Pernod Ricard could acquire beverage companies with strong digital profiles - CEO
29 AUG 2018
* Will maintain active portfolio-management strategy
* Has wiggle room for more sizeable deals
* No immediate plans to invest in recreational marijuana
French spirits producer Pernod Ricard [EPA:RI] could consider buying beverage companies with strong digital profiles, CEO Alexandre Ricard told this news service on the sidelines of the company’s FY18 financial results presentation. This follows the recent acquisition of Spanish wine trade e-commerce specialist Uvinum,
“M&A could help us sustain our effort to digitalize our entire company”, he added.
Through digitalization, Pernod Ricard is aiming, via new technologies and data analysis, to offer new and more personalised experiences to its consumers, according to its website.
Interesting targets in this area would be rather small in size, a sector analyst noted. Univum for instance employed 25, and its 2016 estimated sales stood at EUR 10m.
Besides this strategy, the company will keep actively managing its current brand portfolio, by making targeted acquisitions and disposing of non-core brands, the CEO said during the presentation.
The company has been on the look-out for bolt-on acquisitions for several years already. In 2016, it was particularly interested in beverage brands with premium marketing positions, and fast growing revenues in the US and in emerging countries, this news service then reported.
However, the group's M&A strategy now does not target any specific geography, Ricard added on the sidelines of the presentation. Pernod Ricard will remain pragmatic and is ready to assess opportunities from all over the world, he added.
In any case, the company will focus on targets showing interesting value-creation perspectives, Helene de Tissot, group director finance, IT & operations, told this news service on the sidelines of the presentation.
Most of the liquor producers with interesting profiles are craft distilleries created rather recently, the sector analyst said. As such, future transactions would most probably represent a revenue increase of less than 1% for Pernod Ricard, the analyst added.
Should Pernod Ricard decide to sell a brand, it will not be either one of its strategic international brands, strategic local brands or strategic wines, the analyst added. Potential candidates for disposals would most certainly be brands falling under the category "other" in the group's portfolio, the analyst said. This subcategory comprises many various non-core companies, and represents about 13% of the company's sales, the analyst noted.
In the last eighteen months, the company has bought a majority stake in Mexico-based mezcal producer Del Maguey Single Village Mezcal and sold its Scotland-based Glenallachie distillery and Spanish Aura Winery and Bodegas Vinicola de Navarra wineries.
Reduced leverage
As its debt has kept shrinking over the years, Pernod Ricard has now more wiggle room to make more sizeable acquisitions, Ricard said during the conference. However, there is no pressure on the company to do so, he added.
Pernod Ricard’s record high EUR 1.4bn free cash flow allowed it to reduce its net debt/EBITDA multiple to 2.6x on 30 June 2018, from 3x the previous year, according to the company’s financial documentation. In FY08, the company’s net debt leverage stood at 6.2x.
Despite this greater financial flexibility, the company will remain cautious as it intends to keep an investment grade credit rating, de Tissot said.
Pernod Ricard has no immediate plans to invest in the nascent North American recreational marijuana business, Ricard said on the sidelines of the conference.
The company is, however, assessing whether the use of recreational marijuana could have an impact on premium-spirit consumption levels, he said. This assessment work is in its very early stage, he added.
As the use of recreational cannabis is now legal in nine US states and is expected to be allowed in Canada starting 17 October 2018, Diageo was reported last week to be in talks with marijuana producers regarding a potential investment or partnership.
In FY18, Pernod Ricard’s reported sales decreased by 0.3% to EUR 8.99bn. Excluding the impact of negative FX rate, the company recorded 6% growth, according to its financial documentation. Its reported net profit from recurring operations grew by 2% to 1.51bn.