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Yesterday, 09:37 AM
An analysis of Pernod Ricard, on of the largest listed wine/spirit conglomerate of premium/mass market brands. It has grown mainly via acquisitions. Noticeable ones - 1988: Jameson whisky. 2001: Seagram consisting of Chivas Regal, Royal Salute, Martell (cognac). 2008: Absolut Vodka. As of end FY23, it has ~240brands (end FY23), a mixture of international and local brands.
Asset
- The BS's asset portion is made up of Intangibles/goodwill (110% of equity) due to its growth by acquisition business model, working capital (40% of equity) and PPE (20% of equity). It is balanced out by liabilities - borrowings (60% of equity) and provisions (10% of equity).
~90% of its borrowings are fixed rate MTNs. As of 1H24, the majority of them were company issued in FY19-20 at low rates of largely 0.5-1.75%. Latest 5-10yr MTNs issued in 3Q23 are at 3.75%. So the rise of interest rates have had a lagging effect and only started to affect them from 2H23.
- After excluding whisky/cognac aging inventory, inventory turnover~210days, payables turnover~250days, receivables turnover~50days. CCC is <1month and looks good even though it does not have retail outlets. Some of the receivables are sold and that may explain the "low receivables turnover" to an extent.
Business
- Sources raw materials (grain, sugar cane, grapes) from farmers and has its own distilleries/blending/bottling facilities (although it also outsources some of it). Since it is premium, some of its production are still localized at its heritage sites - cognac in France, tequila in Mexico, rum in Cuba and whisky in Scotland.
- BU is divided based on brand type - (1) International brands (65% of revenue). (2) Local brands (20% of revenue), (3) Wines/Speciality brands (10% of revenue). Overall, the business economics: GPM~60% and NPM~19%. ROE~13% and ROIC~9%.
- Spirits have outgrown beer in the last decade. In value terms, spirits~41% in 2022 (Beer~38%, wine~16%). Back in FY22, it was beer~40%, spirits~35% and wine~22%.
- Premium brands are a proxy to the mass market and they professed themselves to be the leader in emerging market China/India, especially with their mixture of local and international brands.
Structure
- Founding family (Société Paul Ricard) owns 14% (20% voting rights) and 2nd largest shareholder is a listed investment holding company Groupe Bruxelles Lambert (Belgium) at 6% (11% voting rights). The current chairman/CEO is a scion of the founding family.
- Has an active sharebuyback (SBB) program where shares are mainly cancelled, with the remaining treasury shares used for their ESOP.
- In the last 2 full fiscal years (FY22/23), FCF was splited 50-50-50 between SBB, dividend and acquisition. The extra 50% was borrowed.
Asset
- The BS's asset portion is made up of Intangibles/goodwill (110% of equity) due to its growth by acquisition business model, working capital (40% of equity) and PPE (20% of equity). It is balanced out by liabilities - borrowings (60% of equity) and provisions (10% of equity).
~90% of its borrowings are fixed rate MTNs. As of 1H24, the majority of them were company issued in FY19-20 at low rates of largely 0.5-1.75%. Latest 5-10yr MTNs issued in 3Q23 are at 3.75%. So the rise of interest rates have had a lagging effect and only started to affect them from 2H23.
- After excluding whisky/cognac aging inventory, inventory turnover~210days, payables turnover~250days, receivables turnover~50days. CCC is <1month and looks good even though it does not have retail outlets. Some of the receivables are sold and that may explain the "low receivables turnover" to an extent.
Business
- Sources raw materials (grain, sugar cane, grapes) from farmers and has its own distilleries/blending/bottling facilities (although it also outsources some of it). Since it is premium, some of its production are still localized at its heritage sites - cognac in France, tequila in Mexico, rum in Cuba and whisky in Scotland.
- BU is divided based on brand type - (1) International brands (65% of revenue). (2) Local brands (20% of revenue), (3) Wines/Speciality brands (10% of revenue). Overall, the business economics: GPM~60% and NPM~19%. ROE~13% and ROIC~9%.
- Spirits have outgrown beer in the last decade. In value terms, spirits~41% in 2022 (Beer~38%, wine~16%). Back in FY22, it was beer~40%, spirits~35% and wine~22%.
- Premium brands are a proxy to the mass market and they professed themselves to be the leader in emerging market China/India, especially with their mixture of local and international brands.
Structure
- Founding family (Société Paul Ricard) owns 14% (20% voting rights) and 2nd largest shareholder is a listed investment holding company Groupe Bruxelles Lambert (Belgium) at 6% (11% voting rights). The current chairman/CEO is a scion of the founding family.
- Has an active sharebuyback (SBB) program where shares are mainly cancelled, with the remaining treasury shares used for their ESOP.
- In the last 2 full fiscal years (FY22/23), FCF was splited 50-50-50 between SBB, dividend and acquisition. The extra 50% was borrowed.