Pringuet cautious over Pernod prospects

Such is the uncertainty about the state of the global drinks market that Pernod Ricard has decided not offer guidance on performance in its current financial year until its annual shareholders’ meeting in early November.

When announcing its annual results yesterday, however, the company said that conditions remain “difficult” and predicted an “overall stagnation of the wine and spirits industry.”

The very cautious forecast reflects that the period up to July 2008 was comparatively buoyant and thus comparisons with this year’s first quarter will be unflattering.

Nevertheless, Pernod Ricard reported 9% organic growth in the year to the end of June and increased its operating profit margin significantly by 250 basis points to 25.6%.

The strong sales growth reflected the inclusion of Absolut in the portfolio, despite the 0.4% decline in organic sales and a 4% drop in volumes of the group’s 14 strategic  brands. Martell, Jameson, The Glenlivet, Mumm and Havana Club all progressed but Perrier Jouet was hit by the downturn in the US market for Champagne and Montana suffered from distributor destocking.

Pierre Pringuet, the chief executive, was encouraged by the results, especially the rapid integration of Vin & Sprit and because all trading regions had generated extra profits from recurring operations. Notably, despite the fact that sales of Absolut vodka are in decline in the US, the brand contributed largely to the 51% growth in the Americas, reflecting the importance of the Vin & Sprit acquisition to the French group.

The group’s disposals of non core brands such as Tia Maria and its €1.275m free cash flow from recurring operations allowed it to reduce its debts significantly. It has fallen from more than €12bn following the Absolut acquisition, to €10.88bn. The group will concentrate on reducing its debts further this year.  

Echoing both Pernod Ricard and Diageo, which announced its results last week, Paul Varga, the head of Brown-Forman, was cautious about the US giant’s first quarter results when he announced that adjusted operating income in the three months to the end of July rose by 23% to $192m. Underlying net sales were 2% ahead compared with the same period in 2008.

Rather than heralding an upturn, the figures reveal the effect of Brown-Forman’s cost cutting programme, because the actual financial result was flat and the company emphasised that while there are some signs of improving conditions, “concerns about the uncertain environment remain”, including further weakness in the on-trade sales sector, continued trading down by consumers, softening spirits consumption trends, and worries about distributor inventories.

The underlying message from all three drinks giants is that they hope trading will improve from the middle of next year, but until then it is a matter of battening down the hatches and relying on their portfolio and management strengths to maintain profitability until better times arrive.

Finance on Friday, 04.09.2009