Pringuet: Pernod chasing value over volumes

Pernod Ricard’s chief executive Pierre Pringuet painted a subdued picture of the UK wine and spirits market when he presented the group’s first-half results yesterday.

He said that he saw “no signs” of an overall pick up in volumes despite some brands “doing well”.

Pringuet insisted, however, that despite a “sharp decline” in volumes of both Jacob’s Creek and Montana in the UK he would not be drawn into a wine price war.

“We decided not to go into unprofitable price promotions and we lost substantial volumes in the UK”, he told the drinks business.

“We are not in a race for volumes…we have a value strategy…our future depends on our ability to defend our prices.” He went on to hint that further modest price increases would be imposed later this year as individual markets emerged from recession.

“Premiumisation is a clearly established long-term trend; we are not seeking short-term gains in market share at the expense of price,” he said. “When economies pick up, so do volumes of our premium brands. It’s a winning strategy”.

As evidence, Pringuet pointed out that despite organic volume growth turning negative for most of the group’s 15 strategic brands in the second half of 2009, gross margins had improved despite a number of technical factors.

Given that the full impact of the recession did not hit volumes until early 2009, the latest half-year figures were relatively buoyant compared with the second half of 2008.

Revenues fell by 3% despite a 5% drop in shipments. Operating margins increased to 28%, the group generated free cash flow of about €500 million and reduced its debt by a similar amount.

The performance, Pringuet said, “was in line with forecasts”. He reconfirmed that in the full year to the end of June he expects organic profits growth of between 1% and 3%.

While some factors are working against Pernod Ricard achieving that target, others bolster its prospects of achieving it.

Global shipments since Christmas have been stronger than in the first few weeks of last year and while the weak dollar is expected to shave €130m from the bottom line (as opposed to making a positive contribution at Diageo, which accounts in the almost equally weak sterling), the timing of Chinese New Year will make a strong contribution to the second half figures.

Shipments for the festival took place only last month (as opposed to December 2008 for the corresponding holiday in 2009).

That will add about 50,000 cases to Pernod Ricard’s second half volumes. Pringuet hinted that China itself was about to become Pernod Ricard’s third largest market after the US and France, and insisted that margins there were in line with those in the rest of the world.

Echoing Diageo’s Paul Walsh last week, Pringuet said that much of the second half growth he is predicting will come from Asia and emerging markets, but unlike Walsh he is increasing his overall advertising spend. “It is about 17% of our sales revenues (at the top of the league) and we will increase it in the second half,” he said.

Asked about further disposals of non-core assets to meet his €1 billion target, Pringuet confirmed that Pernod Ricard had achieved about €800m so far. “But we will not have our hand forced,” he said. “If buyers do not want to pay the price we expect, there will be no deal.”

Rumours continue to circulate that Plymouth Gin could be for sale, but they centred on reports that Davide Campari had made inquiries about the brand. The Italian group is focusing on reducing its debt following last year’s purchase of Wild Turkey bourbon.

Finance on Friday, 19.02.2010