French spirits maker Pernod Ricard, which is being targeted by activist investor Elliott, has unveiled a share buyback programme and new investments in China and the United States, and posted profit growth that beat forecasts.
Pernod, 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 in shares, sending its shares up 3% to record highs. It also appointed two new independent board members.
In the United States, which is its largest market, Pernod further strengthened its bourbon whisky portfolio with the $223 million acquisition of Castle Brands.
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Pernod Ricard is under pressure from US hedge fund Elliott, which has a 2.5% stake, to improve profit margins and corporate governance.
For the year ahead, Pernod Ricard struck a cautious note, citing a "particularly uncertain environment".
It predicted a "soft" first quarter due to unfavourable comparisons in Asia, but it also forecast a dynamic start in the United States after a flat performance so far this year.
Speaking to Reuters, finance chief Helene de Tissot cited fears of a no-deal Brexit and trade disputes between China and the United States as well as US threats of tariffs on Europe as negative factors.
"This could have an impact on us and we are closely monitoring the situation," she said.
Forecast-Toppling Profit Growth
Pernod reported profit from recurring operations rose 8.7% to €2.58 billion for the fiscal year ended on June 30. That was ahead of its own forecast of 8% profit growth and an acceleration from 6.3% growth in the 2017/18 financial year.
The company forecast underlying profit growth from recurring operations of 5%-7% for the year ending June 30, 2020.
Pernod shares rose around 3% to €171.55, as analysts welcomed the company's latest set of figures and share buyback, in spite of Pernod's slightly cautious outlook.
"We suspect management are being prudent, rather than this being a signal of weaker underlying trends. In particular, we note that guidance for F19 also started at between 5%-7%", wrote brokerage Bernstein.
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. Elliot representatives said on Thursday August 29 that they had no immediate comments to make on Pernod's latest announcements.
On August 29, Pernod reported a profit margin gain of 74 basis points, which was above its forecast for a 50 basis points rise, and organic group sales growth of 6% in full year 2018/19.
This came as higher sales in China, driven by Martell cognac, and in India, thanks to Seagram's Indian whiskies, offset a flat performance in the United States.
China is the group's largest market after the United States, accounting for approximately 10% of total group sales, and the company is banking on its growing middle-income earners and younger generation to further boost sales.
On August 29, Pernod unveiled plans for a 13-hectare malt whisky distillery site in Emeishan, Sichuan, which is due to begin production in 2021. The distillery will have a Chinese master distiller to produce a malt whisky catering to local tastes.
In April, rival Diageo also unveiled a joint venture with Jiangsu Yanghe Distillery Co., the third-largest distiller of China's dominant Baijiu spirit, to launch a new whisky brand called Zhong Shi Ji.