Chinese vitality invigorates Pernod Ricard

China now accounts for 9% of Pernod Ricard’s total sales, Pierre Pringuet, the chief executive, said in Paris yesterday. He also predicted that it could become the French group’s second largest market “very soon, possibly this year.”

He said “there is fantastic vitality” in China, where Pernod Ricard now has more than 2,000 people working for it full-time, either as direct employees or through agents and contractors.

Pringuet said that in China Pernod Ricard had “strengthened its leadership in the Scotch whisky market,“ where it now holds more than a 50% share, and that Martell Cognac had enjoyed a 30% rise in sales compared with the same period in 2009. “We don’t sell standard brands in China, only super-premiums”, he added.

The Asia/Rest of the World region achieved 23% organic sales growth in the six months to the end of December. That was the prime driver of a strong rise in profits in the first half of the financial year, although all geographic regions, including Western Europe, made gains. Sales in the UK were growing after difficult recent years, the company said.

Pernod Ricard’s net profits grew by 10%. Its 7% organic sales growth was fuelled by a 13% gain in revenues from its top 14 brands, which now account for almost 60% of its sales. That their volumes grew by a more modest 8% shows that the continued heavy promotional investment behind them is paying dividends in increasing margins; gross margins now top 60% of sales. The weak euro also aided profitability.

In contrast to Diageo last week, Pringuet increased Pernod Ricard’s guidance for organic profit growth in the year to the end of June. He said it would be “close to 7%”. Observers suggest it could exceed that level as the French company always errs on the side of caution when making financial predictions.

Eight of the top 14 priority brands achieved double-digit organic sales growth; Martell was 32% up, Jameson put on 18% and Perrier-Jouët 21%. Absolut, however, shed 1% but is now growing again.

Notably, the four premium still wine brands, which account for just 5% of group sales, achieved both volume and revenue growth of 3%, the first return to volume growth since the second half of 2007.

The French group’s strong performance allowed it to make further significant reductions in the debt accumulated as part of the Vin & Sprit takeover three years ago. Pernod’s net debt to earnings ratio is down to 4.5, compared with more than 6 at its height. Pringuet said that the group’s strategy was targeted on bringing that ratio down to what it regards as the normal level of 4 by June 2012.

This implies that Pernod Ricard is not considering major acquisitions at present. “Our priority is deleveraging”, he said, playing down speculation that he is contemplating a takeover of some of Beam Global’s brands, at least in the near future. He also said directly that he was “not a buyer or seller in Champagne,” reiterating that he is not interested in Rémy Cointreau’s brands.

Finance on Friday, 18.02.2011