Pernod Ricard's the financial statements for the 2010/11 financial year(2)
Profit from recurring operations
Profit from recurring operations grew +8%(1) to 1,909 million, which is double the growth rate in 2009/10 (+4%(1)) and higher than the +6%(1) growth target announced at the beginning of the financial year. Operating margin was 25.0%, a rise of 28 bps compared to the previous year (on a like-for-like basis), despite the strong rise in the advertising and promotion expenditure to sales ratio.
Over the full financial year 2010/11, the foreign exchange effect on the 2010/11 profit from recurring operations was a positive 25 million, including a favourable effect of 98 million in the first half and an unfavourable effect of 73 million in the second half. The negative 49 million group structure effect on 2010/11 profit from recurring operations was particularly related to the disposal of operations in Spain, Scandinavia and New Zealand.
All regions contributed to organic growth in profit from recurring perations, including +20%(1) in Asia/Rest of the World, +3%(1) in the Americas, +2%(1) in Europe excluding France and +2%(1) in France.
Emerging countries are increasingly powerful growth drivers for the Pernod Ricard Group. Their share in the Group¡¯s profit from recurring operations was 38% in the 2010/11 financial year, compared to 33% in 2009/10.
Net profit from recurring operations
Net financial expenses from recurring operations totalled 469 million, composed of stable debt-related financial expenses of 446 million and other net financial expenses from recurring operations of 23 million, which decreased compared to the previous year, primarily due to the decline in net financial expenses related to retirement benefits.
The average cost of debt came to 4.7% over the full 2010/11 financial year, a moderate increase compared to the 4.3% noted over the previous financial year. Based on current interest rates, our 2011/12 target is to maintain the average cost of borrowing close to 5%.
Corporate income tax on items from recurring operations was a charge of 317 million, an effective tax rate of 22% on items from recurring operations, a moderate increase compared to 2009/10 (20.9%).
Finally, minority interests and other amounted to 31 million.
Overall, the Group share of net profit from recurring operations reached 1,092 million, an increase of +9% compared to the 2009/10 financial year; diluted net earnings per share from recurring operations also increased +9% to 4.12 per share.
Net profit
Other operating income and expenses from non-recurring operations were a net expense of 56 million, including net capital gains of 19 million on disposals (certain Scandinavian and Spanish operations, Suntory equity investment, etc.), intangible asset impairment of 42 million (primarily relating to Polish vodkas), restructuring costs of 17 million and other non-recurring charges totalling 16 million. Non-recurring financial items was composed of 11 million of net income. Lastly, income tax on non-recurring items was a net charge limited to 1 million.
Therefore, the Group share of net profit reached 1,045 million, a +10% increase compared to the 2009/10 financial year, and exceeded for the first time 1,000 million.
Debt
Net debt at 30 June 2011 was € 9,038 million, which was a very substantial reported decrease of 1,546 million, due to strong cash generation and a very favourable translation adjustment (EUR/USD rate of 1.45 at 30 June 2011 vs. 1.23 at 30 June 2010).
The Net Debt to EBITDA ratio(2) (average EUR/USD rate of 1.36) decreased significantly to 4.4 at 30 June 2011, compared to 4.9 at 30 June 2010. The Group confirms its target for a Net Debt to EBITDA ratio(2) close to 4 at 30 June 2012.
Note that the Group successfully continued to refinance its debt with attractive conditions in 2010/11, with two bilateral financing packages of 150 million and USD 201 million in December 2010 and two bond issues:
EUR 1 billion in March 2011 USD 1 billion (inaugural issue in the US) in April 2011
As a result, at 30 June 2011:
- bond debt represented 48% of gross debt, ahead of the plan to achieve the announced target of 50%
- the success of the inaugural issue in the US market has broadened the investor base and made future refinancing maturities more secure
- the weighted maturity of the debt was extended by 3 years and 7 months, with a more even future repayment profile
Dividend: 1.44 per share
A dividend of 1.44 for the 2010/11 financial year (a 7.5% increase over the last fiscal year) will be subject to approval by the Annual General Meeting of 15 November 2011. This dividend is in line with the usual policy of distribution in cash of about 1/3 of net profit from recurring operations.
Considering the 0.67 per share interim dividend paid on 6 July 2011, this implies a final dividend of 0.77 per share. The ex-date for this final dividend will be Thursday 17 November and with payment on
Tuesday 22 November 2011.
Conclusion and outlook
In 2010/11, Pernod Ricard successfully:
- strengthened its market positions, particularly in emerging markets, which returned to very strong growth
- continued to implement its strategy of innovation and premiumisation, thanks to substantial, targeted investment
- increased its gross margin rate
- accelerated the pace of its organic growth in profit from recurring operations to +8% (+4% in 2009/10,compared to an initial target of +6% for 2010/11)
- continued its debt reduction and increased the share of its bond financing (EUR & USD)
According to Pierre Pringuet, Chief Executive Officer of the Group: ¡°Our remarkable performance over the 2010/11 financial year demonstrated the relevance of our strategy and of our decentralised model. For 2011/12 the beginning of the financial year confirms the resilience of our markets. We will continue to grow, by capitalising on the strength of our portfolio of brands, the quality of our distribution network and the powerful leverage of emerging markets.¡± After reiterating the target for a net debt to EBITDA ratio(2) close to 4 at 30 June 2012, he added: ¡°We will pursue the reduction of our debt.¡±
In line with its standard practice, Pernod Ricard will communicate its earnings targets for the current financial year as part of its communication on 1st quarter sales on 20 October 2011.
(1) Organic growth
(2) Net debt calculated by translating the non EU-denominated portion at average forex rates for the financial year
(3) Retail price > 17 USD for spirits and > 5 USD for wine
