US helps Pernod off-set Chinese slowdown

Pernod Ricard has reported a “solid performance” in its 2012/13 results, delivering a 6% profit increase despite domestic decline and a slowdown in China.

Pernod Ricard vice-chairman and CEO Pierre Pringuet

The French-based group achieved full year sales of €8,575 million, 4% up on last year, as emerging markets kept up their double digit growth and mature ones stablised, with the US enjoying 8% growth.

Within its brand portfolio, Pernod highlighted a focus on “premiumisation and innovation” as the main source of growth, a message it stood by in a recent forecast of key trends for the upcoming Christmas trading period. Premium brands – which the group qualifies as a retail price of £15.20 upwards for spirits and £6.50 upwards for wine – now account for 75% of the group’s total sales.

There was a particularly strong performance from Jameson Irish whiskey, which grew by 26% in the US and 17% overall. Similarly, Martell Cognac increased sales by 15% and remains one of the main growth drivers in travel retail and China, despite the effect of a recent government crackdown on luxury goods.

Speaking to the drinks business recently about the impact of this luxury curb, James Maxwell, Asian regional director of Pernod Ricard’s Scotch whisky subsidiary Chivas Brothers, confirmed: “The Chinese New Year was quite heavily impacted in terms of gifting.”

Describing attempts to put a time frame on the duration of this luxury cutback as “the million dollar question,” Maxwell added: “What will be interesting is the mid-Autumn festival,” China’s other major gift giving occasion, which takes place next month. However, he predicted: “I certainly don’t think it’s a short term thing – it’ll certainly be around for the next 6-12 months, maybe longer.”

In Europe, which accounts for 25% of Pernod’s sales, there was a split in performance between east and west – a similar picture to that outlined by main rival Diageo in its own results last month.

While Eastern Europe grew by 11%, driven largely by Russian whisky consumption, Western Europe saw a decline of 3%, dragged down by the beleaguered Spanish economy. Pernod pointed to “quasi-stablility” in the UK market, with Germany and the travel retail sector both putting in a strong performance.

In its native France, sales fell by 7% as a result of a 2012 excise duty hike combined with the country’s recessionary backdrop. Nevertheless, higher end expressions such as Chivas 18 year old, Jameson Select Reserve and Perrier-Jouët Belle Epoque all enjoyed double digit growth in this market.

As for the company’s “Priority Premium Wines”, which include Jacob’s Creek, Brancott Estate, Campo Viejo and Graffigna, overall sales increase by 2% thanks to “a combined strategy of high-value and geographic diversification.” Asia proved particularly buoyant for this category, with growth of 15%.

Despite the success of its international brand portfolio, Pernod also pointed to the success of more local brands.  The most notable performers were its Indian whiskies, which increased sales by 19%, as well as its ArArAt Armenian brandy, which grew by 19%, and Olmeca Tequila’s 14% growth.

As the group continues to strengthen its distribution network across China, India, Russia and Africa, emerging markets accounted for nearly 80% of the increase in structure costs, which rose by 7% to €1,477m. Meanwhile higher cash flow allowed Pernod to cut back its net debt by €635m to reach €8,727m.

Pernod Ricard vice-chairman and CEO Pierre Pringuet offered a modest appraisal of these 2012/13 results, saying: “Despite a less buoyant environment than that of last year, we achieved our guidance.”

Looking to the future, he continued: “Our global and balanced exposure to emerging and mature markets will allow us to seize all opportunities. We therefore remain confident in our ability to pursue our growth.”