The just-drinks Interview - Pernod Ricard's MD of Finance
Late last month, Gilles Bogaert, the recently-appointed managing director of finance - CFO, if you will - for Pernod Ricard came to the UK to look over the company's most recent set of figures. While in the country, Olly Wehring took the opportunity to grill Bogaert about the last six months for Pernod, how the downturn has affected the company, and what Pernod would do if - when? - the bargains come knocking.
Gilles Bogaert has come to London to review Pernod Ricard's first-half performance, the numbers for which were announced a week prior. Having assumed the role of managing director for finance last July, this trip to London marks one of Bogaert's first opportunities to meet the press in his current position.
That's not to say, however, that the 41-year-old is new to either Pernod or dealing with the fourth estate. Bogaert has been with the France-based group since 1995, and has had a decidedly Latin American slant to his career so far. He has been the CFO of both Pernod's Argentinian and LatAm units, as well as CEO of Pernod Ricard Brasil, so he's travelled well in his time.
While Bogaert spent the earlier part of his Pernod time in one of the drinks industry's main emerging markets, today, it is a different region that is giving him greater satisfaction in the first six months of Pernod's current fiscal.
"We are quite happy to be so strong in emerging markets, notably in Asia," he says. "We're more confident in our strength there now than before the crisis, because they have resisted the crisis better and rebounded quicker and stronger.
"There are some big (markets), like India and China, but some of them are smaller and are growing fast from a small base - I could talk about Vietnam. These offer good potential for us in emerging markets, and these highlight another point of difference for Pernod Ricard. We want to get the full benefit from our strong presence there."
According to Bogaert, the emerging markets of the world contribute one-third of both net sales and profits to Pernod, making them as profitable, as a whole, as the so-called mature markets.
Speaking of which, Pernod credited its virtually flat structure costs in the six months to the end of December in part to "structure downsizing in many mature markets". Has that meant job losses? "I would say that, net, we had some reduction in head count in some mature markets and some increase in headcount in some emerging markets," Bogaert clarifies. "It's logical to adapt ourselves to the situation in the markets.
In some markets, where the situation was tough, some adaptation of our structures has been carried out. We've also had to strengthen them in some emerging markets. In Asia, for instance, there was an increase in our structure costs - that includes sales force, costs which you can see as an investment. It's consistent with the fact that we have different situations across our geographies. In some, we need to speed up, there are some where we needed to adjust our structures. We did both."
(Bogaert also highlights that the group introduced a wage freeze for executives in July, which "has an impact on our current fiscal year".)
Gilles Bogaert, managing director, finance at Pernod Ricard
Pernod's sales strategy in the first-half has not changed - the buzz-word continues to be 'premiumisation', while arch-rival Diageo has shifted its emphasis slightly in recent months towards tactical promotions and the introduction of new brands at lower price points. Bogaert maintains that Pernod remains on the right track. "It has been the case in the last ten years that we have been able to improve the price and mix of our key brands, so we are clearly confident that premiumisation is the right strategy for the future," he says. "If you start playing with the price positioning of your brands, if you start discounting massively your key brands, then you hurt the brand equity and damage their long-term potential. That doesn't mean you cannot use tactically some local brands to address different consumer expectations for lower price points, but we clearly don't want to do that with our core, global strategic brands."
Pernod has always boasted - and continues to boast - that its global status is firmly underpinned by local footprints. Its decentralised approach is exemplified by the strategy of balancing its 15 key global brands, such as Chivas, Jameson and Absolut, with local brands that help open the door for the big 15. "Historically," notes Bogaert, "local brands were the basis for the development of Pernod Ricard. Before the Seagram, Allied Domecq and Vin & Sprit transactions, we used the local brands we had to develop and finance the distribution networks in 70 countries. With a very strong local platform, they've also been very useful to help grow our global brands."
Yet, with the exception of the international brands of Wild Turkey - sold to Gruppo Campari last year for EUR433m - and Tia Maria - snapped up by Illva Saronno last July for EUR125m - it is Pernod's stable of local brands that have fuelled the EUR800m of disposals for Pernod.
This looks like it shall continue to be the case for the remaining EUR200m Pernod requires to hit its target of EUR1bn. With most global spirits players using the downturn to get their houses in order, the richer feeding ground for divesting brands appears to be the one-market firms with rose-tinted views of once-strong local brands that, conveniently for Pernod, are now secondary to their requirements after global brands.
Regardless, according to Bogaert, Pernod does not need to hit the target tomorrow. "I think the earlier the better," he says, "but there is no big pressure to complete this in a tight time-frame. We need to identify the right assets to put up for sale, then find the right buyer paying the right price. If these conditions apply, we will sell."
Turning, finally, to the remainder of Pernod's fiscal year, the arrival, finally, of some favourable comparatives in the second half suggests that the worst has past. Indeed, Bogaert firmly believes that Pernod can hit its full-year target of organic growth in profit from recurring operations of between 1% and 3%.
"We have some markets which are improving," he says, "like duty free especially in Asia. Russia is also showing some signs of improvement, although we still have a lack of visibility in US and Western Europe, which remain challenging.
Beyond the current fiscal, has the economic meltdown made long-term planning an oxymoron? "On the contrary," Bogaert says. "We try to have a long-term strategy guiding what we do in the short term. It would have been easy to decrease prices to gain some short-term market share, it would have been easy to grow our EBIT at a higher rate short term. But, this is not the choice we've made. We are here for the long term, we are brand builders. It's very important to be consistent across the years. That's what we try to do - we have the right portfolio, we have very good geographical presence and we have all the assets to be able to deliver on our strategy. We just need to be careful not to prioritise the short term over the long term. While posting resilient short-term performances, we must respect our long-term strategy.
And with divestments being the order of the day, Bogaert stresses that acquisitions are not on Pernod's menu. "The focus is on organic growth and deleveraging," he says. Not even if a bargain come along, like, perhaps, Foster's Group's wine interests?
"The focus is on organic growth and deleveraging!"
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