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Pernod fails to impress

Published:  23 July, 2008

Pernod Ricard's sales for the year to 30 June increased 68%to 6 billion and its net profit rose 32% to 639 million, both figures beating analysts' expectations.

The results reflect the sales improvement outlined in the early summer and underline the group's successful integration of the Allied Domecq brands purchased last year.

Indeed, the integration of Allied Domecq cost between 50 million and 100 million less than had been expected. Investors, however, were unimpressed by the numbers and Pernod Ricard's shares slipped back as a result. Strip out an

unexpected 50 million gain from disposals from the Allied portfolio such as Dunkin' Donuts, and the results look less buoyant, especially in comparison with Diageo's.

Pernod's organic sales growth of 4.3% translated into a rise of just 4.4% in profits after marketing expenses, yet Diageo's comparable figures were about 3% higher, emphasising the firepower of the world's biggest drinks company, especially in the all-important US market.

A key plus for Pernod Ricard, however, is that its level of debt is coming down rapidly following the Allied deal. Better-than expected proceeds from disposals and rising net cash flow mean the French group has repaid some 3.6 billion in the past financial year. It still has to invest heavily to revitalise some Allied brands that had been oversold to the trade prior to the takeover, but Pernod says it is confident about making further progress in 2006/07. However, the consensus estimate of 22% growth in earnings per share

from this year's 8.12 may look ambitious.