• Jameson, Martell fuel growth
  • Asia comes of age
  • Underlying sales trend healthy
Pernod Ricard performs better than market suggests

Pernod Ricard performs better than market suggests

Pernod Ricard may have disappointed the market, but, in Jameson and Martell, the drinks giant has found two brands that have expanded its reach and made a mockery of weak consumer confidence.

Asia's thirst for premium Cognac drove a 12% rise in net sales for Martell Cognac during Pernod's fiscal year, to the end of June. At the same time, the firm managed to round up enough consumer spending power in the US to achieve a 12% increase in global value sales of Jameson Irish whiskey.

Jameson volumes hit 2.92m cases for the year, up 9% on the prior 12 months, and value sales rose by 24% in the US - albeit off a lower base than many other premium brown spirits brands. No wonder the firm is planning to expand storage capacity for Jameson in its native Ireland.

Rival drinks group Brown-Forman told analysts yesterday (1 September) that it would invest more in white spirits, which it said have held up better than brown spirits during the downturn. Try telling that to Pernod's CEO, Pierre Pringuet.

Martell's success in Asia means that Pernod's Asia and Rest of World business division was, for the first time, the firm's second biggest contributor to annual sales and recurring profits. Asia accounted for a third of group sales and profits in the year, up by around 5% from the previous 12 months.

The message on emerging markets is just as clear as it was in Diageo's full-year statement last week.

Pernod reported like-for-like sales up by 8% across "new economies" for the year. This was four times higher than the group-wide increase, which included mid-single digit decline in Europe. "These markets are just as profitable as mature markets and represented one-third of 2009/10 sales," said the group.

The crux of Pernod's year was a marketing focus on certain key brands and a serious effort to cut debt, which rose sharply after its acquisition of Vin & Sprit in 2008. The firm's share price initially dropped by 5% after today's announcement, reflecting some sluggishness in the results numbers.

Net profits only rose by 1% for the year, to EUR951m (US$1.2bn), held up by lower financial costs during the 12 months. Some analysts have highlighted that the company did not make sufficient progress in cutting debt. Net debt fell by EUR1bn for the year, but this was cut to just EUR304m after currency translations.

There were also a few look-away-now moments in the breakdown of Pernod's sales figures. While Absolut, The Glenlivet, Chivas and Havana Club posted solid mid-single digit sales gains, other brands suffered - notably Mumm Champagne, Ballantine's and Kahlua. In wine, a strong performance from Brancott Estate (previously Montana) in Australia and the US failed to offset declines for other brands, such as Jacob's Creek.

That said, underlying sales trends look healthy for the group overall. Martell and Jameson are motoring and the second half of the year, as reported by most drinks firms, was significantly more promising than the back-end of 2009. Pernod's underlying like-for-like sales rose by 3% in the fourth quarter, compared to a 2% increase for the group over the full-year.

Advertising and promotion spend is back up to near 18% of annual sales and the firm has signalled that it will maintain this level. Its final dividend proposal is also the biggest for five years, at EUR1.34 per share.

In short, early market jitters have hidden several reasons for Pernod to be cautiously cheerful.