Pernod sees recovery for its China sales syndrome

Pernod Ricard yesterday offered a glimmer of hope for recovery in its key Chinese market as Scotland’s second biggest distiller’s annual results were scarred by a slowdown in the Far East and adverse currency movements.

While sales to the Chinese market fell in the past year, the rate of decline steepened in the final quarter. Picture: Getty

Alexandre Ricard, group deputy chief executive, said although trading remained challenging “we anticipate a gradual improvement in our sales growth” in the current financial year.

The comments saw the French group’s shares rise in trading in Paris to touch their highest level since October. “The fourth quarter is showing some positive signs and July and August confirmed this trend,” Ricard said, adding that an improvement in China could become more visible in the second half of the current fiscal year.

Chinese sales in the year to end-June slumped 23 per cent amid a slowing economy and the government’s continuing crackdown on luxury gift-giving and personal spending by civil servants. In the fourth quarter, the situation worsened, with Chinese sales down 38 per cent.

Pernod’s statutory profits fell 8 per cent to €2.06 billion (£1.64bn) on reported sales down 7 per cent, or €629 million, at €7.95bn.

Unfavourable currency movements slashed €535m off Pernod’s worldwide sales. Underlying profits, stripping out forex movements, rose 2 per cent.

The group revealed that some of its leading brands from north of the Border were caught up in the headwinds from China.

Chivas Regal’s net sales fell 4 per cent, Ballantine’s 5 per cent and Royal Salute was down 8 per cent. It was a better picture for Pernod’s leading single malt, The Glenlivet, whose net sales rose 8 per cent.

Jameson, the group’s Irish whiskey, lifted sales 12 per cent. Sales of Martell cognac fell 9 per cent, while Absolut vodka was down 1 per cent.

Pernod makes 12 per cent of its sales and 15 per cent of its profit in China, its second-biggest market after the United States, while Asia accounts for 40 per cent of sales and 46 per cent of profit.

Sales in Asia/Rest of the World, excluding exceptionals, were down 4 per cent, but rose 2 per cent in Europe and the Americas.

Pierre Pringuet, Pernod’s chief executive, said that “despite an environment that was more difficult than anticipated, we have delivered the guidance announced in February”.

The company had guided that underlying profits would grow 1 to 3 per cent this year, slowing from 6 per cent in the previous 12 months.

Pringuet added that the group remained committed to its already announced cost-saving drive, aiming for €150m of savings over the next three years. It said this was likely to involve 900 jobs worldwide, but did not give details.

At the end of June net debt was cut by €374m to €8.4bn. Earlier this year Chivas Bros, the group’s Scottish subsidiary, confirmed it was to spend about £50m on a new distillery near Carron, re-open the mothballed Glen Keith distillery and upgrade five of its existing distilleries – Glenallachie, Glenlivet, Glentauchers, Longmorn and Tormore.