AN INTERVIEW WITH E V P, FINANCE & TECH,
HÉLÈNE DE TISSOT
Pernod Ricard has again demonstrated resilience, discipline and strategic conviction, and has responded with great agility to a challenging year for the spirits industry in the face of exceptional geopolitical challenges and with some consumer confidence softness in some markets. We have reported a low single-digit decline in Net Sales at -3% with overall volume growth of +2%, three consecutive semesters in a row of growth. We have successfully expanded by 64 basis points our Organic Operating Margins, with a significant contribution from ongoing Operational Efficiencies without sacrificing on investments behind our brands. We have maintained or gained market share in 12 out of 17 of our top markets.
How do you describe Pernod Ricard’s FY25 financial performance?
Pernod Ricard has navigated with resilience and agility the cyclical headwinds it faces, reporting Organic Net Sales of -3%. Conditions have been notably challenging in three of our four key markets, albeit each for different reasons. The U.S., Pernod Ricard’s largest market by Net Sales, continues to recover to its normative long-term growth with Pernod Ricard steadily closing the gap to market. China remains impacted by weak consumer sentiment, and Global Travel Retail has been disrupted by the technical suspension of the Duty-Free regime on Cognac in China. Pernod Ricard’s broad-based and balanced geographic breadth helps to mitigate the impact of these declines and Organic Net Sales across the rest of the business grew +1%. A notable highlight is our result in India, which continues to grow strongly and is now our number two market by Net Sales, having overtaken China. We delivered another year of Organic Margin expansion. We have initiatives focused on the top-line, through Revenue Growth Management and on our costs with continuous improvement initiatives, through which we have successfully achieved €900 million of efficiencies between FY23 and FY25.
In addition, we applied an overall strict discipline over costs. Taking account of the difficult conditions in some markets, we have also managed our Advertising and Promotions expenditures with agility, allocating marketing investments to where the return on expenditure is the highest and pulling back where conditions require it, for example in China. Significantly improved cash generation was achieved with Free Cash Flow of c.€1.1 billion reflecting a decline in reported Profit from Recurring Operations, an improvement in Operating Working Capital and a decrease in investments in Capex and Maturing Inventories as we have passed peak investments in FY24.
At H1 you changed your medium-term framework, does this reflect less confidence in the future of the industry?
In our H1 communication we indicated our intention to navigate the cyclical headwinds faced by the industry, with resilience and agility. The macro-economic environment is challenging and the spirits market faced intense geopolitical uncertainties notably in regard to tariffs. This led us to update our outlook for the coming years. We expect FY26 to be a transition year with improving trends in organic Net Sales compared to FY25 and with a focus on defending Organic Operating Margin to the fullest extent possible. For FY27 to FY29 we project stronger Organic Net Sales growth, aiming for a range of +3% to +6% on average p.a. and as we return to dynamic top line growth we expect to deliver Organic Operating Margin expansion. We also announced our intention to continue to deliver on our programme of efficiency initiatives as we optimise Operations and simplify the organisation. We definitely remain confident in the long-term dynamism of the global spirits market thanks to favourable trends including growth in the global Legal Drinking Age population, growth of affluent and middle classes around the world, particularly in emerging markets like India and China, the increasing participation of women enjoying moments of consumption and premiumisation, notably in emerging markets.
Can you tell us more about your Operational Efficiencies programme?
We have taken a twofold approach to Operational Efficiencies – to leverage the benefit of our global scale in Operations, and to organise ourselves “Fit for the Future”, emphasising simplification, empowerment and discipline. Together we have achieved c.€900 million in efficiencies from FY23 to FY25 and are targeting to achieve a further c.€1 billion from FY26 to FY29. On Operations efficiencies, we are leveraging our global scale across procurement, production and logistics supply, leading to lower costs, optimised inventory levels, and improved production efficiencies. On our Fit for Future reorganisation, we began in FY23 as we organised our global market companies into ten Management entities and grouped our Global clear spirits together under The Absolut Group.
What is the view for FY26?
We see FY26 as being a transition year, with improving trends on our organic top line in a continued challenging environment. We remain determined to control what we can control and hence pursuing with speed the implementation of our Fit for Future structure and delivering our ongoing efficiencies programme and continuing to invest behind our brands. We will remain focused on Cash generation, expecting an improvement in our Cash Conversion with Strategic Investments of Capex and Maturing Inventories below €900 million.