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2009/10 Half- Year Results


The Pernod Ricard Board of Directors’ meeting of 17 February 2010, chaired by Patrick Ricard, approved the financial statements for the first half-year and provided guidance for the full 2009/10 financial year.

2009/10 Half- Year Results


Sales in line with Group’s forecasts
Increase in gross margin rate
Continuing debt reduction
Confirmation of 2009/10 full-year guidance

Sales€ 3,789 million (-3%*)
Profit from recurring operations€ 1,062 million (stable*)
Group share of net profit from recurring operations€ 648 million (-5% as reported and +6% at constant foreign exchange)
Group share of net profit€ 604 million (-2%)
Further strong cash flow generation and    Net Debt / EBITDA ratiobelow 5.5 at 31 December 2009

* organic growth

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The Pernod Ricard Board of Directors’ meeting of 17 February 2010, chaired by Patrick Ricard, approved the financial statements for the first half-year and provided guidance for the full 2009/10 financial year.

  • Sales resilience, with a 3% organic decline against an unfavourable 2008/09 comparison basis and within a varied economic and market environment.
  • Increase in gross margin ratio to 59.7%, reflecting a favourable price/mix effect.
  • Operating margin (profit from recurring operations / sales) of 28.0%, an increase of 90 bps with constant exchange rates.
  • 6% increase in group share of net profit from recurring operations with constant exchange rates, reflecting the two above-mentioned factors, as well as a significant decline in financial expenses. With current exchange rates, it fell by 5%, adversely affected by unfavourable currency movements compared to the same first half-year of 2008/09.
  • Continuing net debt reduction to € 10,323 million at 31 December 2009.



Pernod Ricard’s 2009/10 1st half-year consolidated net sales (excluding tax and duties) declined by 10% to € 3,789 million, compared to € 4,212 million in 2008/09 HY1.  This was due to:
  • a 3% organic decline, against high comparatives and within a varied economic and market environment. Business remained indeed dynamic in emerging markets, in particular in China and India while France showed good resilience and the situation remained difficult in Western Europe and the US.
  • a 4% negative foreign exchange effect, primarily due to the depreciation of the Venezuelan Bolivar and of the US Dollar.
  • a 3% negative group structure effect, primarily due to the disposals of Wild Turkey and Tia Maria, and to the termination of Stolichnaya distribution. 

The 15 strategic brands declined by 5% in volume and 3% in value*, reflecting market conditions, but also the positive price/mix effect.  These 15 strategic brands represented 58% of Group sales over the 1st half-year 2009/10.  A number of them continued to grow in value*, including Jameson (+7%), Absolut (+5%), Martell (+3%) and Ricard (+2%).  Others proved rather resilient: The Glenlivet (stable), Havana Club (-1%) and Beefeater (-2%). Champagne brands Mumm (-11%) and Perrier Jouët (-16%) reflected their category trend and still wines Jacob’s Creek (-6%) and Montana (-4%) declined with the continuation of the high value strategy.
In addition, the 30 key local brands, which represented 22% of Group sales over the 1st half-year 2009/10, confirmed their resilience at a time of crisis, with stable volume and sales*. This performance was mainly due to the vitality of our local whisky brands in India, including Royal Stag and Blender’s Pride.

In the second quarter 2009/10, consolidated sales decreased by 13% to € 2,143 million, including a 2% organic decline, a 7% negative foreign exchange effect and a 4% negative group structure effect.  The improved organic growth trend over the second quarter, from a 4% decline in the first quarter to a 2% decline, resulted from a lower comparison basis and the recovery in a number of markets, such as Duty Free, South Korea and Russia.

Portfolio contributive margin

Gross margin fell by 10% to € 2,263 million, resulting from a 2% organic decline, a 2% negative group structure effect and a 6% negative foreign exchange effect.  The improved gross margin ratio, which increased from 59.4% to 59.7% of sales, an increase of 30 bps, was due to a positive price/mix effect and a good control of cost of goods sold.

Advertising and promotion expenditure was maintained at a high level, totalling € 642 million, in line with the Group’s strategy of developing its strategic brands over the long term.  This represented 23% of sales for the 15 strategic brands and was targeted over the most promising brand/market combinations. Certain expenditures were postponed to the second half-year (Asia linked to a later Chinese New Year). 
Overall, the advertising and promotion expenditure to sales ratio reached 17.0% over the 2009/10 1st half-year, in slight decline compared to 17.3% over the same period of the previous financial year.
The Group intends to raise this ratio over the full 2009/10 financial year.

In total, the contribution after advertising and promotion expenditure decreased by 9% to € 1,621 million but with stable organic growth.  It represented 42.8% of sales, up 70 bps compared to the previous financial year, under the double effect of the improved mix and price increases, as well as the slight reduction in the advertising and promotion expenditure ratio.


Structure costs

Structure costs decreased by 3% to € 559 million. This evolution represented a limited 1% organic growth after no change over the full 2008/09 financial year. This discipline resulted from the continuing downsizing of structures in many mature countries and the implementation of a wage restraint policy throughout the Group.
The strengthening of the distribution network continued in emerging countries in order to optimise their growth potential.


Profit from recurring operations

Profit from recurring operations declined by 11% to € 1,062 million, resulting from flat organic growth, an 8% negative foreign exchange effect and a 2% negative group structure effect.  The operating margin was 28.0%, in slight decline of 40 bps compared to the previous financial year, taking into account the unfavourable developments in foreign exchange rates.  At constant foreign exchange, the operating margin would have grown by 90 bps to 29.3%.

Profit from recurring operations by region:
  • Remarkable 6% growth in Asia/Rest of World (organic growth of 8%), due in particular to vigorous Martell sales in China (despite the delayed Chinese New Year) and local brands in India.  Absolut’s expansion in the region and growth in certain emerging markets, such as Vietnam, Turkey and South Africa also contributed to this success.
  • Conversely, the profit from recurring operations of the Americas region declined by 22%, primarily due to the 18% currency effect resulting from the depreciation of the US Dollar and the situation in Venezuela.  The profit from recurring operations of the region was in organic decline of 2%, reflecting market conditions in the US, partly offset by a good half-year in Latin America, Mexico and Canada.
  • In Europe, profit from recurring operations fell by 18%, with a 5% organic decline, reflecting a difficult situation overall, in particular in Spain, the UK and Ireland.  The lower proportion of wine in sales of the region caused a strong improvement in gross margin ratio.  Sales recovered in the second quarter in Russia and Ukraine.
  • In France, profit from recurring operations grew by 5%, which was organic growth of 4% thanks to the commercial performance of Ricard, Absolut, Chivas and Havana Club.  The improved product mix, combined with a good control of structure costs generated a strong rise in the operating margin, which totalled 29.3% compared to 27.4% over the first half of the previous financial year.

Over the 1st half-year 2008/09, the foreign exchange effect on profit from recurring operations was negative by € 101 million. Over the full 2009/10 financial year, and based on exchange rates at 12 February 2010, the negative currency effect on profit from recurring operations is estimated at between € 100 and € 120 million.


Net profit from recurring operations

Net financial expenses from recurring operations totalled € 246 million.  Debt-related financial interest charges totalled € 219 million, € 101 million less than the same period of the previous year, due to the double positive effect of the debt reduction and a lower average borrowing cost.  In addition,  a € 6 million charge was due to finance structuring costs and a € 21 million charge to other financial costs, primarily due to pension plans.
Corporate tax on recurring operations was an expense of € 157 million, i.e. a rate of 19.3%, in line with Group’s forecasts.  Lastly, minority interests and other items amounted to a negative € 10 million.

In total, Group share of net profit from recurring operations amounted to € 648 million, a 5% decrease compared to the 1st half-year 2008/09.  At constant exchange rates, net profit would have increased by 6% over the period.



Net profit

Other operating income/expense was a € 93 million expense, primarily relating to the net capital gains and losses on disposals and asset valuations for a € 51 million expense.  Non-recurring financial items were an € 18 million income. 
Lastly, profit from non-recurring operations generated a € 31 million tax income, due to the impacts related to non-recurring charges and the use of deferred tax on asset disposals.

Consequently, the Group’s share of net profit totalled € 604 million, a 2% decrease compared to the 1st half-year 2008/09.



Net debt and cost of debt

Net debt at 31 December 2009 amounted to € 10,323 million.  Over the 1st half-year, debt was reduced by € 565 million, including in particular:
  • lstrong free cash flow generation over the period (€ 526 million), bolstered by the continuing implementation of the trade receivable disposal programme.
  • the disposal of the Tia Maria brand.

The average cost of borrowing was 4.15% over the 1st half-year 2009/10.  Based on current interest rates and current hedging, the average cost of borrowing should be less than 4.5% over the full 2009/10 financial year.

Conclusion and outlook

Sales for the 1st half–year 2009/10 were in line with Group’s forecasts, with:
  • 3% organic sales decline due to an unfavourable comparison basis
  • Defence of pricing policy and continuing strong advertising and promotion expenditure on key brands
  • Operating margin of 28%, with a price/mix effect that remained favourable in spite of the crisis and well-controlled structure costs
  • Significant reduction in financial expenses, due to the joint reduction in debt and average cost of borrowing
  • Continuing debt reduction

Over the 2nd half-year 2009/10, Pernod Ricard notices and expects:

  • A third quarter start in strong growth on a comparison basis that has now become favourable
  • A situation remaining difficult in Western Europe
  • Good resilience of the French market
  • Visibility remaining low in the US
  • A recovery trend in a number of markets: Duty Free, South Korea, Eastern Europe, etc.
  • Continuing vitality of emerging markets.

In addition, we continue to consider increasing our expenditure on strategic brands and markets as a priority, especially in the US and emerging markets where we benefit from a favourable position.

Pierre Pringuet, Pernod Ricard Chief Executive Officer, stated: “These factors enable us to confirm our guidance for organic growth of 1% to 3% in profit from recurring operations for the full 2009/10 financial year, while increasing the investment in strategic brands and markets.”

* organic growth

Shareholders’ agenda: 2009/10 1st Quarter sales– Thursday 29 April 2010 

Download the Presentation (pdf)

Retrieve the 2009/10 Half- Year Financial Report on the Regulatory Information section on www.pernod-ricard.com

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