French spirits maker Pernod Ricard, which is being targeted by activist investor Elliott, launched a share buyback programme and announced new investments in China and the United States as it posted solid profit growth.
Pernod, which is the world’s second-biggest spirits group behind Diageo, handed investors a 32% dividend hike and unveiled plans to buy back up to 1 billion euros ($1.1 billion) in shares. It also appointed two new independent board members.
In the United States – its largest market where it now makes 18% of sales – Pernod further strengthened its bourbon whisky portfolio with the $223 million acquisition of Castle Brands.
Pernod Ricard is under pressure from U.S. hedge fund Elliott to improve profit margins and corporate governance.
For the year ahead, Pernod Ricard was cautious, citing a “particularly uncertain environment”. It forecast underlying profit growth from recurring operations of between 5% and 7% for the full year ending June 30, 2020.
FORECAST-TOPPING PROFIT GROWTH
This would compare with the 8.7% rise achieved in the 2018/2019 financial year, which topped the company’s guidance for 8% growth, and was an acceleration from 6.3% growth in the 2017/18 financial year.
In February, Pernod vowed to lift its margins and shareholder returns under a three-year strategic plan that Elliott has described as a first small step.
On Thursday, Pernod reported a profit margin gain of 74 basis points, which was above its guidance for a 50 basis points rise, and organic group sales growth of 6% in full year 2018/19.
This came as a 21% jump in sales in China and a 20% rise in sales in India offset a flat performance in the United States, where wholesalers have reduced inventories.
China is the group’s largest market after the United States, accounting for around 10% of total group sales, and the company aims to double the size of the imported spirits market in China to 2% by 2025.
Pernod is banking on China’s growing middle-income earners and the younger generation, in order to reach that target.
In line with that strategy, Pernod unveiled on Thursday plans for the 13-hectare malt whisky distillery site in Emeishan, Sichuan, which is due to begin production in 2021.
The distillery will have a Chinese partner to produce a malt whisky catering to local tastes.
Pernod Ricard is not alone in seeking to tap into China’s growing thirst for whisky.
In April, rival Diageo unveiled a joint venture with Jiangsu Yanghe Distillery Co, China’s third-largest distiller of the country’s dominant Baijiu spirit, to launch a new whisky brand called Zhong Shi Ji.
($1 = 0.8973 euros)
Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta
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