Good day, ladies and gentlemen, and welcome to Pernod Ricard 2022 full year sales and results conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and an answer session. To ask a question, you will need to press star one and one on your telephone. I would now like to hand the conference over to your speaker today. Please go ahead.
Good morning, ladies and gentlemen, and welcome in Paris at The Island for our FY 2022 full year sales and results presentation, followed by Q&A. Before I leave the floor to Hélène and Alexandre, you're gonna see a short movie from The Glenlivet.
Well, good morning to all of you. I do hope you have spent a very nice summer enjoying very convivial moments and more importantly, around the right brands. Welcome to the Island for our fiscal year 2022 full year sales and results. Let's start directly with the executive summary. Maybe, Hélène, I'm gonna grab yours. No. There we go. Fiscal year 2022 has been a historic year for Pernod Ricard, with our net sales growing by 21%, hitting the EUR 10 billion milestone at EUR 10.7 billion, with market share gains across most markets, leveraging both our very wide portfolio of brands and our geographic breadth. We've increased prices basically everywhere with an average mid-single digit price increase globally.
Our growth has been driven by the strong recovery of the on-trade, by the strong resilience as well of the off-trade, and the rapid rebound of the travel retail channel. Strong growth as well driven by balanced and diversified sources. I think this is absolutely important. If we start with our must-win markets, strong dynamism across all must-win markets. You see India at a whopping +26%, travel retail at + almost 50%, the U.S. at +8%, and China at +5%. Performance has been outstanding across all regions, but in particular in Europe, in Africa, and Central and South America.
Finally, excellent broad-based growth across the portfolio with our strategic international brands growing by 18%, our specialty brands growing by 24%, and finally, our strategic local brands, in particular our Indian whiskies, growing by 18%. This has delivered a record profit from recurring operations at EUR 3 billion, driven as well by revenue growth management, as I mentioned, but as well by operational efficiencies, which have offset the impact of the inflation. This has also allowed us to deliver growth margin expansion. Finally, delivering a record operating margin of 28.3% with an expansion of 80 basis points or 52 basis points on an organic basis. These results demonstrate the strength, the agility, and the resilience of Pernod Ricard's business model. We are deploying the Conviviality Platform at pace.
I hope most of you were here for Capital Markets Day before summer, where we presented the Conviviality Platform. By the way, I'd like to take this opportunity as well to mention that we will be announcing in the coming days a partnership with a very emblematic French partner company regarding the data portal we have been developing over the last three years. Stay tuned for that new news.
Anyways, we are deploying our consumer-centric strategy at scale now, leveraging our portfolio of brands, leveraging our distribution network to really further stretch our growth and now accelerating thanks to data. We have strengthened our portfolio of brands through additional investments, through innovations, and of course, continuing our bolt-on acquisition strategy, which this year included The Whisky Exchange, more recently, Château Sainte Marguerite, and a minority stake in Sovereign Brands. Our specialty brands portfolio is now double what it was just pre-COVID in 2019, and now represents 6% of our net sales. This growth and the development of our strategic roadmap has been done responsibly. We're well advanced as well on delivering our sustainability objectives within Good Times from a Good Place.
We've also delivered a record high cash generation and continuing to deleverage our business. We have the highest ever free cash flow at EUR 1.8 billion, and finally, a net debt-to-EBITDA ratio at 2.4%. We are investing in the future growth of our business with increased strategic investments. All these results allow us to accelerate the returns to our shareholders with a strong dividend growth of +32% versus last year, and the announcement of a new share buyback program of roughly EUR 500 million-EUR 700 million for this fiscal year. You see here the key figures. I won't dwell upon them. Hélène will go through them in detail just to underline the reported net profit up at 53%.
I think it's important to just sit back for a second and look at our winning formula or the way I like to see it, which is our unique competitive advantages, our fundamentals, which number one are comprised of what we believe is the widest, the largest, the most comprehensive portfolio of premium spirit brands, number one. Number two, our diversified global footprint and scale, which is even more so important when the environment is volatile and cycles are uneven between regions, between segments, between markets. Most importantly, our unique culture, which blends conviviality and performance, where people really wanna go the extra mile with a very high level of engagement. By the way, we recently had a very successful participation to our second ever employee stock ownership plan. This is also-
This formula is also fueled by very favorable underlying dynamics or drivers. Demographics, to start with the legal drinking age population and the growth of middle and affluent classes in emerging countries, not just China, not just India, not just Sub-Saharan Africa, not just LATAM, basically all these markets. Consumer trends, and that's true for the whole world with premiumization, which is an established long-term fundamental trend, and the resilience, and we've seen it over the last few years, of wine and spirits during economic downturns. Finally, the global spirits market value growth of + 11% versus pre-COVID, 2019, shows that premium plus spirits are outperforming. Again, and I think this is critical, diversification of the sources of growth of Pernod Ricard, which is...
Was, still is, and is gonna continue to be a very strong strategic intent, having diversified sources of growth, which is a big change versus, you know, 10 years ago. 80% of our growth comes from six spirits categories. You see here by category, the contribution of each category to our fiscal year's growth and the weight in the portfolio. I'd like to stress the Scotch Whisky performance, which has weighted for 30% in Pernod Ricard's growth, and that represents a little bit more than 20% of our net sales. Irish Whiskey as well, very strong contributor to our growth with 16% contribution to growth and weighing for 12% of our business. The Seagram's whisky as well, 11% contribution and weighing for 9% of our business.
Vodka, in particular Absolut, of course, weighting 9% of our growth and 8% in our business. Gin has been a strong contributor to growth. Finally, Cognac & Brandies, as well. Really, diversified sources of growth when it comes to our portfolio of brands. By the way, with a clear skew to premium plus. 76% of our net sales come from premium and above categories, and they contribute to 80% of our growth. Likewise, not just from a portfolio standpoint, but as well from a geographical standpoint, you have here the similar analysis where you have the contribution to growth from our regions, the weight of our regions in our business, and the growth of our regions for fiscal year 2022.
Well, there's double digit everywhere. I won't go through these numbers. I just think that what they clearly stress and underline is the balanced nature of our growth, the diversified sources of our growth, which is absolutely critical. As I mentioned, our growth, our excellent results were driven responsibly. You have here our strategic roadmap from an S&R point of view. It is at the core of everything we do. Our S&R objectives are now embedded throughout the whole business. It's really every single function in the business is today perfectly concerned. You have here progress to date on a number of objectives we set ourselves. As you know, this roadmap was launched back in 2018.
We update it regularly, and I'm particularly proud of the recent investments we made, especially in Scotland and in Ireland, with more announcements to come. Please stay tuned. Again, this is perfectly in line with our long-term sustainable value creation strategy. This is a quick recall of what we presented to you during Capital Markets Day. Our medium-term financial framework, where it's all about growing our top line between 4%-7% growth, aiming at the upper range of that interval, powered by what we call the Conviviality Platform, leveraging data at scale. Focus on pricing, of course, for sure.
Continuous improvement in operational efficiency as well, and as we've done this year again, with significant investment behind our strategic priorities in terms of brands, with efficiency on return on spend, of course, discipline, of course, on our structures and on the organization, to drive operating leverage of roughly 50-60 basis points on average every year. Financial policy, as I mentioned, our objective has been and will continue to be to maintain investment-grade rating, of course. Number one, priority number one is to invest in the future organic growth of our business, in particular through our strategic inventories and CapEx, which we've done this year, and we'll highlight what we intend to do in the coming year. Continued active portfolio management, including value creating M&A. Please expect our bolt-on acquisition strategy to continue.
Dividend distribution of roughly 50% of our net profit from recurring operations. Finally, share buyback when the above priorities are fulfilled. This is what happened. You know, our strategic plan four years ago, which was updated this year for the next three years, what this shows is we say what we do and we deliver what we say we will deliver. We're perfectly in line with our plan. Just to remind you what our plan is about, it's a story that started with top-line growth, focus on growth, which then became focus on profitable growth with profit margin expansion of roughly 50-60 basis points per year. Focus on diversifying the sources of growth, and of course, by delivering strong cash flow. We said we would deliver this, and we have delivered this.
Very briefly, you have here our sales. As I mentioned, very strong growth, pretty well-balanced, and broad-based, by region. Number one, a quick focus on our must-win markets with the U.S. that has grown on average 8% over the last three years, delivering again 8% over the last fiscal year. I would just stress maybe two things on the U.S. First of all, very strong price mix following basically broad-based price increases in fiscal year 2022 with additional price increases to be implemented as early as now, in fact, September and October.
Number two, I would also stress the very strong performance of our specialty brands portfolio in the U.S., in particular our American whiskeys, Jefferson's, Rabbit Hole, TX Whiskey, Smooth Ambler, but as well our agave-based portfolio and Redbreast. China, well, again, a three-year average growth rate of 9%, delivering 5% over the last fiscal year. We've had a good start of the year last fiscal year, which was a little bit impacted by strict containment measures, as you know, which impacted our Q4 at Pernod Ricard. The trend has improved since the month of June with the easing of restrictions and so far we've had a pretty good start to the year in China. Travel retail up roughly 50% with a three-year CAGR still negative, down 13%.
However, I would stress two things. Our value leadership has been reinforced quite significantly in travel retail. For this new fiscal year, we expect travel retail profit to be back to pre-COVID levels. Which I believe is great news for the channel, and of course for Pernod Ricard, given the weight of the channel. Finally, India, which has grown on average 7% over the last three years with a clear acceleration over the last fiscal year, where India grew 26%, where we reinforced our leadership position. Not only did the strategic local brands perform well, our strategic international brands performed exceptionally well, principally led by our Scotch portfolio, by Jameson whiskey, which is becoming a cult brand in India, and finally by our vodka, Absolut.
I think it's worthwhile also spending a couple minutes on the rest of the world, because there's been very strong performance as well with pricing across all markets as well. If you look at Europe, a three-year average growth rate of 6%, I think that's really what surprised me. Strong continued growth with a whopping +19% for the last fiscal year. If you look at the performance of Spain, up 36%, and again, we've had a good start of the year with a great summer in Spain. There was some growth as well in France, albeit with a margin squeeze, given the inflationary context here in France. Very strong growth in Germany, up 10%, with very strong on-trade rebound.
A whopping 42% in Italy, which had a great summer as well. When it comes down to Eastern Europe, well, very strong performance in Poland, but obviously the performance is impacted by the conflict, the war in Ukraine since mid-February. You should expect, again, a significantly subdued activity for fiscal year 2023, particularly in Russia. Strong on-trade rebound in the U.K. with great sales growth driven by Jameson, Absolut, Havana Club, and more generally our specialty brands like Monkey 47 and Malfy. With regards to Americas, which is up 12% with a strong CAGR, three-year CAGR of 8%. We just stressed the whopping 52% growth in Brazil.
Asia rest of the world up 19%, with a three-year average growth rate of 4%. We just stress, while Korea up 33%, South Africa up 38%, Nigeria up 81%, outstanding performance in Turkey, and very strong performance for our champagne and scotch in Japan. From a category point of view, in terms of segments, as I mentioned, strong growth across all spirit categories. Soft performance though for our wine portfolio, which was particularly hit by a lower harvest for our Sauvignon coming from New Zealand. I would just like to stress the excellent performance of Jameson, up 24% with a three-year double-digit CAGR of 12%.
We've broken the 10 million case milestone for Jameson this year, which is just amazing, with the fastest growth rate in 30 years for the brand. Double-digit growth in the U.S., with a very successful launch of our innovation, Jameson Orange. I'd like to stress as well the success of the internationalization strategy of Jameson, with growth accelerating to 38% outside of the U.S., with great performance in India, as I mentioned, but South Africa as well, Nigeria, and many, many other markets across the world. I'd like also to underline the very strong performance of Jameson Black Barrel, up 43%. Absolut, up 19% with a 4% CAGR.
We've broken a milestone with Absolut, 12 million cases this year, with a global expansion driving an acceleration of the performance for Absolut. European markets are core growth drivers for the brand, where the brand grew double-digit, but as well, growth basically everywhere else. Scotch is up 25% with a 5% average annual growth for the last three years. This growth is driven by the entire portfolio of brands. You see Chivas up 29%, Ballantine's up 28%, Glenlivet up 21%, and Royal Salute up 38%. Martell finally, which grew 7% with good growth on the basis of a very high comparison, notably in China. Excellent growth with Martell Blue Swift in the U.S. and with a very successful marketing campaign.
Some moderate growth in China, as I explained, especially between March, April and May due to some of the lockdowns, and continued global expansion of the brand with particularly strong results in Sub-Saharan Africa. As I mentioned in the introduction, specialty brands have now doubled in the last three years. You see our specialty whiskey up 23%, our specialty agave brands up 21%, specialty gin 43% growth. I would like to stress as well the great performance of Lillet and Italicus that has doubled over the last fiscal year. Rest of the portfolio, I won't dwell upon it, but good balanced growth across all brands, in particular, Beefeater.
Finally, I'd like to stress the very, very strong growth of our RTD portfolio, particularly in the U.S. and in a number of European markets. Innovation has been a strong contributor to growth, perfectly in line with our strategic roadmap. Our innovation portfolio grew 45%. I mentioned the very successful launch of Jameson Orange, and we have also launched Jameson RTDs with ginger and lime. Avión Cristalino, great success. Such a great success, we ran out of stock, so if you find any bottles of Avión on shelf, just make sure you buy them. Some more to come. Great performance of our innovation around Beefeater as well, and the launch of Royal Salute 21 Blended Grain.
Before handing over to Hélène, we've really stepped up in terms of media investments and media activation. You have here a number of examples. Why not introduce the Jameson campaign before handing over to Hélène? Please enjoy.
At Jameson, we've met them all. Those people you meet who just get you. Make moments like these. I guess you really had to be there. Smoother. Since 1780, we've known you can bump into them anywhere. When you do. Join them with a Jameson. We'll be taking that, thank you. The smooth, triple-distilled Irish Whiskey that brings everyone to the table. Jameson, widen the circle.
Thank you, Alexandre. Hi, everyone. Let's look at the profit. This strong top line that you've been describing, Alexandre, or purposeful investment are driving margin expansion. Look at the growth of our profit from recurring operations. It's growing by 25% from a reported point of view, and +19% when you look at the organic performance with margin expansion of 80 basis points reported and 52 basis points organic. Our gross margin is expanding by 12 basis points as price, mix, and fixed cost absorption offset the COGS increase.
We have maintained our A&P ratio at circa 16% of net sales with a very dynamic allocation of our resources between brands, markets, and as well activities with enhanced efficiencies, thanks to the digital transformation, and as well enhancing the focus on working A&P, the one that our consumers are exposed to. Purposeful increases as well in structural costs, notably with recruitments to support the digital transformation, and as well benefiting from a favorable FX impact of circa EUR 160 million, due mainly to the USD and the Chinese yuan appreciation versus euro. Moving now to the earnings per share. A very significant EPS growth in fiscal year 2022, a growth of 33%.
This increase is driven by the growth from our profit from recurring operation, but as well lower recurring financial expenses and the share buyback. We've been successfully refinancing the bond debt, and this is driving lower financial expenses in fiscal year 2022. We have an average cost of debt of 2.3%. It used to be 2.8% a year ago. We have a recurring effective tax rate at 23.2%, and there's as well a reduction in number of shares as a result of the execution of the EUR 750 million share buyback during the year. Moving now to the net profit. The net profit is growing very strongly at +53% net profit, which is slightly below EUR 2 billion.
This increase is a combination of the growth of our profit from recurring operations, reduced financial expenses, and the positive FX impact I was just referring to. Moving now to the cash performance and as well the evolution of our debt. Let's look first at the cash generation, a record high generation that we have delivered this year. The recurring free cash flow is at EUR 1.9 billion, with an increase in strategic inventories to support the future growth of our brands, especially obviously the agave product. This investment is expected to accelerate further in fiscal year 2023.
We have as well increased strongly on CapEx, which represents roughly 4.5% of the net sales in fiscal year 2022 to support key investment priorities, and this as well is expected to increase further in fiscal year 2023. There is a negative working capital requirement variation, which is explained by the strong business momentum we had this year in a context of supply chain tensions, and we have been increasing our finished goods inventories across the world to protect the growth of our business. There is reduced financial expenses that I mentioned for the P&L, which is as well impacting favorably our cash generation due to the successful refinancing. Cash tax is increasing following the business profit growth and the recovery post-COVID.
Our non-recurring items are mainly impacted by restructuring and bond debt early repayment cost. We are delivering highest ever free cash flow at EUR 1.8 billion. Moving now to the evolution of our debt. This strong performance is driving our leverage down with a net debt to EBITDA ratio at 2.4 at the end of June. It was 2.6 at the beginning of fiscal year 2022. An increase of the net debt of EUR 1.2 billion, which is mainly linked to the increased M&A and share buyback, so quite active year for us in terms of M&A. You have here the exact amount of cash out, and this is obviously the execution of our transaction with Sovereign Brands, The Whisky Exchange and Château Sainte Marguerite.
We have as well an increase in dividend, and you have all the numbers on that slide. A resumption of the share buyback with the execution of the EUR 750 million program in fiscal year 2022 and some negative FX impact impacting our debt. In this context, we are accelerating the returns to shareholders in line with our financial policy with a proposed dividend of EUR 4.12 per share, which is 32% versus the previous year. This is obviously subject to the approval of our shareholders at our next shareholders meeting. We are announcing today a new share buyback program for fiscal year 2023 of EUR 500 million-EUR 750 million following our financial policy priorities. Back to you, Alexandre, for the conclusion and outlook.
Well, thank you very much, Hélène. Listen, for fiscal year 2022, it's been a historic year for Pernod Ricard with an excellent performance, which as I said, really demonstrated the strength, the resilience and the agility of our business model in an environment that we can qualify as turbulent. With regards to our medium term over the years fiscal year 2023 to fiscal year 2025, we remain absolutely confident to deliver our strategic ambition, leveraging our key fundamentals, which is you know, our portfolio, our geographical footprint, deploying at pace our consumer-centric Conviviality Platform, and our ability to adapt very swiftly to volatile situations. For this new fiscal year, for fiscal year 2023, what do we expect?
First of all, we expect dynamic, broad-based net sales growth, obviously on a normalizing comparison basis with a pretty good start to Q1. We'll continue to focus intensively on revenue growth management and pricing, of course, as well as on operational efficiencies in what we can qualify as a high inflationary environment. We'll maintain our A&P ratio at approximately 16% of net sales with continuous improvement of return on spend or return on investment. We'll continue to invest in our structures, notably supporting the rapid deployment of the Conviviality Platform that we presented to you just before summer. We expect as well to increase our CapEx at roughly 7% of net sales and our strategic inventories while to fuel our future growth, as you may have seen.
As Hélène mentioned, we will proceed with a share buyback of roughly EUR 500 million-EUR 750 million. Finally, and based on current spot rates, which of course are not locked in, but at least, if we project the current spot rates, we should expect as well a very significant positive currency effect. I think, before handing over to Florence for the Q&A, I thought it quite appropriate as well, just because summer is not completely over, to showcase another of our media activations, in that case, behind Absolut.
Welcome to the Absolut world of cocktails. In this exclusive yet inclusive world, everything is mixed, expression, personalities, friendship. The more we mingle, the more we create, the stronger we become. Absolut, born to mix.
Thank you, Hélène and Alexandre. Let's now move to the Q&A session and opening the line. Please have two question maximum per caller, and then we will take turn. Alexandre and Hélène, back to you.
Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star one and one on your telephone. We got our first question. Please stand by. The first question from Simon Hales from Citigroup.
Thank you. Morning, Hélène, Alex, and Florence. I've got two questions, please. Firstly, I wonder if you could just provide a bit more color on the current situation in China. When Alex, you mentioned that trading trends have clearly improved since June. I appreciate that you are also managing inventory through your Q4, but perhaps you could talk a little bit about the underlying depletion trends you've seen in recent months and into Q1 and in particular, how you're thinking about Mid-Autumn Festival and how wholesalers are preparing for Mid-Autumn Festival. Secondly, on the whole issue of COGS inflation in fiscal 2023, clearly, you know, we're seeing higher energy costs and they'll be impacting, I suppose, your glass supply in particular.
How vulnerable are you to that ongoing energy cost volatility we're seeing? Are there any areas in your supply chain where you're experiencing disruption or could be vulnerable to disruption in the coming months? Any color there would be very helpful. Thanks.
Thank you, Simon. I'll answer the first question. I'll let Hélène answer the second question. Listen, on China, the answer is more or less in your question. First of all, Q4 was difficult, in particular April and May, because of the lockdowns, to put it bluntly. As we mentioned in the presentation, since the month of June, we've seen a clear improvement in trends in China, so over the month of June, July, and August. I would say maybe two things. First, we started the year, this fiscal year, or we ended last fiscal year in China with very healthy stock levels, which is very important, which allowed us to pass, by the way, pretty good price increases in May.
Second, the trade has been preparing quite intensively for Mid-Autumn Festival, which by the way is next week, and the sell-in to the trade has been particularly strong. Now, how will the sell-out perform through Mid-Autumn Festival? I don't know is the answer. I'll have a qualitative answer in a couple of weeks from now and a more detailed mathematical answer in six-eight weeks from now when we'll look at stock and trade. So far, so good for China.
Transition to COGS inflation. So far not so good, I must say. That's obviously a very fair question. We've been facing inflation already in fiscal year 2022, as you know. This has been probably accelerating in H2 and impacting our COGS. We were obviously expecting that, ready to face that and working hard to offset the COGS inflation with all the initiative we mentioned in terms of price increase and operational efficiency. Back to your specific question for fiscal year 2023. We believe this is obviously something which will remain in the coming months.
Your point on the glass supply is very relevant, and we believe that the high cost of energy is gonna impact us in fiscal year 2023 in terms of dry goods because of the impact on glass supply. Again, same focus for us to offset that and then protect margin with the price increase, the revenue growth management and all the operational efficiency. Back to the specific question on the energy and the risk in terms of having energy across the year to protect our operations.
Obviously, this is as well something that we are definitely monitoring very, very closely and very carefully through first an optimization of our plant production management, meaning that we are producing and securing the production of our finished goods as we speak and ahead of what might be much more tougher times in the coming weeks and months. There is as well something which is, I believe important to flag is that some countries are less exposed to that risk. For instance, U.K. and Ireland are probably less exposed than France to the Russian gas. This is obviously a good thing for us when you know how big is our business in Scotland and Ireland.
That there are even some countries for which there is some protection to get the supply of energy for our industries, among others, like for instance, Sweden.
That's very helpful, Hélène. Just to check, you know, so once you were able to absorb the cost inflation that you saw in FY 2022 through pricing and the revenue management action you took, do you expect to be able to do a similar sort of thing therefore in 2023?
Let me answer to that question a bit more broadly in terms of margin expansion. This is a key focus as Alexandre mentioned. We are already working hard on it, I would say. In terms of top-line dynamics, there's a lot that we've been doing in the very recent past in terms of price increase everywhere, starting in H1 fiscal year 2022, probably with some acceleration as well in H2, and we will benefit from that carry over price increase in fiscal year 2023. We are not only, let's say, leveraging that. We are working already, as you saw for two key markets, China and the U.S. on additional price increase in China, as of May.
We'll have the full year impact in fiscal year 2023 in the U.S. in the coming days and weeks. There's more to come in many markets, I would say all the markets. This is obviously something that will definitely help. Again, promotional intensity is something that we will as well improve and optimize very strongly. We have the support on our key digital program on that front. Operational efficiency is as well something which will be very intense. When I talk about operational efficiencies, it's very broad. It's gonna impact the manufacturing, the procurement obviously, the packaging, lots of value engineering as well, and the supply chain obviously, S&OP and so on and so on.
All the objective of that is to protect our margin, starting with gross margin. We want to secure a deployment of solid investments in terms of A&P and structure, and we have the intention to deliver some operating margin into fiscal year 2023.
Very clear. Very helpful. Thank you.
Thank you for your question. We are now taking our next question. The next question from Edward Mundy from Jefferies. Please go ahead.
Morning, Alexandre, Hélène, and Florence. Two questions from me, please. First of all, in your guidance, you're talking about broad-based growth on a normalizing comparison basis as opposed to a normalized comparison basis. You know, when you look at slide 15 and 16, you know, you can see the travel retail is still down on a three-year basis, you know, relative to where it probably, you know, would've been had COVID not taken place. Asia as well is still probably, you know, running slower than what it would've done. Could you talk to which parts of the business still have some bounce back potential in that context? The second question is really around any changes in consumer behavior that you're seeing.
You know, clearly, you know, we read a lot about the cost of living crisis in the papers. You know, can you talk about either channel behavior, downtrading from premium to mainstream, pack format changes or geographical changes, anything you can highlight? As I guess, as a second part to that question, you know, one of your U.S. peers yesterday was talking about spirits as an affordable luxury and an affordable indulgence. Do you subscribe to this theory that could give you a degree of protection in a weaker consumer environment?
Sure. Maybe you wanna start with the first question.
Yes. With pleasure.
Normalization, obviously, what we want to flag is that our performance this year is delivered on a favorable comparable basis and is obviously boosted by the recovery of the on trade, which is obviously a key channel for us. I'm sure that you saw with the excellent performance this year that we definitely benefit from that recovery and leverage that, I would say at pace. This, let's say, is almost normalized in many countries. That's why the environment we believe would be normalizing for fiscal year 2023.
I think you flagged the two main geographies or channels for which there might be still some room for improvement in terms of recovery or I would say additional dynamism. Travel retail, as you mentioned, is not yet back to what it used to be pre-COVID. Obviously this is mainly linked to the Asian situation and the gradual recovery in passenger traffic in Asia, which is happening quite recently outside China. By the way, when you think about fiscal year 2022, the passenger traffic was still quite down. In H1, there was some improvement probably around October and November.
Some additional restrictions because of the Omicron variant and a recovery gradually materializing, especially in Americas and Europe. Long story short, there's some room for additional recovery in travel retail. As Alexandre mentioned, there's already a strong performance in fiscal year 2022, and we expect travel retail for our business to be back to what it used to be pre-COVID in terms of profit, which is obviously great news. Asia and probably more specifically China has been impacted obviously in H2 with the zero COVID policy and with some significant lockdown of cities like Shanghai in early spring.
We are obviously very aware of the volatility of what could still be at stake in terms of COVID restrictions in China. The year is starting in a positive way in terms of shipments. We will be obviously monitoring the situation very closely across the year, starting with what would be the outcome of Mid-Autumn Festival in nine days now.
Ed, on your second question, there are a few things I'd like to highlight in the post-COVID world. The first one and the most important one, and that we have witnessed, and I'm sure you have witnessed it over summer, basically everywhere in the world is what I like to qualify as the newfound appreciation for conviviality. People getting back in the trade, people still home-taining as well. Basically, people getting together around our brands, not just our brands, but our brands, to celebrate what I like to call togetherness. This is more pronounced than ever before, and I think this is a clear positive, and we've seen it across summer in terms of sales.
Second, you said it, you know, it is our premium plus spirits are what we like to call affordable indulgence. We've seen a number of studies that show that premium plus spirits tend to be very resilient in difficult times. The first things consumers will do when things get difficult are not about spirits-linked behaviors. We're a lot more resilient than many other categories. It all depends on which way the economy is heading and if there's a hard landing, a soft landing, and so on and so forth. I would just stress a couple of other topics post-COVID again, in terms of behavior. Convenience is increasingly big, and we're playing in that space.
Home-tainment is extremely resilient as well. As people go back in the on-trade, and we've recovered quite significantly in terms of on-trade, the off-trade has remained quite resilient, which means that our increased household penetration across the world is sticking to some extent clearly. This is also by convenience ready-to-serve cocktails and so on and so forth. Listen, I don't know if there will be some trade down. I often get the question. At this stage, as far as our portfolio is concerned, we have not yet seen any kind of trade down, but it's gonna be interesting to see what happens in the coming months.
Great. Thank you.
Thank you for your question. We're now taking our next question. Please stand by. The next question from Olivier Nicolai from Goldman Sachs. Please go ahead.
Hi. Good morning, Alexandre, Hélène, and Florence. Got two questions, please. First of all, pricing was mid-single digit across the group in full year 2022, as you said initially. However, looking at the strategic brands, price mix was more around 3%, and many of the key brands like Jameson, Chivas, Absolut, Martell were actually below that. Should we expect more pricing power for these strategic brands in full year 2023? Now, I acknowledge that this table, on slide 37, is globally and obviously you have some difference between countries, but that would be interesting to hear your thoughts on pricing for these key brands. Second question, on the FX guidance, could you please help us quantify the very positive FX impact that you are expecting in full year 2023?
Now, looking at the historical sensitivity that you have provided, is it fair to expect at least EUR 200 million positive FX impact on EBIT in full year 2023, or my math not correct? Thank you.
Hélène answers your question on price. On currency, you have the answer in the appendix at least for one currency, which is the impact of the dollar. For every single 1% of appreciation of the dollar, you have, on a full year basis, EUR 14 million of additional profit from recurring operations. That's just the dollar. If you take our average rate last year of 1.13%. If you take current spot rates, and again, we're not hedged. You know, we have what we call a natural hedge, so nothing is locked in. If you take one, that's a 13% on average, a 13% over the full year, assuming rates stay at this level, which frankly, I have no clue.
If they were to stay at this level, you already have 13 x 14, and that's just for the U.S. dollar. I hope this helps for your calculation. Hélène, what are we doing on pricing?
What are we doing? I'm not gonna give such a quantified view on pricing, but let me first clarify, 'cause as you mentioned, Olivier, the price mix is what it is for strategic brands, knowing that we have as well some quite positive mix coming from specialty brands that are impacting those numbers. Back to price. The pricing impact in fiscal year 2022 is mid-single-digit. I think that's really the number you should have in mind and what to expect in fiscal year 2023.
We want to work intensively on additional price increase, and we are executing that strategy quite soon in the year, with China in May and with the U.S., our number one market, in the coming days and weeks. That means that in fiscal year 2023, we expect our pricing to be strong and probably, hopefully even stronger than what it was in fiscal year 2022 because of the carry forward impact of fiscal year 2022 price increase and additional price increase we're gonna implement with again a focus on the excellence in the execution across the world.
Thank you very much. That's excellent. Thank you.
Thank you for your question. We're now taking our next question. Please stand by. The next question from Laurence Whyatt from Barclays.
Morning. Thanks very much for the questions. A couple from me, please. Firstly, on your travel retail expectations of getting back to pre- or 2019 profitability levels, do you have any expectations on what might happen in the travel situation in China? Of course, at the moment, there's a quarantine period required, and of course, if the Chinese travelers were to start traveling a bit more, then that would help travel retail. What's baked into your expectation of getting back to FY 2019 profitability? Secondly, on your net debt levels, we're now at 2.4 net debt EBITDA. I think historically, you used to have a target of between 2.5 and 3.
I was just wondering, given we're below that historic target, if you could update us on any current target you have, that'd be great. Given the share buyback this year is currently expected to be a little bit lower than last year. I was just wondering if you were to have net debt EBITDA below that level, if you would consider changing your share buyback target. Thank you.
Maybe on your first question, I'll let Hélène speak about our target or our non-target, in fact, but anyways. On GTR, yeah, clearly we expect for this new fiscal year to be back to pre-COVID profit levels, so to the profit we had delivered back in 2019. By the way, it's quite interesting to see that versus 2019 volumes will be down and value will be significantly up, and that's how we're gonna be delivering the similar number of profit than pre-COVID. For China, listen, it can only be what I would call the cherry on the cake.
So far, our duty-free sales in China are focused on Hainan, where the situation can be volatile as well with lockdowns and go's and no-go's, et cetera. That's our key assumption for the current year. Irrespective of this, we will be delivering pre-COVID level profits, which I think is quite impressive. What it does show is the strong resilience of GTR if you allow people to travel. We'll see what happens to Chinese travelers, but in the meantime, it's great to see travel retail coming back to pre-COVID levels in terms of profit.
Financial policy just to clarify, as you alluded to Alexandre, we don't have a target in terms of net debt to EBITDA. The announcement of this share buyback program for this year is very consistent with our financial policy priorities, knowing that the share buyback is the number four priorities. I'm sure you remember the first three priorities, which are strategic investment, M&A and dividend. By the way, this is a range which is quite consistent with what we've been executing in fiscal year 2022.
Great. Thank you very much.
Thank you for your question. We are now taking our next question. Please stand by. The next question from Sanjeet Aujla from Credit Suisse.
Hi. Morning, Alexandre, Hélène. A couple from me, please. Firstly, can you give us a sense of how your sellout trends are evolving in the U.S.? Q4 seems to be a little bit soft. I appreciate that was impacted by some shipment phasing, but love to get an update on underlying sellout trends and where inventory levels are at the moment there. My second question is just on India. One of your competitors there has been pulling back some of the Scotch portfolio to try and seek pricing. Just curious how you're handling the pricing situation there on your Scotch portfolio. Thank you.
Yeah. I'll start with India, and I'll let Hélène answer on inventory levels and sellout in the U.S. Vis-à-vis India, we are continuing to sell our brands. As you've seen, our performance is quite remarkable, up 26% overall in India, with very strong double-digit growth levels of our imported brands. Of course, we are working to increase our prices. So the way we are doing it is through discussions and dialogues with the key people there to increase our prices. We'll see how this pans out. In the meantime, our performance is very strong in India and across the whole portfolio and the country.
The U.S. in Q4, first, as you rightly mentioned, we have monitored our shipments, our net sales in Q4 to land with very healthy level of trade inventory. That's what we've been announcing back in Q3, and that's exactly what we've been doing in Q4. Meaning that our selling performance in fiscal year 2022 reflects exactly the wholesalers depletion. When it comes to the sell-out, and especially if you look at Nielsen and NABCA, as you know, the coverage is quite limited, so we are tracking that, of course, but as well using all the information our wholesalers are sharing with us to monitor our performance and to land with this very healthy level of trade inventory in the U.S.
By the way, I use the opportunity of that question to clarify that we've had very healthy level of trade inventory everywhere in the U.S., but for instance, as well, in China.
Thank you.
Thank you for your question. We are now taking our next question. Please stand by. The next question from Chris Pitcher from Redburn. Please go ahead.
Good morning, all. Thank you for the questions. A follow-up question on the COGS and pricing comments that you said earlier, Hélène. Forgive me if you did quantify this, but do you think that the mix of pricing that you've talked about is enough?
For you to be able to expand gross margins in fiscal 2023. As I say, if you've already said this, but it'd be useful to understand. Then secondly, on your higher CapEx number, 7% is significantly ahead of the long-term average. How long do you expect this to remain elevated? Can you give us a bit more color on where the extra spend is going? Is there an element of inflation within your sort of maintenance CapEx here? Is it all driven for growth? Thanks.
Okay. Maybe I take both, if that's okay with you, Alex. On pricing and COGS evolution, I didn't quantify it. Obviously, there's a lot that can happen. What I can reiterate is our ambition and our confidence to protect gross margin thanks to pricing and operational efficiency despite COGS inflation, which will remain quite high. On CapEx, you're right, it's an acceleration. It makes lots of sense when you look, by the way, at our strong performance, especially when you look at the performance of our aging portfolio, whiskeys in the U.S. Scotch Whisky, Irish Whiskey, but as well U.S. whiskey, and as well, obviously, the ambition for Martell.
The main driver of this acceleration is to protect the future growth of those brands, meaning our distillation capacity, cask, and warehousing. There is some inflation impacting those numbers, but I think what is really key to have in mind is this acceleration of growth that we are protecting through those investments.
Perhaps to qualify that, is it a one-year investment to make the capacity for a five-year growth scenario? Or is it a two- three-year program to sort of catch up and just trying to model how elevated CapEx will be? Because your main competitor is talking elevated CapEx for a few years. Thanks.
Yeah. Thanks for the additional question. It's fair to say that when you talk about expanding your distillation capacity, things are unfortunately taking more than a few months. There will be some increased investment over the next few years. This guidance numbers is for fiscal 2023.
Thank you very much.
Thank you for your question. We are now taking our next question. Please stand by. The next question from Mitch Collett from Deutsche Bank. Please go ahead.
Good morning. I know you've reiterated the medium-term guidance, but I just wanted to ask for my first question, whether you expect FY 2023 to be within that medium-term guidance range. And then my second question is, can you maybe comment on A&P to sales in FY 2023? It was flat as a percentage of sales this year. Do you expect it to be flat again, or potentially to go up? Do you think you're holding share of voice within spirits? Thank you.
Maybe I start with the first one. For the guidance, I think for fiscal year 2023, obviously we are leveraging the excellent performance of fiscal year 2022, which is giving us confidence for delivering our medium-term strategic framework over fiscal year 2023 to fiscal year 2025, which is obviously a three-year strategic plan. Fiscal year 2023 is the first year of that plan. When it comes specifically to the guidance for fiscal year 2023, you have what we believe is quite a solid qualitative guidance, starting with this dynamic broad-based net sales growth, and again, with this ambition, intention to deliver some operating leverage.
Maybe on your second question in terms of A&P, we are guiding towards a similar ratio, which is approximately 16%. As it's been over the last few years, I really believe, and we collectively believe, in Pernod Ricard, that this is, at this day, the right type of ratio with which we can clearly maximize return on spend, return on investment. As you may have seen during Capital Markets Day, the key digital project called Matrix is all about maximizing and optimizing this ratio. By the way, we've gained market share basically almost everywhere with that kind of ratio. We've been growing brand equity across our portfolio almost everywhere as well with that kind of ratio.
It's always nice to give a framework to our teams because, you know, otherwise there's never any limit. This is typically the kind of framework I believe maximizes value creation over a long period of time. Maybe that ratio can move on in a few years time, but so far at this stage, we believe it's an optimal ratio where we can maximize return on spend through brand equity building across markets. By the way, we've significantly increased our media spend within A&P, just to give you that example. That's one example we've done this year. You saw all the new media campaigns.
There's a slide on that, and we showed you three new commercials that have been launched or are about to be launched as we speak. You should stay tuned to see more of that, but I think 16%, well, not only do I think, I'm convinced it's currently the optimal ratio to do what it is we wanna do.
Understood. Thank you both.
Thank you for your question. We're now taking our next question. The next question from Cédric Lecasble from Stifel. Please go ahead.
Thank you very much. Good morning, all. Two follow-ups on questions that have been raised already on CapEx and on the midterm guidance, on the 2023 guidance for the margin. On CapEx, maybe could you help us understand which will be the main projects where you will lift investments considerably? You mentioned distilleries. Maybe can you help us, you know, understand where it happens and what's a big driver for raising from 5%-7%? You already flagged some stronger CapEx during your CMD, but could you be a little more precise for us to understand your day-to-day business? The second one on the midterm guidance plus 50-60 basis points on margin expansion.
Is it fair to assume that this average over a three-year period would be more back-end loaded given all the short-term pressure, especially if you neutralize the cost inflation through a stable plus growth margin? Do you think you have enough room on operating leverage to offset the cost inflation this year, or does it look too ambitious, and will 2024 and 2025 help you to come back on this trajectory of 50, 60 basis points? Thank you very much.
Maybe just before handing over to Hélène on CapEx, we will be making a pretty significant great announcement next week. I don't wanna spoil the news for the teams who have been working on that. I usually am very happy when we invest because it's not a cost, it's a real investment. We will be announcing something pretty nice next week on that front. By the way, we've already announced a number of CapEx initiatives during this past year, which are impacting this new year. You know, we don't invest in one day. It takes time.
We announced significant investments both in Scotland and as well in Ireland with the aim, by the way, in Ireland, to become carbon neutral in 2026. More to come on that front. I'm afraid to say next week. I don't wanna spoil the news. Again, it's for the good cause. I mean, when you look at our growth rates and our medium-term ambition, which is a great transition to for then, we need the strategic stock and the capacity to fuel that growth.
I was not about to spoil anything. I would be too nervous to do so. I can only say, add to what you said, Alex, that this is our number one priority in terms of financial policy, CapEx and strategic inventory. This is absolutely critical to protect the future growth and as well to protect our current investment because this is, as you flagged, around maintenance, around expansion, capacity in terms of, again, on distillation, cask, warehousing. There's as well some significant investment to deliver on our sustainability roadmap, which come from a good place. All of that will contribute to this, circa 7% of net sales next year. On the medium-term guidance, I'm sorry, I'm probably gonna repeat myself.
The fiscal year 2023 - 2025 ambition is a three-year ambition. First year is fiscal year 2023. At this beginning of fiscal year 2023, what I can share with you again is our ambition and our intention to deliver some operating leverage. Let's see later what would be then the exact contribution of every year to that operating leverage target. What I believe matter is our confidence and our focus to deliver that by fiscal year 2025.
I'm being told-
Okay, thanks.
There's time for one last question.
Thank you for your question. We're now taking our last question, so please stand by. The next question from Jeremy Fialko from HSBC.
Good morning. Couple of questions from me, a bit more detail on some parts of the business we haven't discussed. Firstly, if you could give your views on Cognac in the U.S. and how you think that category. The second area of great strength has been Latin America, phenomenal growth from that business. Again, would you think that sort of, maybe not 50% growth, but the sort of dynamism that you had in markets like Brazil, can continue into next year or whether there's some elements which you think could end up reversing? Thanks.
You wanna talk about Cognac in the U.S.?
I would love to. I think this is obviously a very exciting category for us. We have a fantastic brand, Martell. We have as well a solid strategic inventory we've been building over the years back to the previous question, to support the growth of Martell not only in Asia. Obviously, U.S. is a very exciting market for Martell. We had quite an active year in fiscal year 2022 with as well some great media campaign. This is as well a key contributor to the growth in fiscal year 2022. Back to what we said, a very broad-based growth coming from many strong brands and especially in the U.S.
This is as well a key contributor to growth together with Jameson, together with The Glenlivet, together with U.S. Whiskey, together with the Agave portfolio and with Malibu and Kahlúa. A lot to be excited about for us. Solid investment, acceleration of those investment to deliver as well future growth in the U.S.
With regards to LATAM, we don't give specific guidance by region, but what I can tell you is we do expect dynamism to continue across Latin America, driven by our Scotch whisky portfolio, in particular, Chivas, Ballantine's, and to a lesser extent, Jameson, and Absolut, and Absolut Vodka, so across LATAM. I think that is it. Yes, I'm being told that, unfortunately, we need to stop here. Again, thank you for joining us this morning and wishing you a great day.