Two years on from its bold joint acquisition of Seagram, Pernod Ricard has gone a long way to proving the sceptics wrong, by reversing the fortunes of two flagship brands and turning in solid growth for 2003. Chris Brook-Carter reports on the French group's 2003 results and its plans for the future.

It is over two years now since Pernod Ricard's defining moment - the joint purchase with Diageo of the Seagram wine and spirits portfolio. And although the Pernod board has always maintained the ensuing integration process has remained on track, others wondered whether the French company had bitten off more than it could chew.

Concerns over the timing of the purchase (just as the world's economy went into recession), the overstocking of key Seagram brands such as Martell and Chivas Regal and an acquired portfolio of brands - particularly Martell and Chivas again - that was in long term decline, all reared their head at one point or another,

However, last week, joint managing director Richard Burrows unveiled organic sales growth for 2003 of 5.5% with the core wines and spirits business registering an even more impressive 8.1% - more than enough to justify Burrows' relaxed demeanour at the related press conference last Thursday. "This has been a very good year," he said.

Traditional Pernod Ricard brands such as Jacob's Creek and Jameson continued to perform well, showing 14% growth and 8% growth respectively. Meanwhile, Havana Club was up 11%. Growth was certainly uneven, with the second quarter hit by the effects of SARS in Asia and the war on Iraq also taking its toll on international trade. But when these restraints were lifted later in the year, Pernod's business really started to roll, with wine and spirits turning in third quarter sales growth of 9.4%.

Overall, the 12 brands the company identifies as its "key" products registered a portfolio growth of 6.4% during the year, leading Burrows to announce that the group now expects to beat targets of 15% growth in operating profit at constant currencies. "Thanks to a great couple of last quarters, we'll be above our [earnings] estimate," he said.

But then few doubted Pernod could keep the likes of Havana Club, Jacob's Creek and Jameson, brands that had always thrived under the company's strategy, moving forward. What analysts and observers have really been waiting for is evidence that the company could turn around the two blockbusters it bought from Seagram, Chivas Regal and Martell.

Neither brand has been without some significant challenges. In fact such was the scale of the job facing Pernod that, a year ago, we wrote in these pages that, "some had feared… that overstocks of key Seagram brands could derail Pernod's efforts over the last five years to place itself firmly in the top league."

At one point, Chivas had an inventory surplus of 750,000 litres and Martell overstocks of 450,000 litres. In the first half of 2002, only months after Pernod bought the brands, volumes of Chivas Regal had fallen by 18.4% while Martell plummeted by 22.1% on the same period a year before. In other words, the fears were justified.

So again it must have been with huge satisfaction that Burrows was able to unveil growth in 2003 for Chivas Regal of 7%, including 9% in the fourth quarter as the effects of a £40m advertising and promotions campaign kicked in. Thanks to growth in Taiwan, China (now its fourth largest market), Malaysia and Hong Kong, Asia is fast becoming its most important region. And though Central and South America experienced a 4% decline over the year, Pernod stabilised the decline in the US and saw good growth in Spain (up 11%) and Greece (up 23%).

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"We have set out our target as wanting to restore Chivas to leadership of the 12-year-old category," said Burrows. The French group will this year commit another €40m (£27m) to marketing Chivas globally with that aim in mind, which will mean toppling rival Johnnie Walker Black Label, owned by Diageo, who Burrows called "public enemy number one". There is also new packaging planned in 2004. The company plans to re-brand Chivas Regal in March with a revamped label, bottle and packaging.

"The premium blended category is growing fast, so by putting money behind it we are shooting where the ducks are flying," said Burrows. "We had a turning year for Chivas in 2003 with that growth. We will do all we can to maintain it."

Martell, meanwhile, turned in an 8% growth rate to reach 1.1m cases. That rate increased to 10% in the fourth quarter. In Asia, the brand was up 14% as China, Taiwan and Malaysia counted out declines in Japan and duty free. "Having those two brands [Chivas and Martell] gives us a huge advantage in Asia," Burrows said.

For Martell, the US declined for the full year, but Pernod has hopes for a re-launch that rolled out in the second quarter of 2003, and though depletions fell by 10.6% in the first half, they were up 3.7% in the later half of the year. Meanwhile, the UK registered a 25% jump as the company built off "a very bad year in 2002 as a result of overstocking".

Inevitably in a troubled global economy, difficulties remain. France has been disappointing and so has Ireland, both hit by legislative setbacks (in France's case stricter drink driving laws and in Ireland, increased taxes).

But these are not concerns unique to Pernod Ricard and the French group looks likely to continue proving its doubters wrong and is still keen to expand further. Asked what would characterise 2004, Burrows answered that the company would continue to pay down debt and seek organic growth, but added: "We are committed to the wines and spirits business. We have demonstrated consolidation makes good sense for shareholders. If [acquisition] opportunities arise, Pernod Ricard is willing to take part