Pernod Ricard (RI:EPA) FY 2025 earnings call transcript

Good morning, everyone. We're very pleased to welcome you to our H1 FY25 sales and results presentation. Alexandre and Hélène will take you through the slides before we take your question. Alexandre, over to you.

Well, thank you very much, Florence, and good morning to all of you, and welcome to today's first half, fiscal year 25 sales and results presentation. We will cover as well our full fiscal year 25 outlook and we have decided to take this opportunity as well to share with you an update on our medium term, taking in a way a longer term perspective.

We are meeting in fact a week earlier than planned. So let me just begin by sharing with you why we have moved our results release today.

So as you know, we had expressed in our previous financial communication that it was our expectation to return to growth, albeit modest growth, for this full fiscal year. We have now begun to receive early signs that Chinese New Year is likely to be very soft. In addition, the challenge posed by the technical suspension of the duty-free regime on cognac in China due to the anti-dumping measures, which started in December, is still ongoing and is now expected to impact heavily our second half.

So taking those impacts into account leads us to update our expectations for our top line to low single digit decline for the full year fiscal year 25. Given this change in outlook, we have to communicate earlier than planned to comply with our regulatory obligations. Hence today's call, which we're delighted to have with you. So, first and foremost, I think the two most important pages of this presentation are the two I'm going to cover with you at the beginning of this presentation. I think that the title perfectly summarizes our state of mind here at Pernod Ricard. We are all, all 20,000 colleagues around the world, determined to navigate the current cyclical headwinds with resilience and agility.

Our first half performance is in line with our expectations, with a sequential improvement in Q2 over Q1, with Q2 down 2.5% in terms of net sales versus negative 6% for Q1, marking four consecutive quarters of volume growth. So volume growth has now been stabilized.

Volumes are up a little bit more than 2% over the first half. And over the MAT period, the calendar year 2024, volumes have grown roughly a little bit less than 3%. Our strong first half organic operating margin has grown now by 65 basis points. And this is following 80 basis points increase of our operating margin last fiscal year, and despite 18 months of soft top line. And this is clearly due to continuous improvement initiatives that are driving 900 million euros, roughly, of efficiencies since fiscal year 23. So over the last three years, including our full fiscal year 2025.

Ongoing challenging macroeconomic environment and intense geopolitical uncertainties, which we don't have to discuss in detail. you all know about them, continue to impact the spirits market, particularly the worsening context in China and travel retail Asia that I mentioned in the introduction, and strongly impacting particularly Martel.

Finally, we anticipate, as I said, a low single-digit decline in organic net sales for the full fiscal year 25, while sustaining our operating margin organically. So moving on as well to next fiscal year, which we qualify as a transition year. So conditional on the degree of challenges posed by the global tariff environment. Obviously, we've made a few scenarios and sensitivity analyses, but there's a bit of lack of visibility on that front, which we're taking clearly into account. we do expect fiscal year 26 to be a transition year with improving trends in organic net sales in our top line.

And amidst extraordinary trade tensions, which we're currently experiencing, we are determined and focused on defending organic operating margin to the fullest extent possible for fiscal year 26. And finally, cash conversion will improve.

Finally, after having spoken about fiscal year 25 and the transition year, fiscal year 26, if we look a little bit beyond, particularly from fiscal year 27 to fiscal year 29, we're projecting stronger organic net sales growth, aiming for a range of plus 3% to plus 6% on average with organic operating margin, expansion. Now, this expansion will be driven by delivering continuing efficiency initiatives to optimize operations and simplify the organizational structure. And these initiatives are expected to deliver roughly a billion euros in efficiencies over the next four years, fiscal year 26 all the way through to fiscal year 29. We are focusing as well on strong cash generation, aiming for roughly 80% and above cash conversion to fund our financial policy priorities with strategic investments.

And what I mean by strategic investments is the sum of capex and increase in strategic inventories, normalizing to roughly a billion euros from fiscal year 26 and onwards. Finally, we are confident in our strategy, in our operating model and in the engagement of our teams around the world to deliver sustainable value growth. We're determined to continue to navigate, as I mentioned, with resilience and agility, these cyclical headwinds. So let's deep dive briefly into our first half sales and results performance. So first half, as I mentioned, organic operating margin has expanded despite sales decline and amidst ongoing changes in our two largest markets, which are the US and China.

So volumes over the first half I mentioned up 2%, with Q2 up 4%, which marks a sequential improvement and resilient underlying consumer demand. Organic next sales have declined 4%. I mentioned sequential improvement, minus 2.5% in Q2 versus minus 6% in Q1. I mentioned the volume growth, which didn't offset a negative price and mix, which were down 6%, principally driven by market mix, U. S. , China, to name a couple.

H1 margin expansion of 65 bits, as I mentioned, through very strong revenue growth management across the board, through marketing agility, obviously very strong agility from our team in China to mention it. We're still investing in our long-term sustainable growth with strategic investments in capex and inventories, which have peaked last year and have started to decline as of this year. We'll talk about this in more detail later with Elena. And finally, this has led to an improved free cash flow of roughly 440 million euros.

Last point, H1 has been unfavorably hit by a negative foreign currency exchange. The impact on PRO is 110 million euros. But since December, November, December, rates have evolved and we're now in a more positive, I would say, cycle from an FX point of view. And we expect FX for the second half to be positive. So the 110 negative impact over each one should improve over the full fiscal year.

I won't dwell into these numbers which summarize the financial performance. You'll see most of them in more detail in a few minutes. In terms of our top line, the minus 4% would have been flat. The rest of the world, excluding our two largest markets, U. S. and China, is flat. You see America is at minus 4, up 2, excluding the U. S. You see Europe minus two, but plus one, excluding Russia, which, by the way, is the last time you'll see a bubble with the excluding Russia number, because since December of 2023, we were no longer selling in Russia. And finally, Asia rest of the world down 5%, but up 3% if we exclude China.

I think this is an important graphic because what this graphic clearly shows is that the volume recovery is there and continues following the post-COVID normalization. So there you have it. We're back to four consecutive quarters of volume growth for Pernod Ricard. I think it's also worthwhile noting that despite soft top line on the ground, in the field, basically across most, almost all markets, but the vast majority of markets, with obviously one notable exception, which I'll dive into, which is the U. S. , we are either maintaining our share or gaining a share. And this is the result of basically all of the top-line initiatives we've been carrying throughout the group in terms of revenue growth management, but also in terms of building the desirability of our brands and the efficiency of our marketing spend, the return on spend we get both from a short-term point of view in terms of immediate uplift in sales, in sales, but also building brand equity over the longer term.

The elephant in the room, if we may call it like this, is the U. S. , but I'll deep dive in the U. S. in a few minutes.

Very briefly, in terms of our must-win markets, here you have the U. S. organic net sales down 7%. We believe that the market is roughly is growing at roughly plus one percent in value. Our sellout, Panorical sellout, is down roughly six percent. We've seen improving trends for our performance, particularly on Jameson over the O&D, October, November, December period. And we expect to see improvement in sellout throughout the second half. India, well, nothing really to say other that there's a strong, broad-based and dynamic growth, perfectly reflecting the underlying consumer demand, with strong growth as well of our imported brands, notably Jameson, Ballantyne's, the Glenlivet and Royal Salute, with ongoing premiumization as well. Good growth of our local whiskeys, notably rural stag.

And finally, we do expect continued strong momentum over the second half. China, I mentioned it in the introduction, clear ongoing challenges from a macroeconomic standpoint, very weak consumer demand, which are leading to sharp declines, particularly on Martel and Rural Salute. And this, despite some pretty good growth on our premium brands, such as Absolute, such as Jameson, or such as Olmeca. And as I mentioned again, the quality insight or feedback we started getting from our team in China is we expect a very soft Chinese New Year, driven principally by a significant decline in gifting this year and very poor consumer confidence. We announced as well a mid-single-digit price increase for Martel post-Chinese New Year.

Finally, travel retail, very good growth, in fact, across Americas and Europe, but which doesn't or cannot offset, particularly from a mix, portfolio mix standpoint, the weakness around Chinese Asia, around duty-free Chinese Asia, which is hit since December by the technical suspension. I mentioned earlier, for the rest of the world, which, by the way, represents more than 55% of our business, as I mentioned, Europe down 2%, up 1%, excluding Russia.

America is down 4%, but with a very good performance in Canada and Brazil, just to name a few where we're gaining share. And Asia, rest of the world down 5%, but up 3%, excluding China, with a very good performance in Japan or Turkey, just to name a few. Now to Hélène for the financial update.

Thank you, Alexandre. Good morning, everyone. So let's move right away to the financial update for this first semester. So starting, obviously, with the P&L. So we delivered minus 2.2 organic profit from recurring operation with 65 bps margin expansion and minus 7.4 percent reported. As already mentioned, but I think it's worth insisting on that, sustaining and expanding our margin is a key element of our financial framework and one we have been consistently delivering through the years, regardless of the top line trajectory, as we will see later in the presentation. The growth margin is down 20 bps on this first half. In particular, we are impacted by the negative market mix, obviously when you look at the decline of the US and China.

But helping mitigate that mix effect is our efficiency program. These have been running over recent years. They are now accelerating. To be fair, it's probably circa 50% of the efficiency that we will deliver this year and that have started in fiscal year 23. So they are significantly contributing to the margin expansion this semester, and they will obviously contribute as well to the gross margin for the full year.

ANP has a favorable impact of 115 BIPs. As usual, we always have some phasing between H1 and H2, and I'm sure you remember that H1 is bigger than H2, so in terms of ratio, we always have a lower ratio in H1 versus H2. Having said that, we are adapting our ANP spend where it matters, and especially in China, considering the very deteriorated consumer environment. So this is mainly what you can see here in terms of inflection for the ANP spend.

Structure costs minus 30 bps, which is a solid result considering the top line, as our very strict cost control and continuous improvement in our organization enables us to reduce our structure costs, by minus 2% organically in this first half. FX, Alexandre, you mentioned them, has been a headwind. This H1 partially compensated by perimeter. Now, with the USD strengthening, we expect a positive FX impact in H2, assuming spot rates.

Moving now to our efficiency programs. You probably remember, last time I spoke to you at our Q1 results, I explained that efficiencies are the forefront of my priorities as a group CFO. I think it makes sense.

So let me come back to that theme with much more details. So efficiency at Pernorica are a continuous process of ongoing improvement in the way we operate and in the way we are organized. Their impacts are material. You see here the numbers, 900 million euros. they are sustainable and they encompass the entirety of the cost base including balance sheet may APNL but as well including balance sheet between fiscal year 23 and 25 and here to be very clear I am including an estimate for the full fiscal year 25 we have been delivering 900 million efficiency through continuous improvement again across operations and structure so operation efficiency, you have lots of detail, I believe, on that slide.

We are delivering productivity on mainly main aspect on our COGS basis, plus as well improving cash with finished good inventory reduction. Together, these are expected to reach circa 600 million euros for this period of 23 to 25. So they account for two-thirds of the overall efficiency contribution. Three many areas of contribution, procurement, which is obviously critical, and you see the weight of this efficiency of the three-year period. We have as well some significant efficiency in the making, which mainly means production footprint, but as well, obviously, in the supply with logistics and as well reduced finished goods inventory that I was referring to a few seconds ago. If I move now to the structure cost efficiency we want to ensure that we are running a consistent sustainable fit organization with very strict discipline and as well adapting to the changing circumstances we faced without obviously jeopardizing our ability to capture growth opportunities.

So those structure efficiency account for one-third of the total efficiency and let me maybe just highlight, I believe, a telling illustration of this impact by flagging the 9% reduction in SG&A headcount since fiscal year 23. So I emphasize that these are continuous programs, and so we can look forward to future efficiency gains, which I will obviously come back to later in the presentation. Moving now to the earning per share down on H1 at minus 11% due to lower reported profit from recurring operation increased financial expenses as expected as we refinance bond debt that was issued in a much lower rate environment partially compensated by a reduced income tax on recurring operation Moving now to cash flow and debt so first free cash flow and cash generation this is obviously a very strong focus and we have improved free cash flow by circa 150 million euro versus december 23 so this year this first half it amounts to 440 million euro we are continuously optimizing ordinary working capital with this semester notable improvement in finished good inventory level.

Our strategic investment being capex and increasing strategic inventories remain elevated compared to historical standards as we invest in our future growth. But as already mentioned by Alex they are however coming down from their peak reached in fiscal year 24. For fiscal year 25 we expect circa 700 million euro in capex and strategic inventories increase to be comparable to last year. Moving now to the net debt, our net debt to EBITDA ratio is at 3.5 at the end of December which reflects also the timing of our dividend which as you know is always paid in full in H1. This ratio should come down in the full year versus H1 but will remain above 3. We don't have a specific range in terms of net debt to EBITDA.

Nonetheless, we are keen on gradually getting back to free and inside. As reported profit recurring operation growth normalize, strategic investments come off their peak, and we benefit from the proceeds from previously announced M&A.

Back to you, Alex, for the mid-term update.

Well, thank you, Hélène. Regarding the medium-term update, I think it's important just to sit back a second and have a broader view on the evolution of the international spirits category, the one in which we operate. So here you have the IWSR value numbers that go back 25 years since the year 2000. And you see that there have been cycles, both in terms of super growth and in terms of strong declines. I won't go through them. You know them all. But I think what's interesting to see is that we estimate the normative value growth for the total international spirits segment to be at around between 5% and 6%. By the way, this includes standard spirits. It would be higher if you exclude standard and just look at premium plus, which is the segment in which we even operate further.

And if you look at since, so from 2010 to COVID, that 5.4% KUR is what we believe the normative value growth to be. And since COVID, in fact, and we didn't do it on purpose, it is also 5.4%. And we estimate this year, 2024, The forecast here is part of that low end of a cycle. But I think it was interesting to share this chart with you.

So within that environment, we have some markets that grow. We have others that are somewhat challenged going through different, by the way, cycles. But those bubbles basically are proportionate to the size of our business and to the contribution they have to the total sales of Pernod Ricard. What we're trying to share with you with this slide is basically to say we're very balanced from a geographical footprint point of view. So if we remain extremely agile in terms of resource allocation and go get the growth where it is, that's basically what we're obsessed with. Not only are we balanced from a geographic standpoint, and as you know, we've been saying this and repeating it quite regularly, We're also balanced from a portfolio standpoint, from a segment standpoint.

And our obsession here is to be segment agnostic because there are cycles within our industry from one segment to the other, which, by the way, aren't the same from one market to the other. What I do like to also share with you on that front, if you take some of our strategic brands, you here have five-year KGAR in terms of value since 2019, all the way through to December 2024 in terms of calendar years. But look at Chivas, 6% KGOR over that period, all the way through to December end.

Ballantyne's 6% growth KGOR. Jameson, 8% KGOR over that same period. Absolute, 4% KGOR. Obviously, Martel being hit clearly by what we mentioned, particularly China and travel retail, down 3% KGOR over that period. but basically strong underlying fundamental growth across the portfolio over that period. So as I mentioned in the elephant in the room, if you like to call it that way, the U. S. market is still soft, but it's starting to show some improving trends.

And we believe that there is some degree of gradual recovery, albeit it's not fully linear. And within that, we are closing the gap to the market in terms of performance. As you can see in the middle graph, upper graph, our gap to market is closing progressively. By the way, the latest Nielsen's that came out a couple days ago also show. And by the way, these four brands are just our four largest brands, Jameson being our number one brand, absolutely our second brand. Then you have Kalewa and Malibu. And as you can see, you do see as well here a gradual recovery.

We've put in place over the last year or so a number of clear initiatives behind our brands, both from a marketing standpoint with very, very strong media campaigns for key brands. The latest one over OND, which was Jameson, both on the Jameson original brand, but also on Jameson Black Beryl and the more recent introduction of Jameson innovation called Triple Triple with very positive early signs and momentum, by the way. Marketing and commercial, where basically it's all about operationalizing our strategy from a field point of view and with our new sales director that recently joined us. So since still working on the U. S. , early green shoots that are starting to materialize.

Well, India, I'm not going to dwell on it. That being said, let's be very clear. India fully in line with our algorithm, 8% CAGR. In fact, we believe we can even do better than that. We enjoy a strong leadership position in what has now become, from a top-line point of view, our second largest market. We have 40%, a little bit more than 40% market share in the segments we want to operate in.

The market is premiumizing. The market is extremely dynamic. I was there a couple of months ago. It's just quite tremendous to see what's going on within the market, but also behind our own brands. And again, the demographic profile of India is extremely attractive to us. Roughly 25 million additional legal drinking age people every single year for the foreseeable future.

China, yes, strong headwinds as we speak, but huge potential over time. Let's be clear. The segment of population that we are focusing on is due to grow over the foreseeable future from a demographic standpoint, first of all, which are middle and affluent Chinese households. They're expected to grow over the coming years. I think what is interesting to see, there is a direct link correlation close to if I gave a rounded number of 100% between consumer confidence on one side and consumer consumption on the other. I think the bottom left chart explains this very clearly. We're at a record low consumer confidence level ever since the index was created. And at the same time, savings per capita consumer savings rate is at its highest level, not only in China, but it's a worldwide record level in terms of big economies at roughly 35 percent.

So the resources are there. The purchasing power is there, but the confidence is just not there. So we do expect at some point in the future, when is another question, some type of rebound. In the meantime, obviously, we've reorganized ourselves in China from many points of view. And we are also taking this as an opportunity to really push our premium brands portfolio outside of Martel to diversify our future sources of growth in China. And then, frankly, I'm not going to dwell on this, but in the rest of the world, whether it's mature or emerging markets, we enjoy very strong leading positions where we experience very positive momentum.

But in the meantime, beyond the top line, which is our number one priority and focus, we're also driving efficiencies. We are indeed. So let's move to this zoom now on what to expect in terms of additional efficiency for the fiscal year 26 to 29. So as I explained already, our efficiencies are sizable, sustainable and an important contributing factor to our margin expansion, which we want to grow over the midterm. So here we see obviously that we have, I would suggest, a very strong track record in terms of delivering organic operating margin expansion. You can see that on the left part of the slide with efficiency initiatives across ops, logistics, A&P and structure. As I explained, we have been achieving 900 million euros from 23 to the end of fiscal year 25 with a strong acceleration in fiscal year 25.

We will continue to do that and those initiatives will continue to contribute significantly to the organic operating margin expansion and, by the way, to the cash generation for the years to come. So we expect circa 1 billion euros of further efficiency to be realized from 26 to 29 from both operation and simplification of organization.

Moving now to cash and to our focus on delivering a strong, sustainable cash generation from a profitable growth. Again, cash is a strong focus. Ultimately, this is a 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, in average since fiscal year 21, a free cash flow of circa 1.5 billion euros.

The cash conversion has decreased those past two years, as we have stepped up significantly our investment in strategic investment to fund the future growth of the group. Those investments have peaked in fiscal year 24. CapEx, I'm going to repeat, is expected to amount to circa 700 million euros in fiscal year 25 with increase in strategic inventory to be at similar level to fiscal year 24.

Both strategic investments, so both capex and increase in strategic inventory should not exceed circa 1 billion euro from 26 onwards as most of our projects draw closer to completion. So cash conversion is anticipated to trend back towards 80 percent and above. As reported PLO improves, strategic investments normalize from their fiscal year 24 peak, and thanks to ongoing ordinary working capital optimization.

We are actively managing our portfolio with margin-accurative disposals to focus on the most attractive and fastest-growing categories of premium international brands. We have disposed of local non-strategic brands, Clankamble and Besharovka, while announcing the disposal of our wines, and Mintu and other Nordic brands expected to close in H2 of this fiscal year.

Well, thank you, Hélène. Moving on to our financial policy, which remains unchanged, I think it's important to remind you that our financial policy aims to balance the deployment of capital for profitable growth, as Hélène mentioned, and returning capital to our shareholders. You know that policy. I think it's important to say that in line with our financial policy and consistent with what we've been doing in fiscal year 24, it is our intention to maintain a stable dividend in fiscal year 25 subject to board and AGM approvals in due course. so uh to conclude um i'm not gonna i'm not gonna go through this uh this page which basically summarizes uh all of the key messages we just uh shared with you uh today so and instead i i'd like please uh allow me to share with you um i would say some uh broader perspectives 2025 is for us at Pernod Ricard an important year.

It's a milestone marking our 50th anniversary of the founding of Pernod Ricard. Pernod and Ricard merged exactly 50 years ago in 1975. And I think this is the perfect opportunity to step back and put into context the current challenges. And I'd like to start by taking clear assurance in our ability to overcome these. It's not the first time it happens. It's definitely, by the way, not the last time. But we've always overcome challenges. challenges. Pernod Aikyar has been at the heart of the spirits industry for decades now, with the most experienced and passionate and committed teams in the field, focusing on building brand desirability and selling our brands. Our exquisite products, I may be biased, but that's so be it, which frankly take years to craft, embody our commitment to long-term vision and the agility needed to navigate an ever-challenging environment.

I do believe that we have consistently demonstrated resilience and agility needed through past crises. I won't go through them. I think you all know which ones we're talking about over the last 20, 25 years, with the most recent one before that one being the global being the COVID crisis. And as before, I am confident that we will emerge stronger. We will emerge leaner and we will emerge more efficient once these current cyclical challenges are over and before new ones, obviously, to come. And about 18 months ago, and I think that's also what we wanted to share with you today, we took bold and decisive steps to adjust our organization. I won't go back to what Hélène presented, but these 900 million euros over the last three years, including this year.

And, by the way, we will continue to do so in the future, as we mentioned. I'd like to conclude by saying that I am fully, truly proud of our team's ability to operate with discipline, with focus and with agility and finally take the opportunity to thank them because they're doing a great job.

And from now, I think we're happy to take questions you may have. Yes, we are opening the call for questions. So operator, if you can start with the first caller. Thank you.

Thank you.

So maybe I'll let Hélène talk about the short term next year, and I'll address your last question on the medium-term framework.

And maybe I can start with your second question on inventory level, because I think we can move fast on this one. As you know, this is something we are very closely monitoring. At the end of December, I think they are appropriate, especially in our key geographies that we are really laser focused on. And as you know, the focus for us as well is to make sure that we are closely monitoring the evolution of those trade inventory until June ending, to make sure that we land this fiscal year as the previous one with a healthy level of trade inventory. So nothing to flag on the inventory front. So starting with probably this year and next fiscal year in terms of top line expectation.

So maybe just to clarify for fiscal year 25, as you notice, H1 lending is, I would say, exactly in line with our expectation. so what's really driving this update is the worsening situation in China and this technical suspension of the duty-free regime impacting Travel Retail Asia to be more specific, China duty-free and cognac in China duty-free. So this is the main reason for this revised outlook for fiscal year 25 Having said that, we are expecting some improvement in H2. Maybe let me flag one, which is some sequential improvement in the U. S. And I think that was well highlighted in terms of green shoots. But there's probably more to come in H2, so gradual improvement in the U. S. , which we still expect to be in decline for the full year.

So China worsening. This is our initial expectation. Having said that, we have a quite favorable comp in H2. So we expect Fulia not to be as down as H1 so far, but would be significantly down due to the consumer confidence, which is quite low. travel retail. Our assumption for the second half is that despite all our efforts, obviously, to fix the situation, we might be facing this suspension of the duty-free regime for the full year. So now moving to fiscal year 26. So we are talking here about sequential improvement in terms of top line, which means to be quite direct that we don't expect full recovery in China. It's probably more going to be, at least in our central case, about stability compared to where we are today, knowing, and I'm sure we'll get back to that, that we are obviously, including in our outlook, the implementation of tariffs, which are so far temporary.

But again, I'm sure we'll have the opportunity to come back to tariffs. When it comes to the other big markets, so travel retail, again, difficult to predict. But if we were to still be in that situation of suspension of the duty-free regime, that will probably put us more in a kind of soft trend for next year in travel retail, not as sharp decline as this year. India we expect this very strong momentum to be delivered again next year and by the way for the mid term and for the rest of the geographies I believe you saw that they are solid to strong already in H1 and that is our ambition for next year knowing obviously that this is as well a clear illustration of the strength of our geographical footprint and diversification.

Maybe back to you, Alex, for 27 to 29.

Yes, thank you, Hélène. Thank you for the question because it's the perfect opportunity to give you the underlying fundamentals to that framework, which I would qualify as, I would like to say in Pernodica, we're grounded in the real and pragmatic. First of all, we strongly believe in the underlying fundamental growth of our portfolio. Some of these brands have a lot of growth fundamentals in them.

And following three years of normalization, what we did take into account to be pragmatic is a gradual but prudent recovery for the U. S. and China, as Hélène was mentioning, starting, by the way, next year, but in that plan as well. The U. S. , we believe in that gradual and prudent recovery. By the way, cycling, fiscal year 24 down 9% and a first half in the U. S. down 7%. And based on what I was mentioning earlier in terms of the initiatives, both from a marketing standpoint and a commercial standpoint, that we're deploying as we speak.

China, again, a very prudent expectation. So we're not relying on a full recovery of China. But we do believe, again, that we're going to have a pretty favorable, comparable basis. After fiscal year 24, down 10% and the first half down 25%. That's a big chunk of business that's been rebased. But then I could keep on with India, which is ongoing momentum and so on. But I would only mention two final things. The degree of the performance in that range will depend on the pace of the recoveries.

And the scenario to achieve the bottom end of that range, which, by the way, is not our base case, but I think it's important to get a good feel for that. is no growth from China and modest low single-digit growth in the U. S. , and we still achieve the low end of that range, which is, again, not our base case, but which gives us reassurance regarding that framework. I hope that helps.

Very much. Thank you very much.

So maybe I'll take your first question. By the way, in appendix, you do have a couple of slides which address at least partly your question. First of all, in terms of alcohol consumption, By the way, globally, our volumes have been growing for four consecutive quarters. So volume is growing, at least for us globally. Demographics are still tailwinds for us.

If you have these slides in appendix, but basically alcohol, total beverage alcohol penetration, by the way in the US because a lot of questions on moderation are mainly focused on the US but it's true as well elsewhere it has been and is still stable one American out of two broadly speaking drink some kind of alcoholic beverage it was the case 10 years ago and it's still the case If you look at frequency, frequency has gone down, but intensity has gone up. The sum of the two, if you do the calculation, has gone down a bit.

And this is where we believe, by the way, in terms of servings, this is where we believe that the less but better trend, which is not new, which we've been focusing on for the last 20 years, is indeed happening.

Finally, and by the way, and this is our conviction and belief, the current, the biggest part of the moderation we are currently seeing, and it was inferred a little bit in your question with lower formats, is economic-driven moderation. Again, American households, middle class American households, disposable income has been under pressure after a couple of years of huge inflation.

And therefore, their discretionary spend has gone down. This is then finally regarding specifically Gen Z. So Gen Z drink less, but they do drink better. So they definitely drink less beer and wine, to be fair, and penetration we do see has gone down for these two segments. At the same time and in parallel, penetration for spirits amongst that segment of the population has gone up by three points over the last decade.

There are a bit more abstinence amongst Gen Z, but regarding the rest of the Gen Z population, Basically, what we see, and we have all the data to suggest it, they will drink less frequently, which regular drinking tends to skew towards beer and wine, and more occasionally. And when they do, they will trade up, if they have the right purchasing power, to stronger upper value spirit brands, which is the segment in which we operate. So all in all, we do believe, and we're not the only ones, that the headwinds we're facing are mainly cyclical for the vast majority. There's a little bit of less drinking. By the way, the Gen Z starts drinking spirits earlier than millennials did back in the day.

and the emergence, the dynamic emergence, I would say, of spirit-based RTDs tends to accelerate this phenomenon. So the less but better is there, I agree. But all in all, I do think right now the moderation is mainly driven by economics.

So efficiency, maybe just to make it very tangible on what to expect in the future, Let me come back to the track record on what we have been delivering in the recent past and including this year. So 900 million euro, two-thirds on ops, one-third on SG&A. There's lots of detail again in the deck, but if I can come back to the main sources of optimization in terms of ops, let's start with one which really delivered a lot, which is procurement. We have been working very strongly on procurement, and this is definitely optimizing many lines of our cost base, wet goods, dry goods, logistics, CAPEX, ANP, and many other indirect expenses. So this is something very sizable and, again, sustainable for the future.

I mentioned already some of the examples for making and supply, but all those operation initiatives account to two-thirds of the efficiency. Maybe let me zoom on the SG&A front, structure cost initiative. So we have here two as well sizable type of initiative, one which we called feed-for-purpose organization, where we are really working on simplifying the organization. By the way, many of those simplifications have been anticipated and started before fiscal year 24, but have a full impact in fiscal year 24. So if I can name a few, we had simplified our organization in terms of regional layer by closing the regional hubs in MEA and Asia. We have as well adapted our teams in France. We are as well adapted very recently the size of the organization in China.

We are as well taking quite fast the opportunity of closing of our disposal to adapt our route to market. For instance, we have adapted our teams, the size of the team in Czech Republic after the disposal of Becherovka.

And I can obviously go on. In terms now of cost discipline, which is the second part of the efficiency program contributing to the structure cost trajectory, we have, I would suggest, accelerated a lot in terms of very strict cost discipline. And I think I can name two very concrete examples. We have moved to a non-business essential travel ban already a few months ago and as well to a global recruitment freeze except critical position. So this is the path, but obviously nothing is stopping at the end of June. We have a significant ambition that we mentioned of 1 billion euro from 26 to 29. I'm not going to go into the specifics and what would be the weight of operation versus structure, but you can expect operation to account for more than 50% of this global envelope because obviously this is a continuous journey.

What I can as well add to that is that we have a very accurate monitoring of those efficiency in terms of hard savings versus cost avoidance and a big part of it is definitely hard savings and that's our intention as well for the future I think there was a question on China in terms of premium brands versus the rest of the portfolio Well, listen, as I mentioned during the presentation, it is clearly our intent to diversify our sources of growth in China.

Martel is still 85% of our business in China, but we see that the other 15% are growing. So obviously, we'd love for Martel to grow as well. But in the meantime, as Martel is suffering in China and we've adapted our strategy behind Martel in China, including from a marketing standpoint, we are investing behind the rest of the portfolio, behind the likes of Absolute, behind the likes of Olmeca and behind the likes of Jameson and a few other brands because they are growing. They have momentum and they are benefiting from basically that emergence of that channel that started, I think, 18 months ago now, which is these neighborhood live venues. Very accessible, very skewed towards the new Chinese generation, the Gen Zs and early millennials.

Drinks you can buy by the glass. They're perfectly affordable. There's an increasing taste for cocktail-driven spirit cocktails in these areas. And again, it's not like the nightclub or KTV venues where you have to buy by the bottle. It's used towards the higher marks, particularly on cognac. And so our goal is really to increase the proportion of our premium brands portfolio because we're lucky to have it. across the market.

Great, thank you.

I guess I can take those three questions, if that's okay with you, Alex. Perfect. So I start with Tarif. By the way, my answer will as well cover our estimate on the anti-dumping impact because we mentioned that already in the recent past So let me rate the numbers So obviously we are taking very seriously in our scenario what could be the impact of tariff So both anti-dumping measures that are already impacting us on a preliminary basis in China, which is the main impact for us, to be clear, and what could happen in the US. So the global envelope, if I'm referring to an analyzed basis, would be 200 million euros for both China and U. S. China, we mentioned already that our estimate was around 130 to 140 million euros.

No change on that. So you can estimate what is at stake in the U. S. with obviously lots of uncertainty. But these numbers is covering our estimates of what could be the impact of a 25 percent tariff in Canada, Mexico and 10 percent in Europe. Obviously, we are not favorable to this very difficult trade tension environment. But you are asking me for estimates. So these these are my answers.

Tax in France. This is an interesting question. I'm sure you know many things can happen or cannot happen in those days in France so obviously not taking a risk in terms of what to expect from the Parliament but there's obviously some measures that could impact our tax we gave already some estimates last time we talked which I can reiterate which is that depending on how many measures would be implemented, we estimate that the impact in terms of effective tax rate for us would be, let's say, around 0.3. So our expectation for the year is 25.1. It could move up to 25.4 if nothing is happening elsewhere. And as I'm sure you know, there's always something happening in the world when we talk about tax.

disposal proceeds, we don't mention the exact numbers for H2, but that will be obviously quite visible when it comes to our full year communication. But what I'm meaning by disposal proceeds is the closing of the wine disposal, which we expect to happen around spring.

Great, many thanks.

So on your first question, obviously I speak to Conor not daily, but several times per week. the key learnings maybe the the main one is really working on the operationalization of our field strategy i think this is absolutely critical from a strategic standpoint again our portfolio strategy there was some fine tuning some clarity given to it but it's it's it's there It doesn't need to change. It all sits around the power brand. There are six of them. And then some of the growth relays and so on and so forth. But very simple, very straightforward from that point of view. From a marketing standpoint, a lot of work has been done.

And I think that the brand plans from a marketing point of view are very strong. I mentioned during the presentation, which is a good transition, that Jameson's brand plan, again, is extraordinarily strong around must be a Jameson.

Jameson, if you look at the latest Nielsen's, is back to growth. The number one priority around Jameson is Jameson Original, of course. Jameson Original is almost a mature brand in some big markets such as California and New York, but it's still a nascent brand in other big markets such as Texas and Florida, for example, where we believe we don't have our fair share yet and where the initiatives are there to grow the brand. We've accelerated on Black Barrel, and it's already paying dividends, if I may say so. So we had our first ever media campaign for Black Barrel, which is a trade up to Jameson. And finally, we fine tuned our innovation strategy with a very recent launch of Triple Triple, which, again, the early qualitative feedback we're getting from the field and from our trade partners is very positive.

So listen, I mentioned there are some green shoots. We have, I believe, a great management team, which is now full. And I think we'll have the opportunity, or should I say, Conor will have the opportunity to share a lot of his own learnings with you in May, in next May, because there'll be a call focusing on the U. S. in a couple months from now. and I'm sure Connor will be happy to share these insights with you. But the main one is really operationalizing our strategy, our portfolio strategy, which is great on the field and backed by media campaigns, knowing that we've increased our media intensity in the U. S. while at the same time we've lowered it in China for obvious reasons.

So second question on cash conversion. So maybe let me clarify what we are aiming at. So as I mentioned before, cash conversion is going to improve from fiscal year 26. And one of the quite explicit drivers of this improvement is going to come from the strategic investment, which will be capped at circa 1 billion, where in the recent past, including fiscal year 25, We are above that with circa 700 million of capex and strategic investment at similar level than last year.

Beyond 26, we want to be back to a cash conversion rate at circa 80% and above. We obviously many drivers to that, starting with the PRO growth and profitable growth. but as well as I just mentioned normalization of strategic inventories and many initiatives in terms of working capital improvement. So your question on incentives. So as I just said we are not I would say counting on incentive cuts to deliver sustainable profitable growth and cash generation. even if, of course, depending on where we are in terms of achievements of our ambition for the year we will assess what is at stake and adjust the bonus achievement accordingly but I would say this is more short-term measures that we are obviously looking at every year and back to what I said before in terms of efficiency programs, especially SG&A we really want to work on structural initiative.

That's exactly what we've been doing and not only count on what I would suggest is more short-term measures that could happen and that happened already in the past, might happen in the future, such as bonus adjustment.

Thank you very much.

OK, thank you. So I start with price. So we have a price mix, which is mainly negative because of mix. But price is obviously much more muted than in the recent past, for all the reasons you know, in terms of normalization and moderation of the inflation, and as well in terms of, I would suggest, more busy promotional environment. environment. And this is definitely true in the US and Europe. And in the US, this is one of our key initiatives as well in terms of delivering sequential improvement of the performance of the brands to make sure that their price positioning is where it should be. So we are carefully but actively working on profitable promotion activity and as well, when it's required adjusting price.

So this is what we've been doing for already a few months in the US. And this is as well one of the reasons why the volumes improvement is where they are, as highlighted by Alexandre a bit earlier this morning. Europe, I'm sure you know, it has always been a place where price negotiation can be tough, and they are, but we are very determined to protect our price.

China, your question on Martel, as you might remember, we didn't increase price last year. Before, we've been consistently increasing price to this type of range of mid-seagull digits for Martel, which is as well, obviously, the reflect of what can impact our COGS. So that's why we are increasing our price post-CNY this year.

Germany? Yes. So first of all, I think it's worthwhile noting, Céline, that Europe still is surprisingly in a way resilient versus what we hear in the news and so on and so forth. What has happened and what we're currently experiencing is if you take our second and largest markets in Europe, respectively, more or less Spain and Germany, Spain is in slight decline and Germany is in sharp decline. Germany has gone into recession and we see consumers suffering in Germany. And promotional intensity has significantly gone up in this market.

And this is why it's impacting overall. But other than that, the rest of our European markets are doing pretty well. I'd like to take the opportunity to underline the good performance of France that has grown over the first half, not only in terms of top line, but in terms of market share as well, but also markets such as the UK, despite a very intense competition, or Ireland. And of course, the more you go eastwards, the more dynamic with markets such as Poland and so on. So pretty strong resilience of Europe, but with our two of the top three markets in that region, which are suffering one sharply, Germany, and one slightly, Spain.

And the last question was on the margin for fiscal year 26. So back to my comments before on tariff. So we are building in our scenario or in our central case so far an impact of tariff, which could, depending on what could be implementation date and so on, up to 200 million euro in terms of impact. again mainly China but as well if things were moving in the US and so far we have obviously anticipated by the way that's quite clear for China because we are absorbing those those impact which is already a reality for us in China this year we are absorbing that and confirming our ability to sustain the operating margin for fiscal year 25, but when it comes to 26, having in mind this amount of 200 million euros, we cannot commit so far to more than what we say, which is defend as much as possible operating margin expansion.

Because obviously it's a balance between what we can do and what we have been doing, back to the efficiency program. There's probably more that we can deliver, but we want as well, obviously, to protect the fundamentals of our organization to be able to seize the rebound of our top line, which we believe will happen soon. Maybe to be even more specific on the mitigation measures for tariff.

So we have already adapted our business in China, again, which is more than covering the impact of the anti-dumping measures this year. We're going to keep implementing all these efficiency programs I was referring to. And there's obviously some more specific initiatives we are working on in terms of supply chain optimization or revenue growth management, which we can quite quickly activate to mitigate tariffs. So far, our estimate is that we could probably cover up to 50% of those tariffs if they were to happen, again, with this annualised estimate of 200 million euros.

Yes, so I'm sorry, but I'm not going to be as specific as you asked in terms of what is the size of the Andhra Pradesh opportunity. What I can tell you is for sure it is a great news contributing to the performance of India. But as usual in this very amazing country, sometimes there are opportunities, sometimes there are challenges. So, but this is one. Again, India, our expectation for India is to be in line with their algorithm ambition for the year and for the years to come. But you're right, this is a great business opportunity that we are capturing. And on your question on the U. S. , so I was saying earlier we have six power brands, Jameson, Absolute, Glenlivet, Malibu, Scruble, and Kahlua.

That represents basically two-thirds of our business. And then we have what we call, I mentioned growth relays, internally we call them Explode Brands with our Tequila, Codigo, our Mezcal del Magui, our Bourbon, Jeffersons, and our Nascent Store, Red Breast, let's put it that way. So these two portfolios, the Power Brands and the Explode Brands, represent a little bit more than 80% of our business. Are we still underexposed to tequila relative to the market? Yes, but we have very strong focus on Codigo and our aim is really to grow Codigo. Are we still underexposed to some extent to bourbon? Listen, we have Jefferson's today, which is not tiny, and we're focusing on Jefferson's bourbon for that category in the U. S. Now, bear in mind, and this is why I think it's important, you know, the U. S. , everybody is talking about tequila and ready-to-drinks.

But the reality as well is there are other segments that have still some pretty strong growth potential. The most important one we're playing in is Irish whiskey with both Jameson, as I mentioned, which still has good growth to grow. and Red Breast, which is, by the way, growing quite nicely. So do we have the right portfolio? That's what we've been doing over the last few years from an M&A standpoint, getting exposure to bourbon, getting exposure to tequila. And now we do believe we have enough of the right portfolio to operationalize that portfolio strategy on the ground and get that portfolio to grow.

So thanks a lot, Alex and Elen, for the presentation and then the answer to questions. And thanks a lot for connecting. And I'm sure we're going to speak a bit later today or in the coming days.

Thank you. Thank you very much.