Pernod sales rise amid Taittinger rumours

By Staff Reporter

- Last updated on GMT

Related tags Allied domecq Pernod ricard

Pernod Ricard ambled forward in its first half of 2005,
out-performing new rival Diageo, but higher expenses again show the
growing importance of cost-savings and consolidation to the drinks

Pernod, fresh from conquering Allied Domecq to become the world's largest wine and spirits group, reported a 6.5 per cent sales rise to €1.67bn.

The French firm can take satisfaction from getting one over on its new-found major rival and world number one drinks maker, Diageo, which only increased net sales by two per cent for the same period.

Yet, despite the point-scoring, both firms have struggled on profits this year.

Pernod's dropped 7.2 per cent after the only contribution of Allied Domecq to its results was €20m one-off charge related to the deal. The firm's advertising costs were also a factor, rising 10 per cent on the first half of 2004, and especially in France, where these sent operating profit down by almost the same percentage.

Diageo, meanwhile, also saw its profits dip and the company had said in a pre-results statement that it intended to increase its focus on cost reduction strategies and pricing in order to bolster profit margins. This was despite its US spirits brands still out-performing the market over the last year.

A recent report by Goldman Sachs​ highlighted a growing trend for industry consolidation in the face of cost pressures, but also said that as firms got bigger they would be better placed to improve margins.

"This is an industry that, for all its buoyant volume background, is lacking in pricing opportunities to deliver gross margin expansion,"​ it said, despite expressing concern about the financial strain the newly acquired Chalone and Montana wines may put on Diageo.

Fitting with this trend, Pernod has been repeatedly linked with a bid for France's Taittinger champagne, which, after being sold off by its family owners, is no longer wanted by current owners Starwood Capital.

Pernod's burgeoning portfolio notably lacks a major champagne brand and a report in the Financial Times​ claimed Pernod's joint-general director, Pierre Pringuet, said he was interested. The French government is also thought to be working to secure a French buyer.

Pringuet, however, also said Pernod's main goal was to reduce debts to help it swallow Allied Domecq comfortably.

Cost-savings have received a major emphasis recently, with Diageo expected to save a further €74m (£50m) next year and Pernod announcing it could save more than €300m (£200m) per year in costs across both it and Allied Domecq.

Even so, a move for Taittinger could help Pernod tap further into wine - rapidly becoming one of the drinks industry's real earners.

Diageo said its wine business had grown strongly in its key US and UK markets, where demand for new world varieties in particular is rising. The emerging demand for such wines was also cited by US-based Constellation Brands recently as the reason behind its 36 per cent increase in branded wine sales.

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