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Pernod Ricard launches share buyback programme

Spirits maker also announces new investments in China, US


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 Ricard, which is the world's second-biggest spirits group behind Diageo, handed investors a 32 per cent dividend hike and unveiled plans to buy back up to one billion euros (S$1.5 billion) in shares. It also appointed two new independent board members.

In the US - its largest market where it now makes 18 per cent of sales - Pernod Ricard further strengthened its bourbon whisky portfolio with the US$223 million acquisition of Castle Brands.

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Pernod Ricard is under pressure from US 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 per cent and 7 per cent for the full year ending June 30, 2020.

This would compare with the 8.7 per cent rise achieved in the 2018/2019 financial year, which topped the company's guidance for 8 per cent growth, and was an acceleration from 6.3 per cent growth in the 2017/18 financial year.

In February, Pernod Ricard 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 Ricard 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 per cent in full year 2018/19.

This came as a 21 per cent jump in sales in China and a 20 per cent rise in sales in India offset a flat performance in the US, where wholesalers have reduced inventories.

China is the group's largest market after the US, accounting for around 10 per cent of total group sales, and the company aims to double the size of the imported spirits market in China to 2 per cent by 2025.

Pernod Ricard 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 Ricard 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. REUTERS