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With net sales up by 11%, Pernod Ricard has unsurprisingly outperformed its major rival Diageo (7% growth) with its fiscal 2012 half-year results (July-December 2011). The company also achieved stronger volume growth. Although not reporting an overall volume growth figure, volume growth was in the high single digits, with the company’s 14 strategic brands and 18 local brands, which accounted for 77% of net sales, both registering a 9% volume gain.
Pernod Ricard is benefiting from its better exposure than Diageo to emerging markets. In 2011, according to Euromonitor International data, only 47% of Pernod Ricard’s spirits volumes derived from mature markets, compared to Diageo’s 65%.
As with Diageo, emerging markets drove Pernod Ricard’s growth, in particular the region in which it is strongest, Asia/rest of the world, which saw 15% value sales growth, driven by the key Asian markets of India, with its local whisky brands, but more importantly China, where its Martell cognac and Chivas Regal brands posted double-digit growth rates.
While Diageo saw good growth in Asia Pacific (5% volume, 10% value), this was from a smaller base. According to Euromonitor International data, with both companies having similar global volumes in 2011, only 8% of Diageo’s volumes were sold in the region, compared to 29% for Pernod Ricard. With much greater exposure to such a strong growth region, the French company is bound to benefit.
In Latin America the positions were reversed. Despite Pernod Ricard putting in a good performance, it was unable to match Diageo. This is primarily due to Diageo’s stronger presence in the region within higher-end international spirits categories, such as blended Scotch and vodka. In addition, Pernod Ricard temporarily suffered from the reconfiguration of its distribution in its key markets of Mexico and Chile.
In Eastern Europe, both Pernod Ricard and Diageo performed well, achieving net sales growth of 15% and 21%, respectively. Both benefited from strong performances in international spirits categories in the key markets of Russia, Poland and Ukraine. Diageo’s slightly better performance was due to it not being weighed down by local Polish vodka brands, a factor which continues to hurt Pernod Ricard.
In the mature markets of Western Europe and North America, Pernod Ricard outperformed Diageo in the former, while the reverse was the case in the latter. In Western Europe, Pernod Ricard benefited from greater exposure to the stronger performing markets of France and Germany and less exposure to the troubled Southern European markets, notably Spain and Greece. With the EuroZone still in economic difficulties and heading into recession, how much Pernod Ricard will benefit from its geographical differences will be interesting to see.
In contrast, in North America, Diageo performed slightly better, where its major brands such as Johnnie Walker and Baileys grew, while Ciroc and Buchanan’s enjoyed strong double-digit growth. In contrast, Pernod Ricard’s key volume brands Absolut and Seagram’s Gin stagnated and declined, respectively, and while its Jameson brand continued to see strong double-digit growth, supported by Glenlivet and Malibu, it could not match the performance.
Despite Pernod Ricard’s continued strong growth, any major acquisitions, notably of Beam, are highly unlikely and have been ruled out by the company for 2012. The company’s debt/EBITDA ratio will still be too high, at 3.9 by its own estimates, at the end of the fiscal year. However, with it being the only likely contender for Beam’s major brands, such as Jim Beam and Sauza, Pernod Ricard probably feels confident enough that it can wait until it is in a strong enough position before making the acquisition.