A LOOK BACK AT A GREAT 2017/2018 VINTAGE
INTERVIEW OF HÉLÈNE DE TISSOT EVP, FINANCE, IT & OPERATIONS
FY18 WAS DEFINITELY A VERY STRONG YEAR AND WE EXPECT BROAD-BASED SALES GROWTH IN FY19.
How would you describe the Group’s performance during the 2017/2018 financial year?
HÉLÈNE DE TISSOT: FY18 was definitely a very strong year with a clear acceleration of Sales, growing +6.0% organically. All regions and key brands performed well and price/mix improved. For instance, in the US we are now growing broadly in line with the market, and both China and India have returned to strong growth. As for our Brands, 11 out of the 13 Strategic International Brands grew, with 6 of them improving vs FY17. We also had a very strong financial performance, with organic Profit from Recurring Operations (PRO) growing +6.3%, in line with our revised annual guidance. Our operating margin improved +14bps, driven by Gross margin improvement and Structure cost discipline despite increased investment behind Must-Win Brands and markets to drive future growth. We have seen a return to positive pricing and also continue to make good progress on the Operational Excellence roadmap.
FY18 was another very strong year for Cash Flow, with Free Cash Flow growing +10%. This enabled significant deleveraging, with Net Debt decreasing approximately €0.9bn to €7.0bn and the Net Debt/EBITDA ratio falling to 2.6x. Finally, our proposed dividend of €2.36 per share increases the pay-out ratio to 41%, in line with our new policy to gradually increase the pay-out to approximately 50% by FY20.
Will growth continue to be steady?
H.T.: Looking forward, we will continue executing our consistent strategy, with clear resource allocation and support for Must-Win Brands and markets. In FY18 our sales growth was broad-based and diversified, and that is our expectation for the upcoming financial year.
Should we expect improvement of the operating margin?
H.T.: We expect gradual improvement of the PRO margin on an organic basis. In FY17 the margin was down slightly at -6bps but in FY18 improved +14bps. Margin progression should continue thanks to pricing improvements, favourable product mix, Operational Excellence initiatives and continued discipline on structure costs. Despite growing pressure on input costs, we should see a moderate improvement in the organic PRO margin in FY19.
What are the future prospects for the Group?
H.T.: We anticipate ongoing uncertainty of the geopolitical and monetary environment in FY19. Nevertheless, we expect broad-based Sales growth to continue, thanks in part to improved pricing. Input costs will be under growing pressure, but thanks to the Group’s continued execution of a consistent strategy we have set guidance of organic growth in PRO for this financial year between +5% and +7%.
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