Emerging markets to buoy Pernod Ricard

LOOK to the top of any global blue-chip company these days and you’re likely to find an accountant playing a key strategic role and not simply doing the books.

Gilles Bogaert, managing director of finance at Pernod Ricard, is no exception. Having originally joined the French drinks giant in 1995 as an internal auditor, Bogaert is now one of three managing directors who report to group chief executive Pierre Pringuet. After working across the organisation with spells in Central and South America, as well as heading audit and business development at the holding company, Bogaert was later appointed chairman and chief executive of Pernod Ricard in Brasil before taking up his current role last year.

It is this experience and appreciation of emerging markets that leaves Bogaert particularly well placed to help deliver Pernod Ricard’s strategy. The message from the world’s joint leader in wines and spirits is that organic growth remains the priority, with emerging markets a key driver.

This follows a period of acquisitions which culminated in the €5.6bn (£4.91bn) purchase of Swedish group V&S – including the flagship Absolut vodka brand – in July 2008. Bogaert insists Pernod Ricard is not looking for any more acquisitions in the immediate future. “We believe we have the right portfolio and are in all the key markets,” he says. The drinks cabinet also includes Ricard pastis, Chivas Regal and Glenlivet Scotch whiskies as well as Jameson’s Irish Whiskey, Martell cognac and Beefeater gin.

These brands have helped boost profits in Asia and other emerging markets, with China, India, Vietnam, Africa and the Middle East seeing big uplifts in sales. Emerging markets now represent a third of group sales. This expansion has helped offset flat sales in the US, Bogaert explains, where the trading environment remains tough despite signs of life during the second half. Closer to home, confidence is returning after a solid six months and European sales trends are improving, with France and Germany seeing profits increase while Spain, UK and Ireland are flagging.

Group sales slipped two per cent to €7.08bn in the last financial year, with profit from recurring operations down three per cent to €1.79bn. However, organic sales grew two per cent, and profits from organic growth were up four per cent in the same period.

Premiumisation – selling more premium products at higher prices – remains a key strategy for the big drinks companies. This has seen Pernod Ricard invest its biggest advertising spend yet into Absolut. Pernod Ricard is sticking to this strategy despite increased worries about how austerity cuts will hit consumer sentiment around the world. The group’s top 14 brands have been growing twice as rapidly as the other brands in its portfolio, Bogaert argues. Nine enjoyed positive organic growth.

Looking ahead the company continues to pay down its debts and grow profitability. “The best way to improve profitability is to grow the top line,” Bogaert says. “We want to do it with premium brands and to do so we have the right investment behind the right brands in the right geographies. We believe we have made a good compromise between building long-term value and short-term profitability.”