March 19, 2019 / 5:30 PM / 3 months ago

UPDATE 1-Pernod Ricard eyes margin improvement in EMEA-LATAM business

* Eyes solid top line growth, margin improvement in EMEA-LATAM

* Wine is “nice complement” to spirits despite small size

* Disposal of non-core assets part of group’s strategy (Adds comments on wine business from call, forecasts)

By Dominique Vidalon

PARIS, March 19 (Reuters) - Drinks group Pernod Ricard , which is being targeted by activist investor Elliott, said its business in Europe, the Middle East, Africa and Latin America (EMEA/LATAM) was well positioned for “solid top line growth and margin improvement”.

Pernod Ricard, the world’s second-biggest spirits group behind Diageo, also said that while the disposal of non-core assets was part of its strategy, its wine business was “a nice complement” to its spirits operations.

Pernod Ricard is under pressure from New York hedge fund Elliott Management to improve profit margins and corporate governance.

Last week, Bloomberg reported that Pernod Ricard was considering the sale of its wine division, that includes Australian Jacob’s Creek and Spain’s Campo Viejo, citing people familiar with the matter.

“We have an active portfolio management policy, which is a strong driver for improving the group’s profile. When we have brands that are not critical to our business, they are good candidates for disposal,” EMEA-LATAM CEO Gilles Bogaert told a conference call, when asked about wine.

With a contribution of roughly 6 percent to sales, the wine business was “relatively marginal” though a “nice complement to spirits,” he added.

In January, Pernod Ricard sold Argentinian wines to Chile’s VSPT Wine group.

The EMEA-LATAM region, which makes 29 percent of group sales, achieved first half 2019 sales growth of 3 percent driven by demand in emerging markets and in spite of signs of weakness in western Europe, Pernod said in slides presented earlier on Tuesday ahead of a conference call on the region.

The group said it had a “clear strategic roadmap” for the region that entailed driving revenue through innovations and prestige brands, while margins should benefit from measures to cut costs, better advertising and promotion expenses allocation, as well as ongoing organisational changes.

Bogaert reiterated during the call long-term forecasts for low single-digit sales growth in Europe, between high single-digit and low double-digit sales growth in Africa-Middle East and an acceleration of growth in Latin America.

Last month, Pernod said that between now and 2021 it plans to raise group operating profit margin by 50-60 basis points per year, provided it can deliver annual organic sales growth of 4-7 percent, having achieved 6 percent growth in the 2017/18 year.

The group is targeting 6-8 percent organic growth in current operating profit for its 2018/2019 financial year, that ends on June 30. (Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta; editing by Emelia Sithole-Matarise)

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