Pernod Ricard is celebrating its fastest profit growth in seven years, with sales for H1 FY19 totalling €5,185million and organic growth of +7.8%.

Pernod Ricard chief executive Alexandre Ricard said: “We had the best first half since 2011. Our performance is accelerating. My priority is to create durable value and I hope this will please all our shareholders.”

While East Asia growth was a stand out, with acceleration of 16% due to 28% growth in China and 24% growth in India, the picture wasn’t as rosy in Australia. 

“As for Australia, declines are driven by the wine portfolio due to the implementation of our value strategy and some destocking of one of our customers,” Ricard said. “Jameson, The Glenlivet, Ballantine’s and Kahlúa by the way, are all performing quite strongly.”

The company noted that a decline in the UK was driven by Jacob’s Creek reviewing its approach in UK, turning its focus to higher styles. 

However, Ricard said there was “continued a very strong development in Asia” for Jacob’s Creek, where China and India both saw double-digit growth. 

Meanwhile, Brancott Estate suffered a decline driven by Australia and New Zealand, in a “very competitive environment”.

Ricard also noted: “Strategic Wines are down 8%, direct consequence of the implementation of our value strategy. We do expect a stronger H2. We have, as you can see, a very strong price and mix, up 4%. Some comparable technical reasons for Campo Viejo to be down 9% over the first half. It was up 23% a year ago.”

The top performers

The growing apertif market has been a boon for Pernod Ricard, with Lillet up 38% globally and seeing double-digit growth in all regions.

Martell was also a strong performer, up 23%. Drinks Trade’s 2019 Hottest 100 Brands recently revealed it was the fastest growing cognac in Australia in 2018, accelerating five times faster than the cognac category.

Jameson was up 8%, while Scotch whiskies were up 9% and Monkey 47 was up 21%.
Beefeater was up 9%, with all regions performing strongly and good development of Beefeater Pink, particular in the UK. 
Mumm sales accelerated 2%, driven by Americas and Asia-Rest of World, most notably in the US and China. Meanwhile Perrier-Jouët: was up 12%, with all regions performing strongly. 

Ricard on new Transform & Accelerate 3-year plan

H1 FY19 was the first semester of Pernod Ricard’s new Transform & Accelerate three-year plan.

“Now looking forward, which is what we really like to do in Pernod Ricard, we have clearly worked on a strategic plan, a three year strategic plan called Transform & Accelerate, which is basically aiming at leveraging our successful strategy,” Ricard noted. “Remember, our business model, consumer-centric, consumer-obsessed model, driven by a consumer occasions-based obsession with four key fundamentals: operational excellence; talent development; sustainability and responsibility; Route-to-market, route-to-consumer. And our four key accelerators with our portfolio management: premiumisation, luxury, innovation, and finally, digital acceleration.”

Ricard pledged to lift the group operating profit margin by 50 to 60 basis points per year, provided it could deliver annual organic sales growth of 4 to 7%.

He also promised to deliver an additional €100m in cost savings by 2021, after stripping out €200m in the previous three years.
“My ruthless focus is to deliver this plan, transform and accelerate,” said Ricard. Having the backing of a family shareholder with a long-term vision, “is a huge competitive advantage”.
When asked whether Pernod Ricard would consider selling off its lower-margin wine or champagne businesses as a way to boost profitability, Ricard said: “We’re going to continue doing bolt-on acquisitions like we’ve done in the recent past . . . and if we believe some brands no longer have a real strategic value, we will sell them.”

Pernod Ricard looks to China and India for future growth

Ricard revealed that the company expects middle and affluent consumers in China to grow by roughly 100 million by 2021.

“We have that ambition as industry leaders in China to double the industry penetration rate by 2025,” he said. “We have a leadership position in China, with roughly 45% market share and a second-to-none route-to-market. We said it three and half years ago, when China was in double-digit decline, it is a market that can sustainably grow high single, low double.”

As for India, Ricard said: “Well, the legal drinking age population is increasing by roughly 20 million a year. In addition to that, urbanization’s rates, which is exactly where we operate in India, are accelerating. And in addition to that, GDP is growing 6%, 7%. So these three key elements lead us to believe as well, as we said it three years ago, that India can grow sustainably low double digit. There’ll be better years, there’ll be worse years, but overall, the dynamics are there.”

Globally, Ricard is thinking big. He said: “In 2018, for the first time in human history, the middle-class population now represents more than half of the total world population. We expect an additional two billion middle-class people by the end of 2030, globally. Our current growth engines in terms of the major emerging middle class are China, India and Eastern Europe. Our medium-term growth engines from a middle-class point of view, which will accumulate with China, India and Eastern Europe, are Latin America, specifically, Brazil, Mexico and some Southeastern Asian market. And our very long-term growth engine will be Sub-Saharan Africa. We’re investing there for the very long term. It’s a 15-year view.”