The long wait for FTA approval of its Seagram acquisition cast a shadow over Pernod's first half profits resulting in jitters all round. But as Chris Brook-Carter reports the French drinks company has good reason to remain upbeat about its future.

Patience is "a minor form of despair disguised as a virtue," Ambrose Bierce, the US writer and journalist of the 19th century once said. If this is the case, then Pernod-Ricard has displayed increasing levels of patience over the last nine months in the long wait for competition approval of its Seagram acquisition.

At its last results six months ago, the anticipation of getting hold of much of Seagram's wine and spirit portfolio, and in the process transforming Pernod from medium-sized to major global force - was palpable. Last week, among the brave faces and confident rhetoric, some of that anticipation appeared to be turning to frustration.

"From now, the delay could be damaging to the Seagram business"
Pierre Pringuet

In general the company remains upbeat about the outcome, predicting that a favourable decision should be forthcoming in a matter of weeks. " The filing to the US authorities took longer than expected," a Pernod spokesman said. "But we are expecting something in October. We are not expecting any problems. Maybe Diageo [Pernod's partner in the Seagram acquisition] will have to sell some minor brands, but not us as our US exposure is so small."

But however confident one is, a wait of this sort is sure to breed doubt. And joint managing director Pierre Pringuet was quick to point out last week, to a selection of journalists at the company's first half results, that zero risk in these circumstances does not exist.

In private Pernod is admitting that approval of the deal is taking longer than they expected, a situation made all the more frustrating by the lack of feedback that seems to have made its way out of the US Federal Trade Commission during the last few months. "From now, the delay could be damaging to the Seagram business," Pringuet said.

The uncertainty Pernod faces, over what will be a transforming deal, has made forecasts difficult and analysts have suggested the company is operating in limbo at the moment. Pernod did its best too satisfy demands for guidance, saying that growth for the year would be largely in line with profits of the first half, but the company said these predictions did not include Seagram brands because we "just don't know."

"Pernod is in limbo, but it will have to give some guidance," one analyst had said earlier in the week. In reply the Pernod spokesman countered: "It is their job to raise concerns, but these are good results anyway."

Ramazzotti Advert

Indeed they are. In many ways the delay has not damaged the Pernod business at all. Its own brands continue to perform admirably, with organic growth of the core wines and spirits division up 11.8%. Its key brands may lack the blockbuster power of say Diageo but their momentum is undeniable. Jacob's Creek volumes were up 25%, Amaro Ramazzotti saw a 22% leap in volumes and Havana Club and Clan Campbell both registered 19% hikes.

Neither is this a flash in the pan. Both Havana Club and Clan Campbell have averaged a 19% growth rate over the last five years while Jameson, the Irish whiskey, has seen 7% and Ramazzotti 16%.

Meanwhile the Seagram brands Pernod is to inherit have begun to benefit considerably from a number of high profile marketing drives. Led by Chivas Regal, which grew 12% and Martell, which was up 4%, Pernod's future brands improved 4% over last year. "A significant improvement on what we expected," admitted Pringuet. "It was a good year, above our forecasts and the basis of the brands will be much higher than we anticipated."

But thanks to Pernod's low level of US exposure, the most obvious effect of the delay has been to protect the French group from the US downturn and the stock sell-offs that followed the terrorist attacks two weeks ago. Around 9% of Pernod's turnover comes from the US at the moment but this is set to more than double to 20% once the Seagram sale goes through. And on those fears alone, 12% was lost on Pernod's stock value following the World Trade Centre disaster.

Pernod may have avoided the worst of it so far, but as it ups its exposure in North America, the US economy will become of increasing concern to the company and investors alike. "It is difficult to make forecasts until the reaction [to the attacks] in the US is known," said Pringuet. He said that there appeared to be no clear sign that the slowdown in on-trade consumption would change but continued that the main brands had performed reasonably well.

"The [global] slowdown has been marginal," Pringuet said. "If you look at the overall drinks market the five main players still have only 10% of the world market. The premium brands of the west are growing market share."

His comments mirror those of his partner in the Seagram acquisition Diageo CEO Paul Walsh, who also felt that the well-backed global spirits brands should be able to ride out any global recession.

Both men now face an awkward wait for FTC news, which will put even the US slowdown on the backburner for a couple of weeks. And if the US regulators decide not to play ball, a great deal more patience may be needed from the Pernod board.

Spirits and Wine
Turnover by Region

1st Half 2001

Total 843 (€ m)

Organic Growth
Rest of World