards the premium end of the portfolio, and by the way, very cash generative. I think that's a perfect balance, which again, combined to our geographical footprint, makes it a unique differentiator for Pernod Ricard. As you've seen in the press, we're organizing ourselves, and that's the intent to organize ourselves to be able to leverage that beautiful balance to the maximum extent possible. As I mentioned in the introduction, we've continued to be very dynamic from a portfolio management point of view. Obviously, you have the completed disposals of fiscal year 2024, the closed disposals in fiscal year 2025, the announced disposals of this summer. These are all strategically driven.
Basically, we look and we relook on a regular basis at our portfolio of brands, and we make sure that the brands are still valid from a strategic positioning point of view, from a strategic fit point of view, from what it is we want to achieve in terms of top line growth, in terms of profitability, in terms of consumer demand, of course, in terms of relevancy, and so on and so forth. I won't go through our entire strategic committee meetings, but at the end of the day, we want to focus on premiumization. We want to focus on top line growth, and we want to focus on margin. This is what led to that $1 billion+ type disposals.
Likewise, talking about being extremely relevant to our consumers, we're increasing and boosting our cultural relevance through on one side, partnerships, on the other side, experiences, and finally, through as well, associations. You have here a number of experiences. Just to give you a brief overview of what it can look like, there's a small video on a Jameson partnership we recently signed. This partnership between Jameson and the MLS started being activated, what we call 360 activation, over the summer, by the way. We also have the example of our global partnership between Chivas and Ferrari and many more, and more to come on that front. As I mentioned, we have simplified our organization, and we continue to be focused on simplifying our organization to be ever more agile and rapid and close to the consumer, to put it in a nutshell. More to come on that front. We want to benefit from our scale on one side and from our business proximity on the other, while being extremely agile and rapid in terms of speed of decision making.
Thank you, Alex. Talking about speed, I'm going to try to be fast on three important topics that are margin expansion, cash, and financial policy. Starting with the margin expansion. As explained earlier, we have delivered this year an organic margin expansion of 64 bps. You can see that organic margin expansion has been a consistent feature of our financial performance over the past decade, achieving an average of 39 basis points per annum since 2014 and accelerating to 55 basis points per annum since 2019. Profitable growth is a key feature of our financial framework, and the margin expansion, both this year and last year, is particularly notable given the softer top line we have reported.
This reflects our commitment to control what can be controlled and to build an organization that is fit for the future, meaning what you just mentioned, Alex, leveraging global scale to capture efficiency and ensure that we have the right capabilities in place to capture growth and to maximize our return on spend, considering our strategic investments, our marketing investments, and our organizational structure. The range of initiatives taken all together have enabled us to achieve EUR 900 million in efficiencies since 2023 and to project a further ambition of EUR 1 billion by fiscal year 2029, as we shared with you at RH1 Results back in February. These efficiencies will be generated across all the activities of our business, targeting production operations, logistics, A&P, and structure. More details on the specific achievements from these initiatives will be shared as we report in future periods.
Moving now to cash and to our focus on delivering a strong, sustainable cash generation from a profitable growth. Cash is a strong focus. Ultimately, this is the translation of our profitable growth, enabling us to fund our future growth and serve our financial policy priorities, first being organic growth. We have delivered an average since fiscal year 2021 of free cash flow of circa EUR 1.3 billion. Cycles of accelerated investment in CapEx and strategic inventories to fuel future growth are now largely completed, having peaked in fiscal year 2024. Following this peak in 2024 in CapEx and strategic inventory to fund the future growth, as well as the continuous optimization of our ordinary working capital, our cash conversion has been improving by 9 points to 74% versus 65% in fiscal year 2024.
For fiscal year 2026, strategic investments are expected below EUR 900 million, so cash conversion is expected to improve further from 2026. We aim at a cash conversion ratio of circa 80%. Moving now to the financial policy, no change in these priorities, which are designed to give you complete clarity on our priorities. Let me remind you quickly on what they are. The financial policy aims to balance the deployment of capital for profitable growth and returning capital to shareholders. We have four priorities that are ranked with the right order in terms of priorities while maintaining investment grade rating. Number one priority is investment in future organic growth. I already mentioned that many times in the presentation so far.
Continued active portfolio management, including value creating M&A, dividend distribution at circa 50% of net profit from recurring operations, aiming at consistently growing dividends and share buyback when both priorities are fulfilled. Back to you, Alex, for the conclusion and the outlook.
Thank you, Helene. I think this slide perfectly summarizes our overall key message. I won't go back to the long-term industry fundamentals, which remain absolutely attractive. I won't go back to our uniqueness in terms of our broad-based and diversified geographical footprint and our portfolio of brands, which we continue to manage actively, to our leading market share positions in many, many markets and globally, by the way, outside of the U.S. market where we are consistently closing our performance gap to market. Very importantly, consistently investing behind our brands, with roughly 16% of our net sales reinvested behind them, with an increasing return on spend. I won't mention because Hélène already has in quite detail mentioned our track record in terms of improving our organic operating margin, which remains a clear objective going forward.
The ongoing efficiencies with the EUR 900 million program over fiscal year 2023 through to last fiscal year, which is now fully delivered. The new one, the new program targeting EUR 1 billion worth of efficiencies over the next four fiscal years, starting with the current one. The fit for future organization with that obsession of being more simple, of empowerment and discipline. Finally, as importantly, our focus on cash to invest in the long-term sustainable future of our brands and create shareholder value. Now back to the more short-term tangible year in which we now operate, the fiscal year 2026 outlook, which we expect, as I said, to be a transition year with improving trends in terms of top line versus the trends we've just presented for fiscal year 2025.
We expect these improvements to be skewed towards H2 for the reasons we mentioned, starting with the decline we expect in Q1 with distributor inventory adjustments in the U.S., continued soft consumer demand, and inventory adjustments in China. The impact of the Maharashtra excise tax policy changes I mentioned, which skewed towards Q1, and sales of cognac in duty-free China, which will only resume from a shipment point of view, from a Pernod Ricard point of view in Q2. We will definitely continue to invest to increase our brands' desirability with sharp A&P allocation, with efficiency and innovation, as we presented some of them, and experiences, with a ratio expected to be at roughly 16% as always. We will defend our organic operating margin to the fullest extent possible. I think it's difficult at this stage to go beyond for the time being.
This will be clearly supported by strict cost control and the implementation of our efficiency initiatives, which we mentioned earlier. We will keep on focusing on cash generation with strategic investments below EUR 900 million, as Hélène just mentioned it, and strong operating working capital management. The cash conversion is expected to improve further this fiscal year. Finally, based on the current spot rates, we do expect to see a significantly negative currency impact. For the medium-term framework, which we presented to you and shared with you back in February and reiterated briefly during our Q3, we will continue to leverage our uniqueness through our portfolio of brands and geographical footprint. We are projecting organic net sales growth, aiming for that range between +3% and +6% per annum on average, with annual organic operating margin expansion. On that front, you've seen in the past, we can deliver that.
We are anticipating that margin expansion to be supported by the efficiencies of the billion over the next four years, with a program to optimize our operations and implement the fit for future organization structure in the coming months. We will obviously keep investing behind our brands, roughly that famous 16% ratio, with agility and with continuous agility month after month, and reallocation, shall I say, and responsiveness to maximize the opportunities by BMC, Brand Market Combinations. Strong cash generation, aiming for roughly 80% and above cash conversion to fund our financial policy priorities, which we reiterated earlier on today, with strategic investments normalizing to be no more than €1 billion. Finally, and I think it's a good way to conclude, we remain confident in our strategy.
We remain clearly confident in our operating model, and most importantly, in the engagement of our teams throughout the world to deliver for all stakeholders sustainable value growth over time. Before moving on to Q&A, I think there's a last little video on our summer innovation, which so far is doing quite well.
Thank you, Helene and Alexandre. Turning now to your questions. Please, as always, no more than two questions per caller, so that everybody has a chance to ask these questions. Operator, please open the line for the Q&A.
Yes, madam. As a reminder, please press star and one for questions. The first question comes from Andrea Pistacchi of Bank of America.
Yeah. Good morning, Alex, Helene, Florence. My two questions are on margins and on India, please. On margins, you showed us a chart on how you've been able to consistently deliver good margin expansion. For fiscal 2026, you're sounding a bit more cautious, aiming to defend margin to the full extent possible. Clearly, tariffs and the minimum price in China is an important headwind, I think about 80 basis points. At the same time, top line growth should be improving. Could you help us understand a bit the moving parts to try to reduce that gap and why? What would prevent you from delivering, let's say, flat margins? Second question, I'd like to go a little bit deeper on India, if possible. You flagged the excise increase in Maharashtra.
Could you share, please, how large Maharashtra is for your India business and what sort of sales decline you've been seeing in recent weeks there? There's clearly a lot of moving parts in India this year. The consumer environment is good, probably even better than improving from last year. Imperial Blue is out of the perimeter, but then you've got the Maharashtra headwind, and you'll be lapping the Andhra Pradesh reopening. What sort of growth would you expect for India this year, please? Thank you.
Okay, good morning. I think I will answer those two questions, if I may. Starting with margin, you're absolutely right. We've been delivering consistently margin expansion. This fiscal year, we're going to have these headwinds of tariff, which, by the way, we gave an updated assessment in the appendix of our presentation. It's EUR 80 million, the estimate for an annualized amount, which is very likely to be the fiscal year 2026 impact, knowing that the timing of the implementation of those duties happened in July. This is for sure a headwind for fiscal year 2026. We have a high basis in 2025 with all the efficiency delivery I was referring to. We will have these headwinds impacting COGS. The expectation so far as well is that there will be some inflation impacting COGS in fiscal year 2026, especially on the wet goods front.
To be even more specific, on the young whiskeys that have been put into the balance sheet at the time of much higher inflation, if you remember, and that are going to be impacting the P&L this year. Does it mean that we're going to be resting and taking the hit? Obviously not. There is the efficiency program, chapter two, if I can call it this way, because there's no, let's say, interruption between June 30, 2025 to July 1, 2026. There's a very continuous group of initiatives that we are going to be implementing as we speak. Is it going to be enough to offset those headwinds? It's too early to say. By the way, the operating margin expansion is not only about COGS, of course. It starts with the top line, especially with price and mix.
We believe that price environment is still going to put us likely, I would say, at a net level to something which is a bit subdued, with a very different reality in some markets where we can take price and we will take price increase, especially, obviously, in the hyperinflation market. In other markets, the environment is not extremely favorable to price. When it comes to mix, again, very early. We're only in August. With the outlook that we shared, especially with the inventory adjustment in China and in the U.S., which, as you know, are extremely profitable markets, this could still be a kind of drag in terms of mix. Again, very early days. What I can tell you is that our intention, our ambition, the initiatives are there, and we're going to be working as well on how fast we can deliver those.
There's already a very solid plan, I would suggest, for fiscal year 2026. Again, it's much too early to commit to more. India is now our number two market. I'm not going to spend your time reminding you all the fundamentals that are very favorable in that market in terms of underlying growth. We have as well a very strong portfolio of brands, quite well balanced between bottling India brands and imported spirits. This is a key must-win market for us, and we are in a very good place in terms of track record, in terms of growth, and in terms of market share. To cut a long story short, we believe India would be in a strong growth momentum in fiscal year 2026. Q1 is going to be impacted by this change in Maharashtra. Maharashtra is one of our top states in India.
I'm not going to be too specific in terms of the size of the market, but it's a big one. As Alex mentioned, the increase in excise tax is huge. It has been announced in June. It's been implemented mid-July. It's a 50% increase. To give you the exact number, moving from 300% of the lime tax to 450%, it's likely to have an impact, which we roughly estimate to probably above one-third of RSP increase in that state. That's why it's going to have an impact without, I would say, changing at all the underlying midterm ambition for India and the algorithm. 2026 could be a bit lower, that algorithm, but we expect strong growth in India this year.
OK, thank you.
The next question is from Edward Mundy of Jefferies.
Morning, Alex, Helene, Florence. Two questions, please. First on growth and then the second on the operating model. On growth, perhaps give a bit of color on the quantum of the decline that you're flagging in the first quarter. With regards to your piece on improving trends in organic net sales, clearly there's no more Russia impact DT3 is done to come back. What are the other moving parts that give you confidence on growth improving in fiscal 2026? That's the growth question. The second question, which is on the operating model, clearly in part, some of this is to sort of simplify the business and drive the $1 billion. What are the other key behaviors that you're hoping to achieve through some of these initiatives?
Great. Let me start with your first question, Ed. In Q1, this is what we are sharing with you now, we expect some inventory adjustment in the U.S. and in China. The inventory adjustment is likely to happen in the U.S. across the year, but starting with Q1, whereas in China, it's probably going to be skewed towards Q1. One of the reasons for the difference is that obviously Q1 in the U.S. is just ahead of O&D. There is some merit to think carefully about the level of inventory we have in the trade to prepare for what we expect will be a very solid O&D performance. There are some technicalities in Q1, in all Q1 net sales in the U.S. because of this inventory adjustment.
In China, the tariff uncertainty around the outcome of the anti-dumping investigation has led to some slightly elevated inventory at the end of June. Having said that, the underlying performance and the mood at consumer level was not improving in Q4. There was also, linked to that, the impact of the reminder of some restrictions in terms of official entertainment that happened mid-May and that did not improve consumer confidence in Q4. This is leading our expectation for Q1 to be in strong decline in China, exacerbated by those inventory adjustments, and to a lesser extent, some phasing in the Mid-Autumn Festival, which is going to be a bit more than two weeks later than last year. Improving trends, which is the outlook for the full year, so towards H2. I would say with part of the explanation being this exacerbated impact in Q1.
By the way, I realize you asked me what do we expect. To be even a bit more precise, in Q1, we expect a decline that could be slightly worse than last year. Towards H2, why that? First, very importantly, travel retail, Q1 is going to be in decline. This is phasing, as we mentioned, because first, high comp last year, because at that time there was no restriction for Martell in China duty-free. Despite the good news, which is happening on the ground starting from July, the phasing of our sales to our customers is going to resume in Q2. This means that for travel retail, we have an expectation of being back to growth for the full year. It is going to be quite impactful in our H2 numbers. China, then I mentioned already Q1. For the rest of the year, it's very early days.
We are not even getting into the first important festive season. That would be fair to say that we expect some improving trends in China towards stabilization. When you look at the blocks and the improving trends for the group for the full year, I would highlight China and Travel Retail in those types of positive blocks. Coming back to the previous comments on India, India strong growth, which is then probably going to be neutral in terms of what we were delivering in fiscal year 2025. For the U.S. the underlying trends, which is obviously extremely important for us, which is what we are working on and closely monitoring, is to keep continuing narrowing the gap that we still have, but which is improving in terms of performance versus the market. You can expect the impact of the inventory adjustment I was referring to. Operating model.
Yeah, sure. Thanks for asking the question, Ed. I think it's a core strategic question for Pernod Ricard, the way forward for our operating model. It's based on a core belief, which is volatility is here to stay, which, by the way, is not bad news. It could be, but it can as well be very good news. When there's volatility, there's opportunity. To seize the opportunities, we need to be extremely more agile. The core belief here is, or the core objective is to be fit for future and fit for future, designed to be more agile and resilient. It's based on three criteria: simplification. It's very simple to complicate things, and it's quite complicated to simplify things. When we simplify things, we're faster, in fact. The second piece is empowering our teams even further. We have delayered the organization.
By the way, tomorrow, one, we took out a number of layers in the organization that served their time and their purpose back in the day that for the future may be less so. We delayered, for instance, the regions, and we have direct proximity with our teams on the ground. This improves faster decision making. This withdraws as well a number of silos and so on and so forth. Three, discipline. At the end of the day, we have a number of processes which we have simplified and which we continue to simplify. Let's deal with them and be very disciplined in our ways to make our decision making. Whereas, to be fair, less cooks in the kitchen.
At the same time, we are strengthening our backbone with integrated operations to leverage a number of efficiencies going forward and as well to be a lot more flexible in our approach to flows, global flows, and decisions we make. Finally, our ways of working from a behavioral point of view on one side, which is going to be helped and facilitated by a much more simple and delayered organization, and leveraging as well our tools.
We went through a whole digital transformation over the last now five years, from 2020 to now, with these tools called Maestria from a portfolio approach standpoint of view, which allows us to be much more sharper in terms of allocation of resources, but as well in terms of revenue growth management with Vista Rev Up, in terms of our commercial tools, in terms of D-Star, and finally in terms of marketing effectiveness and maximizing return on spend through matrix. Going forward, it doesn't stop there. We do believe there's a huge potential, both from a savings point of view, but more importantly from an impact point of view, leveraging AI, so GenAI. We have now two campaigns running that have been created and generated through AI, one in Brazil and one in Poland. The results are pretty strong. This is what we're doing. We want to be fit for the future. When we're done with this downward cycle, there will be a growth cycle, and we want to get more than our fair share of that growth.
Great, thank you.
The next question is from Simon Hales of Citi.
Thank you. Morning, Alex. Morning, Helene. Morning, Florence. My two questions. The first one is on free cash flow for this year and beyond. You've given guidance that you expect strategic investments to be less than EUR 900 million this year. I appreciate CapEx is past its peak, but how should we specifically think about the investment strategic inventories, both in 2026 and over the next two to three years? I know you're aiming at reaching 80% free cash flow conversion. Is that a target that you think is attainable in fiscal 2026? That's the first question. Secondly, just a couple of technicals, please, if I can briefly. On FX, you've talked about a significantly negative impact in 2026. Can you give us a little bit more guidance on that? If I look at consensus, I think consensus is. Affecting
about a EUR 180 million headwind to EBIT next year. Is that significant enough in your mind? On the perimeter impact for fiscal 2026 of the wine disposal and the Imperial Blue disposal, can you give us a bit of a guidance on the sales and EBIT impact there, please?
Okay. I think you're going to start to be jealous, Alex, because I'm getting most of the questions. I'm not sure I'm going to get into the effects and perimeter impact details. We can probably have a follow-up discussion on that one. Let's start with your first question, which is free cash flow. You're absolutely right. We are giving already some, I would say, direction in terms of what to expect for the strategic investment to further normalize after the peak in 2024 and already some normalization in 2025. It's going to be a contribution from both CapEx and strategic investment, knowing, of course, that for us, strategic investment is the net of cash out and usage. It's obviously depending as well on what will be the top-line trajectory. You can expect a contribution from both items, CapEx and strategic investment, to improve free cash flow in fiscal year 2026.
In terms of giving you an exact number of cash conversion rate, to be fair, we say the aim is to be at circa 80%. We were at 74% in fiscal year 2025. We believe we can improve that. I think it's giving you already a good range of what could be at stake for fiscal year 2026, knowing as well that there is maybe just to cover your second question on effects, some volatility linked to this rate in terms of what we can expect from the effects point of view. We believe it's going to be significantly negative. I think you said, is it good enough? Is it bad enough? I would say it's early days, but that could be a very significant headwind in fiscal year 2026 when you look at the spot rate. For instance, just looking at the average U.S. dollar rate that we had last year and the spot rate right now, you have then, as usual, the sensitivity in terms of what it means in our appendices.
Got it. Thank you.
The next question is from Gen Cross of BNP Paribas Exane.
Good morning, Alex. Helene, thank you for the questions. A couple from me. First, on the U.S., I think, Helene, you talked about the expectation of a solid O&D season. I was just wondering if you could share a bit more color on what you're seeing, either in terms of any improvement in the U.S. spirits market or indeed your own portfolio, which leads you to this expectation. My second question is on your expectation for AMP spend in FY 2026. I appreciate you've given the guide of circa 16% of sales, but just given the strong pipeline of innovations you have for this year, I was wondering if you could give us a feel for whether you expect an increase from the 15.3% level this year. Thank you.
Maybe let me clarify for O&D. Obviously, I don't have a magic crystal ball. What I mean is that we are quite excited by our activation programs, by our innovation pipeline. There was some shadow model, but I think there's some of them that you can recognize. Everything is not going to happen for O&D, but the teams are ready, extremely motivated to get the best of O&D. In terms of expectation for the U.S. market, again, it's difficult to be extremely prescriptive on that. It's been quite, I would say, stable when you look at the spirit market, including RTD. Is it going to be better than that? We believe yes. When is obviously a more difficult question. What really matters, I believe, is that we are ready to be extremely visible and hopefully as well inspiring the consumers for this key O&D season. Nice transition to the AMP.
Maybe let me just remind you that this is not a financial topic. I'm very happy to be involved in many discussions in terms of sharp resource allocation. We don't, I would say, allocate those AMP based on whatever pure math ratio. This circa 16% is just giving you what it means globally in terms of investment and to shape our P&L. The investment in fiscal year 2025 has been once again sharply allocated across the markets on a more, by the way, brand market combination basis and happens to be at this 15.3%, especially because of the sharp allocation, not to say adaptation that we did in China. If you were excluding that, we'd be even more closer to this 16% AMP to net sales ratio. Back to the first topic, this is much more in the U.S. You're absolutely right.
We have a strong activation and programs to support the busy season and the innovation pipeline, which will obviously contribute to this circa 16% AMP spend in fiscal year 2026.
Thank you.
The next question is from Sanjeet Aujla of UBS Investment Bank.
Good morning, Alex, Helene, Florence. A couple from me, please. Firstly, I'd like to go back to China. Can you just talk a little bit about the impact you've seen from the ban on consumption for public officials? Are there any signs of that easing in recent weeks or the pressure is still there? Secondly, how do you feel about growth in Europe? I think excluding Russia, it was flat. You've got some puts and takes with Germany and Spain seem to be under pressure, some of the markets growing. Do you feel you can get back to low single-digit growth out of Europe going into fiscal 2026? Thank you.
Hello, Sanjeet. Maybe on your first question, that ban on public officials drinking is a reminder of the ban of 2013. The ban has never been taken out. It was put in place in 2013. In May, last May, there was a reminder, an official reminder that that ban was still in place. The impact, yes, there is. This is where we see a clearer softness in China. When we mentioned in the outlook, particularly in Q1, there's clearly the technical impact of the inventory adjustment. That's fine. It's technical. There's the consumer softness, which is quite weak, related in part to that ban. The impact is notable indeed.
Europe is your second question. I'm not going to guide on what to expect from Europe in fiscal year 2026. What I can tell you is that, first, as you know, Europe has been not only resilient, but delivering a solid performance in the recent past, including in the very recent past. We are in a strong position in terms of market share, and we've been delivering as well a very positive market share gain or maintaining our shares in Europe. We have a strong investment, very strong and engaged teams there. Again, not guiding specifically, the reality, by the way, is as well quite different from one market to the other. Summer is an important season for the South of Europe. We don't have yet the full results. More to come in terms of what will be the trajectory in Europe. Again, a strong track record, I would say.
The next question is from Mitch Collett of Deutsche Bank.
Thanks. Hi, Alex, Helene, and Florence. Two questions, please. There's some great color in the appendix on moderation and your thoughts on current headwinds being cyclical. Can you maybe comment on your thoughts on that? I appreciate there's less data for other geographies, but are you equally unconcerned by moderation trends across the rest of your geographic footprint? My second question is just a quick technical one. Can you give a rough estimate for what you expect to be the headwind from divestments? What is the scope impact on sales and EBIT for fiscal 2026? Thank you.
Maybe on your first question, I think you're referring to slides 42 and 43 of the presentation, which are in appendix. What we have decided to do for the sake of clarity and transparency is to regularly update these slides based on the data-driven insight. It's important to specify data-driven insight and not perception or perceived-driven insight, just to try and not have an emotional debate on it. By the way, on slide 43, on the right-hand side of the slide, we've updated two graphs on the recent data we received basically a couple of weeks ago on Gen Z drinking and buying habits regarding beverage alcohol. You'll see that data has been updated to Q2, the end of Q2 2025, so June end data, which shows increasing Gen Z consumption of beverage alcohol. In Q1 2024, you had 38% of Gen Z declaring consumption.
That number has increased by 6.44% in Q2 2025. By the way, for those who are marketing experts, one of the most important data we follow in terms of brand saliency and equity and so on and so forth is household penetration. There you see as well increased household penetration of beverage alcohol and spirits amongst Gen Z. You have this for total beverage alcohol for Gen Z and within that specifically for spirits. It is increasing on both metrics. That's data-driven insight that we have. Does it mean there's no moderation? What we believe is there is moderation. Maybe two comments on that front. We strongly believe that moderation is driven by economic moderation. In other words, purchasing power. Bear in mind that alcohol, restaurants, bars, and so on are one of the top discretionary spends, which comes to be hit when there's purchasing power pressure.
The second piece is what we call premiumization, which is less but better. We have seen frequency, and we continue to see frequency, which has slightly declined. At the same time, when the occasions pop up, and they still do quite significantly, the intensity from a value point of view and from a servings point of view goes up slightly. People have good taste when they have the means.
Your second question on perimeter. We can come back to you with a follow-up on the exact number. I just want to clarify something. You mentioned headwinds from a strategic point of view, but as well from a financial point of view. These are not what I would say qualify as headwinds. You have, by the way, in our deck, but I'm happy to remind you of what could be the positive, quite significantly positive impact in terms of gross margin and operating margin. Cumulatively, when you look at the transactions we've completed over the past two fiscal years and the one that we announced, this will be margin accretive by 260 basis points in terms of gross margin and 80 basis points in terms of operating margin.
Okay. Percentage accretive, but obviously euro absolute numbers would be on a slightly lower revenue number, if I'm correct.
There are some technicalities in the numbers. We can have a follow-up on the exact numbers to help you.
Thank you. Yeah, thanks.
The next question is from Trevor Stirling of Bernstein.
Good morning, Alex, Helene, and Florence. Two from my side, please. You've got a lot of initiatives underway at the moment, Alex. If you had to highlight one or two of those you think are most critical to driving the top line, which ones would you highlight that are really focused on the top line? The second question, that organizational change that took out 12% of SG&A, you have another $200 million of savings targeted from the organization. How do you maintain morale and the esprit de corps when you're being so focused, if you like, on costs?
Thank you, Trevor, for these two questions. By the way, if I had to summarize my responsibility, I would say it's addressing these two questions. On the first one, if I just had to take two words, I would say agility and innovation. If I go a little bit below, what does agility mean? It means that sharper allocation, that continuous reallocation of resources where we find pockets of growth, where we see innovations we're launching and we see them pick up, and therefore we increase investments and we take them from somewhere else and so on and so forth, where we see continued return on spend and so on and so forth.
That agility and that slide on innovation, I think, is interesting because when you look at our pipeline of innovations, including some of the teased innovations, we believe we're getting to a position of scaled innovation, which means innovation with strong impact on top line, by the way. There is a strong, by the way, we keep talking about moderation and so on and so forth. Let's not forget that Gen Z particularly, but more specifically, more generally, I mean, consumers like newness, but they don't like newness for newness' sake. They like relevant newness or newness that they felt engaged with. I do think this is what we're doing from a brand point of view and a new brand proposition point of view for some brands.
In terms of as well, when we talk about brand associations or co-branding, I mean, Ocean Spray is a household name, by the way. Absolut is a strong, by the way, was voted by Times Magazine and so on and so forth, most iconic vodka brand in the U.S., etc. When you combine these two and propose Absolut Ocean Spray, no wonder it works and has a strong impact. No wonder, by the way, the follow-up is increased household penetration for Absolut Spirit as the bottled version. Again, agility and basically the spend behind our brands from a relevancy point of view, partnership point of view, association point of view, co-branding point of view, and innovation. Agility and innovation. On the second piece, maintaining a high engagement level is a daily challenge and at the same time, a daily objective.
Just to give you an example, as we come out of this communication exercise, there's going to be a video, internal video of me announcing the results, but focusing more on a few other topics internally. This is going to be viewed by all 18,000 colleagues of mine. In a couple of hours, I will have a webinar with our top 300 execs and leadership team throughout the world with a call to action, which is really to keep their teams engaged and to look at the challenges we're facing and the volatility around us as an opportunity. By the way, when we look at our market share gains and the momentum we have in some markets, it is happening. Finally, as of next Monday, but Monday I'll go to Boston, as you may very well know why, and then New York for some known reason as well.
Basically, I'm off to not an investor roadshow after the investor roadshow. I'm off to an internal, when I say I'm, we are off to an internal roadshow, myself and the leadership team, starting with Helene, to basically go see our teams, whether it's in the U.S., North America, whether it's in Latin America, whether it's in Asia, China, Singapore, India, of course, whether it's in Africa, Istanbul. I'll be doing a few miles and collect a few air miles in the next three months from now, basically going in and having that dialogue with our teams, which again, we have that winning mindset culture, which we need to nurture. The day you think it comes from the sky and it's a given, you start losing it. It is something which is top of our agenda, the ExCOM leadership team.
By the way, we spent yesterday basically on two topics, preparing for today and as well preparing for that internal roadshow, how to really, really keep our teams engaged. By the way, they know what's happening. They're still excited, waking up every morning with one objective, one objective at the end of the day, no matter if they're back office, front office, you know, one objective, drive back that growth and sell our brands and put them on shelves, whether it's in buy bar and stores and so on and so forth. By the way, when we have these discussions with them, they're still very excited. You know, and going back to that first question, as long as you have strategic clarity and now that you have great innovation propositions, they're like, that's great. That's great to see.
You should, you know, if you get the opportunity, speak to the trade, for instance, in the U.S., talk to them about Kahlúa Dunkin, talk to them about Malibu Dole, talk to the bartenders that were in Louisiana and New Orleans for Tales of the Cocktail. They went through some innovations as well. There is still excitement out there. Let's not lose track of the future. This is going to be our clear objective in the coming two to three months.
Thank you very much, Alexandre.
The next question is from Celine Pannuti of JPMorgan .
Good morning. Thank you. Good morning, everyone. Thank you for taking my question. First, I would like to come back to the U.S. Could you talk about what you see? I mean, you talked about the market being flat, including RTDs, but what you see in terms of ex-RTD, how the market is behaving? What are you planning in terms of price increases relating to tariffs? Whether you've seen any change in terms of on-trade performance in the recent period? That would be my first question on the U.S. I'm trying to understand how big is this inventory you were mentioning in terms of impact. Just trying to understand whether the U.S. net net for this fiscal year 2026 will be in the same negative zone as it is in fiscal year 2025. My second question relates to understanding the building block on the margin.
I know we don't have a guide, but Helene, you were mentioning that a few headwinds on gross margin on an organic basis. Obviously, we have the savings that you are going to do. AMP, you said a circa 16%, now it was, I think, 15.3%. Are you saying that it's going to go back to 16%? Are you reinvesting in China? I'm trying to understand the different building blocks there. Thank you.
Maybe Celine, thank you for your questions. I'll take the first one. If we include RTDs, the spirit market is in slight growth. If we exclude RTDs, the spirit market is in slight decline. I want to put it a little bit in a nutshell. The only growing category X RTDs right now is tequila. To be fair, of recent trends, we start seeing Irish whiskey as a growing back category. It's very recent, but I can let you guess which brand is leading that improvement. What I do believe in the U.S., the environment from a consumer point of view is still subdued. Let's be clear. It is less and less of a big issue, but purchasing power is still under pressure, although that pressure is starting to decrease.
There's a graph that shows this, but the perception of the consumer is prices are still pretty high and it is impacting consumer habits, including the on-trade. That's where we're at. I do believe that in spirits, going beyond categories, you have brands. Within each category, you have winning brands and losing brands, to be fair. Right now, we're pretty happy with the trends of Jameson . Pretty happy with the increasingly good trends of Absolut relative to its competitive set. More recently, which has been exacerbated further by Kahlúa and the recent innovation that was launched, Kahlúa, which grew 7% last year. U.S., we're investing heavily behind our brands. We have a clear portfolio strategy on that front. What really matters until the market itself picks up, which is a market, a question of when rather than if, is our relative gap to the market.
We're still underperforming the market, but that gap is indeed narrowing. From a more technical standpoint, we didn't give any numbers or specific guidance on that inventory adjustment impact, but it is going to be an impact skewed towards Q1, which will then carry on for the full year. To be fair, this is a direct result of basically that enormously uncertain environment we went through in H2 in the U.S. on that whole trade tariff situation, which was resolved, as you can remember, in Scotland on July 27, 2023. Up until then, all bets were on the table. We decided not to take risks from that point of view to ship ahead of these kinds of settlements. Now we're doing what is common sense. We're basically adjusting inventory to more normalized levels, which will impact clearly the Q1 in the U.S.
Your question on the margin, and maybe by the way, because obviously it can deliver some margin expansion, answering your question on price. On price, specifically in the U.S. context, we don't see right now any price increase linked to the tariff implementation. It was only in July, but we don't see that. The environment is, as I was mentioning before, not extremely favorable to pricing in the U.S. We are now done with our pricing adjustment that started to be visible last year, probably around October, from October, and which is as well good drivers of our ability to narrow the gap in terms of performance versus the market.
This leads me to the fact that despite our ambition, which is built on the recent trends of narrowing that gap versus the market in the U.S., we don't expect to benefit from the full, I would say, positive tailwind on that when it comes to the top-line trajectory because of those inventory adjustments. Margin, you're right. I was more focusing on the on the COGS piece earlier in the call. Again, there will be some impact in terms of price and mix that are a bit much too early to be too explicit about when it comes to the A&P. Let me maybe repeat that for us, circa 16 means circa 16. We don't believe that the margin expansion that we've been delivering, especially in the recent past, has been done at the expense of our portfolio. Absolutely not.
We are really allocating our resources, having in mind this future growth. I think it's a very positive obsession that we have everywhere, including in finance. This is not the way we delivered margin expansion. This is not the way we're going to be as well protecting margin as much as we can this year. Whatever will be the final numbers, it will not be, again, for short-term financial KPI, I would say. Your question on China is very relevant. Are we going to increase our investment? Obviously, it's a bit sensitive to share our view on that one. What I can tell you is that we want to be agile. We want to be strategic. We want to be as well, obviously, very close to what's happening on the ground, especially ahead of festive season. Milton Festival, again, is in like five weeks' time.
We want our brands to be visible and inspiring consumers. Below A&P, we have obviously our structure. We've been controlling and optimizing this structure cost quite significantly. It's very visible in the FY 2025 results. There's more to come in terms of initiatives. This is more or less at 20% of the $1 billion efficiency program. This is also going to obviously be a lever to protect as much as we can the margin in fiscal year 2026, knowing that we're going to be, let's say, getting a kind of low basis because of the trajectory in 2025. There are also some technicalities such as lapping the adjustment of incentives in 2025, which we don't assume as an initial view for the FY 2026 trajectory.
This is the end of our allocated time this morning. Thank you, Alexandre. Thank you, Helene. Thank you, everyone, for your questions. I'm sure we're going to speak soon.
Thank you.