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INTERVIEW-Pernod bets on Africa as next growth frontier

Dominique Vidalon and Pascale Denis
Tuesday, 6 Nov 2012 | 4:44 PM ET

* Sees Africa as key growth region within 10 years

* To focus on organic growth in Indian whisky

* Could seek smaller acquisitions short-term

PARIS, Nov 6 (Reuters) - Pernod Ricard plans to tap Africa's thirst for whisky, vodka and cognac at a time when China is slowing and bets the continent will become a key growth area for the French spirits group within 10 years.

The world's second-largest spirits group after Britain's Diageo also plans to expand in the thriving Indian whisky market and will do so mostly through organic growth, chief executive Pierre Pringuet told Reuters in an interview.

Pringuet said Pernod, which has been focusing on cutting its debt, could target bolt-on, or smaller, acquisitions in the short-term while not ruling out a large deal in the medium-term.

Africa is ``certainly the next big emerging growth booster ... We clearly have goals in sub-Saharan Africa ... It's a ten-year plan,'' he said.

Last week, Pernod became the latest spirits company to say it faced slowing growth in Asia, including the key China market, after updates from rivals Diageo and Remy Cointreau aroused fears that weaker economic growth in the region was cooling demand for premium spirits.

Emerging markets make about 40 percent of Pernod and Diageo's sales and both are trying to push that to around 50 percent by 2015 as they look to those markets to drive sales growth during tough economic times in Europe.

South Africa had been Pernod's only foothold on the continent. In July, it dispatched a sales team to open commercial units in Morocco, Ghana, Nigeria, Namibia, Angola and Kenya with the mission to promote its whisky, cognac, vodka and champagne brands.

The maker of Absolut vodka, Mumm champagne and Martell cognac had made an ``absolutely spectacular'' start in Angola, Pringuet said, declining to provide further details.

In Africa, Diageo has been expanding in the beer market, buying Tanzania's No. 2 beer producer Serengeti Breweries in 2010 and Ethiopian brewer Met Abo in January 2012.

Asked if Pernod could also focus on beer in Africa, Pringuet said: ``If it was useful and feasible to reach a deal with a brewer, why not?''

Africa is included in Pernod's Asia-Rest of World unit, which accounts for 39 percent of group sales and 42 percent of profit from recurring operations.

This compares with America, which makes 26 percent of sales and 28 percent of profit, and Europe, excluding France, which accounts for 26 percent of sales and 22 percent of profit.

INDIAN WHISKY

India, the world's largest whisky market, has been another key growth booster for Pernod whose local brands achieved sales growth of 21 percent in the first quarter.

The country is now Pernod's No. 4 market by revenue, right after France, which accounts for 9 percent of sales.

The U.S. is Pernod's No. 1 market, making about 15 percent of revenue, followed by China's 13 percent.

Pernod owns local Indian whisky brands such as Royal Stag (priced at $7 a bottle) and Blender's Pride ($10), selling around 23-24 million cases in total each year.

This gives it an Indian market share of 20-25 percent in volume and of one-third in value and makes it the No. 2 after United Spirits.

At a time when there is speculation that Diageo, the world's largest scotch whisky maker, may buy a stake in United Spirits, Pernod plans to focus mostly on organic growth in India.

``We do not need to buy more local brands. We are expanding our existing brands, notably through premium offerings,'' Pringuet said.

Pernod Ricard - born out of the 1975 merger of Ricard, maker of the eponymous aniseed-flavoured pastis, with rival Pernod - had sales of 8.2 billion euros ($10.48 billion) and staff of 18,777 in the fiscal year ended in June.

It grew thanks to an acquisition spree which included Irish Distillers, home to Jameson whisky in 1988, Seagram in 2001 and Allied Domecq, which makes Mumm and Perrier Jouet champagnes, in 2005.

Since its last major acquisition, the purchase of Swedish group Vin & Sprit, owner of Absolut Vodka, in 2008 for 5.7 billion euros, the group has been focusing on cutting debt.

It has repeatedly ruled out major acquisitions but said it could make smaller buys in the U.S. or emerging markets.

``We made clear that retaining our investment grade rating is a priority. We will not engage in deals that would threaten it. Short-term if we do an acquisition it will be a bolt-on deal. Medium-term we are not ruling out anything,'' Pringuet said. ($1 = 0.7823 euros)

(Reporting by Dominique Vidalon; Editing by Giles Elgood)

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