Q4 2026 Pernod Ricard SA Earnings Call
Speaker #1: We are delighted to welcome Mauve to her first earnings call with us. Alexandre, over to you.
Speaker #2: Thank you, Joelle, and good morning, ladies and gentlemen. Maybe just before starting, I'd like to introduce Mauve Croizat, our Deputy CFO and soon-to-be CFO as of October 1st.
Speaker #2: Maybe, Mauve, can you say a few words about you?
Speaker #3: Yes, thank you, Alex. Very happy to be with you today. So, I usually say that I'm born and raised Pernod Ricard. I was very lucky to move to many different countries: U.S., Sweden, for many years.
Speaker #3: Across multiple affiliates—so brand company, market company, headquarters—and different functions, because I started with cash, and then more SP&A and core finance.
Speaker #3: With some years as general manager, and lately within transformation. So, very happy to be with you today, very honored to take on the role, and very prepared.
Speaker #2: Well, thank you very much, Mauve. And without further ado, let's start with our fiscal year '26 sales and results. Overall, our fiscal year '26 was characterized by a contrasted environment.
Speaker #2: With continued softness in the US, amplified by some inventory adjustments, and weak demand in China, all of this is being mitigated by improving trends and growth across the rest of the world, though impacted by the Middle East conflict in our fourth quarter.
Speaker #2: We strongly defended our organic operating margin, with the acceleration of our $1 billion operational efficiencies program, delivering half of the target in fiscal year '26.
Speaker #2: And with full delivery now expected by fiscal year '28, instead of fiscal year '29—i.e., one year ahead of anticipated—driving as well sustainable cash generation to preserve a strong balance sheet, with materially improved cash conversion in fiscal year '26 at 91%.
Speaker #2: Optimizing as well our strategic investments for future growth, maintaining balance sheet discipline to support our deleveraging trajectory, and ensuring sustainable shareholder returns. We are maintaining a stable dividend per share, with the final dividend of €2.35 to be offered either in cash or in shares.
Speaker #2: So we fully leveraged the breadth of our portfolio and the balanced geographical footprint of Pernod Ricard to capture growth opportunities at speed and scale, across diverse—and increasingly diverse, should I say—consumer dynamics.
Speaker #2: And our operating model leverages its digital capabilities, accelerating to a fully digitally enabled organization. So I won't go back on the environment that I just described.
Speaker #2: What I would underline is our net sales are down roughly 4% organically and 14% reported, related to currency and pyramid impacts. That being said, we have experienced improved momentum in the second half of our fiscal year, with organic growth improving from, remember, minus 5.9% in our first half to minus 1.3% in the second half.
Speaker #2: And in fact, excluding the US and China, which we'll go through in detail later, growth was positive for our fiscal year in the rest of the world, at +0.5%.
Speaker #2: From a PRO standpoint, down roughly 5% organically and roughly 18% reported, for the same reasons as the net sales. We have done quite an amount of work to defend the organic operating margin in a contrasted environment.
Speaker #2: We have accelerated the operational efficiencies program I mentioned, enhancing as well marketing effectiveness and partially mitigating tariffs and COGS inflation. As you'll see in more detail, our structure costs are down 8%.
Speaker #2: They were already down 4% in the previous year. With the implementation of our Fit for Future operating model, and disciplined cost management. As for cash, at €1.2 billion of free cash flow, a progression of 6%.
Speaker #2: We have strengthened our cash generation and strongly improved our cash conversion, as I mentioned, at 91% through disciplined investments and working capital management. We continue the active portfolio management, notably, this fiscal year was a year where we disposed of Imperial Blue.
Speaker #2: I will not spend time on this slide, as Mauve will go through all of these numbers in detail, other than to stress the EPS at €5.85.
Speaker #2: So yeah, I mentioned the contrasted environment, and our top line was notably impacted by market-specific weakness. In the US, you see the US down 14%.
Speaker #2: I'll talk about this in a couple of minutes. In China, down 19%. And finally, the Middle East is skewed towards our fourth quarter, which was down 29%.
Speaker #2: These three specific areas impacted our top line and weigh roughly one-fourth of our top line. When I mention mitigation—mitigation came from, broadly, the rest of the world, with improving trends in many markets. We now have roughly 40% of our total sales that are in growth.
Speaker #2: As I mentioned, excluding the US and China, the rest of the world would be growing. And by the way, the remaining top 16 markets' sell-out value grew at double the market rate, at plus 2%.
Speaker #2: That's a mix of Nielsen, NAPCA, and IWSR data. So we estimate that for the top 16 markets, the market grew 1%. We grew at double that rate.
Speaker #2: You have here a number of examples, both of emerging markets and mature markets. And by the way, you see that slight acceleration for Pernod Ricard, excluding China and the US: H1 was flat; H2 was up 2%.
Speaker #2: Of course, we've done a lot of work to adapt, and continue to do so at pace with evolving consumer trends and growth opportunities, leveraging our data and technology capabilities, as well as our new simplified organization following Tomorrow One and Tomorrow Two.
Speaker #2: And the name of the game, in a way, is really speed and agility. Consumers have always changed over time. I would say the major difference here is the speed at which they change.
Speaker #2: So we've done a lot of work around convenience and affordability, which on the convenience side is a trend that we had already identified before COVID as emerging, and which has significantly accelerated ever since.
Speaker #2: More recently, post a strong inflation, affordability with a lot of work done on small and fun-sized formats, on what we call affordable premiumization, working on our RTD portfolio extension, on the route to market adaptation to our RTD portfolio as well, and as well on a number of initiatives and increased capabilities on revenue growth management and promotions optimizations, as I said, leveraging our digital capabilities.
Speaker #2: We are, on the other hand, leveraging the depths of our portfolio, including prestige, with the development of unique brands and experiences through very high-end partnerships. We have a global approach to build our prestige and brand desirability, and a direct high-net-worth individual consumer approach.
Speaker #2: We have accelerated—and I'll talk about this in a couple of minutes—our consumer-centric innovation, with the inflection point being innovation at scale; or should I say, purposeful innovation at scale.
Speaker #2: With a number of big brands like Malibu, around Absolut, and as well into new, promising segments such as NOLO ALC segments. And finally, we are continuing to invest in and elevate cultural relevance.
Speaker #2: Consumer experiences and brand associations and partnerships. Now, moving into ourselves, by a must-win market. So, starting with the US market, which was down 14%, as I said.
Speaker #2: So, we have sustained improvement in our sell-out gap to market, albeit we still haven't reached the market level yet, with accelerating responses to what I was mentioning earlier—changing consumer needs.
Speaker #2: The spirits market is slowing down, with economic moderation and subdued consumer confidence. We have now narrowed the gap to the market through accelerated responses. Just to mention, our sell-out is roughly down 7% versus the minus 14% sell-in.
Speaker #2: This is where we ourselves have been impacted, as we mentioned, by some inventory adjustments. Good performance around Jameson and Kahlua, which outperformed their competitive sets.
Speaker #2: Screwball and Malibu sell-out are improving, helped by strong success of smaller formats and innovation—particularly Malibu Pink, which is turning out to be a big success this summer.
Speaker #2: Rapid adaptation to evolving market conditions, focusing on consumer recruitment, consumer activation, RGM as I mentioned, innovation, ready-to-drink small, fun formats, on-premise activation, and cultural partnerships—we'll talk about this later.
Speaker #2: And finally, the route-to-market reorganization, which has finally, after a lot of work, been implemented over the full fiscal year '26, and with adaptation to subsequent, I would say, significant industry changes in the middle tier, with some degree of residual impacts on trade inventory.
Speaker #2: So that's for the US. Well, for India, it's a radically different story. India is, as you all know, now our second-largest market in terms of sales.
Speaker #2: Very strong momentum reflecting underlying consumer demand, premiumization trends, and a market where we are gaining share. So we see a next accelerated performance, which is underpinned by very dynamic consumer demand, market share gains, and further benefiting from the Imperial Blue disposal, which was at a segment that is less dynamic than the more premium segments.
Speaker #2: Good growth on our local brands, notably Royal Stag, which, as you may have seen in the news, is now the world's number one whisky, with roughly 32 million cases sold.
Speaker #2: And Blender's Pride as well, which is quite successful, and the recent launch of Exclamation. Double-digit growth on our strategic international brands, led by Jameson's exceptional performance—which is now the number one imported premium spirit brand in India—and good growth as well on the rest of the portfolio, particularly on Ballantine's and Chivas, if I had to name a couple.
Speaker #2: As I mentioned, we disposed of the Imperial Blue business, which is now immediately accretive to margins and growth. We had mentioned the excise policy changes in Maharashtra just exactly a year ago, which we are finally now lapping since this summer.
Speaker #2: And more recently, in fact, as of July 15th, last month, we now have the India-UK trade agreement, which is in effect. Moving to China, which now represents 7% of our total sales.
Speaker #2: Down 19%, basically characterized by challenging macroeconomic conditions. Continued weak consumer sentiment and regulatory measures impacting demand. We have experienced a sharp decline within our prestige categories, which are under pressure, and basically that's Martell.
Speaker #2: Our premium brands continue to grow quite nicely, supported by the rise of casual dining occasions and increasing penetration of premium spirits among the growing middle class.
Speaker #2: So, we experienced market share declines in Cognac, basically impacted by Martell's channel exposure. That being said, and it's the first time in a while where we can be in a position to say this, we are getting feedback of cautious optimism from the trade.
Speaker #2: Sentiment ahead of the Mid-Autumn Festival—so let's see what happens in the next couple of months on that front. Finally, in terms of must-win markets, global travel retail was down 3%.
Speaker #2: Basically, the resolution of the Cognac suspension in China, which occurred more or less exactly a year and a month ago. Strong brand activations across Asia and dynamic traveler numbers in Europe and the Americas are what basically characterized global travel retail for fiscal year '26.
Speaker #2: International passenger traffic continues to grow. It is now 10% ahead of pre-COVID levels. We have experienced a strong recovery of sales in China duty-free, with robust Martell sell-out growth during Chinese New Year.
Speaker #2: But the Asian region was also negatively impacted by weakness, particularly in South Korea. Europe benefited from US tourism, and the Americas benefited from quite dynamic growth, particularly in cruises.
Speaker #2: Strong innovation execution was quite successful, particularly around travel retail exclusive ranges, notably on The Glenlivet and our other single malt, Aberlour. We also gained market shares in that channel.
Speaker #2: And as you all know, our fourth quarter was impacted by the Middle East conflict, which is also expected to weigh on our first quarter of this new year.
Speaker #2: More broadly speaking, when it comes down to the regions, both by Europe, we see sales declining in France, while maintaining market leadership and gaining share, with PJ and Bamboo in very strong growth.
Speaker #2: Spain and Germany, unfortunately, are both in decline. Amidst continued, I would say, soft market conditions, the UK is in modest decline, with growth on Jameson Absolute and the champagne, although we see some degree of improving market trends there.
Speaker #2: And finally, Eastern Europe is in continued growth, notably on Jameson, Valentine's, and Absolut. Poland was in modest decline, following a strong excise tax increase, though we're gaining share there.
Speaker #2: In the Americas, beyond the US, we see solid continued growth in Canada, driven by Jameson, Absolut, and our RTD portfolio, in what we could qualify as a soft market, and therefore translating into market share gains.
Speaker #2: Brazil recovering, by the way, in the second half from the methanol crisis, which hit us just ahead of Christmas in Brazil, with good performance on Beefeater and Absolut, notably.
Speaker #2: Though we're experiencing a slight share loss there, Mexico is and was in sharp decline over fiscal year '26, with share loss, in what I would qualify as quite difficult market conditions there.
Speaker #2: Finally, for Asia and the rest of the world, Japan continues on its strong growth trajectory, with strong market share gains and a very strong performance of PJ.
Speaker #2: South Korea returned to growth after what we can qualify as a significant reset, which has hit us in the past, as you may recall.
Speaker #2: Taiwan market sales continue to decline, with continued softness in that market. Very strong growth in Turkey, notably with Chivas, and Valentine's, and also Absolut. And I would say as well, the rest of the portfolio.
Speaker #2: South Africa is seeing good growth. We're gaining share there, driven by the exceptional performance of Martell—not just in South Africa, by the way, but across sub-Saharan Africa.
Speaker #2: Australia is experiencing modest growth, with contrasted brand performance—growing on Jameson and growing in our RTDs portfolio. And champagne, again, is a market where we are gaining share.
Speaker #2: This is a brief outlook that, you know, after the regional description, which makes us quite, I would say, unique in terms of geographical mix and exposure.
Speaker #2: Another unique aspect of Pernod Ricard, I believe, is our broad portfolio of brands—our diversified and extensive portfolio of brands. We also have very solid brand performance in a number of markets.
Speaker #2: And with our strategic brands, which would have been in growth, putting the US and China aside. And you have here a number of illustrations. By the way, the first four are not taken as a coincidence.
Speaker #2: There are four largest brands: Jameson being our largest brand; Martell, Absolut, Ballantine’s, and Chivas are, sorry, the five largest brands of Pernod Ricard. I mentioned PJ’s amazing performance—up 20% throughout the fiscal year.
Speaker #2: And just to note, 'TD' for Martell means triple-digit growth in South Africa. Just below that, you have Nigeria, where Martell is now leading in that market.
Speaker #2: Now, moving on to the financial update. Over to you.
Speaker #1: Thank you. So indeed, let's go on to the financial performance. I'll be brief, because you have all the numbers on the slide. Our profit from recurring operations declined by 5.2% on an organic basis.
Speaker #1: And minus 17.9 on a reported basis. So, we told you that we were going to protect the margin, and we delivered, limiting the impact to minus 35 bps.
Speaker #1: If we zoom into the impact, it's mostly driven by the gross margin impact, where we experienced a negative price mix in a soft pricing environment, as you know.
Speaker #1: And experiencing some adverse market mix. We had also the impact of the tariffs, though a little bit less than what we feared at the beginning of the year, in both the US and China.
Speaker #1: And, as we anticipated on the COGS, we had inflation, lower volume absorption, and, as anticipated as well, an increase on our wet goods impacted by past inflation.
Speaker #1: But we also very much benefited from the acceleration of our operational efficiency, managing to limit the impact and offset the normative inflation. If we go on ANP, here we maintain significant investment behind our brand.
Speaker #1: And we slightly benefited from decreased non-working ANP, highlighting as well the improvement of our effectiveness. On structure cost, as Alex mentioned, the reorganization is in place as of January 1st.
Speaker #1: This allowed us to showcase a decline in our structure cost, as it was combined with very strict discipline in cost control. This led to a favorable impact of minus 77 basis points on this line.
Speaker #1: Overall, you can see on the slide as well that our reported operating margin was significantly impacted by FX. That was only partly offset by the perimeter impact, sorry, perimeter impact, where we had the benefits of our brand-accretive disposals.
Speaker #1: So, all in all, what I note on this slide is that, had we not had such significant FX impact, our margin would have even expanded.
Speaker #1: So, on the earnings per share, we are landing at €5.85, down 19%, which is mainly the result of the softer profit from recurring operations.
Speaker #1: And we can see here on the financial expense a slight decrease as well, though we had a slight increase in our cost of debt from 3.2% to 3.4% as a result of a higher interest rate.
Speaker #1: And we also had a lower income tax, in line with the decrease in our PRO. On the group share of net profit, here we declined at a slightly higher rate, at minus 26%, which is mainly driven by a slight increase in our non-recurring operations and charges, mainly from our restructuring costs.
Speaker #1: On free cash flow, I think you all know that this has been a strong focus for the organization this year. So I'm very pleased to see that we are delivering free cash flow increasing by 6%.
Speaker #1: This is driven by a strong and material improvement of our cash conversion, surpassing our target of 80% and reaching 91%. This is due to strong and strict monitoring and discipline on our operating working capital.
Speaker #1: And the optimization of our strategic investment in both strategic inventories and capital expenditure, while rate-lending at a level that we believe is relevant to protect our assets and our future growth prospects, because it was really following a year of peak in FY25.
Speaker #1: So, on the net debt—needless to say, as a newly appointed CFO, that will be one of my key points of attention. This year, our net debt remained broadly flat over the past 12 months.
Speaker #1: We are benefiting from strong free cash flow delivery, as I mentioned, but also from the proceeds of our disposals. And because of softer EBITDA, we are experiencing an increased net debt-to-EBITDA ratio, up to 3.7%.
Speaker #1: But our intention is definitely to decrease this level below 3x by FY29. Back to you.
Speaker #2: Thank you, Move. As we have now gotten a little bit accustomed to over the last 18 months or so, I think it's worthwhile sharing with you a strategic update on Pernod Ricard. In today's case, in this presentation, it's split into three sections.
Speaker #2: The first one is on our purpose and transformation journey. The second one is what I would call a consumer-centric growth strategy, turning consumer insights into action.
Speaker #2: And the third one is our capital allocation strategy and financial policy. When it comes down to our purpose and transformation journey, first of all, I strongly believe, and we at Pernod Ricard all collectively strongly believe, that our purpose is absolutely anchored in timeless human needs.
Speaker #2: We're not even talking here about consumer insight. We're talking about deep human needs. And that purpose is probably more relevant than ever in a world seeking absolutely authentic human connections.
Speaker #2: And it is true, and I think all of our industry peers have identified this recent evolution. Consumers drink more intentionally; they need a purpose, they need a reason, they need an occasion to do so.
Speaker #2: So, we create more reasons to come together and more meaningful experiences around our brands. I fundamentally believe growth will come from enriching existing occasions and creating new ones.
Speaker #2: Expanding the shared experiences that, at the end of the day, bring people together around our brands. Our long-term drivers— and I won't dwell too much on that, because it's a slide we've been showing and sharing with you for some time now.
Speaker #2: The long-term drivers do remain attractive despite these short-term headwinds and tailwinds. So, you know, the attractive long-term fundamentals around demographics and the middle class, and by the way, specifically for international spirits.
Speaker #2: You know, also, the near-term cyclical pressures we are facing in some specific markets related to consumer confidence and pressure on discretionary spend. And finally, the evolving, at pace, as I mentioned, the evolving consumer needs around premiumization, around experiences, around consumer convenience, and finally around lifestyles and occasions and frequency.
Speaker #2: Again, I do believe that our operating model bears here a serious competitive advantage, insofar as our broad and balanced geographic footprint—very well balanced, both across all the different regions and key, I would say, continents, but also in terms of that ideal balance between mature markets and emerging markets.
Speaker #2: Here you have all the detail. I think that is what makes us quite unique from that point of view. It is a competitive advantage, and so is our diversified portfolio of premium international spirits, which I believe is well exposed to the growing segments.
Speaker #2: By the way, we are present in every category that matters—you see this on the pie chart. We are also present in every single, I would say, price point segment, from standard, which represents roughly 15% of our portfolio, all the way through to prestige. And as well, you see on the extreme right there the RTDs as well.
Speaker #2: When I mentioned that we're ideally exposed as well, you know, if you look at total beverage alcohol, there are a number of segments that are still in good growth or growth.
Speaker #2: If you look at international spirits for the last calendar year '25, which is the latest number we have, that segment has grown by 1%.
Speaker #2: If you look at Indian whiskies overall, they grew 7%, versus an underlying trend for us of 9%, by the way. But anyways, champagne is up 5% versus 20% for PJ, but anyways, and spirit-based RTDs, which is the segment on which we operate today and want to operate even further tomorrow.
Speaker #2: Up 13%. These are industry numbers, so all of the segments in which we operate, from that point of view, are growing. And then, if you look at international spirits, which is the majority of our positioning, there on the right you have the different rates of growth—or decline, in some cases—by categories.
Speaker #2: Of course, and we have been on a journey over the last four to five years of significant transformation. And I'd like to hand this story over to Mov, because before being Deputy CFO and soon to be CFO of Pernod Ricard, Mov has served as our Global Senior Vice President for Transformation.
Speaker #2: So in a way, you kind of drove what we see on this slide.
Speaker #1: Some of it, not all of it. The rest was really managed by the organization and the teams, but indeed, for us, this has been a continuous journey, I would say, and the initiative that you see on the slides is a result of action over multiple years and across multiple dimensions.
Speaker #1: So, if we start with the organization, as you know, over time we've really been focusing on simplifying our organization for further agility.
Speaker #1: We have also been intensifying our efficiency program in order to deliver further efficiencies. And we have been doing so without jeopardizing our ability to invest behind our digital transformation, which we believe is also going to fuel further and future opportunities.
Speaker #1: Lastly we have also been constantly looking at sharpening our portfolio. So on the organization as mentioned we have been taken a two-step approach which we call tomorrow and became tomorrow one tomorrow two the first step was really focusing on delayering with the removal of our regions and really bringing market together under 10 management entities and the second step was more on the way we're managing the portfolio so really simplifying our global functions and also bringing our eight market companies into two brand units in order also to reflect the differentiated business models that we have within our portfolio.
Speaker #1: So this allowed us to really constantly deliver tight and controlled structure costs, with a decrease reaching this year minus 8%, and a second consecutive year of decrease.
Speaker #1: This has also been helped by a strong delivery on our operational efficiencies. We communicated that we were going to deliver a very ambitious program of €1 billion over FY26 to FY29.
Speaker #1: And here, we are able, through the acceleration, to already deliver half of it as from FY26, which makes me very confident also to inform you that we are able, and we will be, delivering the full program of this €1 billion no later than, and at least by, FY28—at least one year earlier than anticipated.
Speaker #1: And as I said, this was done in order to improve our efficiency, but also to allow us to really invest behind our digital transformation.
Speaker #1: So we started by proving all the benefits that it could give us with the successful execution and implementation of our key digital program. And now the focus of the organization is really to make sure that we can scale these benefits to their full extent, at pace and with agility.
Speaker #1: So we are really focusing now on building the relevant—sorry, I'm losing my voice—building the relevant foundations, creating also common processes, building tighter and creating tighter governance, and ensuring that we have higher quality data, because we know that this is where relies all the power of this digital transformation.
Speaker #1: In order for us to become a fully digitally enabled organization, that will really allow us to reshape the way we operate and ensure that we will be delivering at speed, at scale, with this ability to adapt constantly to a faster-evolving consumer need.
Speaker #1: One proof point of that is also what we have been able to deliver on our ANP spends, because here, by optimizing our touchpoints and leveraging digital media, we allowed ourselves to significantly improve our effectiveness.
Speaker #1: We also manage through that to decrease our non-working, to really increase what's going to be impactful towards our consumer, and showcasing significant improvements of the impact of our spend towards the consumer.
Speaker #1: In parallel, as I said, we've been constantly looking at our portfolio, sharpening it by disposing of non-strategic, dilutive brands, as we saw last year with notably the sale of Imperial Blue. That allows us to be in a tighter and better margin, with a better gross profile in a key strategic market.
Speaker #1: We are definitely counting on continuing this effort, as illustrated by the sales of LUMS last month.
Speaker #2: Thanks. Moving to the second chapter of our strategic update: from insights to action, from consumer insights into execution on the ground—what I call our consumer-centric growth strategy.
Speaker #2: As I mentioned, there's a rapidly evolving consumer landscape where the speed has significantly accelerated, which really requires insight-led decisions and much faster execution.
Speaker #2: We have consumer insight teams around the world, a number of consumer insights—broad number of nine very specific consumer insights—which all are translating into tangible, on-the-ground execution and activation.
Speaker #2: The first one is spirits exploration, and by the way, I think you probably saw in more recent research and studies, Gen Z continues to engage in spirits repertoires. However, they're growing to include many, many categories, and it's a very dynamic, I would say, need segment, which represents an opportunity.
Speaker #2: Second and that's not new affordability which is somewhat of a headwind with low confidence as I mentioned earlier pressured discretionary spends fear of inflation number three novelty slash innovation so a real desire and openness of our consumers for innovation for flavors for formats when I talk about formats for fun and attractive formats convenience as I said an emerging trend before COVID which has accelerated quite significantly ever since so in a what we call a cluttered and time pressured environment for people they want quick and easy options should I say mindful moderation no need to mention this too much you all know about it with rising health consciousness with claimed spirits moderation widespread of course and finally craving connection where as I mentioned as introductory notes for our purpose conviviality is really evolving from purely spontaneous connections to planned meaningful and intentional events and we have a big role to play there.
Speaker #2: More specifically, I would say emerging market trends are half of our business. I won't go through this in much more detail because you're all too familiar with this: the demographics, the emerging middle class, and status-driven premiumization, not only in India but in many, many emerging markets.
Speaker #2: Very briefly one by one starting with spirits exploration we are leveraging our capabilities which are now familiar with including our simplified organization that Move described to really leverage and and and really create these occasions and also evolve our media targeting shifting towards the most active and the most efficient media channels.
Speaker #2: Affordability, I mentioned, is addressed through revenue growth management capabilities—through our portfolio, price ladders, through formats as well. The reality is small and fun formats really satisfy consumer desire for premium products despite economic constraints. So, when we give the opportunity for consumers that are under, I would say, purchasing power pressure, they do go for the premium proposition if it's at the right price point.
Speaker #2: Here you have an illustration: US example—I think it's New York. If you see all of our different price points that we cover with a brand franchise, in that very specific case Jameson, starting at $3.99, $4.99, $9.99—basically all of the different price points with one brand, different formats, different expressions. We have this for all our relevant brands across all the states, if I take the US example. But I would say a lot of work is going on on three things to address this opportunity.
Speaker #2: The first one is the offering, so making, obviously, these propositions a reality, which involves, obviously, ideation, innovation, and let's not forget supply chain. By the time we have the idea and it comes to shelf time, there's a minimum amount of time.
Speaker #2: Number two which I would say is equally an operational challenge is the implementation execution and deployment i.e. having these propositions at the right price on the right shelf facing the right consumer because from a route to market standpoint it's it's a big job to be done and which is as well underway and third is pace the speed at which we go to market with these offerings so these are the three things we're working on the offering the the the market presence in terms of points of distribution with the right offerings and finally the speed at which we do that.
Speaker #2: Novelty is another one, and here you have three examples. Now, innovation has moved to purposeful innovation at scale—in a way, fewer but bigger and better. Here you have our key innovation pipeline; it's broader than that, but here you have the key ones, the ones we launched in fiscal year '26, which are going to continue to be deployed across our markets throughout this new fiscal year, plus some new innovations to come down the road during this fiscal year.
Speaker #2: The fourth insight is indeed convenience. I mentioned it earlier, but spirits-based RTDs are the fastest-growing RTD segment, and this is somewhere we can play quite seriously in.
Speaker #2: We also know that Gen Z over indexes amongst RTD drinkers which in a way represents a great recruitment opportunity into our brand franchises if we engage in the right way through the right channels with our consumers leveraging our brands and you see here a few examples of our enhanced portfolio with different format solutions there's the RTDs but it doesn't stop there we also have and it's been launched now over the last couple months 100 ml what we call fun sized formats that are very dynamic we have multi-packs mini formats and and smaller formats as well and many other initiatives around that consumer inside of convenience.
Speaker #2: Mindful moderation, which we address through a number of initiatives around premiumization on one side, alongside the expansion of lower and no/low ABV offerings. And let's be clear, there is a 'drink less but better' trend, which works well if we engage with the right propositions with our consumers. The abstinence rate has remained stable over the last, you know, five or six years. We are seeing, as I mentioned, that trend of 'less but better,' and you see here a few examples of what we're doing in terms of premiumization through our brand franchise and innovation—through addressing lighter consumption occasions with the aperitif trends and some of the non-alc propositions we have innovated over the last 18 months.
Speaker #2: Number six craving connections I I do going back to our purpose of intentional consumption through experiences this is where I really believe we have a role to play through the right associations through the right partnerships we have a specialized team of experts that how to basically work on partnerships you have here a number of partnerships and these are increasing and behind every one of these partnerships we have a very specific and clear execution strategy what I would say is I would just take one example people in key Asian markets for instance really want to see their friends 25% more than they currently are and it is our role in a way as creator de convivialité to create these meaningful occasions to bring them together with our portfolio which I believe is very well positioned to do so.
Speaker #2: And then finally the last three trends all in one would I say is which are skewed towards emerging markets which are demographics I won't go through the numbers you know them which is the emerging middle class I won't go through the numbers you know them and finally which is status driven premiumization which we still see basically everywhere in emerging markets.
Speaker #2: And finally, to the last section of our strategic update on capital allocation and financial policy.
Speaker #1: I think this one is for me. So indeed, with this slide, we really wanted to reiterate our strong intent to bring our leverage ratio down below three times by FY29, and really illustrate the things that we have already been doing this year, and confirm that this is our intent to maintain it over time.
Speaker #1: So first, on our strategic investment—so on both capital expenditure and strategic inventories—where we are decreasing our level and capping it to €700 million.
Speaker #1: And also maintaining and combining it with a strong effort on our operating working capital, and really also increasing our target from 80% to circa 90% in the coming years, as we have been already delivering this year.
Speaker #1: So that's our intent, and below.
Speaker #2: Yes and subject of course to shoulder approval we propose to maintain our dividend at 4 euros and 70 cents per share as part of our commitment to our deleveraging trajectory we will offer our shoulders the choice of receiving their final dividend of 2 euros and 35 cents either in cash or in shares.
Speaker #2: And I think it's worthwhile noting the support of our reference shareholder for this proposition, and the fact that they will opt for the shares.
Speaker #1: On our financial policies, I think it reflects a balanced approach to capital allocations. So, while maintaining our investment-grade rating and, as mentioned, our deleveraging focus, we are really reiterating very clear priorities: first, to invest behind our future growth; two, to really continue actively working in sharpening our portfolio; three, maintaining a progressive dividend policy; and last, the share buyback, when all above priorities will be fulfilled.
Speaker #2: So, in terms of outlook, let's start with fiscal year '27. For this fiscal year, we expect to generate net sales that are broadly stable in a contrasted and uncertain environment.
Speaker #2: Basically, with two messages here: first of all, declines in the US and China impacted by inventory adjustments as of the first quarter, and with underlying trends that are expected to improve in China.
Speaker #2: And second, continued positive momentum in the rest of the world, with ongoing strong growth notably in India, but not just in India. Continued investment behind our brands, with our A&P to net sales ratio to be maintained at circa 16%.
Speaker #2: We will strongly defend our organic operating margin, supported by strict cost control on one side and the acceleration of the implementation of our operational efficiency initiatives, whilst investing in our digital transformation.
Speaker #2: We expect strategic investment to be at circa €700 million, versus €800 million previously guided. We also expect strong operating working capital management, with cash conversion now expected to continue at around 90%, versus 80% previously.
Speaker #2: When it comes down to our medium-term framework—not guideline but framework—while noting the current softness, I would say in the U.S. market we are projecting organic net sales growth aiming to be on average close to the lower end of our plus three to plus six percent range over fiscal year 2027 through to fiscal year 2029, i.e., close to three percent.
Speaker #2: We expect organic operating margin expansion, supported by the acceleration of our operational efficiencies of €1 billion, which we mentioned earlier, and which will be done one year ahead of plans, while also maintaining consistent investments behind our brands, as I mentioned, at roughly a 16% ANP to net sales ratio.
Speaker #2: We expect strengthened cash generation, aiming now for 90—sorry, versus 80% cash conversion to fund our financial policy priorities, with strategic investments normalizing to no more than €700 million.
Speaker #2: We are targeting a net debt-to-EBITDA ratio below three times by fiscal year 2029. We continue to adapt our strategy to capture growth opportunities and our operating model to meet those changing circumstances, including through our ongoing digital transformation, which will unlock further efficiencies.
Speaker #2: And I would conclude by stating that we are confident in the continued engagement of our teams, and that we remain focused on delivering sustainable value growth over time.
Speaker #2: And on that note, I thank you very much.
Speaker #3: True mastery only has itself to beat. New Shivastri Gold 16. Charles Leclerc Limited Edition.
Speaker #1: We're going to kick off the Q&A. We're going to kick off the Q&A. So we can open the operator. As usual please it will be two question each.
Speaker #1: We can start.
Speaker #4: Thank you. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone.
Speaker #4: To remove yourself from the question queue, please press star and two. The first question is from Jen Cross at BNP Paribas.
Speaker #5: Good morning, ladies and gentlemen. Good morning, both. Thank you for the questions. The first question is just on the US. I think in your outlook commentary, you mention expectations of an improvement in underlying trends.
Speaker #5: China, but I just wondered if you could comment on whether you expect your underlying trend to also improve in the US in FY27. And the second question is on India.
Speaker #5: It looks like you saw a nice acceleration in growth in Q4. The question is specifically on the potential for an India IPO. I think it's something you said is regularly discussed at the board level.
Speaker #5: Does that continue to be the case now? Thank you.
