Good morning to all of you. We're very pleased to welcome you today to our Pernod Ricard Q1 FY 2026 sales call. I'm in the room with Hélène de Tissot, our Group CFO. Hélène will take you through the numbers, with some opening remarks. After that, we're going to take your questions. Hélène, over to you.
Good morning, Florence. Good morning, everyone. Thank you for joining today's FY 2026 Q1 sales. We are reporting today a 7.6% decline in organic sales for our first quarter. As flagged in our recent full-year communication, a slow start to this year was expected with four key reasons. First, in the U.S., while we are encouraged to see that sell-out performance in the U.S. is continuing to improve related to the market, our U.S. sales have declined in Q1, amplified by inventory adjustments. Second, a sharp contraction of sales in China in the context of continuing macroeconomic and consumer sentiment weakness, also reflecting the impact of some trade inventory adjustments. The impact of the technical effects in those two markets on our Q1 means that the underlying performance is significantly better than on our sales by circa 3 points.
Third, strong underlying growth in India, though with sales negatively impacted by excise policy changes in Maharashtra since July. Fourth, global travel retail sales are challenged in Q1, as the benefits of the resumption of cognac sales in the China duty-free channel are expected from Q2. With our broad geographical base, we see positive performances in a number of markets across most regions – in Asia, in Africa, the Middle East, North America, and Europe, helping to partially mitigate the decline in those top markets. Markets of note that have enjoyed positive sales momentum in Q1 include Canada, Turkey, Japan, and South Africa, and we continue to enjoy positive market share momentum in key markets. Price mix is largely impacted with a negative market mix. Volumes decline, driven by key markets, notably U.S. and China, impacted by restocking, and India, impacted by the Maharashtra excise policy changes.
Reported sales are -14%, with a negative FX effect of EUR 143 million linked to U.S. dollar, Indian rupee, and Turkish lira, and a negative perimeter impact of EUR 54 million, mainly linked to the disposal of the Rhein brand. Turning now to take a closer look at sales in our markets and regions, starting with our number one market, the U.S. Net sales, - 16%. The U.S. market remains subdued. For Nielsen and DABCA, we see the market sell-out value for total spirits, including RCD, for the past three months is running at circa -1% in Nielsen to - 2% in DABCA. We are continuing to close the gap with the market despite some softening of the spirits market, as Pernod Ricard sell-out momentum remains rather resilient at circa -6%.
Our gap to market on bottled spirits has consistently improved during the past year, and that gap is now reduced to circa 2- 3 points. We have strong performances beating their respective competitive sets on some of our top three brands that are Jameson, Absolut, and Kahlúa. Beyond those, we also see good momentum amongst our other brand priorities, including The Glenlivet, Martell, Del Maguey, and Jefferson's. The sales in the U.S. were also impacted with some inventory adjustments, as explained at our full-year call. As a matter of fact, fiscal year 2025 year-end wholesaler trade inventories were higher than would otherwise have been the case due to the uncertainty regarding trade tariffs during H2 of fiscal year 2025. Turning to look at our U.S. marketing, we are maintaining the U.S.
marketing investment level above the group average, and we have, I must say, a strong activation program ahead of us as we enter the Q2 festive season. We have as well impactful product innovation, some that are now in their second year, including Kahlúa Chocolate Chips, Absolut cocktails, Cosmopolitan and Espresso Martini, Jameson Triple Triple, and Jefferson's Straight Rye Whiskey. Newly launched product innovation this fiscal year includes Kahlúa Dunkin', which is a co-branded Kahlúa with Dunkin' for a caramel-infused experience, Skrewball 100 mL small format, and The Glenlivet Jamaica Edition. We have more, I must say, exciting product innovations scheduled for later this year that we are going to share details of with you in February at our H1 sales and results update.
Sports sponsorships are important avenues for engaging with our consumers, notably that between Jameson and Major League Soccer, where we are fueling fandom with advertising and out-of-home visuals, city-localized key visuals, off- and on-premise tools for bar owners and retailers to activate the brand, and as well e-commerce assets. We are deploying a range of media activation on our priority brands, partnering with cultural icons, including Kahlúa with Salma Hayek, Jameson featuring Aaron Taylor-Johnson, The Glenlivet featuring Thomas Doherty, and Redbreast featuring Andrew Scott. Altogether, an intensive program to support our improving momentum in the U.S. Moving now to India. India net sales are at 3%. While enjoying strong underlying consumer demand dynamics, sales in India are negatively impacted by the excise policy changes in Maharashtra implemented in July.
The 50% increase in excise tax from 300%- 450% leads to a significant increase in consumer prices at circa 35% increase, which is having a consequential impact on demand. Elsewhere, India sees strong sales growth, both on Royal Stag and especially on international brands led by Jameson. For the full year, we are expecting the excise policy change to continue to weigh on our overall sales performance, though with continued favorable and dynamic underlying trends. Let's move now to China. China is posting a Q1 at -27%, so sales contracted at a similar rate as last year Q1, in a still challenging macroeconomic environment, with soft consumer demand over the summer and into the Mid-Autumn Festival, and impact from some trade inventory adjustments as expected. Demand was impacted by the tightened regulatory environment in place since Q4 last year, which particularly affects sales in the high-end on trade.
While cognac sales remain depressed, other premium brands continue to grow in Q1, notably Jameson and Absolut. We remain cautious on the demand environment ahead of the important CNY period. Let's move now to global travel retail, -16%. Following the resolution of the cognac anti-dumping investigation in July, the suspension of cognac sales in China duty-free has ended. Our sales in that channel are expected to resume from Q2, and so Q1 sales remain subdued. Travel retail in Asia beyond China remains weak, notably in South Korea. In travel retail in Europe and America, underlying performance has been strong over the summer, while sales were impacted by phasing. Global travel retail is expected to be back to growth in fiscal year 2026.
In other markets, elsewhere in Asia and the rest of the world, we see dynamic sales performance in Japan, in Turkey, and South Africa, an easing in the rate of decline in South Korea, and a sharp contraction in Taiwan markets with softening consumer demand. Let's move to Europe now. Markets in Europe over the year, Q1 is at -4%. Spain is stabilizing. There is an easing in the rate of decline in Germany. A soft start in France against a high comparison basis with restock in a major retailer in Q1 last year, and a soft start in the U.K. Poland is negatively impacted by sales phasing, though sell-out remains in growth. Latin America shows decline in both Brazil, which is due to phasing, and in Mexico due to continuing weak consumer demand conditions.
North America shows a strong start to the year in Canada from RCDs and also Jameson and Absolut performing well. For the full year, which, as we say, is a transition year, though the environment is challenging, especially in China, we maintain our expectation for improving trends in organic net sales compared to last year, Q2 of H2 with a more favorable comparison basis, later timing of Chinese New Year, and a rebound in travel retail. We will defend our organic operating margin to the fullest extent possible, supported by strict cost control and the implementation of our fiscal year 2026- 2029 EUR 1 billion operational efficiency program, including the adaptation of our Fit for Future organization.
We continue to invest to increase our brand's desirability with sharp marketing investment allocation between markets and brands, focus on improving efficiency and effectiveness, focus on innovation and experiences, while maintaining our ANP investment ratio at circa 16%. Regarding cash, cash generation remains a focus. Strategic investments, that is, CapEx and change in strategic inventories, will be less than EUR 900 million in fiscal year 2026, and we will apply strong operating working capital management. We expect cash conversion ratio to further improve versus fiscal year 2025. Foreign currency exchange impact is expected to be significantly negative. We remain confident in the attractiveness of the spirits markets and in the long-term demographic and consumer trend tailwinds, leveraging our unique broad-based and balanced geographic breadth and diversified portfolio of premium international spirits.
We continue to project organic net sales growth in the medium term, aiming for the range of circa +3% to circa + 6% per annum on average, with annual organic operating margin expansion. We are confident in our strategy, in our operating model, and in the engagement of our teams to deliver sustainable value growth over time. That concludes my opening comments, and we can now open the line for questions.
Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Edward Mundy, Jefferies. Please go ahead.
Morning, Hélène, Florence. Two questions for me, please. I think you had been flagging a soft first quarter, and it's very much in line with expectations, and you've kept your guidance unchanged. I think the guidance would imply that as you go into H2, you're probably going to be doing positive revenue growth. Could you perhaps flesh out how you sort of think about that and what are the main things that are going to be slightly different in the second half relative to what we're seeing in this first quarter? That is the first question. Then just a little bit more color on the cost side to defend as much as possible the margin. Could you perhaps provide a bit of an update on some of the initiatives underway, and to what extent you can sort of double down on those, given the environment's still quite tricky?
Yes. Thank you very much, Ed, for those questions. Let's start with the first one. As you said, we were expecting a soft start for the reasons I started my introduction remarks with, and that's why we were obviously sharing that with you at the end of August. H1 is impacted by technicalities that are materializing in Q1. Why will H2 be stronger than H1? I think that's more or less your question. First, we have the resumption of our sales in Martell, China duty-free, which is only starting as we speak in Q2. This will obviously contribute to a much stronger H2 for global travel retail, which will be lapping last year, a low comp starting probably in December. That's the first element.
Second, there are as well some easier comps in China, which will be lapping a very weak CNY last year, and we'll have as well a later CNY this year. Then, we have as well the obviously still quite strong ambition for India, which will very likely be in a very dynamic trajectory in H2, with still some impact of the Maharashtra excise policy, but which could be a bit less impactful in H2. When it comes to the U.S., it's too early to really be, I would say, quite specific on what to expect in the U.S., because obviously, we are only starting the festive season as we speak. As you know, our focus is really to keep improving our sell-out momentum, which has been quite continuously materializing, this improvement, for already a few months now.
Obviously, there's as well the impact on the inventory adjustment that will have a weigh on the trajectory in the U.S. on a full year. This is the key, I would say, drivers of H2, and I must obviously as well highlight the rest of the world, where we have a resilient or strong growth for already few quarters that we expect obviously to still be delivering in H2. Your second question is on the margin. Yes. We are confirming our ambition to protect the margin to the fullest extent possible. I would say that this is first because we have obviously already a quite strong track record in terms of delivery of our EUR 900 million three-year program, from 2023- 2025, with a half of it being delivered in 2025.
Those initiatives have not stopped at the end of June last year, and we are continuously accelerating those efficiency measures. As you know, we have now this EUR 1 billion program, which is, as I just said, a continuity on many aspects versus what was already contributing to the margin expansion in the very recent past. Without going through every line on the P&L, I can tell you it started with the first line, which is the top line and the price and premiumization that is the core of our strategy. We are going to take price where we can and when we can, for sure, with some initiatives in terms of revenue growth management and making sure that any promotional efforts are optimized. We have all the initiatives on our COGS, which are really covering the full scope of our production from procurement to production to supply.
This is obviously something which has been very significant, significantly contributing to the EUR 900 million. There is much more to come. When we look at the ANP, there is as well strong ambition in terms of efficiency with reinvestments behind the right brand market combination. When it comes to the SG&A, there is a combination of what we call Fit for Future organization, which is adapting the organization to the current environment, but as well to the future growth ambition that we have, plus some strict cost control measures that have been already in place for more than 18 months and that are obviously still fully implemented.
Thank you.
The next question is from Laurence Whyatt, Barclays. Please go ahead.
Morning. Thank you very much for the questions. A couple for me. Firstly, on the destocking in both China and the United States, I was wondering if you could quantify what you think the numbers would have been in those two markets if you didn't have any destocking, just sort of giving your underlying or change in those two markets. Also, similarly, do you think the change in distribution in the United States had any impact on the American level of destocking, or do you think that is sort of too early to see any of that at the moment? Secondly, on the changes in travel retail in China, you mentioned this as a reason why you expect an improvement throughout the year. Do you expect travel retail for Martell in China to go back to where it was, as we've sort of removed this restriction from the government?
Do you expect it just to go back to where it was in, say, Q1 or calendar Q1 of 2025, or do you think it will still be a little bit of a subdued level in the travel retail channel in China? Thank you very much.
Thank you. Let's start with your first question for the U.S. and China. I'll start with the U.S. First, let me remind you the key reason for the level of inventory that we started the year with. This is really the tariff uncertainty that we were going through in H2 last year. That's the main reason. I think the change of distributors is probably quite anecdotal. The main reason is really this tariff uncertainty. When you look at our sell-out, obviously looking at the Nielsen and DABCA, we are at circa -6%, where the sell-in is at -16%. I think you have a clear ability to do the math in terms of underlying performance versus the Q1 trajectory. When it comes to China, it's a bit more difficult in terms of full visibility as we speak because first, there's obviously the impact of Mid-Autumn Festival.
As you probably know, this year it's almost three weeks later than last year. This year, it was October 6. Last year, September 17. It has an impact between the sell-in but as well depletion in September and October. We don't have yet the full visibility on the depletion in September. What I can tell you is that, getting into Mid-Autumn Festival, our understanding is that the depletion was probably around, I would say, circa mid-teens decline, where you have the numbers for China at -27% in terms of net sales. Again, not completely easy to do the math because of the timing of Mid-Autumn Festival. For sure, this means that our underlying performance is better than the Q1 numbers. When it comes to the full impact on the group performance, as I mentioned in my introduction, it's probably circa 3 points, which is linked to those inventory adjustments.
Your second question. Travel retail, China duty-free, as I said, it's just resuming, so a bit early to tell you what is the consumer demand. To be fair, there is some link between China domestic demand and China travel retail demand. The consumer demand in China domestic is very soft. I would say it would be cautious to assume at that stage that the demand in China travel retail could be a bit lower than it was one year ago. We'll know that in a few months.
Thank you very much. Just to clarify on the travel retail, you're getting the same amount of shelf space that you'd had previously. You're not seeing any differences with that, any of these sort of changes?
Yeah, no. Yes, no difference.
Thank you.
The next question is from Sanjeet Aujla, UBS . Please go ahead.
Morning, Hélène, Florence. A couple from me, please. Firstly, on Europe, I think you called out some easing of the rate of decline in Germany, but with the region -4%, are there any other markets within Europe which are a significant drag? How are you thinking about Europe for the balance of the fiscal year, please? My second question, just wrapping up the conversation on the U.S. In Q1, have we now had the full unwind of the inventory adjustment? Therefore, would you expect sell-in and sell-out to be aligned for the next three quarters of the fiscal year? Thanks.
Thank you. I'll start with Europe. Europe, in Q1, is impacted with some phasing, especially in Central Europe, not to say Poland, where sell-out is in growth, but there's some quite significant impact due to negative sales phasing. We expect a stronger performance from Poland in the months to come. For the other markets, there's not a particular weakening, I would say, in our European spirits markets. To be fair, there's some softening within the on trade. This is largely due to the cost of serve, so continuing pressure on disposable income in major European markets. Having said that, Spain, which is a big market and a big market as well in the on trade, is stabilized in Q1. You mentioned Germany.
Yes, there's some easing rate of decline in Germany, but to be fair, the consumer demand is quite soft, as we know, in Germany for already a few months now. This is really linked to the macroeconomic environment. Moving maybe to France, soft start, but some technicalities in this Q1 with unfavorable comparison basis because we are recycling a strong pipeline we filled last year in one of our major off-trade customers. We are still gaining share in France despite the soft market conditions. Your question on the outlook, I would say, despite this soft start, Europe remains overall resilient, and we expect the full year to be better than Q1 in Europe. Your second question is on the U.S., yes, for the trade inventory situation. There's some adjustment in Q1, as I mentioned, quite obvious when you compare sell-out with the net sales numbers.
To be fair, it's really a bit early to tell you what to expect for the three quarters to come, especially now that we are only starting this quite important festive season in the U.S. The inventory position at the end of December, I'm sorry, it's probably a bit naive for me to remind you that, but it's very obviously dependent on the O&D performance, for which we are focusing obviously on being extremely visible and hopefully as well exciting for the consumers in terms of presence of our brands in many moments of consumption, both in the on trade and in the off-trade.
Thanks.
The next question is from Trevor Stirling, Bernstein. Please go ahead.
Good morning. Morning, Hélène. A couple of questions on India, Hélène. I wonder if you could tell us, roughly speaking, how much of your sales is in Maharashtra? And then what is your sales trend ex-Maharashtra? 3% nationally. You mentioned about the strength of Royal Stag and the international brands. Is Blender's Pride growing according to your expectations as well?
Yes. Okay. Great. Thank you. India is in a strong place in terms of performance. You're absolutely right, we shouldn't be focusing only on what's happening in Maharashtra, even if Maharashtra is one of our largest states in terms of weight in our net sales. It's circa, I would say, 14% of our business. This change of the excise policy has, unfortunately, the impact we were expecting to have, which is a significant double-digit decline in Q1. If we were excluding this impact, our performance in India would be at circa +7%. One of the brands which is the most impacted is Imperial Blue. You're absolutely right. Royal Stag is in a good place, and our imported brands are performing very well in India in Q1. I wouldn't be highlighting anything significant when it comes to Blender's Pride.
We are extremely ambitious with Royal Stag and Blender's Pride for the future growth in India. There is some impact, yes, because of this Maharashtra situation. This is a great brand for which we have, again, a very strong ambition for the quarters and the years to come in India.
Brilliant. Thank you very much, Hélène.
You're welcome.
The next question is from Chris Oitcher, Rothschild & Co, Redburn. Please go ahead.
Thank you very much, Hélène, Florence. Could you maybe give just a little bit more color on the sell-in ahead of the festive season? You mentioned, obviously, it's an important time, and we're moving into that. I mean, encouraging to see Jameson doing well, but also, you know, pointing out Absolut. Maybe give a bit of color on what's driving Absolut. Then on Latin America, it seems like some really different performance between Mexico and Brazil. Could you sort of try and quantify how bad sharply is in terms of the decline in Mexico? Then on Brazil, the phasing effect, would you, does that mean you would expect a better performance going into Q2? Thanks.
Yes. Thank you. Your question, in the U.S., you're absolutely right. There's some improvement in the sell-out. That's why we are closing the gap versus the market. Three of our brands that are strongly contributing to that very positive trajectory are Jameson, Absolut, and Kahlúa. Focusing on Absolut, which is your question, I would say this was already something for which we were highlighting some positive, weak signals back in Q4, which are confirmed in this Q1. It's probably a combination of different initiatives. When it comes to the Absolut range, we have done, I would say, a quite significant job in terms of Absolut cocktails innovation. Obviously, as well, the RTD with Absolut Ocean Spray. Absolut, when it comes to the Absolut flavors, Absolut Vanilla, for instance, is doing well.
Lots of innovation already in terms of ready-to-serve, in terms of ready-to-drink, a strong partnership as well, and visibility of the brand. All in all, this is obviously contributing to a stronger performance of the full Absolut franchise. By the way, maybe just pausing on the RTD success story with Absolut Ocean Spray. We are obviously extremely consumer-centric, as you know, and tracking what is the perception from consumers when they get into the Absolut RTD offer. There's some significant positive trends in terms of those consumers moving to Absolut Blue as well. All those initiatives, plus a quite strong media campaign and, again, visibility of the brand, are the key, I would say, success factors explaining the recent improvements of the performance of Absolut that we are obviously quite happy with and that we want to keep improving in the future.
I'm just taking the opportunity of the question to say that Jameson is in a great place. Kahlúa as well is strong. We see some positive green shoots on some other brands in the U.S., like The Glenlivet, Martell, Del Maguey, and Jefferson. More to come. This is a huge focus, of course, for us and for our team in the U.S. Strong focus in the excellence in execution. Those recent performance trends are quite encouraging, I must say. Sorry, I forgot your second question.
Just trying to understand a bit what's going on in Latin America. Thank you.
LatAm, absolutely. LatAm, I would say there's no change in terms of underlying trends versus fiscal year 2025, meaning in Mexico, the environment is soft, the weak consumer demand, and this is materializing in our Q1 numbers. When it comes to Brazil, there's phasing impacting our numbers in Q1. We expect a stronger performance from Brazil for the full year.
Thank you very much.
Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
Thank you very much. I think this is the end of our call. Thank you very much all for attending. Thank you, Hélène, for the presentation and answering the questions. Speak to you all very soon. Bye-bye.
Thank you. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephone.