In the first half of FY25, Pernod Ricard reported a -4% organic decline in net sales, totaling EUR 6,176 million.
Despite this decline, the company achieved a significant expansion in its organic operating margin by +65 basis points. This performance reflects effective revenue growth management, marketing agility, operational efficiencies, and stringent cost discipline amidst ongoing challenges in major markets, including the United States and China.
Sales Performance: Declining, Yet Resilient
Organic Sales Decline
Organic sales for H1 FY25 were down by -4%, with an overall reported decline of -6%. Several factors contributed to this, including unfavorable foreign exchange impacts of EUR 177 million, primarily from the Argentinian Peso, Turkish Lira, and Nigerian Naira. However, there was a positive perimeter impact of EUR 29 million, which somewhat offset these negative currency impacts.
Despite this, Pernod Ricard managed to report sequential improvement in Q2, with stronger performances in certain mature and emerging markets helping to cushion the overall decline. The volume growth in several key regions was partially offset by a -6% drop in price/mix, mainly due to unfavorable market mix.
Regional Breakdown
Americas:
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- The U.S. saw a -7% decline, despite a +1% growth in the U.S. spirits market, led by RTDs (ready-to-drink beverages). The overall performance was affected by a -6% decline in PR sell-out, but the outlook for the second half is more positive, driven by strong performances from brands like Jameson.
- Canada experienced solid growth, especially in RTDs.
- Brazil showed promising results, with consumer demand recovery and market share gains.
- Mexico faced flat sell-out, but still managed to gain share in off-trade channels.
Asia-RoW:
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- India recorded strong growth of +6%, driven by high demand for brands like Jameson, Ballantine’s, and The Glenlivet. This trend is expected to continue in H2.
- China, however, faced a dramatic decline of -25%, largely due to weak consumer demand, ongoing macroeconomic challenges, and declining gifting trends associated with the Chinese New Year (CNY). While premium brands like Absolut, Olmeca, and Jameson showed some growth, the overall performance in China was deeply disappointing.
- Other regions in Asia showed a mixed bag of performances, with strong growth in Japan and Vietnam, but a decline in Korea and Taiwan.
Europe:
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- Europe (excluding Russia) was more resilient, showing a slight +1% growth. Poland, France, and Ireland reported strong results, while Germany and Spain struggled with declining consumer spending. The company managed to grow its share in the off-trade segment in these markets.
- The brand performance was driven by solid results from Jameson, Chivas, Absolut, and Ballantine’s, as well as strong RTD sales.
Global Travel Retail:
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- Global Travel Retail faced a sharp -9% decline, exacerbated by the technical suspension of the duty-free regime on Cognac starting in December. This was further impacted by weak conditions in China and Korea, as well as the political crisis in Korea.
Operational Efficiencies and Cost Discipline
Pernod Ricard has remained focused on cost control, operational efficiencies, and strategic investments, despite the challenging external environment. The Organic PRO Margin expanded by +65bps, thanks to a combination of Revenue Growth Management, Marketing Agility, and operational efficiencies. In total, the company has driven approximately EUR 900 million in cost efficiencies since FY23, which directly contributed to margin expansion.
The discipline around structural costs has also been evident, with a -2% reduction in organic structure costs, offsetting the gross margin decline of -20bps. Advertising and promotion (A&P) spend was carefully adjusted, accounting for around 14% of net sales, and was adapted to softer market conditions, particularly in China.
Strong Cash Flow and Strategic Investments
Pernod Ricard delivered an impressive Free Cash Flow (FCF) of EUR 440 million, an increase of EUR 139 million compared to H1 FY24. This was driven by improved working capital, notably in receivables and finished goods inventory. The decrease in strategic inventories and the normalization of Capex (capital expenditure) following last year’s peak investment also contributed to the positive cash flow.
Capex spend remained focused on expanding capacity in key regions like Ireland, the U.S., and Scotland, as well as investments in casks and maturation warehouses. For FY25, Capex is expected to total EUR 700 million, with strategic inventories likely to follow similar patterns as last year.
Outlook and Future Projections
Despite the ongoing macroeconomic challenges and geopolitical uncertainties, particularly in the U.S. and China, Pernod Ricard remains confident in its strategy. The outlook for FY25 has been revised to anticipate a low single-digit decline in organic net sales, with a commitment to sustaining organic operating margins.
Looking beyond FY25, the company projects a transition year in FY26, with improvements in organic net sales. From FY27 to FY29, it expects to see stronger growth in organic net sales, with a target range of +3% to +6%, accompanied by continued organic operating margin expansion.
Efficiency initiatives will remain a key focus, with expected savings of around EUR 1 billion from FY26 to FY29. A commitment to high cash conversion (targeting 80% or higher) will help fund strategic investments, which will normalize to around EUR 1 billion by FY26.