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Pernod resilient but no longer acquisitive
d=”standfirst”>Pernod Ricard will not be making any acquisitions before 2010 at the earliest said chairman Patrick Ricard at the company’s annual meeting in Paris on Wednesday.
He told shareholders that the company’s debts stood at about €11 billion following the acquisition of Vin & Sprit earlier this year and that therefore it could not finance a significant acquisition without having to negotiate new bank lending at what he said would be unattractive rates.
In response to a shareholder, M Ricard specifically ruled out a future bid for Rémy Cointreau, saying that Pernod Ricard was very satisfied with its Cognac and Champagne brands.
The head of finance, Emmanuel Babeau told the meeting that Pernod Ricard’s debts were not a worry. He said that the funds to purchase Vin & Sprit and the Absolut vodka brand had been made available on very good terms and that he had no concerns that Pernod Ricard would be able to meet the repayments schedule. Two thirds of Pernod Ricard’s debt does not mature for the next five years. In any case, the company’s net debt to free cash ratio, which stands at about 6 now, would fall to a more normal 4 by 2010 because of its strong free cash flow, which is running at about €700m a year.
That position has been improved by the “cash cow” of Absolut, which is already generating free cash flow over and above the cost of financing its purchase. The meeting was also told that if some markets did turn down, the policy of premiumisation would protect the group’s turnover as others expanded. And cashflow could be further improved, if required, by reducing the increase in older maturing whiskies and Cognacs. That possibility, however, was unlikely to develop.
Pierre Pringuet, the newly promoted chief executive, said that the group will also reduce its net debt by selling some peripheral assets. He said negotiations were underway so he could give no details, but no strategic or significant brand would be sold. The group is known to have received approaches about Plymouth Gin.
M Ricard, who stepped down from executive duties at the meeting but who remains chairman, pointed to strong results in the three months to the end of September as evidence of Pernod Ricard’s robustness and resilience. Net sales showed organic growth of 7%, while overall net sales (including Absolut) were 13% ahead of the same period last year. The spirits and wines businesses grew organically by 6% and 8% respectively, with all regions contributing positively. That, said M Ricard, allowed him the confidence to forecast that Pernod Ricard would achieve organic growth of about 8% in the year to the end of next June, but with the added contribution from Absolut, the net profit increase would be “in double digits”.
db Finance on Friday 07.11.08