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We would not wait for signs the on-

trade is picking up and premiumisation has returned in the US to buy the sector

Although we are Overweight on all three, we find Rémy Cointreau (upgrade to Overweight from Neutral (V), TP EUR46 from EUR38) a more controversial call than Pernod Ricard (drop V flag, TP EUR74 from EUR68) and Diageo (TP 1,320p from 1,175p)

We remain Neutral on LVMH (drop V flag, TP EUR95 from EUR88), which has benefited strongly from the luxury sector’s re-rating

Two-stage growth engine: The de-stocking phenomenon took

the market by surprise last year but we do not anticipate any re-

stocking. Retailers are enjoying living with lean inventories and

we think the mere non-recurrence of de-stocking could surprise

positively in the next two quarters. Beyond that, mix and price

could start to kick in as brands begin to reinvest and the

consumer feels more confident.

Look outside Europe: Luxury companies under our coverage

came across in recent calls and meetings as bullish on Asia ex-

Japan and optimistic about the US. We see spirits companies as

less talkative on the US but we view the category as being late

cyclical by only a few months. In other words, we believe there

is potential to surprise there while European trends may

continue to prove softer.

Upside risks: Some threats remain for the sector with taxes an

obvious risk but we believe improving sentiment will outweigh

them starting with impressive calendar Q1 sales to be published

in the next few weeks. We upgrade Rémy Cointreau to OW

from N(V) with a new target price of EUR46 (from EUR38) on

the back of its exposure to the premium segment as well as Asia

and the US. Both Pernod Ricard and Diageo deserve a re-rating

in our view: Pernod (OW, drop V, target price EUR74 from

EUR68) offers exposure to the return of premiumisation and to

Asia and Eastern Europe, while Diageo (OW, target price

1,320p from 1,175p) is a play on the US, Latam and Africa. We

remain Neutral on LVMH (drop V, target price EUR95 from

EUR88), which has already benefited from the re-rating of the

luxury industry.

Consumer Brands & Retail Wine & Spirits

Premiumisation 2.0: the audacity of hopeSpirits: Why we would play late cyclicality early

Spirits rating and target price changes

Company Price

TP Old TP Rating Old rating Potential

return

Diageo 11.25 13.2 11.75 OW OW 17.3%Pernod Ricard 64.03 74.00 68.00 OW OW(V) 15.6%Rémy Cointreau 40.31 46.00 38.00 OW N(V) 14.1%LVMH 88.34 95.00 88.00 N N(V) 7.5%Priced as close 6 April 2010. PR, RC and LVMH in EUR, Diageo in GBP Source: HSBC estimates

9 April 2010 Erwan Rambourg* Analyst HSBC Bank Plc +44 207 991 6793 [email protected]

Antoine Belge* Analyst HSBC Bank Plc, Paris branch +331 5652 4347 [email protected]

Sophie Dargnies* Analyst HSBC Bank Plc, Paris branch +331 5652 4348 [email protected]

View HSBC Global Research at: http://www.research.hsbc.com

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to NYSE and/or NASD regulations

Issuer of report: HSBC Bank plc

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

http://www.research.hsbc.com/

2

Consumer Brands & Retail Wine & Spirits 9 April 2010

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Premiumisation 2.0: the audacity of hope 4

Companies 9

Rémy Cointreau 10

Diageo 14

Pernod Ricard 18

LVMH 22

Disclosure appendix 27

Disclaimer 31

Contents

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Performance of Diageo, Rémy Cointreau, Pernod Ricard and LVMH relative to FTSEUR1300E (rebased 1000)

500

700

900

1100

1300

1500

1700

1900

2100

2300

01/07/2004 01/07/2005 01/07/2006 01/07/2007 01/07/2008 01/07/2009

FTSEUR1ST 300 E - PRICE INDEX DIAGEO REMY COINTREAU PERNOD-RICARD LVMH

Source: Thomson Reuters Datastream

Spirits valuation

Ticker Rating Previous rating

Currency Share price (at 6/4/2010)

Target price

Potentialreturn

PE 2009a

PE 2010e

PE 2011e

Diageo* DGE.L OW OW GBP 11.25 13.20 17.3% 17.4 15.7 13.6 Pernod Ricard* PERP.PA OW OW(V) EUR 64.03 74.00 15.6% 15.5 16.4 14.3 Rémy Cointreau* RCOP.PA OW N(V) EUR 40.31 46.00 14.1% 22.8 19.5 16.7 LVMH LVMH.PA N N(V) EUR 88.34 95.00 7.5% 23.9 19.5 17.1 Average 19.9 17.8 15.4

* Based on calendar data Source: HSBC estimates

Share price performance

% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010*

Diageo 5 -14 9 1 13 19 8 -11 13 4 Pernod-Ricard 18 6 19 28 31 18 9 -33 22 7 Rémy Cointreau -45 19 -12 15 34 23 0 -39 20 11 LVMH -35 -14 47 -2 33 7 3 -42 64 13 Average -14 -1 16 10 28 17 5 -31 30 9 FTSEUR1ST 300E -18 -32 12 9 22 16 2 -45 26 5

* to 6 April 2010 Source: Thomson Reuters Datastream

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The two-stage growth engine The end of de-stocking

We like the spirits category for H1 calendar 2010

because you don’t need to be an optimist to factor in

decent top-line growth. We are not very bullish

about end-demand for Champagne, for instance, but

still factor in strong double-digit growth in this

quarter and the next. Why is that? Simply put, we

believe the mere non-recurrence of the de-stocking

phenomenon should translate into hefty volume

growth. The higher-end products that were the most

heavily hit should hence recoup the most, regardless

of how confident the end-consumer is feeling. Let’s

take a simple example: assuming no price increase

and stable consumer demand, if a brand lost 10% of

volumes in calendar Q1 last year because of de-

stocking, the same brand may grow volumes by

c11% this year just to meet this stable end-demand.

In the table in the opposite column, we look at

organic top-line growth for Rémy Cointreau, Moët

Hennessy, Pernod Ricard and Diageo from Q2

calendar 2008 to Q1 calendar 2010 and come to the

conclusion that growth rates factored in by

consensus look low.

Organic sales growth: watch the rebound ahead, short term catalyst

Quarter ended

Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

Diageo* 6% 0% -7% -2% -6% 2% 6% MH** 3% -7% -22% -22% -11% -6% 19% Pernod Ricard

7% 3% -12% -3% -4% -2% 13%

Rémy Cointreau

7% -9% -47% -14% -1% -1% 75%

* Diageo figures are rounded, ** MH represents the Wines & Spirits sales of LVMH Source: Company data, HSBC estimates

Premiumisation 2.0

Beyond the initial period of easy de-stocking

comparison bases, we factor in a return of

premiumisation (H2 calendar 2010) with both

price increases and mix enhancement. Although

we acknowledge the risk of a “jobless recovery”,

we also believe unemployment may be a bit of a

lag indicator for end-demand.

We expect a desire by consumers around the

world to reward themselves, to display social

status and simply to enjoy affordable luxuries to

return. Looking at the spirits business regionally,

it appears that premiumisation has never really

seen a major setback in Asia ex-Japan, while price

and mix are still improving in China and India.

Premiumisation 2.0: the audacity of hope

Spirits industry about to enter two-stage growth, in our view

The US could start to surprise positively in the next few months

We see upside on Diageo, Pernod Ricard, Rémy Cointreau (all

Overweight) and LVMH, but remain Neutral on the latter

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In Europe, the issue has been more one of trading

less than necessarily trading down (with the

exceptions of Spain and Ireland).

The issue has been and remains the US but, as we

explain in the following section, we believe such

concerns will ease rapidly. Our expectation is that

following a technical volume-led recovery in

calendar H1, the sector should experience a healthier

value-led recovery in calendar H2. Although we do

not factor in the type of mix/price growth seen in the

2004-2008 period, we think 2% is achievable for the

sector in calendar H2 2010.

The A&P pre-requisite

Consumer confidence and the feel-good factor may

not be enough for people to trade up in bars and at

home. Although the downtown saw a fight for

volume share, an improving economy will imply, in

our view, that the battleground will shift from

aggressive discounting and promotions to a struggle

on advertising, viral and digital marketing and share

of voice.

In 2009, Diageo reactivated such brands as Popov in

vodka and Scorsby in whisky but we believe the

focus will rapidly shift out of the “standard” section

of the portfolio.

So what is the risk here? A&P spend precedes brand

growth and the A&P ratio to sales in H2 calendar

2010 should be up for the whole sector. However,

aside from Rémy Cointreau, which still has to

support a new “post-Maxxium” distribution

structure, we think the larger groups still have many

SG&A levers to pull to avoid advertising weighing

too much on margins. Besides, we consider digital

marketing (20% of Diageo’s spend and growing)

should be structurally more efficient in terms of buzz

for the brands, loyalty building and traffic creation.

The audacity of hope: play the US China, strong but known

In our ‘Luxury “red bull”’ thematic report published

25 January 2010, we came to the conclusion that the

bull case outweighed the risks of operating in China.

We also argued, however, that China, for luxury

stocks, was well understood and factored in. In other

words, although top-line growth should remain

impressive and EBIT contribution substantial in

some cases (Rémy Martin, Hennessy), we think the

market now views China as a given. Besides, the

large spirits companies have a broader emerging

markets exposure than the luxury goods players with

Africa, Latam, India and Russia giving them a more

balanced profile. The factor that may move the

needle more from an investment perspective is if

Europe remains sluggish or, as we believe, the US

rebounds at a greater pace (and more sustainably)

than investors have in mind.

Reasons for US optimism

Late cyclicality

One of the industry leaders jokingly says the good

thing about American consumers is that they have a

short memory. This quality is highlighted

differently on both sides of the political spectrum,

for example, in Barack Obama’s “The audacity of

hope” to Mitt Romney’s “No Apology: the case for

American greatness”.

The consumer’s capacity to digest events and press

the fast-forward button implies, in our view, the

investor community underestimates the rebound

potential in the market.

It is quite striking how optimistic luxury companies

have suddenly become about the US. Part of the

optimism and positive trends is down to the

favourable basis of comparison and the de-stocking

phenomenon. However, the high-end consumer

seems to be back and willing to spend.

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The reason the spirits companies are not that

openly optimistic is down to late cyclicality, in

our view.

Although spirits suffered two to three months

after luxury (as the route to market, especially in

the US, is a bit more intricate), we argue strong

trends will also be evidenced two to three months

later (ie pretty much now).

On-trade picks up

In recent weeks, there has been anecdotal

evidence in the US that some cities (New York,

Chicago) and states (Arizona) are starting to see a

timid uptick in on-trade sales. On-trade

consumption goes hand in hand with

premiumisation as consumers at the bar tend to

ask for a brand (“gimme a Grey Goose martini”)

rather than just a drink (“gimme a martini”).

Casual dining concepts are still suffering in the US

apart from a few exceptions (eg Buffalo Wild

Wings announced comps more than 2% in their

latest quarter ended December 2009) but like-for-

like sales growth is gradually improving. We

believe the shift from the on- to the off-trade has

stabilised and could reverse in the coming quarters.

Demographics

This is a great differentiation point versus Europe

and Japan: demographics in the US are going in

the right direction, adding about 1% of consumers

reaching the legal age to drink every year.

More importantly, components of demographics

and notably the growing (both in size and in

wealth) Hispanic and Asian communities should

drive profitable growth in the years to come as

they tend to overspend on the category and brands

are adapting marketing companies and product to

capture that growing market.

Diageo breakdown of sales by segment, H1 ended Dec 2009

Value 2% Standard 61% Premium 29% Super-premium 8% Total 100% Source: Diageo

Don’t choose between Diageo and Pernod: buy both Pernod more convincing on the premiumisation theme

On the premiumisation aspect, we believe a

logical strategy would be to favour the brands of

Rémy Cointreau and LVMH ahead of the two co-

leaders of the spirits industry. Although we are

upgrading our rating on Rémy Cointreau in this

report, we acknowledge it is a high beta

proposition and we also believe that LVMH has

been riding the luxury wave for a while now.

Comparing Diageo to Pernod, it seems clear to us

that Pernod is more a play on premiumisation,

with c79% of its gross margin generated by

premium and above products at Pernod. Diageo’s

resilience in the downturn is undeniably linked to

its massive stronghold on the standard category

(see table above).

Pernod: gross margin breakdown by price (FY June 2009)

USD17 to

USD25

45%USD26 and

above

34%

USD16 and

below

21%

USD17 to

USD25

45%USD26 and

above

34%

USD16 and

below

21%

USD17 to

USD25

45%USD26 and

above

34%

USD16 and

below

21%

Source: Company data

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Diageo more convincing on the US rebound theme

In our view, the emerging market theme is well

understood for the sector and although Pernod’s

China exposure is much greater than Diageo’s, the

latter has footholds in Africa (thanks to beer) and

Latam (strong Scotch markets), which are

unparalleled. We argue that the relative softness in

Europe and more importantly the rebound in the US

may surprise this year. On that theme, Diageo

screens much better than Pernod Ricard today.

For those investors who are less risk-averse and

who would look at momentum more than

valuation, we believe that Rémy Cointreau’s

regional exposure (40% Americas, 25% Asia and

others based on our FY March 2010 estimates) is

the most compelling story.

Geographic breakdown of sales at FY June 2009

Pernod Diageo

Western Europe 37% 27% Eastern & Central Europe 7% 2% North America 21% 35% Latin & Central America 7% 10% Japan 3% 2% China 9% 2% India 4% 2% Korea 3% 2% Other Asia 8% 2% Africa 1% 11% Other 4% Total 100% 100%

Source: Company data, HSBC estimates

Summary of estimate changes

GBPm/p for Diageo, EURm/EUR for others Rémy Cointreau* Diageo** Pernod Ricard** LVMH

Sales 2010 Previous estimates 800 9,930 7,160 17,600 Current estimates 835 10,250 7,260 18,300 Change 4% 3% 1% 4% 2011 Previous estimates 830 10,376 7,550 18,660 Current estimates 885 10,810 7,700 19,400 Change 7% 4% 2% 4% EBIT 2010 Previous estimates 165 2,950 1,900 3,600 Current estimates 168 2,940 1,890 3,830 Change 2% 0% -1% 6% 2011 Previous estimates 174 3,087 2,050 4,020 Current estimates 186 3,150 2,055 4,250 Change 7% 2% 0% 6% EPS 2010 Previous estimates 2.08 79.3 4.11 4.23 Current estimates 2.17 78.86 4.19 4.53 Change 4% -1% 2% 7% 2011 Previous estimates 2.22 84.8 4.67 4.81 Current estimates 2.50 87.1 4.78 5.17 Change 13% 3% 2% 7%

* Year ending March N+!, **: year ending June N+1 Source: HSBC estimates

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Companies

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A timely, fantastic mix Sales to impress short term

Although some investors may find Diageo a safe

haven in a downturn and a dull but nicely predictable

stock when the macro environment improves, Rémy

Cointreau (RC) looks like the exact opposite. We

remember conversations we had only a year ago

when Q4 sales at RC had halved and some thought

the debt covenants would never be met. As

explained in the thematic part of this report, we

believe that generally for the spirits sector, investors

were shocked by the amplitude of the de-stocking

and should be impressed simply by what the non-

recurrence of that phenomenon means to the top line.

RC should be an extreme example of this. Modelling

RC sales for Q4 (to end-March 2010) and beyond

can seem a nightmare. It is not reasonable to look at

growth rates but view that what was lost in 2009

should be made up for in Q4 2010.

We come up with a growth figure (75%) for Q4

(published 22 April) that, despite appearing

unachievable, is actually quite logical, in our view.

Regional mix a key positive

The hefty US exposure and the exit from Maxxium

distribution in China were two very disruptive

challenges last year for RC. If we think about where

the regional risks lie this year, we look at Europe

where in some countries, it appears unemployment

has not yet peaked and growth may remain sluggish.

The good thing about this for RC is that the

European consumer does not seem to be as keen on

cognac anymore.

The drink that RC relies on the most has basically

become an American specialty with a strong Chinese

following, two countries where there could be a

strong rebound both technically (no more de-

stocking) and fundamentally (end-consumer able

and willing).

Rémy Cointreau

High risk, high reward: look for stellar growth and high, but less

relevant, valuation

Pure premiumisation play and cautious sentiment are positives

Upgrade to Overweight from Neutral (V) with a target price of

EUR46 (vs EUR38 previously)

Rémy Cointreau: Q4 ending March should see strong sales

Q4 (ending March) in EURm 2008 2009 2010 Reported % LFL % FX FX%

Cognac 92.7 40.5 98.8 144% 150% -2.4 -6% Liqueur and Spirits 47.3 37.4 45.6 22% 26% -1.5 -4% Champagne 20.8 12.1 17.8 47% 50% -0.4 -3% Group brands 160.8 90.0 162.2 80% 85% -4.3 -5% Partner brands 26.2 19.6 24.0 22% 28% -1.2 -6% Total 187.0 109.6 186.2 70% 75% -5.5 -5%


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The best premiumisation play

RC should be the biggest beneficiary of

“Premiumisation 2.0”: if the US consumer starts

going out again and if the Chinese consumer

continues to prove how very resilient he is, we

believe RC should regain share significantly after

having lost out heavily during the downturn.

Cointreau is a very US- and very cocktail-driven

spirit, so any evidence that the on-trade is coming

back slightly will help. Similarly, Rémy Martin

cognac has gradually looked to limit the VS

(“only” two years of ageing) quality in China so the

mix is still positively impacted while the brand is

currently putting through price increases that

should benefit calendar 2010 (H2). Remember that

in China, RC distributes cognac only in Tier 1 and

most of Tier 2 cities (so c40-45 main cities now)

and intends to catch up on the footprint developed

by Hennessy (LVMH) and Martell (Pernod Ricard)

in Tier 3 cities.

A controversial call

Leaving aside our own view, the sell-side

recommendations are: 5 buys, 8 Neutrals, 7 sells,

suggesting it is not exactly the most-loved stock. RC

is technically the least preferred stock in our

coverage, alongside Bulgari and Hermes (please

refer to our 2 March 2010 “Love/hate barometer” on

this subject). We expect the caution is down to

valuation. At the same time, we would argue RC

will grow into its valuation quite rapidly.

As we explained in our spirits sector report “Who’s

getting the next round?” published in November

2009, we still believe Rémy Cointreau looks an

unlikely target for us (although we acknowledge any

talk of M&A could support the shares). We believe

RC is more likely to “eat than be eaten” on a three-

year view as the exit from Maxxium has made the

P&L viable for synergy-deriving deals (once the

balance sheet has become fully operational again).

Earnings, valuation and risks

The next events for RC will be the 12-month trading

statement on 22 April and, as explained above, we

think this will be a blow-out figure (we estimate

EUR775m vs Thomson Reuters consensus of

EUR739m), implying Q4 should reach EUR186m

on our estimate (vs implied consensus of

EUR150m). We believe RC will take the

opportunity to push its advantage in China and

invest ahead of price increases and the consumer

hopefully returning to the on-trade.

Despite sales being impressive, we remain cautious

on EPS for FY March 2010 and lower our estimate

by 2% to EUR1.75. For FY March 2011 and FY

March 2012, however, as advertising spend should

normalise and the EUR/USD should no longer be a

headwind, we increase our EPS estimates by 4% and

a heftier 13% to EUR2.17 (from EUR2.08) and

EUR2.50 (from EUR2.22), respectively.

We increase our target price to EUR46 from

EUR38 on the back of these higher long-term

estimates and the roll-over by one year to 2010 of

our DCF analysis (for which assumptions are

detailed on the page 13). Under our research model,

the Neutral band is 5 percentage points above and

below the hurdle rate for non-volatile Europe ex-

UK stocks of 8.5%. Our target price implies a

14.1% potential total return. We thus upgrade to

Overweight from Neutral (V). We have removed

the volatility flag as the past month's average of the

daily 365-day moving average volatilities for RC

was 34% on 6 April, below the 40% benchmark.

Our EUR46 target is now the highest in the market.

Specific risks to our rating include a sustained lack

of a pick-up in the US on-trade, a negative surprise

on advertising spend and if Rémy Martin fails to

regain market share in China.

Currently trading at 19.5x 2010e and 16.7x 2011e

calendar PE, RC does not look cheap but we

would play the short-term momentum over

valuation for now.

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Rémy Cointreau results and forecasts

EURm (YE 31 March) FY 03a FY 04a FY 05a FY 06a FY 07a FY 08a FY 09a FY 10e FY 11e FY 12e

Net Sales 1,000.2 888.3 733.7 780.6 785.9 817.8 714.1 775.0 835.0 885.0Y-o-y change -11.2% -17.4% 6.4% 0.7% 4.1% -12.7% 8.5% 7.7% 6.0% Cost of Sales -441.1 -385.4 -341.6 -381.7 -368.6 -375.7 -302.3 -322.2 -335.6 -349.5Gross Profit 559.1 502.9 392.1 398.9 417.3 442.1 411.8 452.8 499.4 535.5Gross profit margin 55.9% 56.6% 53.4% 51.1% 53.1% 54.1% 57.7% 58.4% 59.8% 60.5%Change in bps 71 -317 -234 200 96 361 75 139 70 Distribution costs -260.7 -247.8 -193.5 -190.7 -192.5 -210.6 -201.7 -231.7 -247.2 -259.3As a % of sales 26.1% 27.9% 26.4% 24.4% 24.5% 25.8% 28.2% 29.9% 29.6% 29.3%Administrative expenses -84.6 -81.6 -84.9 -80.2 -81.1 -83.0 -80.7 -85.5 -91.5 -97.4As a % of sales 8.5% 9.2% 11.6% 10.3% 10.3% 10.1% 11.3% 11.0% 11.0% 11.0%Other operating income / expenses - 10 12 10.1 11.1 7.6 7.6 7.6 7.6 Recurring operating expenses -345.3 -329.4 -268.4 -259.4 -263.5 -282.5 -274.8 -309.7 -331.1 -349.1As a % of net sales 34.5% 37.1% 36.6% 33.2% 33.5% 34.5% 38.5% 40.0% 39.7% 39.4% Depreciation and amortisation -20.3 -20.4 -15.9 -14.3 -13.2 -13.6 -14.8 -15.9 -16.9 -17.8EBITDA 234.1 193.9 139.6 153.8 167.0 173.2 151.8 159.0 185.2 204.3 Current operating profit (EBIT) 213.8 173.5 123.7 139.5 153.8 159.6 137.0 143.1 168.3 186.5Operating profit margin 21.4% 19.5% 16.9% 17.9% 19.6% 19.5% 19.2% 18.5% 20.2% 21.1%Provisions for impairment -3.1 - - - - - - -Other operating income (Expenses) -2.80 -2.80 12.30 -18.20 -243 -0.6 14.9 - - - Operating profit (EBIT after non-recurring)

211.0 170.7 132.9 121.3 -89.6 159.0 151.9 143.1 168.3 186.5

Operating profit margin 21.1% 19.2% 18.1% 15.5% -11.4% 19.4% 21.3% 18.5% 20.2% 21.1% Finance Costs -78.6 -76.7 -54.9 -64.1 -37.2 -40.5 -33.1 -30.0 -26.0 -22.0Other finance income and expenses -1.4 2.1 -0.4 0.9 -0.1 -5.3 1.8 - - -Net financial expenses -80.0 -74.6 -55.3 -63.2 -37.3 -45.8 -31.3 -30.0 -26.0 -22.0 Profit before taxes 131.0 96.1 77.6 58.1 -126.9 113.2 120.6 113.1 142.3 164.5PBT margin 13.1% 10.8% 10.6% 7.4% -16.1% 13.8% 16.9% 14.6% 17.0% 18.6% Income tax expenses -50.5 -38.3 -23.1 -13.3 50.1 -28.9 -37.5 -31.7 -41.3 -47.7Effective tax rate 38.5% 39.9% 29.8% 22.9% 23.4% 25.5% 31.1% 28.0% 29.0% 29.0% Profit after tax 80.5 57.8 54.5 44.8 -76.8 84.3 83.1 81.4 101.0 116.8PAT margin 8.0% 6.5% 7.4% 5.7% -9.8% 10.3% 11.6% 10.5% 12.1% 13.2% Share of profit of associates 9.0 6.9 7.4 8.5 10.2 9.5 3.0 1.0 1.0 1.0Net profit from continuing operations 89.5 64.7 61.9 53.3 -66.6 93.8 86.1 82.4 102.0 117.8Net profit from discontinued operations - - -6.6 21 45.2 4.6 0.0 - - - Reported net profit (standalone) 89.5 64.7 55.3 73.9 -21.4 98.4 86.1 82.4 102.0 117.8PAT margin 8.9% 7.3% 7.5% 9.5% -2.7% 12.0% 12.1% 10.6% 12.2% 13.3% Attributable to minority interests 0.1 -1.0 -5.5 3.9 -1.6 0.0 0.0 0.0 0.0 0.0Reported net profit (group) 89.6 63.7 49.8 77.8 -23.0 98.4 86.1 82.4 102.0 117.8 Diluted EPS (EUR) EPS - Continuing operations (EUR) 1.67 1.21 1.20 1.16 -1.46 2.00 1.83 1.75 2.17 2.50


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Financial statements

Year to 03/2009a 03/2010e 03/2011e 03/2012e

Profit & loss summary (EURm)

Revenue 714 775 835 885EBITDA 152 159 185 204Depreciation & amortisation -15 -16 -17 -18Operating profit/EBIT 137 143 168 186Net interest -31 -30 -26 -22PBT 121 113 142 164HSBC PBT 106 113 142 164Taxation -38 -32 -41 -48Net profit 86 82 102 118HSBC net profit 86 82 102 118

Cash flow summary (EURm)

Cash flow from operations 167 94 168 126Capex -32 -25 -25 -25Cash flow from investment 29 -25 -25 -25Dividends -39 -41 -51 -59Change in net debt 106 -27 -92 -42FCF equity 55 68 142 100

Balance sheet summary (EURm)

Intangible fixed assets 630 630 630 630Tangible fixed assets 197 206 214 221Current assets 1,350 1,437 1,525 1,597Cash & others 100 153 270 311Total assets 2,322 2,418 2,514 2,594Operating liabilities 499 528 548 569Gross debt 621 646 671 671Net debt 521 494 402 360Shareholders funds 973 1,014 1,065 1,124Invested capital 1,578 1,592 1,550 1,568

Ratio, growth and per share analysis

Year to 03/2009a 03/2010e 03/2011e 03/2012e

Y-o-y % change

Revenue -13.2 8.5 7.7 6.0EBITDA -12.4 4.7 16.5 10.3Operating profit -14.2 4.4 17.6 10.8PBT 6.5 -6.2 25.9 15.6HSBC EPS -13.1 -4.3 23.8 15.4

Ratios (%)

Revenue/IC (x) 0.5 0.5 0.5 0.6ROIC 6.5 6.5 7.6 8.5ROE 9.1 8.3 9.8 10.8ROA 4.7 4.3 4.8 5.2EBITDA margin 21.3 20.5 22.2 23.1Operating profit margin 19.2 18.5 20.2 21.1EBITDA/net interest (x) 4.8 5.3 7.1 9.3Net debt/equity 53.7 48.8 37.8 32.1Net debt/EBITDA (x) 3.4 3.1 2.2 1.8CF from operations/net debt 32.0 18.9 41.9 34.9

Per share data (EUR)

EPS Rep (fully diluted) 1.83 1.75 2.17 2.50HSBC EPS (fully diluted) 1.83 1.75 2.17 2.50DPS 0.83 0.87 1.08 1.25NAV 20.08 20.93 21.98 23.20

DCF analysis

HSBC assumptions DCF, comprising

Risk free rate (%) 4.0 EBIT growth 08-18 CAGR (%) 7.6Equity Premium (%) 4.5 EBIT growth 18-38 CAGR (%) 4.8Sector beta 1.10 Fade period 2038-44 Specific beta 1.25 WACC (%) 8.82

Sensitivity and valuation range (EUR per share)

Cost of capital versus fade period 4 years 8 years 12 years

7.8% 54.3 55.5 55.98.3% 49.4 50.4 51.08.8% 45.2 46.0 46.79.3% 41.4 42.1 42.99.8% 38.1 38.7 39.4

Valuation data

Year to 03/2009a 03/2010e 03/2011e 03/2012e

EV/sales 3.3 3.0 2.7 2.5EV/EBITDA 15.5 14.6 12.0 10.7EV/IC 1.5 1.5 1.4 1.4PE* 22.1 23.0 18.6 16.1P/NAV 2.0 1.9 1.8 1.7FCF yield (%) 3.0 3.7 7.8 5.4Dividend yield (%) 2.1 2.2 2.7 3.1

Note: * = Based on HSBC EPS (fully diluted)

Issuer information

Share price (EUR) 40.31 Target price (EUR) 46.00 Potent'l tot rtn (%) 14.1

Reuters (Equity) RCOP.PA Bloomberg (Equity) RCO FPMarket cap (USDm) 2,632 Market cap (EURm) 1,953Free float (%) 43 Enterprise value (EURm) 2323Country France Sector BeveragesAnalyst Erwan Rambourg Contact 44 20 7991 6793Analyst Antoine Belge Contact 331 5652 4347Analyst Sophie Dargnies Contact 331 5652 4348

Price relative

12

17

22

27

32

37

42

47

52

Apr-08 Oct-08 Apr-09 Oct-09 Apr-1012

17

22

27

32

37

42

47

52

Remy Cointreau Rel to SBF-120

Source: HSBC Note: price at close of 06 Apr 2010

Financials & valuation: Rémy Cointreau Overweight

14


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A cheap play on the US, Latam and Africa Share price underperformed in 2009

Diageo’s share price performance in 2009 (up

13% vs 26% for the Eurotop 300) may have

appeared somewhat lacklustre. However, we

believe investors should remember the stock’s

superior resilience during the bear market of 2008

(Diageo’s shares declined only 11% vs -45% for

the Eurotop 300).

Higher US exposure to become a positive, in our view

Diageo remains much more exposed to North

America (35% of sales in FY June 2009) than

Pernod Ricard (21%), even after the latter’s

acquisition of Absolut in 2008. This was clearly a

negative in calendar 2009: Diageo’s organic sales

growth in North America was -4% in H2 June

2009 and -6% in H1 December 2009.

Management adapted to the new environment by

(i) playing a defensive volume share strategy

(notably reactivating brands like Scorsby and

Popov), (ii) limiting shipments in the US in order

to lower distributors inventories, and (iii)

increasing its share of voice (A&P to sales ratio

up 10bp in the US).

We believe investors should soon change their

view and consider Diageo’s US exposure as a

positive. We forecast North America sales to pick

up in H2 June 2010 (+4%) on the back of the

absence of de-stocking, and to increase 5.5% in

FY June 2011 as end-demand recovers.

Superior potential in Latam and Africa to offset lower Asia exposure

True, Diageo is not the most exciting play on the

China theme. Its direct exposure to China is only

c2% (vs 9% for Pernod) and mostly comes from

scotch, a category that has lost ‘share of throat’ to

cognac over the last two years. Diageo’s exposure

to the fast-growing cognac category is limited by

the fact that it comes from its minority (34%)

stake in Moët Hennessy.

We believe Diageo has something else to offer: its

exposure to Latin & Central America (11% of

sales, c68% of sales in scotch) and Africa (11%,

71% of sales in beer). Even during the tough 2009

calendar year, these two regions registered growth

rates of 4% in H1 and 8% in H2.

Diageo

High US exposure (35% sales in FY June 2009) to become a

positive, superior Latam and Africa presence has potential to offset

lower Asia exposure

Size issue overstated by the market, in our view

Overweight rating maintained; target price raised to 1,320p (from

1,175p)

15


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Size issue overstated by the market

As number 1 in the global premium spirits market

with a 28% volume share, Diageo is often perceived

by investors as being too big to grow faster than the

market. We believe this size issue is overstated as

Diageo has the right:

portfolio of brands to benefit from the

expected trade-up in emerging markets from

cheap local beverages to western style brands;

routes to market to maximise execution of

merchandising and marketing strategies;

financial clout to be active on the acquisition

front if a tequila, a bourbon brand or a local

player in emerging markets were available (and

moreover in the next two to three years given

that Pernod will be focusing on debt reduction

after its acquisition of Absolut).

With regards to the mooted interest of Diageo

(notably in The Telegraph on 26 September 2009)

to acquire the 66% of Moët Hennessy (MH) owned

by LVMH, we reiterate our views expressed at

length in our 10 November 2009 Who’s getting the

next round? global spirits report on the M&A

theme. We think it would make strategic sense for

Diageo to bid for MH, but LVMH is unlikely to

agree on a deal even at a high price if the luxury

goods leader does not find a way of reinvesting the

proceeds (speculated in that article at cEUR12bn).

On this particular point, it appears that the few

sizeable potential targets we referenced in our report

(Richemont, Swatch, Rolex, Hermès) did not suffer

enough from the downturn to have changed their

views about changing hands.


The next events for Diageo will be the Q3 (January-

March) trading statement on 6 May and the investor

day on 19 May. We forecast 6% organic sales

growth for Q3 ended 10 March, which should

benefit from a favourable basis of comparison (sales

declined 7% organically in Q3 the previous year).

For FY June 2010, we forecast 1% organic sales

growth (volumes up 1%, price/mix flat) after a 2%

decline in H1. We expect Diageo to meet its

organic EBIT guidance (low single-digit growth):

our forecast calls for a 3% EBIT increase, both on

a reported and on an organic basis as FX and

consolidation impacts should be negligible. We

believe H2 should mirror H1, allowing gross

margin to be broadly flat organically over the FY

(after an 80bp deterioration) while part of the cost

savings linked to the restructuring should be re-

invested into A&P.

For FY June 2011, we forecast 5.2% organic sales

growth driven by a 3.6% increase in volumes and

a 1.6% price/mix. We see EBIT growing 7%

organically, to which a 2% positive contribution

from FX should be added.

We have cut our 2010 estimates by 5% (IAS-

related impacts), left our 2011 estimates

unchanged and raised our estimates for 2012 and

beyond by 3% on the back of higher margin

assumptions for the International business and a

higher contribution from the MH stake.

We increase our target price to 1,320p from

1,175p on the back of these slightly higher long-

term estimates and the roll-over by one year to

2010 of our DCF analysis (for which assumptions

are detailed on page 17). Under our research

model, the Neutral band is 5 percentage points

above and below the hurdle rate for non-volatile

UK stocks of 8%. We remain Overweight since

our 1,320p target price implies a 17% potential

total return. Specific risks to our rating include a

failure to expand market share further in the US

and gaining market share in China and India at a

considerable cost.

At 15.7x 2010e and 13.6x 2011e calendar PE,

Diageo clearly falls into the ‘growth at reasonable

price’ (GARP) category.

16


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Diageo results and forecasts

GBPm (YE 30 June) FY06 FY07 FY08 FY09 FY10e FY11e FY12e

Net sales 7,260 7,481 8,090 9,311 9,565 10,250 10,810% growth 8.7% 3.0% 8.1% 15.1% 2.7% 7.2% 5.5% COGS -2,921 -3,003 -3,245 -3,883 -4,050 -4,320 -4,531 Gross profit 4,339 4,478 4,845 5,428 5,515 5,930 6,279Gross margin (%) 59.8% 59.9% 59.9% 58.3% 57.7% 57.9% 58.1%Change in bp -82 9 3 -159 -64 20 23 Marketing -1,127 -1,162 -1,239 -1,312 -1,348 -1,444 -1,523As a % of sales 15.5% 15.5% 15.3% 14.1% 14.1% 14.1% 14.1% Other operating expenses -1,168 -1,157 -1,302 -1,503 -1,468 -1,546 -1,606As a % of sales 16.1% 15.5% 16.1% 16.1% 15.3% 15.1% 14.9% GW & exceptional items - - (78) (170) (170) D&A - included in other operating expenses -214 -210 -233 -276 -289 -301 -313 Operating profit before except (EBIT) 2,044 2,159 2,304 2,613 2,700 2,940 3,150% growth 7.4% 5.6% 6.7% 13.4% 3.3% 8.9% 7.2%EBIT margin (%) 28.2% 28.9% 28.5% 28.1% 28.2% 28.7% 29.1% Operating profit 2,044 2,159 2,226 2,443 2,530 2,940 3,150% growth 18.1% 5.6% 3.1% 9.7% 3.5% 16.2% 7.2%Operating margin (%) 28.2% 28.9% 27.5% 26.2% 26.4% 28.7% 29.1% Exceptional items 157 -1 9 - - - - Interest , net -193 -251 -341 -516 -416 -381 -346 Other finance income/ (charges), net 7 39 22 -76 -80 -80 -80As a % of avg debt 0.1% 0.8% Share of associates profits after tax 131 149 177 164 164 189 209 PBT 2,146 2,095 2,093 2,015 2,198 2,668 2,934Taxation -181 -678 -522 -292 -483 -587 -645Tax rate (%) 8.4% 32.4% 24.9% 14.5% 22.0% 22.0% 22.0% Profit from continuing operations 1,965 1,417 1,571 1,723 1,714 2,081 2,288% growth 48.2% -27.9% 10.9% 9.7% -0.5% 21.4% 10.0% Discontinued operations 139 26 2 Profit for the year 1,965 1,556 1,597 1,725 1,714 2,081 2,288 Minority interests (equity) -57 -67 -76 -104 -109 -114 -117Minority interests (non-equity) - - - - -Profit attributable to equity shareholders of parent company 1,908 1,489 1,521 1,621 1,605 1,967 2,171 EPS (diluted) (p) 66.9 55.0 58.9 65.0 64.4 78.9 87.0% growth 44.8% -17.8% 7.1% 10.4% -1.0% 22.5% 10.4%


17


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Financials & valuation: Diageo Overweight Financial statements

Year to 06/2009a 06/2010e 06/2011e 06/2012e

Profit & loss summary (GBPm)

Revenue 9,311 9,565 10,250 10,810EBITDA 2,889 2,989 3,241 3,463Depreciation & amortisation -276 -289 -301 -313Operating profit/EBIT 2,613 2,700 2,940 3,150Net interest -516 -416 -381 -346PBT 2,015 2,198 2,668 2,934HSBC PBT 2,015 2,198 2,668 2,934Taxation -292 -483 -587 -645Net profit 1,621 1,605 1,967 2,171HSBC net profit 1,621 1,605 1,967 2,171

Cash flow summary (GBPm)

Cash flow from operations 1,859 2,015 2,145 2,383Capex -327 -300 -310 -320Cash flow from investment -488 -243 -241 -241Dividends -968 -1,052 -1,104 -1,157Change in net debt 1,271 -744 -799 -985FCF equity 1,472 1,600 1,641 1,864

Balance sheet summary (GBPm)

Intangible fixed assets 6,215 6,181 6,164 6,147Tangible fixed assets 2,728 2,684 2,716 2,747Current assets 6,205 7,087 8,302 9,631Cash & others 914 1,604 2,451 3,485Total assets 18,096 19,002 20,340 21,795Operating liabilities 3,226 3,244 3,332 3,373Gross debt 8,575 8,620 8,666 8,715Net debt 7,661 6,917 6,118 5,132Shareholders funds 3,221 3,883 4,860 5,991Invested capital 11,711 11,807 12,105 12,375


Year to 06/2009a 06/2010e 06/2011e 06/2012e

Y-o-y % change

Revenue 15.1 2.7 7.2 5.5EBITDA 13.9 3.4 8.5 6.8Operating profit 13.4 3.3 8.9 7.2PBT -3.7 9.1 21.4 10.0HSBC EPS 10.4 -1.0 22.5 10.4

Ratios (%)


Per share data (GBPp)


DCF analysis


Risk-free rate (%) 4.50 EBIT growth 08-18e CAGR (%) 5.1Equity premium (%) 3.50 EBIT growth 18-38e CAGR (%) 3.3Sector beta 1.10 Fade period 2038-44 Specific beta 1.00 WACC (%) 7.75

Sensitivity and valuation range (GBPp per share)

Cost of capital vs fade period 4 years 8 years 12 years

6.8% 1,546 1,587 1,6067.3% 1,410 1,444 1,4677.8% 1,291 1,320 1,3458.3% 1,186 1,210 1,2358.8% 1,094 1,114 1,138

Valuation data

Year to 06/2009a 06/2010e 06/2011e 06/2012e



Issuer information

Share price (GBPp) 1,125 Target price (GBPp) 1,320 Potent'l tot rtn (%) 17.3

Reuters (Equity) DGE.L Bloomberg (Equity) DGE LNMarket cap (USDm) 42,860 Market cap (GBPm) 28,181Free float (%) 100 Enterprise value (GBPm) 33372Country United Kingdom Sector BeveragesAnalyst Erwan Rambourg Contact 44 20 7991 6793Analyst Antoine Belge Contact 33 1 5652 4347Analyst Sophie Dargnies Contact 33 1 5652 4348

Price relative

646746846

946104611461246

13461446


946104611461246

13461446

Diageo Rel to FTSE ALL-SHARE


18


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Time for a re-rating Q3 publication (29 April) likely to be a positive

catalyst (HSBCe 13% organic sales growth)

When Pernod reports Q3 sales (to end-March 2010)

on 29 April, we expect the company to show a sharp

reversal in trends:

The basis of comparison will be -12% in Q3 vs

+3% in Q2.

Chinese New Year seems to have been good

and occurred later this year vs last year, which

means that it will impact Q3 instead of Q2.

Distributor de-stocking is now more or less

over.

There are signs of recovery in duty free, Korea,

Eastern Europe.

Even though bad weather probably had a negative

impact on US sales, we forecast 13% organic sales

growth in Q3 vs -2% in Q2 and -4% in Q1.

Pernod a good play on our Premiumisation 2.0

theme

We continue to think investors underestimate how

geared Pernod is to a worldwide economic recovery.

Even though we do not expect a full ‘trading back

up’ phenomenon for certain markets such as the US

vodka segment, we believe consumers are likely to

‘trade more, notably in the ‘on-trade’ channel (bars

and restaurants) if the economy recovers. Pernod

should be well placed to benefit from this recovery

since products retailing at USD17 or more account

for 79% of the company’s gross margin.

Sentiment could shift on Absolut

Pernod is less exposed to North America than

Diageo (21% of sales vs 35%). But we believe

investors’ concerns about the US economy weighed

disproportionately on Pernod because the group

acquired Absolut (for which the US accounted for

47% of volumes) two months before the demise of

Lehman. The super premium and premium vodka

segments, ie brands retailing at USD20 (or more) per

75cl bottle, were the hardest hit by down-trading.

Priced at cUSD23, Absolut suffered from consumers

trading down to brands positioned in the USD10-15

range, such as Smirnoff, Sky, Svedka and Sobierski,

and sometimes to Popov (cUSD8).

We thus anticipate Pernod’s share price could react

disproportionately (this time on the upside) once

investors start pricing the improvement in leading

indicators of the US economy that they have been

happy to discount for other consumer sectors (for

instance luxury goods), but not yet for spirits stocks.

Pernod Ricard

Pernod a good play on our “Premiumisation 2.0” theme

Expected sentiment shift on Absolut likely to have disproportionate

positive impact on share price

Overweight rating reiterated (volatility flag removed); target price

raised to EUR74 (from EUR68)

19


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In the 15-18 months following its acquisition by

Pernod, it was not surprising to us to see Absolut

suffering from the typical disruption that inevitably

affects a brand changing hands (notably when

significant changes in distribution are involved). In

FY June 2011, Absolut should benefit from the

strong increase in the sales force being allocated by

US distributors to Pernod's brands (with many people

being 100% dedicated).

On the subject of Absolut, it is worth noting that even

though US sales and volumes were both down 5% in

H1 ended December 2009, worldwide sales of

Absolut increased 5% (volume up 3% and price/mix

2%). In Germany and the UK, prices of Absolut have

been raised by 10-15% without significantly hurting

volumes in an effort to harmonise prices globally.

Refinancing under control

Net debt was EUR10.3bn at end-December 2009,

down from the peak of EUR13bn reached at end-

December 2008, owing to strict working capital and

capex control, a rights issue and asset disposals.

Pernod has a target of EUR3bn in FCF generation

over three years. Since this target included the

EUR1.3bn in FCF achieved in FY 2009, the real

target is therefore to generate EUR1.7bn over the two

next fiscal years (FY 2010 and FY 2011). We believe

these targets are extremely conservative; our own

forecast is for FCF before dividends of EUR1,035m

in FY 2010 and EUR1,014m in FY 2011.

With a much lower CDS, Pernod is now in a

position to refinance itself on the bond market at

much better conditions than the 7% rate of bond

issued by the group in 2009 (EUR800m). Last

month, the group issued a EUR1.2bn bond at

4.875%. Even though Pernod’s objective of

increasing the share of bond debt will inevitably lead

to an increase in the average cost of debt (from the

very low level of 4.15% in H1), this negative factor

will in our view be more than compensated for by

increased debt maturities.


We believe visibility seems good on Pernod

achieving its EBIT organic growth guidance of 1%

to 3% over FY June 2010 while increasing its

A&P/sales ratio in H2. After the above-mentioned

13% organic sales growth forecast for Q3, we expect

Pernod to register 5% organic sales growth in Q4 as

the basis of comparison will be -3% (vs -12% in

Q3). FY June 2010 organic sales growth would then

end up at 1.8%. We are keen to highlight that gross

margin gains were achieved in H1 (+30bp on a

reported basis, +80bp organic) in spite of a 2%

organic sales decline, which backs up the group’s

premiumisation strategy even in bad times. We

expect gross margin gains coupled with renewed

SG&A leverage and Absolut synergies to allow

Pernod to reach the higher end of its organic EBIT

guidance (HSBC +3%). Reported EBIT growth

(HSBC -6%) should be hampered by FX (-6%) and

disposals (-3%).

For FY June 2011, we forecast 5.4% organic sales

growth and 9% organic EBIT growth. We have left

our 2010 estimates unchanged and increased our

2011 and 2012 estimates by 2%.

We increase our target price to EUR74 from EUR68

on the back of our estimate increases and the roll-

over by one year of our DCF analysis to 2010 (for

which assumptions are detailed on page 21). Under

our research model, the Neutral band is 5 percentage

points above and below the hurdle rate for non-

volatile Europe ex-UK stocks of 8.5%. Our target

price implies a 15.6% potential total return. We thus

remain Overweight. We have removed the volatility

flag as the past month's average of the daily 365-day

moving average volatilities for Pernod was 28% on 6

April, below the 40% benchmark.

Risks to our rating include tougher-than-expected

execution of the Absolut integration and failure to

refinance debt.

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Pernod Ricard P&L

EURm (YE 30 June) FY06/07a FY07/08a FY08/09a FY09/10e FY10/11e FY11/12e

Net sales 6,443 6,589 7,203 6,860 7,260 7,700Gross profit after logistic costs 3,587 3,766 4,208 4,024 4,297 4,585Gross profit margin 55.7% 57.2% 58.4% 58.7% 59.2% 59.5%A&P and distribution costs -1,101 -1,178 -1,237 -1,176 -1,252 -1,330As a % of net sales -17.1% -17.9% -17.2% -17.1% -17.2% -17.3%Contribution after A&P and distrib expenses 2,486 2,588 2,971 2,847 3,045 3,255As a % of net sales 38.6% 39.3% 41.2% 41.5% 41.9% 42.3%SG&A expenses -1,039 -1,066 -1,125 -1,117 -1,155 -1,199As a % of net sales -16.1% -16.2% -15.6% -16.3% -15.9% -15.6%EBIT 1,447 1,522 1,846 1,730 1,890 2,055EBIT margin (%) 22.5% 23.1% 25.6% 25.2% 26.0% 26.7%Other operating income and expenses 20 -81 -89 -93 0 0Net financial income (expense) -341 -333 -619 -480 -448 -413Other financial income (expense) -10 -16 -71 0 0 0Profit before tax 1,116 1,093 1,067 1,157 1,442 1,642Income tax -260 -224 -108 -218 -310 -353 Tax rate 23.3% 20.5% 10.1% 18.8% 21.5% 21.5%Share of net profit/(loss) of associates 1 0 0 0 0 0Net profit from continuing operations 857 869 959 939 1,132 1,289Net profit from discontinued operations 0 57 8 0 0 0Net profit 857 926 967 939 1,132 1,289Minority Interests -25 -29 -21 -22 -23 -24Net profit - group share 832 897 946 917 1,109 1,265HSBC net profit 832 840 1,010 959 1,109 1,265Diluted EPS (EUR) 3.87 3.87 4.65 3.62 4.19 4.78Y-o-y evolution Sales 6.2% 2.3% 9.3% -4.8% 5.8% 6.1% o/w organic 8.9% 9.0% -0.4% 1.8% 5.4% 6.1%EBIT 15% 5% 21% -6.3% 9% 9% o/w FX -6% -7% 4% -6.5% 0% 0% o/w consolidation 1% -1% 13% -3.3% 0% 0% o/w organic 20% 13% 3% 3.5% 9% 9%HSBC net profit 1% 20% -5% 16% 14%EPS 40% 0% 20% -22% 16% 14%


Pernod Ricard sales & EBIT by region

EURm FY06/07a FY07/08a FY08/09a FY09/10e FY10/11e FY11/12e

Sales Europe 2,773 2,882 3,152 2,880 2,949 3,067America 1,786 1,700 2,027 1,803 1,938 2,054Asia/ROW 1,884 2,007 2,023 2,177 2,373 2,579Total 6,443 6,589 7,203 6,860 7,260 7,700Sales growth y-o-y Europe 4.4% 3.9% 9.4% -8.6% 2.4% 4.0%America 5.4% -4.8% 19.3% -11.1% 7.5% 6.0%Asia/ROW 9.7% 6.5% 0.8% 7.6% 9.0% 8.7%Total 6.2% 2.3% 9.3% -4.8% 5.8% 6.1%Sales growth organic Europe 5.4% 6.3% -1.5% -3.9% 2.4% 4.0%America 12.3% 8.0% -1.0% 3.2% 7.5% 6.0%Asia/ROW 11.4% 13.0% 1.7% 9.2% 9.0% 9.0%Total 9.0% 9.0% -0.4% 1.8% 5.8% 5.4%EBIT Europe 640 679 715 652 684 726America 418 421 636 538 589 633Asia/ROW 389 422 495 539 617 696Total 1,447 1,522 1,846 1,730 1,890 2,055EBIT margin Europe 23.1% 23.6% 22.7% 22.6% 23.2% 23.7%America 23.4% 24.8% 31.4% 29.9% 30.4% 30.8%Asia/ROW 20.6% 21.0% 24.5% 24.8% 26.0% 27.0%Total 22.5% 23.1% 25.6% 25.2% 26.0% 26.7%


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Financial statements

Year to 06/2009a 06/2010e 06/2011e 06/2012e


Revenue 7,203 6,860 7,260 7,700EBITDA 2,029 1,919 2,084 2,255Depreciation & amortisation -183 -189 -194 -200Operating profit/EBIT 1,846 1,730 1,890 2,055Net interest -690 -480 -448 -413PBT 1,067 1,157 1,442 1,642HSBC PBT 1,067 1,157 1,442 1,642Taxation -108 -218 -310 -353Net profit 938 917 1,109 1,265HSBC net profit 1,010 959 1,109 1,265


Cash flow from operations 1,244 1,052 1,200 1,340Capex -241 -191 -210 -231Cash flow from investment -5,689 -66 -210 -231Dividends -301 -126 -313 -379Change in net debt 4,746 -911 -706 -762FCF equity 1,236 921 990 1,109


Intangible fixed assets 16,198 16,073 16,073 16,073Tangible fixed assets 3,051 3,053 3,069 3,100Current assets 5,447 5,441 5,661 5,921Cash & others 520 520 520 520Total assets 24,875 24,568 24,803 25,095Operating liabilities 2,648 2,506 2,599 2,711Gross debt 11,409 10,498 9,792 9,030Net debt 10,889 9,978 9,272 8,510Shareholders funds 7,490 8,239 9,034 9,921Invested capital 21,709 21,516 21,658 21,837


Year to 06/2009a 06/2010e 06/2011e 06/2012e

Y-o-y % change

Revenue 9.3 -4.8 5.8 6.1EBITDA 21.1 -5.4 8.6 8.2Operating profit 21.3 -6.3 9.2 8.7PBT -2.3 8.4 24.6 13.8HSBC EPS 20.2 -22.0 15.6 14.0

Ratios (%)




DCF analysis


Risk-free rate (%) 4.00 EBIT growth 08-18e CAGR (%) 7.1Equity Premium (%) 4.50 EBIT growth 18-38e CAGR (%) 4.2Sector beta 1.10 Fade period 2038-44 Specific beta 1.17 WACC (%) 7.23



6.2% 100 102 1006.7% 85 87 877.23% 73 74 757.7% 62 63 658.2% 53 54 56

Valuation data

Year to 06/2009a 06/2010e 06/2011e 06/2012e



Issuer information


Reuters (Equity) PERP.PA Bloomberg (Equity) RI FPMarket cap (USDm) 22,599 Market cap (EURm) 16,896Free float (%) 79 Enterprise value (EURm) 26874Country France Sector BeveragesAnalyst Erwan Rambourg Contact 44 20 7991 6793

Price relative

31

41

51

61

71

81


41

51

61

71

81

Pernod Ricard Rel to SBF-120


Financials & valuation: Pernod Ricard Overweight

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What can move it higher? Warranted “market darling status”

In our view, there are many good reasons for

LVMH’s strong share price performance (up 64% in

2009 and 13% year-to-date). Indeed, LVMH:

demonstrated its resilience in 2009: EBIT

declined only 8% and would have been flat

excluding Champagne (EBIT down 28%);

has the number 1 luxury brand (LV), the

number 1 cognac brand, a c50% share of the

premium Champagne market, and one of the

most striking success stories in terms of retail

formats this decade (Sephora for beauty);

will benefit from distributor re-stocking (at least

in H1 2010) in its wholesale-driven watches,

wines & spirits and, to a lesser extent, in

perfumes & cosmetics;

has only a few ‘problem children’ and they are

not significant in terms of EBIT;

has a cautious stance on acquisitions (a theme

that can often concern investors because of the

uninspiring track record of most luxury players

in terms of value creation);

said it could probably envisage a buy-back

programme once its debt is reduced below

EUR2bn (which we forecast to happen at end-

2010 as FCF after dividend should be

cEUR1bn in 2010).

In addition, the stock is now trading at a PE of 19.5x

for 2010e, not an overly demanding valuation in

historical terms.

So why a Neutral rating on LVMH and not an Overweight?

In a nutshell, we would say "LVMH is a star but

everyone knows it, it’s all in the price". According to

Bloomberg, 24 out of 36 brokers covering the stock

have an Overweight rating (9 Neutral and 3

Underweight). On the buy side as well, LVMH

seems to be an uncontroversial investment case. In a

recent management road show, it was striking to see

investors struggling to find ‘burning’ questions.

Even if wines & spirits manage to account for 22%

of EBIT in 2010e (unchanged vs 2009), we believe

LVMH may not benefit from the positive shift in

sentiment we expect for spirits as much as pure

players like Pernod, Diageo and Rémy. LVMH fully

benefited from the cyclical rebound of the luxury

sector, even though the stock is more defensive than

the market thinks.

LVMH

We understand the market’s love affair with LVMH …

… but it benefited fully from luxury’s cyclical rebound, even though

it is, in our view, more of a defensive stock

Remain Neutral (remove volatility flag), increase target price to

EUR95 (from EUR88)

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LVMH breakdown of EBIT by division (2010e) (EURm)

Louis Vuitton brand 55% 2,173 Wines & Spirits 22% 887 Perfumes 8% 320 Selective distribution 11% 444 Watches 2% 94 Other 1% 52 Total 100% 3,969* * Before other and eliminations Source: HSBC estimates

The LV brand in particular, which recorded double-

digit sales growth in euros in 2009 (+7%e at constant

FX), was the main reason for the group’s superior

resilience. There is still plenty of room for the brand

to grow, in our view, but LV will not benefit from

the favourable comparison and re-stocking effects

(LV has no wholesale exposure) that will boost other

players’ sales growth (notably those involved in

watches).

It is worth remembering that there have been times

when LVMH underperformed both a bull market

and a bull luxury sector. In 2004, LVMH shares

dropped 2% vs a 9% rise for the Eurotop 300, and in

2006 they rose 7% but the Eurotop 300 was up 16%.

This was despite having registered double-digit

organic sales, EBIT and EPS growth. For 2010, we

expect a robust fundamental performance (although

not as strong as in 2004 and 2006) but this might not

be enough to drive the share price after a strong run

in 2009 and year-to-date in 2010.


LVMH will report Q1 2010 (January-March) sales

on 13 April. We expect organic sales growth of

10%, after a 1% rise in Q4 2009. Wholesale

businesses (wines and spirits, watches, and to a

lesser extent perfumes and cosmetics) should benefit

from a restocking effect as well as a very favourable

basis of comparison. Even China was weak for most

wholesale businesses in Q1 2009.

Reported trends are thus likely to be very strong, but

will not, in our view, reflect sell-out trends, which

we believe remain difficult to assess apart from Asia

ex Japan.

For 2010, we forecast 7% organic sales growth. We

believe LV should continue to grow at a robust pace

(7% in 2010e vs 6% in 2009e) while the more

cyclical businesses should benefit from a favourable

basis of comparison. We expect Wines & spirits to

register 12% organic sales growth (volumes up 9%,

price 2% and mix 1%).

We see EBIT increasing 14% in 2010, with a slight

FX positive impact (c2%). This would imply a

120bp EBIT margin expansion to 20.9%, not far

from the 21.1% and 21.6% achieved, respectively, in

2008 and 2007 (record year in the last decade).

We have raised our 2010-11 EPS estimates by 7%

and introduced a 2012 EPS estimate of EUR5.79, as

we increased our top-line growth forecasts (notably

for wines & spirits) and factored in a EUR/USD

parity of 1.40 (vs 1.45). We are raising our target

price to EUR95 (from EUR88) on the back of our

increase in estimates. The assumptions used in our

DCF-derived target price are detailed on page 25.

Under our research model, the Neutral band is 5

percentage points above and below the hurdle rate

for non-volatile Europe ex-UK stocks of 8.5%. Our

target price implies a 7.5% potential total return. We

thus maintain a Neutral rating. We have removed the

volatility flag as the past month's average of the daily

365-day moving average volatilities for LVMH was

29% on 6 April, below the 40% benchmark.

The main downside risk to our rating would be a

weaker USD/EUR rate. Risks on the upside

include the reverse of this (stronger USD/EUR

rate) as well as resilience in sales of the Louis

Vuitton brand, and the wines and spirits portfolio.

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LVMH FY results & forecasts

EURm (YE 31 December) 2005a 2006a Y-o-y % chge

2007a Y-o-y % chge

2008a Y-o-y % chge

2009a Y-o-y % chge

2010e Y-o-y % chge

2011e Y-o-y % chge

2012e Y-o-y % chge

Sales 13,910 15,306 10 16,481 8 17,193 4 17,053 -1 18,300 7 19,400 6 12,481 -36Current operating income (EBIT) 2,743 3,172 16 3,555 12 3,628 2 3,352 -8 3,830 14 4,250 11 4,640 9Other operating income and expenses

-221 -120 -126 -143 -191 -130 -130 -130

Operating income 2,522 3,052 21 3,429 12 3,485 2 3,161 -9 3,700 17 4,120 11 4,510 9Net financial expenses -143 -53 -252 -281 -342 -207 -147 -77Income before taxes 2,379 2,999 26 3,177 6 3,204 1 2,819 -12 3,493 24 3,973 14 4,433 12Taxes -718 -847 -853 -893 -849 -1,083 -1,232 -1,374Associates 7 8 7 7 3 5 7 9Minority interests -228 -281 -306 -292 -218 -264 -295 -320Net profit before goodwill and exceptionals

1,440 1,879 31 2,025 8 2,026 0 1,755 -13 2,151 23 2,453 14 2,748 12

EPS (EUR) 3.04 3.94 30 4.22 7 4.26 1 3.70 -13 4.53 23 5.17 14 5.79 12 Sales by division Wines & Spirits 2,644 2,994 13 3,226 8 3,126 -3 2,740 -12 3,060 12 3,266 7 3,470 6Leather and Fashion 4,812 5,222 9 5,628 8 6,010 7 6,302 5 6,718 7 7,148 6 7,607 6Perfume and cosmetics 2,285 2,519 10 2,731 8 2,868 5 2,741 -4 2,910 6 3,055 5 3,208 5Selective distribution 3,648 3,891 7 4,179 7 4,376 5 4,533 4 4,800 6 5,062 5 5,318 5Watches 573 737 29 833 13 879 6 764 -13 843 10 902 7 965 7Others -52 -57 10 -116 104 -66 -43 -27 -59 -31 15 -33 6 -38 15Total sales 13,910 15,306 10 16,481 8 17,193 4 17,053 -1 18,300 7 19,400 6 20,530 6 EBIT by division Wines & Spirits 869 962 11 1,058 10 1,060 0 760 -28 887 17 1,004 13 1,093 9Leather and Fashion 1,467 1,633 11 1,829 12 1,927 5 1,986 3 2,224 12 2,434 9 2,644 9Perfume and cosmetics 173 222 28 256 15 290 13 291 0 320 10 345 8 369 7Selective distribution 347 400 15 439 10 388 -12 388 0 444 14 492 11 537 9Watches 38 80 111 141 76 118 -16 63 -47 94 48 117 25 145 23Others -151 -125 -17 -168 34 -155 -8 -136 -12 -139 2 -142 2 -147 4Total EBIT 2,743 3,172 16 3,555 12 3,628 2 3,352 -8 3,830 14 4,250 11 4,640 9 EBIT margin by division Wines & Spirits 32.9% 32.1% 32.8% 33.9% 27.7% 29.0% 30.7% 31.5%Leather and Fashion 30.5% 31.3% 32.5% 32.1% 31.5% 33.1% 34.0% 34.8%Perfume and cosmetics 7.6% 8.8% 9.4% 10.1% 10.6% 11.0% 11.3% 11.5%Selective distribution 9.5% 10.3% 10.5% 8.9% 8.6% 9.2% 9.7% 10.1%Watches 6.6% 10.9% 16.9% 13.4% 8.2% 11.1% 13.0% 15.0%Others nm nm nm nm nm nm nm nmTotal EBIT margin 19.7% 20.7% 21.6% 21.1% 19.7% 20.9% 21.9% 22.6%


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Financials & valuation: LVMH Neutral Financial statements

Year to 12/2009a 12/2010e 12/2011e 12/2012e


Revenue 17,053 18,300 19,400 20,530EBITDA 4,052 4,557 5,021 5,457Depreciation & amortisation -700 -728 -771 -817Operating profit/EBIT 3,352 3,830 4,250 4,640Net interest -342 -207 -147 -77PBT 2,822 3,498 3,980 4,442HSBC PBT 2,819 3,493 3,973 4,433Taxation -849 -1,083 -1,232 -1,374Net profit 1,755 2,151 2,453 2,748HSBC net profit 1,755 2,151 2,453 2,748


Cash flow from operations 2,536 2,668 3,076 3,433Capex -748 -848 -948 -1,048Cash flow from investment -1,051 -848 -948 -1,048Dividends -758 -782 -805 -930Change in net debt -875 -1,038 -1,323 -1,455FCF equity 2,204 2,138 2,446 2,703


Intangible fixed assets 12,967 12,967 12,967 12,967Tangible fixed assets 6,140 6,260 6,437 6,668Current assets 11,103 11,711 12,247 12,798Cash & others 2,791 2,791 2,791 2,791Total assets 32,451 33,372 34,281 35,259Operating liabilities 4,685 5,011 5,300 5,595Gross debt 5,785 4,747 3,424 1,969Net debt 2,994 1,956 633 -822Shareholders funds 13,796 15,166 16,813 18,631Invested capital 22,734 23,136 23,561 24,046


Year to 12/2009a 12/2010e 12/2011e 12/2012e

Y-o-y % change

Revenue -0.8 7.3 6.0 5.8EBITDA -5.5 12.5 10.2 8.7Operating profit -7.6 14.2 11.0 9.2PBT -12.1 23.9 13.8 11.6HSBC EPS -13.2 22.6 14.0 12.0

Ratios (%)

Revenue/IC (x) 0.7 0.8 0.8 0.9ROIC 10.3 11.5 12.6 13.5ROE 13.2 14.9 15.3 15.5ROA 6.8 7.8 8.4 9.0EBITDA margin 23.8 24.9 25.9 26.6Operating profit margin 19.7 20.9 21.9 22.6EBITDA/net interest (x) 11.8 22.0 34.2 70.9Net debt/equity 20.3 11.9 3.4 -4.0Net debt/EBITDA (x) 0.7 0.4 0.1 -0.2CF from operations/net debt 84.7 136.4 486.0


EPS Rep (fully diluted) 3.70 4.53 5.17 5.79HSBC EPS (fully diluted) 3.70 4.53 5.17 5.79DPS 1.65 1.70 1.96 2.20Book value 28.16 30.95 34.31 38.02

DCF analysis


Risk-free rate (%) 4.00 EBIT growth 08-18e CAGR (%) 8.3Equity Premium (%) 4.50 EBIT growth 18-38e CAGR (%) 4.3Sector beta 1.20 Fade period 2038-44 Specific beta 0.90 WACC (%) 8.53



7.5% 111 114 115 8.0% 101 104 105 8.5% 93 95 97 9.0% 86 87 89 9.5% 79 80 82

Valuation data

Year to 12/2009a 12/2010e 12/2011e 12/2012e

EV/sales 2.8 2.6 2.4 2.1EV/EBITDA 12.0 10.4 9.1 8.1EV/IC 2.1 2.0 1.9 1.8PE* 23.9 19.5 17.1 15.3P/Book value 3.1 2.9 2.6 2.3FCF yield (%) 4.8 4.7 5.4 6.0Dividend yield (%) 1.9 1.9 2.2 2.5


Issuer information


Reuters (Equity) LVMH.PA Bloomberg (Equity) MC FPMarket cap (USDm) 57,848 Market cap (EURm) 43,250Free float (%) 47 Enterprise value (EURm) 47244Country France Sector Textiles, Apparel & Luxury GoodsAnalyst Antoine Belge Contact 33 1 5652 4347Analyst Erwan Rambourg Contact 44 20 7991 6793Analyst Sophie Dargnies Contact 33 1 5652 4348

Price relative

304050

60708090

100110


60708090

100110

LVMH Rel to SBF-120


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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Erwan Rambourg, Antoine Belge and Sophie Dargnies

Important disclosures

Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the risk free rate for that stock's domestic, or as appropriate, regional market and the relevant equity risk premium established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the implied return must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,

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stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Prior to this, from 7 June 2005 HSBC applied a ratings structure which ranked the stocks according to their notional target price vs current market price and then categorised (approximately) the top 40% as Overweight, the next 40% as Neutral and the last 20% as Underweight. The performance horizon is 2 years. The notional target price was defined as the mid-point of the analysts' valuation for a stock.

From 15 November 2004 to 7 June 2005, HSBC carried no ratings and concentrated on long-term thematic reports which identified themes and trends in industries, but did not make a conclusion as to the investment action that potential investors should take.

Prior to 15 November 2004, HSBC's ratings system was based upon a two-stage recommendation structure: a combination of the analysts' view on the stock relative to its sector and the sector call relative to the market, together giving a view on the stock relative to the market. The sector call was the responsibility of the strategy team, set in co-operation with the analysts. For other companies, HSBC showed a recommendation relative to the market. The performance horizon was 6-12 months. The target price was the level the stock should have traded at if the market accepted the analysts' view of the stock.

Rating distribution for long-term investment opportunities

As of 07 April 2010, the distribution of all ratings published is as follows: Overweight (Buy) 48% (12% of these provided with Investment Banking Services)

Neutral (Hold) 38% (11% of these provided with Investment Banking Services)

Underweight (Sell) 14% (9% of these provided with Investment Banking Services)

Share price and rating changes for long-term investment opportunities

Remy Cointreau (RCOP.PA) Share Price performance EUR Vs HSBC rating

history

Source: HSBC

Recommendation & price target history

From To Date

N/R Neutral 03 December 2007 Neutral Overweight 18 January 2008 Overweight Neutral (V) 02 December 2008 Neutral (V) Overweight (V) 23 March 2009 Overweight (V) Neutral (V) 10 November 2009 Target Price Value Date

Price 1 52.00 03 December 2007 Price 2 50.00 18 January 2008 Price 3 47.00 17 March 2008 Price 4 30.00 02 December 2008 Price 5 22.00 23 March 2009 Price 6 26.00 21 April 2009 Price 7 33.00 08 July 2009 Price 8 34.00 04 September 2009 Price 9 38.00 10 November 2009

Source: HSBC

15

25

35

45

55

Apr-0

5

Oct

-05

Apr-0

6

Oct

-06

Apr-0

7

Oct

-07

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

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LVMH (LVMH.PA) Share Price performance EUR Vs HSBC rating history

Source: HSBC


From To Date

Overweight Overweight (V) 29 January 2009 Overweight (V) Neutral (V) 23 March 2009 Target Price Value Date

Price 1 94.00 01 February 2008 Price 2 90.00 17 March 2008 Price 3 88.00 31 March 2008 Price 4 86.00 08 September 2008 Price 5 60.00 03 December 2008 Price 6 54.00 29 January 2009 Price 7 52.00 23 March 2009 Price 8 56.00 30 April 2009 Price 9 63.00 03 July 2009 Price 10 68.00 04 September 2009 Price 11 75.00 10 November 2009 Price 12 88.00 25 January 2010

Source: HSBC

Pernod Ricard (PERP.PA) Share Price performance EUR Vs HSBC rating

history

Source: HSBC


From To Date

N/R Neutral 03 December 2007 Neutral Overweight 22 May 2008 Overweight Overweight (V) 02 December 2008 Overweight (V) Restricted 15 April 2009 Restricted Overweight (V) 27 May 2009 Target Price Value Date

Price 1 73.97 03 December 2007 Price 2 70.27 17 March 2008 Price 3 75.82 25 April 2008 Price 4 77.67 22 May 2008 Price 5 73.97 11 July 2008 Price 6 55.48 02 December 2008 Price 7 51.78 23 March 2009 Price 8 Restricted 15 April 2009 Price 9 54.90 27 May 2009 Price 10 51.96 28 May 2009 Price 11 63.73 04 September 2009 Price 12 66.67 19 October 2009 Price 13 68.00 20 November 2009

Source: HSBC

Diageo (DGE.L) Share Price performance GBp Vs HSBC rating history

Source: HSBC


From To Date

N/R Overweight 03 December 2007 Target Price Value Date

Price 1 1270 03 December 2007 Price 2 1300 22 May 2008 Price 3 1100 02 December 2008 Price 4 1000 23 March 2009 Price 5 1175 04 September 2009

Source: HSBC

37

47

57

67

77

87

Apr-0

5

Oct

-05

Apr-0

6

Oct

-06

Apr-0

7

Oct

-07

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

28

38

48

58

68

78

Apr-0

5

Oct

-05

Apr-0

6

Oct

-06

Apr-0

7

Oct

-07

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

625725825925

102511251225

Apr-0

5

Oct

-05

Apr-0

6

Oct

-06

Apr-0

7

Oct

-07

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

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HSBC & Analyst disclosures Disclosure checklist

Company Ticker Recent price Price Date Disclosure

DIAGEO DGE.L 11.25 07-Apr-2010 11LVMH LVMH.PA 88.34 07-Apr-2010 6, 7, 11PERNOD RICARD PERP.PA 64.03 07-Apr-2010 1, 2, 5, 6, 7, 11REMY COINTREAU RCOP.PA 40.31 07-Apr-2010 6, 11

Source: HSBC

1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next

3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this

company. 4 As of 28 February 2010 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 28 February 2010, this company was a client of HSBC or had during the preceding 12 month period been a client

of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 28 February 2010, this company was a client of HSBC or had during the preceding 12 month period been a client

of and/or paid compensation to HSBC in respect of non-investment banking-securities related services. 7 As of 28 February 2010, this company was a client of HSBC or had during the preceding 12 month period been a client

of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as

detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this

company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in

securities in respect of this company Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

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Additional disclosures 1 This report is dated as at 09 April 2010. 2 All market data included in this report are dated as at close 06 April 2010, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer * Legal entities as at 31 January 2010 'UAE' HSBC Bank Middle East Limited, Dubai; 'HK' The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; 'TW' HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; 'DE' HSBC Trinkaus & Burkhardt AG, Dusseldorf; 000 HSBC Bank (RR), Moscow; 'IN' HSBC Securities and Capital Markets (India) Private Limited, Mumbai; 'JP' HSBC Securities (Japan) Limited, Tokyo; 'EG' HSBC Securities Egypt S.A.E., Cairo; 'CN' HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; 'GR' HSBC Pantelakis Securities S.A., Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv, 'US' HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler A.S., Istanbul; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, HSBC Bank Brasil S.A. - Banco Múltiplo, HSBC Bank Australia Limited, HSBC Bank Argentina S.A., HSBC Saudi Arabia Limited.

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Europe

Consumer Brands & Retail Antoine Belge Head of Consumer Brands and Retail Equity Research, Europe +33 1 56 52 43 47 [email protected]

Sophie Dargnies Analyst +33 1 56 52 43 48 [email protected]

Cedric Besnard Analyst +33 1 56 52 43 66 [email protected]

Jérôme Samuel Analyst +33 1 56 52 44 23 [email protected]

Tobias Britsch Analyst +49 211 910 1743 [email protected]

Paul Rossington Analyst +44 20 7991 6734 [email protected]

Erwan Rambourg Analyst +44 207 991 6793 [email protected]

Gorekh Satpathy Analyst +91 80 3001 3738 [email protected]

Food & Staples Retailing Suman Guliani Analyst +91 80 30013747 [email protected]

Anil Kumar T Analyst +91 80 3001 3749 [email protected]

Leisure Paris Mantzavras Analyst +30 210 696 5210 [email protected]

Specialist Sales

Lynn Raphael +44 20 7991 1331 [email protected]

David Harrington +44 20 7991 5389 [email protected]

Asia

Consumer Brands & Retail Herald van der Linde Head of Asian Consumer Research +852 2996 6575 [email protected]

Food & Beverages Jessie Guo Analyst +852 2996 6572 [email protected]

Retail Wrishi Bothra Analyst +91 80 3001 3737 [email protected]

Percy Panthaki Analyst +91 22 2268 1240 [email protected]

Sean Yang Analyst +852 2822 4342 [email protected]

North America

Consumer Brands & Retail Manisha A Chaudhry Associate +1 212 525 3035 [email protected]

Retail, Beverages Lauren Torres Analyst +1 212 525 6972 [email protected]

James Watson Analyst +1 212 525 4905 [email protected]

Credit Research Scott Frost Analyst +1 212 525 2382 [email protected]

Latin America

Food & Agricultural Products Pedro Herrera Analyst +1 212 525 5126 [email protected]

Consumer Brands & Retail Francisco J Chevez Analyst +1 212 525 5350 [email protected]

Global Consumer Brands & Retail Research Team

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