Pernod Ricard Raises Operating Profit Target on Diversified Growth

The Tip Desk · December 31, 2017 · 2 min read

The wines and spirits maker increased its internal growth target for current operating profit following a half-year of broad regional gains.

Pernod Ricard has raised its internal growth target for current operating profit for the 2017/18 fiscal year to between 4% and 6%, up from a previous range of 3% to 5%. The wines and spirits maker reported consolidated sales of 5,082 million euros for the first half ended December 31, 2017, compared to 5,061 million euros in the same period the previous year.

Internal sales grew 5.1% during the period. This performance was supported by a 7% internal growth rate in Asia and the Rest of the World, which accelerated from 3% in the first half of 2016/17. The company attributed this to improvements in China and a return to growth in India. The Americas region maintained a 6% internal growth rate, while Europe grew 3%.

Product categories each saw internal growth of 5%. International Strategic Brands were driven by Martell and Jameson. Martell specifically grew 10% internally, with strong performance in China and Asia Travel Retail. Local Strategic Brands accelerated through Seagram Indian whiskies, Olmeca Altos, and Imperial in Korea. Strategic Wines grew due to Campo Viejo, and the Other category saw significant acceleration from premium brands including Monkey 47, Lillet, and Avion.

Current operating profit for the first half reached 1,496 million euros. While internal growth for this metric was 5.7%, the facial result declined 0.3% due to the weakness of the US dollar. The company expects a negative currency impact of approximately 180 million euros on current operating profit for the full fiscal year.

Net profit attributable to the Group rose 25% to 1,147 million euros. This increase was driven by lower financial expenses and positive non-recurring items, including a special sale of Scotch stock, a French tax refund on dividends, and a 55 million euro deferred tax revaluation following US tax reform.

Free cash flow improved 21% to 799 million euros. This contributed to a reduction in net debt by 476 million euros, bringing the total to 7,375 million euros. The net debt to EBITDA ratio fell to 2.9 as of December 31, 2017. The cost of debt decreased to 3.4% from 4.0% in the first half of 2016/17, and the company expects the full-year cost of debt to be around 3.7%.

During the period, the company acquired a majority stake in the mescal brand Del Maguey Single Village and completed the sale of the Glenallachie distillery.

Starting in the 2018/19 fiscal year, the company will implement IFRS 15. This accounting change is expected to reduce reported sales by approximately 3% and lower the gross margin rate by about 170 basis points. The company anticipates the change will be neutral for current operating profit but will improve the operating margin rate by 70 basis points.