Press releases

Total success of Allied Domecq integration Profit from recurring operations:        € 1,255 million (+72%) Underlying earnings per share:           € 8.12 Group net profit:                                      € 639 million (+32%) Net indebtedness at 30 June 2006:      € 6,351 million (€ 3,600 million reduction since Allied Domecq acquisition) Paris, 21 September 2006 – The Board of Directors of Pernod Ricard, meeting on 20 September 2006, approved the financial statements for the 2005/06 financial year ended 30 June 2006. Successful integration of Allied Domecq The 2005/06 financial year was marked by the successful integration of Allied Domecq, following its acquisition on 26 July 2005.  All previously announced objectives have been met or exceeded 11 months after this major transaction:   • The integration of Allied Domecq brands and personnel has been completed at a lower cost than anticipated (between € 350 and € 400 million, compared to an initial estimate of € 450 million).  As early as the 2006/07 financial year, Pernod Ricard will benefit from the full € 270 million expected synergies in structure costs, that is a year earlier than initially planned. • Contribution after advertising and promotion expenses of acquired Allied Domecq brands is in line with expectations (about € 1,000 million over a full 12 month period). • At the same time, Pernod Ricard has transferred a number of Allied Domecq brands to Fortune Brands together with Larios Gin for around € 4,300 million and disposed of non-strategic assets or assets conflicting with competition regulations for close to € 2,600 million before tax (Dunkin’Brands, Britvic, Bushmills, Glen Grant…). • Proceeds from and speed of the disposal of these assets exceeded expectations. With a net cash flow from operations and in spite of transaction costs, asset disposals enabled a significant reduction in indebtedness, which decreased by € 3,600 million since 26 July 2005 to € 6,351 million at 30 June 2006. • Moreover, Pernod Ricard original brands experienced continuing strong growth, in spite of the scale of the transactions completed over the period. All these successes contributed to the excellent results achieved by Pernod Ricard in the 2005/06 financial year. Significant increase in sales (+68%) Sales (excluding tax and duties) increased by 68% and amounted to € 6,066 million.  Growth not only resulted from the contribution of Allied Domecq brands (Group structure effect: + 61%) but also from the sustained 4.3% organic growth (excluding spirit bulk sales) achieved by Pernod Ricards’ original brands. Pernod Ricard brands Growth by Pernod Ricard original portfolio primarily relied on the great vitality of premium and deluxe brands, which in their majority experienced double-digit growth rates (Chivas +11%, Martell +11%, Jameson +12%, The Glenlivet +10%).  The positive portfolio mix effect thus generated (Top 12 volume: +2%, sales organic growth: +7%) and high gross margin rate of premium brands resulted in strong 5.5% gross margin organic growth to € 2,239 million and greatly improved the gross profit ratio, to 60.9% from 59.7%. Dynamic sales and favourable growth prospects led to a continuing increase in advertising and promotion expenditure (+9.7%).  The A&P expenditure / sales ratio thus reached 17.5% during the financial year.  Pernod Ricard original brands generated a total contribution after A&P expenditure of € 1,449 million, a 4.4% organic increase over the previous financial year. Allied Domecq brands Allied Domecq brands achieved sales of € 2,390 million, which were adversely affected by destocking in a number of markets (Spain, Mexico, etc.) and the termination of sales that generated parallel imports to other markets, in particular in Central America.  In this first financial year, we have increased advertising and promotion expenditure on acquired brands.  The A&P expenditure / sales ratio thus increased to 16.3% from around 14.5%. The 11-month contribution after A&P expenditure by Allied Domecq brands reached € 881 million, or a contribution after A&P expenditure to sales ratio of 36.9%, lower than Pernod Ricard brands due to a different portfolio mix. These results confirm the full 12-month contribution after advertising and promotion expenditure by Allied Domecq brands of around € 1,000 million. Profit from recurring operations Structure costs were € 1,075 million over the period.  The speed of the Allied Domecq integration enabled over 60% of synergies to be implemented in the 2005/06 financial year and reduced the structure costs to sales ratio from 19% to 17.7%.  The full € 270 million in synergies will appear in 2006/07, enabling a reduction in the structure costs to sales ratio of around 16% (equal to the 300bp gain announced).  These structure costs will be increased by € 30 million in stock option-related non-cash expenses. Profit from recurring operations was up 72.1% to € 1,255 million and the operating margin ratio was 20.7%, a 50 basis point improvement over the previous financial year.  Note that this includes € 50 million contribution from disposed brands (Larios, Bushmills, Glen Grant) or Allied Domecq agency contracts that were not renewed (Jack Daniels, Carolans, Tullamore Dew, Midori) and that will expire in 2006/07. Analysis of performance by region Asia/Rest of World and Americas were again the primary profit growth drivers over the financial year, with respective growth rates of 10.1% and 5.5% (organic growth) of Pernod Ricard brands contribution after advertising and promotion expenditure.  Contribution by Allied Domecq brands further enhanced the significance of these two regions for Pernod Ricard, by increasing the Group’s leadership in Asia and doubling its size in America.  Overall, the two regions generated profit from recurring operations of € 680 million, or 54% of Group profit.  Europe (organic sales growth, excluding bulk sales: + 0.8%) and France (organic sales decline of 1.1%) experienced a more difficult financial year.  However, controlled advertising and promotion expenditure enabled a significant increase in Pernod Ricard brands contribution in Europe (organic growth: +3%) and stable contribution by France.  The two regions generated a combined profit from recurring operations of € 574 million. Net profit from recurring operations Net financial loss totalled € 350 million and included € 319 million in indebtedness-related financial expenses (at an average rate of about 4.5%) and € 31 million in finance structuring expenses and pension commitment discounting charges. Income tax on ordinary activities was a € 222 million expense, equal to a 24.5% taxation rate.  In addition, Dunkin’Brands and Britannia Soft Drink operations generated a net profit of € 57 million over the period they were owned by Pernod Ricard, which was recognised under “Profit from disposed operations”.  Finally, minority interests’ share of net profit from recurring operations was € 30 million, originating from Corby (Canada), Jinro Ballantine’s (South Korea) and Havana Club International (Cuba). Overall, Group net profit amounted to € 711 million, a 49.4% increase compared to the 2004/05 financial year.  Underlying earnings per share was € 8.12, up 21,2%, confirming the strong and immediate positive impact of the Allied Domecq acquisition for our shareholders. Net profit Non-recurring items recognised over the period are primarily related to consequences of the Allied Domecq transactions.  Non-recurring operating loss (net) was € (126 million).  Costs associated with the restructuring and integration of Allied Domecq (€ 333 million), fees related to the transaction (€ 54 million) and non-recurrent charges related to the measurement at fair value of finished good inventories (€ 24 million) and the Stolichnaya distribution contract (€ 25 million) were partly offset by capital gains on the disposal of assets (Bushmills, Seagram’s vodka, Glen Grant). Non-recurring financial loss (net) amounted to € 60 million, primarily relating to the cost of foreign exchange hedging options set up for the purchase of Allied Domecq and the cost of conversion of Pernod Ricard convertible bonds in August 2005. Finally, favourable taxation on a number of non-current items resulted in a € 114 million income tax saving. After taking into account all non-current items, Group net profit reached € 639 million, a 32,1% increase over the 2004/05 financial year. Dividend up 17% These very good results allow the Board of Directors to propose to the annual Shareholders Meeting of 7 November 2006, a cash dividend per share of € 2,52, up 17%. This dividend per share is paid in two instalments, the first one (€ 1.12 per share) was distributed on 5 July 2006, and the second (€ 1.40) to be paid on 15 November 2006. Conclusion and Outlook Following the successful integration of Allied Domecq, Pernod Ricard is beginning the 2006/07 financial year with confidence. Allied Domecq brands remained adversely affected over the first months of the 2005/06 financial year by a number of non-recurring items (overstocking in certain markets around the time of closing of the transaction, progressive disengagement from commercial networks  in Central America generating parallel).  These effects on 2006/07 financial year bases for comparison will gradually disappear as the year progresses. The quality of Pernod Ricard brand portfolio and the strength of its distribution network should enable the Group to generate strong organic sales and profit growth during the financial year.  In addition, the new strategic platforms (positioning, advertising, packaging) of acquired brands will be implemented from the end of 2006, which should enhance the vitality of Allied Domecq brands. We also anticipate 2006/07 organic sales growth to be at the top end of our 4% to 6% long term objective.  Finally, we maintain our guidance of a strong double-digit growth in underlying net profit (excluding forex impact). Access the appendices (pdf) For more information, please contact: Francisco de la VEGA, Communications VP,  Tel: +33 (0)1 41 00 40 96 Patrick de BORREDON, Investor Relations VP,  Tel: +33 (0)1 41 00 41 71 Florence TARON, Press Relations Manager,  Tel: +33 (0)1 41 00 40 88