On the worries around Europe/US alcohol consumption trends Pernod is indicating India could more than offset that; "roughly 25 million additional legal drinking age people every single year for the foreseeable future." (UK's population is ~69m for ref). On US habits it says "one American out of two, broadly speaking, drink some kind of alcoholic beverage. It was the case 10 years ago and it's still the case...frequency has gone down but intensity has gone up. The sum of the two if you, if you do the calculation has gone down a bit." It does not young Americans are abstaining more (21% to 23% over last 5 years) but notes drinkers in the age group will spend more on upper value spirits (premiumisation trend peers refer to).
Net net, the volume trends point to a recovery in the market but Pernod is riding high-beta to China weakness. We do see it hanging outside Moody's gross<3.5x threshold - Moody's was giving it leeway on the ~€2b cash it holds + expected earnings turnaround. Still weak guidance may see rating action. Secondary levels are uninteresting, €1.3b due this year unclear how much it will refi based on guidance (do not expect full refi).
- 1H organic -4%, net of FX -6%. This is price/mix driven (-6%) while volumes were +2%.
- USA -7%, Asia-RoW -5% (China -25%, India +6%), Europe -2%, Global Travel Retail -9%
- Says anti-dumping measures from China on duty-free Cognac will continue to "heavily" impact travel retail sales.
- Pernod generally runs 40% exposure to Asia, 30% to US and 30% to Europe. That compares to Diageo's 20% and Campari's 8% Asia exposure.
- 85% of its China sales is Martell brand - that was down -25% in sales (-19% volume)
- EBIT margin organic +65bps at 32.1% (revenues/margins seasonally higher in 1H)
- FCF €440m (+139m yoy), on better WC and lower capex
- Net debt at €12b (+1b), levered net 3.5x. m
- expects this to fall including from "proceeds on announced disposals" but to stay >3.0x (for now).
FY25 (to June '25) Outlook
- LSD decline in organic sales (i.e. continuing pace from 1H)
- Sustain the EBIT margin (2H last year was a low 8.8%)
- It has some longer term growth targets as well but little relevance to us/here
