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

Olivier Nicolai - Morgan Stanley Sanjeet Aujla - Credit Suisse Simon Hales - Barclays Stephanie D'Ath - Bank of America Merrill Lynch Trevor Stirling - Bernstein Mitchell Collett - Goldman Sachs Chris Pitcher - Redburn Partners Hermine de Bentzmann - Raymond James Carl Walton - UBS Laurence Whyatt - Societe Generale Tristan van Strien - Deutsche Bank

Good morning, ladies and gentlemen and thank you for joining us for our Q3 Sales Presentation. We'll follow the usual format. Gilles Bogaert will take you through the presentation and then give you a chance for some questions. So Gilles, the floor is yours.

Thank you, Julia. Let's start with slide 4, the executive summary. So in Q3 we posted solid year-to-date sales in a contrasted environment. Organically Q3 sales were up 3%. Year-to-date sales were up 3%. So in Q3, Q3 sales were resilient, plus 1% versus tough comp of plus 7% in Q3 of last year, impacted by some technical factors. Year-to-date performance, strong growth in the Americas, plus 6% driven by dynamic USA, partly enhanced by shipment phasing. Modest growth in Asia-rest of the world, plus 2%, with continuation of strong growth in India and Africa but decline in China. Resilient sales in Europe, up 1% year to date, driven mainly by Spain. On page 5 you have the key figures. I won't comment all of them in detail. But as you can see again, the year-to-date sales organically, sales up 3%, reported growth 4%, mature markets were up 2% and emerging markets were up 3%. And then by category, top 14 was up 1%, key local brands 7%, priority premium wines 4%. Page 6, you have the different effects impacting the sales variation year to date. So organic growth, as said, was up 3%. We had the modest negative group structure impact, minus 1%, mainly linked to the Caribe Cooler disposal and a positive Forex, 2% year to date, due to the favorable dollar impact and deepened by emerging market currency weakness. Slide 7, a zoom on the Q3 sales growth. So organically up 1%. Reported down 3%. The Group structure impact was not significant and we had in Q3 a negative Forex impact, minus 4%, because of the negative impact from emerging market currencies. So let's have a look at the performance by regions, starting with page 9 with the overview, with the growth driven by Americas, up 6%. Strong growth driven by dynamic USA. Asia, rest of the world up 2%, with strong growth in India and Africa but decline in China. And the resilience of Europe up 1%, the growth being driven in particular by Spain. By category, page 10, so the solid sales were driven in particular by innovation. And top 14 we were up 1%, driven by Jameson and innovation, with a neutral price and mix. Our key local brands were up 7%, with a growth driven by the Indian whiskies and Passport. Our priority premium wines were up 4%, with an acceleration due to an improvement in particular in the UK and Australia. And in the rest of the portfolio we had a growth of 2%, thanks in particular to good growth of our super-premium tequila Avion and our high-end malt whisky Aberlour. So page 11, let's start with the Americas and let's start with the U.S., up 7%, clearly improving growth there, partly enhanced by phasing. So the market is still doing quite well, with strong trends. Nielsen value shows the growth of the market in the last nine months of 6.4%, with premiumization remaining strong. Pernod Ricard USA is showing a growth acceleration, with a significantly improved underlying performance resulting in causing a gap to market. And you can see in the Nielsen that our Nielsen value are up 5.7% in the last nine months. We had some advanced shipments linked to our distributor supply chain reorganization which will reverse in Q4. So strong underlying performance by brand. Jameson ongoing strong double-digit performance, even accelerating year on year. And Absolut, a clearly improved performance thanks to the progressive rollout of the new strategic approach. So in value the brand in Nielsen was down 2% and it was flat in volumes. And Absolut Blue was flat in value. So we're well on track with our mid-term objective on Absolut in the U.S. which is stabilization of the brand in value. The Glenlivet, still growing fast, double digits, outperforming the whisky category. Malibu is also outperforming the category, being up 2% in a flat category. Good performance on our tequila, Avion, Altos, strong double-digit growth, again outperforming the tequila category. And Martell, from a small basis, is growing. The U.S. is clearly today a priority for Martell. We grew 23% in volumes thanks to the relaunch of the VS. In the rest of the Americas, continued growth, up 4% in the Americas excluding the U.S. In Brazil, obviously the market shows a slowdown in a very difficult context. But despite that, we could post a mid single-digit growth year to date, with a very strong decline in Q3, as expected, following the Q2 buy-in ahead of the IPI tax increase. So negative technical impact of Brazil on Q3. Travel retail end of March in the Americas is down, driven by the difficulties of Latin America, in particular the duty free in Brazil which is weak. The border zones also. And the Forex volatility does not help obviously. And we also have a tough comp last year. Cuba is showing a double-digit growth, in particular due to the increased tourism. Let's switch to Asia-rest of the world. Modest growth of 2%. Starting with our number-two market worldwide, India, up 14%, so keeping showing a very strong growth for the whole portfolio, top 14 and Indian whiskies. And we're enjoying in there a positive price and mix. China was down 10%. Chinese New Year was soft, with unchanged trends. Off-trade is up, but on-trade is in decline. And in particular due to our strategy and our commercial policy to reduce our exposure to non-profitable contracted on-trade outlets. Martell is resilient. Our depletions are up 1% year to date in volumes, in particular Noblige which is up 6% in volume depletions. Scotch is still in double-digit decline, in particular the 12 years and above Scotch. But the young premium Scotch brands are doing well, double-digit growth of Ballantine's Finest. Price/mix is improving which is something, I would say, encouraging. And we keep implementing our initiatives to adapt to the new normal china and stimulate growth relays that will deliver the growth of tomorrow. And we keep an intact confidence in our mid-term potential in China. Travel retail Asia has declined due to reduced trading from Chinese travelers in tough commercial and competitive environments. Southeast Asia is tough and there is some destocking there which impacts the figures we post. Africa/Middle East, still very dynamic, up 16%. Very strong growth driven by sub-Saharan Africa which, as you know, is one of our priorities, with an excellent performance across the whole portfolio, Scotch whiskies, Jameson and Martell. Europe up 1%, so resilient sales. 1% in the west, 3% in the east. France is down 6%. This performance, as you know, is negatively impacted by the technical impact of the shipments ahead of the merger of the back offices between Pernod and Ricard last year. So we keep that negative technical impact during the full year. Adjusted by that, the decline is 2%. The market is still sluggish and challenging but we gained market share in most of the key categories. Spain, very good year, up 8%. Strong performance led by our gin portfolio, Beefeater, Seagram's Gin and also return to growth of our Scotch brands, in particular Ballantine's Finest, in an improving market. Travel retail Europe, that's better than one year before but still modest decline, due mainly to the Russian situation. And in Russia, we're almost stable year to date after the strong Q3. We had a favorable comp in Q3 following the destocking of the previous year. Volumes are down but we have very strong and positive pricing. And the underlying trends in Russia are better than the figures we post because of the shipment phasings and we estimate our underlying trends to be mid single-digit value organic growth. So to conclude, we posted end of March solid sales in a contrasted environment, with year-on-year improvement in the USA and in Europe, but with China still difficult. Pricing is modestly positive in spite of commercial and competitive landscape remaining challenging. Innovation still contributing to growth. We continued the implementation of our long-term growth strategy, including the focus on operational excellence, so keeping showing strict pricing policy, sharpening our A&P allocation behind the key projects and the key innovation initiatives and accelerating our operational excellence initiatives, with a strong cost discipline. And on the back of all that, we confirm our fiscal year 2016 guidance which is an organic growth in profit from recurring operations between plus 1% and plus 3%. We have updated our estimation of the Forex impact on the operating profit from recurring operations for the full year and still a volatile context, we estimate it to be between flat and slightly positive. I think I can now hand over to you for your questions.

[Operator Instructions]. We have a question from Olivier Nicolai from Morgan Stanley. Sir, please go ahead.

Bonjour Gilles, Julia. I've got three questions, please. First of all, could you please quantify the impact from the advanced shipments in the U.S. on your Group Q3 organic sales? And which product was concerned specifically? Second question is on China. Could you just comment on the Q3 trends? Your H1 sales performance was down 8%. Your nine months is down 10%. So I assume you've seen a deterioration in Q3 for your portfolio. Could you comment on your market share evolution? And also you mentioned this reduction in exposure to non-profitable outlets. Are we done with this process? Thank you very much.

In the U.S. I think maybe the best way to answer your question is to give you an idea of what we could post for the full fiscal year in the U.S. in terms of net sales growth. We estimate that we'll be somewhere between 3% and 4% top-line growth in the U.S. for the full year. So the difference with the 7% we have at the end of March is not only due to the technical factor that we explain on Q3, but I think that's where we see ourselves for the full year. So last year we were flat in the U.S. This year we should be between 3% and 4% which shows a clear improvement. China, Q3 is not very relevant because there was the timing of the earlier Chinese New Year which impacts a lot the positive figures in Q3. I think the best way to look at it is to look at what we have said at the end of December where we're at the end of March. It's right to say that we had indicated that the first-half performance, excluding the technical impact of the Chinese New Year, was minus 8%. At the end of March we're at minus 10%. At the end of the year we shouldn't be too far from what we delivered at the end of March. Maybe modestly better than that, but minus 9%, minus 10%. So I would say in a nutshell, the underlying trends are unchanged. This performance in the Q3 as in the continuity with what we posted in the first half. We show a low single-digit decline in value for Martell and a double-digit decline for Scotch. That's how this performance is delivered. We delivered the underlying trend for the full portfolio in value for Pernod Ricard in China is more around minus 7%. But because last year we had a modest inventory increase and this year our objective is to stabilize inventory in the model of days of sale, that is to say a decrease in number of cases, that's why I say that we should post minus 9%, minus 10%. But underlying trends are more or less around minus 7%. Market share, interesting question. We have gained market share in the last few years, as you know. We're by far the leader, both in Scotch and in Cognac. We had a clearly better performance than our competitors last year. And we still believe that we hold our position this year. We don't lose market share. And when you compare our performance in cognac, in value I'd say low single-digit decline, you can benchmark that with our competitors. I don't think that our performance is worse than the others. And what maybe happened is that one year ago our performance was clearly better, ahead of our competitors. And those competitors probably this year have a better performance than one year before. But it doesn't mean that they gained share. So we believe we hold our positions. Martell is quite resilient. It was up 1% in volumes in terms of depletions in the first nine months. Noblige was up 6%. And we're holding our position there. And your last question, yes, that's something we started two years ago. Clearly an important part of the on-trade business in China is done in chains, where you have to sign some contracts whose value creation is very often nil or negative. So as part of our strategy which I think is a value-creative strategy, we decided to limit our exposure towards outlets. And you know when you have a deal, it can be about 30 outlets. So it can have an impact on the volumes. But we decided to reduce our exposure there. So I would say that as of today, most of the reduction of the exposure would have been done by the end of the fiscal year.

The next question is from Sanjeet Aujla from Credit Suisse. Sir, please go ahead.

Just a follow-up on China, please. Some of your competitors have talked favorably about pricing over the short term. What are your intentions on pricing in China? And also just to clarify some comments. You said your underlying portfolio is running more like minus 7%. I think at H1 you were down more 4%, 5%. So what's really driving that deterioration just in the last quarter, please? Thanks.

Okay. Well in terms of pricing, we're very disciplined, as you know, in pricing in China and in the rest of the world. In the last two to three years, when prices were down in the markets, we held our prices. I think that today our strategy is to remain very disciplined on pricing. So at this stage our intention is to hold our pricing. If we're monitoring the situation, if we can see that the demand starts to improve and that the competitive environment becomes more favorable in terms of pricing, well we seize any opportunity that we could meet. Today the central scenario short term is to hold our pricing. And then in terms of underlying trends, yes, we have said minus 4%, minus 5% was the underlying trend we were seeing eight, nine months ago. Today we see minus 7%. We're not miles away. In China our objective for the midterm is to come back to growth. So it's not a 1% or 2% difference of trend that really makes a clear change in the landscape of the market. I think it just reflects the fact that from a macroeconomic standpoint, from a consumption demand standpoint, the market at this stage is still tough. That said, we remain fairly confident for the midterm because we clearly see that the emerging middle classes are growing year on year. We've been working in the last two to three years to leverage our portfolio, to stimulate growth relays, to grow in new channels and to get to that new normal China, that takes time. Yes, it's true, that takes time, because we need to educate the Chinese consumers to consume maybe differently than what he used to do before. But in those growth relays we can see some early signs which are, I would say, encouraging. And that's why we remain confident for the mid-term. The only uncertainty we have is the timing for that stabilization first and the return to growth in China. Today it's a bit too early to give you a precise date for that to happen.

Just a quick follow-up on India. Your performance continues to be pretty robust. Can you just comment on any changes in the competitive dynamics that you might be seeing and how that might be impacting your business?

Well, yes, our competitor has a new shareholder. But I think that our top-line performance has remained as robust as what it was before. So we rely on strength. We have three strong local brand which we've been working for 20 years if I include the four Seagram bid before we bought Seagram. And we're in the right segment of the market, with the right dynamics. So, well, I would say we're confident on our ability to keep posting a good growth in Indian going forward. For sure, in that market segment, high-end local whisky, we have probably a stronger competition now. But we have strong brands. We have strong marketing teams. And that's a good challenge to have, I would say.

The next question is from Simon Hales from Barclays. Sir, please go ahead.

A couple of questions, please. Just on China, Gilles. Can you just talk a little bit maybe around the improving mix that you mentioned in your presentation year to date? What did we see in Q3 and how did Noblige and the higher-end portfolio perform through that period? Secondly, just on Southeast Asia, you've talked about some destocking in the presentation. Where is that and how big and is it done? Is there more to come as we look into Q4? And then just finally, just back to India. Can you update us on anything to do with the GST situation there, where we're as an industry?

Okay. Yes. On the price and mix in China, yes, we say it is improving. It's on the whole portfolio that it is improving, in particular also linked to the fact that Martell is doing better than the rest of the portfolio. So clearly it has a positive impact on the whole mix of China. Within Martell though, the better performance of Noblige as compared with XO Cordon Bleu generates a negative mix on Martell itself, by the way. That's why we say that the depletions are positive on Martell, but in volumes, but in value depletions are slightly down. But overall, yes, the good thing is that the price/mix is improving. Your second question was on Southeast Asia. Yes, we're doing some destocking in these markets where we go through distributors, through wholesalers where you don't have some very reliable statistics on the underlying trends, on the inventories at the wholesale level. And we have decided to decrease on purpose our shipments to our clients there because we felt that the level of inventory was just too high and creating, I would say, some issues in the whole region. So Southeast Asia, it's about in particular Vietnam, Indonesia, Malaysia, these kind of countries. And this is something which we should keep doing till the end of the current fiscal year. And we believe that is a sound commercial policy to do so. Your last question was on GST. Nothing new has happened. GST has not been voted yet in India. There are some ongoing debates between the majority and the opposition. So it will still take a lot of time. So nothing new to report there. It's far too early to give an impact. If it was voted, what would be at stake is whether alcohol would be part of the GST reform or not. If it was not part of it, it could be, I would say, detrimental. But it's far too early to give figures.

Okay. And just to follow up, Gilles, just going back to the Southeast Asia comments, can you quantify at all how much of a drag that destock has been on the quarter and how we should think about it for the full year?

I don't give you a detailed figure there. But clearly in Southeast Asia we have, for the full year, a strong double-digit decline of our business there and a large part of it, more than half of it is due to the destocking.

Next question is from Stephanie D'Ath from Bank of America. Madam, please go ahead. Stephanie D'Ath: Just to clarify on China, please, if I understand well, your depletions are at minus 7% in terms of value. Your volumes are slightly up. Your prices are broadly flat and so your mix would be down high single digits. Just checking I got that right. And in terms of your China reported organic growth, what are your expectations for the full year given you were at minus 10% for the nine months? And then could you please remind us of the mix in China of Scotch versus cognac? And then moving on to the U.S., I would be interested to know how much progress you have done introducing cognac in the U.S. And that's it from me. Thank you.

Okay. Well on China, I know it's a bit complex because you have the volumes, value, you have the posted figures, you have depletions, you have market share. So that's why it deserves to - that we spend time and we try and give clarity. And by the way, Julia will be available to give you all the clarity you need because we believe we have a clear view on what is happening there. In the minus 7% in value we gave for China is - corresponds to the underlying trends we see for our business in China. So yes, it is based on value depletions, but for the whole portfolio, for the whole portfolio, that is to say Martell but also all the rest, including the Scotch portfolio. So on Martell, yes we say that the depletions in volumes are up 1%. We said that in value they are modestly down. And so this modestly down in value is consistent with the minus 7% we gave for the full company, the difference being due to the sharp increase in particular of the Scotch portfolio. So that's what is making the difference. And for the full year, I said the thing earlier that we estimate that our performance at the end of June should be very consistent with what we posted at the end of March which is minus 10%, maybe modestly better. Let's say it could be somewhere around minus 9%, minus 10%. That is to say a bit worse than the underlying trends of minus 7% I mentioned. Why? Because last year we had the modest decrease of the inventory. And this year our objective is to stabilize inventory in number of days of sales, that is to say decrease it in terms of quantities. So I hope I've been sufficiently clear in my answer. And for the U.S., yes, definitely it's an important market for Martell. The cognac category is booming in the U.S. and Martell is one of the three leading global brands. But we have a low market share today in the U.S. So we've been working in the last, I'd say, two years to accelerate our growth there, putting more resources clearly behind the brand, adjusting our marketing policy, working also on the portfolio. And we'll come with some innovation soon. I cannot tell you more. And we have a strong growth on Martell in the U.S. But our objective is not just to have a strong growth; it's clearly to gain share. And that's something we're working on. Stephanie D'Ath: Okay. Maybe just a follow-up on China, please. Can you remind us of the mix between Scotch and cognac? And in terms of the margin, you seem to say that you have been discontinuing the less profitable outlets. But then is that offsetting the deleveraging you would be seeing as obviously and maybe remind us where Chinese margins are versus Asia versus the Group and if we should expect a strong negative mix impact as a result of the continuous decline in China? Thank you.

Yes. Well to make it simple, so I think the mix question relates to the share of cognac and Scotch in our portfolio in China. So let's say it's 80/20 to make it simple, with the share of Martell growing because Martell have the better performance than the Scotch. And on the on-trade, well, very clearly our strategy and the decision not to be too exposed to non-profitable contracted outlets and the objective is clearly to have positive impact on our margins. But that said, our margins are also impacted by the fact that we're less exposed to the high end and we want to be more exposed to premium brands. And as a consequence, the mix is a bit negative in China. So don't expect, I would say, our margins to go up in China in the next couple of years. I think our objective is to try to, as much as we can, stabilize those margins. It will depend obviously on the pricing policy. We're hopeful that at some stage we will be able to regain some pricing. But the trend towards premium brands is not favorable to the mix. But we'll keep very high margin in China which remains among the most profitable market in the world.

The next question is from Trevor Stirling from Bernstein. Sir, go ahead.

Two questions from my side please. The first one is, in the U.S. I wonder could you just give us a little more color around Absolut Gilles, you mentioned minus 2% in value year-to-date on Nielsen. Are you seeing improvements and, Gilles, could you comment on the Q3 specifically? And the second thing in China, when it comes to the XO bit of the market and that withdrawal from the unprofitable accounts, is it possible that while some of your competitors are picking up a little bit of volume on XO as you withdraw from those accounts?

In the U.S. Absolut is clearly improving its performance. In volumes terms last year we were down 5%, this year we're not far from stability, so that's I would say a very significant improvement. The minus 2% are in value, so you have a value evolution which is slightly more negative than the volume evolution because of our decision to slightly adjust the net price of Absolut in the U.S. on a state-by-state, SKU-by-SKU basis. And the good thing is that we believe that today we have a far more efficient commercial and pricing policy than what we had in the past. That's obviously not the only reason for that improvement, we have worked a lot on stronger activation on the field in Absolut and leveraging the addition resources we got from our wholesalers. We have also reinvested behind the brand, particularly in terms of marketing campaigns. You'll see very soon the new media campaign in the U.S. in the next few weeks. We're activing the Absolut Nights also which we believe will be a key driver also to strengthen further the brand equity. So we're well on track with the plan we had and if you have a look at the last nine months, if you have a look at the last three months, looking at Nielsen and NABCA, all KPIs show that improvement on Absolut. So that is definitely good news and that is one of the elements helping our improvement in performance in the U.S. And then your question on China XO Cordon Bleu. Yes, possibly that strategy short-term could lead to some short-term volume market share decline on XO in on-trade. But we believe that makes sense, we prefer on that specific segment to lose volumes but to get a better potential for the longer term with a better value creation. And I think that in our mid-term objective, to obviously come back to growth in China, we're confident that Cordon Bleu will play an important role because we have Noblige well on track and on Cordon Bleu everything we're doing, everything we've been doing in the last 12 months will help to improve the performance of Cordon Bleu and XO going forwards. And in particular in the on-trade, in particular in Chinese restaurants which have a tremendous potential for Cordon Bleu going forward. We're the leader there, we can see can see that the values, the high values which are competitors there after decreasing a lot their prices, start to increase the [indiscernible] prices, start to show a better performance there. So Cordon Bleu will be key to deliver our mid-term ambition in China and we're confident we can make it, even if the last two years have been tough on the brand.

The next question is from Mitchell Collett from Goldman Sachs. Sir, please go ahead.

A couple of questions please. You said that the U.S. is likely to end the year at a 3% to 4% rate of growth, that's slightly below the current Nielsen rate. Is the difference between the two weakness in the on-trade or is there some yea-year-on-year stocking effects going on? And the secondly, I wondered if you could just tell us how big Cuba is, you've mentioned it's strong, is it material at all? And then perhaps added to that, is there anything additional you can say on where we're with Havana Club? Thank you.

Well in the U.S. and something I already said in previous calls, Nielsen just covers part of the U.S. market and our estimation when you add the independent stores, when you add the on-trade, when you add the NABCA and so on, our estimation is that the whole market is probably growing in value at a pace which would be 2% below what the Nielsen figures indicate. So if the Nielsen are 6%, let's say that the market will be around 4% and this delta is applicable to all players including Pernod Ricard. That's why we say that 3% to 4% for the - 4% of net sales growth for the U.S. for the full year is more in line with the whole markets and the trend we see, even if Nielsen are a bit higher. Cuba, well that's great, we have a very, very strong presence in Cuba thanks to our partnership with Cuban rum, so the whole Pernod Ricard range is distributed there. It's growing double-digit but Cuba is still small in the Pernod Ricard sales, it's less than 1%, but today obviously this market is open to Pernod Ricard, we have a strong partnership and we take benefit from the stronger tourism there. Obviously the biggest potential going forward is about the possible opening of the U.S. market at some point for Havana Club. As you know we've been able to register the brand in the U.S. for the next 10 years which is obviously great news, but the embargo is still in place. But obviously we're getting prepared for a supply standpoint, from a marketing standpoint, to be ready the day when the market opens. As you know the U.S. market represents 40% of the worldwide rum market so we're not there, we're a strong number two outside the U.S., so it gives an idea of the potential that Havana Club could have in the U.S.

The next question is from Chris Pitcher from Redburn. Sir, please go ahead.

Sorry to follow-up on these non-profitable accounts but can you give a feel for actually the scale, the volume impact from exiting these accounts? And is it an equal impact on scotch and cognac or is it more balanced one way or the other? And then also on cognac, I'm interested in your decision to relaunch VS in the United States which is counter to obviously one of your competitors' actions. I'm interested in that and the pressure that might put on eaux-de-vie inventories, whether we should read anything into that. And then finally, are you able to give us an organic sales growth number for Martell which was, I think, plus 7% at the first half, what was it at the nine months overall globally? Thank you.

Okay, well on non-profitable accounts in China, the impact in our performance is modestly negative because that's something we've been doing gradually in the last two years. It can be more significant on some of the other players if aggressively you want to grow in that channel. But let's say that for Pernod Ricard if the underlying trend is minus 7% while the impact of that strategy is probably not more than 1% or 2%. And in terms of Martell strategy worldwide, you're right to say we want to make the Martell brand more global, so it means also in terms of mix, that the mix of the brand between XO, VSOP and VS will change and we'll probably sell more VSOP and more VS than we used to do in the past. That's something we've been adapting ourselves to in the last two years, so we have obviously adjusted also our supply. We're adjusting our inventory policy and we tend to buy more young eaux-de-vie, new makings of cognac and far less old aged eaux-de-vie to get adapted to that situation. And the value creation that we have on the VS, on the VSOP and on XO is in all cases very, very high because I think that we've done a very good job by-the-way as an industry to be able to price at a good level the cognac category. So this shift towards more VS and more VSOP does not have a negative impact on value creation and going forward could have a modest positive impact on cash because of the supply modifications. Your last question?

Was organic sales growth for the total Martell brand at the nine month stage, if you could share that?

Yes, it's a low value decrease, that's what we said also by-the-way for China, for China it's still quite big as you can imagine for Martell. So in value terms for the first nine months the brand is in very, very slight decline in value.

The next question is from Hermine de Bentzmann from Raymond James. Madam, please go ahead.

A few questions from me please. The first one on Brazil, can you precise please the level of decline that you saw in Q3 and if you expect the trend to normalize in Q4. My second question on the U.S., can you provide the data, the Nielsen data for the whole vodka category over the nine months? And the last question is on scotch, can you also give the organic sales growth for the whole Chivas brand in nine months and how do you see the scotch market evolving in China in the next three to four years? Thank you very much.

So in Brazil Q3 was very weak because of the over-ship ahead of the IPI increase, I think the decrease was somewhere between 40% and 50% in Q3 with a year-to-date end of March which is a growth of mid-single-digit. Yes, most of the adjustment has been done in terms of inventory but we remain in a tough environment obviously in Brazil. So we expect at the end of the fiscal year to be somewhere between stability and modest growth there. In the U.S. I think we gave the key figures in the presentation in terms of Nielsen evolution for the full market. What we said for the last nine months is that the market was up in value according to Nielsen 6.4% and we said that in the same period of time Pernod Ricard USA was up 5.7%, that is to say almost at the same level as the market, whereas in the previous years we have not shared in the U.S. So clearly the improvement of Pernod Ricard USA in the market has a lot to see with that market share evolution which has gone in the right direction. We still do not gain market share, that's our objective mid-term, but we're very quickly bridging the gap. And in terms of scotch, Chivas is slightly down at the end of March. It's in particular impacted by China which is very tough for aged blended scotch, not only for Chivas but for the whole industry. We're working hard to improve that, to change that. It's more challenging than for cognac which is a very aspirational and very well-known and historical category in China, whereas scotch is, let's say, a 15 years old category in China. We're working on the new occasional consumption to make sure that our portfolio gets adapted to where the growth potential is and in particular, for instance, Ballantine's Finest is growing double-digit in China, that's a trendy brand in particular in modern bars, in family KTV, so we will probably sell more going forward. Some young scotch brands, some malt also scotch brands because Glenlivet is doing quite well also in China. And we're also in the process of reviewing the Chivas strategy in China with the objective to make it stronger in the modern bars, probably enlarging the scope of places where the brand should be distributed and attack a bit more directly the beer consumption. So we have a strategy in place, again it takes time because the strong growth we had on Chivas in the last decade in China was linked to the Chivas with green tea which was quite fashionable, in particular in KTVs and we need to adapt the strategy to the new normal China. So that's what we're currently trying to do. Yes, it's a bit more difficult for scotch than for cognac.

Just coming back on the U.S., my question was more relying on the performance of the vodka category globally in the U.S. market, if you have some data to share on this.

I don't have it with me at this time, I think it was slightly up, the last figure I had seen there was a growth of 2% but we'll look for that figure and give it to you later - I don't have it here, towards the end of the call.

The next question is from Carl Walton from UBS. Sir, please go ahead.

Just a couple of follow-ups on the U.S. You mentioned that improving trends in Absolut contributed to the 3Q performance which I think was very slightly improving on the first half trends and showing good momentum. Could you speak to what else were the main drivers there, in particular Jameson strong double-digit growth, is that accelerated a bit on the 3Q, is there anything to point to there or is it continuing at a similar trend to the first half? And obviously Martell is strong but is that still too small to really move the needle for the overall U.S. business? And then a longer term question, still on the U.S., it seems like the performance improvement in the U.S. versus the mid-term targets you'd set out is really delivering maybe faster than expectation. Is it faster than you had expected? Could we even be thinking that it might be possible to think about gaining share on the market if Jameson continues to in particular drive such strong growth and if, when you can stabilize Absolut? Thank you.

So the U.S. growth acceleration is due to combination of factors so, yes, we spoke about the improvement on Absolut which is one of the factors, it was down 5% in volume, now almost stable which is obviously a clear improvement for a brand that represents almost 25% of the Group net sales in the U.S. Jameson in the last nine months has accelerated in growth in the U.S., also on the back of our innovation strategy because Jameson Caskmates have had a tremendous start, it's Jameson whose ageing is finished in a beer barrel, it is sold with a 20% price premium versus Jameson Original, so it's incremental volumes, incremental margin and it's positive for the brand equity of Jameson. And you know the Jameson growth story, it's just at the beginning, when we look at the growth of the brand it grows in all states. There are still some important states, like Texas for instance, where the market share is still low so very still clear room for improvement on Jameson in the U.S. which is one of the hottest spirit brands there. So Jameson now is the largest profitable brand of the portfolio in the U.S. And then we have also the Glenlivet which is growing, in Nielsen as you could see double-digit. We have Malibu with the 'summer state of mind' campaign which is working very well and Malibu is also growing. We have all the innovations, the tequila, Avion, Altos which are also growing fast at very attractive price points. We have Martell from a low basis which is also showing a good growth and then we have brands like Seagram's Gin and Kahlua which are struggling a bit more but their weight in the total portfolio is today smaller than what it was before. So I think we're doing things right from a portfolio standpoint, from also an organization standpoint. We have changed many things in the organization, we're still changing things to be stronger in execution, to be stronger in trade marketing, to have a commercial organization even better at execution on the field. So our mid-term objective is to grow mid-single-digit and to gain share. We stick to that objective, if we can go quicker we'll go quicker but no reason to change that objective. And I have the answer to the previous question on the vodka category in the U.S. in value. Indeed it has increased a little bit as compared to what it was six months ago because it is up now 6% in the vodka in value in the U.S. So the vodka category is not dead in the U.S., it's still quite alive, clearly dynamic. What happened is that only a few brands really grow today and because there a few barriers to new entrants, so you have some winners, probably some losers. We know what we've been losing share on Absolut in vodka in the U.S. when you compare with the whole category but we're a premium vodka, we look at premium vodkas and our recent performance makes us confident that in premium vodka Absolut can reduce the gap for the market.

The next question is from Laurence Whyatt from Societe Generale. Sir, please go ahead.

Just a couple of clarifications from me. You said you recently relaunched Martell in the USA with the VS category, is that just VS or are you going to be launching other categories also? And secondly, you've given some good signs on Absolut in the USA, we know you've recently reduced the price but is there any chance that with the strong performance you might be able to reverse that and how long would that take? Thank you very much.

Well on Martell in the U.S., our strategy covers the whole range and by-the-way we have also increased our sales of Cordon Bleu in high-end hotels in the U.S. By-the-way these are also hotels where our Chinese consumers go so it's very important to be there but also recognize that the largest part of the market is in the VS and that's why it's very important for us to be strong there. We did also to make sure that the range which we propose there is well connected to the consumer trends we see in the U.S. which are very different from the Asian dynamics. So that's why we're also going to come with some innovation in that respect with some products specific to the U.S. consumption there but we also leverage the VSOP and the XO in the U.S. as we do everywhere in the world. In terms of performance of Absolut and the price adjustment we've done, you know it's not something we've done across the whole Absolut portfolio in all states. We did it looking at the situation versus all competing brands, in some states and on some SKUs we even increased the price, sometimes we decreased the price, sometimes we have adjusted the promotional policy in terms of frequency, in terms of intensity. So it's more a comprehensive commercial strategy that we have implemented there and it, I think, starts to deliver because sometimes the Absolut price was maybe just too high putting the brand outside the consumer targets, sometimes the price was maybe too affordable and then we didn't need to be so low. So we've made all those adjustments state-by-state, city-by-city and I think today the pricing on Absolut is at the right level and we believe it had an impact on the new traction we get on the brand. So we expect going forward that we could keep having a better trend on the brand without having to adjust again the price down, even if we're in a very competitive vodka category. For us that price adjustment we've done was a one-off within a more comprehensive commercial strategy on the brand.

And just a follow-up on the innovation within Martell and I suppose on Jameson Caskmates. You previously said that innovation represents about 4% of your sales and 1% to 3% of organic growth. Is there a chance to increase that or do you expect that to stay about the same?

Well our objective is that innovation at the Group level on a sustainable basis could represent 25% of the Pernod Ricard growth going forward. So if we target mid-term and that's our objective, 5% top line growth, you could expect innovation to represent at least 1% of incremental growth year-on-year.

So the last question is from Tristan van Strien from Deutsche Bank. Sir, please go ahead.

Three questions please, one, just a follow-up on Jameson in the U.S., could you maybe unpack the geographical growth behind that brand, is the acceleration in growth driven by the velocity in your current state strongholds or is it new states that you're entering and winning share and which states are those? The second question, you mentioned you're sharpening A&P allocation, does that mean we can expect maybe a decline in A&P as a percentage of revenue in H2? And the third bit, just to help me understand a little bit more about these non-profitable accounts in China. I guess first of all, how do you define non-profitable? Is that a return on investment, their fully absorbed costing, variable costing? And then also was there an expectation in the past that these accounts were actually going to be profitable or was there another strategic region of having these accounts and that reason is no longer valid today? Thank you.

Well on Jameson, I think the good news is that growth is coming from everywhere, it's coming from all SKUs, it's coming from the core brand, it's coming from innovation, it's coming from all states, all of the 50 U.S. states are showing some growth. It's about new consumers, better distribution, market share gain, so that's the good news on the brand and that's why the brand equity is so strong, is that the growth is coming from all the different elements we mentioned. That's why we're so careful about not making Jameson a mainstream brand, we want it to be differentiated. We're not about to launch a flavored Jameson, when we do innovation we want to innovation with substance, with some disruption as we've done with Jameson Caskmates which is something I would say new to the industry. And then in terms of A&P allocation, what we've done is a very comprehensive work reviewing on all brands in all states, in all occasions of consumption because now we map the markets based on the occasion of consumption. We have identified some targeted A&P levels, including by touch points and so by brand and we're in the process of adjusting our A&P policy to those objectives. So in some brands it can be less money, one some brands it can be more money, there are some brands on which we can decide to focus on a more limited number of states to have with less money a stronger impact. On other brands we may decide to put more money, typically on a brand like Jameson and Absolut to be able to deliver the objective we have, we decided to put more money. So net-net this year we're more in a trend where we try and put a bit more money in the U.S. and that's something we also did last year to be able to deliver that additional growth we expect there and, but I can tell you with a very good return. So yes we have some reallocation in the U.S. between brands, like we also tend to put a bit more money behind the U.S. as opposed maybe to some other markets in the world which are less a priority for Pernod Ricard. So resource allocation, it's about what you do between brands, what you do between markets and what you do within brands within one single market. And then back to your last question on China, yes the ROI is a criteria we use. We don't say that we want to fully disappear from those account, we still need to keep some presence, it's just for brand image standpoints, but we're quite selective. And as a commercial channel it's overall not very attractive so we may accept to remain in some accounts even if the return is not great because it's important for the image of our brands, but we're limiting our exposure because it's a very, very expensive channel to be in which, at the end of the day, does not create value for Pernod Ricard. So that's a decision we made.

And just a quick follow-up on that last one, are they then and I guess it relates to the reallocation, are there certain cities you are still focusing on in those accounts and certain not? Or do you have much more of a city bias around it?

Well we make our choices, we decided that we would remain in a limited number of accounts of that kind, we decided to stick to the best ones, the ones which are the best for the image of the brand, the ones which are more consistent with the geographical focus that we want to put and the one that shows the best return. So that's a different criteria which are taken into account and clearly we don't want to stay in accounts which are not key for the brand image which are in the wrong cities and whose return would not be attractive.

Thank you very much. This concludes our call. Gilles, thank you very much. Ladies and gentleman, thank you for joining us and I remain available for your questions should there be any follow-up. Thank you very much.

Thank you.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.