Pernod Ricard Performance Trends 2015-2019 - results data

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In late-August, Pernod Ricard released its full-year results for fiscal-2019. The group saw its sales in the 12 months to the end of June rise by 6% in organic terms on the year prior. Here, just-drinks picks through Pernod's performance over the past five years for the trends set to affect the group, specifically, and the global spirits category, more broadly.

Pernod Ricard CEO Alex Ricard

Pernod Ricard CEO Alex Ricard

Pernod Ricard's Full-Year Sales 2015-2019 - Reported

Source: Company results

Pernod Ricard's latest set of full-year results, covering the 12 months to the end of June 2019, look pretty solid on first inspection: sales up 6%, spearheaded by dynamic growth in China (+21%) and India (+20%). The company's marquee Strategic International Brands posted 7% revenue growth, but were upstaged somewhat by the 12% sales hikes recorded both by Strategic Local Brands (led by Indian whiskies) and Speciality Brands - the likes of Altos, Lillet and Monkey 47.

Beyond the buoyant headlines, however, there are some nagging challenges and concerns. The crucial US market was flat - although Pernod blamed this on inventory reductions - and is now set to be impacted by the US import tariffs scheduled to take effect from mid-October.

The company's wine portfolio saw sales fall 5%, partly thanks to the prioritisation of value in the UK, and some analysts continue to question whether Pernod should still be a participant in what remains a relatively low-margin category.

And then, there is the potentially irritating presence of Elliott Management Corp, the 'activist investor' that holds 2.5% of Pernod's stock and misses no opportunity to cast doubt on the French company's corporate strategy and financial governance. Over the past year, Elliott has unfavourably compared Pernod's margins with those of rival Diageo, and questioned the ambition and scope of the company's three-year 'Transform & Accelerate' strategic vision.

So far, Pernod has remained resolute and unruffled in the face of this criticism, sticking to its growth targets and maintaining its recent strategy of tactical bolt-on acquisitions, including a return to the Kentucky Bourbon category, and the continued expansion of its gin stable.

Pernod Ricard's Full-Year Sales by Region 2015-2019 - Reported

Source: Company results

Pernod's geographical split is a broad one, encompassing only three regions: Europe, Americas and Asia/Rest of the World, the latter including the Middle East and Africa.

Europe is the company's historic heartland, but one which, over the years, is diminishing slightly in significance, despite recent growth in Eastern Europe and Russia. Just under 32% of Pernod's revenues came from the region in fiscal-2015, but this figure has fallen consistently to reach 29.1% in fiscal-2019.

One might assume that the Americas region has therefore expanded its revenue share over the same timescale, but you'd be wrong. In fact, its share has fallen fractionally from 27.8% to 27.7%, despite reaching a peak of 29.5% in 2017. This suggests that the US in particular remains a work in progress for the company.

Asia/ROW is the big success story of the past five years, lifting its share of Pernod's revenues from 40.3% in 2015 to 43.2% in 2019 - when the region enjoyed a bumper year.

  • Europe

The region has been something of a rollercoaster for Pernod over the past five years: two years of declining revenues, followed by two years of recovery, then another decline in fiscal 2019 - but these reported revenue figures conceal what has become a continent of two halves for Pernod.

In organic terms, sales were up by a marginal 1% in 2019, but Western Europe was down 1%, despite a +3% price/mix movement. Eastern Europe, meanwhile. rose 9%, thanks to a double-digit gain in Russia (led by Jameson and Ballantine's), and a 6% increase in Poland, where growth is broad-based and bolstered by a premiumisation trend.

One of the toughest destinations for Pernod right now is its home market of France, where a 5% revenue dip continues a dismal recent trend, despite the bright spot of Absolut bucking a declining vodka market.

Spain stands firm - for now. The gin boom appears to be all but over, with Beefeater (the country's best-selling imported spirit) beginning to struggle, but Seagram's continuing to make inroads. Scotch's long-term decline persists.

Elsewhere, the UK is a beacon of rising spirits revenues, but a focus on value for the wine division is dragging on volumes, Germany is down despite the strong development of Lillet – and Ireland provides a much-needed but rather isolated pocket of growth.

  • The Americas

Despite the company's efforts to address the issue, there's a nagging feeling that Pernod is still underperforming in a region where it already lags behind its biggest rival, Diageo. A 2% organic sales lift in fiscal-2019 looks sub-par, particularly when one considers that the US was flat over the period.

There are extenuating circumstances, however. Pernod has been slimming down its inventories with wholesalers in the US, and the company reckons its sell-out is broadly in line with a market that is reckoned to have expanded by 4.5% over the past year.

Jameson, which now accounts for a hefty 29% of the company's US sales, remains its shining star, but its gains showed signs of slowing in 2019, impacted by efforts to deseasonalise the brand and lapping the launch of its Caskmates IPA expression.

Meanwhile, the scale of Absolut (down again in 2019) leaves Pernod exposed to a challenging and crowded vodka category, and the more positive performances of Martell and The Glenlivet are insufficient to make up for that.

The company is also notably underweight in the Bourbon/American whiskey category - it's been ten years since it sold Wild Turkey to Campari Group – something which it is trying to address with a number of acquisitions, including Smooth Ambler, Rabbit Hole Whiskey, Firestone & Robertson (TX) and, on the day it announced its fiscal-2019 results, Castle Brands, the owner of Jefferson's Bourbon.

The rest of the region is a mixed bag at the moment: Canada solid (+4% revenues in 2019), Brazil good (+13%, but impacted by phasing in Q1), Mexico surprisingly poor, with a 4% decline blamed on destocking.

  • Asia/Rest of the World

Pernod has traditionally had a strong base in Asia - in China and India especially - but 2019 was a remarkable year even by its high standards, with 12% revenue growth across the region spearheaded by gains of 21% and 20% in China and India, respectively.

In China, Martell remains the standout with a value category share of more than 40%, but Chivas has returned to growth after several difficult years and there's a broader base of activity taking in the likes of Absolut, Jacob's Creek, Ballantine's and The Glenlivet. The market remains prey to volatility, but long-term trends are positive.

Baijiu is a perceived gap in the Pernod portfolio, and it remains a difficult category to break into - which may help to explain the company's announcement that it will spend CNY1bn (US$150m) on a new malt whisky distillery in Emeishan, Sichuan. The project, in the short to medium term at least, will be aimed squarely at the Chinese consumer.

Pernod's strength in domestic whiskies (45%-plus value market share) remains the key to its fine performance in India, but again growth is not restricted to this traditional area of the market, with Strategic International Brands and Strategic Wines performing well. However, the company warns that growth will moderate from fiscal 2020.

Elsewhere, Japan is another strong performer for the company, thanks to the country's love of high-end Champagne, and the renaissance of blended Scotch; but Korea's dismal performance (revenues down 24% in 2019 alone) underlines the implosion of Scotch in the market, in favour of low-abv alternatives. This has led to a restructure in the country, and the outsourcing of Imperial's distribution to a third party - Pernod cutting its losses, in other words.

Thailand is also down thanks largely to poor demand for Scotch, with 100 Pipers particularly affected.

Africa and the Middle East are an altogether brighter proposition right now, enjoying 16% sales growth in 2019, spearheaded by dynamic performances in sub-Saharan Africa (especially Nigeria) and Turkey.

Asia is also the prime driver of Pernod's performance in Travel Retail - long-identified as a key channel by the company - where revenues were up 6% in 2019. Martell and high-end Scotch (Chivas, The Glenlivet, Royal Salute) are important brands here.

Pernod Ricard's Full-Year Strategic International Brands Volumes - 2015-2019

AbsolutBallantine'sJamesonChivas RegalRicardHavana ClubMalibuBeefeaterKahluaMartellThe GlenlivetRoyal SaluteMummPerrier-Jouet

Source: Company results

Pernod's 13 Strategic International Brands account for almost two-thirds of the company's top line - 63% of sales in fiscal-2019, when they reported their second successive year of 7% growth.

The "optimisation" of US inventory levels in 2019 stifled gains in the world's most lucrative spirits market, but good progress was made in Asia, Africa and pockets of Europe.

The company's sometimes painful experience with Martell in China has led to a strategic rethink, with broader-based global growth now the aim. So, while China continues to be the brand's strongest territory, growth in the US (+53% in 2019) off a small base has helped to reduce its over-reliance on the Far East.

Jameson - which overtook Ballantine's to become the group's second-biggest brand by volume in 2018 behind Absolut - continues to expand, although at a slower pace than previously. In 2019, the Irish whiskey was impacted by inventory reductions in the US, but enjoyed strong growth in Europe, Latin America and Asia/RoW.

Scotch is also enjoying a strong phase for Pernod, with widespread growth for Chivas (including in China) offsetting less buoyant trends in the US, and continued momentum for The Glenlivet, Royal Salute and Ballantine's (the latter despite declines in France and Spain).

The elephant in Pernod's brand room, however, remains Absolut, which saw sales slip by 3% in 2019 after an up-and-down recent past. The US, which remains the brand's biggest market by far, is also its biggest challenge, thanks to moribund category trends and Absolut's position between the luxury and price-fighting spaces.

Negative trends in the US rather distract from Absolut's more positive performance elsewhere, with non-US sales now accounting for 60% of the brand's total revenues, thanks to strong growth in a variety of locations, from China and India to Brazil and Western Europe.

Beefeater continues to surf the gin boom, despite a reversal of growth in the key Spanish market. The brand saw sales rise 8% in 2019, with positive momentum in all regions and the benefit of product innovation in the shape of launches for Beefeater Pink, Blood Orange and, most recently, Blackberry.

Pernod's Strategic Local Brands followed a 7% revenue increase in 2018 with a 12% jump in 2019, driven by the company's Seagram's Indian whisky roster, with all brands recording double-digit growth and Royal Stag capitalising on its association with the ICC Cricket World Cup.

Speciality Brands mirrored that 12% sales increase in 2019, thanks to standout performances from a reinvigorated Lillet brand, plus Altos Tequila and Monkey 47 gin.

Strategic Wines, however, have had a more challenging time of things recently, with sales dropping 5% in 2019 thanks to a combination of a value focus in the UK and inventory management in the US. Pockets of growth, such as Jacob's Creek in China and India, were insufficient to offset those declines.

The Future

The crystal ball-gazers in Pernod's Paris headquarters have their work cut out for them at the moment. Will the UK exit the European Union at the end of October, or crash out without a deal, or will the can be kicked yet further down the road?

Will the US import tariffs announced at the start of October be enacted in the middle of the month, and what will be their impact? Pernod will be delighted that Jameson and its other Irish whiskies have escaped their burden, along with blended Scotch and Champagne - but single malts such as The Glenlivet face the prospect of a 25% ad valorem tariff.

Having just slimmed down US inventories in a bid to improve its route-to-market Stateside, Pernod will have hoped to reap the benefits of that process in fiscal-2020 - but its positive impact might be blunted slightly by the new tariffs.

Then, there is China. Fiscal-2019, in this context, may prove to be a high watermark for the company. With economic prospects questionable and 2020 lapping 2019's early Chinese New Year, the company is already expecting more moderate growth over the next few years. For all the growth of the likes of Ballantine's, Absolut and The Glenlivet in China, Pernod remains highly reliant on the fortunes of Martell. The company will hope that its new distribution tie-up in the country with Domaines Barons de Rothschild (Lafite) helps the luxury side of its business.

There's also a recognition that China's long-term promise may be accompanied by short-term volatility. In June this year, Pernod's Asia CEO, Philippe Guettat, highlighted the additional 200m middle-class or affluent consumers set to emerge in the next six years but, a few months earlier, his boss Alex Ricard added a caveat to that bullish prognosis. "It's a volatile market," he told just-drinks. "We might have better years and worse years, but the underlying trends are there for us to grow at that rate sustainably."

This confidence in the long-term success of China is clear from the company's announcement at the end of August that it will spend CNY1bn over the next decade on Emeishan, its single malt whisky distillery in Sichuan that will create not only a new brand, but also a new category.

It will be 2023 at the earliest before the company can sell any of Emeishan's products, but Pernod will hope to benefit from being the pioneer of the nascent Chinese malt whisky category - and it may also help to allay concerns that the group is a non-participant in baijiu.

Despite Diageo's success with Shuijingfang, this remains a tricky category for Western companies to break into. The huge national brands are, to quote Alex Ricard, "untouchable", but taking a regional brand national is difficult and costly. Whisky isn't baijiu, but Emeishan might enable Pernod to have a wholly Chinese product in its portfolio - with all the potential that that entails.

Emerging markets are all about potential too. Pernod has no fewer than 78 of these on its radar but, given that this number includes all four BRIC nations and the likes of Argentina and Poland, some are clearly more "emerging" than others. In 2017, these markets accounted for 38% of Pernod's revenues; in 2018, 40%, while, in 2019, 43%. The company has opened seven markets in Africa in the past six or seven years, is proud of its leadership position in China and India in terms of premium imported spirits and, on a smaller scale, established a joint venture in Myanmar in mid-2019.

This emerging market strategy is nuanced, with some destinations ripe for plucking now, and others more of a long-term bet. "This allows us to drive top-line momentum today while thinking of top-line momentum tomorrow," said Alex Ricard in February this year.

The days of the mega-deal may be over, but the bigger beast that Pernod has grown into over the past two decades still has business to do - largely in the shape of tactical, bolt-on acquisitions.

What are the group's criteria? In a just-drinks interview, CFO Hélène de Tissot lifted the lid a little: brands with growth opportunities, in terms of category, geography and/or consumption occasion. Also, crucially, brands with "proven concepts", which Pernod can leverage with its distribution heft to engender accelerated growth.

There's already evidence of this from the smaller-scale, non-marquee brands, such as Monkey 47 and Smooth Ambler, and the fact that a newly-acquired brand such as Malfy can walk straight into Pernod's Gin Hub division, with the global focus that that entails.

Recent deals have focused largely on 'hot' categories, such as gin and American whiskey. For the former, Beefeater and Plymouth have been supplemented by Monkey 47 and, more recently, Malfy, with its strong flavour focus, plus South African craft operator Inverroche.

Meanwhile, the company is continuing to use innovation to drive its historic brands: flavours for Beefeater (Pink, Blood Orange, Blackberry), and a craft focus for Plymouth (Mr King's 1842 Recipe), supplemented by a wholly new gin from Irish Distillers' Method & Madness experimental arm.

Given the trends of recent years, American whiskey is a glaring gap in Pernod's portfolio, and one that has hardly helped it to make up ground on its rivals in the US. They may not have the scale of, say, Wild Turkey, but recent acquisitions at least establish a foothold: Smooth Ambler, Rabbit Hole Whiskey, Firestone & Robertson's TX brand and Castle Brands with Jefferson Bourbon.

Could there be more to come?

Low-/no-alcohol is arguably another gap, despite Pernod's tie-up in the UK with Ceder's and the emergence in mid-2019 of brown 'spirit' Celtic Soul. This is certainly another area with work to do.

Pernod cannot be accused of not embracing new technology. Aside from its in-house efforts in this area, the company has acquired e-commerce operations in Spain (Uvinum, Bodeboca) and Africa (via a stake in Jumia) in the past year or so.

Technological areas explored to date include AI and its impact on market research, "social listening" and targeted content; Near Field Communication for the Malibu brand, and a video campaign for Kahlúa that aims to tap into Autonomous Sensory Meridian Response. Absolut may be suffering in the US, but consumers love its gifs, with more than 1.5bn views. No doubt, there will be false starts in this exploration of cutting-edge technology, but few would argue that Pernod should not be doing it.

Should the company still be involved in wine, though?

In a world where many of its rivals have exited the category - Diageo and Brown-Forman, for example - Pernod is more akin to Constellation Brands, shifting on unwanted parts of the business, such as its Argentinean assets, sold to Chile's VSPT in early-2019.

The group still retains a sizeable wine division, led by Jacob's Creek and Campo Viejo, alongside the Champagne stable of Mumm and Perrier-Jouët. The latter has a margin-friendly premium-plus focus, but what of the former? For now, Pernod is pursuing a value strategy in the price-sensitive UK market, sacrificing short-term volumes and revenues for long-term sustainability and, it should be added, the likes of Jacob's Creek are growing nicely in markets such as China. But, an exit from wine, which would likely exclude the Champagne brands, would not come as a massive surprise.

That might be just the kind of deal that Elliott Management Corp, the 'activist investor' which has a 2.5% stake in Pernod, might appreciate. The investment company would no doubt protest that its snipes about margin, financial governance and the perceived lack of ambition within 'Transform & Accelerate' are all sincere. But, cynics suspect that these are mere tactics designed to provoke a response - a merger, a divestment of the wine assets - that would boost Pernod's share price and, of course, benefit Elliott's investment in the company.

These are concerns that Pernod has to take seriously … up to a point. The company remains, to some extent at least, a family business that contrasts with some of its rivals. The Ricard family retains a voting share of more than 21%, and has shareholder allies to boost that total further. So, while it's not impossible that Pernod might announce a big deal in the near future - such as a larger-scale sell-off in wine assets, for example - the thought that this might be triggered by Elliott's admonitions seems fanciful.

Also fanciful, it would seem, is any notion that the company will abandon the strategy that has served it so well for the past few decades. There are always adjustments to be made - the 'Transform & Accelerate' three-year plan is testament to that – but Pernod appears to be determined to continue on broadly the same course: prioritising long-term, sustainable growth over short-term gains, and maximising the potential of its long-cherished decentralised business model.

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