“Friendliness and upgrading are our two pillars”

You announced the 1^er September of the “historic” results for the year ended June 30. What have been the main drivers of growth, to what extent can they be attributed to the pandemic or to more long-lasting trends?

Pernod Ricard’s business is based on two characteristics specific to human beings. For the first, it took the Covid crisis to realize the impact of confinements on conviviality. When bars and restaurants reopened, we saw consumers rushing there to find each other. Second particularity, man always aspires to better, to more progress and innovation, to a better standard of living. The premiumisation of spirits consumption is a long-term trend, which we have seen for more than twenty years. Conviviality and upgrading are thus the two pillars of Pernod Ricard. Since the end of health restrictions, we have also observed very strong resilience in home consumption, particularly in the United States.

This does not mean that people drink more: they drink less, but better. Added to this was the strong rebound in consumption in bars and restaurants. The terraces are full, the summer has been excellent on the Mediterranean coasts as in Paris with the return of tourists. Finally, we are seeing an upturn in activity in the travel retail, by 48%* for the 2021-2022 financial year, while passenger traffic has not yet returned to its pre-Covid level at airports. We will even return to our pre-crisis profits on this market during this new 2022-2023 financial year.

How are your sales on the large Chinese market, where health restrictions persist?

China is our second market behind the United States. Some of the activity previously carried out with travelers is now transferred to Hainan Island [devenue un haut lieu du tourisme et du luxe en Chine, NDLR]. For the group today, the Chinese market is, on the one hand, cognac with Martell, and, on the other hand, scotch, in particular Chivas, or single malt, with The Glenlivet. We also invest behind Absolut vodka and high-end Royal Salute whisky. Our turnover in China increased by 5%* last year due to restrictions, but it has grown by 9%* on average over the last three years. Consumption picks up very quickly as soon as bars and restaurants reopen. In the longer term, we believe that the Chinese market can grow by 8% to 10% per year thanks to demographics and the development of the middle classes, with the prospect of a doubling of the penetration rate of imported spirits by 2025. It was 0.8% of volumes sold in 2018, it is currently 1.6%. We hold a 45% market share there, with a number one position. We also started producing in 2021, in our new distillery in Sichuan, a Chinese whiskey for the Chinese. Two cellars have opened and we will be able to present the brand next year.

In the United States and Europe, is high inflation changing consumer habits? Do you notice a phenomenon of trading down ?

No, not at this stage. This is a phenomenon that we only experienced for eight months during the serious financial crisis of 2008-2009. Strong spirits brands are seen as affordable indulgence products. In addition, consumers now have the experience of Covid. They realized that they could consume premium spirits and beyond at home for less than in bars and restaurants. We haven’t changed our marketing campaigns either. Even in a down economic cycle, we continue to invest in a brand. For several years, Pernod Ricard has devoted approximately 16?% of its turnover to advertising and promotion investments.

You have also announced that you will increase your industrial investments to 7% of turnover in 2022-2023, compared to 4.5% in 2021-2022. For which projects?

When this ratio is on the rise, it’s good news, it’s that we are confident for the long term! It will represent more than 700 million euros compared to a turnover of 10.7 billion last year. These investments are intended more for products requiring ageing: whisky, cognac or champagne. We have announced three in recent months. In Ireland, at Irish Distillers, we will spend €50 million to transform the Midleton distillery to become carbon neutral by 2026, using MVR technology, which recovers steam resulting from distillation and reusing it in the industrial process. We then announced on September 6 an investment of 250 million to build a new distillery in Midleton, next to the first, given the success of Jameson whiskey. It will also be carbon neutral from the outset. This already amounts to 300 million euros for Ireland, to which will be added an investment of around a hundred million euros intended to increase the capacities of two single malt distilleries in Scotland, those of Aberlour and that of Miltonduff, again with greener distillation technologies. Sustainable development is an important and structural transformation for us.

Do you foresee an evolution of your brand portfolio, which includes 240? As the group enjoys a very healthy balance sheet, will we ever see a transforming acquisition again?

We have a dynamic management of our brand portfolio, driven by targeted disposals and acquisitions. In June, we sold Tormore Single Malt Scotch and Distillery, following the announcement of investments from Aberlour and Miltonduff. At the same time, we have just purchased Château Sainte-Marguerite, a Côtes-de-Provence classified cru, which completes Pernod Ricard’s luxury portfolio alongside Mumm and Perrier-Jouët champagnes. These acquisitions expand our so-called “specialty” portfolio, with other recent investments such as Del Maguey mezcal, Avion tequila, American whiskeys Rabbit Hole, TX Jefferson and Smooth Ambler, German gin Monkey 47 and older brands such as Lillet. In 2018-2019, before the health crisis, this portfolio of specialties represented 3% of the group’s billings. It now accounts for 6% of a turnover which has increased sharply. Its weight has therefore almost tripled in value. This portfolio is equivalent to the acquisition of a brand that would provide 6% of turnover!

Pernod Ricard has just signed a technological alliance in data management with the JCDecaux group. What is it about ?

Digital data is at the heart of our strategy, it is the continuity of what sales people once did on paper. Now, the algorithms we have built in-house allow us to analyze the criteria of a promotion (we already have 32 of them!), such as the amount of the discounts, their duration, their exact moment or their frequency. This data portal provides us with a list of criteria to maximize the net impact of our promotions and help our teams in the field. We thus have three major digital transformation projects: data at the service of promotional effectiveness, already in the deployment period, and we are going to replicate these tools to refine our marketing investments and to support our sales forces. Our digital teams took four years to develop this data portal. Through the agreement with JCDecaux, or even with other companies, we are going to pool and optimize this tool, but without one having access to the other’s data.

VOur shareholder return policy combines dividend and share buyback. Can you specify it?

It consists, in fact, of two main parts. First, we are accelerating the return to the shareholder with a proposed dividend of 4.12 euros per share, up 32% compared to last year, and with a new share buyback program for the financial year 2022-2023 between 500 and 750 million euros. I would add that I am very happy that we can now resume the activities of our Premium Club dedicated to shareholders and that it is a pleasure for me to discuss with them when they come to visit our new headquarters or our foundation.

* Excluding currency and perimeter effects.