Pernod bets on innovation for growth

By Dominique Vidalon and Pascale Denis

PARIS, Jan 28 (Reuters) - French spirits group Pernod Ricard (Frankfurt: PER.F - news) is betting on innovation to drive future growth at a time when acquisition targets are scarce and the group's balance sheet still tight.

There are currently more than 350 projects under development with innovations accounting for 25 percent of Pernod Ricard's underlying sales growth, CEO Pierre Pringuet said on Tuesday.

He was speaking at the group's Innovation Day where the world's second-biggest spirits group by sales after Britain's Diageo (LSE: DGE.L - news) gave investors a preview of "Project Gutenberg", a prototype it claims could revolutionise the "bar at home".

The idea is to create a home "library" made up of metal containers that look like books, but actually each hold a different spirit. The library is connected to a digital platform that allows automated services ranging from basic home delivery to a range of tutorials on cocktail recipes.

"Project Gutenberg is redefining cocktail culture. Creating and inventing cocktails for friends becomes more intuitive and more entertaining," said Alain Dufossé, Managing Director of the team, which led the project.

Because the project was at a very early stage, Dufosse could not provide details on price or a timetable for its launch.

Pernod Ricard, which has focused on cutting debt since the purchase of Swedish group Vin & Sprit, owner of Absolut Vodka, in 2008 for 5.7 billion euros, has been looking at innovation to grow.

"We want to preserve our (investment grade) rating and our room for manoeuvre allows targeted acquisitions ... longer-term we do not rule out anything," deputy CEO Alexandre Ricard told Reuters on the sidelines of the event.

Pernod has cut its net debt to EBITDA ratio to 3.5 times at end-June 2013 from 6.2 times after the Vin & Sprit deal.

Suntory Holdings Ltd earlier this month said it would buy U.S. spirits company Beam Inc (NYSE: BEAM - news) for $13.6 billion in cash. Despite its tight balance sheet Pernod was seen as a potential acquirer of Beam as a deal would have given the company additional market share in the United States.

Pernod Ricard is one of the industry's biggest marketing spender, with Advertising and Promotions (A&P) expenses accounting for 19 percent of sales of 8.6 billion euros in fiscal year 2012/13 ended June 30 against 15.6 percent for Diageo.

Asked to comment on A&P levels for the current fiscal year, Thierry Billot, Managing Director for Brands, told Reuters that a ratio of 18-19 percent of sales was "a good level".

On Tuesday it also showcased mixing Absolut vodka with sparkling white wine and Martell Distinction, a cognac launched in September 2013 in China, aimed at middle-income consumers.

"The Chinese middle-class offers an enormous potential" Billot told Reuters.