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Thank you all for standing by and welcome to today's First Quarter 2022 Sales Conference Call. [Operator Instructions] Please be advised the call is being recorded. I would now like to hand the call over to our speaker Julia Massies.
Good morning, ladies and gentlemen, and thank you for joining us to Pernod Ricard's Q1 fiscal '22 Sales Presentation. We're hosted this morning by Helene de Tissot, our EVP for Finance, Operations and IT. Helene will take you through a quick presentation and then turn to your questions. Thank you very much. Helene, over to you.
Thank you very much, Julia. Good morning, everyone. So let's start with the executive summary of our first quarter sales performance for this new fiscal year '22. So a very dynamic Q1 growing at plus 20% on a low comparison basis with a strong demand in most markets. So starting now with the market performance, a very dynamic start in all regions with a robust demand and strong shipments ahead of festive season. The Off-trade remained resilient and markets are supported by the On-trade reopening. Travel Retail is still very subdued, but is benefiting from a low basis of comparison. If I move now to the brand's performance, starting with our Strategic International Brands. They are growing by 24%, which is a broad-based growth, in particular, a strong contribution to that growth by Martell, Jameson, Ballantine's, Chivas Regal and Absolut with a positive price/mix. Strategic Local Brands are growing by 15%, and this is driven by strong double-digit growth of our Seagram's Indian whiskies. Specialty Brands, growing by 21%, thanks in particular to Malfy, Avion, Del Maguey, Aberlour, Monkey 47, all U.S. whiskeys and Lillet. And our Strategic Wines are declining by 7% versus a plus 9% in the first quarter of last year, and this is due in particular to the supply constraints we are facing for our New Zealand wines. If I move now to the must-win markets performance, starting with the U.S., which is our #1 market. So the U.S.A. are growing by 9%, which is a strong Q1 across portfolio with as well a good replenishment ahead of festive season. Jameson is rebounding in On-trade, but lapping high comparison basis in the Off-trade. And we have as well a continued dynamism of the Glenlivet, of Malibu, of Kahlua, of our Super Premium whiskey like Aberlour, Redbreast and U.S. whiskeys but as well Martell and Tequilas. Moving now to China. So China is growing by 22% and dynamic growth with a good Mid-Autumn Festival and positive pricing, thanks to the Martell price increases that we implemented back to fiscal year '21. Talking about Martell, we have strong sell-out with the Off-trade growing with offsetting softer trends in the On-trade, which is due to the recent localised lockdowns. We have as well continued strong development of Scotch in particular, The Glenlivet and Absolut. Moving now to Global Travel Retail. Global Travel Retail is growing by 55% and with a return to growth in all regions on a very favorable basis of comparison. International travel is recovering very gradually with some easing of travel restrictions and progressive reopening of borders. Moving now to India. India is growing by 27%, very strong rebound on a low basis of comparison with as well as strong mix driven by faster growth of strategic international brands and as well a faster growth of our Indian whiskey, Royal Stag. Moving now to Europe. Europe is growing by 22%, with France having a strong growth with good On-trade recovery this summer enhanced by favorable shipment phasing. U.K. is delivering a good growth driven by Jameson, Absolut and Havana Club. Spain had a very dynamic rebound led by the On-trade reopening. Germany is continuing on a strong growth trajectory, driven by Absolut, Lillet and Jameson. Eastern Europe is in very strong growth, and this is led by Russia. Moving now to Americas, including the U.S., growing by 13%, with an outstanding start of Brazil, which is as well supported by price increases we implemented in July. Mexico is as well posting a strong growth with positive mix driven by Strategic International Brands. If I move now to the Asia-Rest of the World, growing by 23%, with good resilience in Japan despite extended state of emergency. Korea is growing double-digit with continued dynamism in the Off-trade. South-East Asia is really the region which is very -- still very impacted by pandemic and trade disruptions. And Africa/Middle East, very strong start in South Africa after the removal of the alcohol ban in August and as well continued strong momentum in Turkey. Moving now to the conclusion and outlook. So as mentioned, a very dynamic Q1 on a low comparison basis with a strong demand in most markets. For the fiscal year '22, Pernod Ricard expects good sales growth to continue, albeit moderating versus Q1 as well, we intend to have significant investments in A&P and structure costs to support future growth. We will continue the implementation of Transform & Accelerate strategy, including our digital transformation. And we have our EUR 0.5 billion share buyback program, which is a work in progress with half of which expected in this first half. You have then in our communication, the usual appendices. And if I can just spend 1 minute on the appointments that we shared as well early this morning, starting with Julia who is going to be appointed CFO of Pernod Ricard, EMEA and Lat Am, and this is effective after our shareholders' meeting in a couple of weeks. So Julia, I take the opportunity to thank you very warmly for all your contribution in that role for the past 7 years, and we will miss you. I will miss you for sure. But I'm very happy for you, and I'm sure you're going to have a great time in this great region, which is EMEA and Lat Am. So thank you again, Julia. And Florence, welcome to this new role. Florence is already our Group Treasury Director and is now appointed Global EVP, Investor Relations and Treasury Effective after the shareholders' meeting. So Florence, welcome to the team.
Thank you very much, Helene, on a personal note, and also for the presentation. We'll now turn to your questions.
[Operator Instructions]. First question is from the line of Andrea Pistacchi from Bank of America.
Yes. Congratulations, Julia, for your new role, very exciting. So I have 2 questions, please. The first one is about the shipment phasing that you mentioned, shipments ahead of the festive season. I was wondering whether you could maybe quantify or give us a sense of the magnitude of that? And also say maybe what markets have benefited most from the shipment phasing. I imagine the U.S. or is it maybe a bit broader than that? And then on China, please. You talk about a good Mid-Autumn Festival again. I was wondering whether you could quantify maybe depletion growth that you've seen through the quarter or at Mid-Autumn Festival. And how is the stock situation now in China ahead of the Chinese New Year? And also on China, please, Helene, there's been a lot of moving parts in the last couple of years in China. So I was wondering whether you're able to give a bit of a breakdown of your portfolio in terms of consumption occasion, give us a sort of idea of the size of how big nightlife occasion is or gifting or home consumption.
Okay. Thank you very much. So let's start with your first question. So the underlying trend for the first quarter is as expected, quite good. We have a very dynamic Q1 sales, with the continued good sales momentum with as well the low base effect because as you remember, Q1 last year was at minus 6% and was particularly weak in India and Global Travel Retail. We have as well some good replenishment trends ahead of festive season. And just to clarify your question, it's in particular the case in the U.S. and France. So for your second question, in terms of China. So yes, we have already some trends in terms of Mid-Autumn Festivals, so good Mid-Autumn Festival for us in China and obviously, especially from ourselves. So the depletions are, let's say, double-digits in value for Mid-Autumn Festival. You had as well a question -- I'm sorry, your question we have a bit long on China, as I hope I remember all of them. Is there a question on Chinese New Year phasing. So if I understood correctly, just to clarify, we don't expect at that stage a significant phasing in the H1, even if Chinese New Year is 2 weeks -- almost 2 weeks earlier than last year, but it shouldn't have a significant impact. Stock situation, if I remember well, that was your third question. It's quite healthy, I must say, first Mid-Autumn Festival. And then your last question was in terms of...
Of consumption occasion in a breakdown. Yes.
General performance and so on. So yes, maybe just as well, let me clarify what is the -- what was the dynamism in this first quarter. So a good performance for sure, some soft On-trade, and this is obviously very much linked to the temporary lockdown of cities that happened during the summer, starting with the first wave of, let's say, rise of local cases that happened at the end of July and that was then triggering some temporary lockdown of some cities, and there was the second wave in Fujian from the beginning of September. So this had some impact in terms of on trade because as I'm sure you know, some the night outlets and some restaurants in those cities were closed. So this has some impact. But all in all, the performance was strong and the Off-trade was strong. In terms of, I would say, more structural trends, no significant changes to highlight. Obviously, as you remember, we had a strong performance last year in China and the beginning of the year is quite strong as well. So this is largely due to Martell, but we are as well a very strong performance with the rest of our portfolio, including our Scotch brands and as well brands like Absolut.
Thank you, Helene. [Operator Instructions]. Operator if you could put us to the next caller, please.
Our next question is from the line of Edward Mundy from Jefferies.
And also congratulations to Julie and thanks for the help over the last 7 years. Two questions for me, please. The first is on China. Any views on this stage that you're able to share with us on a potential consumption tax and what this could mean for Western Style Imported Spirits in your business? And then the second question, I appreciate it's still very early on in the year. I think the messaging from your results back in September was to grow probably ahead of the 4% to 7% range, and that could lead to more than 50 to 60 basis points of margin expansion. With 1 further quarter under your belt, is there anything you're able to share with us around the shape of 2022 at this stage?
Okay. Thank you. So let me start with the question on consumption tax in China. So there were some potential news on that topic very recently around the expansion of consumption tax collection. To be fair, it's very early days. There is no details at all known yet. So it's really too early to comment for me in terms of what could be the implications. Your other question is on the margin. So obviously, as you remember, we had a very strong margin improvement in fiscal year '21. And the focus for us in this fiscal year 2022 is really on growth opportunities and to support that growth momentum I was referring to a few minutes ago. It's still obviously very early days. We only have 1 quarter behind us. So too early to tell in terms of gross margin, what would be at stage because there are obviously lots of moving parts, some positive ones around prices and the environment, it's fair to say is more favorable than it was last year. There is as well the gradual recovery of Travel Retail, which should be accretive, but there is as well some negative parts that could impact on gross margin, like the inflation on that everything around the supply chain pressures, I'm sure we'll have the opportunity maybe to elaborate a bit more on that this morning. When it comes to our resources, as mentioned in the conclusion, we -- we want to have a sizable investment to support growth in terms of A&P. And as you know, we believe that circa 16% in P to net sales ratio is a reasonable assumption for us this year and our structural costs, which will increase strongly to really drive future growth. It's going to be done, and it's happening on a very purposeful way, I would say.
Our next question is from Laurence Whyatt from Barclays.
A couple for me. In terms of your U.S. performance, it's somewhat slightly below some of your peers. Do you think you need an additional Tequila brand to maintain your share in the U.S.? And secondly, you just mentioned around the structure costs. Is that a significant investment? Does that necessarily mean double-digit growth? And could you give us a bit of indication of where those -- where that extra money is going?
Okay. Maybe I'll start with the second question on structural costs because first, you have to keep in mind that last year was obviously a year where we had a very strict monitoring of our structure costs with measures that we are, I would say, very adapted to crisis management mode with decisions like recruitment freeze, salary freeze. And when I talk about recruitment freeze, this was as well, including the vacancy position. There was obviously as well a full travel ban. So we are really, let's say, talking about structural cost investment on a basis, which was the one I just described. So we believe -- and especially when you look at the good sales momentum, which is happening in many markets that it is absolutely critical for us to reinforce our structure and have the right resources behind our strategic priorities. So we are obviously, back to a salary increase to have the right, say, recondition and reward and thank as well our team on their very strong engagement in the recent past and to keep it very attractive, I would say, reward policy. And we would be as well recruiting behind strategic priorities. And -- but at the same time, we are very, I would say, motivated to keep a strong discipline in terms of structure cost evolution and fit-for-purpose organization everywhere. So maybe now back to your first question in terms of the U.S. performance. Well, first, I would like to say that this is quite early days for us to have a full view of what would be our performance in terms of market share. This is only 1 quarter. This plus 9% is quite dynamic in terms of sales. There are some replenishments occurring ahead of festive season. As you know, [ O&D ] is a critical quarter for us in the U.S., and this replenishment is a quite usual at this time of the year. And we have as well a quite dynamic performance. on some of our brands like Jameson, for sure, which is benefiting from the rebound in the On-trade, where as well a continued dynamism of other brands, like the Glenlivet as well our Liquor brand, U.S. whiskeys and so on and as well Tequilas with Avion and Altos. So Tequila category is extremely dynamic. So it's the cognac category, by the way, and we have a strong ambition for Martell. Our brands are benefiting from that growth on a small basis.
Our next question is from the line of Simon Hales from Citi.
Julia and Florence, congratulation on your new roles. A couple of quick questions for me. Helene, can I just go back to the replenishment that you've seen in Q1? I mean, clearly, you mentioned of the supply chain bottlenecks we've got going on around the world generally at the moment. I mean, how much higher stock levels in some of your key markets sort of now than they would be typically as we head into sort of Q4 festive season. If you've seen just much more buy-in by wholesalers to make sure they have inventory for this year? And how should we think about the knock-on impact that, that might have when it comes to us forecasting maybe Q2 sort of shipment momentum? And then secondly, I don't think you did, but did you give a depletion rate for the U.S. in the quarter, please? And if you didn't, could you share that one?
Okay. So thanks for the question. If I may, I will answer on the stock level in kind of broader way. So we believe that we have broadly quite normative level of stock everywhere given the period of the year, which means just to maybe repeat what I said on the replenishment trends in the U.S. that there is some replenishment in anticipation of [ O&D ] in the U.S., which, again, is quite usual at this time of the year and which is probably as well good for us to prepare what we hope would be a great festive season in the context that you alluded to, which is obviously lots of pressure in terms of supply chain. I would say, by the way, especially in the U.S. So it's a hot topic for us, and our teams are really fully mobilized to be sure that we have, let's say, the best supply chain efforts collaboration and focus to be ready for this festive season in the context where it's difficult, as you know, to find containers to have our goods, I mean, reaching ports and being clear in terms of customs and then to have truck drivers to bring projects to the shelf and to the points of sale, I would say. So having the right level of stock in this particular time is obviously extremely important. So broadly normative everywhere. We are not, to be clear, managing our stock on a quarterly basis. What we want is to have a very healthy inventory management, I would say. By the way, as you know, you should probably expect this year that we have -- for the full year, selling equal sellout, and this is true for all our markets. So the last question was, I think, on the depletion on our sellout in the U.S. So maybe I think I tried to answer the question, but let me clarify. First, it's still quite early. We only have 3 months of performance. So it's too early to give you a very precise sellout number. I hope you will understand. But to give you some flavors, directionally, we are probably a bit below the plus 9% in sales because of this replenishment occurring ahead of the festive season, so a bit below.
The next question is from the line of Sanjeet Aujla from Credit Suisse.
Just a quick question on Europe, please. Can you just talk a little bit about the On-trade recovery you're seeing across the various markets? And if you're able to put a figure on where you think the On-trade is now relative to pre-pandemic levels across your business there? That's my first question. And then if you're able to quantify the impact of the French shipment phasing, that would be very helpful as well.
So maybe I'll start with the second question because I tried to answer that question already several times. We are not quantifying that. But again, it's really a replenishment that is quite usual, I would say, at this time of the year. And it's mainly the fact of the U.S. market and France. Hopefully, that's clear enough. Moving to Europe, so a strong performance on Europe, I'd say, a very strong one. And as you rightly pointed out, it's really as well linked to the On-trade recovery with the Off-trade by the way remaining quite resilient. So the situation in the On-trade in Europe is obviously much better after the lockdown and restrictions that we had in fiscal year '21. I would say it's almost a kind of revenge contiguity, a trend that we are facing that we are very pleased about to be clear in Europe. It's probably not really progressively normalizing and not very far from a pre-COVID situation. We have still, I would say, some On-trade channels that could be not yet back to full recovery, for instance, night clubs are definitely not where they were pre-COVID, but a very good performance for us in Europe and in many markets.
We will take our next question, it's from the line of Mitch Collett from Deutsche Bank.
I've got 2 questions, please. The first one on your Strategic Wines. Can you comment on the New Zealand supply constraints? And did that lead to lost sales, do you think this quarter -- or did it ultimately lead to inventory reductions at your customers? And is that problem or that issue now fixed? And then a follow-up to that is, given the performance by brand type, would it be fair to assume that Strategic International Brands and Specialty Brands growing ahead of local brands and Strategic Wines is quite helpful for margins?
Okay. So maybe I'll start with the second question. I think on margin, and especially when we talk about the performance for the quarter only, I would say, back to my previous comments, it's really too early days. For us, what really matters is that we have a broad-based growth across our brand portfolio, which is, I would say, a great news and exactly what we want to do in terms of strategic intention. So that's great news. And anyway, as you know, our strategy is really to premiumize across our portfolio and all our, I would say, strategic brands categories are contributing to that strategy. Your question on Wine. So first, again, please keep in mind that last year, we had a strong start. So our performance is to be analyzed, taking into consideration that a high comparable basis. And this was last year, notably driven by a strong growth in the Off-trade in the U.K. and in Canada. This year, we have 2, I would say, key drivers of the performance in this beginning of the year, some negative impact of the tariffs in China for Jacob's Creek, and as well as some supply constraints on New Zealand Wine. So to be a bit more specific, there's very low 2021 Sovereign Brands harvest, which is impacting the whole industry. So this is something that we will have to live with in the coming months.
The next question is from Olivier Nicolai from Goldman Sachs.
Just 2 questions, please. First of all, a bit of a follow-up on China. One of your competitors was saying that Mid-Autumn Festival was below their expectations. So it's good to see that you had a good Mid-Autumn Festival. Do you see yourself as gaining share in China. Perhaps could you give us a bit of an update on the performance of VSOP, Noblige, Cordon Bleu and XO? And then second question, a bit more beyond the Q1 results. You bought Whiskey Exchange recently. Could you perhaps go back to the rationale for the acquisition? And how does it integrate into your broader e-commerce and B2C strategy?
Okay. Thanks for those questions. So I'll start with China. So honestly, in terms of market share evolution, I will not comment based on the quarter. For sure, what we know is that we have a good math, with Martell in good growth and in particular, the case for Cordon Bleu and Noblige. Your question on The Whiskey Exchange. So I would say this is an acquisition which is very much in line with our consumer-centric strategy, and we want to meet new consumer needs and expectations. And obviously, in the context of very solid e-commerce growth and strong demand from premiumization. We believe The Whiskey Exchange acquisition is ticking all those boxes. We are very happy with that acquisition and The Whiskey Exchange is, I must say one of the biggest and most successful online drink retailers and with a fantastic catalog, et cetera. So a truly mid-channel player, which we are very happy to welcome, I would say, within Pernod Ricard. Having said that, the business will continue to operate independently with its current management for the foreseeable future. So for us, again, very consistent with our strategy Obviously, e-commerce is a very dynamic channel and The Whiskey Exchange is again a fantastic player.
Thank you, Helene. We'll take the questions -- We'll take our questions from the final 2 callers, please.
The next question is from Trevor Stirling from Bernstein.
Congratulations, Julia, and welcome, Florence. Two questions from my side. First one, Helene, the first time I think I opened with a question on Europe in a positive number, but it's really remarkable quarter in Europe. I think both of my calculations, up 17% on pre-COVID. So what you're saying, it sounds a bit the On-trade is largely back and what's responsible for that 17% growth is that the surge in Off-trade consumption is sticking. Is that the right way to look at it? And the second question, coming back to Travel Retail. Do you have some rough estimates, Helene, in where we are now compared to pre-COVID in Travel Retail. And does that vary quite substantially from region to region?
Okay. Thank you for your question. So I think on Europe, I would say, I agree with your analysis. So a great -- again, a great start and in a region where globally, the consumer trends is quite positive and strong, which is, I would say, the translation of the fact that people are really keen to come back to their lifestyle and to be able to socially connect. We are really benefiting from that. Your second question -- Travel Retail. Yes. Thank you, Julia. Sorry. So on Travel Retail, I would say we are definitely not yet back to pre-COVID. And again, as you know, we believe that it's going to take time. When we look at the passenger traffic, it's probably around, I would say, minus 60% on average for the first quarter. So -- and I would say our recovery is probably quite aligned with that type of passenger traffic trend. The situation is quite different by region. So in Asia Pacific, it's definitely not as good as in the rest of the region. For our performance, we have in this region, the support of the more dynamic trends in Henan and Jeju in Korea. But for the, obviously, international travel, as you know, this is this is still very subdued. Europe is probably the most advanced in terms of recovery. And obviously, as you are following that as much as we do, there is some gradual reopening, which is probably going to be I would say, better in terms of trends for Americas moving forward. So for us, the recovery of Travel Retail is going to be really gradual, especially for fiscal year '22 as we believe that Asia will still be quite subdued in the coming months.
The next question is from Mr. Chris Pitcher from Redburn.
A couple of questions. Firstly, on France, we're sort of 2 years now since you announced project Reconquer. And I appreciate there's a lot of moving parts, which happened in the last 2 years, and you're not giving us a sort of underlying number for France. But in terms of how that strategy project has developed, are you on track to stabilizing, you think your French performance? And could you comment specifically how Ricard has been performing more recently? And then Latin America, perhaps on Julia in her new role. But can you confirm you're getting volume and price in Brazil, Mexico and across the region?
Okay. Thank you. So I can start with France. Well, as you said, it's -- obviously, the environment is not fully normalized. So it's difficult to know where we stand versus what was the initial intention. What is for sure is that first, the reorganization was implemented in due time and fully, I would say, implemented 1st of July 2020. So for the full year '21, which was probably a great thing in the current environment. We want, as you know, to be back to a concrete conquest mode, if I can call it this way. So all our teams are really mobilized to do that. The performance in the first quarter was strong, and this is as well based on a favorable shipment phasing in those numbers, but this is a good quarter for France. And back to your question, Ricard, as I would say, stable in that period. On Lat Am, your question on price increase, yes, we did increase our prices starting in July in Brazil, and we have as well a positive mix in the rest of this region. So a very strong start, I must say, for those countries in the first quarter.
And you've got volume growth as well as price, just to check.
Say that again, sorry.
You got volume and price growth in Latin America. It's not just a price that led?
Yes. Correct.
Thank you. That takes -- brings us to the end of our Q&A session. Thank you very much, Helene. Thank you very much, ladies and gentlemen, and we wish you a good day, and please continue to enjoy the On-trade responsibly.
Thank you very much.
That concludes our call for today. You may all disconnect. Thank you all for participating.