Julia Massies - VP, Financial Communication and IR Gilles Bogaert - MD, Finance and Operations

Olivier Nicolai - Morgan Stanley Simon Hales - Barclays Carl Walton - UBS Ian Shackleton - Nomura Andrea Pistacchi - Citigroup Trevor Stirling - Sanford Bernstein Catherine Rolland - Kepler Cheuvreux Stephanie D'Ath - BofA Merrill Lynch Jamie Norman - Societe Generale Alex Smith - Investec

Ladies and gentlemen, welcome to the Pernod Ricard Q1 sales conference call. I now hand over to Julia Massies and Gilles Bogaert. Madam, sir, please go ahead.

Ladies and gentlemen, good morning and thank you for joining us for this Q1 update. We will follow the usual format of the brief presentation and then leaving the floor to your questions. So, without further ado, I hand over to Gilles Bogaert.

Thank you, Julia. Hello, everybody. Thank you for joining us for this call. As you may know, we are no longer obligated to communicate the quarterly sales. However, as we have told you, we'll continue to do so as we feel it is useful to give regular updates on our performance. And we hope you will appreciate the new presentation format, which is more streamlined and in line with our efforts towards simplification since the implementation of Allegro. I suggest we go through the presentation, starting with the executive summary. So we had a continued gradual improvement in Q1 sales in a contrasted environment. Organic growth of net sales was up 3%. We had a good start in Europe, up 3%, with a good growth in Spain and UK. And France and Russia have been resilient even if the two countries have been negatively impacted by some technical factors. We have some improvement in the Americas, up 6%, driven by the USA. We had a strong Q1 in the USA, which was partly favored by positive phasing. Brazil and Canada have been resilient. But we had some decrease in the travel retail Americas due to a tough competitive environment. And in Asia-rest of the world, we have some growth deceleration. The growth was 1%, due to a difficult environment in China. China, where the demand remains weak. On the other hand, we had a good Q1 in India and in Africa/Middle East, whereas we still have some difficulties in Korea and Southeast Asia. On page 5 you have the key figures. Net sales amounted to EUR2,223 million, up 3% organically. Reported growth was 9%. Mature markets were organically up 4%, which shows the good performance in Pernod Ricard in most of the mature markets. Emerging markets were up 2%; excluding China, they are up 7%. Top 14 was up 2%, our key local brands 5% and our wines up 8% in the quarter. Page 6, our sales growth reported figure was up 9% thanks to a positive organic growth of 3%, as we said, which was driven by volumes up 6% and also some modestly positive pricing, while the mix remained negative. And the other reason for that 9% increase is obviously the very large ForEx impact we had in the quarter, up 7%, EUR133 million, largely due to the favorable parity of the dollar. And you have the graph showing that we have a positive parity between the dollar and the euro during the first half, whereas the comp will become more difficult in the second half. Page 8, you have the split of sales growth by region. Good momentum in Americas and Europe, but Asia weaker. In Asia-rest of the world, so the growth was 1%, whereas it was 4% for the full 2014/2015 fiscal year, still growing but at a slower pace due to the difficult context in China. The Americas were up 6%, whereas last year in the full year the growth was 2%. That improvement was driven by the USA, but with a positive technical factor linked to enhanced phasing. In Europe we were up 3%, whereas we were flat for the last fiscal year, so we had a good start there. So overall for the whole world our performance in the Q1 is consistent with our scenario of continued gradual improvements in net sales. Page 9, you have the evolution by category. And innovation has played a clear role in the improvements in the Q1. In the top 14 net sales were up 2%. This performance was driven by Jameson and The Glenlivet. Overall volumes were positive. Price was also positive, but the mix was negative. We had a very good start for wines, up 8%, whereas last year we were down for the full year 1%, with some improvements in particular in the UK and Australia. Our key local brands were up 5%, in line with what we delivered for the last fiscal year. And it was driven by Indian whisky and Passport. And for the rest of the portfolio we had a good growth of Avion and Aberlour, which is a good example of good performance driven by innovation. Let's have a look at the performance by region, starting with Asia-rest of the world. So still growing 1%, but at a slower pace due to difficult context in China. China was down 9% in the first quarter. Obviously we had the impact of the macroeconomic slowdown which negatively impacts the spread consumption. The Q1 was also negatively impacted by some tier-one and tier-two wholesaler destocking, as planned. Martell sales were down 4%, with some deceleration of Noblige. But Martell has been more resilient than the Scotch portfolio, which is still declining double digits. We had some improving price and mix in Q1. And we estimate that the underlying trends in China are around minus 45, minus 5% in value, that is to very consistent with what we had in 2014/2015. In India we enjoyed a continued double-digit growth, both for the top 14 and the Indian whiskies. In travel retail Asia, as announced, we had the slow start due to MERS, also some reduced purchasing from Chinese travelers and some competitive pressure. And we also had a tough basis of comparison in the first quarter. Southeast Asia was still tough, linked to macroeconomic environment. But Africa/Middle East enjoyed a very strong growth, 21%, driven by sub-Saharan African and with an excellent performance of Scotch whiskies, Jameson and Martell. Let's go to the Americas, starting with the US on page 11. US up 8% in the first quarter, clearly partly favored by phasing. At the market level we continue seeing the strong trends that we had in the first half of this calendar year. Nielsen volumes in the period were up 3.1% and value was up 7.5%, with premiumization remaining strong. As far as the performance of Pernod Ricard USA is concerned, we had a strong reported performance due to a favorable basis of comparison and some technical phasing impacts, particularly in September, some of which were reversed in Q2. But the good news is that we have some improved underlying performance versus 2014/2015, as expected. Our volume, Nielsen performance was up 1.4% and in value the growth was 5.9%. With different performances by brands, Absolut still down 2% but with a slightly improved performance because the brand in Nielsen was down 3% the year before. And excluding the flavors, there is some early signs of improvement on the core brand of Absolut. Jameson, a very, very good start in the year with an ongoing double-digit performance of 26% in Nielsen value. Glenlivet, again very strong growth, 15%. And the brand continues outperforming the whisky category. Good start also for Malibu, up 4% in a flat category. And our innovation is also paying off and, for instance, our tequilas, Avion and Altos, had a very good Q1, outperforming the tequila category. On page 12, we cover the other American markets. The growth outside the US was 4% in the rest of the region. Canada showed a solid performance. Brazil was still up 5%, even if there was a clear market slowdown in a difficult macroeconomic environment. And our shipments have benefits from some buy-in prior to price increases on main brands. We kept gaining market share on our key brands in a flat market. Absolut was up 16%, Chivas 13%, The Glenlivet 27%, Passport 8%. There will be a duty increase on the local tax called IPI in December 2015. Mexico showed a low single-digit decline, broadly reflecting the underlying trends. And travel retail, as I said earlier, had a tough start, as planned, showing a double-digit decline, driven in particular by the duty free in Brazil and the border zones, largely due to ForEx volatility and also a high basis of comparison. Slide 13, Europe. Good start, both in the west, up 3%, and the east, up 4%, which gives an overall organic growth of Europe of 3%. In France, as expected, we had some decline resulting from the reversal of forward shipments we have done in June in anticipation of the mutualization of the back offices between Pernod and Ricard, which is now done. Excluding those technical impacts, the underlying trends are improving, with market share gains in particular for our top 14 brands. Spain confirmed a rebound of the market, both for the on and for the off-premise. And in that context, a strong performance of Pernod Ricard Spain, led by the gin portfolio, Beefeater, Seagram's Gin, and also a return to growth for the first time for many years of our Scotch brands Ballantine's and Chivas. Germany, we had a good growth with market share gains, in particular for Jameson, Havana Club and Absolut. In the UK we had a strong start for the top 14 and the premium wines. Travel retail, the context still tough, but we are seeing some early improvements. Russia, we had a mid-single-digit decline, partly due to unfavorable comparison. As you know, we had started to do some market loading in the end of Q1 2014/2015, and that will still be the case in the second quarter. But we can say that in terms of underlying trends we have a good resilience in a market which is soft. Our depletions were down 1%. Poland enjoyed a strong rebound with double-digit growth due in part to an easy comp with market share gains. So now I suggest we commence the 2015/2016 outlook for the full year. So we expect a continued gradual improvement in sales growth versus 2014/2015 in a contrasted environment. We expect some improvement in the USA and in Europe, but also still a difficult environment in China. And the commercial landscape should remain very competitive though some positive pricing is anticipated. We'll keep implementing our long-term growth strategy with a strict pricing policy, with A&P increasing to support our key projects and innovations, and also with our focus on operational excellence initiatives with a strong cost discipline. Our guidance for 2015/2016 is an organic growth in profit from recurring operations between plus 1% and plus 3%. We expect a positive foreign exchange impact on the operating profit from recurring operations at approximately EUR20 million based on the current ForEx rates, but strong volatility will remain. I suggest we -- well, a new event, on slide 16 the upcoming communication timetable. The AGM soon, the call for the Americas on December 10, our half-year results on February 11, the EMEA call on March 14, the third-quarter call on April 22, and then the Asia conf call will now be held on May 31. I suggest maybe we start now with your questions.

[Operator Instructions].So we have the first question from Olivier Nicolai from Morgan Stanley. Please go ahead sir.

Hi. Good morning, Gilles and Julia. I've got two questions, please. First of all on China, how confident are you that destocking will not happen again in Q2? And also you were saying that Noblige and VSOP plus was actually decelerating. Are you losing share there or is it some kind of down-trading towards VS or Distinction? Second question is in the US. Could you give us a bit more detail on the technical factors and how big it was during Q1? And also you mentioned at your full-year results that Absolut would see some destocking in Q1. Clearly that did not happen. Could you comment on your level of inventories in the US? And just lastly, is it possible to disclose your percentage of growth that you had in India? I think last year it was plus 18%.

Could you repeat the last question, please?

Just the percentage of sales growth in India. I think last year you gave it to us, it was I think 18%. I was just wondering what was the double-digit. Thank you very much.

Okay. Well, on China, we had some destocking in the first quarter of the current year. As you know, last year the stocks had increased a little bit, in particular in the last quarter of the fiscal year. They were up six days. And that's why we had said that even if we had posited an organic top-line growth of minus 2% for the full 2014/2015 year, restated by this high inventory, the underlying growth was more in the range of minus 4%, or minus 5%. What we say is that we still see this kind of underlying trend for the full 2015/2016 year, and that's also what we see for the Q1. So we had some destocking in Q1. I would say that in terms of number of days, the inventories were down by more or less four days, whereas they were up last year by six days. So you could still have some destocking coming, but the impact shouldn't be too significant. I think what is more important today in China is what are the underlying trends. We don't see any improvements in the situation but we don't see worsening either. And Noblige had shown some double-digit growth last year. As a reminder, Martell has been gaining share year after year in the last few years, becoming the undisputed leader. I think it's really premature to track market shares on a quarterly basis. I think that's something that we can do on an annual basis. Maybe you can have some view for the half-year results also. But we don't track that on a quarterly basis. But I would say we consider that our performance on Martell, even if Noblige is a bit less dynamic, is not fundamentally different from what we saw last year. In the US, the growth of 8% clearly includes some positive shipment phasing for most of the brands. I would say that looking at the underlying trend for Nielsen shows a growth in value which is 5%. We know that Nielsen covers just part of the market; it does not cover the on-trade and the independent liquor stores, which tend to grow at a lower pace. So I would suspect that our underlying trend in the US is more in the range of low to mid-single-digit top-line growth. That's more in line with what we see for the US in terms of underlying trend. Indeed, we had some positive shipment phasing for almost all brands in the US, but one, which is Absolut. And Absolut was, I would say, the shipments of Absolut were down in the US in the first quarter, not far from a high single-digit decline. But the good news, even if these are very early signs, is that the underlying trends on Absolut start to show some improvement. The Nielsen was minus 2%. Last year we were at minus 3%. Obviously it's a long journey but we have a comprehensive plan in place on the platform, on the commercial strategy, on the execution, on the innovation strategy around the brand to be able to deliver our mid-term objective, which is, as you know, to stabilize the brand in the US. And hopefully in the next few years to come we'll gradually show some improvement. And in India, I think we indicated in the presentation that we had double-digit growth in value. I think that's a sufficient piece of information for a quarterly communication.

So we have another question from Simon Hales from Barclays. Please go ahead, sir.

Thank you. Morning, Gilles. Morning, Julia. Just a couple of questions as well, if I can. Can I just follow on, Gilles, on your commentary on the technical effects in the US in the first quarter? You said obviously most brands outside of Absolut benefited from that. What is that? Was that just buying ahead of some price increases that are coming in Q2? I'm just trying to understand exactly what drove that. And then sticking with the US, could you talk a little bit about maybe trading trends in the on-trade, what you're seeing there? Clearly you've seen the firming Nielsen data, but what are you seeing in other trade channels? And then if I could just switch gears to China, can you break down -- because you gave the value depletion trend running down minus 4%, 5% in the quarter. How does that split between the volume trend you're seeing and price/mix at the depletion end in the market?

Well, in the US, as you know, with three-tier system, you always have some, on a quarterly basis, some differences between shipments and depletions. And it happens that in Q4 last year out, I would say, probably depletions were a bit less strong than the year before. So we had an easier comp this year than last year. Then we have a few other factors. For instance, on Jameson we have just launched Jameson Caskmates, which is, we believe, a very encouraging innovation on Jameson, with a good welcome from the trade. But, as always when you launch an innovation, you can have some initial shipment pipeline effects. So this is the kind of effect that we had in the first quarter in the US. Then in terms of performance, yes, the Nielsen are around 5%. But the on trade, which represents a bit more than 25% of the US market, is [enduring] but not at that level. And we also believe that the independent liquor stores are not running at that level. So our best guess, even if it's a best guess for the market and by -- and also for us, we believe that the overall market trend in the US is probably 1% to 2% below the Nielsen figures you can see in value. And then back to China, I don't want to be too specific in that Q1 communication because this is still only three months. That's a low quarter and, as you know, a lot will depend also on the performance in the next Chinese New Year. But what we've seen in our net sales evolution is probably a lower volume performance than last year, but an improving price and mix.

Okay. Lovely. Can I just follow up, Gilles, and just ask you about the growth in the premium wines business in the quarter? Is there anything specific and one-off that drove that plus 8%? That was quite impressive.

Well, probably also I would say that the underlying trend is lower than 8% for the wine. That said, we are confident we'll post some growth in wine for the full year, whereas we were more or less flat in the previous two years, because the brand is -- the wine is starting to clearly improve its performance in Australia, also in the UK. We start to see some traction in emerging markets. The 8% has been favored by some technical factors, like, for instance, promotional phasing, in particular in the UK. But we are clearly confident that the growth pattern in our wine business is getting better. So that's fundamentally good news. And overall, just to give an idea because there are several -- there are some technical factors in that Q1, I would say that considering the positive technical factors and the negative technical factors for the whole world, they more or less offset each other. So technical factors are negative because of the destocking in China. They are, on the other hand, they're positive in the US. So overall I would say the top-line underlying performance of Pernod Ricard is not fundamentally different from the 3% we post in that first quarter.

So we have another question from Carl Walton, UBS.

Morning, Gilles. Just a couple of questions from my side, one on the Absolut in the US. You've mentioned you saw a little bit of improvement in the performance of the core brand. Anything you can speak to that's potentially driving that because I thought that in terms of the major activations they are only just coming now in the second quarter? So, for example, the new packaging, has that been released in October or was that already released in the first quarter? And I think am I right in thinking that the major A&P push will be started in November? So just the key dates that we should be aware of for Absolut in the US. And then on the second question, I think you mentioned at the full-year results that you'd expect any positive ForEx, if it ends up for the full year, impacts to be reinvested. So just to confirm that. Thank you.

Well, on Absolut, it's clearly a long journey and you don't change a trend overnight, and that's why we said that our objective was to be able to stabilize the brand midterm, so which will take a few years, whereas the last-year performance in the US was a decline by around 5%. It's a very, very early improvement. I think that it has to be confirmed in the next quarters and next years. You're right to say that many of the initiatives we have in our comprehensive action plan are still ongoing. The new packaging is about to come on the shelves. The new commercial policy and price policy and promotional policy is being implemented. But because of the three-tier system, it takes a few quarters before it impacts the prices on the shelves. And some states are already -- show already that new policy. And by Q3 this year we'll have the whole country with the new promotional policy implemented. Then we are launching Absolut Oak, which is an Absolut rested in oak barrels with a dark color. So this is also just starting. And then the new campaign will come later during the year. So you're right to say that that's a long journey. These are very early signs. When we look at the performance of the brand, the core brand, Absolut Blue, is more resilient. In Nielsen the decline is quite modest on Absolut Blue, whereas the flavors still show some double-digit decline. And Elyx is doing well, in line with plan. As you know, it's not a race for volumes; it's about building a strong brand equity for a high-end product. We are in the process of multiplying by two the distribution, enlarging the number of cities and the number of high-end outlets where the brand is distributed. The velocity is also improving in line with plans, so obviously we need to wait a few years to have a tangible impact on the whole top line and bottom line. But I would say that the brand is being developed in line with plans. And I think your --

FX reinvestment.

Yes. On the ForEx, we said that it could be reinvested, depending obviously on the amount of the ForEx. We indicated that, based on the current rates, the ForEx for the full fiscal year would be EUR20 million on our operating profit, which is a relatively modest impact and which, by the way, is quite volatile. And hence I think this is not a sufficiently large ForEx impact to really generate a significant reinvestment.

Perfect. Thank you.

But we'll be pragmatic based on the ForEx evolution. We know that we have the practical possibility potentially to increase a little bit the A&P if the dollar is getting stronger. So it will depend on the evolution of the dollar versus euro. But based on the current parity, the ForEx impact is not large enough to really contemplate a larger investment.

Yes. Understood. Thank you. And just one follow-up, sorry, on the US in terms of the technical impact, which, some of which will reverse in the second quarter. Is there any more color you could give on that, given the first quarter was up 8%, but, as you say, best guess for more underlying, more like 3%, 4%? Is it maybe half of that level of impact in the second quarter or how many -- is it half the level of brands that will be potentially reversed in the second quarter? Any color on that, please?

Well, I think that the first half top-line growth in the US should be more in line with the underlying trends I highlighted.

Okay.

And so more in line with also what we see for the full year.

Our next question is from Ian Shackleton from Nomura. Please go ahead, sir.

Yes. Good morning, Gilles. Two questions. You made a comment early on that overall technical factors netting out for the Group as a whole. I just wonder whether that was true in Europe because you have flagged the issues in France and obviously that plus 3% is a much better performance than we've been seeing. And the second question's more around the shape of the P&L for this year. I think you gave quite a lot of indication of that at the June Investor Day, indicating that gross margin is probably slightly negative, operating margin's flattish. I just wondered if there was any change in your thoughts of how we should look at the P&L for this year.

Okay, Ian. Well, on the technical factors, as I said, there are some positive factors and negative factors in the quarter. Clearly the French one was negative, the same as the Russian one, because last year we had started to do some market loading in September. And in the US, even if the factor -- the technical factor was negative on Absolut, it has been largely positive on the rest of the portfolio. When you take everything into account and when you do the math, overall I would say that it's neutral. It's overall positive in Europe, yes, for sure. It tends to be a negative impact in Asia and it is positive in the US. And on the P&L, I think our guidance is quite consistent with what we said in June in the Capital Market Day and with what we said at the end of August in our annual communication. We are clearly in that scenario of gradual improvements in the sales. We said also that the gross margin should be soft. It shouldn't be, the ratio shouldn't be down as much as the year before but, that said, could still be a bit down. We said that our intention is to increase the A&P so you should not expect to have a major evolution of the ratio A&P to net sales. And you shouldn't have a major evolution for the ratio structured cost to net sales. So it means also that at the EBIT margin level we don't expect to have a major change as opposed to last year.

Gilles, that's very clear. And just a quick follow-up, in June you did talk a bit about the opportunity for Havana Club in the US if the barriers come down. Is there any update on that opportunity?

Well, I have not heard Mr. Obama announce many new things, so I think it will, it's a process that will take a few years, very clearly. We are getting prepared, for sure, in particular in terms of investments, in terms of supply, in terms of also getting ready for the day when the embargo is removed. But it's more, I would say, a mid-term opportunity than a short-term evolution. I think that what we've seen since the announcements done between Cuba and the US, what we've seen is clearly an increase of tourism in Cuba, which has allowed to improve our top-line performance there. It's also a good opportunity for the US consumers or the US tourists coming to Cuba to know better about the brand and so for us to start to create some consumer engagement with the brand, but that's all, for the true impact will come when the embargo is removed.

So we have another question from Andrea Pistacchi from Citigroup. Madam please go ahead.

Mister, not madam. It's -- good morning. Two or three questions, please. Firstly, broadly, if you think of where your expectations were a couple of months ago when you reported the full year, has -- given the trend you've -- have any trends -- are any trends really different from what you thought they would be two months ago in any of the markets, the main markets? Secondly, you didn't comment at all on Korea. I imagine that's still quite difficult. If you could just say a few words on Korea, please? And then finally, should we expect any technical factors in Q2 besides obviously the reversal of the shipments in the US and in Brazil? For instance, Chinese New Year I think is about 10/11 days earlier this year, but still quite late. Will that have any impact on Q2?

Well, in terms of big trends, I would say that the scenario is -- that we have for the current year is very consistent with what we had in mind when we did our last annual communication or when we met most of you in the Capital Market Day in June. This is still very consistent with that gradual improvement scenario that has been in place for the last 15 months, with some improvement that we could start seeing in the US and also in Europe. And I think that on China, in the last few months we've been saying that the position was still soft. And I think it's fair to say there that the stabilization that maybe we were hoping to take place in China after the last Chinese New Year, eight, let's say seven or eight months ago, will probably take place a bit later than in the initial scenario. But that's already something that we had clearly anticipated when we talked to you in June or when we had our full-year communication. So I would say that what we see today in that environment, which is clearly contracted, is very consistent with our anticipation that we had a few months before. So no real surprises. I think it's good to see that the US start to show some better traction and good to see that there are some good trends in Europe, and particularly in Spain now, which is continuing its rebound. And, well, China will remain, I would say, difficult for the full year. Korea, we have not -- I haven't spoken about Korea, first because there was no question on it and, second, because there is no real change to comment on. It's still a tough market. We are still down high single digits in the first quarter, with in particular the traditional channels still being under pressure, in particular the Imperial brand. But it's fair to say also that the first quarter has been also impacted by MERS. It impacted travel retail in Asia and it impacted South Korea. So hopefully in the next nine months the performance will be a bit less negative than in the first quarter. But I would say, overall, we still expect the environment to remain difficult there, even if you have -- we have a few initiatives, in particular in terms of innovation to be able to start to improve a little bit the trend. And your last question was on the technical factors in Q2. We have technical factors each quarter, but what I can anticipate is that, yes, you'd have probably a re-phasing of the shipments in the US. In Brazil, I think we still need to work on the consequences of the announcement of the duty increase on December 1. It's possible that it could lead to some market load ahead of that, but I think it's a bit too early to comment or to size that impact. And Chinese New Year, yes, it will be a bit earlier this year than last year, but it's limited to, I would say, a few days. So there may be some impact, but we don't expect to have a significant impact in Q2 because of that. Indeed, in China we probably even expect the second half to be a bit better than the first half.

So we have another question from Trevor Stirling from Bernstein. Please go ahead.

Good morning, Gilles and Julia. Three questions from my side, please. The first one, Gilles, you talked about Chinese price/mix being a little bit better. Do you think is that more coming from the deceleration of Noblige or are you seeing improved trends at the higher end of the portfolio? Second question, in the Americas, if I stripped out the impact of that shipment phase in the US, would it be right to estimate the Americas would have been coming in between 4% and 5%? And the third question, as you say, Gilles, it's a long time since we were able to talk about growth on scotch in Spain. Do you think that's just a quarterly thing or you think that actually we are seeing the broader trends improving in the scotch category in Spain?

Well, on China, there is an improving price and mix. Indeed, it comes more from the mix than from the price. Price is more or less flattish or modestly positive, which is what we had last year. So there is not a big change there. We are still resilient on price, but it's obviously today too early to consider some price increases. The mix has improved in the first quarter in the mix, as we posited, in particular because the Noblige performance was less dynamic. So the gap performance between Noblige and Cordon Bleu in our shipments was less significant than what it was last year. I think we need to wait probably more quarters to really see the new trends. Looking at the depletions, for instance, the performance of Noblige in the depletions is a bit better than the performance that we have in our shipments. So the mix is slightly improving, but, that said, our central scenario for the full year is that that mix will obviously remain negative in China. In the Americas, I think you can do the math. I indicated that the underlying trends in the US are probably in the bracket low-to-mid-single-digit top-line growth. And the US represent probably more than two-thirds of the whole region in net sales. So I think it gives an idea of what could be the underlying trend for the whole region. And for Spain, I think the good trend we've seen on gin is not new, so I think there is something clearly sustainable there. And what is good is that we have a very strong portfolio with Beefeater, with Seagram's Gin, with Beefeater 24, with Plymouth. We probably have the best portfolio of the industry in that market. And for the scotch portfolio, and in particular for Ballantine's, that posted growth in the first quarter. That's clearly good news. I think it's the first quarter of growth on Ballantine's for the last six years, so I think it's too early to say that we'll keep growing going forward. We probably need a couple of more quarters to have more visibility. But I think that we can say that clearly the scotch has stopped its sharp decline in Spain, which is obviously good news. So I think the rebound is there. We have said I think 15 months ago that we were starting to see a light at the end of the tunnel, and apparently it is being confirmed.

So we have another question from Catherine Rolland from Kepler Cheuvreux. Please go ahead.

Yes. Good morning. I have two questions actually. The first one is about the performance on the French market. Could you tell us what was the magnitude of the decline registered in France in Q1? And the second question is about Travel Retail in Asia. You indicated that business trends were impacted by reduced purchasing from Chinese travelers. And I just wanted to know if ever you saw any change in trend during the Golden Week and what is your view about business trends from Chinese travelers for Travel Retail Asia for the whole year. Thank you.

Well, because of the technical factor we mentioned in France and also because the first quarter of the year is not the largest one, as you know, France posted a high-single-digit decline in the first quarter, but if we were to restate the impact of the loading pre back office mutualization, France would have shown some modest growth. Travel retail Asia, it's a bit soft. The environment is not easy. We had, yes, a touch comp. We had also the MERS impact, which has played a negative role in the Q1 performance. That said, the big part of the business is done with Chinese travelers and with South Korean travelers, and the economic situation in those two countries is not great. They travel less and, more importantly, they spend less when they travel. And that's the reason why we don't expect to post a strong growth in travel retail in Asia this year. It should improve versus the performance we had in the first quarter, but it shouldn't be very far from the stable performance.

Okay. But did you see the same trend during the Golden Week or did you see any change?

No, we have not seen any particular recent change there.

So we have another question from Stephanie D'Ath, Bank of America. Please go ahead. Stephanie D'Ath: Hi Gilles. Hi Julia. A few questions from me, please. And just coming back on what you said on China, that inventory was -- there were six days of inventory [too much] in China, and then you said down four days. Is that now minus four days or is it still plus two days, just specifying please? And then any maybe trends seen in the Golden Week. And I'm a bit surprised to see that, unlike your peers, you see positive price/mix and not really improvement in terms of volume trends. So if you could comment on that. And then moving on to the US, maybe I got that wrong, but you said that the overall market trend was 1% to 2% below Neilson, which then would imply 4% to 5% growth. And I wouldn't say 4% is low-single digit, so just a better understanding of the US underlying growth there, please. And then my last question is on the guidance, please. So if you guide for an improvement in organic sales growth, it was 2% last year, so an improvement on that. And operating profit organic growth between 1% and 3%. As you said earlier, gross margin probably down but not as much as last year. But, given the FX benefit, I would have expected margins to be flat year on year on a reported basis. So does that mean that OpEx is also going to be increasing as a percentage of sales overall?

Well, many, many questions. I will try to remember your questions. Well, on China, I think that, yes, we said that number of days of inventory at tier-one and tier-two wholesaler level last year was up six days at the end of the June as opposed to one year before. And here when we look at the inventory as of end of December, it is, I would say, four days lower than what it was at the same period of last year. So there was --

September.

Of September of the year before, yes. So, yes, there was some destocking. I think looking at the evolution of the inventories going forward, it will also obviously a lot depend on the evolution of the underlying trends. So we'll make sure that the inventories at the end of the year will be consistent in terms of number of days based on the underlying trends we'll see at that time. So I think the main drivers there are the underlying trends and the inventories are a consequence of it. And then the Golden Week or what we call the mid-autumn festival, I think I would say has been soft and we have not seen any particular change vis-a-vis the trend that we've seen in China in the last six months. So there is no particular news to report on that front. In the US, I think again it depends on the Nielson period you look at. If you look at the last 52 weeks, which is the mobile year, then the gross is a bit higher than -- it's 4.4%. So if you consider that the Nielson figures are 1% or 2% above the market, I think it gives an underlying performance which is in the bracket of mid -- of low-to-mid-single-digit top-line growth, as I indicated earlier. And then your last point on the guidance, first comment, our guidance is on organic growth and when I speak about margin evolution, I speak about margin evolution excluding ForEx. So the ForEx is not taken into account in that evolution. So, yes, we speak about the gradual improvement in net sales, so probably we could be slightly above the top-line growth we posted last year. And then for the EBIT margin, we don't foresee any significant movement. It could be stable. It could be very slightly down. And hence, the bracket 1% to 3%, which is I think consistent with both our top-line expectation and our margin expectation.

So we have another question from Jamie Norman from Societe Generale. Please go ahead.

Yes. A very good morning to you both. Two questions, please. Firstly, you've touched on the on-trade lagging the broader market recovery in the US. Do you think that is a structural lifestyle factor or do you think it's much more cyclical, i.e. a function of affordability, particularly among younger consumers, and over time that will improve? And the second question is back to Absolut. The backdrop competitively is one of a plethora of locally distilled products and the market leader is locally distilled. And I wonder in that context to what extent you can play to Absolut being distilled and sweetened, mindful of millennials particularly focusing on authenticity and heritage and that kind of thing.

Okay. Well, yes, it's fair to say that in the US the on-trade is less dynamic than the [on-trade]. I think part of it is because of the way the macroeconomic growth is taking place in the US. It's a quite contrasted growth. It's not the same in the large cities and in the small cities, and the consequence of the on-trade is that clearly there is a strong dynamism in the high-end on-trade outlets, whether they are bars, nightclubs or restaurants, whereas for more casual dining the performance is not as strong as what it is for the higher end. So I think that's probably the reason why the on-trade is not as dynamic. So I would say it's -- I wouldn't say it's structural. It's more linked to the fact that the macroeconomic growth that we see in the US is not very fairly spread across the different consumption pools. And on the question on Absolut, I think very clearly being distilled in Sweden with the winter wheat there, with the traditional distillation process, with all the history we have there, the product quality and so on, is I think a very strong story to tell the millennials. And that's why we are confident we can do a better job on Absolut in the US. We need to come back to a communication that highlights those truths on the brand. Maybe we've turned a bit too emotional in our communication in the last few years and I think we need to go back to the fundamentals, because you are right to say that millennials want authenticity, product quality. And that's clearly the focus that has allowed some crafted brands to be successful in the recent past. And considering the fact that most of our brands have a strong origin, have a strong heritage, a strong [POR], it's up to us just to explain that to the consumer to engage them around those value. So we have what we did, but now we need to do the job. So that's why we are putting in place a new brand platform on Absolut in particular for the US.

So we have another question from Alex Smith from Investec. Please go ahead.

Hi. Morning. Just a question on pricing, please. I think you said pricing for your top 14 was positive in Q1. I think it's been pretty much flat through the last year or so, so it sounds like there's been some new pricing coming through. I was just wondering where that's coming from and should we expect more pricing in your top 40 and through the course of the year? Thanks

Well, yes, last year pricing was flat for the top 40 and overall. And it's modestly positive in the first quarter and we expect it to remain modestly positive in the full year. So it won't be a major shift, but a very, very, I would say, gradual improvement there. We have more ability to increase prices on, in particular on some brand spirits. We try also to increase our prices in particular in the emerging markets whose currencies have been strongly devaluated, as, for instance, we've done in Russia. But when the demand is still weak, in particular in some emerging markets, in considering also the tough commercial environments that we have, in particular in the western countries, we don't expect to be able to regain the very, very strong pricing overnight. So it will take time, but we believe that we are on the right track and we hope 2015/2016 will be better than 2014/2015. And hopefully the year, the following year will be also better than 2015/2016.

Thank you very much, Gilles. Thank you, ladies and gentlemen. I remain available, as does Alison, if you have any follow-up questions. Thank you for your time.

Thank you.