Analysis - Allegro: The shape of things to come at Pernod Ricard?
Alex Ricard will take over as CEO of Pernod Ricard in January
When a company announces a cost-savings programme, you can guarantee it will get its own headline. When the programme is given a particular name by the company, the headline gets that little bit louder. But when the company announcing the programme is French, then start polishing those lightbulbs.
It was six months ago that Pernod Ricard unveiled 'Allegro', a project designed to bring in EUR150m (US$198m) of savings over the next three years. Allegro was buried somewhat at the time, coming as it did at the same time as the release of half-year results that comprised dips in both sales and profits. Besides, beyond the headline figure of EUR150m, further details were not given.
Yesterday, when Pernod released its full-year numbers (sales and profits down again), the firm started to put some meat on Allegro's bones. In fiscal 2014 - that's the 12 months to the end of June - Pernod generated EUR30m of gross cost savings. A note from UBS this morning notes: "Management is now guiding for EUR75m of gross savings to be delivered in 2015FY and EUR45m in 2016FY."
(As for the costs involved in implementing Allegro, Pernod has absorbed most of them already - total costs are forecast to be in the region of EUR180m, "of which EUR119m is already recorded in 2014FY", says UBS.)
The savings made thus far have been driven by the merging of the until-now separate Pernod and Ricard back-offices in France. This set-up had been a legacy that dates back to the merger of the two French companies in 1974; with both Pernod and Ricard led by their namesake anise liqueurs, it made sense at the time to keep them separate. Indeed, with France's broader approach to employee welfare, making any change to this status quo would have been anathema.
Now that Pernod Ricard is a far more global - and a far less anise - entity, it is a no-brainer that "The French Paradox" has been solved. And, with 900 jobs set to be cut as part of the broader move, the firm seems poised to make similar back-office cuts elsewhere.
But, is Allegro more than just a savings programme, coming so close to a change of CEO in January?
“We believe the Allegro programme is quite a radical one for Pernod," flags UBS today. “It is the first time the company has publicly detailed an organic cost savings programme.
“While many of the initiatives (merging sales & marketing departments, pooling markets into regional hubs, creating a single hub for intellectual property) are ostensibly a very natural step for a company of its scale, steps such as the merger of … back offices … in France are, in our view, culturally quite significant and mark a sharper focus by management.”
Analysts at Nomura concur: “It is apparent now that the Allegro programme is not just designed to take out cost, but also to simplify and codify the business structure ahead of CEO-elect Alex Ricard taking over at the beginning of 2015.”
Could we be witnessing a broader change in the culture and ethos of Pernod Ricard?
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