Pernod Ricard : STRONG RESILIENCE AND AGILITY IN FY20, DESPITE COVID-19 IMPACT

STRONG RESILIENCE AND AGILITY IN FY20, DESPITE COVID-19 IMPACT
-9.5% ORGANIC SALES DECLINE (-8.0% REPORTED)
-13.7% ORGANIC DECLINE IN PRO¹ (-12.4% REPORTED)

SALES
Sales for FY20 totalled €8,448m, with an organic decline of -9.5% (-8.0% reported), with a favourable FX impact linked mainly to USD appreciation vs. Euro.
Sales growth in H1 was robust but H2 was impacted by Covid-19. For FY20, the trends were:
• Americas: -6%, with good resilience in USA² and Canada in slight growth, but double-digit decline in Latin America and Travel Retail
• Asia-RoW: -14%, driven mainly by China, India and Travel Retail, against high basis of comparison
• Europe: -6%, overall good resilience with Germany, UK and Eastern Europe growing, partially offsetting declines in Travel Retail, Spain and France.

Key categories were impacted by the pandemic, but Specialty Brands performed well:
• Strategic International Brands: -10%, after broad-based growth in H1, mainly driven by Martell, Chivas Regal, Absolut and Ballantine's
• Strategic Local Brands: -9%, in modest growth at the end of 9M, but strong decline in Q4, mainly due to Seagram's Indian whiskies, on high comparison basis
• Specialty Brands: +7%, despite Covid-19, thanks to more favourable geographic exposure, with dynamic growth of Lillet, Altos and Redbreast
• Strategic Wines: -4%, due mainly to Jacob's Creek, despite growth of Campo Viejo.

Q4 Sales were €1,238m, with -36.2% organic decline (-37.9% reported), with a significant impact of Covid-19 throughout the world, particularly for Travel Retail and the On-trade. There was better than expected resilience of the Off-trade, notably in USA and Europe.
H2 saw the implementation of Covid-19 crisis management, while pursuing the long-term transformation agenda:
• Priority given to health and safety of employees and business partners
• Sound inventory position at June end, thanks to robust demand management and supply chain continuity
• Active resource management and strong cost mitigation to adjust to Covid-19 context
• Continued roll-out of 2030 Sustainability & Responsibility roadmap, while developing new measures to support stakeholders during crisis
• Implementation of digital transformation and completion of Reconquer project to resume growth in France and reorganisation of Wine business to reignite its performance.
During FY20, Pernod Ricard gained or held market share in its Top 10 markets.

RESULTS
H1 was solid with +4.3% organic PRO, on a high basis of comparison (+12.8% in H1 FY19), demonstrating the success of the Transform & Accelerate strategic plan.
Due to the Covid-19 impact in H2, FY20 PRO was €2,260m, an organic decline of -13.7% and -12.4% reported.
The FY20 organic PRO margin erosion was limited to -131bps, with:
• Resilient pricing on Strategic brands: +1%
• Gross margin contracting -140bps, driven by:

• Adverse mix linked to Strategic International Brands, especially Martell and Chivas Regal
• Higher Cost of Goods mainly due to agave price pressure, glass and GNS in India, lower fixed cost absorption, only partially offset by operational excellence savings

• A&P: +88bps, thanks to very strong mitigation plan in H2
• Structure costs: -79bps, with topline decline reducing fixed cost absorption, despite strong cost discipline.
The FY20 corporate income tax rate on recurring items was c.24% vs. 26% in FY19.
Group share of Net PRO was €1,439m, -13% reported vs. FY19 and the Group share of Net profit €329m, -77% reported, impacted by €1bn asset impairment triggered by Covid-19, in particular on Absolut (€912m gross; €702m net of tax.)

FREE CASH FLOW AND DEBT
Recurring Free Cash Flow was €1,003m, reflecting the impact of Covid-19 on the business.
The average Cost of debt stood at 3.6% vs. 3.9% in FY19. Low rates on new bond financing not fully reflected in full year FY20.
Cash was actively managed and the liquidity position reinforced, thanks to bond issuances and an additional credit line. Liquidity at 30 June 2020 stood at €5.3bn, of which €3.4bn credit lines was undrawn.
Active portfolio management continued throughout the year, with the Italicus and KI NO BI transactions and the disposal of Café de Paris in H2.
Net debt increased by €1,804m³ vs. 30 June 2019 to €8,424m due to lower Free Cash Flow, an increase in the M&A cash-out, a €523m Share buyback (prior to suspension of the programme in April), an increase in the dividend payout to c.50% (vs. 41% in FY19), additional lease liabilities following the IFRS16 norm application and a negative translation adjustment mainly due to EUR/USD evolution.
The Net Debt/EBITDA ratio at average rates⁴ was 3.2x at 30 June 2020.
A dividend of €2.66 is proposed for the Annual General Meeting of 27 November 2020.
Alexandre Ricard, Chairman and Chief Executive Officer, stated,
'The Group has proven very resilient through FY20 and demonstrated its agility and ability to keep its supply chains operational, control costs and manage cash. I would like to take this opportunity to praise the exceptional commitment of our teams during this difficult time.
For FY21, Pernod Ricard expects continued uncertainty and volatility, in particular relating to sanitary conditions and their impact on social gatherings, as well as challenging economic conditions. We anticipate a prolonged downturn in Travel Retail but resilience of the Off-trade in the USA and Europe and sequential improvement in China, India and the On-trade globally.
We will stay the strategic course and accelerate our digital transformation while maintaining strict discipline, with clear, purpose-based investment decisions. We will harness our agility to adjust fast to capture new opportunities. Thanks to our solid fundamentals, our teams and our brand portfolio, I am confident that Pernod Ricard will emerge from this crisis stronger.'

1 PRO: Profit from Recurring Operations
2 Sell-out at +2% (internal estimate)
3 Including €603m additional lease liabilities pursuant to IFRS16 norm application
4 Based on average EUR/USD rates: 1.11 in FY20