Pringuet upbeat as Pernod continues to impress

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Through two large and audacious acquisitions, Pernod Ricard has transformed itself from an important player into an international drinks powerhouse in the space of a few years. Olly Wehring met with managing director Pierre Pringuet to discuss the company's progress.

Pierre Pringuet greets me with a warm smile and handshake. As well he should, for half an hour earlier he was announcing an impressive set of figures for Pernod Ricard for the first half of 2005/06.

The wine and spirits giant, second globally only to Diageo, saw sales and net profit soar by 66% and 58% respectively in the six months to 31 December. Granted these figures have been boosted by Pernod's US$13.4bn acquisition of Allied Domecq in July but even without the Allied brands, sales still grew by 4.5%.

So, how is the integration of Allied progressing? "It is done," he trumpets proudly, conceding that legal issues regarding employment law meant it took longer to integrate in France and Italy than elsewhere. "In China, where we had about 350 people and Allied was half the size, I received an email on 25 August, less than a month after the acquisition, that said 'integration done'." Pringuet also boasts that next year will see the full impact of the integration synergies be realised.

It's not all been plain-sailing, however, with two former Allied brands proving problematic in the short term. Ballantine's blended malt and coffee liqueur Kahlua saw sales slip in the six-month period by 11% and 12% respectively.

While optimistic, Pringuet warns that it takes time to turn brands around. "We have to collect information from the market, and from the field sales force, including consumer insights," he says. "Then maybe we'll need to request new information. Then new concepts could be proposed and discussed with the market." Pringuet believes that it will be next year before we see a new brand platform for the two products. And to turn around the brands? "I don't know - we will see if the new platform works or not."

I ask Pringuet what it means for the newly-enlarged group's smaller brands, after Pernod's original top 12 brands brought in a growth rate of 9% for the half-year. Will divestment follow for some of these smaller products? "There are a lot of local brands that can be performing very well, for example Ruavieja in Spain, which sells more than half-a-million cases and has posted double-digit growth for the last seven or eight years. Then there are brands that are slowly declining, but at the end of the day they give you the basis for a structure. These brands are very useful."

In particular, Pringuet points out that local brands, whether growing or not, can provide a platform for faster growing international brands, citing Bitters Becherovka in the Czech Republic as an example. "It has 100% distribution in the country, it is basically stable, but it is extremely helpful because this is the platform for the international brands. In our business, you can combine brands that are stable or slowly declining with international brands that are growing, but we couldn't make our position in the Czech Republic without Becherovka."

Looking at the wine business, Pringuet is again optimistic. "Overall, it's a growth market. If you exclude the traditional wine markets of France, Spain and Italy, all the other European countries, the US and Asia are registering growth for our wine business. It's also far more fragmented than the spirits business, and I can see the same sort of consolidation will occur. Branded wines, I feel, have great potential." But Pringuet said Pernod was not tempted last year to make a move for Constellation Brands target, Canadian wine group Vincor International. "It was the wrong time and we had too much to do!"

In geographical terms, Europe is a growing cause of concern for Pernod, as it is for many other drinks groups. Organic sales growth for the region was only 0.2% for the period, compared with 5.5% in the Americas and 13.1% in Asia/Rest of the World, while France saw organic sales slide by 1.2%. Pringuet believes that the company's philosophy of local roots with global reach will see it through the storm. "In Pernod Ricard," he says, "we have quite a straightforward approach - we want to be at home. In other words, we sell our brands with our own people. Today, we have 85 sales and marketing and distribution entities in 85 countries."

In the US, meanwhile, Pernod still lags some way behind Diageo which claims a market share of 28% against Pernod's of 8% or 9%, including Allied. However, Pringuet believes the company has great potential to narrow the gap. "First we'll benefit from the aggregation of the Allied and Pernod business," he says. "We have Pernod brands, like Jameson, which are performing extremely well. Last year it grew by more than 20%. The Glenlivet is the leading single malt and is still growing. From the Allied portfolio, Malibu and Stolichnaya are both also growing. The priority for Pernod Ricard is to leverage our balance sheet in order to recover the financial facility to look at whatever acquisitions will be available. What and when - it's unpredictable!"

So, is chairman and CEO Patrick Ricard's forecast realistic, that Pernod is on course to become the number one wine and spirits company in the world in ten years' time? Pringuet is a little more pragmatic. "It's difficult to make such predictions for what's happening a decade away. Look at the changes in Pernod Ricard in the last five years! The proportion between Diageo and Pernod in 2000 was in the region of eight to one. Diageo can also change, although they may face greater restrictions. They're certainly respectable competitors. But I wouldn't dare to make predictions so far ahead. We do tell our people, however 'You need to produce organic growth'. It's the key lever for the group to have credibility and the key for future possible acquisitions. We borrowed three times more money for the Allied deal than the Seagram's deal with cheaper conditions and far less restrictions. That is the recognition made by the banking community that we can keep our promises."

Regarding acquisitions, Pringuet agrees that a few gaps remain in the portfolio. "Sauza (Tequila) was sold to Fortune as part of the deal - it would have been a dream to keep the brand, the same goes for Maker's Mark (bourbon). But we needed a partner, it was financially not feasible to make the acquisition without one. When it comes to filling these gaps, however, Pringuet toes the listed company line: "If anything happens in this wine and spirit business, you can assume that we will look at it," he says, declining to name names.

As we wind up, I can't help cheekily asking Pringuet, as managing director of a company that prides itself on its regionally devolved management structure, what he actually does all day. "I'm very lazy," he jokes. "The less I do, the better I am." Nice work, if you can get it. But as in sport and so many other fields, making it look easy is generally the mark of a winner.

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