Pernod Ricard H1 profits slide

Pernod Ricard today reported a 5% decline in first half net profits from recurring operations for the six months up to the end of December 2009, but the French spirits group continued to stick to its forecast of 1-3% growth in organic profit for fiscal 2009/10.

The world’s second-largest drinks group posted a  net profit for the period of €604 million, a 2% decrease compared with €615m in the prior year.

Net sales for the six-month period fell 10% to €3.79 billion, from €4.21bn in the comparable period last year.

The company confirmed its outlook for organic profit growth from recurring operations of 1% to 3% for the full 2009/10 fiscal year, aided by the “vitality of emerging markets”, while it also pledged to increase investment in strategic brands and markets.

A Pernod statement said: “We continue to consider increasing our expenditure on strategic brands and markets as a priority, especially in the United States and emerging markets where we benefit from a favourable position.”

The company said that net profit would have risen by around 6% had exchange rates remained stable.

Breaking down the results by category, Champagne and wine brands took the biggest hit, with Perrier Jouet down 16%, Mumm 11%, Jacob’s Creek 6% and slipping Montana 4%.

However, some premium brands saw growth, indicating that demand for quality products in Asia is helping to off-set the troubles encountered in key markets such as northern Europe and the US. The biggest increases were seen by Jameson with 7% growth, Absolut went up 5% and Martell at 3%.

The company, which sold the Tia Maria brand to Disaronno owner Illva Saronno for €125m in July last year as part of a drive to achieve a €1bn debt reduction, said it had cut net debt by €565m over the first half to €10.32bn.

Earlier this week the group agreed to sell off several Swedish and Danish brands to Finnish firm Altia.

The transaction, which is still subjetc to regulatory approval, would be worth €82 million and will see Pernod Ricard sell off drinks firms including Explorer vodka, Lord Calvert whisky, 1 Enkelt bitter, Blossa glögg and Chill Out wines.

The company will also hand over a bottling firm located in Svenborg, Denmark and two logistic centres in Denmark and Sweden.

Analysts feel the results compare favourably with those announced by Diageo last month, when the world’s biggest drinks company reported a 6% drop in operating profit and a 2% drop in net sales for H1.

"Diageo is a great company and very well run," Ashley Everett Rountree, managing director for Europe at M&A advisors C.W. Downer & Co, told the drinks business. "In their results presentation, while I was very impressed by the cash management, I was disappointed by the profit performance.
 
"By contrast, Pernod Ricard appears to have done better.  While topline sales are off by a similar order of magnitude to Diageo’s, profits on a constant exchange basis were actually up by 6%.

"Pernod has benefited from its exposure in Emerging Markets, but has also reaped rewards from a strong commitment to maintaining prices."

Alan Lodge, 18.02.2010